ImmunityBio, Inc. 10-Q

ibrx-10q_20210331.htm Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10‑Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission file number: 001-37507 IMMUNITYBIO, INC. (Exact name of Registrant as specified in its Charter) Delaware 43-1979754 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3530 John Hopkins Court San Diego , California 92121 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: ( 858 ) 633-0300 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.0001 per share IBRX The Nasdaq Global Select Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒ The number of shares of the Registrant’s common stock outstanding as of May 12, 2021 was 383,905,840 (excluding 163,800 shares held by a majority owned subsidiary of ours which are treated as treasury shares for accounting purposes). TABLE OF CONTENTS Page Part I—FINANCIAL INFORMATION Item 1. Financial Statements 1 Condensed Combined Consolidated Balance Sheets – As of March 31, 2021 and December 31, 2020 1 Condensed Combined Consolidated Statements of Operations – For the three months ended March 31, 2021 and 2020 2 Condensed Combined Consolidated Statements of Comprehensive Loss – For the three months ended March 31, 2021 and 2020 3 Condensed Combined Consolidated Statements of Stockholders’ (Deficit) Equity – For the three months ended March 31, 2021 and 2020 4 Condensed Combined Consolidated Statements of Cash Flows – For the three months ended March 31, 2021 and 2020 5 Notes to Unaudited Condensed Combined Consolidated Financial Statements 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 3. Quantitative and Qualitative Disclosures about Market Risk 48 Item 4. Controls and Procedures 48 Part II—OTHER INFORMATION Item 1. Legal Proceedings 49 Item 1A. Risk Factors 50 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 118 Item 3. Defaults Upon Senior Securities 118 Item 4. Mine Safety Disclosures 118 Item 5. Other Information 118 Item 6. Exhibits 119 Signatures 120 -i- Table of Contents PART I—FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ImmunityBio, Inc. and Subsidiaries Condensed Combined Consolidated Balance Sheets (in thousands, except share and per share amounts) March 31, December 31, 2021 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 44,679 $ 34,915 Marketable securities 38,594 61,146 Due from related parties 2,057 2,003 Prepaid expenses and other current assets (including amounts with related parties) 14,242 13,649 Total current assets 99,572 111,713 Marketable securities, noncurrent 1,000 950 Property, plant and equipment, net 80,875 72,541 Non-marketable equity investment (Note 4) — 7,849 Intangible asset, net 1,438 1,463 Convertible note receivable 6,191 6,129 Operating lease right-of-use assets, net (including amounts with related parties) 18,447 18,138 Other assets (including amounts with related parties) 1,905 2,598 Total assets $ 209,428 $ 221,381 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 20,097 $ 11,510 Accrued expenses and other liabilities 36,793 36,771 Due to related parties 17,817 14,838 Operating lease liabilities (including amounts with related parties) 5,156 5,015 Total current liabilities 79,863 68,134 Related-party notes payable 297,286 254,353 Operating lease liabilities, less current portion (including amounts with related parties) 16,554 16,179 Deferred income tax liability 170 170 Other liabilities 891 1,035 Total liabilities 394,764 339,871 Commitments and contingencies (Note 8) Stockholders’ deficit: Common stock, $ 0.0001 par value; 500,000,000 shares authorized; 383,067,321 and 382,243,142 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively; excluding treasury stock, 163,800 shares outstanding as of March 31, 2021 and December 31, 2020, respectively 38 38 Additional paid-in capital 1,508,958 1,495,163 Accumulated deficit ( 1,694,745 ) ( 1,615,131 ) Accumulated other comprehensive (loss) income ( 38 ) 122 Total ImmunityBio stockholders’ deficit ( 185,787 ) ( 119,808 ) Noncontrolling interests 451 1,318 Total stockholders’ deficit ( 185,336 ) ( 118,490 ) Total liabilities and stockholders’ deficit $ 209,428 $ 221,381 The accompanying notes are an integral part of these condensed combined consolidated financial statements. 1 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Combined Consolidated Statements of Operations (in thousands, except share and per share amounts) (Unaudited) Three Months Ended March 31, 2021 2020 Revenue $ 139 $ 165 Operating expenses: Research and development (including amounts with related parties) 41,128 27,374 Selling, general and administrative (including amounts with related parties) 45,275 9,493 Total operating expenses 86,403 36,867 Loss from operations ( 86,264 ) ( 36,702 ) Other income (expense): Interest and investment income, net 8,944 78 Interest expense (including amounts with related parties) ( 3,168 ) ( 1,889 ) Other income, net (including amounts with related parties) 13 1,104 Total other income (expense) 5,789 ( 707 ) Loss before income taxes and noncontrolling interests ( 80,475 ) ( 37,409 ) Income tax expense ( 6 ) ( 18 ) Net loss ( 80,481 ) ( 37,427 ) Net loss attributable to noncontrolling interests, net of tax ( 867 ) ( 389 ) Net loss attributable to ImmunityBio common stockholders $ ( 79,614 ) $ ( 37,038 ) Net loss per ImmunityBio common share – basic and diluted $ ( 0.21 ) $ ( 0.10 ) Weighted-average number of common shares used in computing net loss per share – basic and diluted 382,741,464 371,989,232 The accompanying notes are an integral part of these condensed combined consolidated financial statements. 2 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Combined Consolidated Statements of Comprehensive Loss (in thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Net loss $ ( 80,481 ) $ ( 37,427 ) Other comprehensive (loss) income, net of income taxes: Net unrealized losses on available-for-sale securities ( 1 ) ( 24 ) Foreign currency translation adjustments ( 162 ) 70 Reclassification of net realized losses on available-for-sale securities included in net loss 3 1 Total other comprehensive (loss) income ( 160 ) 47 Comprehensive loss ( 80,641 ) ( 37,380 ) Comprehensive loss attributable to noncontrolling interests ( 867 ) ( 389 ) Comprehensive loss attributable ImmunityBio common stockholders $ ( 79,774 ) $ ( 36,991 ) The accompanying notes are an integral part of these condensed combined consolidated financial statements. 3 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Combined Consolidated Statements of (Deficit) Equity (in thousands, except share amounts) (Unaudited) Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total ImmunityBio Stockholders’ Noncontrolling Total Stockholders’ Three Months Ended March 31, 2021 Shares Amount Capital Deficit Income (Loss) Deficit Interests Deficit Balance as of December 31, 2020 382,243,142 $ 38 $ 1,495,163 $ ( 1,615,131 ) $ 122 $ ( 119,808 ) $ 1,318 $ ( 118,490 ) Stock-based compensation expense — — 15,298 — — 15,298 — 15,298 Exercise of stock options 690,465 — 1,121 — — 1,121 — 1,121 Vesting of restricted stock units (RSUs) 235,725 — — — — — — — Net share settlement for RSUs vesting ( 102,011 ) — ( 2,624 ) — — ( 2,624 ) — ( 2,624 ) Other comprehensive loss — — — — ( 160 ) ( 160 ) — ( 160 ) Net loss — — — ( 79,614 ) — ( 79,614 ) ( 867 ) ( 80,481 ) Balance as of March 31, 2021 383,067,321 $ 38 $ 1,508,958 $ ( 1,694,745 ) $ ( 38 ) $ ( 185,787 ) $ 451 $ ( 185,336 ) Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total ImmunityBio Stockholders’ Equity Noncontrolling Total Stockholders’ Equity Three Months Ended March 31, 2020 Shares Amount Capital Deficit Loss (Deficit) Interests (Deficit) Balance as of December 31, 2019 371,976,995 $ 37 $ 1,406,002 $ ( 1,393,280 ) $ ( 87 ) $ 12,672 $ 3,654 $ 16,326 Stock-based compensation expense — — 480 — — 480 — 480 Vesting of RSUs 63,750 — — — — — — — Net share settlement for RSUs vesting ( 25,722 ) — ( 123 ) — — ( 123 ) — ( 123 ) Other comprehensive income — — — — 47 47 — 47 Net loss — — — ( 37,038 ) — ( 37,038 ) ( 389 ) ( 37,427 ) Balance as of March 31, 2020 372,015,023 $ 37 $ 1,406,359 $ ( 1,430,318 ) $ ( 40 ) $ ( 23,962 ) $ 3,265 $ ( 20,697 ) The accompanying notes are an integral part of these condensed combined consolidated financial statements. 4 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Combined Consolidated Statements of Cash Flows (in thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Operating activities: Net loss $ ( 80,481 ) $ ( 37,427 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 15,298 480 Unrealized (gains) losses on equity securities ( 8,834 ) 202 Non-cash interest items, net (including amounts with related parties) 3,435 1,965 Depreciation and amortization 2,972 3,461 Non-cash lease expense related to operating lease right-of-use assets 1,555 1,177 Amortization of net premiums and discounts on marketable debt securities 225 45 Deferred tax — ( 1,067 ) Other ( 125 ) 4 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 934 ) ( 4,020 ) Other assets 693 322 Accounts payable 6,497 ( 1,724 ) Accrued expenses and other liabilities ( 1,893 ) 8,228 Related parties 2,597 ( 2,411 ) Operating lease liabilities ( 1,474 ) ( 342 ) Net cash used in operating activities ( 60,469 ) ( 31,107 ) Investing activities: Purchases of property, plant and equipment ( 7,083 ) ( 315 ) Purchases of marketable debt securities, available-for-sale ( 91 ) ( 10,300 ) Maturities of marketable debt securities 31,925 23,109 Proceeds from sales of marketable debt securities 7,094 1,500 Net cash provided by investing activities 31,845 13,994 Financing activities: Proceeds from issuance of related-party promissory notes 40,000 — Proceeds from exercises of stock options 1,121 — Net share settlement for RSUs vesting ( 2,624 ) ( 123 ) Net cash provided by (used in) financing activities 38,497 ( 123 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 109 ) 89 Net change in cash, cash equivalents, and restricted cash 9,764 ( 17,147 ) Cash, cash equivalents, and restricted cash, beginning of period 35,094 75,980 Cash, cash equivalents, and restricted cash, end of period $ 44,858 $ 58,833 The accompanying notes are an integral part of these condensed combined consolidated financial statements. 5 Table of Contents ImmunityBio , Inc. and Subsidiaries Condensed Combined Consolidated Statements of Cash Flows (Continued) (in thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Reconciliation of cash, cash equivalents, and restricted cash, end of period: Cash and cash equivalents $ 44,679 $ 58,654 Restricted cash (Note 3) 179 179 Cash, cash equivalents, and restricted cash, end of period $ 44,858 $ 58,833 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 12 $ 7 Income taxes $ 2 $ — Supplemental disclosure of non-cash activities: Property and equipment purchases included in accounts payable, accrued expenses, and due to related parties $ ( 4,267 ) $ ( 367 ) Right-of-use assets obtained in exchange for operating lease liabilities $ 1,388 $ — Unrealized gains on marketable debt securities $ 14 $ 23 The accompanying notes are an integral part of these condensed combined consolidated financial statements. 6 Table of Contents ImmunityBio, Inc. and Subsidiaries Notes to Unaudited Condensed Combined Consolidated Financial Statements 1. Description of Business Organization We were incorporated in Illinois on October 7, 2002 under the name ZelleRx Corporation. On January 22, 2010, we changed our name to Conkwest, Inc. In March 2014, we formed Conkwest, Inc., our wholly-owned subsidiary in the state of Delaware, or Conkwest Delaware, for the purposes of changing the state of our incorporation to the state of Delaware. In March 2014, we merged with an into Conkwest Delaware, with Conkwest Delaware surviving the merger. On July 10, 2015, we changed our name to NantKwest, Inc. On March 9, 2021, we completed a merger with NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) and we changed our name to ImmunityBio, Inc. Our principal executive offices are located in San Diego, California. In these notes to unaudited condensed combined consolidated financial statements, the terms “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio and subsidiaries. We established ImmunityBio to advance the next-generation immunotherapies and to address unmet needs within oncology and infectious disease. Our platform is designed to overcome limitations of the current standards of T cell-based immunotherapies, including checkpoint inhibitors and CAR-T cells and is based on our four key modalities: (1) activating natural killer, or NK, and T cells using antibody cytokine fusion proteins, (2) activating tumoricidal macrophages using low-dose synthetic immunomodulators, (3) generating memory T cells using vaccine candidates developed with our second-generation adenovirus, or hAd5, technology, and (4) off-the-shelf natural killer cells from the NK‑92 cell line and memory-like cytokine-enhanced natural killer cells (m‑ceNK) from allogenic and autologous donors. We own a broad, clinical-stage immunotherapy pipeline, including an antibody cytokine fusion protein (an IL‑15 superagonist (N‑803) known as Anktiva), an albumin-associated anthracycline synthetic immunomodulator (aldoxorubicin), second-generation adenovirus (hAd5) and yeast vaccine technologies (targeting tumor-associated antigens and neoepitopes), off-the-shelf genetically engineered natural killer cell lines inducing cancer and virally infected cell death through a variety of concurrent mechanisms (including innate killing, antibody-mediated killing, and CAR-directed killing), patient specific NK cell product for cancer that is an autologous Memory cytokine enhanced Natural Killer cells, macrophage polarizing peptides, and bi-specific fusion proteins targeting CD20, PD‑L1, TGF‑ b and IL‑12. Our immunotherapy clinical pipeline consists of over 40 clinical trials in Phase 1, 2, or 3 development across 19 indications in solid and liquid cancers and infectious diseases. We have an expansive clinical-stage pipeline and intellectual property portfolio with 17 first-in-human assets in 25 Phase II to III clinical trials. In December 2019, the United States, or U.S., Food and Drug Administration , or FDA, granted Breakthrough Therapy designation to Anktiva for bacillus Calmette-Guérin, or BCG, unresponsive carcinoma in situ non-muscle invasive bladder cancer. Other indications currently with registration-potential studies include BCG unresponsive papillary bladder cancer, first- and second-line lung cancer, and metastatic pancreatic cancer. The Merger On December 21, 2020 , we and NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) (“NantCell”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we and NantCell agreed to combine our businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the “Merger”), with NantCell surviving the Merger as a wholly-owned subsidiary of the company. On March 9, 2021 , we completed the Merger pursuant to the terms of the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 (the “Exchange Ratio”) newly issued shares of common stock, par value $ 0.0001 per share, of the company (“Company Common Stock”), with cash paid in lieu of any fractional shares. At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase NantCell common stock was converted using the Exchange Ratio into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock. 7 Table of Contents Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5 % of the outstanding shares of Company Common Stock and the stockholders of the company as of immediately prior to the Merger held approximately 28.5 % of the outstanding shares of Company Common Stock. As a result of the Merger and immediately following the Effective Time, Dr. Patrick Soon-Shiong, our Executive Chairman, and his affiliates beneficially own, in the aggregate, approximately 81.8 % of the outstanding shares of Company Common Stock. Following the consummation of the Merger, shares of the company’s common stock are now listed on the Nasdaq Global Select Market under the symbol “IBRX.” We incurred costs totaling $ 23.2 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, of which $ 12.9 million was recorded during the three months ended March 31, 2021. Merger-related costs are reported in selling, general and administrative expense , on the condensed combined consolidated statements of operations. Accounting Treatment of the Merger The Merger represents a business combination pursuant to Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 805-50, Mergers , which is accounted for as a transaction between entities under common control as Dr. Soon-Shiong and his affiliates were the controlling stockholders of each of the company and NantCell for all of the periods presented in this report. As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger. We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the financial statements presented. All material intercompany accounts and transactions have been eliminated in consolidation. The following table provides the impact of the change in reporting entity on our unaudited condensed combined consolidated statements of operations for the three months ended March 31, 2021 and 2020 (in thousands): Three Months Ended March 31, 2021 NantCell NantKwest Intercompany Eliminations ImmunityBio, Inc. Revenue $ 183 $ — $ ( 44 ) $ 139 Operating expenses: Research and development (including amounts with related parties) 21,509 19,725 ( 106 ) 41,128 Selling, general and administrative (including amounts with related parties) 24,382 20,903 ( 10 ) 45,275 Loss from operations ( 45,708 ) ( 40,628 ) 72 ( 86,264 ) Other (expense) income, net (including amounts with related parties) ( 848 ) 6,637 — 5,789 Income tax expense — ( 6 ) — ( 6 ) Net loss $ ( 46,556 ) $ ( 33,997 ) $ 72 $ ( 80,481 ) Three Months Ended March 31, 2020 NantCell NantKwest Intercompany Eliminations ImmunityBio, Inc. Revenue $ 168 $ 21 $ ( 24 ) $ 165 Operating expenses: Research and development (including amounts with related parties) 14,252 13,234 ( 112 ) 27,374 Selling, general and administrative (including amounts with related parties) 4,120 5,373 — 9,493 Loss from operations ( 18,204 ) ( 18,586 ) 88 ( 36,702 ) Other (expense) income, net (including amounts with related parties) ( 910 ) 203 — ( 707 ) Income tax expense ( 18 ) — — ( 18 ) Net loss $ ( 19,132 ) $ ( 18,383 ) $ 88 $ ( 37,427 ) 8 Table of Contents 2. Summary of Significant Accounting Policies There have been no material changes to our significant accounting policies from those described in the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the Securities and Exchange Commission, or SEC, on April 22, 2021. Basis of Presentation The accompanying unaudited condensed combined 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 SEC. The unaudited condensed combined 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 combined consolidated financial statements do not include all information and notes required by U.S. GAAP for annual reports. As of March 31, 2021, the company had an accumulated deficit of $ 1.7 billion. We also had negative cash flows from operations of $ 60.5 million for the three months ended March 31, 2021. The company will likely need additional capital to further fund the development of, and seek regulatory approvals for, our product candidates, and to begin to commercialize any approved products. The condensed combined consolidated financial statements are derived from the company’s and NantCell’s respective historical consolidated financial statements for each period presented. Since the entities have been under common control for all periods presented, the condensed combined consolidated financial statements assume that the Merger took place at the beginning of the earliest period for which the condensed combined consolidated financial statements are presented. Accordingly, these financial statements should be read in conjunction with the audited combined consolidated financial statements and notes thereto for the fiscal year ended December 31, 2020 included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the SEC on April 22, 2021. Interim operating results are not necessarily indicative of operating results for the full year. The condensed combined consolidated financial statements have been prepared assuming the company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of the uncertainty of our ability to continue as a going concern. As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support. However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings, including but not limited to the offering, issuance and sale by us of up to a maximum aggregate offering of $ 500.0 million of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC, or the ATM, and our potential ability to borrow from affiliated entities, will be sufficient to fund operations through at least the next 12 months following the issuance date of the financial statements based primarily upon our Executive Chairman’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt. We may also seek to sell additional equity, through one or more follow-on public offerings, or in separate financings, or obtain a credit facility. However, we may not be able to secure such financing in a timely manner or on favorable terms. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. Further, because of the risk and uncertainties associated with the commercialization of our product candidates in development, we may need additional funds to meet our needs sooner than planned. Principles of Consolidation The accompanying unaudited condensed combined consolidated financial statements include the accounts of the company and its subsidiaries. All intercompany amounts have been eliminated. For consolidated entities where we have less than 100% of ownership, we record net loss attributable to noncontrolling interest in our condensed combined consolidated statements of operations equal to the percentage of the ownership interest retained in such entities by the respective noncontrolling parties. 9 Table of Contents We apply the variable interest model under ASC Topic 810, Consolidation , to any entity in which we hold an equity investment or to which we have the power to direct the entity’s most significant economic activities and the ability to participate in the entity’s economics. If the entity is within the scope of the variable interest model and meets the definition of a variable interest entity, 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 % interest in the voting securities of the entity. All other unconsolidated equity investments on which we are not able to exercise significant influence will be subsequently measured at fair value with unrealized holding gains and losses included in interest and investment income, net , on the condensed combined consolidated statements of operations. In the instance the equity investment does not have a readily determinable fair value and does not qualify for the practical expedient to estimate fair value in accordance with ASC Topic 820, Fair Value Measurement , or ASC 820, we will apply the measurement alternative under ASC Topic 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. Prior to March 31, 2021, we owned non-marketable equity securities that were accounted for using the measurement alternative under ASC 321 because the preferred stock held by us was not considered in-substance common stock and such preferred stock did not have a readily determinable fair value. All investments are reviewed for possible impairment on a regular basis. If an investment’s fair value is determined to be less than its net carrying value, the investment is written down to its fair value. Such an evaluation is judgmental and dependent on specific facts and circumstances. Factors considered in determining whether an impairment indicator is present include: the investees’ earnings performance and clinical trial performance, change in the investees’ industry and geographic area in which it operates, offers to purchase or sell the security for a price less than the cost of the investment, issues that raise concerns about the investee’s ability to continue as a going concern, and any other information that we may be aware of related to the investment. Factors considered in determining whether an observable price change has occurred include: the price at which the investee issues equity instruments similar to those of our investment and the rights and preferences of those equity instruments compared to ours. Use of Estimates The preparation of condensed combined 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 combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these financial statements. We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the ongoing coronavirus pandemic could have on our significant accounting estimates. Actual results could differ from those estimates. 10 Table of Contents Risks and Uncertainties In March 2020, the World Health Organization declared the novel strain of coronavirus disease (SARS‑CoV‑2) a pandemic. To date, our operations have not been significantly disadvantaged by the pandemic. However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials. More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist for the foreseeable future. The impact of the pandemic on our financial performance will depend on future developments, including the duration and spread of the outbreak, impact of potential variants and the related governmental advisories and restrictions. These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected. Contingencies We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause a change in the potential amount of the liability recorded or of the range of potential losses disclosed. Moreover, we record gain contingencies only when they are realizable, and the amount is known. Additionally, we record our rights to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and when receipt is deemed probable. This includes instances when our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject us to concentrations of risk consist principally of cash and cash equivalents, marketable securities, and a convertible note receivable. Our cash and cash equivalents are held by one major financial institution in the U.S., one in South Korea and one in Italy. Product candidates developed by us will require approvals or clearances from the FDA or international regulatory agencies prior to commercial sales. There can be no assurance that any of our product candidates will receive any of the required approvals or clearances. If we were to be denied approval or clearance or any such approval or clearance was to be delayed, it would have a material adverse impact on us. Stock-Based Compensation We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation , or ASC 718. We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition. For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period using the graded vesting method once management believes the performance criteria is probable of being met. For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited. Basic and Diluted Net Loss per Share of Common Stock Basic net loss per share is calculated by dividing the net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share is computed by dividing net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares, including the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. 11 Table of Contents 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 p otentially dilutive securities: As of March 31, 2021 2020 (Unaudited) Outstanding stock options 4,978,314 6,080,483 Outstanding RSUs 7,636,132 1,102,528 Outstanding related-party warrants 1,638,000 1,638,000 Total 14,252,446 8,821,011 Amounts in the table above reflect the common stock equivalents of the noted instruments, including awards issued under the NantKwest 2015 Equity Incentive Plan (the “2015 Plan”), the NantKwest 2014 Equity Incentive Plan (the “2014 Plan”), and awards issued under the NantCell, Inc. 2015 Stock Incentive Plan (the “NC 2015 Plan”) that, in the case of March 31, 2021, were outstanding immediately prior to the Effective Time of the Merger and in the case of March 31, 2020 have been adjusted to include the combined NC 2015 Plan and NantCell warrants then outstanding (in both cases adjusted using the Merger Exchange Ratio of 0.8190 ). See Note 11 , Stock-Based Compensation , for further information. Recent Accounting Pronouncements Application of New or Revised Accounting Standards – Not Yet Adopted In June 2016, the FASB issued Accounting Standards Update, or ASU, 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , or ASU 2016-13. The FASB subsequently issued amendments to ASU 2016‑13, which have the same effective date and transition dates as described below. The new guidance supersedes existing U.S. GAAP for measuring and recording of credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. For public business entities that meet the definition of an SEC filer, except entities that are eligible to be a smaller reporting company as defined by the SEC, the standard is effective for annual periods beginning after December 15, 2019, and interim periods therein. For all other entities, including us, the standard is effective for annual periods beginning after December 15, 2022, and interim periods therein. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. We continue to evaluate the impact that this new standard and its related amendments will have on our consolidated financial statements 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 SEC during the three months ended March 31, 2021 did not, or are not expected to, have a material effect on our consolidated financial statements. 12 Table of Contents 3. Financial Statement Details Prepaid expenses and other current assets As of March 31, 2021 and December 31, 2020, prepaid expenses and other current assets consist of the following (in thousands): March 31, 2021 December 31, 2020 (Unaudited) Prepaid preclinical and clinical trial services – with related party (Note 9) $ 4,648 $ 4,626 Insurance claim receivable 2,932 2,518 Prepaid services 1,435 1,294 Prepaid license fees 1,329 801 Prepaid insurance 1,230 1,365 Insurance premium financing asset 571 1,421 Prepaid rent 569 589 Equipment deposits 375 66 Tenant improvement receivables – with related party (Note 9) 313 — Prepaid equipment maintenance 239 243 Interest receivable – marketable debt securities 132 473 Prepaid supplies – with related party (Note 9) 131 143 Other 338 110 Prepaid expenses and other current assets $ 14,242 $ 13,649 We have reflected our right to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and receipt is deemed probable. This includes instances where our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund. Our insurance claims receivable as of March 31, 2021 and December 31, 2020 are the result of the recovery of legal costs, which had been previously charged in prior periods to s elling, general and administrative expense, on the condensed combined consolidated statements of operations. Property, plant and equipment, net As of March 31, 2021 and December 31, 2020, property, plant and equipment, net, consist of the following (in thousands): March 31, 2021 December 31, 2020 (Unaudited) Leasehold improvements $ 52,200 $ 52,251 Equipment 38,556 34,738 Buildings 22,690 22,690 Construction in progress 8,308 1,333 Software 2,659 2,376 Furniture & fixtures 1,007 1,015 Gross property, plant and equipment 125,420 114,403 Less: Accumulated depreciation and amortization 44,545 41,862 Property, plant and equipment, net $ 80,875 $ 72,541 Construction in progress at March 31, 2021 is related primarily to expansion of our hAd5 pharmaceutical development and manufacturing facilities, including construction of a new filling suite at our leased facilities in El Segundo, California . Depreciation and amortization expense related to property, plant and equipment totaled $ 3.0 million and $ 3.5 million for the three months ended March 31, 2021 and 2020, respectively. 13 Table of Contents Other assets As of March 31, 2021 and December 31, 2020, other assets consist of the following (in thousands): March 31, 2021 December 31, 2020 (Unaudited) VAT receivable $ 810 $ 864 Security deposits 319 634 Prepaid software license fees 227 455 Restricted cash 179 179 Due from related party 54 51 Prepaid preclinical and clinical trial services – with related party (Note 9) — 92 Other 316 323 Other assets $ 1,905 $ 2,598 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 and other liabilities As of March 31, 2021 and December 31, 2020, accrued expenses and other liabilities consist of the following (in thousands): March 31, 2021 December 31, 2020 (Unaudited) Accrued bonus $ 6,947 $ 5,288 Accrued dissenting shares (Note 8) 6,854 6,769 Accrued professional and service fees 6,728 7,668 Accrued preclinical and clinical trial costs 4,656 4,339 Accrued compensation 4,349 3,891 Accrued research and development costs 2,103 4,002 Accrued construction costs 1,931 — Accrued contingent consideration payable 822 856 Accrued laboratory equipment and supplies 681 641 Financing obligation – current portion 571 1,421 Deferred revenue 263 270 Accrued franchise, sales, use and property taxes 113 103 Accrued capital expenditures 16 337 Other 759 1,186 Accrued expenses and other liabilities $ 36,793 $ 36,771 Interest and investment income, net Interest and investment income, net consists of the following (in thousands): Three Months Ended March 31, 2021 2020 (Unaudited) Unrealized gains (losses) from equity securities $ 8,833 $ ( 198 ) Interest income 339 322 Investment amortization expense, net ( 225 ) ( 45 ) Net realized losses on investments ( 3 ) ( 1 ) Interest and investment income, net $ 8,944 $ 78 14 Table of Contents Interest income includes interest from marketable securities, convertible notes receivable, other assets, and interest from bank deposits. We did not recognize an impairment loss on any investments during the three months ended March 31, 2021 and 2020. 4. Equity Investment in Viracta Therapeutics 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, which was initially recorded at cost. 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. 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 stock. 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 stock. 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. Based on the level of equity investment at risk, Viracta was not a VIE and therefore was not consolidated under the VIE model. In addition, we did not hold a controlling financial interest in Viracta, and therefore we did not consolidate Viracta under the voting interest model. As the preferred stock was not considered in-substance common stock, the investment was not within the scope of accounting for the investment under the equity method. As the preferred stock did not have a readily determinable fair value and did not qualify for the practical expedient to estimate fair value in accordance with ASC 820, we had elected to apply the measurement alternative under ASC 321, pursuant to which we measured 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 December 31, 2020, our fair value assessment indicated that the offering of Viracta’s Series E preferred stock in November 2020, at a lower offering price per share than the per share carrying amount of our investment in Viracta, was a directional indicator representing an observable price change in an orderly transaction for a similar investment. On December 31, 2020, we reduced the carrying value by $ 1.4 million due to the observable price change, which was included in interest and investment income, net , on the condensed combined consolidated statements of operations for the year ended December 31, 2020. As of December 31, 2020, the carrying value of our investment in Viracta, which was reflected in non-marketable equity investment, on the condensed combined consolidated balance sheets, was $ 7.8 million. On February 24, 2021, Sunesis Pharmaceuticals, Inc., a public company, completed a business combination with Viracta. In connection with this business combination, our preferred stock investment in Viracta was converted into 1,562,604 shares of Viracta common stock effective February 25, 2021. As of March 31, 2021, the carrying value of our investment in Viracta, which is reflected in marketable securities , on the condensed combined consolidated balance sheets totaled $ 14.5 million (including an unrealized gain of $ 6.6 million). 15 Table of Contents 5. Financial Instruments Investments in Marketable Debt Securities As of March 31, 2021, the amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands): March 31, 2021 (Unaudited) Weighted- Average Remaining Contractual Life (in years) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Corporate debt securities 0.2 $ 15,541 $ 1 $ ( 4 ) $ 15,538 Mutual funds 35 2 — 37 Current portion 15,576 3 ( 4 ) 15,575 Noncurrent: Foreign bonds 5.1 861 139 — 1,000 Noncurrent portion 861 139 — 1,000 Total $ 16,437 $ 142 $ ( 4 ) $ 16,575 As of December 31, 2020, the amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands): December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Corporate debt securities $ 54,789 $ 2 $ ( 19 ) $ 54,772 Mutual funds 35 2 — 37 Current portion 54,824 4 ( 19 ) 54,809 Noncurrent: Foreign bonds 861 89 — 950 Noncurrent portion 861 89 — 950 Total $ 55,685 $ 93 $ ( 19 ) $ 55,759 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 as of March 31, 2021 and December 31, 2020 were as follows (in thousands): March 31, 2021 (Unaudited) Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Corporate debt securities $ 13,535 $ ( 4 ) $ — $ — Total $ 13,535 $ ( 4 ) $ — $ — December 31, 2020 Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Corporate debt securities $ 42,762 $ ( 19 ) $ — $ — Total $ 42,762 $ ( 19 ) $ — $ — 16 Table of Contents As of March 31, 2021, a total of 14 of the securities were in unrealized loss positions. 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 these investments before recovery of their amortized cost bases. Therefore, we did not recognize any other-than-temporary impairment losses during the three months ended March 31, 2021. Realized gains and losses on sales of available-for-sale debt securities during the three months ended March 31, 2021 and 2020 were not material. Marketable Equity Securities We held investments in marketable equity securities with readily determinable fair values of $ 23.0 million and $ 6.3 million as of March 31, 2021 and December 31, 2020, respectively. Unrealized gains recognized on equity securities with readily determinable fair values totaled $ 8.8 million for the three months ended March 31, 2021, while unrealized losses recognized on equity securities with readily determinable fair values totaled $ 0.2 million for the three months ended March 31, 2020. There were no realized gains or losses on sales of equity securities for the three months ended March 31, 2021 and 2020. 