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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-09 · 229 added, 372 removed, 134 unchanged (82% of the section changed)

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Forward-Looking Statements

The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10‑Q, or Quarterly Report.

This Quarterly Report 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 principally in the section entitled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 the Joint COVID‑19 Collaboration;

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;

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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 all of our product candidates, including our haNK, taNK, t‑haNK, MSC and ceNK product candidates;

the timing or likelihood of regulatory filings or other actions and related regulatory authority responses, including any planned investigational new drug, or IND, filings or pursuit of accelerated regulatory approval pathways or orphan drug status and breakthrough therapy designations;

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;

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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;

our plans regarding our manufacturing facility and our belief that our manufacturing is capable of being conducted in‑house;

our belief in the potential of our aNK cells as a technology platform, and the fact that our business is based upon the success of our aNK cells as a technology platform;

our aNK platform and other product candidate families, including genetically modified haNK , taNK, t ‑haNK , MSC and ceNK product candidates, will require significant additional clinical testing;

even if we successfully develop and commercialize our haNK and t‑haNK product candidates, we may not be successful in developing and commercializing our other product candidates either alone or in combination with other therapeutic agents;

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;

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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 and maintain intellectual property protection for our product candidates and not infringe upon the intellectual property of others;

our expected use of the net proceeds from our June 2020 equity offering;

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;

regulatory developments in the United States, or U.S., and foreign countries.

our expectations regarding the period during which we qualify as an “emerging growth company” under the JOBS Act, and a “smaller reporting company,” as defined in Rule 12b‑2 of the Securities Exchange Act of 1934.

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, 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 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,” elsewhere in this Quarterly Report filed with the Securities and Exchange Commission, or SEC.

Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report.

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 completely and with the understanding that our actual future results may be materially different from what we expect.

This Quarterly Report 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, 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.

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.

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, “NantKwest,” “the company,” “we,” “us” and “our” refer to NantKwest, Inc.

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.

We are a pioneering clinical-stage immunotherapy company focused on harnessing the power of the innate immune system by using our natural killer cells, or NK cells, to treat cancer and viral infectious diseases.

NK cells are the body’s first line of defense due to their innate ability to rapidly seek and destroy abnormal cells, such as cancer or virally infected cells, without prior exposure or co-activation by other support molecules that are typically required to train and activate adaptive immune cells such as T‑cells.

A critical aspect of our strategy is to invest significantly in innovating new therapeutic candidates, based upon our proprietary activated NK, or aNK, cell platform, and conducting clinical testing and scale manufacturing of our most promising biologic product candidates.

We believe our aNK cell is capable of being manufactured as a cell-based “off-the-shelf” therapy that can be molecularly engineered in a variety of ways to boost its killing capabilities against cancers and virally infected cells.

We retain worldwide commercial rights to clinical and research data, intellectual property and know-how developed with our aNK cells, as well as what we believe is the only clinical grade master cell bank of aNK cells in existence.

Equity Offering

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

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

All of the shares were offered by the company.

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

Our Off-the-Shelf Approach

Our NK platforms have demonstrated the ability to induce cell death in cancers and virally infected cells through a variety of concurrent mechanisms including innate killing, antibody-mediated killing, chimeric antigen receptor (CAR)-directed killing and a combination of both antibody mediated and CAR-directed killing.

Innate Killing — the aNK Platform.

We have developed a unique NK cell platform, which we believe is capable of being manufactured as a cell-based “off-the-shelf” therapy that can be molecularly engineered in a variety of ways to boost its killing capabilities against cancers and virally infected cells.

Unlike normal natural killer c ells, our NK cells do not express the key inhibitory receptors that diseased cells often exploit to turn off the killing function of natural killer cells and escape elimination.

We have developed a unique aNK cell, which omits key inhibitory receptors, while preserving critical activation receptors that enable selective innate targeting and killing of distressed and diseased cells.

They do so through the recognition and binding of stress - proteins that are overexpressed on the surfaces of

rapidly growing cancer cells due to oxidative and metabolic stress, nutrient deprivation and waste accumulation that typically occurs when cell growth outpaces the capacity of local circulation;

virally infected cells where the cellular machinery is hijacked to produce an abundance of viral proteins and virions.

Our aNK cells are also designed to deliver a more lethal blow to their target by delivering a larger payload of lytic enzymes and cytokines responsible for both direct and indirect killing when compared to other natural killer cells isolated from healthy donors.

This is due to the higher density of lytic granules and larger cell volume possessed by aNK cells when compared to that of donor derived natural killer cells.

We believe that our aNK cells can be produced at commercial scale as a ‘living drug’ using our proprietary manufacturing and distribution processes to adequately address select global cancer markets.

Several phase I safety studies with unmodified aNK cells have been conducted in a variety of bulky hematological cancers and solid tumors, enrolling 46 patients in a range of dose levels and schedules with encouraging evidence of single-agent activity and a durable remission, including some complete responses in liquid tumors.

Based on these earlier clinical trials, we have further modified our aNK platform through virus-free molecular engineering designed to leverage additional modes of killing available to aNKs, including antibody-mediated killing, the haNK platform, and both antibody-mediated and CAR-directed antigen targeted killing, the t‑haNK platform.

Antibody-Mediated Killing—the haNK Platform.

We have genetically engineered our aNK cell platform to overexpress high-affinity CD16 receptors, which bind to antibodies.

These antibody-targeted haNK cells are designed to directly bind to IgG1-type antibodies, such as avelumab, trastuzumab, cetuximab and rituximab with the intention of enhancing the cancer killing efficacy of these antibodies by boosting the population of competent natural killer cells that can kill cancer cells through Antibody Dependent Cellular Cytotoxicity, or ADCC.

Antibody products are abundantly utilized to treat cancer and it is estimated that they generate over $100 billion in reported annual sales.

A growing number of studies suggest that clinically meaningful responses to these antibody therapies correlate directly with the overall health of a patient’s natural killer cell population and whether they express the high-affinity variant of the CD16 receptor.

Currently available literature estimates that only approximately 10% to 15% of the addressable patient population eligible for antibody therapies carry high-affinity CD16 receptors.

This implies that our haNK product candidate may have significant market potential as a combination therapy to potentially address a large number of patients who do not carry high-affinity CD16 receptors and, as a result, exhibit a poorer response to antibody therapies.

We therefore intend to develop our haNK product candidate as a combination therapy with widely-used U.S.

Food and Drug Administration, or FDA, approved antibody products such as avelumab, trastuzumab, cetuximab and rituximab.

Current Good Manufacturing Practice, or cGMP, master and working cell banks of our haNK product candidate have been successfully established and will serve as our source for product for our clinical trials and, if approved, commercialization going forward.

We have optimized our manufacturing process partly by designing our haNK product candidate to not require IL‑2 cytokine supplementation to the growth media every few days, thereby enabling us to overcome a technically challenging and costly limitation that many other natural killer cell-based therapies face.

We have also successfully established processes for large-scale production, cryopreservation and long-term storage of final dose forms, thereby optimizing production efficiencies and allowing for on-demand availability with minimal handling at the infusion sites.

Our cryopreserved haNK product candidate has been cleared for clinical testing in several phase Ib/II clinical trials, including our phase II Merkel cell cancer study.

CAR-Directed Killing—the taNK Platform.

We have genetically engineered our aNK platform to express CARs that target tumor-specific antigens found on the surfaces of cancers and virally infected cells.

Our taNK cells are designed to bind directly to these surface antigens and induce cell death through the release of toxic granules directly into the tumor cells and release of cytokines and chemokines to recruit additional innate and adaptive immune responses, including the recruitment of cytotoxic T‑cells.

These tumor antigens encompass four categories of proteins, all of which can be targeted individually by our engineered taNK products:

Checkpoint ligands, such as PD‑L1;

Well-established tumor proteins such as CD19, HER2 and EGFR;

Novel surface antigens associated with cancer stem cells, such as CD123 and IGF‑R1;

Newly discovered proteins, or neoepitopes, from individual patient tumor samples.