6. Fair Value Measurements Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows: • Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these products does not entail a significant degree of judgment. Our Level 1 assets consist of bank deposits, money market funds, and marketable equity securities. • Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities. Our Level 2 assets consist of corporate debt securities including commercial paper, government-sponsored securities and corporate bonds, as well as foreign municipal securities. • Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. We utilize a third-party pricing service to assist in obtaining fair value pricing for our investments in marketable debt securities. Inputs are documented in accordance with the fair value disclosure hierarchy. The fair values of financial instruments other than marketable securities and cash and cash equivalents are determined through a combination of management estimates and third-party valuations. 17 Table of Contents Recurring Valuations Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31, 2021 and December 31, 2020 (in thousands): Fair Value Measurements as of March 31, 2021 (Unaudited) Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 44,679 $ 44,679 $ — $ — Equity securities (1) 23,019 23,019 — — Corporate debt securities 15,538 — 15,538 — Mutual funds 37 37 — — Noncurrent: Foreign bonds 1,000 1,000 — — Total assets measured at fair value $ 84,273 $ 68,735 $ 15,538 $ — Liabilities: Contingent consideration obligations (2) $ ( 844 ) $ — $ — $ ( 844 ) Fair Value Measurements as of December 31, 2020 Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 34,915 $ 34,915 $ — $ — Corporate debt securities 54,772 — 54,772 — Equity securities 6,337 6,337 — — Mutual funds 37 37 — — Noncurrent: Foreign bonds 950 950 — — Total assets measured at fair value $ 97,011 $ 42,239 $ 54,772 $ — Liabilities: Contingent consideration obligations (2) $ ( 972 ) $ — $ — $ ( 972 ) (1) Our equity securities include our investment in Viracta totaling $ 14.5 million, which was previously accounted for by applying the measurement alternative under ASC 321. In February 2021, Viracta merged with Sunesis Pharmaceuticals, Inc., a public company. In connection with this transaction, our preferred stock investment in Viracta was converted into 1,562,604 shares of Viracta common stock effective February 25, 2021. See Note 4 , Equity Investment in Viracta Therapeutics , for additional information. (2) Contingent consideration obligations are recorded at their estimated fair values and are revalued each reporting period until the related contingencies are resolved. The fair value measurements of these obligations are based on inputs that are unobservable and significant to the overall fair value measurement (i.e., a Level 3 measurement within the fair value hierarchy) and are reviewed periodically by management. See Note 8 , Commitments and Contingencies, for additional information. Changes in the carrying amount of contingent consideration obligations were as follows (in thousands): Three Months Ended March 31, 2021 2020 (Unaudited) Fair value, beginning of period $ ( 972 ) $ ( 1,725 ) Net change in fair value 128 ( 2 ) Fair value, end of period $ ( 844 ) $ ( 1,727 ) 18 Table of Contents 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 during the three months ended March 31, 2021 and 2020. 7. Collaboration and License Agreements National Cancer Institute In May 2015, Etubics Corporation, or Etubics, entered into a Cooperative Research and Development Agreement, or CRADA, with the U.S. Department of Health and Human Services as represented by the National Cancer Institute, or NCI, of the National Institutes of Health, or NIH, to collaborate on the preclinical and clinical development of an adenovirus technology expressing tumor-associated antigens for cancer immunotherapy. In January 2016, we acquired all of the outstanding equity interests in Etubics and Etubics became a wholly-owned subsidiary. Effective January 2018, we assumed the CRADA and it was amended to cover a collaboration for the preclinical and clinical development of our proprietary yeast-based Tarmogens expressing tumor-associated antigens and proprietary adenovirus technology expressing tumor-associated antigens for cancer immunotherapy. Pursuant to the CRADA, NIH provides scientific staff and other support necessary to conduct research and related activities as described in the CRADA. During the term of the CRADA, we are required to make annual payments of $ 0.6 million to the NIH for support of research activities. We made a payment of $ 0.6 million for the three months ended March 31, 2021. The CRADA expires in May 2023. In February 2018, we entered into an amendment to a CRADA with NIH that was originally executed between NIH and Amgen, Inc., or Amgen, in May 2012 and subsequently assigned by Amgen to the company effective as of December 17, 2015. The research goal of this CRADA, as amended, is for the non-clinical and clinical development of ganitumab, our licensed monoclonal antibody targeting insulin-like growth factor one receptor, to evaluate its safety and efficacy in patients with hematological malignancies and solid tumors. The CRADA has a five-year term commencing February 20, 2018 and expiring on February 20, 2023. During the term of the agreement, we are required to make minimum annual payments of $ 0.2 million to NIH for support of research activities and additional payments for the clinical trials based on the scope and phase of the clinical trials. Unpaid research and development expense was estimated at $ 0.4 million and $ 0.6 million as of March 31, 2021 and December 31, 2020, respectively. In February 2021, we entered into a CRADA with NIH to conduct collaborative analysis of human clinical trial samples from clinical trials utilizing our proprietary recombinant natural killer (NK) cells and/or monoclonal antibodies (mAbs) alone or in combination for the treatment of cancer and to pre-clinically study such agents. The CRADA has a two-year term commencing February 22, 2021 and expiring on February 22, 2023. During the term of the agreement, we are required to provide $ 0.1 million per year to NIH for support of research activities. We have $ 8,000 payable outstanding as of March 31, 2021 in connection with this CRADA agreement. All CRADA agreements may be terminated at any time upon the mutual written consent of the company and NIH. Either party may unilaterally terminate either of the CRADAs at any time by providing written notice to the other party at least 60 days before the desired termination date. Pursuant to the terms of the CRADAs, we have an option to elect to negotiate an exclusive or non-exclusive commercialization license to any inventions discovered in the performance of either of the CRADAs, whether solely by an NIH employee or jointly with a company employee for which a patent application has been filed. The parties jointly own any inventions and materials that are jointly produced by employees of both parties in the course of performing activities under the CRADAs. 19 Table of Contents Royalties and In-licensing Agreements iosBio Ltd. Exclusive License Agreement In August 2020, we executed an exclusive license agreement with iosBio Ltd., formerly Stabilitech Biopharma Ltd. (“iosBio”), pursuant to which we and our affiliates will receive an exclusive, worldwide license to certain of iosBio’s intellectual property rights relating to the SARS-CoV-2 and successor vaccine candidates. In return, we are required to pay mid-to-high single-digit royalties on net sales of the resulting licensed products. Concurrently we entered into a non-exclusive license agreement with iosBio, which grants to iosBio and its affiliates a non-exclusive, worldwide license under the intellectual property and technology relating to our adenovirus constructs for the prevention and treatment of shingles and other infectious disease targets to be mutually agreed by the parties in good faith. As of March 31, 2021 and December 31, 2020, we accrued $ 0.1 million and $ 0.5 million payable, respectively, to iosBio for reimbursable costs related to the clinical trial activities initiated by iosBio. 8. Commitments and Contingencies Contingent Consideration Related to Business Combinations VivaBioCell, S.p.A. On April 10, 2015, NantWorks, a related party, acquired a 100 % interest in VivaBioCell, S.p.A., or VivaBioCell, through its wholly-owned subsidiary, VBC Holdings, LLC, or VBC Holdings, for $ 0.7 million, less working capital adjustments. On June 15, 2015, NantWorks contributed its equity interest in VBC Holdings to the company, in exchange for cash consideration equal to its cost basis in the investment. VivaBioCell develops bioreactors and products based on cell culture and tissue engineering in Italy. In connection with this transaction, we are obligated to pay the former owners up to $ 3.7 million upon the achievement of certain sales milestones relating to scaffold technology and certain clinical and regulatory milestones relating to the GMP-in-a-Box technology. The fair value of the contingent consideration obligation decreased $ 0.1 million during the three months ended March 31, 2021 to $ 0.8 million. Altor BioScience Corporation In connection with our July 2017 acquisition of Altor BioScience Corporation, or Altor, we issued contingent value rights, or CVRs, under which we agreed to pay the prior stockholders of Altor approximately $ 304.0 million upon successful approval of the Biologics License Application, or BLA, or foreign equivalent, for Anktiva by December 31, 2022 and approximately $ 304.0 million upon the first calendar year before December 31, 2026 in which worldwide net sales of Anktiva exceed $ 1.0 billion (with amounts payable in cash or shares of our common stock or a combination thereof). Dr. Soon-Shiong and his related party hold approximately $ 279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of the company’s common stock in satisfaction of their CVRs. As the transaction was recorded as an asset acquisition, future CVR payments will be recorded when the corresponding events are probable of achievement or the consideration becomes payable. 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. 20 Table of Contents Altor BioScience, LLC Litigation The first action, Gray v. Soon-Shiong, et al. (Delaware Chancery Court, Case No. 2017-466-JRS), was filed on June 21, 2017, by plaintiffs Clayland Boyden Gray, or Gray, and Adam R. Waldman. The plaintiffs, two minority stockholders, asserted claims against the company and other defendants for (1) breach of fiduciary duty and (2) aiding and abetting breach of fiduciary duty and filed a motion to enjoin the merger. The court denied the motion on July 25, 2017, and permitted the merger to close. On September 1, 2017, plaintiffs (joined by two additional minority stockholders, Barbara Sturm Waldman and Douglas E. Henderson, or Henderson) filed a second amended complaint, asserting claims for (1) appraisal; (2) quasi-appraisal; (3) breach of fiduciary duty; and (4) aiding and abetting breach of fiduciary duty. On September 18, 2017, defendants moved to dismiss the second amended complaint, raising grounds that included a “standstill” agreement under which defendants maintained that Gray and Adam R. Waldman and Barbara Strum Waldman, or the Waldman’s, agreed not to bring the lawsuit. In the second action, Dyad Pharmaceutical Corp. v. Altor BioScience, LLC (Delaware Chancery Court, Case No. 2017-848-JRS), commenced November 28, 2017, Dyad Pharmaceutical Corporation, or Dyad, filed a petition for appraisal in connection with the merger. Respondent moved to dismiss the appraisal petition on January 26, 2018, arguing in part that the petition was barred by the same “standstill” agreement. On April 23, 2018, the court heard oral arguments on the motions to dismiss in both consolidated cases, and on June 26, 2018, the court converted the motions to dismiss into motions for summary judgment with regard to the “standstill” agreement argument, or the Converted Motions. The court permitted discovery into the meaning and intended scope of the “standstill” agreements, which the parties completed on December 19, 2018. The parties completed a briefing on the Converted Motions on March 15, 2019. The court heard an oral argument on the Converted Motions on May 7, 2019, and issued an oral ruling on May 15, 2019. The court (1) dismissed all claims brought by Gray and the Waldman’s except for their appraisal claims; (2) dismissed all plaintiffs’ quasi-appraisal claims; (3) dismissed the disclosure-based breach of fiduciary duty claims; and (4) dismissed Altor BioScience from the action. The following claims remain: (a) the appraisal claims by all plaintiffs and Dyad (against Altor BioScience, LLC), and (b) Henderson’s claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty. On June 14, 2019, the defendants answered the second amended complaint, and the respondent answered Dyad’s appraisal petition. In their answer, defendants asserted counterclaims against Gray and the Waldman’s for breach of the “standstill” agreements and are seeking as damages the attorneys’ fees and costs they were forced to expend as a result of the breach. On June 20, 2019, the court issued a written order implementing its ruling on the Converted Motions, or the Implementing Order. In the Implementing Order, the court confirmed that all fiduciary duty claims brought by Gray, both individually and as trustee of the Gordon Gray Trust f/b/o C. Boyden Gray, were dismissed. On July 11, 2019, Gray and the Waldman’s filed answers denying the counterclaims and asserting defenses. On September 30, 2019, plaintiffs moved for leave to file a third amended complaint. The proposed amendment sought to add two former Altor stockholders as plaintiffs and to add a fiduciary duty claim on behalf of a purported class of former Altor stockholders. On October 25, 2019, the defendants opposed the motion, and a briefing was completed on February 28, 2020. The court heard an oral argument on March 12, 2020, and granted the motion. The plaintiffs filed the third amended complaint on June 8, 2020. On June 29, 2020, defendants answered the third amended complaint and asserted counter claims against the plaintiffs. As damages, defendants seek the attorneys’ fees and costs incurred as a result of these breaches. On July 14, 2020, the plaintiffs filed an answer denying the counterclaims and asserting defenses. The trial has been set to commence in October 2021. The shares of these former Altor stockholders met the definition of dissenting shares under the merger agreement and were not entitled to receive any portion of the merger consideration at the closing date. However, these dissenting shares will automatically be converted to receive the portion of the merger consideration they were entitled to, on the later of the closing date, and when the stockholder withdraws or loses the right to demand appraisal rights. Payment for dissenting shares will be on the same terms and conditions originally stated in the merger agreement. As of March 31, 2021 and December 31, 2020, we had accrued $ 6.9 million and $ 6.8 million related to these obligations, respectively. The accrued amount represents the estimated low-end of the range of currently estimated payout amounts in accordance with ASC Topic 450, Contingencies , after considering the reasonable outcomes for settling the dissenting shareholder dispute along with any accrued statutory interest. We cannot reasonably estimate a range of loss beyond the amounts recorded as of March 31, 2021 and December 31, 2020, as the dissenting stockholders have not yet provided a quantified value of their claim and, therefore, an upper end of the range of loss cannot be determined. We reassess the reasonableness of the recorded amount at each reporting period. We believe the claims lack merit and intend to continue defending the case vigorously. 21 Table of Contents Sorrento Therapeutics, Inc. Litigation Sorrento Therapeutics, Inc. v. NantCell, Inc., et al. Sorrento Therapeutics, Inc., or Sorrento, derivatively on behalf of NANTibody, LLC, or NANTibody, filed an action in the Superior Court of California, Los Angeles County, or the Superior Court, against the company, Dr. Soon-Shiong and Charles Kim. The action alleges that the defendants improperly caused NANTibody to acquire IgDraSol, Inc. from our affiliate NantPharma, LLC, or NantPharma, and seeks to have the transaction undone, and seeks to have the purchase amount returned to NANTibody. Sorrento filed a related arbitration proceeding, or the Cynviloq arbitration, against Dr. Soon-Shiong and NantPharma; the company is not named in the Cynviloq arbitration. On May 15, 2019, we filed a demurrer to several causes of action alleged in the Superior Court action. On July 18, 2019, Sorrento filed an amended complaint, eliminating Charles Kim as a defendant and dropping the causes of action we had challenged in its demurrer. On May 24, 2019, we and Dr. Soon-Shiong filed cross-claims in the Superior Court action against Sorrento and its Chief Executive Officer Henry Ji, asserting claims for fraud, breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, unjust enrichment, and declaratory relief. We and Dr. Soon-Shiong allege that Dr. Ji and Sorrento breached the terms of an exclusive license agreement between the company and Sorrento related to Sorrento’s antibody library and that Sorrento did not perform its obligations under the exclusive license agreement. On October 9, 2019, the Superior Court ruled that our claims should be pursued in arbitration and that Dr. Soon-Shiong’s claims could be pursued in Superior Court. On February 13, 2020, after a full briefing, the Superior Court heard oral argument and granted Dr. Soon-Shiong’s request for a preliminary injunction barring Sorrento from pursuing claims against him in the Cynviloq arbitration. Sorrento then filed the claims it had previously asserted in arbitration against Dr. Soon-Shiong in the Superior Court on March 3, 2020, and at Sorrento’s request, the arbitrator entered an order dismissing Sorrento’s claims against Dr. Soon-Shiong in the Cynviloq arbitration on March 6, 2020. The hearing in the Cynviloq arbitration has been scheduled to commence in June 2021. On October 24, 2019, we, along with NANTibody, filed an arbitration against Sorrento and Dr. Ji asserting our claims relating to the exclusive license agreement. Sorrento filed counterclaims against the company and NANTibody in the arbitration on May 4, 2020, and requested leave to file a dispositive motion on May 1, 2020. On January 29, 2020, Sorrento sent letters purporting to terminate the exclusive license agreement with the company, and an exclusive license agreement with NANTibody and demanding the return of its confidential information and transfer of all regulatory filings and related materials. As required pursuant to the exclusive license agreements, both parties must engage in good-faith negotiations before attempting to invoke any termination provision contained in the agreement. Notwithstanding such negotiations, Sorrento sent a letter on April 10, 2020, purporting to terminate the exclusive license agreements, maintaining the negotiations did not reach a successful resolution. We believe we have cured any perceived breaches during the 90-day contractual cure period provided under the agreements. We intend to prosecute our claims, and to defend the claims asserted against us, vigorously. An estimate of the possible loss or range of loss cannot be made at this time. The hearings in the antibody arbitration commenced in April 2021 and are anticipated to be concluded in late July or early August 2021. Shenzhen Beike Biotechnology Corporation Litigation In July 2020, we received a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration, served by Shenzhen Beike Biotechnology Corporation, or Beike. The arbitration relates to a license, development, and commercialization agreement that Altor (succeeded by our wholly-owned subsidiary Altor BioScience, LLC, or Altor) entered into with Beike in September 2014, which agreement was amended and restated in September 2017, pursuant to which Altor granted to Beike an exclusive license to use, research, develop and commercialize products based on Anktiva in China for human therapeutic uses. In the arbitration, Beike is asserting a claim for breach of contract under the license agreement. Among other things, Beike alleges that we failed to use commercially reasonable efforts to deliver to Beike materials and data related to Anktiva. Beike is seeking specific performance, or in the alternative, damages for the alleged breaches. On September 25, 2020, the parties entered into a standstill and tolling agreement under which, among other things, the parties affirmed they will perform certain of their obligations under the license agreement by specified dates and agreed that all deadlines in the arbitration are indefinitely extended. The standstill agreement may be terminated by any party on ten calendar days’ notice, and upon termination, the parties will have the right to pursue claims arising from the license agreement in any appropriate tribunal. The parties have been asked to provide an update to the International Chamber of Commerce by May 31, 2021 of any further developments. Given that this action remains at the pleading stage and no discovery has occurred, it remains too early to evaluate the likely outcome of the case or to estimate any range of potential loss. We believe the claims lack merit and intend to defend the case vigorously and that we may have counterclaims. 22 Table of Contents Fox Chase Litigation On July 21, 2020, ImmunityBio filed a declaratory judgment lawsuit in the Superior Court for San Diego County, California, naming Fox Chase Cancer Center Foundation and Institute for Cancer Research as the defendants (hereafter collectively “Fox Chase”). This litigation relates to the license with Fox Chase and includes various intellectual property rights (the “2004 License”). Our initial court filing requested that the Court find that we have not breached any material obligation under the 2004 License and that Fox Chase has not and cannot terminate the 2004 License. Fox Chase filed a Cross-Complaint raising a patent inventorship challenge and moved the case to federal court. See Part II, Item 1A., “ Risk Factors ” of this Quarterly Report on Form 10-Q for a more detailed discussion. While the litigation is in the early stage, its outcome cannot be predicted. We do not consider the 2004 License to be material to our business. Litigation Related to the Merger with ImmunityBio, Inc. In connection with the Merger with NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company), a Delaware corporation, via a wholly-owned subsidiary of NantKwest (the “Merger Sub”), seven complaints have been filed as individual actions in United States District Courts. Three complaints have been filed in the United States District Court for the District of Delaware against NantKwest and its directors and are captioned Hargett v. NantKwest, Inc., et al. , 1:21‑cv‑00197 (filed February 11, 2021) (the “Hargett Complaint”), Franchi v. NantKwest, Inc., et al. , 1:21‑cv‑00218 (filed February 16, 2021) (the “Franchi Complaint”), and Gross v. NantKwest, Inc., et al. , 1:21‑cv‑00223 (filed February 17, 2021) (the “Gross Complaint”). One complaint has been filed in the United States District Court for the Southern District of New York and is captioned Leaman v. NantKwest, Inc., et al. , 1:21‑cv‑01351 (filed February 16, 2021) (the “Leaman Complaint”). Two complaints have been filed in the United States District Court for the Southern District of California and are captioned Weiss v. NantKwest, Inc., et al. , 3:21‑cv‑00280 (filed February 16, 2021) (the “Weiss Complaint”) and Carlisle v. NantKwest, Inc., et al. , 3:21‑cv‑00304 (filed February 19, 2021) (the “Carlisle Complaint”). One complaint has been filed in the United States District Court for the Eastern District of New York and was captioned Shenk v. NantKwest, Inc., et al. , 1:21‑cv‑00871 (filed February 18, 2021) (the “Shenk Complaint,” and collectively with the Hargett Complaint, the Franchi Complaint, the Gross Complaint, the Leaman Complaint, the Weiss Complaint, and the Carlisle Complaint, the “Merger Actions”). The Shenk Complaint was voluntarily dismissed on March 10, 2021. The Franchi Complaint was voluntarily dismissed on May 6, 2021. The Leaman Complaint was voluntarily dismissed on May 7, 2021. The Hargett Complaint and the Gross Complaint also bring claims against ImmunityBio, and Merger Sub. The Merger Actions generally allege that the Definitive Proxy Statement filed with the SEC on February 2, 2021 misrepresents and/or omits certain purportedly material information relating to financial projections, analysis performed by the financial advisor to NantKwest’s Special Committee, alleged past engagements of the Special Committee’s financial advisor and industry consultant, and the terms of the engagement of such consultant. The Merger Actions assert violations of Sections 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-9 promulgated thereunder against all defendants and violations of Section 20(a) of the Exchange Act against NantKwest’s directors. The Merger Actions seek, among other things, an injunction enjoining the stockholder vote on the Merger and the consummation of the Merger unless and until certain additional information is disclosed to NantKwest’s stockholders, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees, and other relief the Court may deem just and proper. Neither the stockholder vote on the Merger nor the Merger were enjoined and occurred on March 8 and March 9, 2021, respectively. The company cannot predict the outcome of the Merger Actions. The company believes the Merger Actions are without merit and the company and the individual defendants intend to vigorously defend against the Merger Actions and any subsequently filed similar actions. If additional similar complaints are filed, absent new or significantly different allegations, the company will not necessarily disclose such additional filings. Lease Arrangements Substantially all of our operating lease right-of-use assets and operating lease liabilities relate to facilities leases. We have leases in multiple facilities across the U.S. and Italy, including El Segundo, California (general corporate and administrative activities, research and development and regulatory from related parties); San Diego, California (research facility and office space); Culver City, California (research and manufacturing space from a related party); Torrance, California (a research facility from a related party); Miramar, Florida (clinical development); Seattle, Washington (research and development); Louisville, Colorado (research and development and manufacturing); Woburn, Massachusetts (research facility); and Udine and Tavangnacco, Italy (GMP-in-a-Box, research facility and office space). See Note 9 , Related Party Agreements , for further information. Our leases generally have initial terms ranging from two to ten years and often include one or more options to renew. These renewal terms can extend the lease term from one to five years , and are included in the lease term when it is reasonably certain that we will exercise the option. 23 Table of Contents Information regarding our leases is as follows: March 31, 2021 December 31, 2020 (Unaudited) Weighted average remaining lease term 4.6 years 3.9 years Weighted average discount rate 9 % 9 % The components of lease expense consist of the following (in thousands): Three Months Ended March 31, 2021 2020 (Unaudited) Operating lease costs $ 2,147 $ 1,782 Variable lease costs 666 848 Total lease costs $ 2,813 $ 2,630 Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands): Three Months Ended March 31, 2021 2020 (Unaudited) Operating cash flows for operating leases $ 1,679 $ 1,355 Future minimum lease payments as of March 31, 2021, including $ 4.9 million related to options to extend lease terms that are reasonably certain of being exercised, are presented in the following table (in thousands). Common area maintenance costs and taxes are not included in these payments. Years ending December 31: Operating Leases 2021 (excluding the three months ended March 31, 2021) $ 5,193 2022 6,889 2023 5,135 2024 3,622 2025 3,183 Thereafter 2,487 Total future minimum lease payments 26,509 Less: Interest 4,799 Present value of operating lease liabilities $ 21,710 In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, a related party, whereby we leased approximately 6,883 square feet in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease runs from January 2021 through December 2027, and includes an option to extend the lease for an additional three-year term through December 2030. Base rent for the term of the lease is approximately $20,300 per month with an annual increase of 3% on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. See Note 9 , Related Party Agreements , for further information. There have been no other material changes related to our existing lease agreements from those disclosed in Note 8 of the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the Securities and Exchange Commission, or SEC, on April 22, 2021. 24 Table of Contents Commitments We did not enter into any significant contracts during the three months ended March 31, 2021, other than those disclosed in these condensed combined consolidated financial statements. In addition, we are also a party to various contracts with contract research organizations and contract manufacturers that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement. There have been no material changes in unconditional purchase commitments from those disclosed in Note 8 of the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the Securities and Exchange Commission, or SEC, on April 22, 2021. 9. Related Party Agreements We conduct business with several affiliates under written agreements and informal arrangements. Below is a summary of outstanding balances and a description of significant relationships (in thousands): March 31, 2021 December 31, 2020 (Unaudited) Due from related party – NantBio $ 1,294 $ 1,294 Due from related party – NantOmics 591 591 Due from related parties – Various 172 118 Total due from related parties $ 2,057 $ 2,003 Due to related party – NantWorks $ 12,799 $ 10,650 Due to related party – Duley Road 3,161 2,787 Due to related party – NantBio 943 943 Due to related party – Immuno-Oncology Clinic 503 271 Due to related party – Nant Capital 224 — Due to related party – NantPharma 187 187 Total due to related parties $ 17,817 $ 14,838 Related-party notes payable – Nant Capital $ 150,695 $ 109,246 Related-party notes payable – NantMobile 57,078 56,660 Related-party notes payable – NantWorks 52,165 51,546 Related-party notes payable – NCSC 37,348 36,901 Total related-party notes payable $ 297,286 $ 254,353 Our Executive Chairman, and principal stockholder, 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 Executive 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 of employee benefits, facilities and other direct or fairly allocated indirect costs that relate to the employees providing the services. During the three months ended March 31, 2021 and 2020, we recorded $ 1.8 million and $ 1.5 million, respectively, in selling, general and administrative expense , and $ 0.3 million and $ 1.0 million, respectively, of expense reimbursements under this arrangement in research and development expense , on the condensed combined consolidated statements of operations. 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. 25 Table of Contents As of March 31, 2021 and December 31, 2020, we owed NantWorks a net amount of $ 12.8 million and $ 10.7 million, respectively, for all agreements between the two affiliates, which is included in due to related parties on the condensed combined consolidated balance sheets . We also recorded $ 1.3 million and $ 1.1 million of prepaid expenses for services that have been passed through to the company from NantWorks as of March 31, 2021 and December 31, 2020, respectively, which are included in prepaid expenses and other current assets on the condensed combined consolidated balance sheets . In November 2015, we entered into a facility license agreement with NantWorks LLC, or NantWorks, a related party, 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 from May 2015 through December 2020. Base monthly rent for the initial lease term was $ 47,000 , with annual increases of 3% beginning in January 2017. In September 2020, we amended this agreement to extend the term of this lease through December 31, 2021 . Commencing January 1, 2021, the monthly rent increased 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 30 days’ prior written notice to the other party. In addition, we have a one-time option to extend the lease term through December 31, 2022. If we exercise the option to extend the lease through December 31, 2022, or continue on a month-to-month basis, the 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 condensed combined consolidated balance sheets, reflecting our belief that we will extend the term of this lease through December 31, 2022. Lease expense for this facility totaling $ 0.2 million and $ 0.1 million for the three months ended March 31, 2021 and 2020, respectively, was recorded in research and development expense , on the condensed combined consolidated statements of operations. 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 the company and NantWorks manages the administrative operations of the Clinic. Prior to June 30, 2019, one of our officers was an investigator or sub-investigator for all of our trials conducted at the Clinic. 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 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 $ 1.88 million were paid in July 2019 and October 2019, respectively. As amended, a conditional payment of $ 1.88 million shall be due and payable at such time, if any, that the payments made in July 2019 and October 2019 have been earned by the Clinic through the performance of services. On a quarterly basis, our prepayment is increased by 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 on June 22, 2020, we and NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) executed a clinical trial work order under our existing master agreement with the Clinic for an open-label, randomized, comparative Phase II study of NantCell’s proprietary IL‑15 superagonist (N‑803) and Aldoxorubicin Hydrochloride (Aldoxorubicin) and our PD‑L1.t‑haNK with standard-of-care chemotherapy versus standard-of-care chemotherapy for first and second-line treatment of locally or advanced metastatic pancreatic cancer. 26 Table of Contents During the three months ended March 31, 2021 and 2020, $ 0.3 million and $ 0.1 million, respectively, was recognized in research and development expense , on the condensed combined consolidated statements of operations related to clinical trial and research-related activities conducted for us by the Clinic. As of March 31, 2021 and December 31, 2020, we owed the Clinic $ 0.5 million and $ 0.3 million, respectively, for services excluded from the Clinic Agreement. As of March 31, 2021 and December 31, 2020, we had prepaid balances related to the Clinic Agreement of $ 4.6 million and $ 4.7 million, respectively. We anticipate that the remaining prepayment amount as of March 31, 2021 will be utilized in future periods as the Clinic provides additional services pursuant to the Clinic Agreement. NantBio, Inc. In March 2016, NantBio and the National Cancer Institute, or the NCI, entered into a cooperative research and development agreement. The initial five-year agreement covered NantBio and its affiliates, including us. Under the agreement, the parties collaborated on the preclinical and clinical development of proprietary recombinant natural killer cells and monoclonal antibodies in monotherapy and combination immunotherapies. In each of the contractual years under the agreement we paid $ 0.6 million to the NCI as a payment for services under the agreement. We recognized research and development expense related to this agreement ratably over a 12 -month period for each funding year and recorded $ 0.1 million of expense related to this agreement in each of the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, we recorded $ 0 and $ 0.1 million, respectively, in prepaid expenses and other current assets , on the condensed combined consolidated balance sheets related to this agreement. In August 2018, we entered into a supply agreement with NantCancerStemCell, LLC, or NCSC, a 60 % owned subsidiary of NantBio (with the other 40 % owned by Sorrento). Under this agreement, we agreed to supply VivaBioCell’s proprietary GMP-in-a-Box bioreactors and related consumables, made according to specifications mutually agreed to with both companies. The agreement has an initial term of five years and renews automatically for successive one-year terms unless terminated by either party in the event of material default upon prior written notice of such default and the failure of the defaulting party to remedy the default within 30 days of the delivery of such notice, or upon 90 days’ prior written notice by NCSC. No revenue was recognized during the three months ended March 31, 2021 and 2020. We recorded $ 0.3 million and $ 0.4 million of deferred revenue for bioreactors that were delivered but not installed as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, we recorded $ 0.9 million in due to related parties , on the condensed combined consolidated balance sheets related to this agreement. In 2018, we entered into a shared service agreement, pursuant to which, we are charged for services at cost, without mark-up or profit for NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services. In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects, comprising the majority of NantBio’s business, to the company. After the transfer, NantBio continued to make payments on our behalf for certain employee benefits and vendor costs related to the research and development projects that were transferred to the company. In addition, we settled certain employee bonuses and benefits that were accrued by NantBio for 2018. As of March 31, 2021 and December 31, 2020, we recorded a net receivable from NantBio of $ 1.3 million, which included $ 1.0 million for employee bonuses and $ 0.3 million for vendor costs we paid on behalf of NantBio. NantOmics In June 2019, we made a strategic decision and transferred certain employees from NantOmics, LLC, or NantOmics, a related party that is controlled by our Executive Chairman, to the company. After the transfer, we settled certain employee bonuses and benefits that were accrued by NantOmics for the year ended December 31, 2020 and recorded a $ 0.6 million receivable from NantOmics as of March 31, 2021 and December 31, 2020. 605 Doug St, LLC In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman, 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 % which began in July 2017. Lease expense of $ 0.2 million for this facility for each of the three months ended March 31, 2021 and 2020, respectively, is recorded in research and development expense , on the condensed combined consolidated statements of operations. As of March 31, 2021 and December 31, 2020, there were no balances due between the parties. 27 Table of Contents Duley Road, LLC In February 2017, Altor BioScience Corporation (succeeded by our wholly-owned subsidiary Altor BioScience, LLC), or Altor, through its wholly-owned subsidiary, entered into a lease agreement with Duley Road, LLC, or Duley Road, a related party, that is indirectly controlled by our Executive Chairman, for approximately 12,000 square feet of office and cGMP manufacturing facility space in El Segundo, California. The lease term is from February 2017 through October 2024. We have the option to extend the initial term for two consecutive five-year periods through July 2034. The monthly rent is $ 40,700 with annual increases of 3 % which began in November 2018. As of March 31, 2021 and December 31, 2020, we recorded rent payable to Duley Road of $ 1.5 million and $ 1.0 million, respectively. For the three months ended March 31, 2021 and 2020, we recorded rent expense of $ 0.4 million and $ 0.1 million, respectively, which is reflected in research and development expense , on the condensed combined consolidated statements of operations. Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California. The first lease is for the first floor of the building with approximately 5,650 square feet. The lease has a seven-year term commencing in September 2019. The second lease is for the second floor of the building with approximately 6,488 square feet. The lease has a seven-year term commencing in July 2019. Both floors of the building are used for research and development and office space. We have options to extend the initial terms of both leases for two consecutive five-year periods through 2036. The monthly rent for the two leases is $ 35,800 , which increases at a rate of 3 % per year. As of March 31, 2021 and December 31, 2020, we recorded $ 0.9 million and $ 0.7 million of leasehold improvement payables, respectively, and $ 0.8 million and $ 1.1 million of lease-related payables to Duley Road, which were included in due to related parties , on the condensed combined consolidated balance sheets. For each of the three months ended March 31, 2021 and 2020, we recorded $ 0.1 million of rent expense for the two leases, which is included in research and development expense , on the condensed combined consolidated statements of operations. The security deposits for the leases totals $ 0.1 million as of March 31, 2021 and December 31, 2020, which are included in other assets , on the condensed combined consolidated balance sheets. 605 Nash, LLC In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, a related party, whereby we leased approximately 6,883 square feet in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease runs from January 2021 through December 2027, and includes an option to extend the lease for an additional three-year term through December 2030. Base rent for the term of the lease is approximately $ 20,300 per month with an annual increase of 3 % on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. We are responsible for the build out of the facility space and have incurred costs of approximately $ 7.0 million as of March 31, 2021, which is reflected as construction in progress within property, plant and equipment, net , on the condensed combined consolidated balance sheets. We are also entitled to a tenant improvement allowance of $ 0.3 million associated with the buildout costs, which is recorded in prepaid expenses and other current assets on the condensed combined consolidated balance sheets. For the three months ended March 31, 2021, we recorded rent expense of $ 0.1 million, which is reflected in research and development expense on the condensed combined consolidated statements of operations. NantPharma In 2018, Altor BioScience, LLC and GlobeImmune, Inc. purchased a total of $ 0.2 million in laboratory equipment from NantPharma. As of March 31, 2021 and December 31, 2020, we recorded a $ 0.2 million payable to NantPharma. Related Party Notes Payable In December 2015, we executed a demand promissory note with Nant Capital. The note bears interest at a per annum rate of 5.0 %, compounded annually and computed on the basis of 365 or 366 days. In July 2020 and August 2020, we borrowed $ 10.0 million and $ 3.7 million from Nant Capital, respectively. In July 2020, this note was amended and restated to provide that all outstanding principal and accrued and unpaid interest is due and payable on September 30, 2025, and not on demand. The principal amount of advances made by the related party pursuant to these notes totaled $ 55.2 million, all of which was outstanding as of March 31, 2021 and December 31, 2020, respectively. Accrued and unpaid interest on this note totaled $ 4.0 million and $ 3.3 million as of March 31, 2021 and December 31, 2020, respectively. Amounts due under this promissory note are included in related-party notes payable , on the condensed combined consolidated balance sheets. 28 Table of Contents In June 2017, we executed a demand promissory note with NantWorks. The note bears interest at a per annum rate of 5.0 %, compounded annually and computed on the basis of 365 or 366 days. In July 2020, this note was amended and restated to provide that all outstanding principal and accrued and unpaid interest is due and payable on September 30, 2025, and not on demand. We may prepay the outstanding principal amount at any time without premium or penalty and the prior consent of NantWorks. All outstanding amounts under the note will also become immediately due and payable upon certain bankruptcy and insolvency-related events. The principal amount of advances made by the related party pursuant to these notes totaled $ 43.4 million , all of which was outstanding as of March 31, 2021 and December 31, 2020, respectively. Accrued and unpaid interest on this note totaled $ 8.8 million and $ 8.1 million as of March 31, 2021 and December 31, 2020, respectively. Amounts due under this promissory note are included in related-party notes payable , on the condensed combined consolidated balance sheets. In August 2018, we executed a demand promissory note with NCSC. The note bears interest at a per annum rate of 5.0 %, compounded annually and computed on the basis of 365 or 366 days. In July 2020, this note was amended and restated to provide that all outstanding principal and accrued and unpaid interest is due and payable on September 30, 2025, and not on demand. All amounts outstanding under the note will also become immediately due and payable upon certain bankruptcy and insolvency-related events. The principal amount of advances made by the related party pursuant to these notes totaled $ 33.0 million, all of which was outstanding as of March 31, 2021 and December 31, 2020, respectively. Accrued and unpaid interest on this note amounted to $ 4.3 million and $ 3.9 million as of March 31, 2021 and December 31, 2020, respectively. Amounts due under this promissory note are included in related-party notes payable , on the condensed combined consolidated balance sheets. In December 2019, we executed a demand promissory note with NantMobile. The note bears interest at a per annum rate of 3.0 %, compounded annually and computed on the basis of 365 or 366 days. In July 2020, this note was amended and restated to provide that all outstanding principal and accrued and unpaid interest is due and payable on September 30, 2025, and not on demand. We may prepay the outstanding principal amount at any time without premium or penalty and the prior consent of NantMobile. All amounts outstanding under the note will also become immediately due and payable upon certain bankruptcy and insolvency-related events. The principal amount advanced by the related party pursuant to this note was $ 55.0 million, all of which was outstanding as of March 31, 2021 and December 31, 2020, respectively. Accrued and unpaid interest on this note amounted to $ 2.1 million and $ 1.7 million as of March 31, 2021 and December 31, 2020, respectively. Amounts due under this promissory note are included in related-party notes payable , on the condensed combined consolidated balance sheets. In September 2020, we executed a promissory note with Nant Capital for an advance of the principal of $ 50.0 million, all of which was outstanding as of March 31, 2021 and December 31, 2020. The note bears interest at a per annum rate of 6.0 %, compounded annually and computed on the basis of 365 or 366 days. The outstanding principal and accrued and unpaid interest are due and payable on September 30, 2025. Accrued and unpaid interest on this note amounted to $ 1.5 million and $ 0.8 million as of March 31, 2021 and December 31, 2020, respectively. Amounts due under this promissory note are included in related-party notes payable , on the condensed combined consolidated balance sheets. In February 2021, we executed a promissory note with Nant Capital. The outstanding principal amount of each advance made by Nant Capital bears interest at a per annum rate of 6.0 %, compounded annually and computed based on 365 or 366 days. On February 26, 2021, we received a $ 40.0 million advance pursuant to this promissory note, all of which is outstanding as of March 31, 2021. The accrued interest shall be paid quarterly commencing on June 30, 2021. The outstanding principal amount and any accrued and unpaid interest are due on September 30, 2025. We may prepay the outstanding principal amount and accrued interest at any time without premium or penalty and the prior consent of Nant Capital. Accrued interest payable on this note amounted to $ 0.2 million as of March 31, 2021, and was included in due to related parties , on the condensed combined consolidated balance sheets. The principal amount due under this promissory note is included in related-party notes payable , on the condensed combined consolidated balance sheets. All demand promissory notes have no equity or equity-linked convertible rights. 29 Table of Contents 10. Stockholders’ Deficit Merger with NantCell Under the terms of the Merger Agreement, at the Effective Time of the Merger, each share of NantCell common stock , par value $0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 newly issued shares of common stock , par value $ 0.0001 per share, resulting in the issuance of approximately 273.7 million shares of Company Common Stock. From and after the Effective Time, all of such NantCell shares ceased to be outstanding, were canceled and ceased to exist. At the Effective Time, each share of our common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. Since the Merger has been accounted for as a transaction between entities under common control, the outstanding shares presented on the condensed combined consolidated financial statements assume that NantCell outstanding common stock was converted into shares of Company Common Stock for all periods presented, and in connection with the conversion, those shares of common stock have been recorded at the company’s par value of $ 0.0001 per share. Stock Repurchases In November 2015, the board of directors approved a share repurchase program, or the 2015 Share Repurchase Program, allowing the Chief Executive officer, or CEO, or Chief Financial Officer, 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. Shares repurchased under this program are formally retired through board approval upon repurchase. No shares were repurchased during the three months ended March 31, 2021 and 2020. As of March 31, 2021, $ 18.3 million remained authorized for repurchase under the 2015 Share Repurchase Program. Common Stock Reserved for Future Issuance As of March 31, 2021, a total of approximately 12.6 million shares of common stock were reserved for issuance, including awards issued under the NC 2015 Plan that were outstanding immediately prior to the Effective Time of the Merger. At the Effective Time, all outstanding equity awards granted under the NC 2015 Plan to purchase NantCell common stock were converted into equity awards to purchase shares of Company Common Stock (using the Merger Exchange Ratio of 0.8190 ), on the same terms and conditions as immediately prior to the Effective Time. As of March 31, 2021, there were approximately 7.0 million RSUs and 1.3 million stock options outstanding under the NC 2015 Plan, and there were no additional shares available for future grant. 11. Stock-Based Compensation 2015 Equity Incentive Plan In July 2015, the company’s board of directors adopted, and the company’s stockholders approved the 2015 Plan. As of March 31, 2021, 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. As of March 31, 2021, a total of approximately 6.2 million shares were available for future grant under the 2015 Plan. 30 Table of Contents Stock-based Compensation The following table presents stock-based compensation included on the condensed combined consolidated statements of operations (in thousands): Three Months Ended March 31, 2021 2020 (Unaudited) Stock-based compensation expense: Stock options $ 6,355 $ 130 RSUs 8,943 350 $ 15,298 $ 480 Stock-based compensation expense in operating expenses: Research and development $ 2,888 $ 161 Selling, general and administrative 12,410 319 $ 15,298 $ 480 On March 18, 2021, the Board of Directors approved to modify certain non-qualified stock options that were assumed in the Merger and otherwise would have expired during a period when the grantees were legally restricted from exercising these awards. The expiration date of these options was extended to thirty (30) days following our registration statement effective date. We recognized incremental stock-based compensation expense of approximately $ 2.7 million for this stock option modification. On March 29, 2021, in connection with the resignation of two former directors, the Board of Directors approved the acceleration of vesting of 83,333 shares of unvested stock options of each of the former directors on the date of their respective resignations. The modified options are exercisable for ninety (90) days after the date of the modification. We recognized incremental stock-based compensation expense of approximately $ 2.3 million for this stock option modification. The stock option modifications were measured as the excess of the fair value of the modified awards over the fair value of the original awards immediately before the modifications. The incremental stock-based compensation was recognized in selling, general and administrative expenses , on the condensed combined consolidated statements of operations during the three months ended March 31, 2021. Stock Options The following table summarizes stock option activity and related information for three months ended March 31, 2021: Number of Shares Weighted- Average Exercise Price Aggregate Intrinsic Value (in thousands) Weighted- Average Remaining Contractual Life (in years) Outstanding at December 31, 2020 4,996,284 $ 9.96 $ 29,746 4.7 Options granted 750,000 $ 23.72 Options exercised ( 752,310 ) $ 2.39 Options forfeited ( 15,660 ) $ 6.27 Outstanding at March 31, 2021 4,978,314 $ 13.21 $ 54,279 5.4 Vested and exercisable at March 31, 2021 3,815,630 $ 12.07 $ 46,363 4.2 31 Table of Contents On February 5, 2021, the compensation committee of the board of directors of the c ompany granted Richard Adcock, our c hief e xecutive o fficer, a stock option award (the “ Option Grant”) to purchase 750,000 shares of our common stock pursuant to our 2015 Plan. The Option Grant has an exercise price of $ 23.72 per share, the closing price as reported on the Nasdaq on the date of grant. In addition, the Option Grant shall vest according to the following vesting schedule: one-third of the Option Grant (i.e., 250,000 options) shall vest in equal installments on each of the first, second, and third anniversaries of the date of grant, such that all shares shall be fully vested on the third anniversary of the date of grant , subject to Mr. Adcock remaining in c ontinuous s ervice as defined in the 2015 Plan through the applicable vesting dates. This grant of equity awards to Mr. Adcock was made in connection with his appointment as c hief e xecutive o fficer of the c ompany, which was effective as of October 26, 2020, and was modified from the recommended equity grant described in Mr. Adcock’s offer of employment as of that date. As of March 31, 2021, the unrecognized compensation cost related to outstanding stock options was $ 13.9 million, which is expected to be recognized over a remaining weighted-average period of 2.8 years. The total intrinsic value of stock options exercised during the three months ended March 31, 2021 was $ 11.1 million. Cash proceeds received from stock option exercises during the three months ended March 31, 2021 was $ 1.1 million. There were no stock options exercised during the three months ended March 31, 2020. As of December 31, 2020, a total of 4,345,497 vested and exercisable shares were outstanding. The fair value of each stock option issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: Three Months Ended March 31, 2021 (Unaudited) Expected term (in years) 6.0 Risk-free interest rate 0.6 % Expected volatility 100.5 % Dividend yield 0.0 % Weighted-average grant date fair value $ 18.63 The expected term was estimated using the average of the contractual term and the weighted-average vesting term of the options. The risk-free interest rate was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The expected volatility was estimated based on the historical volatility of our common stock. The assumed dividend yield was based on our expectation of not paying dividends in the foreseeable future. There were no stock options granted during the three months ended March 31, 2020. Restricted Stock Units The following table summarizes RSU activity for the three months ended March 31, 2021: Number of Shares Weighted- Average Grant Date Fair Value Unvested balance at December 31, 2020 466,842 $ 2.52 Granted 7,521,110 $ 25.35 Vested ( 235,725 ) $ 16.34 Forfeited/canceled ( 116,095 ) $ 25.49 Unvested balance at March 31, 2021 7,636,132 $ 24.23 As of March 31, 2021, there was $ 179.2 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 3.9 years. We may grant RSUs to both employees and directors of the company and to employees of related parties that provide shared services to the company under our shared services agreement with NantWorks as discussed in Note 9 , Related Party Agreements . 32 Table of Contents On February 5, 2021, the compensation committee of the board of directors of the c ompany granted Mr. Adcock two awards totaling 400,000 RSUs (each an “RSU Award” and collectively, the “RSU Awards”) of our common stock pursuant to the 2015 Plan. The RSU Awards are comprised of two separate awards, one settled by issuing 150,000 shares of our common stock and the other to be settled by issuing 250,000 shares of our common stock upon vesting. The first RSU Aw a rd vested immediately on the date of grant with the c ompany retaining shares equal in value to the c ompany’s tax withholding obligations. The second RSU Aw a rd will vest according to the following schedule: one-third (i.e. 83,333 ) of the shares subject to the RSU Aw a rd shall vest in equal annual installments on each of the first, second and third anniversaries of the date of grant , such that all shares shall be fully vested on the third anniversary of the date of g rant, subject to Mr. Adcock remaining in c ontinuous s ervice as defined in the 2015 Plan through the applicable vesting dates. This grant of equity awards to Mr. Adcock was made in connection with his appointment as c hief e xecutive o fficer of the c ompany, which was effective as of October 26, 2020, and was modified from the recommended equity grant described in Mr. Adcock’s offer of employment as of that date. On March 4, 2021, prior to the Merger, NantCell awarded 7,121,110 RSUs (adjusted for the exchange ratio of 0.8190 ) to employees and consultants of NantCell and its affiliated companies, pursuant to the NC 2015 Plan. These RSU awards were subject to a performance condition in connection with a “Liquidity Event”, defined as either (i) NantCell’s registration of shares for issuance on a securities offering or (ii) the closing of a corporate transaction. In addition, the vesting of certain performance-based RSU grants accelerates upon obtaining approval by the FDA of a BLA or equivalent application for approval of Anktiva for use in the treatment of non-muscle-invasive bladder cancer. These performance-based RSUs are also subject to service conditions and are scheduled to cliff vest on the last date of each tranche as defined by the individual grant agreements. On March 9, 2021, we completed the Merger with NantCell, and the performance condition related to the Liquidity Event was met. The fair value of the RSUs was estimated based on a third-party valuation as of the grant date of March 4, 2021 and was derived primarily from the estimated probabilities of the Merger close on March 9, 2021 and the other exit assumptions. Once the liquidity event related performance condition was met as of March 9, 2021 due to the Merger, compensation expense for these RSUs began to be recognized on a graded vesting attribution approach over the requisite service period for each participant, which ranges from six-month to seventy (70)-month vesting periods. During the three months ended March 31, 2021, we recognized approximately $ 5.1 million of stock-based compensation expense related to these awards, of which approximately $ 2.9 million was recorded in research and development expense , and approximately $ 2.2 million was recorded in selling, general and administrative expense , respectively, on the condensed combined consolidated statements of operations. The RSUs awarded to employees and consultants of affiliated companies were accounted for as stock-based compensation in accordance with ASU 2018-07, Compensation—Stock Compensation (Topic 718) , as the compensation was in exchange for continued support or services expected to be provided to the company over the vesting periods under the NantWorks shared services agreement discussed in Note 9 , Related Party Agreements . We have evaluated the associated benefit of these awards to the affiliated companies under common control and determined that the benefit is limited to the retention of their employees. We estimated such benefit at the grant date fair value of $ 4.0 million and recognized $ 0.1 million of deemed dividends for the three months ended March 31, 2021, which was recorded in additional paid in capital, on the condensed combined consolidated balance sheets, with a corresponding credit to stock compensation expense. Warrants In connection with the Merger, warrants issued to NantWorks, a related party, in connection with NantCell’s acquisition of Altor were assumed by the company. After applying the Exchange Ratio at the Effective Time of the Merger, a total of 1,638,000 warrants with an exercise price of $ 3.24 per share, with vesting subject to the achievement of a certain performance condition pertaining to building manufacturing capacity, were outstanding as of March 31, 2021. The fair value of $ 18.0 million assigned to the unvested warrants will be recognized upon achievement of a performance-based vesting condition pertaining to building manufacturing capacity to support supply requirements for one of our product candidates . 12. Income Taxes On March 9, 2021, the company completed the Merger with NantCell. The merger is accounted for as a transaction between entities under common control. The Merger is also considered a nontaxable transaction for U.S. income tax purposes and it is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. The company is subject to taxation in the United States, various state, and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. No tax benefit was provided for losses incurred in the United States, Italy, and South Korea because those losses are offset by a full valuation allowance. 33 Table of Contents The difference between the federal statutory tax rate of 21 % and the company’s 0 % tax rate is due to losses from which the company cannot benefit. The company is no longer subject to income tax examination by the U.S. federal, state or local tax authorities for years ended December 31, 2015 or prior; however, its tax attributes, such as net operating loss (“NOL”) carryforwards and tax credits, are still subject to examination in the year they are used. 13. Subsequent Events Immuno-Oncology Clinic, Inc. Agreement During April 2021, ImmunityBio executed two work orders under an existing master agreement with Immuno-Oncology Clinic, Inc. (the “Clinic”), a related party. Under these work orders, the parties agreed that the Clinic would serve as a site for the following multi-site clinical trials: • A Phase I study of the safety, reactogenicity, and immunogenicity of subcutaneously- and orally-administered supplemental spike & nucleocapsid-targeted COVID ‑ 19 vaccine to enhance T cell-based immunogenicity in participants who have already received a vaccine authorized for emergency use; and • A Phase I study of the safety, reactogenicity, and immunogenicity of a supplemental spike & nucleocapsid-targeted COVID ‑ 19 vaccine to enhance T cell-based immunogenicity in participants who have already received a vaccine authorized for emergency use. Pursuant to our existing agreement with the Clinic, our share of qualifying expenses shall be deducted from amounts previously paid to the Clinic as described in further detail in Note 9 , Related Party Agreements . We expect to incur up to $ 0.2 million of qualifying clinical trial expenses under each work order, subject to changes dependent on clinical trial enrollments and progress. Open Market Sale Agreement On April 30, 2021, we entered into an Open Market Sale Agreement (the “Sale Agreement”) with respect to an at-the-market (“ATM”) offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $ 500.0 million through our sales agent. We will pay our sales agent a commission of up to 3.0 % of the gross sales proceeds of any shares of our common stock sold through them under the Sale Agreement, and also have provided them with customary indemnification and contribution rights. We are not obligated to sell any shares under the Sale Agreement and may at any time suspend solicitation and offers under the Sale Agreement. The Sale Agreement may be terminated by us at any time given written notice to the sales agent for any reason or by the sales agent at any time by giving written notice to us for any reason or immediately under certain circumstances, and shall automatically terminate upon the issuance and sale of all of the shares. 34 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-Looking Statements The following discussion and analysis should be read together with our condensed combined consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to: • our ability to pioneer immunotherapy, harness the power of the innate immune system, implement precision cancer medicine and change the current paradigm of cancer care; • our ability to implement and support our COVID ‑ 19 vaccine and therapeutic programs; • any impact of the coronavirus pandemic, or responses to the pandemic, on our business, clinical trials or personnel; • our expectations regarding the potential benefits of our strategy and technology; • our expectations regarding the operation of our product candidates and related benefits; • our ability to utilize multiple modes to induce cell death; • our beliefs regarding the benefits and perceived limitations of competing approaches, and the future of competing technologies and our industry; • details regarding our strategic vision and planned product candidate pipeline, including that we eventually plan to advance therapies for virally induced infectious diseases; • our beliefs regarding the success, cost and timing of our product candidate development activities and current and future clinical trials and studies, including study design; • our expectations regarding our ability to utilize the Phase I and II aNK and haNK clinical trials data to support the development of our product candidates, including our haNK, taNK, t‑haNK, MSC and ceNK product candidates; • our expectations regarding the development, application, commercialization, marketing, prospects and use generally of our product candidates, including Anktiva, hAd5 and aldoxorubicin; • the timing or likelihood of regulatory filings or other actions and related regulatory authority responses, including any planned investigational new drug, or IND; Biologics License Application, or BLA; or New Drug Application, or NDA, filings or pursuit of accelerated regulatory approval pathways or orphan drug status and Breakthrough Therapy designations; • our ability to implement an integrated discovery ecosystem and the operation of that planned ecosystem, including being able to regularly add neoepitopes and subsequently formulate new product candidates; • the ability and willingness of strategic collaborators, including certain affiliates of NantWorks, LLC, or NantWorks, to share our vision and effectively work with us to achieve our goals; • the ability and willingness of various third parties to engage in research and development activities involving our product candidates, and our ability to leverage those activities; • our ability to attract additional third-party collaborators; • our expectations regarding the ease of administration associated with our product candidates; • our expectations regarding the patient compatibility associated with our product candidates; • our beliefs regarding the potential markets for our product candidates and our ability to serve those markets; • our ability to produce an “off-the-shelf” therapy; • our beliefs regarding the potential manufacturing and distribution benefits associated with our product candidates, and our ability to scale up the production of our product candidates; 35 Table of Contents • our plans regarding our manufacturing facilit ies and our belief that our manufacturing is capable of being conducted in ‑house; • our belief in the potential of our antibody cytokine fusion protein, vaccine technology and NK-92 and ceNK cell therapy technology, and the fact that our business is based upon the success individually and collectively of our platforms; • our antibody cytokine fusion protein, vaccine technology and NK-92 and ceNK cell therapy technology along with other product candidate families, will require significant additional clinical testing; • even if we successfully develop and commercialize specific product candidates like our Anktiva or haNK and t‑hank, we may not be successful in developing and commercializing our other product candidates either alone or in combination with other therapeutic agents; • the ability to obtain and maintain regulatory approval of any of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate; • our ability to commercialize any approved products; • the rate and degree of market acceptance of any approved products; • our ability to attract and retain key personnel; • the accuracy of our estimates regarding our future revenue, as well as our future operating expenses, capital requirements and needs for additional financing; • our ability to obtain funding for our operations, including funding necessary to complete further development and any commercialization of our product candidates; • our ability to obtain, maintain, protect and enforce intellectual property protection for our product candidates and technology and not infringe upon, misappropriate or otherwise violate the intellectual property of others; • the terms and conditions of licenses granted to us and our ability to license additional intellectual property relating to our product candidates and technology; • the impact on us, if any, if the contingent value rights, or CVRs, held by former Altor stockholders become due and payable in accordance with their terms; and • regulatory developments in the United States, or U.S., and foreign countries. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q . Given these uncertainties, you should not place undue reliance on these forward-looking statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q . Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. 36 Table of Contents This Quarterly Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q , including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us , by any other companies. In this Quarterly Report on Form 10-Q, “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries. Overview We established ImmunityBio to advance the next-generation of immunotherapies and to address unmet needs within oncology and infectious disease. Our platform is designed to overcome limitations of the current standards of T cell-based immunotherapies, including checkpoint inhibitors and CAR-T cells and is based on our four key modalities: (1) activating NK and T cells using antibody cytokine fusion proteins, (2) activating tumoricidal macrophages using low-dose synthetic immunomodulators, (3) generating memory T cells using vaccine candidates developed with our second-generation adenovirus, or hAd5, technology, and (4) off-the-shelf natural killer cells from the NK-92 cell line and memory-like cytokine-enhanced natural killer cells (m-ceNK) from allogenic and autologous donors. We own a broad, clinical-stage immunotherapy pipeline, including an antibody cytokine fusion protein (an IL-15 superagonist (N-803) known as Anktiva), an albumin-associated anthracycline synthetic immunomodulator (aldoxorubicin), second-generation adenovirus (hAd5) and yeast vaccine technologies (targeting tumor-associated antigens and neoepitopes), off-the-shelf genetically engineered natural killer cell lines inducing cancer and virally infected cell death through a variety of concurrent mechanisms (including innate killing, antibody-mediated killing, and CAR-directed killing), patient specific NK cell product for cancer that is an autologous Memory cytokine enhanced Natural Killer cells, macrophage polarizing peptides, and bi-specific fusion proteins targeting CD20, PD-L1, TGF- b and IL-12. Our immunotherapy clinical pipeline consists of over 40 clinical trials in Phase 1, 2, or 3 development across 19 indications in solid and liquid cancers and infectious diseases. We have an expansive clinical-stage pipeline and intellectual property portfolio with 17 first-in-human assets in 25 Phase II to III clinical trials. In December 2019, the U.S. Food and Drug Administration , or FDA, granted Breakthrough Therapy designation to Anktiva for bacillus Calmette-Guérin, or BCG, unresponsive carcinoma in situ non-muscle invasive bladder cancer. Other indications currently with registration-potential studies include BCG unresponsive papillary bladder cancer, first- and second-line lung cancer, and metastatic pancreatic cancer. The Merger On December 21, 2020, we and NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) (“NantCell”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we and NantCell agreed to combine our businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the “Merger”), with NantCell surviving the Merger as a wholly-owned subsidiary of the company. On March 9, 2021, we completed the Merger pursuant to the terms of the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 (the “Exchange Ratio”) newly issued shares of common stock, par value $ 0.0001 per share, of the company (“Company Common Stock”), with cash paid in lieu of any fractional shares. At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase NantCell common stock was converted using the Exchange Ratio into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock. 37 Table of Contents Immediately following the Effective Time, the former stockholders of NantCell held approximately 7 1 . 5 % of the outstanding shares of Company Common Stock and the stockholders of the company as of immediately prior to the Merger held approximately 28 .5 % of the outstanding shares of Company Common Stock. As a result of the Merger and immediately following the Effective Time, Dr. Patrick Soon-Shiong, our E xecutive C hairman, and his affiliates beneficially own, in the aggregate, approximately 8 1.8 % of the outstanding shares of Company Common Stock. Following the consummation of the Merger, shares of the company’s common stock are now listed on the Nasdaq Global Select Market under the symbol “IBRX.” We incurred costs totaling $23.2 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, of which $12.9 million was recorded during the three months ended March 31, 2021. Accounting Treatment of the Merger The Merger represents a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805-50, Mergers , which is accounted for as a transaction between entities under common control as Dr. Soon‑Shiong and his affiliates were the controlling stockholders of each of the company and NantCell for all the periods presented in this report. As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger. We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the condensed consolidated financial statements presented in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. All material intercompany accounts and transactions have been eliminated in consolidation. Coronavirus Pandemic In March 2020, the World Health Organization declared the novel strain of coronavirus disease (SARS‑CoV‑2) a pandemic. To date, our operations have not been significantly disadvantaged by the pandemic. However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials. More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist for the foreseeable future. The impact of the pandemic on our financial performance will depend on future developments, including the duration and spread of the outbreak, impact of potential variants and the related governmental advisories and restrictions. These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected. Given the unprecedented and continuously evolving nature of the pandemic, the future impact of these changes and potential changes on the company are unknown at this time. To date, we have seen no material adverse impact to our business from the pandemic. We anticipate, however, that enrollment of patients in certain studies will likely take longer than forecasted in prior Securities and Exchange Commission, or SEC, filings and that our clinical trials may require additional time to complete which would in turn impact the timeline in which we were previously forecasting BLA submissions of our product candidates and subsequent revenue generation. These factors have been accounted for in the company’s anticipated upcoming milestones. During any such delays in our clinical trials, we will continue to incur fixed costs such as selling, general and administrative expenses and operating expenses related to our laboratory, Good Manufacturing Practice, or GMP, manufacturing, and office facilities. Many of our office-based employees have been working from home since mid-March 2020. Essential staffing levels for our research and development operations remain in place, including maintaining key personnel in our laboratory and GMP manufacturing facilities. It is likely that the pandemic and resulting mitigation efforts could have an impact in the future on our third-party suppliers who manufacture laboratory supplies required for our in-house manufacturing process, which in turn could have an impact on having sufficient clinical product supply available for our clinical trials. We have addressed this in part by ensuring that we have sufficient supplies on hand to weather interruptions in our supply chain. There is significant uncertainty about the progression and ultimate impact of the pandemic on our business and operations. While the pandemic did not materially impact our results during the periods presented in this Quarterly Report on Form 10-Q, we anticipate that it could impact our business in the future due to factors such as fewer patients accessing treatment for cancer. 