Preclinical evidence has been mounting which indicates that taNK cell activation through the binding of its CAR receptors to these cancer specific proteins may be potent enough to override many of the pre-existing inhibitory signals and immunosuppressive factors present in the tumor microenvironment that may be responsible for tumor resistance.

CAR-Directed and Antibody-Mediated Killing—the t‑haNK Platform.

Our newest and most promising platform for the development of therapeutic product candidates is an innovative, bioengineered combination of our haNK and taNK platforms that incorporates all the features of our haNK platform together with a CAR.

The resulting line of product candidates under this platform avails itself to all three modes of killing:

innate , antibody-mediated and CAR-directed killing .

These product candidates also include one or more additional expression elements such as functional cytokines, chemokines and trafficking factors, making them amongst the most versatile in our portfolio.

These product candidates are intended to be combined with commercially available therapeutic antibodies to effectively target either two different epitopes of the same cancer specific protein or two entirely different cancer specific proteins.

In addition to our two t‑haNK product candidates, PD‑L1.t‑haNK, recently cleared to commence phase II testing, and CD19.t‑haNK, cleared to commence phase I testing, we believe a pipeline of prominent CARs for t‑haNK, including HER2 and EGFR, which are nearing IND submission, and others that are advancing through clinical enabling studies, will enable us to potentially address an even broader range of cancers as part of a chemotherapy-free combination regimen.

Our GMP-in-a-Box Approach

NantKwest is a leading company in the efforts to generate allogeneic and autologous-sourced cell based products, the most advanced of which are our cytokine enriched memory-like NK, or ceNK, and mesenchymal stem cell, or MSC, therapeutics.

We utilize a scalable GMP production process that combines the use of ImmunityBio’s (a related party) semi-automated manufacturing equipment and software, cytokine expansion and activation reagents, including ImmunityBio’s N‑803, and unique user-friendly processing methods, all of which are proprietary.

We have optimized processes for generating both fresh and cryopreserved clinical dose forms of ceNK cells with 100% purity (in the allogeneic setting) from a variety of sources, including cord blood and allogeneic and autologous peripheral blood.

We have also optimized processes for generating fresh and cryopreserved clinical dose forms of MSCs from cord blood, cord tissue and allogeneic bone marrow sources.

We avoid the use of both feeder-layers and feeder-layer derived substances for activation as well as other commonly applied additives that frequently create downstream issues in achieving a high-quality, operator-friendly reproducible final dose form and have been able to generate multiple dose forms from each donor product, both of which are critical features in achieving scalability.

Cytokine Enriched Natural Killer (ceNK) Cell Platform.

Cytokine-induced memory-like NK cells are a unique set of lymphocytes that differentiate after a brief pre-activation with interleukin ‑12 (IL ‑12), IL ‑15, and IL ‑18 and exhibit enhanced responses to cytokine re-stimulation that include enhanced interferon ‑g production and cytotoxicity against leukemic cell lines.

These cells have been isolated and characterized by their unique cell-surface marker profile and their highly desirable feature of immune-memory, marked by their pronounced anti-cancer activity for weeks to months in duration, which has made these cells a research focus for more than a decade.

Based on published literature, we believe the ability to generate these memory-like cells at clinically meaningful quantities has been limited to the work performed at Washington University by T.A.

Fehniger, et al.

Published data so far has been limited to the acute myeloid leukemia patient population in the post-allogeneic, haploidentical stem cell transplantation setting, for which the Fehniger group has generated enough cells to provide a one-time dose of these cytokine-activated, memory-like natural killer cells.

Our cytokine enriched natural killer cell program is based on the ability to enrich and expand donor-sourced natural killer cells in a GMP facility to a clinically relevant scale, which allows for the production of a pure cytokine activated and expanded NK cell population that possesses the unique phenotype we call ceNK cells.

We have developed a unique ability to generate a portfolio of distinct ceNK cell products through the application of ImmunityBio’s proprietary GMP-in-a-Box bioreactors and cytokines and our proprietary methods and overall expertise in scale manufacturing of NK cell based products.

Mesenchymal Stem Cell (MSC) Platform.

Bone marrow-derived allogeneic MSCs are considered to be a prominent cell type to treat degenerative diseases and autoimmune disorders.