38 Table of Contents Operating Results To date, we have generated minimal revenue from non-exclusive license a g reements related to our cell li n es, the sale of our bioreactors and related consumables and grant programs. We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. We have incurred net losses in each year since our inception and, as of March 31, 2021, we had an accumulated deficit of $1.7 billion. Our net losses attributable to ImmunityBio common stockholders were $79.6 million and $37.0 million for the three months ended March 31, 2021 and 2020, respectively, and $221.9 million and $157.8 million for the years ended December 31, 2020 and 2019, respectively. Substantially all of our net losses resulted principally from costs incurred in connection with our ongoing clinical trials and operations, our research and development programs, and from selling, general and administrative costs associated with our operations, including stock-based compensation expense. As of March 31, 2021, we had 475 employees. Personnel of related companies who provide corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy and other support services under our shared services agreement with NantWorks are not included in this number. For additional information, see Note 9 , Related Party Agreements, of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q . We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year. See “— Future Funding Requirements ” below for a discussion of our anticipated expenditures and sources of capital we expect to access to fund these expenditures. Collaboration Agreements We anticipate that strategic collaborations will become an integral part of our operations, providing opportunities to leverage our partners’ expertise and capabilities to further expand the potential of our technologies and product candidates. We believe we are well positioned to become a leader in immunotherapy due to our broad and vertically integrated platform and through complementary strategic partnerships. We may also enter into supply arrangements for various investigational agents to be used in our clinical trials. See Note 7 , Collaboration and License Agreements , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our existing collaboration and license agreements. Agreements with Related Parties We conduct business with several affiliates under written and informal arrangements. Our Executive Chairman, and principal stockholder, founded and has a controlling interest in NantWorks, which is a collection of multiple companies in the healthcare and technology space. We have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman. As of March 31, 2021, we have outstanding promissory notes with certain entities affiliated with Dr. Soon-Shiong in an aggregate amount of $297.5 million, including accrued interest. The notes bear interest at a per annum rate ranging from 3.0% to 6.0%. As of March 31, 2021, the notes provide that all outstanding principal is due and payable on September 30, 2025, and accrued and unpaid interest is payable on either the maturity date or, with respect to one of the notes, on a quarterly basis beginning June 30, 2021. We may prepay the outstanding amount of any advance under such notes, together with accrued and unpaid interest, at any time, in whole or in part, without premium or penalty. 605 Nash, LLC In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, a related party, whereby we leased approximately 6,883 square feet in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease runs from January 2021 through December 2027, and includes an option to extend the lease for an additional three-year term through December 2030. Base rent for the term of the lease is approximately $20,300 per month with an annual increase of 3% on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. 39 Table of Contents Promissory Note with Nant Capital In February 2021, we executed a promissory note with Nant Capital. The outstanding principal amount of each advance made by Nant Capital bears interest at a per annum rate of 6.0%, compounded annually and computed based on 365 or 366 days. On February 26, 2021, we received a $40.0 million advance pursuant to this promissory note, all of which is outstanding as of March 31, 2021. The accrued interest shall be paid quarterly commencing on June 30, 2021. The outstanding principal amount and any accrued and unpaid interest are due on September 30, 2025. We may prepay the outstanding principal amount and accrued interest at any time without premium or penalty and the prior consent of Nant Capital. See Note 9 , Related Party Agreements , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our related party agreements. Components of our Results of Operations Revenue To date, we have generated minimal revenue from non-exclusive license a g reements related to our cell li n es, the sale of our bioreactors and related consumables and grant programs. We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. If we fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval for them, we may never be able to generate substantial future revenue. Operating Expenses We generally classify our operating expenses into research and development, and selling, general and administrative expenses. Personnel costs, including salaries, benefits, bonuses, and stock-based compensation expense comprise a significant component of our research and development, and selling, general and administrative expense categories. We allocate expenses associated with our facilities and information technology costs between these two categories based on the nature of each cost. Research and Development Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our technology and product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily consists of: • clinical trial and regulatory-related costs; • expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials; • expenses incurred under collaborative agreements; • manufacturing and testing costs and related supplies and materials; • employee-related expenses, including salaries, benefits, travel and stock-based compensation; and • facility expenses dedicated to research and development. We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs. We expect our research and development expenses to continue to increase significantly for the foreseeable future as we advance our product candidates through clinical development, including the conduct of our ongoing and any future clinical trials. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. 40 Table of Contents The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following: • per patient trial costs; • the number of sites included in the clinical trials; • the countries in which the clinical trials are conducted; • the length of time required to enroll eligible patients; • the number of patients that participate in the clinical trials; • the number of doses that patients receive; • the cost of comparative agents used in clinical trials; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring or other studies requested by regulatory agencies; • the duration of patient follow-up; and • the efficacy and safety profile of the product candidate. We do not expect any of our product candidates to be commercially available for at least the next 12 to 24 months, if ever. Selling, General and Administrative Selling, general and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development. This includes personnel in executive, finance, human resources, information technology, legal, and administrative support functions. Other selling, general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, professional fees for auditing, tax and legal services, advertising costs, expenses associated with strategic business transactions and business development efforts, obtaining and maintaining patents, consulting costs, royalties and licensing costs, and costs of our information systems. We expect that our selling, general and administrative expenses will increase for the foreseeable future as we expand operations, build out information systems and increase our headcount to support continued research activities and the development of our clinical programs. We have incurred and expect that we will continue to incur in the future, additional costs associated with operating as a public company, including costs to comply with stock exchange listing and SEC requirements, future funding efforts, corporate governance, internal controls, investor relations, disclosure and similar requirements applicable to public companies. Additionally, if and when we believe that a regulatory approval of a product candidate appears likely, we expect to incur significant increases in our selling, general and administrative expenses relating to the sales and marketing of the approved product candidate. Other Income and Expense Other income and expense consists primarily of interest income, interest expense, unrealized gains and losses on investments in equity securities, realized gains and losses on both debt and equity securities, and gains and losses on foreign currency transactions. Income Taxes The company is subject to taxation in the United States, various state, and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. To date, we have not been required to pay U.S. federal income taxes or foreign income taxes because of our or our subsidiaries’ current and accumulated net operating losses. 41 Table of Contents Results of Operations Comparison of the three months ended March 31, 2021 and 2020 Three Months Ended March 31, 2021 2020 $ Change % Change (Unaudited, $ in thousands) Revenue $ 139 $ 165 $ (26 ) (16 %) Operating expenses: Research and development (including amounts with related parties) 41,128 27,374 13,754 50 % Selling, general and administrative (including amounts with related parties) 45,275 9,493 35,782 377 % Total operating expenses 86,403 36,867 49,536 134 % Loss from operations (86,264 ) (36,702 ) (49,562 ) 135 % Other income (expense): Interest and investment income, net 8,944 78 8,866 11367 % Interest expense (including amounts with related parties) (3,168 ) (1,889 ) (1,279 ) 68 % Other income, net (including amounts with related parties) 13 1,104 (1,091 ) (99 %) Total other income (expense) 5,789 (707 ) 6,496 (919 %) Loss before income taxes and noncontrolling interests (80,475 ) (37,409 ) (43,066 ) 115 % Income tax expense (6 ) (18 ) 12 (67 %) Net loss $ (80,481 ) $ (37,427 ) $ (43,054 ) 115 % Research and Development Expense Research and development expense increased $13.8 million during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. The increase in research and development expense was primarily driven by higher laboratory supply expenses of $4.9 million mainly driven by our COVID ‑ 19 programs, increased stock compensation expense of $2.7 million due to new grants issued, higher compensation related expenses including shared services costs of $1.9 million driven by additional headcount needed to support our business activities, increased clinical trial expenses and regulatory costs of $1.7 million related to our COVID ‑ 19 programs, higher third party testing services of $1.3 million driven by release testing related to various product candidates, and higher manufacturing costs, including facilities expenses and equipment maintenance costs of $1.1 million related to our Anktiva and COVID ‑ 19 programs. We expect our research and development expense to increase significantly for the foreseeable future as we advance our product candidates through clinical development and conduct our ongoing and planned clinical trials. Selling, General and Administrative Expense Selling, general and administrative expense increased $35.8 million during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. The increase in selling, general and administrative expense was primarily attributable to higher financial advisory, legal, public company and other professional fees of $21.0 million related to our merger which was announced in December 2020 and closed in March 2021 as well as higher costs associated with ongoing litigation, contracting, trademark, and patent related legal fees and other matters, higher stock compensation expense of $12.1 million driven by stock options and RSUs granted as well as stock option modifications resulting in incremental stock based compensation expense in the first quarter of 2021, increased insurance costs of $2.0 million due mostly to higher directors’ and officers’ renewal rates and increased coverage related to the combined company, and higher compensation related expenses including shared services costs of $0.6 million. 42 Table of Contents Other Inc ome and Expense Other income increased $6.5 million during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. This increase was mainly due to unrealized gains of $8.8 million related to our equity investments. These gains were partially offset by a $1.3 million increase in interest expense driven primarily by additional related party borrowings and a decrease in other income of $1.1 million related to Receptome, LLC. Liquidity and Capital Resources Sources of Liquidity Our principal sources of liquidity are our existing cash, cash equivalents, and marketable securities. We have historically invested our cash primarily in investment grade short- to intermediate-term corporate debt securities, commercial paper, government-sponsored securities, U.S. treasury securities, and foreign government bonds and classify these investments as available-for-sale. Certain of these investments are subject to general credit, liquidity and other market risks. The general condition of the financial markets and the economy may increase those risks and may affect the value and liquidity of investments and restrict our ability to access the capital markets. As of March 31, 2021, we had cash and cash equivalents, and marketable securities of $84.3 million compared to $97.0 million as of December 31, 2020. In order to complete the development of our current product candidates, and implement our business plan, we will require substantial additional funding. Furthermore, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to raise even greater amounts of funds sooner if we choose to expand more rapidly than we presently anticipate. Moreover, our fixed expenses such as rent and other contractual commitments are substantial and are expected to increase in the future. Uses of Liquidity In addition to the cash used to fund our operating activities discussed in “ —Future Funding Requirements ” below, we will require cash to settle the following obligations: As of March 31, 2021, we had related-party notes payable together with accrued interest thereon of $297.5 million compared to $254.4 million as of December 31, 2020. During the three months ended March 31 2021, we received a $40.0 million advance pursuant to a related-party promissory note. Such notes bear interest at 3% to 6% per year and may be prepaid by us without penalty. The notes allow for additional advances as we may request with the consent of the applicable lender. With the exception of interest on the recent $40.0 million advance, all outstanding principal and accrued and unpaid interest on these notes are due and payable on September 30, 2025. In connection with our acquisition of Altor, we issued CVRs under which we have agreed to pay the prior stockholders of Altor approximately $304.0 million upon successful approval of the BLA or foreign equivalent for Anktiva by December 31, 2022 and approximately $304.0 million upon the first calendar year prior to December 31, 2026 in which worldwide net sales of Anktiva exceed $1.0 billion (with payments payable in cash or shares of our common stock or a combination thereof). Dr. Soon-Shiong and his related party hold approximately $279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of common stock in satisfaction of their CVRs. We may need to seek additional sources of capital to satisfy the CVR obligations if they are achieved. 43 Table of Contents Cash Flows The following table sets forth our primary sources and uses of cash for periods indicated: Three Months Ended March 31, 2021 2020 (Unaudited) Cash provided by (used in): Operating activities $ (60,469 ) $ (31,107 ) Investing activities 31,845 13,994 Financing activities 38,497 (123 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (109 ) 89 Net change in cash, cash equivalents, and restricted cash $ 9,764 $ (17,147 ) Operating Activities For the three months ended March 31, 2021, net cash used in operating activities of $60.5 million consisted of a net l oss of $80.5 m i llion, part i a l ly o f fset by $14.5 m illi o n in ad j us t ments f o r no n -cash items and $5.5 m ill i on of cash p rovi d ed by net work i ng capital chan g e s. A d justmen t s f or non - cash i tems pr i mari l y consisted of $15.3 mil l ion in s t ock compe n sati o n expense, $3.4 mill i on in non - cash i n terest related p ri m a r ily to related party l oans, $3.0 mill i on in depreciati o n and amo r tizati o n, $1.6 m ill i on of non - cash l e ase expense related to operat i ng lease righ t -of-use assets, and $0.2 m ill i on in a m or t iza t ion of net premiums and discounts on mar k e t a b le debt securi t ies, reduced b y $8.8 m illion in u n realized gains on marketa b le e q u i ty secur i ties dri v en pr i mari l y by an i ncrease i n the val u e o f our in v e st m ents. The change in net working capi t al co n sisted pr i mari l y of increases i n accoun t s pa y a b le of $6.5 m i llio n, amounts due t o related p a rties of $2.6 m illi o n, and o ther l ong-term asse t s o f $0.7 mill i on. T h ese increases i n net wo r king ca p ital were p a r tially of f s et b y de creases in accrued expenses and other liabilities of $1.9 m illi o n, o p e r ating lease liab i lities of $1.5 m ill i on and prepaid e x pens e s and o ther current assets of $0.9 m i llion includ i ng changes related t o insurance claim receivables and prepaid ma n ufacturing serv i c es. For the three months ended March 31, 2020, net cash used in operating activities of $31.1 million consisted of a net l oss of $37.4 m i llion, partially offset by $6.3 mil l ion i n adjustmen t s f or non-cash i t e m s and $0.1 million of cash provided by net w o rki n g capital changes. Adjust m e n ts for non-cash items p r ima r ily consisted o f $3.5 m i llion in dep r ec i a t ion and a m ort i za t ion, $2.0 m illion in n o n-cash inte r e st items, $1.2 m i llion of n on-cash lease ex p e n s e r e l ated to o p e r ating lease ri g ht- o f- u se assets, $0.5 m i llion in stock co m pensa t ion expense, and $0.2 million in unrealized losses on marketab l e e q uity secur i ties, partially offset by a $1.1 million change in deferred tax liability. The changes in net wor k ing capi t al consis t ed pr i mari l y of in c r eases related t o acc r ued expenses of $8.2 m illi o n and other assets of $0.3 million, partially offset by decreases in prepaid expenses and other current assets of $4.0 mill i on, d u e to related parties of $2.4 m ill i on, accou n ts payable of $1.7 m illi o n, and ope r a t ing lease liabi l ities of $0 .3 m illi o n. Investing Activities For the three months ended March 31, 2021, net cash provided by investing activities was $31.8 million, which included cash inflows of $3 1 .9 m i llion a n d $7.1 mill i on f rom matu r ities and sales o f m a r ketable sec u rit i es, respectively, partially offset by $7.1 mil l ion f or p urchases of p r opert y , plant and equip m ent, Our invest m e n ts in p r opert y , plant a n d equip m ent related p ri m a r ily t o acquisiti o ns of equ i pment w hich wi l l be used f o r the m anufactu r ing o f our p r oduct cand ida te s and expenditures related to the build out of our manufacturing facilities . For the three months ended March 31, 2020, net cash provided by investing activities was $14.0 million, which included cash inflows of $23.1 m i llion a n d $1.5 mill i on f rom matu r ities and sales o f m a r ketable sec u rit i es, re spect i vely, partially offset by $10.3 million of purchases of marketable debt securities and $0.3 mil l ion f or p urchases of p r opert y , plant and equip m ent. 44 Table of Contents Financing Activities For the three months ended March 31, 2021, net cash provided by financing activities was $38.5 million, which consisted of net proceeds f rom iss u a n c es of related party notes of $40 million a n d p r oceeds of $1.1 mil l ion r e su l ting f rom exercises o f stock o p tions. Net cash used in financi n g a ctivi t ies consisted of $2.6 m illi o n related t o net share settle m e n t of ves t ed RSUs for pay m e n t of e m ployee pay r oll t a x e s . For the three months ended March 31, 2020, net cash used in financing activities was minimal. Future Funding Requirements To date, we have generated minimal revenue, and we have no products approved for commercial sale and have not generated any revenue from product sales. We do not expect to generate significant revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, this will occur. In addition, we expect our expenses to significantly increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We have also incurred and expect that we will continue to incur in the future additional costs associated with operating as a public company as well as costs related to future fundraising efforts. In addition, subject to obtaining regulatory approval of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. We expect that our expenses will increase substantially if and as we: • continue research and development, including preclinical and clinical development of our existing product candidates; • potentially seek regulatory approval for our product candidates; • seek to discover and develop additional product candidates; • establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval; • seek to comply with regulatory standards and laws; • maintain, leverage and expand our intellectual property portfolio; • hire clinical, manufacturing, scientific and other personnel to support our product candidates’ development and future commercialization efforts; • add operational, financial and management information systems and personnel; and • incur additional legal, accounting and other expenses in operating as a public company. As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support. To date, we have in part relied on borrowings from entities affiliated with our Executive Chairman and principal stockholder, Dr. Soon-Shiong, to fund our capital requirements. We have no lines of credit or committed sources of financing; however, we may have access to incremental draws on the promissory notes we have with entities associated with Dr. Soon-Shiong. We believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings and our potential ability to borrow from affiliated entities, will be sufficient to fund operations through at least the next 12 months following the issuance date of the condensed combined consolidated financial statements based primarily upon our Executive Chairman’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt. We have based this estimate on assumptions that may prove to be incorrect, and we may use our available capital resources sooner than we currently expect. The successful development of any product candidate is highly uncertain. Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, if approved, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our product candidates. We will need to obtain additional financing to fund our future operations, including completing the development and commercialization of our product candidates. Our future capital requirements will depend on many factors, including, but not limited to: • progr e s s, timing, scope and costs of our clinical tr i a ls, in c luding the a bil i ty t o t im e ly i nit i a t e c l i nic a l s i tes, enro l l sub j ec t s and m a nufac t ure Anktiva and other therapies for the treat m ent of patients in our on g oing, plan n e d a nd po t ent i al future c lin i c a l t ria l s ; 45 Table of Contents • t ime and cost necessary to obtain regulatory approvals that may be required by regula t ory a uthori t ies t o e xe c ute c l ini c al tr i als; • our ability to successfully commercialize any product candidates, if approved; • our ability to have clinical and commercial products successfully manufact u red consistent with FDA and European Medicines Agency regulations; • a mount of sales and other revenues from p r oduct candidates that we may commercialize, if any, i n cluding the selling prices for su c h potential products and the availabi l ity of adequate third-party cover a ge and reimbursement for patients; • sales and marketing costs associated w i th commercializing any product candidates, if approved, including the cost and timing o f building our marketing and s a l e s c a pab i li t ies; • c ost of building, staffing and validating our own manufacturing facilities in t he U.S. ; • t erms and timing of our current and any pote n tial future collaborations, CVRs , m i lestones, r o yalti e s, licensing or other arrangements that we have established or may establish; • c ash requirements of any fut u r e acquisitions or the developme n t of other product candidates; • t ime and cost necessary to respond to technological, regulatory, po l itical and market developments; • c osts of filing, prosecuting, maintaining, defending and enforcing any patent claims a n d other intellectual property rights; and • c osts associated with any po t e n tial business or product acquis i tions, strategic collaborations, licensing agreements or other arrangements that we may establish. Unless and until we can generate a sufficient amount of revenue, we expect to seek to finance future cash needs through public or private equity offerings, license agreements, debt financings, credit facilities, collaborations, strategic alliances and marketing or distribution arrangements. In that connection we intend to issue additional shares in one or more future capital raising transactions, including but not limited to the offering, issuance and sale by us of up to a maximum aggregate offering of $500.0 million of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC, or the ATM. Additional funds may not be available when we seek to raise capital or need funds on terms that are acceptable to us, or at all. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts. Our current license agreements may also be terminated if we are unable to meet the payment obligations under those agreements. As a result, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. To the extent that we raise additional capital through the sale of additional equity or convertible debt securities, including through the ATM or other offerings, the ownership interest of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on unfavorable terms. On April 30, 2021, we entered into an Open Market Sale Agreement (the “Agreement”) with respect to an at-the-market (“ATM”) offering program under which we may offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $500 million. See Note 13 , Subsequent Events , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. Contractual Obligations, Commitments and Contingencies Contractual Obligations and Commitments See Note 8 , Commitments and Contingencies – Lease Arrangements , and Note 9 , Related Party Agreements , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. 46 Table of Contents Contingencies From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints. If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. Critical Accounting Policies and Significant Judgments In the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 and the Management’s Discussion and Analysis of Financial Condition and Results of Operations of ImmunityBio, Inc. filed as Exhibit 99.3 to our Current Report on Form 8-K/A filed with the SEC on April 22, 2021, we have disclosed those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our Current Report on Form 8-K/A on April 22, 2021. The accounting principles used in preparing our condensed combined consolidated financial statements conform in all material respects with accounting principles generally accepted in the United States of America, or U.S. GAAP . Use of Estimates The preparation of condensed combined 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 combined 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, contingent value right measurement and 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. Stock-Based Compensation We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation , or ASC 718. We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition. For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period using the graded vesting method once management believes the performance criteria is probable of being met. For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited. Recent Accounting Pronouncements Refer to Note 2 , Summary of Significant Accounting Policies , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us. 47 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Financial market risks related to interest rates, equity investments, foreign currency exchange rates and inflation are described in the Combined Management’s Discussion and Analysis of Financial Condition and Results of Operations of ImmunityBio, Inc. filed as Exhibit 99.3 to our Current Report on Form 8-K filed with the SEC on April 22, 2021, there have been no material changes to the financial market risks described at December 31, 2020. We do not currently anticipate any other near-term changes in the nature of our financial market risk exposures or in management’s objectives and strategies with respect to managing such exposures. ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer, or CEO, and chief financial officer, or CFO, as appropriate, to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) of the Exchange Act means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2021, our CEO and CFO have concluded that, as of March 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, as a result of the Merger, our internal control over financial reporting may change. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process. Inherent Limitations on Effectiveness of Controls Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 48 Table of Contents PART II—OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints. If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. See Note 8 , Commitments and Contingencies—Contingencies , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” included in Part I, Item 1. of this Quarterly Report for a discussion of legal matters. 49 Table of Contents ITEM 1A. RISK FACTORS. Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, any of which may be relevant to decisions regarding an investment in or ownership of our stock. The occurrence of any of these risks could have a significant adverse effect on our reputation, business, financial condition, results of operations, growth and ability to accomplish our strategic objectives. We have organized the description of these risks into groupings in an effort to enhance readability, but many of the risks interrelate or could be grouped or ordered in other ways, so no special significance should be attributed to the groupings or order below. On March 9, 2021, we completed t h e merger with ImmunityBio, Inc . , a private company r e ferred to below as “Imm u nityBio.” After t he completion of this merger, we (formerly known as NantK w est, Inc.) changed our name to ImmunityBio, Inc., and references below to “the c ompan y ,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries . Risk Factor Summary R i sks Relat e d to Our F inan c ial Condition and Capital R e qui r em e n ts • W e will need additional f i nancing to fund our operations and complete the dev e lopment and comme r cialization of our various pr o duct candidates, and if we are unable to obtain such financing, we may be unable to complete the dev e lopment and commercialization o f our product candidates. Raising addit i onal capital may cause dilution to our stockholders, restrict our operat i ons or require us to relinquish rights to our technologies or product candidates. • Our debt could adversely affect our cash flows and limit our f l exib i li t y to ra i s e a ddit i onal c a pit a l. • T he synergies and benefits expected from the integration of our operations may not be re a l i zed with i n the e xpe c ted ti m e fra m e . • Our b u sinesses may not be integrated succ e ssfully, or such integration may be more d i fficult, time consuming or costly than ex p ected. Operating costs, customer loss and business disruption, including difficult i es i n m a int a in i ng re l a t ionsh i ps with e m ploye e s , c u s tom e r s , suppliers or vendors, may be greater than expected for the combined company . Revenues may be lower than expec t ed for the combined company. • W e have a history of operat i ng losses, and we expect to continue to incur losses and may never be profitable. • W e have a limited o perating h i story, and the biotechnology in d ust r y in w h ich we operate, makes it diff i cult to evaluate our busin e ss plan and prospects. R i s k s Related to Our Business and I n d u stry R e gulation • W e may develop product candidates in combination with other therapies, which exposes us to additional risks. • It may take longer and cost more to complete our cli n ical tri a ls than we project, o r we may not be able to complete them at al l. • Our clinical trial costs may be higher than for more conventional therapeutic t e chnologies or drug products. • Our clinical trials may f a il to demonst r ate adequately the sa f e ty a nd efficacy of our product cand i dates, which would prevent o r delay regulatory approval and co m mer c i a li z at i on. • Interim, initial, “top-line” and preliminary data from our clinical tri a ls that we announce or publi s h from time to time may c hange as more patient data become a v a i lab l e and a re sub j e c t t o audit and veri f ication procedures that c ould re s ult in m a t e rial c hang e s in the final data. • W e have limited experience conducting clinical trials and have r e lied and will rely on third p a rties and relat e d parties to c o nduct many of our preclinical studies and clin i cal trials. Any failure by a third party, relat e d party, or by us to conduct the clinical trials according to Good Clinical Practi c e (“GCP”) regulations, and in a timely manner may delay or prevent our ability to seek or o btain re g ulato r y a p p r o val for or commercialize our product candidates. • Our clinical trials may not be initiated or completed when we expec t , and we may be required to conduct additional clinical t r i a ls or modify current or future cli n ical trials based on feedback we receive from the F DA. 50 Table of Contents • W e use Immuno-Oncology Clinic, Inc . , a related party, in some of our clinical trials which may expose us to significant regul a tory risks. If our data f o r this site is not sufficiently robust or if there are any data integrity i s sues, we may be requ i red to repeat such studies or required t o c ontra c t w i th o t her cl i ni c al tr i a l s i t e s, and our clinical developme n t plans will be significantly delayed, and we will inc u r additional c o s t s. • If we encounter difficulties enr o lling patients in our clinical trials, our clinical devel o pment activities and receipt of ne c essary marketing approvals could be delayed or otherwise adversely affected. • Our prod u ct candidates may cause undesirable side effects or h a ve other properties that could halt their clinical development, prev e nt t heir regulatory approval, limit the i r c omm e rc i a l pot e nti a l or result i n significant negative consequences. • T he manufacture of our product c a ndidates is complex, and we may encounter difficulties in p r o duction, particularly with resp e c t t o process development, quali t y control, or scaling-up of our m a nufacturing capabili t ies. If we or our related parties, or any of our third-party manufacturers encounter such d i fficulties, our ability to provide supply of our product candidates for clinical trials or our p roducts for patients, if approved, could be delayed or stoppe d , or we may be unable to maintain a commerc i ally viable cost structure. • Obtaining and maintaining regulatory approv a l of our product candidates in one jurisdi c tion does not mean that we will be suc c e ssful in obtaining regulatory approval of our product candidat e s in other jurisdictions. • A variety of risks associated with mar k eting our product candidates int e rnationally could materially adversely affect our bus i ness. • W e have never commercial i zed a product candidate before, and we may lack the necessary exper t ise, personnel and resources to successfully commercia l ize any products on our o w n or together with suitable collaborators. Risks Related to Government Regulation • T he FDA regulatory approval pro c ess is lengthy and time- c onsumin g , and we may experience signif i c a nt d e l a ys in the c l ini c al development and regulatory app r oval of our product candidates. • Results for any patient who r e ceives compassionate use access to our product candidates should not be viewed as representative of how the product candidate will perform in a well-controlled clinical trial, and cannot be used to establish safety or efficacy for regulatory approval. • T he clinical and commercial utility of our product candidates are uncertain and m a y never be realized. • W e are, and if we receive r e gulatory approval of our product candidates, will con t inue to be subject to ongoing r e gulatory ob l igations and continued regulatory review, which may result in significant additional expense and we may b e sub j e c t to p e nalt i e s if we f a il t o comply with regulatory requirements or experience unanticipa t ed problems with our product candidates. • Our GMP - in-a-Box will be regulated by the FDA as a medical device, and regulatory compliance for m e dical devices is expensive, complex and uncertain, and a failure to com p ly could lead to enf o r c e m ent a c tions aga i nst us and other negative consequences for our business. R i s k s R e lat e d to I n te l le c tual P r o p er t y • If we are unable to obtain, maintain, p r o t ect and enforce p a tent protection and other propri e tary rights for our product cand i dates and technologies, we may not be able to compete effectively or operate profitably. • If any of our owned or in-lice n sed patent appli c ations do not issue as patents in any jurisdiction, we may not be ab l e to com pe te eff e ctively. • If the scope of any patent pro t ection we obtain is not sufficie n t l y broad, or if we lose any of our patent protection, our ab i l i ty t o pr e vent our competitors from comme r cializing sim i lar or identical technology and product candidates would be a d v e rsely affected. • W e may be involved in lawsuits to protect or enforce our patents or o t her intellectual property or the patents or other intellectual property of our licenso r s, which c o uld be expensive, time-consuming a nd unsuccessful. • Issued patents covering our techn o logy and product candidates could be found invalid or unenforceable if challenged in court o r b e f o re administrative bodies in the United States or abroad. 51 Table of Contents • T he use of our technology a n d p r oduct candidates could potentially conflict with the rights of others, and third-party claims of i nt e ll e ctu a l property infringement, misa p p r o p r iation or other violation against us, our licensors or our collaborators may prevent or delay the development and commercialization of our product candidat e s and technologies. • Obtaining and maintaining our patent pro t ection depends on compliance with various p r ocedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be r e duced or eliminated for non-compl i an c e with t h ese r e quirements. Risks Related to Our Common Stock • Dr. Patrick Soon-Shiong, o ur E xecutive C hairman a nd our principal stockholder, has significant interests in other companies which may conflict wi t h our int e rests. • Dr. Soon-Shiong, th r o u gh his voting c ontrol of the company, has the ability to con t rol actions that re q uire stockholder approval. • T he market price of our common stock has b e en and may continue to be volatile, and inves t ors may have difficulty selling their shar e s. • W e have incurred and will continue to incur costs as a result of operating as a public company and our management has been and w i ll be required to devote substantial time to compliance initiatives and corporate governance p r actices, including maintaining an eff ec tive sys t em of internal control over financial r e porting. Risks Related to Our Financial Condition and Capital Requirements We will need ad d iti o nal financing to fund our operations and compl e te the de v e lop m ent and com m e r cialization of our various pro d u c t candidat e s , and if we are unable to obtain such financi n g, we may be u n able t o co m ple t e t h e dev e lopment and commercia l ization of our produ c t ca n didat e s. Raising additional capital may cau s e dilution to our stock h olders, restrict our operations or require us to relinquish rights t o our technologies or product candidates. Our operations have consumed sub s tantial amounts of cash since inception. We have incurred net losses in each year since our inception and, as of March 31, 2021, we had an accumulated deficit of $1.7 billion. In ad d i ti o n, r e search and development and operating costs have also b een substantial and are expected to in c r e ase. A sign i fic a nt p o r tion of our funding had been in the form of promissory notes r e presenting $297.5 million in i ndebtedness, including interest thereon, as of March 31, 2021 held by entities affiliated with Dr. Soon-Shiong with a maturity date of Se p t ember 3 0, 2025. As of March 31, 2021, we held cash, cash equiv a lents and ma r k etable securities totaling $84.3 million. In order to complete the development of our current product candidates, and in order to implement our business plan, we anticipate that we will have to spend more than the funds currently available to us. Furthermore, changing cir c umstances may cause us to increase our spending s i gnif i can t ly faster th a n we curr e ntly an t ic ip ate, and we may require additional capital for the furth e r development and commercialization of o ur product candidates and may need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate. Moreover, our fixed expenses such as rent and other contractual co m mitm e nt s , in c l uding those for our research collaborat i ons, are subs t a nt i a l and are e xpec t ed to i ncr e a se in the futur e . We will need to obtain a dditional financing to fund our fut u re o p erations, including completing the development and commercial i zation of our product candidates. Our future funding requ i rements will depend on many factors, including, but not limited to: • progr e s s, t i ming, scope a nd c os t s of our c l ini c al tr i a ls, in c luding the a bil i ty t o t im e ly i nit i a t e c l i nic a l s i tes, enro l l sub j ec t s and m a nufac t ure Anktiva and other therapies for the treat m ent of patients in our on g oing, plan n e d a nd po t ent i al future c lin i c a l t ria l s ; • t ime and cost necessary to obtain regulatory approvals that may be required by regula t ory a uthori t ies t o e xe c ute c l ini c al tr i als; • our ability to successfully commercialize any product candidates, if approved; • our ability to have clinical and commercial product successfully manufact u red consistent with FDA and European Medicines Agen c y regulations; 52 Table of Contents • a mount of sales and other revenues from p r oduct candidates that we may commercialize, if any, i n cluding the selling prices for su c h potential products and the availabi l ity of adequate third-party cover a ge and reimbursement for patients; • sales and marketing costs associated w i th commercializing any product candidates, if approved, including the cost and timing o f building our marketing and s a l e s c a pab i li t ies; • c ost of building, staffing and validating our own manufacturing facilities in t he Un i ted Sta t es; • t erms and timing of our current and any pote n tial future collaborations, contingent value rights (“CVRs”), m i lestones, r o yalti e s, l i c e n s i n g or other arrangements that we have established or may establish; • c ash requirements of any fut u r e acquisitions or the developme n t of other product candidates; • t ime and cost necessary to respond to technological, regulatory, po l itical and market developments; • c osts of filing, prosecuting, maintaining, defending and enforcing any patent claims a n d other intellectual property rights; and • c osts associated with any po t e n tial business or product acquis i tions, strategic collaborations, licensing agreements or other arrangements that we may establish. Unless and until we can generate a suffic i ent amount of reve n ues, we m a y finance f uture cash needs through pu b lic or private equity offerings, license agreements, debt financings, col l abor a t i ons, str a teg i c al l ian c e s and marketing or dis t ribution arrangements. W e expect to issue additional shares in connection with one or more future capital raising t r ansactions. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all, including but not limited to the offering, issuance and sale by us of up to a maximum aggregate offering of $500.0 million of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC, or the ATM. We have no committed source of additional capital and if we are u n ab l e to r a ise add i tion a l capital in sufficient amounts or on terms acceptable to us, we may be r e quired to del a y or reduce the scope of or eliminate one or more of our research or development programs or our commercialization ef f orts. Our current license and collaboration a g r e ements m a y also be t e rmin a ted if we are unable to meet the payment obligations under those agr e ements. As a result, we may seek to acc e ss the public or private capital markets w henever conditions are favorable, even if we do not have an immediate need for additional c a p i t a l a t th a t t i m e . To the extent that we raise additional c a pital through the sale of equity or conver t ible debt securitie s including through the ATM or other offerings , your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve certain r e strictive covenants, such as limitations on o u r abil i ty to incur additional debt, li m it a tions on our a bil i ty to a c qu i re or l i c e nse i n t e l le c tu a l p r operty rights and other operating r e strictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships a nd alliances and licensing arrangements with third parti e s, w e m a y have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us. Our debt could adversely affect o u r cash flows and limit our flexib i li t y t o raise addit i onal c apita l . We have a significant amount of debt and m a y need to incur additional debt to support our growth. As of March 31, 2021 , our in debtedness was $297.5 mill i on, consisting of related - party promissory notes and interest thereon, all held by ent i ties affiliated w ith Dr. Soon-Shiong, w i th a m a t urity date of September 30, 2025. Our substantial amount of debt could have important consequences and could: • require us to dedicate a substantial portion of our cash and c a sh equivalents to make interest and p r incipal payments on our d ebt, reducing the availability of our cash and cash equivalents and c a sh flow from operations to fund future capital expenditures, working c a pit a l, execution of our strategy and other general corporate requirements; • i ncrease o ur cost of borrowing and even limit our ability to access additional debt to fund future growth; • i ncrease o ur vulnerability to general adverse economic a nd industry conditions and adverse c h anges in governm e ntal regulation s ; • l imit our flexibility in planning for, or reacting to, changes in our business and industry, which may place us at a disadvantage compared with our competitors; and • l imit our ability to borrow additional fund s , even when necessary to m a intain adequate liquidity, w h ich would also limit our a bi l ity to further expand our business. 53 Table of Contents The occurrence of any of the foregoing facto r s could have a material adverse effect on our business, results of o perations and financial condition. We may also need to refinance a portion of our outstanding debt as it mat u res. We may not be able to refina n c e existing debt or the terms of any refinanci n g may not be as f a vorable as the terms of our existing debt. F u rthermore, if prevailing int e rest rates or other fact o rs at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced ind e btedness would inc re a s e . The s e risks could materially adversely a ffect our financial condition, cash flows and results of ope r a tions. The synergies and benefits e xp e c t e d fro m t h e i n t e gration of our operations may not be reali z ed wit h in t h e e xpe c ted time frame. The ability of the compan y , now renamed ImmunityBio, Inc. and forme r ly known as Nan t Kwest, Inc., to realize the anticipated be n e f its of the m e rger with ImmunityBio will depend, to a large extent, on our ability to integrate our businesses in a manner t hat fa c i l it a tes grow t h opportunities and achieves the projected synergies identified by each c o mpany without adversely affecting c u r rent revenues and investments in future grow t h. E ven i f we are a ble to i ntegr a te the t w o co m pani e s succ e ssfu l ly, the a n ticipated benefits of the merger, including the e xpected synergies, may n o t be realized f u lly or at all or may take longer to realize than expected. O u r b u s i n e s s es may not be i n t e gra t ed s u c c essfu l ly, or su c h integrat i on m a y be more difficult, time consuming or cos t ly than exp e c t ed. Operat i n g costs, customer loss and busin e ss disruption, including d i ffi c u l ti e s in m aintaining re l ationsh i ps with employe e s , c u stom e rs, s uppliers or vendors, may be greater than e xp e cted for the combined company . R ev e n u es may be low e r t h an exp e ct e d for the combined company. The co m bina t ion of two busin e s s e s is c ompl e x, costly and time-consuming and may divert significant managem e nt attention and re s ources to c o mbining o u r prior businesses. This process may dis r upt our businesses. The failure to meet the challenges involved in combining the two businesses and to rea l i z e t he ant i c i p a t e d b e nefi t s of t he merg e r c ould cause an i n terruption of, or a loss of mom e n t um i n, the a c tiv i ti e s of the combined company and could adversely affect the results of operations of the combined comp a ny. The overall combination of our b usines s es may a l s o r e sult in m a t e rial un a nti c ipa t ed problems, expenses, li a bilities, competitive responses, and loss of customer and other business relationships. The difficulties of combining the o p erations of the companies include, among others: • t he diversion of management attention to integration matters; • d i fficu l ti e s in in t e gra t ing operations and systems, including intellectual property and communications syste m s, a dmin i s t ra t ive and information technology infrastruc t ure and financial reporting and internal control systems; • c hallenges in conforming standards, controls, procedu r es and accounting and o t her policies, business cultures and compensation struc t ures between the two companies; • difficulties in integrating employees and attracting and r e taining key personnel, including talent; • c hallenges in retaining existing, and obtaining supplie r s and employees; • difficulties in achiev i ng anticipated cost savings, synergies, accretion targets, business opportunit i es, financing plans and growth prospects from the combination; • difficulties in managing the exp a nded operations of a significantly l a rger and more complex company; • c onting e nt li a bil i ti e s th a t are l a rger than exp e ct e d; and • potential unknown liabili t ies, adverse cons e quences and unforeseen increased exp e nses ass o ciated with the merger. Many of these factors are outside of our c ontrol, and any one of them could result in lower revenues, higher costs and diversi o n of management time and energy, which could materially i m pact the b usiness, financial cond i tion and results of operations of the combined company. In a ddit i on, even if the o p erations of our businesses are integrated su c c e s sful l y, the full ben e fits of the m e r g er may not be real i zed, i nc l ud i ng, a m ong others, the synergies or growth opportunities that are expected. These b e nefits may not be achieved within the anticipated time frame or at all. Furthe r , additional unanticipated costs may be incurred in the integration of our businesses. All of these factors cou l d negatively impact the company’s operations and/or the price of the company’s common stock . As a result, it cannot be assured that the combination of our businesses will result in the re a l i za t ion of the full ben e fits e xpe c ted from the m e rger w i thin the a nti c ipa t ed ti m e fram e s or a t al l . A c cord i ngly, hold e rs of t he combined comp a ny’s common stock may experie n ce a loss a s a res u lt of a de c line in the m a rket pri c e of s uch common sto c k. In addition, a dec l ine in the m a rket pri c e of the combined company’s com m on stock could adversely affect the c o mpany’s ability to issue a d d i t i on a l s e cur i ti e s and to obta i n additio n al financing in the future. 54 Table of Contents We have a history of operating losses, and we expect to continue to incur loss e s and may never be profitable. We are a bio p harmaceutical company, and now t h at the merger with ImmunityBio has been completed, we have a much broader portfolio of product candidates at various stages of development. None of our products have been approved for commercial sale or for which marketing approval has been sought, althou g h w e have generated revenues from non-exclusive license a g reements related to our cell li n es, the sale of our bioreactors and related consumables and grant programs. We expect to incur significant expenses as we seek to expand our business, including in connection with conducting research and development across multiple therapeutic areas, participating in clinical trial activities, continuing to acquire or in-license technologies, maintaining, protecting and expanding our intellectual property, seeking regulatory approvals and, upon successful receipt of FDA approval, commercializing our products. We will also incur costs as we hire additional personnel and increase our manufacturing capabilities, including the lease or purchase of a facility for the manufacturing of our product candidates for ongoing and future clinical trials and, upon potential receipt of FDA approval, for our initial commercialization activities. Moreover, we do not expect to have significant product sales or revenue for the next 12 to 24 months. These losses have had an adverse impact on our stockholders’ equity and working cap i tal and, as these operating losses continue to increase significantly in the future due to such expenditures, will continue to have an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict when the c ompany may become p r ofit a bl e , if at a l l. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis. Our ability to achieve profitability in the future is de p e ndent upon obtaining regulatory approvals for our product candidates a nd su c c e ssfully commercializing our product candidates alone or with third p a rties. However, our operations may not be profitable even if one o r more of our product candidates under development are successfully developed and produced and thereafter commercialized. We have a li m it e d operat i ng history, and the biotechnology ind u stry in which we op e rate, mak e s it difficult to evaluate our bu s iness plan and prospects. We have only a limited o perating h i story on which a decision to invest in us can be based and against which we can test the pl a ns and assumptions in o u r business plan. Our fut u r e is dependent upon our ability to implement our business plan, as that b usiness plan may be modified from time to time by our new management and board of dir e ctors. Investo r s therefore cannot evaluate the likelihood of our success. We face the problems, exp e nses, difficulties, compl i cations and delays normal l y associated with a pre-comme r cial biotechnology com p any, many of which are beyond our control. Accordingly, our prospects should be conside r ed in light of the risks, expe n ses and difficulties frequently encountered in the establishment of a new b u siness developing technologies in an industry that is characterized by a number of market entrants and intense competition. Because of our size and limited resources, we may not poss e ss the ability to successfully overcome many of the risks and uncer t ainties frequently encountered by pre-commercial companies invo l ved in the rapidly evolving field of immunotherapy. If our resea r ch and development efforts are successful, we may also face the risks a ssociated with the shift from development to commercialization of new products based on innovative technologies . There can be no assurance that we will be suc c essful in deve l oping our business. We will be substantially dependent on the success of our product candidates and cannot guarant e e that these prod u ct can d idates will succ e ssfully complete development, receive regulatory app r oval or be success f ully commercialized. Other than our proprietary GMP-in-a-Box bioreactors for which we have received nominal revenue to date, we currently have no p r oducts approved for commercial sale or for which regulatory approval to market has been sought. We have invested a significant portion of our effo r ts and financial resources in the development of our main product candidates, Anktiva, a ldoxorubicin a nd human adenovirus serotype 5 (“hAd5”) vac c ine c a ndid a tes, some or all of which are used in combina t ion with our natural killer cells. We expect to invest heavily in these product ca n di d a t es a s w e ll as in our existing product candidates and in any future product candidates that the com p any may develop. Our business d e pends e n t i rely on t he successful development, regula t ory approval and commercialization of such product candidates, each of w h ich may never occur. Our ability to generate revenues in the future is substantially d e pendent on our ability to dev e lop, obtain regulatory approv a l for, a nd th e n s uc c e s sful l y co m m e rci a li z e, our prod u ct candidates. We currently generate no meaningful r e venues from the sale of any product candidates, and we may never be a ble to develop or commercialize a product. Our product candidates will require additional clinical a nd non-clinical de v e lopment, regulatory approv a l, commerc i al manufacturing arrangements, estab l ishment of a com m er c ial o r ganization, significant m a rketing efforts, and further investm e nt before we can generate any revenues from product sales. We cannot assure you t h at we will meet our timelines for current or future clinical trials, which may be delayed or not completed for a number of reasons, including the negative impact o f the COVID ‑ 19 pandemic. 55 Table of Contents We will not be permitted to market or promote any of our product candid a tes without receiving regulatory approval f rom the FDA or comparable fo r e ign regulatory authorities, and we may never receive such regulatory approval for a ny of our product candidates or regulatory appr o v a l that wi l l a llow us to successfully commercialize our product cand i dates. If we do not receive FDA or compa r able foreign r e gulatory approval with the necessary conditions to allow successful commerciali z ation, and then successfully commercialize our p r oduct candidates, we will not be able to generate revenues f rom those prod u ct candidates in the United S t a tes or els e wh e re in the fore s e e a ble future, or at all. Any signific a nt delays in obtaining approval for and commercializing our produ c t candidates will have a mat e rial adverse impact on our business and financial condition. We have not previously s ubmitted a Biologics Licen s e Application (“BLA”) for a n y biologics p r o d uct candidates, or a New Drug Applicati o n (“NDA”) for any small molecule product c a ndidates or similar marketing a pplication to the FDA or compa r able foreign authorities, for a n y product candidate, and we cannot be certain that any of our curre n t product candidates or any future product c a ndidates will be su c cessful in clinical trials or receive regulatory approval. Furthermore, al t hough we do not expect to submit a B L A and/or NDA with comparisons to existing or more established t h erapies, and we do n o t expect the FDA to base its determination with respect to product approval on such comparisons, the FDA may factor these co m p a risons into its decision whether to approve Ank t iva or any of our product candidates. The FDA may also consider approvals of competing product s , which may alter the tr e a t m ent l a nds c a pe con c urren t ly w i th th eir review of our BLA and/or NDA filings, and which may l e ad to c hang e s in the FD A ’s review requirements that have been previously communicated to us and our interpretation thereof, including changes to requirements for c l ini c al da t a or c lin i cal trial design. Such changes could d e lay approval or n e cessitate withdrawal of our BLA and/or NDA filings. Our product candidates will be susceptible to the risks of fai l u r e inherent at any stage of product development, including the appearance of unexpected adverse events or failure to ac h i eve pri m ary endpoints in clinical trials. Further, our product candidates may not receive reg u latory approval even if they are succ e ssful in c l ini c al tr i a ls. If a p p r o ved for marketing by applicable regulatory authorities, our abil i ty to generate revenues from our product candidates w i ll depend on our ability to: • price our p r o d uct candidates competitively such that third-party and government reimbursement leads to broad product adoption; • prepare a broad network of clinical sites for administration of our product; • c reate market demand for our product candid a tes through our own marketing and sales a c tivities, and any other arrangements to promote these product candidates that we may othe r w i s e establish; • receive regulatory approval for the targeted patient popul a tion(s) and claims that are neces s ary or desirable for successful m arketing; • m anufacture product candid a tes through contract manufa c turing organizations (“CMOs”) or in our own, or our affiliates’, manufacturing f a c i li t ies i n suffi c i e nt qu a nti t i e s and at a c cep t a b l e qu a l i ty a nd manufacturing cost to meet commercial demand at launch and t h er e a f t er; • e stablish and maintain agree m ents with wholesalers, distributors, p harmacies, and group purc h asing organizations on commercia l ly reasonable terms; • obtain, maintain, p r otect and enforce pat e nt and other intellectual property protection and regulatory exclusivity for our pr o duct candidates; • successfully commercialize any of our product candidates that receive regulatory approval; • m ain t ain co m pli a nce with app l ic a ble l a ws, regulations, and guidance speci f ic to com m er c ia l iz a tion in c luding int e ra c tions w i th health care professionals, patient advocacy groups, and communication of health ca r e economic information to payors and formula r ies; • a chieve market acceptance of our product candidates by patient s , the medical community, and thi r d - party payors; • a chieve appropriate reimbursem e nt for our product candidates; • m aintain a distribution and logistics network capable of product storage within our specifications and regulatory guidelines, and fu r ther capable of timely product delivery to commercial clinical sites; • e ffectively compete with other therapies or competitors; and • following launch, assure that our product will be used as directed and that a dditional unexpected safety risks will not arise. 56 Table of Contents Additionally, our ability to generate revenues from our c o mbination the r apy products will also depend on the availability of the other t h er a pi e s with which our products are intended to be used. For example, we have in the past experienced, and m a y in t h e future experience, ch a llenges obtaining sufficient quantities of b a cillus Calmette-Guérin (“BCG”) for some of our clinical trials involving Anktiva due to global shor t ages. The r e can be no assurance that we will be able to source adequate supplies of BCG to continue these c l inical trials in a timely fashion or at a ll, and in the future, th e re may be other supply-related challenges that delay or prevent patient e n rollment and continued prog r ess on our clinical trials. For more information, see “ — Our clinical trials may not be initiated or completed when we expect, and we may be required to conduct additional clinical trials or modify current or future c l ini c al trials based on f e e dback we r e c e ive f r om the FDA . ” We inv e st our cash on hand in various finan c ial ins t rum e n t s which are sub j ect t o ris k s that could adversely affect our busines s , r e sul t s of op e rations, l iquidi t y and finan c ial condi t ion. We invest our cash in a variety of financi a l instruments, principally c o mmercial paper, corporate debt securities and foreign g overnment bonds. All of these inv e s t men t s are subj e c t to cr e dit, li quidity, market and interest r a te ris k . Such risks, in c luding the failure or severe financial distress of the financial institutions that hold our cash, cash equiv a lents and investments, may result in a loss of liquid i ty, impairment to our investments, realization of substantial future losses, or a complete l o ss of the investments in the long-term, which may have a material adverse effect on our business, results of o p erations, liquidity and financi a l condition. In order to manage t h e risk to our investments, we maintain an investment policy that, among other things, limits the amount that we may invest in any one issue or any single issuer and re q uires us to only i n v e st in high credit quali t y secur i ti e s to preserve liqu i d i ty. R i s k s Related to Our Business and I n d u stry We may develop product can d idates in combination with other therapies, w h ich exposes us to additional risks. We may develop product candidates in combination with one or more other therapies. Even if any product candidate we develop we r e to r e c e ive marketing approval o r be commercialized for use in combination with other existing thera p ies, we would cont i nue to be subject t o the risks th a t the FDA or comparable foreign regulatory authorities outside of the United States could revoke approval of the the r apy used in combination with o ur product or that safety, efficacy, m a nufacturing or supply issues could arise with any of those existing therapies. If the therapies we use in combination with our prod u ct candidates are rep l aced as the standard of care for the indications we choose for any of our product candidates, the F D A or comparable foreign regulatory authorities may require us to c onduct additional clinical trials. The occurrence of any of these risks could result in our own products, if approved, being removed from the market or being less successful commercially. We also may choose to evaluate product candid a tes in combination with one or more the r a p ies that have not yet been approved for marketing by the FDA or comparable foreign regulatory authorities. We will not be able to market and sell any product candid a te we develop in c o mb i nat i on with an u n approved therapy for a combination indication if that unapproved therapy does not ultimately obtain marketing approval either alone or in combination with our p r o duct. In addition, unapproved therapies f ace the same risks described with respect to our product candidates currently in development and clinical trials, including the potential for serious adverse effects, delays in c l ini c al t ria l s and la c k o f FDA approval. If the FDA or comparable foreign regulatory authorities do not approve these other d r ugs or revoke t h eir approval of, or if safety, efficacy, quality, manufacturing or supply issues arise with, the drugs we choo s e to evaluate in combination with our product candidate we dev e lop, we may be unable to obtain approval of or m a rket such comb i nat i on t herapy. It may take longer and cost more to complete our c lini c al t r i als t h an we project, or we may not be able to complete them at al l . We have projected the date for the commencement of future trials, and continuation and co m pletion of our o n going clinical trials. However, a number of factors, including s c heduling conflicts with partici p ating clinicians and clinical insti t utions, a nd difficulties in identi f ying and e n roll i ng p a ti e nts who m eet t rial e lig i bil i ty c ri t eria, may cause significant delays. Our clin i c a l tr i a ls may a l so exp e rien c e delays related to the COVID ‑ 1 9 pand e mic; for more information, see “ —Our business could be adversely a f fe c t e d by the e ff e cts of h e al t h ep i demi c s, p a ndemics o r contagious diseases, including t h e recent pandemic of t h e disease caused by the novel coronavirus SARS-CoV-2, or C O VID‑19, in regions where we or third parties on which we rely have sig n ificant manufacturing facilities, c oncentrations of cli n ical trial sites or ot h e r business operations . ” We may not commence or complete clinical trials involving any of our product candidates as pro j ected or may n ot conduct them suc ce ssfully. 57 Table of Contents We may experience difficu l ti e s in pat i ent enro l lm e nt in our c l ini c al tr i a l s for a v a rie t y of re a s ons. Our ab i li t y t o enroll or treat patients in our other studies, or the duration or costs of those studies, could be affected by multip l e factors, including, pr e li m in a ry c l ini c al re s ults, w hi c h m a y in c l ude efficacy and safety results fr o m our ongoing P hase II trials, but may not be refle c ted in the final analyses of these trials. Although preliminary data from o u r P hase I t r ials were generally positive, that data may not necessarily be representative of interim or final results, as new patients are cycled through the appl i c a ble tr e a t m ent r e g i m e s. As the t ria l s con t inue, investigators may prioritize patie n ts with more progressed forms of c a n c er than the in i ti a l patient population, bas e d on the success or perceived succe s s of that initial population. Patie n ts with more progressed forms of cancer may be less responsive to treatment, and accordingly, i n terim efficacy data may show a decline in patient respon s e rate or other assessment m e tri c s. As t he tri a ls continue, investigato r s may shift their approach to the patient population, which may ultimately result in a decline in both i n terim and final efficacy data from the preliminary data, or conversely, an increase in final efficacy data follow i ng a decline in the i n terim effic a cy data, as patients with more progressed forms of cancer are cycled out of the trials a n d rep l aced by patients with less advanced forms of cancer. This opportunity for investigator s e le c tion bi a s in our t r ia l s as a r e su l t of open-label design may not be adequately h a n dled and may cause a decline in or dist o r t ion of c l ini c al tr i a l da t a from our preliminary results. Depending on the outcome of o ur stud i es, we may need to conduct one or more follow-up o r support i ng studies in order to successfully develop our product candidat e s for FDA approval. Many companies in the biotechnology and pharmaceutical industries have suffered sig n ificant setbacks in late-st a ge clinical trials after achieving positive res u lts in earlier development, and we cannot be cert a in t hat we w i ll not face such s e tba c ks. Furthermore, the timely completion of cli n ical trials in accordance with their p r otocols will depend, a m ong other things, on our a bil i ty to e nroll a sufficient number of patients who r e main in the study until its conclusion, incl u d ing the ability of us or our collaborators to conduct clinical trials under the constraints of the COVID ‑ 19 pandemic. In addition, we expect that our c lin i c a l t ri a ls will c ompe t e w i th other c l ini c al tr i a ls for product candidates that are in the same therapeutic a r eas as our product candidates, and this competition will reduce the number and types of pat i ents av a il a ble to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Accordingly, we cannot guarantee that our trials will progress as planned or as scheduled. Delays in p a tient enrollment may re s ult in increased costs or may affect the timi n g or outcome of our c l i nic a l tri a ls, wh i c h could prev e nt c omp l e t i on of these trials and adversely affect our ability to advance the development of our product candidates. We expect to rely on medical institutions, academic instituti o ns or contract research o r ganiz a tions (“CROs”) to conduct, supervise or monitor some or all aspects of clinical t r ials involving our product candidates. We will h a ve less control over the timing and other aspects o f th e s e c lin i c a l t ri a ls th a n i f we cond u cted t h em entirely on our own. See “ — We have limited exp e rience conducting clinical trials and have relied and will rely on thi r d parties and related parties to conduct m any of our preclinical studies and clinical trials. Any failure by a third party, related party, or by us to condu c t the clinical trials according to Good Clinical Practice (“GCP”) regulations, and in a timely manner may delay or prevent our ability to seek or obtain regulatory a p proval for or commercialize our product candidate s .” If we fail t o co m men c e or c ompl e t e , or exp e ri e n ce delays in, any o f our planned clinical trials, o u r stock price and our ability to conduct our bu s iness as currently pl a nned could be harmed. We currently anticipate that we will have to rely on our CMOs or partners to manufacture our product candidates for some of our c l ini c al tr i a l s . If th e y fail to commence or complete, or exper i ence delays in, manufacturing our product candid a tes, our planned cli n ical trials will b e delayed, which will adversely affect our stock pri c e and our ability to conduct our business as currently planned. Our c l inical t r i al c osts may be higher t h an for mo r e co n v e n tional therapeutic techno l ogies or drug products. Because our product candidates inc l ude, and we expect our future product candidates to include, candidates based on advanced t h erapy technologies, we expect that t h ey will require extensive research and developme n t and have substantial manufacturing costs. In addition, costs to tr e a t p a ti e nts a nd to tr e a t p o tential side effects that m a y result from our product candidat e s can be significant. Some clinical trial sit e s may not bill, or o btain coverage from Medicare, Medicaid, or other third-party p a yors for some o r all of these cos t s for pat i ents enrol l ed in our c l ini c al tr i a ls, an d c l ini c al tr i a l sites outside of the United States may not reimburse for c o sts t y pically covered by third-party payors in t he Un i ted S ta t es, and as a r e su l t we may be required by those tri a l si t e s t o p a y such costs. A c cord i ngly, our c lin i c a l t ri a l costs are likely to be signific a ntly higher per patient than th o se of more conventional therapeutic technologies or drug products. 