MSCs are reported to be immunoprivileged, allowing for transplantation of allogeneic MSCs without the risk of being rejected by the host immune system.

MSCs have been found to be capable of modulating immune responses, thereby reducing inflammation as well as immunopathology and protecting alveolar epithelial cells during acute respiratory distress syndrome, or ARDS, including that triggered by cytokine storm.

More importantly, MSCs demonstrated promising activity in reducing the non-productive inflammation and in promoting lung generation in a phase II clinical trial, as well as in patients with ARDS in clinical practice.

As a result, we believe MSCs have the potential to alleviate the SARS‑CoV‑2-derived cytokine storm and ARDS, and thereby have an effect on the treatment of subsequent chronic respiratory dysfunction and lung fibrosis.

We have developed and optimized procedures and proprietary protocols to generate multiple dose forms of MSC products from a single bone marrow or cord sample, in a scalable format using ImmunityBio’s GMP-in-a-Box system.

Development Update on our Product Candidate s

Our leading programs reside in two core disease areas:

Oncology, which includes our haNK and PD‑L1.t‑haNK programs, and COVID‑19, which includes our BM‑Allo‑MSC and ceNK programs.

We also have a pipeline of IND-ready t‑haNK and ceNK projects in both solid and liquid cancers.

The following table summarizes our current development programs:

QUILT 3.063 is our phase II, open-label, single-arm trial evaluating the novel triple combination of “off-the-shelf” haNK cell therapy with N‑803 and avelumab, without chemotherapy in subjects that have progressed after treatment with a checkpoint inhibitor for Merkel cell carcinoma.

This trial is actively recruiting patients at multiple centers across the U.S., and we anticipate reporting interim data next year.

As a rare disease, Merkel cell carcinoma patients often require regional referral and additional travel to a clinical trial site.

The ongoing COVID‑19 pandemic has had an impact on enrollment due in part to limitations in travel and study accessibility.

In response to this, we will continue to increase the number of study sites in new geographic locations and increase local community awareness of the trial as we add new sites.

QUILT 3.064 is our phase I first-in-human, dose escalation-single agent safety study in patients with locally advanced or metastatic solid cancers.

This study concluded in the third quarter of 2020, having enrolled ten patients across three dose cohorts, with enrollment of additional patients into the two remaining optional dose cohorts having subsequently been deemed unnecessary.

A dose level of 2 × 10 9 cells per injection twice per week was confirmed to be safe, with no dose limiting toxicities or serious adverse events related to the test article.

Final data from this trial is being collated for a final study report.

QUILT 3.067 is a phase II, open-label, single-arm trial evaluating the same novel triple combination of “off-the-shelf” haNK cell therapy with N‑803 and avelumab following a tumor conditioning regimen in subjects that have progressed on or after standard-of-care therapy for triple negative breast cancer.

Patient follow-up concluded during the third quarter of 2020 for the long-term responders in the trial and final data is being collated for a final study report.

We last reported an overall response rate by immune response RECIST criteria in 6 of 9 patients (67%), a complete response rate in 3 of 9 patients (33%) (one unconfirmed) and a median progression-free survival by immune response RECIST criteria of 13.7 months.

Based on this data, we plan to file an IND in the fourth quarter of 2020 for an open label, randomized controlled phase II trial of PD-L1.t-haNK and N-803 in combination with standard-of-care therapy versus standard-of-care therapy alone.

For the primary objective, we will compare the overall response rate between the two arms per RESIST criteria in solid tumors, Version 1.1.

Secondary objectives will include assessments of safety, event-free survival, overall survival and durability of response using the same RESIST Version 1.1 criteria.

QUILT 3.055 is a phase IIb, open - label, multi-cohort study of combination immunotherapy in patients with non-small cell lung cancer, or NSCLC, who have previously received treatment with immune checkpoint inhibitors.

Patients are eligible to enter into the cohort designated to receive third-line combination immunotherapy consisting of PD ‑L1.t ‑haNK cell therapy, N ‑803 and a checkpoint inhibitor after progressing on one of four other treatment cohorts within the study.

The p rimary efficacy endpoint of the study is overall response rate per RECIST Version 1.1.

Secondary endpoints include progression - free survival, overall survival and durability of response using RECIST Version 1.1 criteria.

The IND amendment to include this third-line study cohort has been authorized by the FDA and will be commencing at several of the study’s currently open U.S.

Observed responses in this trial will guide our plans to conduct a subsequent phase II trial in second-line NSCLC patients.

QUILT 88 is a phase II, open-label, randomized, three-cohort comparative study of PD‑L1.t‑haNK, N‑803 and aldoxorubicin in combination with standard-of-care therapy versus standard-of-care therapy alone for front-line maintenance, second-line and third-line or greater treatment of subjects with locally advanced or metastatic pancreatic cancer.

Each of the three cohorts will be conducted as standalone studies a) as front-line maintenance therapy in patients that have achieved a clinical response after first-line standard-of-care therapy, b) in second-line therapy, and c) in third-line therapy or greater.

Cohorts A and B will have their own control arms while cohort C will be conducted as a single-arm, open-label study.

Safety and progression-free survival for cohorts A and B will be compared within the groups using RECIST Version 1.1 criteria based on blinded independent central review.

All three study cohorts of the trial are open and actively enrolling patients at multiple centers across the U.S., with 29 patients currently on study and many more actively being screened.

Additional Oncology Programs Update

We anticipate pursuing additional indications for our PD‑L1.t‑haNK product candidate, such as in the neoadjuvant setting in combination with N‑803 and a checkpoint inhibitor for newly diagnosed patients with head and neck squamous cells cancers in collaboration with the National Cancer Institute.

We also plan to initiate a phase II glioblastoma trial based on an encouraging signal observed in the clinic in our special-purpose compassionate use IND program.

We will also initiate in the near term a series of phase I first-in-human trials with our IND-ready t‑haNK products HER2.t‑haNK, EGFR.t‑haNK and the FDA authorized CD19.t‑haNK.

Likewise, we are nearing IND filings for three phase Ib ceNK studies in ovarian, myeloma and AML cancers.

COVID‑19 Programs Update

QUILT‑COVID‑19‑MSC is a randomized, double-blind placebo-controlled phase Ib study to assess the safety of therapeutic treatment with immunomodulatory bone marrow-derived mesenchymal stem cells, or BM‑Allo‑MSC, in adults with severe COVID‑19 infection.

This clinical trial will evaluate the safety and efficacy of BM‑Allo‑MSC versus best supporting care in treating patients with severe disease requiring ventilator support during COVID‑19 infection.

A total of 45 subjects receiving care in the critical care or ICU setting for COVID‑19 will be enrolled in this study.

Subjects will be randomized in a 2:1 fashion to the experimental and control arms, respectively.

Primary endpoints include incidence of adverse events, mortality and number of ventilator-free days within 60 days of randomization.

All subjects will also be assessed using the standard National Early Warning Score, or NEWS score (Royal College of Physicians 2012).

This study is currently open and actively enrolling patients at regional centers in Southern California.

QUILT-COVID-19-hAd5 is a vaccine trial operated by our affiliate, ImmunityBio, under a Joint COVID‑19 Collaboration Agreement, described below.

This phase Ib, open-label study will evaluate the safety, reactogenicity and immunogeniticy of prophylactic vaccination with a second generation E1, E2b and E3 deleted human adenovirus‑5 vaccine in normal healthy volunteers.

The test article is an hAd5‑S‑Fusion+N‑ETSD vaccine which encodes for an optimized spike protein (S‑Fusion), to enhance stability and cell surface expression of the receptor binding domain of the SARS‑CoV‑2 spike protein, and a Nucleocapsid protein with an enhanced T‑cell stimulation domain (N‑ETSD) to enhance cell-mediated immunity.

Two cohorts of ten subjects will receive either 5×10 10 or 1×10 1 1 virus particles per dose on days 1 and 22 and a third cohort of fifteen patients will receive the highest safe dose administered in the two initial cohorts.

Safety and activity will be assessed for up to twelve months after the second dose.