58 Table of Contents Our c l inical t r i als may fa i l to d e mons t r a t e adequately the safety and e fficacy of our product cand i dates, which would prevent o r d e lay regulatory a p proval and com m ercia l ization. The clinical trials of our product candid a tes as well as the manufa c turing and marketing of our product candidates will be, su b j e ct to ext e nsive and rigorous review and regula t ion by numerous government authorities in the United States and in other countries where we intend t o test and ma r k et our prod u ct candidates. Before obtaining regulat o r y approvals for the commercial sale of any of our product candidates, we must de m onstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective, or safe, pure a n d potent, for use in each target ind i cation. Because most of our produ c t candidates will be subject to regulation as biological drug product s , we w i ll n e ed to demonstrate that they are safe, pure, and potent f or use in t h eir target ind i cations. For small molec u le product candidates, we will need to demonstrate that they are safe and effective for their target indications. Each produ c t candidate must d e monstrate an adequate risk vers u s benefit profile in its intended patient population and for its intended use. The risk/benefit profile required for p r o duct licensure will vary depend i ng on these factors and may include not only the ability to s how tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease, and/or an improvement in survival. For example, r e sponse rates from the use of our product candidates may not be sufficient to obtain regulatory approval unless we can also show an a d equate duration of response. Regulatory authorities may ultimately disagree w i th our chosen endpoints or may find that our stu d ies or study results do not s upport product approval. Clinical t e sting is expensive a nd can take ma n y years to complete, and its outcome is inherently u n certain. Failure can occur at any t i me during the c l ini c al tr i a l proc e s s. The res u lts of pr e c lini c al studies and early clini c al trials of our product candidates with small patient populations may n ot be predictive of the resul t s of later-stage clinical trials or the results o n ce the a p p l i c able c lin i c a l t ria l s are completed. Additionally, early clinical trials may n ot produce data that su p po r t further development of our product candidates a n d regulato r y authorities may not allow continued clinical development of our product candidates. P r eliminary, single coho r t or top-line res u l t s from cl i ni c al tr i a ls may not be representative of the final study results. The results of studies in one set of patients or l i ne of treatment may not be predictive of those o b tained in another and the results in var i ous human clinical trials r e ported in scientific and med i cal literature may not be indicative of r e sults we obtain in our clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Preclinical studies may also reveal unfavorable product candidate cha r a c ter i s t i c s, i ncluding safety concerns. There is typically an extreme l y high rate of attrition from the failure of p r oduct candidates proceeding throu g h clinical tria l s. Product candidates in later stages o f clinical t r ials may fail to show the des i red safety and efficacy profile despite having p r ogressed through preclinic a l studi e s and in i ti a l cl i nic a l trials. Many companies in the biopharmaceutical industry have suffered signi f icant setbacks in advanced clinical trials due to l ac k of effic a cy or u n acceptable safety issues, no t withstanding promising results in earlier trials. Most product c a ndidates that begin clinical t r ials are never approved by regulatory authorities f o r c om m erc i al i z a tion. In some inst a nc e s, th e re c a n be signif i c a nt v a ri a bil i ty i n saf e ty or e ffic a cy resul t s betw e e n d i ffer e nt cl i nic a l tri a ls of the same product cand i date due to n u merous factors, including changes in trial procedures set forth in pro t ocols, differences in t h e size and type of the patient populations, changes in and adherence to the clinical tri a l protocols and the rate of dropout among clinical trial partici p ants. Our current and our f u ture c l ini c al tr i a l resul t s m a y not be successful. Moreove r , should there be a flaw in a clinical trial or cross-s i te variation that are not properly addressed, it may not become apparent until the c l ini c al tr i a l is we l l advan c ed or un t il data from d i ffer e nt si t e s b e come a va i lab l e. F or e xamp l e, our current c lin i c a l t ri a ls are, and we expect our clinical trials to be, conducted at multiple sites in different geograph i es, with different levels of experie n ce and expertise by medical professionals, and these professionals may make mistakes or in t roduce sit e -sp e c i fic var i at i on t h at could have an impact on clinical trials by disqualifying patients or impacting patient abi l ity to continue in a study or on the clinical data. Further, because we currently plan to test our produ c t candidates for use with other oncol o gy products, the design, implementation and interpretat i on of the clinical trials n e cessary for marketing approval may be more complex than if we were developing our p r o d uct candidates alone. In addition, even if such t r ials are suc c essfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will i nterpr e t the resul t s as we do, a n d more trials could be required before we submit our product c a ndidates for approval. To the extent that the results of the t ria l s are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be r e quired to expend significant resources , which may not be available to us, to c onduct additional trials in s upport of p otential approval of our product candidates. We have reported preliminary results for clinical trials of our product candidates, including Anktiva. These preliminary resul t s, which include ass e s s m e nts of eff i ca c y, a r e subject to substantial risk of cha n ge due to sm a ll s a mple siz e s and m a y ch a nge as p a t i e nts a re ev a luated or as additional pat i ents are enro l led in these c l ini c al t r ia l s . T hese outco m e s may be unfavorable, deviate from our earlier reports, and/or delay or prevent regulatory approval or commercialization of our produ c t candidates, including candid a tes for which we have reported preliminary efficacy r esul t s . 59 Table of Contents Further, certain of our hypothes e s regarding the potential bene f its of our product candidates compared to alternative therapies and tr e a t m ents are bas e d on cross-tr i a l comp a risons of results that were not derived from h e ad-to-he a d c l ini c al t r ia l s . Such c l ini c al tr i a l da t a m a y not be directly comparable due to differences in study protocols, condit i ons and patient populations. Accordingly, these cross-trial comparisons may not be r e l iab l e predi c tors of the relative efficacy or other bene f its of our product candidates c o mpared to other produ c t candidates that may have been approved previously. Int e r i m, ini t ial, “top- l in e ” and preliminary data from our c lini c al trials that we ann oun ce or p u blish from ti m e to t ime m ay c h ange as more patient d a ta become available and are sub j ect to audit and verification p r ocedures that could result in mat e r i al ch anges in the final d ata. From time to time, we may publi c ly disclose preliminary or top - line data from our preclinical studies and clinical trials, whi c h are based on preliminary ana l ys e s of t hen- a vai l able d a t a , and the results and r e lated find i ngs and conclusions a r e subject to change f o llowing a more comprehensive review of the data related to the particular stu d y or t r i a l. We a lso m a y m a ke a s s u mptions, estimations, calculations and c onclusions as part of our analyses of data, and we may not have r eceived or h a d the opportunity to fully a n d carefully eva l uate all data. As a resul t , the top-line or prelimi n ary resul t s th a t we r e port may differ from future results of the same studies, or di f ferent conclusions or con s iderations may qualify such r e sults, once a dditional data have been received and fully evaluated. T op-line d a ta a l so re m a in subje c t to audit and verification procedur e s th a t m a y re s ult in the final data being m a t e ria l ly different from the prelimi n ary data we pre v iously published. As a resul t , top-line data should be viewed with caution until the fin a l data a re ava i l a ble. From t i me to ti m e, we may a l so disc l ose i nter i m d a ta from our p r ec l ini c al studi e s and c l ini c al tr i a ls. Int e rim da t a from cl i ni c a l tri a ls t hat we m a y comp l e te a re sub j ect t o the r i sk th a t one or more of the c l ini c al outcomes may materially change as patient enrollment continu e s and more patient data beco m e ava i l a b l e or a s pa t ien t s from our c lin i cal t ria l s con t i nue other treatments for their dis e ase. Adverse differences betw e en pre l im i nary or in t e rim data and final data c ould significantly harm our business p r ospects. Further, disclosure of interim data by us or by our compe t itors could r e sult in v o latility in the p r ice of our common stock. Further, others, including regulatory agencies, may not a c cept or agree with our assumptions, e s t im a t e s , c a l culations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvabili t y or commercialization of the particular product candidate or product a nd our company in general. In addition, the information we choose to publicly dis c lose regarding a particular study or clinical tri a l is based on what is typically extensive information, and you or others may not agree with w ha t we d e ter m ine is m a t e ri a l or otherwise appropriate i n for m at i on to in c lude in our d i s c losure. If the in t e r i m, top-line or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and co m mercialize, our product candidates may be harmed, which could harm our business, operating results, prospec t s or financial condition. We h ave l i mi t e d experi e n c e co n du c t i ng cl i nical trials and have relied and will rely on third parties and related parties to co n duct many of our pr e c l i n i cal stud i e s and c l i n i c al trials. Any failure by a third part y , r e l a t e d part y , or by us to c onduct t h e c lini c al t r i als a ccording to Good Clinical Practice (“GCP”) regulations, and in a timely manner, may delay or prevent our ab i lity to seek o r obtain regulatory approval for or commercialization of our product candidates. We expect to be heavily reliant on third a nd related parties to conduct our clinical trials. We h a ve a limited history of cond u c t ing c lin i c a l tr ials and have no experience as a company in filing and supporting the applications necessary to gain marketing approvals. Securi n g marketing approval requires the submission of extensive preclini c al and clinical data and suppo r ting information to r e gulatory authorities for each therapeutic i ndic a t i on to est a blish t he prod u ct candidate’s safety, puri t y, and potency, or efficacy, for that indicat i on. Securing marketing approval also requires t h e submission of information about the product manufacturi n g process to, and inspection of manufactur i ng facilities and c linical trial sit e s by, applicable regulatory authorities. Larg e -s c a l e cl i nic a l tri a ls r e quire signif i cant financial and m a nagement resources, and reliance on third-party clini c al inves t igators, CROs, CMOs, if used, partners or cons u l tants. Relying on third-party clinical investigato r s, CROs or CMOs may force us to encounter delays and ch a ll e nges t hat are o u tside of our cont r o l. We may not be a b le to demonstrate sufficient comparability between products manufactured at different fa c i li t ies to a llow for inclusion of the clinical res u lts from patients treated with products from these dif f erent facilities, in our product registrations. Further, if we u s e CMO s , they may not be able to manufacture Anktiva or our other product candidates or other w ise fulfill their obligations to us b e cau s e of interruptions to their b u siness, including the loss of their key staff or interruptions to their raw m a te r ial supply. 60 Table of Contents Our reliance on these third par t i e s for dev e lopm e nt ac t ivi t ies w i ll redu c e our c on t rol over these a c tiv i ti e s. N e verth e l e ss, we are responsible for ensuring that each of our trials is conducted in a c cordance with the applicable trial protocol and legal, regulatory and scientific standards, and our reliance on CROs, clinical trial sites, and other third parties does not relieve us of t h ese responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigat i onal plan and protocols for the trial and for ensuring that our preclinical stu d ies are conducted in accordance with Good Laboratory Practice (“GLP”) regulations, as appropriate. Moreover, the FDA and c o mparable foreign regulatory authorities require us to comply with GCP for conducting, recording, and r e porting the results of clinical trials to assure that data and r e ported results a re cr e dible a nd a ccur a te a nd th a t the righ t s, i n t e gr i t y, and confidentiality of trial pa r ti c ipan t s are pro t ec t ed. R e gula t ory a uthori t ies e nforce t hese requirements through periodic inspe c tions (inclu d i ng pre-approval ins p ections once a BLA or NDA is f i led with the FDA) of trial sponsors, clinical invest i gators, tr i a l sit e s and c e rtain third parties including CMOs. If w e , our CROs, c l i nic a l tri a l s i tes, or o t her third par t ies fail t o c o m ply w i th applicable GCP or other regulatory requirements, we or they may be subject to enforcement or o t her l e gal a c tions, the c lin i cal data generated in our clinical trials may be deemed unreliable a nd the FDA or compa r able foreign r e gulatory authorities may require us to perform ad d i tion a l cl i ni c al tr i a ls. We cannot assure you that upon inspe c tion by a given regulatory authority, such regulatory authority will determine that any of our cl i nic a l tri a ls comply with GCP regulations. Our clinical trials will need to be c onducted with product candidates that were produced under curr e nt Good Manufacturing Prac t i c es ( “ cGM P ” ) regulations. Our failure to comply or our CMOs’ f a ilure t o c o m ply w i th these regulations may require us to rep e at c l ini c al tr i als, which would delay the regulatory approval process. We also are r e qu i red to regist e r c e r t ain c l ini c al tr i a ls and post the re s ults of ce rt a in c ompl e t e d cl i ni c al tr i a ls on a g o vernment sponsored database, ClinicalTrials.gov, wit h in specified timeframes. Failure to do so could result in enforcement a c tio n s and adverse pub l i c ity. We rely on third parties to manufacture, pac k age, label and ship some of our p r oduct candidates for the clini c al trials that we conduc t . Any performance f a ilure on the part o f these third par t ies could delay clinical development or marketing approval of our product candidates or commerc i alization of our product candidates, if approved, producing additional losses and depriving us of potential product revenues. In addition, we will be required to report certain finan c ial interests of our third-party inv e s t iga t ors if t h ese relationships e xc e ed c e rtain fin a nci a l thresholds or meet other criteria. Immuno-Oncology Clinic, Inc. (the “ C linic”) has conducted, and is currently conducting, and in the future may conduct clinical trials involving our product candid a tes. Na n t Works is a colle c tion of healthcare and technology companies that is con t rolled, and a majority of which is owned, by our Executive Chairman, Dr. Patrick Soon-Shion g , and provides certain admin i strative servic e s (and has loaned money) to the Clinic. We are conducting ongoing clinical trials and single patient inv e stigational new drug (“spIND”) applications that may include the use of Anktiva, a ldoxorubicin or product cand i dates enabled by our adenovirus, or Ad, t e chnologies. The FDA or comparable fore i gn regulatory authorities may question the int e grity of the data from those c l inical trials conducted by inve s tigators that are determined to have conflic t s of int e rest. Our CROs, c lin i cal t rial sit e s and oth e r t hird parties may also have rel a tionships with other entities, some of which may be our competitors, for whom they may also be conducting clinical trials or other therapeutic deve l opment activities that could harm our competitive position. In addition, these third parties are not our employ e es, and except for remedies available to us under our agreements with them, we cannot control wheth e r or not they devote sufficient time and res o u r ces to our ongoing c l inical and preclinical programs. If these third parties do not successfully car r y out their contractual duties, meet expected deadli n e s or conduct our clinical trials in accordance with r e gulatory requirements or our stated protocols, if they need to be replaced or if the qual i ty or a ccur a cy of t he data t hey obtain is compromised due to the failure to adhere to our trial protocols, re g ulatory requirements or for other reasons, our trials may need to be repeated, e x tended, delayed or terminated, we may not be able to obtain, or may be d e layed i n obtaining, ma r k eting approvals for our product c a ndidates, we will not be able to, or may be delayed in our effor t s to, successfully commercialize o ur product candidates or we or they may be subje c t to r e gulatory enforcement actions. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could in c rease and our a bi l ity to g e nerate revenues could be del a yed. To the extent we are unable to successfully identify and manage the performance of t h ird-party service providers in the future, our business may be m a terially and adverse l y affected. Our reliance on third and relat e d parties can also present int e llectual prope r ty-related risks. For example, collaborators may not p r o p erly obtain, maintain, enforce or defend intellectual p r o p erty or propriet a ry rights relating to our product candidates or technology or may use our proprietary information in such a way as to expose us to potential litiga t ion or other intellectual p r operty-related proceedings, including proceedings challen g ing the scope, ownership, validity and e n force a bi l ity of our int e l l ec t ual property. Collaborators may also own or co-own intellectual p roperty covering our prod u ct candidates or technology that results from our collaboration with them, and in s u ch cases, we may not have the exclusi v e right to com m er c ia l ize such intellectual property or such product candidates or technology. Col l aborators may also gain ac c ess to our trade secrets or form u l ations and impact o u r ability to c o mmercialize prop r ietary technology. We may also need the cooperation of our collaborators to enfo r ce or defend any int e ll e c t ual property we contri b ute to or that arises out of our collaborations, which m a y not be provided to us. 61 Table of Contents If a n y of our relations h i ps with th e s e th i rd or re l a t e d p a rti e s t e rmin a t e , we m a y not be a ble to ent e r i nto a l t e rna t ive ar r a ng e ments or do so on commercially rea s onable terms. Switching or adding additional contrac t ors involves additional cost and time and requires manag e ment time and focus. In addition, there is a n a tural transition period w h en a new thi r d p a rty comm e n c es w ork. As a re s ult, delays could occur, which could compromise our ability to meet our desi r e d d e velopment timelines. In a dd i tion, if an agr e e m ent with any o f our collaborators terminates, our access to technology and intel l ectual property licensed to us by that coll a borator may be restri c ted or t e rm i na t e e nt i rely, which may delay our continued d e velopment of our product candidates utilizing the colla b o r ator’s technology or intellectual property or require us to stop development of those product candidates completely. Our relative lack of experience conducting clinical trials may contribute to our planned clinical trials not beginning or completing on tim e , if a t a l l. In addition, we h a ve entered into a g r eements with the Clinic, a related party, to co n t inue to conduct and oversee cer t a i n of our c l ini c al tr i a l s . L a rge-s c ale c lin i c a l t ri a ls will require significant additional resources and reliance on CROs, clinical investigators or consultants. Consequently, our reliance on outside parties may introduce delays beyond our control. Our CROs, the Clinic and o t her third parties m u st communicate and coordinate with one another in order f o r our trials to be successful. Additionally, our CROs, the C l inic a nd other third parties may also have relationships with o t her commercial entities, some of which may compete with us. If our CROs, the Clinic or other third p a rties conducting our clinical trials do not perform their contractual duties or regulatory ob l igations, experience work stoppages, do not meet expect e d d e adl i nes, ter m in a te the i r a gree m ents w i th us or n e ed t o be r e pla c ed, or if the qua l ity or a c c u r acy of t he cl i nic a l data t hey obta i n is compro m is e d due to the failure to adhere to our clinical trial protocols, GCP or other regulatory requirements or for any other reason, we may need to conduct addition a l cl i nic a l tri a ls or en t e r into new a rrang e men t s w i th al t e rn a tive CROs, cl i nic a l invest i gato r s or other third parties. We may be unable to enter into arr a ng e m e nts wi t h a l t e rnat i ve CROs on commercially reasonable terms, or at all. We, the Clinic and the third parties upon which we intend to rely for conducting our clinical tri a ls are required to comply with GC P . GCP are regulations and guidelines enforced by r e gulatory authorities around the world, th r o ugh periodic inspections, for products in clinical development. If we or th e s e t hird part i e s f a il to comp l y wi t h app l i c able GCP regu l a t ions, the c l ini c al da t a gener a t e d in our c lin i c a l t ri a ls m a y b e deemed unreliable and have to be repeated, and our submiss i on of marketing applicatio n s may be delayed or the regulatory authorities may require us to perform a ddit i onal c l ini c al trials before approving our marketing app l ications. We are sub j ect to the risk that, upon inspection, a regulatory authority w i ll determine that any of our cl i nic a l tri a ls f a ils to c omply or f a i l ed t o c omply with appl i c a ble GCP regulati o ns. In addition, our c l i nic a l tri a ls m ust be c onducted with material prod u ced under GMP and/or Good Tissue Practice (“GTP”) regulations, which are enforced by regulatory authorities. Our failure t o c omply w i th these regulations may require us to r e pe a t cl i nic a l tri a ls, wh i c h wou l d delay the reg u latory ap p r o v al process. Moreover, our business may be significantly imp a ct e d i f our CROs, the C l ini c , cl i nic a l investigators or other third parties violate federal or state healthcare fraud and a buse or false claims laws and regulations or healthcare privacy and security laws. We a l so an t ic i pate t hat part of our str a tegy for pursuing the wide ran g e of indicat i ons potentially addre s sed by Anktiva will i nv o lve further investigator-ini t ia t e d cl i nic a l tri a ls. Wh i le th e s e t r ia l s gen e ral l y prov i de us w i th v a lu a ble c l ini c al da t a that c a n inform our fu t ure d e ve l opment strategy, we generally have less control over not only the conduct but a l so the design of these clinical trials. Third-party investigators may design clinical trials involving our product candidates with clinical endpoints that are more dif f icult to achieve or in other ways that i ncre a se t he risk of nega t ive c l ini c al tr i a l resul t s co m par e d to c l ini c al tr i a ls we may design on our own. Negative results from investigator-initiated cl i nic a l tri a ls, reg a rdl e ss of h o w the clinical trial was designed or conducted, could have a m a terial adverse effect on our business and the perception of o ur product candidates. Moreover, principal investigators for our clinic a l tri a ls m a y serve a s sci e nti f ic adv i s o rs or consultants to us f r om time to t i me a nd r e c e i v e compen s a tion in connection with such services. In add i tion, the Clinic has con d ucted, is currently conducting, and in the future may conduct, clinical trials invol v i ng our product can d id a tes, and in the future t he Clinic may conduct, clinical tri a ls involving our product can d idate s . NantWorks, which is controlled by, and a majority of whi c h is owned by, our Executive Chairman, Dr. Soon‑Shiong, p r ovides certain administrative services (and has loaned money) to the Cl i nic. Under cer t a i n c i rcu m s t anc e s, we m a y be required to report some of the s e rel a t i onsh i ps to the FDA. The FDA may conclude that a financ i al relationship between us, the Clinic a n d/or a principal investigator has created a conflict of int e rest or o t herwise aff e ct e d i nterpr e t a tion of the study. The FDA may therefore question the integrity of the data gen e rat e d a t the app l ic a ble c l ini c al tr i a l site a nd t he u t il i ty of the c lin i c a l t r i a l its e lf m a y be j e op a rdi z ed. This could result in a delay in approval, or rejection, of our marketing a pplications by the FDA and may ult i ma t e ly l e ad to t he den i al of regulatory approval of one or more of our product candidates. 62 Table of Contents Our c l inical t r i als may not be init i ated or c ompl e t e d w h en we e xpect, and we may be required to conduct addit i onal c lini c al t r i als or modify current or future clinical trials based on feedback we receive from the FDA. Clinical testing is expen s ive, time consuming and subject to uncertainty. We cannot guarantee t h at any current or future clini c al trials will be conducted as planned or completed on sc h e dule, if at all, or that any of our product candidates will receive regulatory approval. We previously ini t i a ted c l ini c al tr i a ls i n p a ti e nts wi t h bl a dder c a ncer and in other indications, s om e t im e s in col l abor a tion w i th third parties. We plan to initiate trials in new indicat i ons, and new cohorts in existing t r ials. Even as these trials progress, i s sues may arise that c o uld require us to suspend or terminate such clin i cal trials or could ca u se the resul t s of one cohort to differ from a pri o r cohort. For exa m ple, we may exp e ri e nce slower th a n ant i cip a t e d enro l lm e nt in our c l ini c al tr ia ls, which may consequently d e lay our BLA and/or NDA filing timelines or permit comp e titors to obtain approvals that may alter our BLA and/or NDA filing strategy. A f a ilure of one or more c lini c a l tri a ls c a n o c cur at any stage of testing, and our future cl i nic a l tri a ls m a y not be successful. Events that may prevent successful or timely initiation or compl e tion of clinical developme n t or product approval include: • regulators or Institutional Review Boards (“IRBs”) may not authorize us or our inv e s t iga t ors to com m ence a c lin i c a l t ri a l, co n duct a c lin i c a l t ri a l a t a prosp e ct i ve tri a l s i te, or a m end t ri a l pro t oco l s, or regulators or IRBs may r e quire that we modify or amend our c l ini c al trial protocols; • delays in reaching a consensus or inability to obta i n a gree m ent with the F D A or c om p arable foreign regulatory authorities on t rial design or e l igib i li t y c r it e ria for p a t i ent enro l lm e nt; • t he FDA or comparable foreign regulatory authorities may disagree with our intended indications, t r ial des i gn or o ur interpre t ation of data from preclinical studies and clinical trials or find that a product candidate’s benefits do not outweigh its safety risks; • t he FDA or comparable foreign regulatory author i ti e s m a y not a cc e pt data from t r ia l s w i th cl i nic a l tri a l s i tes in for e ign cou n tr i e s; • t he FDA may not allow us to use the cli n ical trial data from a research institution to support an investigational new drug (“IN D ”) if we cannot demonstrate the comparability of our product candidates with the product candidate used by the relevant research instit u tion in its c lin i c a l t ri a ls; • d e lays in or fa i lure to re a c h an agre e m e nt on a c c e ptab l e ter m s w i th prosp e ct i ve CROs and c l i nic a l tri a l s i tes, the t e rms of which can be subject to extensive negotiation and may vary significantly among different CROs and c linical trial sites; • i mposition of a temporary or permanent clinical hold, such as the clinical hold on the P hase II /III clinical trial for our hAd5 COVID ‑ 19 vaccine candidate pending modific a tions to the protocol and FDA’s review of additional informatio n , i n cluding of immunogenicity and safety data from the P hase I portion of the study, or the temporary hold previously experienc e d in our 2014 clinical study rel a ting to aldoxorubicin; although this temporary clinical hold inv o lved a single death of a c o mpassionate use patient, since that time, a ldoxorubicin has been administered in mul t iple P hase II clinical trials and a Phase III c linical trial with no f u rther clinical holds; • suspensions or terminations by regulatory agencies, I RBs, or us for various reasons, incl u ding noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or ot h er unexpected characteristics of the product candidate, or due to findings of undesirable effects c a used by a biologically or mechanistically si m il a r therapeutic or th e rap e utic c a ndid a t e ; • delays in adding new investigators or c l ini c al tr i a l s i t e s, or w i thdr a w a l of c l ini c al tr i a l sit e s from a tr i a l; • f a ilure by our CROs, cl i ni c al tr i a l s i t e s or patients, or other third parties, or us t o a dhere to c l ini c al tr i a l requ i re m e nts, including regulatory, contractual or pro t ocol requirements; • failure to perform in accordance with the GCP requiremen t s, or applicable regulatory guidelines in other countries; • occurrence of adverse events associated with the product can d idate that a r e viewed to outweigh its potential benefits; • c hanges in regulatory requireme n t s and guid a nce that r e quire amending or submitting n e w clinical protocols to regulatory auth o ri t ies and IRBs, and which may cause delays in our development programs, or chan g e s to regulatory review times; • t here may be regulatory qu e stions or disagreements regarding interpretations of data and resul t s, or new information may emerge regarding our p r o duct candidates; • c hanges in the standard of care on which a clinical development plan was based, which may require new or additional trials; 63 Table of Contents • t he cost of clinical trials of our produ c t candidates being greater than we anticipate, or we may have insufficient funds for a c lin i c a l t ri a l or to pay the substantial user fees requir e d by the FDA upon the filing of a BLA or NDA; • c linical trials of our product candidates p r oduci n g negative or inconclusive results m a y fail to provide sufficient data and informati o n to support product approval, or our trials may fail to r each the necessa r y l e vel of statistical or clinical significance, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials, or preclin i cal studies, or abandon product develo p ment programs; • i nterruption of, or delays in receiving, supplies of our product candidates or other drugs or components of our therapies due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; • e arly results from our clinical trials of our product candidates may be negatively affected by changes in e fficacy measures such as overall response rate and duration of re s ponse as more patients are enrolled in our clinical trials or as new cohorts of our clinical t ria l s are t e sted, and overall response rate and duration of response may be negat i vely a f fected by the inclusion of unconfirmed res p onses in pre l iminary results that we report if such r e sponses are not later confirmed; • we may not be able to demonst r ate that a product candidate provides an a d vantage over current standards of care or current or future competitive therapies in developme n t; • t here may be changes to the therapeutics or their regulatory s t atus which we are administering in combination with our product candidates; • t he FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fau l t with the manufacturing proc e s s es or our manufacturing fac i li t i e s for c lin i c a l a nd fu t ure com m erc i al suppli e s; • t he FDA or comparable regulatory autho r ities may take longer than we anticipate when making a decision on our product candidates; • transfer of our manufacturing processes to our CMOs or other larger-scale facilities operated by a CMO or by us and delays or failure by our CMOs or us to make any necessary changes to such manufacturing process; • our use of different manufactur i ng processes within our clinical tri a l s , and any eff e cts that may result from the use of diff e rent processes on the c l ini c al d a ta th a t we have r e ported and will report in the future; • delays in manufacturing, testing, releasing, validatin g , or importing/exporting sufficient sta b le quantities of our product c a ndidates for use in clini ca l tri a ls or the in a bili t y to do any of the foregoing, including as a result of any qua l ity issu e s associ a t e d wi t h the contract manufacturer; • delays and additional costs associated with business disruption s , new regulatory requirements, social distancing and other re s tri c tions imposed b y governmental or regulatory agenc i es and clinical trial sites due to the C OVID ‑ 19 pandemic, which may include enroll m ent d e lays or f a ilur e s to follow tri a l protoco l s; a nd • obtaining sufficient supply of therapies that may be used in combinati o n with our mol e cular a g ents or as comparative age n ts in c l ini c al tr i a l s . We are conducting our P hase II trial of Anktiva in combination with BCG in BCG unresponsive patients with non-muscle invasive bladder cancer, (“NMIBC”) in both carcinoma in s i tu (“CIS”) and papillary forms. Due to BCG shortages, delays were encountered in p a tient enro l lm e nt. As of December 2020, we com p leted o ur planned enrollment in the BCG unresponsive C I S cohort. We have en r olled patients who have rec e iv e d a lower dos a ge of BCG t herapy before e nroll m ent in its tri a l as a result of BCG shortages. During the p e riod of shortages, we have also enrolled patients who have received a lower dosage of BCG th e rapy before enro l lm e nt in t he tri a l due to the global shortage of BCG; for e x ample, some p a ti e nts r e c e ived the recommended number of doses, but the amount per dose was one-third of recommended stre n g th. All patients, with o ut exception, r e ceived the number of BCG doses consistent with F D A guidance, and no less than app r oximately 90% of patients enrolled i n the tr i a l a s o f D e c e mb e r 2020 have received the am o unt of BCG recommended by t h e A m eri c an Uro l ogic a l A s soci a t i on befo r e e nrol l ing i n the t ri a l. The FDA agreed with our modification of t h e study design to allow enrollment of patients who have received a reduced dose o f BCG as first line therapy. These patients received the full dose of BCG + A nktiva during the trial; however, such patients should not be considered BCG u n r e sponsive. The disposition of such patients in the assessment of our trial r e sults to support approval of Anktiva in BCG un r esponsive CIS NMIBC pat i ents w i ll be det e rmin e d by the FDA dur i ng t heir rev i ew. We m a y consider enro l ling additional patients b e fore BLA submissio n , and the labeling will reflect the enrol l ed patient population and will also be determined by the FDA d u r ing their review. 