Toxicities will be graded using the Guidance for Industry - Toxicity Grading Scale for Healthy Adult and Adolescent Volunteers Enrolled in Preventive Vaccine Clinical Trials (2007).

This study is currently open and rapidly enrolling patients at Hoag Hospital, in Newport Beach, California.

Joint COVID ‑19 Collaboration Agreement with Immunity Bio

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

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

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

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

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

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

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

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

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

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

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

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

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

In this Joint COVID‑19 Collaboration, we contributed the following programs:

MSC cells (as described above) as a therapeutic candidate for patients with severe symptoms of COVID‑19 to modulate the immune system’s excessive response to COVID‑19 infection, thereby potentially reducing the debilitating and sometimes fatal effects of the disease;

ceNK and haNK cells (as described above) as a therapeutic candidate for moderate-risk, hospitalized adults with moderate to severe symptoms of COVID‑19.

ImmunityBio contributed the following programs:

N‑803 as a therapeutic candidate for patients with mild symptoms of COVID-19 prior to the onset of severe disease by potentially activating natural killer cells to mitigate viral replication;

Human adenovirus (hAd5) as a vaccine candidate for those individuals in an uninfected state to prevent the onset of COVID‑19.

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

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

We have prepared one of our GMP manufacturing facilities previously used to manufacture product for our oncology trials to manufacture and produce the vaccine candidate and we are in the process of readying a new, well-equipped location to manufacture and produce clinical products for our oncology trials, which resulted in additional facilities and related facility operating costs starting in the third quarter of 2020.

We have established a clinical product inventory to continue to supply clinical product for our ongoing oncology trials while this new facility is being readied.

The new facility will resume clinical product supply for our oncology trial starting in early 2021.

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

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

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

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.

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.

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.

In the same month, the President of the United States declared a State of National Emergency due to the pandemic.

Many jurisdictions, particularly in North America, Europe and Asia, as well as U.S.

states in which we operate, including California, have adopted or continue to consider laws, rules, regulations or decrees intended to address the pandemic, including travel restrictions, closing or, more recently, re-opening of non-essential businesses or restricting daily activities.

However, due to the pandemic new restrictions might be imposed by various governmental authorities.

For example, many communities have limited, and may continue to limit, social mobility and gatherings in response to the continued rise in coronavirus cases and fatalities in the U.S.

Such restrictions and other impacts from the pandemic may have an impact on our business.

Given the unprecedented and evolving nature of the pandemic, the future impact of these changes and potential changes on our company are unknown at this time.

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 our studies will likely take longer than forecasted in prior 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 anticipated upcoming milestones table, above.

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, GMP manufacturing, and office facilities.

Our office-based employees have been working from home since mid-March 2020, while ensuring essential staffing levels for our research and development operations remain in place, including maintaining key personnel in our laboratory and GMP manufacturing facilities.

While we have not previously experienced or been notified of any anticipated impact amongst our third party vendors, 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 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.

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 uncertainly 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 nine months ended September 30, 2020 outside of the Joint COVID-19 Collaboration Agreement as described above, we anticipate that it could impact our business in the short-term due to factors such as fewer patients accessing treatment for cancer.

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.

Operating Results

To date, we have generated minimal revenue related to the non-clinical use of our cell lines and intellectual property.

We have not generated any revenue from product sales.

We have incurred net losses in each year since our inception and, as of September 30, 2020, we had an accumulated deficit of $722.4 million.

Our net losses were $60.3 million and $50.1 million for the nine months ended September 30, 2020 and 2019, respectively, and $65.8 million and $96.2 million for the years ended December 31, 2019 and 2018, respectively.

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 September 30, 2020 we had 160 employees.

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 Consolidated Financial Statements” included in Part I, Item I of this Quarterly Report.

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.

We anticipate that our expenses will increase substantially 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;

incur additional legal, accounting and other expenses in operating as a public company.

We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we do not expect to happen for at least the next several years, if ever.

Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our research and development programs or commercialization efforts.

Failure to receive additional funding could cause us to cease operations, in part or in full.

Viracta Investment

In March 2017, we participated in a Series B convertible preferred stock financing and invested $8.5 million in Viracta Therapeutics, Inc., or Viracta, a clinical stage drug development company.