64 Table of Contents We also may conduct clinical and preclinical research in collaboration with other acade m ic, pharmaceutical, biotechnolo g y and b io l o g i cs e nti t i e s in which we combine our technologies with those of our collaborators. Such c o llaborations may be subject to additional delays bec a use of the management of the trials, contract negotiations, the need to obtain agreement from multiple par t ies and the necessity of obtaining additional approvals for ther a peut i cs used in the co m bina t ion tri a ls. Th e s e c o m bin a tion ther a pi e s w i ll requ i re additional testing and clinical trials will require additional FDA regulatory approval and will increase o ur future cost s . Any inab i li t y t o suc c essfu l ly c omp l e te pr e c l i ni c a l and cl i ni c al development could result in addit i onal costs to us or impair o u r ability to generate revenues. In addition, if we m a ke manufacturing changes to our product candidates, we m a y be required to, or we may elect to, conduct additional trials to bridge our modified product candidates to earlier versions. These changes may require FDA approval or no t ification and may not have their desired effect. The FDA may also not acc e pt data from prior versions of the product to support an application, delaying our clinical t r ials or programs or nec e ssi t a t ing a ddit i onal c l ini c al tr i a l s or pr e c l i ni c a l s t udi e s . We may find that this change has unintended con s equences that necessitates additional development and manufacturing work, additional clinical and precl i nical studies, or that results in refusal to file or non-app r oval of a BLA and/or NDA. Clinical trial delays could shorten any p e riods during which our product candidates have patent protecti o n and may allow our c o mpetitors to bring products to market before we do, which c ould impair our ability to successfully commercialize our product candidates and may h a rm our business and results of operati o ns. Regulatory authorities have sub s tantial discretion in the approv a l process and may refuse to accept any application or may dec i de that our data are ins u f ficient for approval and r e quire additional preclini c a l studi e s , c lin i c a l t ri a ls or o t her research. The number and types of preclinical stu d ies and clinical trials that will be required for regulatory approval also v a ry depen d ing on the product c a ndidate, the disease or condition that the product candidate is designed to addre s s and the regulations applicable to any particular product candidate. Approval policies, regula t ions or the type and amount of clinical data necessary to gain approval may change du r ing the course of a product candidate’s clinical development and may vary among jurisdictions. It is possible t h at any produ c t candidates we may seek to develop in the future will never o b tain the appropriate regulatory approvals necessary for us or any futu r e collaborators to commence p r o du c t s a l e s. Any d e l a y in co m ple t ing development or obtaining, or f a iling to obtain, required approvals could also materially adversely affect our ability or that of any of our collaborators to generate revenues from any such product candidate, which likely would result in significant harm to our f i nancial position and adverse l y impact our stock price. We use Immuno-Oncology Clinic, I n c., a related party, in some of our clinical trials which may expose us to significant regula t ory risks. If our data for this site i s not suff i c i e n tly rob u st or if there are any data integrity iss u e s , we may be r e quir e d to r e p e at s u ch st u di e s o r r e q u i r ed to c ontra c t with other clinical trial sites, and our clinical deve l opment plans will be sig n ificantly delayed, and we will incur additional cos t s. Many of our P hase I and II clinical trials for our haNK, PD-L1.t-haNK and other t-haNK products as well as Anktiva have been co n ducted by Immuno-Oncology Clinic, Inc., which is a related party. Relying on a relat e d party clinical site to develop data t h at is used as the basis to support regulatory approval can expose us to significant regulatory risks. For example, a study u s ed to support regulatory approval that is condu c ted at a related party site can be rejected by the FDA if there are data integrity issue s , or if there are significant GCP violations at the site. If any data integrity, or regulatory non-compliance issues occur during the study, we may not be able to use the data for our regulatory approval. Furth e rmore, if the operations of the clinical site are disrupted or if the site experiences disruptio n s in its cli n ical supplies or resources, such as potent i al disruptions due to COVID ‑ 19, then we may be required to suspend or terminate the study at this site, and we may need to contract with other clinical sites for the study, which will delay our clinical development and regulatory approval for the product candidate. Failure of this site to comply with the regulations or to recruit a sufficient number of patients may require us to delay submission for regulatory approval or repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if the site violates federal or state fraud and abuse or false claims laws and regulations or healt h care privacy and security laws. If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities and receipt of necessary marketing approvals could be delayed or otherwise adversely affected. The timely completion of c linical trials in accordance w i th their protocols depends, among o t her things, on our ability to enr o ll a sufficient number of pat i ents, who r e ma i n i n the t rial un t il its c onclusion. We may experience difficulties or del a ys in patient enrollment in our c linical trials for a va r iety of reasons, including: • t he size and nature of the patient po p ulation; • t he severity of the d i sease under investigation; • t he pat i ent e l igib i li t y c rit e ria defined in the protocol; 65 Table of Contents • t he size of the study population required for analysis o f the trial’s primary endpoints; • t he proxim i ty of pa t ien t s to tri a l s i tes; • our ab i li t y to re c ruit c l ini c al tr i a l inv e s t iga t o r s with the a ppropria t e comp e t e n c i e s a n d e xp e r i e n c e ; • t he efforts to facilitate timely enr o llment in clinical t r ials and the effective n ess of recruiting publicity; • t he patient referral p r actices of physicians; • t he number of patients required for clinical trials of our product candidat e s may be larger than we a n ticipate or enrollment i n t hese cl i nic a l trials may be slower than we antic i pate, potentially affecting our timelines for approval of our product candidates; • patients that enroll in our studies may m i sr e present th e ir el i gibi l ity or m a y otherwise not co m ply wi t h t he c l i nic a l tri a l pr o toco l , result i ng in the need to d r o p such patients from the study or clinical t r ial, increase the needed enroll m ent size for the study or clini c al trial or extend the study’s or clinical trial’s duration; • c ompeting clinical trials for similar therapies or other new therapeutics not involving cell-ba s ed immunotherapy; • c linicians’ and patients’ percept i ons as to the potential advantages and side effects of the product c a ndidate being studied i n relation to o t her ava i lab l e the r api e s, i nclud i ng any new drugs or treatments that may be approved for the indications we are investigating; • c lin i c a l i nvestig a tors e nrol l ing p a ti e nts who do not meet the enrollment criteria, requiring the inclusion of additional pati e nts in t he cl i nic a l tr i a l; • a pproval of new indications for existing therapi e s or ap p r o v al of new therapies in general; • our ability to obtain and m a in t a in p a t i e nt con s en ts; • t he impact of the current COVID ‑ 1 9 pandemic or other material adverse events, which may affect the conduct of a clinical tria l , including by slowing potential enrol l ment or reducing the number of eligible p a ti e nts for c l ini c al tr i a l s ; and • t he risk th a t pat i ents enrol l ed in c l i nic a l tri a ls wi l l not c ompl e te a c l ini c al tr i a l, r e turn for post- t rea t m e nt fo l low-up, or follow t h e required study procedures. For instance, patients, i n cluding patients in any control groups, may withdraw from the clinical trial if th e y are not experiencing improvement in their underlying disease or c ondition. Withdrawal of patients fr o m our clinical trials may comprom i s e t he quality of our data. In addition, we expect that our clinical trials will c o mpete with other clinical trials for product candidates that are in the s a me th e rap e utic a reas as our prod u ct candidates, and this competition w i ll reduce the number and types of patients available to u s , because some patients w h o might have opted to enroll in our trials may instead opt to enroll in a trial being c o nducted by one of our competitors. Bec a use the number of qua l if i e d c l in i c a l investigators is limited, we may need to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will r e duce the n u mber of patients who are available for o u r clinical trials at such clinical tri a l sites. Moreover, because our product candi d ates represent a departure from more commonly u sed methods for cancer and/or viral disease treatm e nt, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and approved immunotherapies, rather than enroll patients in a ny future clinical trial. Amendments to our clinical protocols may a f fect e nroll m ent in, or results of, our t r i a ls, including amendments we have made to further define the patient population to be studied. Even if we a re able t o e nroll a suff i ci e nt number of p a t i ents i n our c l ini c al tr i a ls, de l a ys i n p a ti e nt e nrol l ment or small population size may result in increased costs or may af f ect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and ad v e rsely affect our ability to advance the develop m ent of our product candidates. 66 Table of Contents Our product candidates may cause undesirable side effects or h a ve other properties that c ould halt their cl i n ical devel o pment, pre v e n t th e ir regulatory approval, limit t h eir commercial pote n tial or result in si g n ificant negative consequences. Results of our trials could reveal a high a nd unacceptable severity and p r ev a len c e of s i de e ff e cts, adverse events or unexpect e d char a c t e rist i c s. Undesirable side effects caused by our product candidates cou l d cause us, IRBs, Drug Safety Monitoring Boards (“DSMBs”) or regu l a tory au t horit i es t o int e rrupt, de l a y or h a lt cl i ni c al tr i a ls a nd could result in a more restrictive label or t h e delay or denial of regulatory ap p r oval by the FDA or other comparable foreign regulatory authorities. Even if we were to receive product approv a l, such approval could be contingent on inclusion of unfavorable information in our product labeling, such as limitations on the indicated uses for whi c h the products may be marketed or distribu t ed, a l a bel with sig n ificant safety warnings, including boxed warnin g s, contraindicati o ns, and precautions, a lab e l without statements necessary or desirable for successful commercialization, or requirements for costly post marketing testing and surveillance, or other requirements, including a Risk Evaluation and Mitigation St r a tegy (“REMS”) to monitor the safety or efficacy of the p r oducts, and in turn prevent us from commercializing and generating r e venues from the sale of our current or future product candidates. If unacceptable toxicities or side effects arise in the development of our product candidates, we, an IRB, DSMB or the FDA or c omparable foreign regulatory authorities could order us t o c e ase c l ini c al tr i a ls, ord e r our cl i nic a l trials to be placed on clinical hold, or de n y approval of our product candidates for any or all targe t ed indications. The FDA or comparable foreign regulatory authorities may also requi r e additional d a t a , clini ca l , or preclinical studies should unacceptable toxicities a r ise. We may need to abandon development or limit development of that product c a ndid a te to ce r ta i n uses or subpopulations in which t h e undesirable side effects or other characteristics are less prevalent, less severe or more ac c ept a ble from a risk/b e nefit perspective. Toxicities a s sociated with our trials and produ c t candidates may also n e gatively impact our ability to conduct cl i n i c a l t ri a ls using tumor-infiltrating lymphocyte (“TIL”) therapy in lar g er patient p opulations, such as in patients that have not yet b e en treated with other therapies or have not yet progressed on other therapies. Tr e a tment-em e rgent a dv e r s e e v ents could a lso a ff e ct p a t i e nt r e crui t ment or the ab i li t y of enrol l ed sub j ec t s to co m ple t e our tr i a l s or r e su l t i n po t ent i al prod u ct liability claims. We h a ve observed that certain events associated w i th our product candidates may include, for example, injection site pain and reacti o n, fatigue, nau s ea, vomiting, diarrhea, muc o sitis, abdominal pain, anorexi a , chills, pyrexia, arthr a lgia, limb edema, myelosuppression (neutropenia , thromboc y t openia, and ane m ia) and hypoalbuminemia. Combination immunotherapy that includes our current product candidates may be associated with more frequent a dverse events or additional adver s e events, such as esophagitis, s t omatitis, epist a xis, weight loss, head a c h e , alop e c i a, night sweats, peripheral neuropa t hy, and death. In addition, t h ese serious adverse e ffects may not be app r opriately recognized or managed by the treating medical staff, as toxicities res u lting from our product candidate are not norm a lly encountered in the general patient population and by medical personnel. Any of these occurrences may materially harm our business, financial c o ndition and p r os p e cts. The manufacture of our product candidates is compl e x, a n d we may e n co u n t e r diffic u lties in p roduction, part i cularly wi t h r e spe c t to pro c e s s development, quality control, or scaling-up of our manufacturing capabilities. If we or our related partie s , or any of our thi r d-party manufacturers encoun t e r su c h diff i cult i es, our abil i ty to provide supply of our product candidates for clinical t r ials or our products for p a tients, if approved, could be delayed or stopped, or we m a y be unable to maintain a comme r cially viable cost structure. Our current product can d idates include predominately biologics, v e ctors, small molecules and decentralize d , advanced cell ther a pies. The manufacture of these product candidates involves complex processes, es p ecially for our biologics, vecto r s and cell therapy product candidates, which are complex, highly regulated and subject to m u lt i ple risks. As a r e sult of t he c omp l e xi t ies, t h e co s t to m a nuf a c ture biol o gics, vectors and c e ll th e rap i e s i s gen e ral l y higher than traditional small molecule che m ical compounds, and the manufacturing process is less reliable a nd is more difficult to rep r o duce. Even minor deviatio n s from n o r mal manufacturing processes could result in reduced production yields, produ c t defects, and other supply disruptions. If microbial, viral, environmental or other contaminations are d i scovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufa c turing fa c il i ti e s m a y n e ed to be closed for an extended period of time to investigate and rem e dy the contamination. Currently, our product candidates are manufact u red using processes developed or modified by us, our affiliates or by our third-party research institution collaborators that we may not include for more advanced cli n i ca l tri a ls or comm e r c i a l i z a tion. As a r e sult of the s e ch a ll e ng e s, we may experience delays in our clinical development and/or comme r cialization plans. We may ultimately be unable to redu c e the cost of goods for our p ro d uct candidates to levels that will allow for an attractive return on investme n t if and when those product candidates are commercialized. 67 Table of Contents Currently we ma n u f acture our product candi d a t e s or use CMOs. We may use t h ird-party CMOs or some of our related parties to man u facture our prod u ct candidates. Our p r oduct candidates may compete with other products and product candidates for access to ma n u f acturing f ac i li t i e s. T here are a limited number of manufac t urers that operate under cGMP regu l ations and that are both capable of manufacturing for us and will i ng to do so. If our CMOs should cease manufacturing for us, we would experience delays in obtaining sufficient qua n tities of our product candidates for c l ini c al tr i a l s and, if approved, commercial supp l y. Further, our CMOs may breach, terminate, or not renew these agreements. If we were to need to f ind a l tern a t i ve manuf a c tur i ng f a c i li t ies i t would significantly impact our ability to develop, obtain regu l atory approval for or market our product candidates, if approved. The commercial terms of any new arrangement could be less f a vorable than our existing arr a ngements and the expenses r el a t ing to the transfer of necessary technology and processes could be significant . Reliance on third-party manufacturers entails exposure to risks to which we wou l d not be subject if we manufactured the product candidate ourselves, including: • i nability to negotiate manu f acturing and quality agreements with third parties under commercially reaso n able terms; • reduced day-to-day control over the manufacturing process for our product candidates as a result of using third-party manufac t urers for all aspects of manufact u r i ng a c t i vit i es; • reduced control over the protection of our t r ade secrets, kno w -how and other proprietary inf o rmation from misappropriation or i n advertent disclosure or from being used in such a w a y as to expose us to potential litigation; • t ermination or nonrenewal of manufacturing agreements with third p a rties in a manner or at a time that may be costly or damag i ng to us or result in delays in the development or commercialization of our product candidates; and • disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including t h e bankruptcy of the manufacturer or supplier. The manufacture of cell therapy products r e quires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufactur e rs of cell therapy products often encounter difficulties in p r oduction, particular l y in s c a l ing up in i ti a l prod u ction. These problems include dif f icu l ties with production costs and yields, quality control, including stability o f the p roduct candidate and quality assurance testing, shortages of qualified personnel and compl i ance with strictly enforced fed e ral, state, local and foreign re g ulations. Moreover, any problems or delays we or our CMOs ex p e rience in preparing for c o mmercial scale manufa c turing of a product candid a t e may result in a delay in the FDA approval of the product candidate or may impair our ability to manufacture commercial quan t ities or such quanti t ies at an a c cep t a ble cost, which could result in the delay, prevention, or impairment of clinical deve l opment and commerciali z ation of our product c andidates and could adversely affect our business. Furthermore, if we or our commercial manufacturers fail to del i ver the required commercial quantities of our product candidates on a timely basis and at reasonable costs, we would likely be unable to meet demand for our products and we would l o se po t ent i al revenues. In addition, the manufacturing process and f a cilities for any products that we may d e velop are su b j ect to FDA and foreign regu l atory authority approval processes, and we or our CMOs will need to m e et a ll appl i c a ble FDA a nd foreign regulatory authority r e quirements, incl u ding cG M P, on an ongoing basis. The cGMP requi r e ments include quality control, quality ass u rance and the maintenance of records and documentation. The F DA and other regulatory authorities enforce t h ese requirements through facility inspections. Manufacturing fac i lities must sub m it to pre-ap p roval inspections by the FDA that will be conducted after we submit our ma r k eting appli c ations, including our BLAs and N DAs, to the FDA. Manufacturers a re a l so sub j e c t t o continuing FDA and other regulato r y authority inspections following marketing ap p r o v al. Further, we and our third-party CMOs must supply all nece s sary chemi s try, manufacturing and quality c o ntrol documentation in support of a B L A or NDA on a timely basis. There is no guarantee that we or our CMOs w i ll be able t o suc c e s sfully pass all aspects of a pre-approval inspection by the FDA or other foreign regulatory aut h or i ti e s. As product candidates progress through preclinic a l and clinical trials to marketing app r oval and comme r cializa t ion, it is common that various aspects of the development program, such as manufactur i ng methods and formulation, are altered along the way in an effort to optimize yie l d and manufacturing batch size, minimize costs and achieve consistent quality and re s ults. S uch ch a nges c a rry the risk that they will not achieve t hese intended objectives. Any of these changes could cause o u r product candidates to perform differen t ly and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could d e lay completion of clinical trials, require the conduct of bridging c l in i c a l t ri a ls or the rep e ti t ion of one or more clinical trials, increase clinical trial cos t s, delay approval of our product candidates and jeopardize our ability to com m er c ia l ize our prod u ct candidates, if approv e d, and generate revenues. 68 Table of Contents Our or our CMOs’ manufacturing fac i lities may be unable to com p ly with our speci f ications, cGMP, and with other FDA, state, and foreign regulatory requirements. Poor control of production processes can lead to the introdu c tion of adventitious agents or other contaminants, or to inadv e rt e nt changes in the properties or stability of product c a ndidates that may not be detectable in f i nal product testing. If we or our CMOs are unable to reliably produce produ c ts t o spe c ifi c a t ions a cc e pt a ble to t h e FDA or other regulatory authorities, or in a c c ordance wi t h t he str i ct r e gu l a t ory r equirements, we may not o b tain or maintain the approvals we need to commercialize such products. Even if we obtain r e gulatory approval for any of our p roduct candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specificatio n s acceptable to the FDA or other regulatory authorities, to produce it in s u fficient quantities to meet the requirements for the potential launch of the product, or to me e t potential future demand. Deviations from manufactur i ng requirements may further require remedial m e a s ures that m a y be costly and/or time-consuming for u s or a third party to implement and may include the temporary or p e rman e nt s uspe n sion of a clini c al tri a l or c omm e rcial s a l e s o r the t e mporary or p e r manent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materi a lly harm our business. To the extent we use CMOs, we are ultimately responsible for the manufacture of our products, if approved, and product ca n didates. A failure to comply with these requirements may result i n regu l a t ory enfo r ce m ent a c tions aga i nst our manufacturers or u s , inclu d ing fines and civil and criminal penalties, which could result in imprisonment, suspension or restrictions of production, injunctions, delay or denial of produ c t approval or supplements to approved products, clinical holds or termination of clinical trials, warning or untitled letters, r e gulatory authority communications warning the public about safety issues with the biologic, r e fusal to permit the import or export of the products, product seizure, detention, or r ecall, operating restrictions, suits under the federal civ i l False Claims Act (“FCA”) corporate integrity agr e ements, consent decrees, or withdrawal of produ c t approval. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or mo r e c l i nic a l tri a ls, incr e a se clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase o u r cost of goods, and have a material adverse effect on o u r business, financial cond i tion, results of operations and growth prospects. Cell-based therapies and b i ologics rely on the availability of reagents, specialized equip m ent and other special t y mat e r i als, w hich may not be available to us on acceptable terms or at all. For some of t h e s e r e age n t s , eq ui pment and materials, we rely or may r e ly on sole source vendors or a limited num b er of vendors, which c o uld impair our ability to manufacture and supply our products, if appro v ed. Manufacturing our product candidates will require many reagents, which are substances used in our manufacturing processes to bring about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limited resources and experience to support commercial biologics production. We currently depend on a limited number of vendors for certain materials and equipment used in the manufacture of our product candidates. Some of these suppliers may not have the capacity to support clinical trials and commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support clinical or commercial manufacturing. For some of these reagents, equipment and materials, we rely, and we may in the future rely, on sole source vendors or a limited number of vendors. An inability to continue to source product from any of these suppliers, which could be due to a number of issues, including regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business. As we seek to develop and sca l e our manufactu r ing process, we ex p e ct t h at we will need to obtain rights to and supplies of cer t ain materials and equipment to be used as part of that p r ocess. We may not be able to obtain rights to such materials on co m me r ci a lly re a s on a ble terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials o r find a suitable substitu t e, it would have a material adverse effect on our business. Even if we are able to alter our process so as to use other m a ter i a l s or e quipm e nt, such a cha n ge may lead to a delay in o u r clinical deve l opment and/or commerci a lization plans. If such a change occurs for a product candidate that is already in clinical testing, the change may require us to perform both ex vivo comparability studies and to collect additional d a ta from patients prior to undertaking more a d van c ed clini ca l tri a ls. 69 Table of Contents We wi l l be u n able to co m merc ia lize our product candidat e s if our trials a r e not s u c ce ssf u l . Our research and development programs are each at an early stage. We must demonstra t e our product candidates’ safety and ef f ic a cy in humans through ext e ns i ve cl i nic a l test i ng. We may experience nu m erous unforeseen events during, or as a r e su l t o f , th e t e s t ing process that could delay or prevent commercialization of our product candidates, includi n g but not limited to the following: • s a fety a nd e ffic a cy re s ults in various human clinical trials reported in scientific and medic a l literature may not be indicat i ve of res u lts we obtain in our clinical trials; • a fter re v i ewing test res u lts, we or our collaborators may a b andon projects that we might previously have believed to be promising; • we, our collaborators or regulators may sus p e nd or t e r m ina t e cl i nic a l tri a ls i f t he p a rticipating subjects or patients are be i ng exposed to unacceptable health risks; • t he standard of care may change as the result of new tech n ology or therapies in our target clinical i ndicatio n s, precluding r e gulatory approval or limited commercial use if approved; • t he effects our potential products have may not be the desired effects or may include undesirab l e side effects or other chara c teristi c s that precl u de regulatory approval or limit their commercial use if approved; • m anufacturers may not meet the necessary standa r ds for the production of the p r oduct candidates or may not be able to supply t he product candidates in a sufficient quantity; and • regulatory authorities may find that our clinical trial design or conduct does not meet the applicable approval requirements. Clin i cal t e sting is v e ry expensive, can take many years and the outcome is uncertain. It could t a ke as much as 12 months or more before we learn the results f r om any clinical trial using Anktiva, a ldoxorubicin, Ad and yeast technologies or other therapy. The data collected f r om our c l i nic a l tri a ls m a y n o t be sufficient to support approval by the F D A of our Anktiva product candidate for the treatment of bladder cancer or of ot h er th e rapi e s, including o u r hAd5 COVID ‑ 19 vaccine candidate. The cli n ical trials for our product candidates und e r development may not be completed on s ch e dule and the FDA may not ultimately approve any of our product candidates for commercial sale. If we fail to ad e quately demonstrate the saf e ty and efficacy of any prod u ct candidate under development, we may n ot receive regulatory approval for those product candidates, which would prevent us from generating revenues or achieving profitability. Even if one of our leading product candidates, A n ktiva, is approved and commercialized, we may not become profitable. One of our leading product candid a tes, Anktiva, is initi a lly targeting a small population o f p a tients that suffer from bladder c ance r , lung cancer and me t a sta t ic pan c re a tic c a n c er, when us e d a s a comb i nat i on t her a py. Even if the FDA approves this candidate for these indication s , and e ven if we obtain significant market share for it, because the potential target population may be small, we may never achieve p r ofitability without obta i ning regulatory approval for additional indications. The FDA often approves new therapies initially only for use in patients with relapsed or refractory metastatic disease, which may l i mit our patient population. Additionally, in connection with the merger with ImmunityBio, we assum e d the obligation to issue CVRs to the former stockholde r s of Al t or BioScience Corporation (succeeded by Altor B i oScience LLC) (“Altor”) in connection with the acquisit i on of Altor. These CVRs b e come payable u p on the attainment of certa i n regulatory and sales milestones related to Anktiva. The former Altor stockholders have t h e ability to choose to receive these payments either in cas h , in an equivalent value of our common stock or in a combination of both cash and stock at t h e time such payments are due, except that Dr. S o on-Shiong and his related party, as prior stockholders of Altor, have irrevocably elected to receive all pay m ents in re s pe c t of th e ir CVRs in the form of our common stock. Such CVR payments to Dr. Soon-Shiong and his related party aggregate to approximately $2 7 9 . 5 million. We may, however, still be requi r e d to pay the other prior Altor stockholders up to $164.2 million for the CVRs r e lating to the regulatory milestone and up to $164.2 million for the CVRs relating to the sales milestone should they cho o se to have the s e CVRs paid in c ash instead of common stock. If this were to occur, we may need to seek additional sources of capital, and we may not be able to a c hieve profitability or p o sitive cash flow. We plan to collaborate with governmen t al, academic and corporate pa r tners, including affili a tes, to improve and develop Anktiva, hAd5 and other therapies for new indications for use in combinat i on with other therapies and to imp r o v e and develop other prod u ct candidates, which may e xpose us to additional risks, or we may not realize the benefits of such collaborations. 70 Table of Contents Because some of our collaborations are conducted at outside labo r atories, and we do not have c o mplete control over how the studies are conducted or reported or over the manufacturing methods used to manufacture our Anktiva product candidate, the results of such studies, whi c h we may use as the basis for our conclusions, projections or d e cisions with respect to our current or future product candidates, may be incorrect or u n r e liable, or may h a ve a negative impact on us if the results of such studies are imputed to our product candidates or proposed in d i cations, even if su c h imputation is improper. Additionally, we may use third-par t y data t o a naly z e, r e ach conclusions or make predictions or decisions with respect to our product candidates that may be in c ompl e t e , ina c cur a te or otherwise unreliable. Further, collaborations involving our product candidates will b e subject to numerous risks, w h ich may include the followin g : • c ollaborators, including their related or affiliated companies, may be entitled to receive exclusive rights f o r or involving our products; • c ollaborators have signif i cant discretion in deter m ining the efforts and resources t h at they will apply to a collaboration; • c ollaborators may not pursue devel o pment and commercialization of our product candidates or m a y elect not to c ontinue or renew development or commercialization of our product candidates b a sed on clinical t r ial results, changes in their strategic focus due t o the acquisition of competitive prod u cts, availability of fundi n g or o t her external factors, such as a business combination that d i v er t s resourc e s or cr e a t e s co m pe t ing pr i orit i es; • c ollaborators may delay clinical trials, provide insufficient f u nding for a clini c al trial, stop a clinical trial, abandon a product ca n didate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • c ollaborators could independe n t ly develop, or develop with third parties, products that compete d i rectly or ind i rectly with our product candidates; • a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their ma r keting and distribution; • c ollaborators may not properly m a intain, defend or enfo r ce our intellectual p r operty rights or may use our intellectual prope r ty or proprietary information in a way that gives r i se t o a c tu a l or th r ea t en e d l i tig a tion th a t c ould jeop a rdi z e or inv a lid a te our in t e ll e c t ual property or proprietary in f o r mation or expose us to potential liability; • disputes may arise between us and a collaborator that cause the delay or termination of the r e search, development or commerci a lization of our product candidates, or that result in costly litigation or arbitra t ion that diverts management attention and resources (see “ — If conflicts arise between us and our collaborators or strat e gic partners, these parties may act in a manner adverse to us and could limit our ab i li t y t o i m p l ement our strat e gie s . ” ); • c ollaborations may be terminated a nd, if ter m ina t ed, m a y r e su l t in a n e ed for a ddit i onal c a pit a l to pu r sue further devel o pment or commercialization of the app l icable product candidates; • i f an ag r eement with any collaborator terminates, our access to technology and intel l ectual property licensed to us by that c o llaborator may be restricted or terminate entirely, whi c h may delay our continued d e velopment of our product cand i dates utilizing the collabo r ator’s technology or intellec t ual property or requi r e us to stop development of those product candidates completely; and • c ollaborators may own or co-own intelle c tual property covering our product candidat e s or technology that results from our col l aborating with t h em, and in su c h c a s e s, we m a y not have the exclusive right to comm e rc i a l i ze such int e ll e c t ual proper t y. As a result, if we enter into collaboration agreements and str a tegic partnerships or license our product candidates, we may not be able t o re a l i ze the benefit of such transactions if we are un a ble to su cc e s s fully int e g r a te th e m w i th our existing operations and company culture, which could delay our timelines or otherwise a d versely affect our b usiness. Add i tionally, exclusive rights that we may grant in connection with coll a boration agreements may li m it our a bil i ty t o e nter in t o n e w or a ddit i onal co l labor a tion agr e e m ents or stra t e g i c partnerships if we e xperi e nce i s sues with existing collaborations. We also cannot be certain that, following a strategic transa c tion or license, we will achieve the revenues or specific net inc o me th a t j us t ifi e s such transaction. Any delays in entering into new collaborations or strat e gic partnership agreements r e lated to our product candidates could delay the development and commercialization of our product candidates in certain geograph i es for certain indications, which would harm o u r business prospects, financial condition and results of o perations. 71 Table of Contents Our efforts to develop, manufacture a n d market COVID ‑ 19 therapeutics will require additional personnel who w i ll require training, which may cause some of our employees to reallocate t h e i r t i me from other duties which could in turn cause delays in clinical supply of our other product candidates or trials. We have been planning for the development of COVID ‑ 19-related p r oduct candidates. We have repurposed some of our personnel overseeing q u ality, clinical operations and manufacturing of their oncology product cand i dates to support our COVID ‑ 19 e fforts and we plan to hire a ddit i onal s t aff to support the COVID ‑ 19 efforts, which will increase our expenses. If our personnel fail to remain focused on our o n cology or oth e r infectious disease drug candidates or, if the services of employees that may have shifted to the COV I D ‑ 19 efforts are not adequately covered by o t her em p l oyees, or if new personnel that we plan to hire to support the COVID ‑ 19 effor t s require extensive training, our current oncology ope r a tions may be adversely impacted. If conflicts arise betwe e n us and our collaborators or strat e gic partners, these parties may act in a manner adverse to us and could limit our ability to i mpl e m e n t o u r s t ra t e gi e s. If c o n f licts arise between our corporate or academic collaborators or strategic pa r tners and us, the other party may act in a m anner adverse to us and could limit our ability to implement our strategies. Some of our e xist i ng a c ad e mic c oll a bora t o r s and strategic partners are co n ducting multiple product development efforts. Such collaborato r s or strategic partners may develop, either alone or with others, p r oducts that are comp e titive with the product candidates that are the subject of these collaborations. Competing p r oduct candidates, either dev e loped by the collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of our collaborator’s or partner’s sup p o r t for our product candidates. Some of our future collaborators or strategic partners could also become our competitors in the future. Our collaborators or s t rategic partners could develop competing products, prec l ude us from entering into collaborations with their competitors, fail to obtain timely regula t ory approvals, terminate the i r a gree m ents w i th us prem a tur e ly or f a il to devote sufficient resou r ces to the development and c o mmercialization of our product candidates. For example, in May 2019, Sorrento Therapeutics, Inc. (“Sor r ento”) with which we jointly established a new entity called Immunothe r apy NANTibody, LLC (“NANTibody”) as a stand-alone biotechnology company, commenced li t igation against us and certa i n of our officers and directors, alleging that w e improperly caused NANTibody to acquire Ig D raSol, Inc. (“Ig D raSol”) and in January 2020 and A pril 2020, Sorrento sent letters purporting to terminate an exclusive li c ense agreement with us and an excl u sive license agreement with NANTibody. Additionally, in July 2020, we r ec e iv e d a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration, served by Shenzhen B e ike Biotechnology Co. Ltd. (“Beike”) asserting breach of c ontract under our subsidiary Alt o r ’s license agreement with them. For more information regarding these dis p u t es, see Note 8 , Commitments and Contingencie s—Contingencies , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10‑Q. Any of these developments could harm our produ c t development efforts. Our ability to use net operating losses and research and development credits to offset future t axable income may be subject to c e rtain l im i tat i ons In general, under Sections 382 and 383 of the Internal Revenue Code, or Code, a corporation that undergoes an “ow n ership change” is subject to limitatio n s on its a bi l ity to utilize its pre-change net operating losses or tax credits, or NOLs or cr e dits, to offset future t a xab l e inco m e or t a xes. For th e s e pu r poses, an ownership change generally occurs where the aggregate stock ownership of one or mo r e s t ockholders or groups of stockho l ders who owns at least 5% of a corporation’s stock increases its ownership by mo r e than 50 percentage points over its l o west ownership percentage with i n a spe c ifi e d t e sting period. We have not conducted a complete study to assess whether a change of control has occurred or whether there h a ve been multiple chan g e s of control since inception d u e to the significant complexity and cost associated with such a study. If we have e xperienced a change of control, as defined by Section 382, at any time since inception (inc l udi n g as a result of the merger), utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an a nnual limitation under Section 382. Any limitation may r e sult in expiration of a portion o f the net operating loss carryforwards or research and development tax credit carryforwards before utilization. I n addition, our NOLs or credits may also be impaired under state law. Acc o rdingly, we m a y not be able to utilize a material portion of our NOLs or credits. 72 Table of Contents Since we will need to raise s ubstantial ad d i ti o nal funding to finance our operations, we may e xperience further ownership chan g e s in the futur e , some of which may be outside of our contr o l. L i mi t s on our abi l ity to use our pre-change NOLs or credits to offset U.S. federal taxable income could potentially result in increased future tax liability to us if we earn net taxable income in t h e future. In addition, under the legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or TCJA, as modified by the Co r o n a virus Aid, Relief, and E c onomic Security Act, or the CARES Act, t h e amount of NOLs generated in taxable periods beginning after December 31, 2017, that we are permitted to deduct in any taxable year beginning after December 31, 2020 is limited to 80% of our taxable income in such year, where t a xable income is determined wi t hout regard to the NOL deduction it s e lf. The TCJA a llo w s p o st-2017 unused NOLs to be car r ied forward indefi n itely. Similar rul e s may apply under state tax laws. Changes in tax law could adv e r s e ly affe c t o u r b u sin e ss and financial co n dition. The rules dealing with U . S. federal, sta t e, and local income taxation are constantly under review by persons involved in the l e gislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have ret r oac t ive app l ic a tion) could adversely affect us and our stockholders. In recent years, many such changes have been made and changes are likely to continue to occur in t h e future. For e xamp l e, t he TCJA was enacted in 2017 and significantly reformed the Code. The TCJA, among other things, contained signifi c ant ch a nges t o corporate taxation, including reduction of the co r p o r ate t a x r a te from a top ma r g i nal r a te of 35% to a flat rate of 21%, a limitation of the tax deduction for net interest expense to 30% of adjus t ed earnings (except for certain small businesses), a limitation of the deduction for n et operating losses to 80% of current year taxable income and an eli m ination of net operating loss carrybacks (though any net operating los s es generated in t axable years beginning after December 31, 2017 may be carried for w ard indefinitely), and the modification or repeal of many business deductions and c r edits. Additionally, on March 2 7 , 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, w h ich, among other things, suspends the 80% l imitation on the deduction f o r net operating losses in taxab l e years beginning before January 1, 2021, p e rmits a 5-year carryback of net operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021, and gen e rally caps the limitation on the deduction for net interest expense at 50% of adjusted taxable income for t a xable years beginning in 2019 and 2020. It cannot be predicted whether, when, in what form, or with what effective dates, new t a x laws may be enacted, or regulat i ons and rulings may be enacted, promu l gated or issued u n der existing o r new tax law s , which could result in an inc r ease in our t a x liability or require changes in t h e m a nner in whi c h we operate in order to m i nimize or mitigate a ny adverse effects of changes in t a x l a w or in the int e rpre t a t i on t hereo f . Our transfer pricing poli c ies may be subject to challenge by the IRS or other taxing a u thorities. Our intercompany relationships are subject to complex trans f er pricing regulations administered by taxing authorities in vario u s juri s di c tions. The relevant taxing authorities may disa g r ee with our deter m ina t ions a s to the va l ue of a s se t s sold or acquired or income and expe n ses a ttr i butab l e to sp e c if i c jurisdictions. If such a disagreement were to occur, and our position were not sustain e d, we could b e required to pay additional taxes, interest and penalties, which could result in one-time tax charges, high e r effective tax rates, reduced cash flows, and lower overall profitability of our operations. We bel i eve th a t our fin a nc i a l s t a t em e nts r e fle c t ad e quate r e s e rves to cover such a contingency, but there can be no assurances in that regard. We may b e come subje c t to examinations of our tax returns by t h e IRS and other domestic a n d foreign tax authorities. An adverse out c ome of any such audit or examination by the IRS or other tax authority cou l d have a material adver s e eff e ct on o u r op e rating results and finan c ial condit i on. We may become subject to regular review and audit by the IRS a nd other tax authorities in various domestic and foreign jurisdi c tions. As a resul t , we may in the future r e ce i ve ass e ssm e nts i n m u l t i ple jurisdi c t i ons on various tax-related assert i ons. Taxing authorities may in t h e future challenge our tax p o sitions and methodologies on var i ous matters, including our posit i ons r e garding the collection of sales and use taxes, the d e termination and payment of value added taxes and the jurisdictions in which we are subject to t a xes, which could e xpose us to additional taxes. We regularly assess the likelihood of adverse outcomes result i ng from future tax e x aminations to determine the a d equacy of our provision for income taxes. These assessments can require considerable estimates and judgments. The calculation of our tax liabilities involv e s dealing with uncertainties in the applic a tion of complex tax laws and regulations in a variety of jurisdictions. There can be no assurance that our tax positions and m e thodologies or calculati o n of our tax liabilities are accurate or that the outcomes f r o m ongoing and future tax examinations will not have an adverse eff e ct on our operati n g results and financial condition. 73 Table of Contents We wi l l be subj e c t to ext e nsi v e r e gu l ation, which c an be cost l y, time consuming and can subject us to unanticipated delays; even if we obtain regulatory approval for some of our product candidates, those products may still face r e gulatory d i fficulties. Our potential products, cell processing and m a nufacturing activities will be subject to comprehensive regulation by the FDA in the Uni t e d States a nd by comparable authorities in other countries. The process of ob t aining FDA and other required regulatory approvals, including foreign approvals, is expensive and often takes many years and c a n vary substantially based upon the type, c o mplexity and novelty of the products in v olved. In addition, regulatory agencies may lack e xperience with our te c hnologies and products, which may lengthen the regulatory review process, i ncrease our development costs and delay or prev e nt t he i r c omm e rci a li z a t ion. No fusion protein or cell thera p y using Anktiva has been approved for marketing by the FDA. Consequently, there is no precedent for the suc ce ssful commercialization of produ c ts based our technolog i es. In addition, we have only limited experience in filing a n d pursuing appl i cations necessary to gain regulatory approvals, which may impede our ability to obtain time l y FDA approvals, if at all. We have not yet sought FDA appro v al for any adaptive cell therapy product. We will not be able to commerciali z e any of our potential products until we obtain FDA approval, and so a ny delay in obtaining, or inability to obtain, FDA app r oval would harm our business. If we violate regulatory re q uirements at a ny stage, whether before or after marketing approval is obtained, we may face a numb e r of regulatory consequences, including refusal to approve pending application s , license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or t e rm i nat i on of c l ini c al tr i a ls, warn i ng l e tt e rs, unti t led l e tt e rs, m odifi c a t ion of p romot i onal m a t e ria l s or labeling, provision of corrective information, imposit i on of post-market requiremen t s, including the need for additional testing, imposi t ion of distribution or other restrictions under a REMS, product recalls, product seizures or det e ntions, refusal to allow imports or exports, total or part i al suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements, debarment from receiving government contracts, exclusion from participation in federal and state healt h care programs, restituti o n, disgorgement, or civ i l or cr i min a l pena l ti e s, including fines and imprisonment, and adverse publicity, among other adverse cons e quences. Additionally, we may not be able to obtain the labeling claims necessary or desirable for the promotion of our product candidates. We may also be required to undertake post-m a rketing trials. In a d dition, if we or others identify side effects after any of our therapies are on the market, or if manufacturing proble m s occur, regulatory approval may be withdrawn, a n d reformulation of our product candidates may be required. Our projections regarding the market opportu n ities for our product candidates may not be accurate, and the actual market for o u r products, if a p proved, may be small e r t h a n w e e s t ima t e . We do not have verifia b le internal marketing data regarding the potential size of the commercial market for our product candidates, nor have we o b tained current independent marketing sur v eys to verify the potential size of the commercial ma r kets for our current product c andidates or any future prod u ct candidates. Since our c u rrent product candidates and any future product candidates will represent novel approaches to t reating various conditions, it may be difficult, in any eve n t, to accurately estimate the potential revenues from these product candidates. Ac c ordingly, we may spend sig n ificant capital trying to obtain approval for product candidates that have an uncertain commercial market. Our projections of both the number of people who have the cancers or viral dis e a s e s we are t a rget i ng, as we l l as t he subset of p e ople wi t h th e s e d i s e ases who are in a position to receive second- o r third-line therapy, and who have the potential to benefit from treatme n t with our product cand i dates, are based on our beliefs and estimates. These estimates have been derived from a v a riety of sources, including scientific lite r ature, surve y s of clinics, patient foun d ations, or mar k et r e s e ar c h by third parties, and may prove to be incorrec t . Further, new studies or a pprovals of new therapeutics m a y change t he e sti m at e d in cidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Add i tionally, the potentia l ly addressable patie n t population for our prod u ct candidates may be limited or may not be amenable to treatment with our p r o d uct candidates and may also be limited by t h e cost of our tre a tm e nts a nd t he r e i m burs e ment of those tre a t m ent costs by thi r d-party payors. For instance, we exp ec t Anktiva to init i a lly t arget a sm a ll pat i ent p o pulation that suffers from bladder cance r . Even if we obtain significant market share for our product candidat e s, because the p o t e nt i a l t a rg e t p o pulations may be s m all, we may never achie v e profitability without obtaining regulatory approval f o r additional indications. 74 Table of Contents Because our current product candidates r e present, and o u r other potential product candidates w i ll represent novel approaches to the treat m ent of dis e ase, t h ere are many un certa i n t ies r e gard i ng t h e dev e lop m e n t, market acceptance, third-party reimbursement coverage and t h e co m merc i al p o tential of our product candidates. Human immunotherapy products are a new category of therapeutics. B e cause this is a relatively new and expanding area of novel therapeutic int e rv e nt i on s , th e re a re m a ny un ce rt a inti e s r e l a ted to de v e lopment, marke t ing, reimbursement and the co m me r ci a l poten t ial for o ur product candidates. There can be no assurance as to the length of the trial period, the number of patients t h e FDA will requ i re to be e nrol l ed i n t he tri a ls i n order to est a blish the safety, efficacy, purity and potency of immunotherapy p r o ducts, or that the data g e nerated in these trials will be accepta b le to the FDA to support marketing approval. The FDA may t a ke longer than usual to come to a decision on any BLA and/ o r NDA that we submit and may ultimately det e rmine that there is not en o ugh data, information, or exper i ence with our product candidates to support an approval decision. The FDA may also require that we conduct additional post-marketing studies or implement risk management programs, such as REMS, until more experience with our p roduct candidates is obtained. Finall y , after i n creased usage, we may find that our product candidates do not have the i n tended effect, do not w o rk with other combinati o n therapies or have unanticipated side eff e c t s, pot e nt i al l y j e opard i z ing in i ti a l or continuing regulatory approval and commercial prospects. We may also find that the manufacture of our product candidates is more d i fficult than anticipated, resulting in an inability to produce a sufficient amount of our product candidates for our clini c al trials or, if approved, commercial s upply. Moreover, because of the complexity and novelty of our manufacturing process, there are o nly a limited number of manufactu r e rs who have the capability of produ c ing our product candidates. Should any of o u r CMOs no l onger produce our product candidates, it may take us significant t i me to find a r e placement, if we a re ab l e t o f i nd a r e pla c em e nt at all. There is no assurance that the approaches offered by our product candidates will gain broad acceptance among docto r s or patients or that governmental agencies or third-party medical insurers will be willing to provide reimbursement coverage for our p r oposed product candidates. The ma r ket for any prod u cts that we successfully develop will also depend on the cost of the product. We d o not yet have sufficient information to r e l i ably est i ma t e wh a t it will cost to commercially manu f acture our current produ c t candidates, and the actual cost to manufacture these products could materially and adversely affect the commercial viability of the s e products. Our goal is to reduce the cost of manufacturing and providing our therapies. However, u n less we can reduce those costs to an acceptable amount, we may never be able to develop a commercial l y viable product. If we do not succes s fully develop and commercialize products based upon our approach or find suit a ble and economical sources for materials used in the production of our potential products, we will not become profitable, which would materially and adver s ely affect the value of our com m on stock. Our Anktiva therapies and our o t her therapies may be provided to pat i ents in combination with other agents provided by third parties or our affiliates. The cost of such co m bina t ion t her a py may inc r ease the ov e rall c ost of therapy and may result in issues regarding t h e allocation of reimbursements between our thera p y and the other agents, all of which may affect our ability to o b tain reimbursement coverage for the combi n ation therapy from governmental or private t hird-party medical insu r e rs. If product liability law s uits are brought against u s , we may incur substanti a l liabilities and may be r e quired to limit commer c ialization of our product candidates. We face an inherent risk of product liability as a result of the clinical testing of o ur product candidates and will face an e v en gre a ter risk i f we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise u n suitable during clinical tes t i n g, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dange r s inherent in the product, negligence, strict lia b ility or a brea c h of warranties. Claims could also be asse r ted under state consumer pro t ection acts. Large judgements have also been awarded in c l ass action lawsuits based o n ther a peu t ics that h a d u n anticipated side effec t s. If we cannot successfu l ly defend ourselves against product lia b ility claims, we may incur substant i al l i ab i li t ies or be required to limit commercia l ization of our product candidates. Even successful defense w ould require significant financial and management resources. Regardless of the merits or eventual ou t com e , li a bil i ty cl a ims may result in: • decreased demand for our products, if approved; • i njury to our reputation; • wi t hdrawal of cl i nic a l tri a l part i c i pants or sit e s and poten t i a l t e r m ina t ion of c l ini c al tr i a l sit e s or e nt i re c l i nic a l progr a ms; • i nitiation of investigations by r e gulators, refusal to approve market i ng applications or supplement s , and withdrawal or limit a tion of product approvals; • c osts to defend litigation; • a diversion of managemen t ’s time and our resources; 75 Table of Contents • substan t ial m onet a ry a w a rds to tr i a l par t ic i pants or pa t i e nts; • product recalls, wi t hdrawals or labeling, marketing or promotional restrictions; • l oss of revenues; • significant negative media attention; • decrease in the price of our stock and overall value of our company; • e xhaustion of our available insurance coverage and our cap i tal resources; or • t he inability to commerc i alize our produ c t candidates. Our inability to obtain sufficient product l i ability insurance at an acceptable cost to protect again s t potential product liab i lity claims could prevent or inhibit the commercialization of products we may develop, alone or with corporate c o llaborators. Our insurance policies may also have various exclusions, and we may be subject to product liability claims for which we have no cove r a ge. While we have obta i ned clinical t rial insurance for our cl i ni c al tr i a ls, we may have to pay am o unts awarded by a court or negotiated in a set t l e ment th a t exceed our coverage li m it a tions or th a t are not covered by our insurance, and we may not have, or be able to ob t ain, sufficient c a pital to pay such amounts. Even if our agreem e nts w i th a ny future corporate collaborators entitle us to indem n ifi c a t ion a ga i nst losses, such i ndemn i fi c a t ion may not be a v ail a ble or adequate should any claim arise. Due to the signif i c ant r e so u rces r e qu i r e d for t h e development of our product candidates, and dependi n g on o u r ability to access c apita l , we must pri o ritize among many d i fferent opportunit i es. Moreover, we may expend our limited resources on programs that do not yield suc c essful product candidates as opposed to indications that may be more profi t able or for which there is a greater likelihood of success. We do not have sufficient resources to pursue development of all or even a substantial portion of the potential opportunities that we believe will be afforded to us by our product candidates. Because we have limited resources and access to capital to fund our operations, our management must make signific a nt prioritization decisions as to which product candidates and i ndications to pursue and how much of o u r resources to allocate to each. Our m a nag e ment must a l so ev a lua t e the ben e fits of developing in-licensed or jointly owned tech n ologies, which in some c i r c umstan c e s we may be contractually obligated to purs u e, relative to dev e loping o t her product candidates, i ndications or programs. Our man a gement has broad discretion to suspend, scale down, or discontinue any or all of these developme n t efforts, or to initia t e new programs to treat other diseases. I f we select and commit resources to opportunities that we are unable to successfully develop, or we forego more pro m ising opportunities, o u r business, financial condition and results of operations will be adversely affected. We wi l l face signifi c ant c ompe t it i on from other biotech n ology and pharmaceutical companies and from non-prof i t ins t itut i ons. Competition in the field of cancer and viral infectious disease therapy is intense and is acce n tuated by the rapid pace of tec h nological development. Research and discoveries by others may result in breakthroughs which may render our product candidates obsolete e v en before th e y generate any revenues. There are products that are app r oved and currently under d e velopment by others that could compete with the product c a ndidates that we are developing. Many of our potential competitors have substantially gre a t e r re s e a rch and development capabilities and approval, ma n u f acturing, marketing, f i nancial and managerial resourc e s and experience than we do. Our competitors may: • develop safe r , more convenient or more effective immunothe r a pies and other therapeutic products; • develop therapies that are less expensive or have better reimbursement from private or public payors; • reach the market more rapid l y, reducing the potential sales of our product candidates; or • e stablish superior proprietary positions. We will focus our efforts on onco l ogical and infectious d i s e ase indi c a t ions th a t are diff i cult to treat and with large unmet n e eds, and we believe our platforms will be broadly app li cab l e ac r oss m ult i ple tu m or typ e s and infections. Based on the b r eadth and depth of our platforms, we believe our competitors will ran g e from lar g e pharmaceutical companies to e m erging novel biote c hnology companies. 76 Table of Contents From an oncology perspective, we have diff e rent competitors bas e d on modality. In the NK and T c e lls activation modality, we pri m ari l y c ompe t e w i th large pharmaceutical companies marketing checkpoi n t inhibitors including AstraZeneca PLC, or AstraZeneca, Bristol-Myers Squibb Company, or BMS, GlaxoSmithKline plc, or GSK, Merck & Co., Inc., or Merck, Pfizer Inc., or Pfizer, and Roche Holding AG, or Roche. The pot e nti a l e xi s ts for some of these large pharmaceutical companies to seek collaboration for combinat i on of Anktiva with their marketed checkpoint inhibitors . A lso, in the NK and T c ell activation modality, we will compete with immunotherapy fusion p r otein c o mpanies d e veloping similar approaches including N ekt a r Ther a peuti c s , Neoleukin Therapeutics, Inc. Nov a rtis International AG, R o che, Sanofi S.A., and in the context of NMIBC, FerGene, Inc., Merck a nd Sesen Bio, Inc. In the tumoricidal macrophage activation modality, we will compete with various che m otherapeutic agents, including Abraxane, d o xorubicin and paclitaxel/Taxol, as well as an antibody drug conjugate produced by I mmunomedics, Inc., or Immunomedics. In the T c e ll m e mory moda l ity, we a l so co m pete wi t h c e ll t her a py and chimeric antigen receptor T cell, or CAR-T c ell, based companies including A l logene T herap e ut i cs In c . , CRI S P R Th e rapeu t i c s AG, F a te T her a p eut i cs, Inc . , Gilead Sciences, Inc., or Gilead, I n tellia Therapeutics, Inc., Iovance Biotherapeutics, Inc. and Legend Biotech Corporation. From an infectious disease per s pective, we will compe t e with Abbott Laboratories Inc., or Abbott Laborato r ies, BMS, Gilead, and GSK, in the field of human immunodeficiency virus, or HIV. Compe t itor co m p a ni e s focused on COVID ‑ 19 c e ll th e rapy curren t ly i n clude Altimmune, Inc., AstraZeneca, Athe r s y s , Inc . /He a lios K . K . , CanSioBio Biologics Inc., Capr i c or Ther a peu t ics, Inc . , CAR-T (Shanghai) Biotechnology, C e llavita Pesquisa Científica L t da, Cellenkos, Inc., Cellular Bio m edicine Group, Inc., Celularity, Inc., Sorrento Therapeutics, Inc., Chinese Academy of Sciences, Chongqing Sidemu Biotechnology Technology/ImmunCyte Life Science, I nc., Enli ve x T her a peut i cs Ltd, Green Cross LabCell Co r p ., Hope Biosciences, Johnson & Johnson, Merck, Me s oblast Limited, Moderna, Inc., Novavax, Inc., Orbsen T h e rapeu t i c s Limited, Pfize r /BioNTech SE, Pluristem Therapeutics, Inc . , Rigshospitalet, Tianhe Stem Cell Biotechno l ogies Inc., University of Minnesota/Fate Ther a peut i cs, Inc . , Vaxart, Inc., X i nji a ng Med i c a l Univ e rsity, and many other new competitors that are emerging frequently. A large number of compa n ies, government agenc i es and academic centers around t h e world are developing COVID ‑ 1 9 vaccines, and many of t hese ent i ti e s are i n more advanced stages of development than we are, including some that have started P hase II and/or III clinical trials or have already obtained emergency regulato r y approval in the United States and internationally . Even if our COVID ‑ 19 vaccine candidate is ultimately approved for m arketing, the value of our op p o r tunity will be adversely impacted by other COVID ‑ 19 vaccines that have obtained emergency regulatory approval, obtain full regulatory approval, or demonstrate better efficacy or sa f e ty than our COVID ‑ 19 vaccine candidate. Many of these companies and our other current and potential competitors h a ve subst a nti a lly gre a ter r e search and development cap a bil i ti e s and fin a nci a l, scientific, regulatory, manufacturing, marketing, sales, human resources, a nd experience than we do. Many of our competitors h a ve s e veral t her a peut i c prod u cts that have already been developed, approved and successfully commercialized, or are in the process of obtaining regula t ory approval for their therapeutic products in the United States and internationally. Our c o mpetitors may obtain regulatory approval for their produc t s more rapidly than we may obtain approval for ou r s, whi c h could result in competitors establishing a strong m a rket position before we are able to en t er the m a rke t . Universities and public and priva t e research instit u t ions in the United States and Europe a r e also potential competitors. While these universities and p u blic and private research institutions primarily have educ a tional objectives, they may develop proprietary technologies that lead to other FDA approved therapies or that secure patent protection that we may need for the development of o ur technologies and product candi d ates and that can be licensed or sold to other parties, including our competitors. One of our product candidates, Anktiva, is a potential therapy for the treatment of bladder cancer and (1) when used in combin a tion with checkpoi n t inhibitors, lung cancer, and (2) when used in combination with natural killer cells, metastatic pancreatic c a ncer and triple negative brea s t can c e r, or TNBC. Currently, there are numerous companies that are developing v a rious a l t e rna t e tre a t m ents for bl a dd e r, pancreatic and breast ca n cer, including patients that ha v e progressed after prior treatment with checkpoint inhibitors and chemotherapy. For e x ample, Nektar T h erapeutics is cu r rently developing an imm u notherapy t r eatment for muscle-invasive bladder cancer u sing an IL-2 agonist and is in Pha s e III clinical trials. Accordi n g ly, A nktiva f a c e s sig n ificant competition in the bladder, lung, pancreatic and brea s t cancer treatment space from multiple companies. Even if we obtain regulatory approval for Anktiva, the avail a bility and price of our competitors’ products c ould limit the demand and the price we are able to charge for our therapies. We may not be able to imple m ent our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from oth e r methods of treatment to our product, or if physicians switch to other new therap i es, drugs or biologic prod u cts or choose to reserve our product cand i dates for use in limited circumstances. 77 Table of Contents In addition, we could face litigation or other proceedings with respect to the scope , ownership, validity and/or enforceability of our patents or other intellectual property relating to our competitors' products, and our competitors may allege that our product candidates infringe, misappropriate or otherwise violate their intellectual property. See “ Risks Related to Intellectual Property.” Mergers and acquisitions in the pharmaceutical and biotechnology indu s tries may result in even more resources being co n c entrat e d among a smaller n u mber of our competitors. Early stage companies may also prove to be significant c o mpetitors, par t icularly through collaborat i ve arrangements with large and established compani e s. Th e se third parti e s c omp e te with us in re c ruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient regist r a tion for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Pu b l ic opinion and s c rutiny of immunotherapy app r oaches may impact public per c eption of us and our product candi d ates, or may ad v e rsely aff e ct our abil i ty to condu c t our business and our business plans. We use r e latively novel technologies in v olving the Anktiva, a ldoxorubicin, hAd5 and yeast technologies and cell-based therapies and o ur natural killer cell platform utilizes a relatively novel technology involv i ng the genetic modification of human cells and util i zation of those modified cells in other individuals. Public pe r ception may be influ e nced by claims, such as claims that our technologies are unsafe, unethical or immo r al and, consequently, our approach may not gain the acceptance of the public or the medical community. Negative public react i on to cell-based immunotherapy in general could result in greater government regulation a nd stricter labeling requirem e nts of immunotherapy products, including any of our product candidates, and could cause a decrease in t h e demand for any products we may develop. Adverse public attitudes may adversely impact our ability to enro l l c lin i c a l trials. Moreover, our success will depend upon physicians specializing in the treatment of those dis e ases that our p r o duct can d ida t es t a rget pr e s c ribing, and their patients being willing to receive treatments that involve the use of our product candidates in lieu of, or in addit i on to, ex i s t ing tre a tm e nts t hey are already familiar with and f or which greater clinical data may be available. More restrictive gove r n ment reg u lations or negative public o p inion could have an adverse effect on our business or financial condition and may del a y or impair the de v e lopme n t and commercialization of our product candidates or demand for any products we may develop. Adverse events in our clinical trial s , even if not ultimately attributable to our p r oduct candidates, and the resulting publicity could result in increas e d governmental regulation, unfavorable pub l ic perception, potential regulatory del a ys in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. Development of a product candidate intended for use in combinati o n with an already approved product may present more or different challenges than development of a product can d idate for use as a single agent. We are currently developing Anktiva for use along with our natural killer cell platfor m . We are also studying Anktiva thera p y along with other product candidates, such as a ldoxorubicin and hAd5 product candidates. The development of produ c t candidates for use in combination wi t h another product may present c hal l e nges. F or e xamp l e, the F DA may re q uire us to use more comp l e x cl i nic a l tri a l designs in order to ev a lua t e the contribution of each prod u ct and product candidate to any observed effects. It is possible that the results of these trials could show that any pos i tive r e su l ts a re at t ribut a ble to the already approved product. Moreover, fol l owing product approval, the FDA may require that products used in conjunction with each other be cross labeled for combined use. To the extent t h at we do not have rights to already ap p r o v ed products, this may require us to work w i th another company to satisfy such a requirement. Moreov e r, developments related to the already approved products may i m pact our clinical trials for t he c omb i nat i on as w e ll as our commercial prospects should we receive marketing approval. Such developments may include changes to the approved produc t ’s safety of efficacy profile, changes to the a v ailability of the approv e d product, and c h anges to the standard of care. A Fast Track designation, Breakthrough Therapy designation or other designation to facilitate product candidate development may not lead to faster development or a f aster regulatory review or approval process, and it does not increase the likelihood that our product ca n didat e s will r e c e i ve marketing approval. We have received, and may seek in the f u ture, Fast Track or Breakthrough Therapy designation for current or future product can di dat e s. Rec e ipt of a designation to facilitate product cand i date development is within t h e discretion of the FDA. Accordi n gly, even if we believe o n e of our product cand i dat e s m e e t s the cr i te r ia for a d e s i gnat i on, the FDA may disagree. In any event, t h e receipt of such a desig n ation for a prod u ct candidate may not result in a faster development process, review or approval compa r ed to product c a ndidates considered for approval under conventional FDA procedures and does not ass u r e ultimate mar k eting approval by the FDA. In addition, the FDA may later decide that the product candidates no longer meet the designation conditions. 78 Table of Contents As a condition of approval, the FDA m a y re q u ire that we implement var i ous post-marketing requirements and conduct post-marketi n g studies, any of which would require a substantial investment of time, effort, and money, and which may l im i t our c omm e rcial prospects. As a condition of biologic licens i ng, the FDA is authorized to r e quire that s ponsors of approved BLAs implement various post-m a rket requirements, including REMS and P hase IV trials. For e x ample, when the FDA approved Novartis’ Kymriah in August 2017, a CAR-T cell therapy for the t r eatment of patients up to 25 years of age with B - cell precursor acute lymphoblastic leukemia (“ALL”) that is refractory or in second or l a ter re l a pse, t he FDA required significant post-marketing commitments, including a Phase IV trial, revalidation of a t e st method, and a substantial R EMS program that included, among other requirements, the certification of hospitals and their associated cli n ics that dis p ense Kym r iah, which certification includes a n u mber of requirements, the implementation o f a Kymriah training program and l i mited distribution only to c e r t ifi e d hospit a ls a nd t heir associ a t e d clinics. If we receive a pproval of our product candidates, t h e FDA may determine that similar or additional or more burdensome post-ap p r o v al requirements are necessary to ensure that our product ca n didates are safe, pure and potent. To the extent that we are required to e s tablish and implement any post-approval requirements, we w ill likely need to invest a signif i cant amount of time, effort and mon e y. Such post-approv a l requirements may a l so l i mit the commercial prospects of our product candidates. We may be unable to establish e ffective marketing and sales capabilities or enter into agreements with third parties or related parties to market and sell our product candida t es, if they are approved, and as a result, we may be unable to generate product revenues. We currently do not have a comme r cial infrastructure for the marketing, sale and dis t ribution of our products. If approved, i n order to commercialize o u r product candidates, we must build our m a rketing, sales and distribution capabilities or a rrange with third parties to perform these s e rvic e s , whi c h wi l l take t ime and req u ire significant f i n a ncial expenditures and we may not b e successful in doing so. There a re risks involved with establishing our own marketing and sales capabilities. For example, recruiting and tra i ning a sales force is expensive and time-cons u m ing and could delay any product launch. If the commercial l a u nch of a product candidate for which we recruit a sales force and establish marketing capab i li t i e s is delayed or does not occur for any reason, we would have incurred these commercialization expenses prematurely or unnecessarily. These effor t s m a y be costly, and our investment would be lost if we cannot retain or reposi t ion our sales and marketing p e rsonnel. Even if we are ab l e to e ffe c t i v e ly est a blish a sales force and develop a marketing and s a l e s infr a structure, o ur s a les force and marketing teams m a y n ot be successful in c o mmercializing our current or future product candidates. To t h e extent we rely on third parties to comm e rcialize any products for which we obtain regulatory approval, we would have less control over their sales ef f o r ts and could be held liable if they fai l ed to comp l y with app l ic a ble l e gal or re g ulatory requirements. We have little to no prior experience in the ma r k eting, sale, and distribution of biopharmaceutical products, and there a r e significant risks involved in the building and managing of a commercial infra s t ru c ture. The e s t a bli s hment and development of co m m e r c i a l c a pab il i ti e s , in c l uding a comprehensive healthcare compliance progra m , to market any products we may develop will be expensive and time consuming and c ould delay any product launch, and we may not be able to successf u lly dev e lop this c a p a bil i ty. W e , or our collaborators, will have to compete with other pharmace u tical and biotechnology companies to recruit, hire, train, manage and retain medical affairs, marketing, sales and commer c ial support personnel. In the e vent we a re unable to develop a commercial infras t ructure, we may not be able to commercialize our current or fut u re product candidates, which would l i mit our abi l ity to generate product revenues. Facto r s t h at may inhibit our efforts to commercialize our current or future product candidates and g enerate product revenues inc l ude: • i f t h e COVID ‑ 19 pandemic continues or reocc u rs it may negatively impact our ability to establish commercial operations, educa t e and interact with healthcare pro f essionals, and successfully laun c h our product on a timely basis; • t he inability of sales personnel to obtain access to physicians or persuade adequ a te numbers of physicians to prescribe our c u rrent or future product candidates; • our inability to effectively oversee a geogr a phically dispersed sales and marketing team; • t he costs and time associated with t h e i n itial and ongoing training of sales and m a r k eting pe r s onnel on legal and regulatory compliance matters and monitoring their actions; • a n inability to secure adequate coverage and reimbursement by government and private health plans; • t he clinical indications for which the products are approved and the claims that we may make for the products; • l imitations or warnings, including distribution o r use restrictio n s, conta i ned in the products’ approved labeling; • a ny distribution and use r e strictions imposed by the FDA or to which we agr e e as part of a mandatory REMS or voluntary risk management plan; 79 Table of Contents • l iability for sales or marketing personnel who fail to comply with the applicable legal and r e gulatory requirements; • t he lack of complementary products to be offered by sales personnel, which may put us at a com p etitive disadvantage relative t o companies with more extensive product lines; and • unforeseen costs and expenses a s sociated with creating an independent sales a nd marketing organization or engaging a contract s a l e s organization. If our product candidates do not achieve b r oad market acceptance, the rev e nues that we generate from their sales will be limit e d. We have not commercialized a p r oduct candidate for any indication. Even if our product candidates are approved by the appropri a te regulatory authorities for marketing and sale, they m a y not gain acceptance among p