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

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

See Note 4 – Viracta Investment , of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report for a more detailed discussion regarding our investment in Viracta.

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 cell-based immunotherapy due to our broad and vertically integrated platform and through complementary strategic partnerships.

We did not enter into any significant new collaboration agreements during the three months ended September 30, 2020, other than those discussed in this Quarterly Report.

In addition to the collaboration and license agreements discussed in this Quarterly Report, we may enter into a commercial agreement relating to an IL‑15 superagonist product developed by an affiliate, and we may also pursue supply arrangements for various investigational agents controlled by affiliates and third parties to be used in our clinical trials.

These collaboration and supply agreements do not typically specify how sales will be apportioned between the parties upon successful commercialization of the product.

As a result, we cannot guarantee that we will receive a percentage of the revenue that is at least proportional to the costs that we will incur in commercializing the product candidate.

Furthermore, if Dr.

Soon-Shiong was to cease his affiliation with us, ImmunityBio, or with NantWorks, these entities may be unwilling to continue these relationships with us on commercially reasonable terms, or at all, and as a result may impede our ability to control the supply chain for our combination therapies.

See Note 7 – Collaboration and License Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item I of this Quarterly Report for a more detailed discussion regarding our collaboration and license agreements.

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

Our Chairman, Dr.

Patrick Soon-Shiong, 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 that, taken together, we expect will facilitate the development of new genetically modified NK cells for our product pipeline.

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

See Note 9 – Related Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report for a more detailed discussion regarding our related party agreements.

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.

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

To date, we have derived substantially all of our revenue from non-exclusive license agreements with numerous pharmaceutical and biotechnology companies granting them the right to use our cell lines and intellectual property for non-clinical use.

These agreements generally include upfront fees and annual research license fees for such use, as well as commercial license fees for sales of our licensee’s products developed or manufactured using our intellectual property and cell lines.

Our license agreements may also include milestone payments, although to date, we have not generated any revenue from milestone payments.

To date, we have generated minimal revenue related to the non-clinical use of our cell lines and intellectual property.

We have no products approved for commercial sale and have not generated any revenue from product sales.

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 classify our operating expenses into research and development and selling, general and administrative 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.

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Research and Development

Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates, including collaborative arrangements.

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.

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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.

Substantially all of our research and development expenses to date have been incurred in connection with our product candidates.

We expect our research and development expenses 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.

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.

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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 as discussed in greater detail in Part II, Item 1A, “ Risk Factors ” of this Quarterly Report.

This is due to the numerous risks and uncertainties associated with the development of product candidates.

The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

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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 several years, if ever.

In addition, we expect our research and development expenses to increase significantly for the foreseeable future as we advance our product candidates through clinical development and conduct our ongoing and planned clinical trials.

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 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 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 during the year ended December 31, 2020 will increase as compared to the year ended December 31, 2019.

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 (Expense)

Other income (expense) consists primarily of income from our investments in marketable debt securities, sublease rental income and foreign currency income (expense).

Income tax expense consists of U.S.

federal and state income taxes.

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.

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 because of our current and accumulated net operating losses.

Our income tax expense to date primarily relates to minimum income taxes in the State of California.

Our income tax benefit to date relates primarily to the amortization of deferred tax liabilities at our Korean subsidiary.

federal income taxes or foreign income taxes because of our or our subsidiaries’ current and accumulated net operating losses.

Results of Operations

Comparison of the three months ended September 30, 2020 and 2019

Comparison of the three months ended March 31, 2021 and 2020

Three Months Ended

September 30,

(Unaudited, $ in thousands)

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Other income (expense):

Investment income, net

Interest expense

Interest and investment income, net

Interest expense (including amounts with related parties)

Other income, net (including amounts with

related parties)

Total other income

Loss before income taxes

Total other income (expense)

Loss before income taxes and noncontrolling interests

Income tax expense

Research and Development

Research and development expense increased $5.2 million during the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

The increase in research and development expense was primarily attributable to expenses of $3.5 million related to our Joint COVID‑19 Collaboration Agreement with ImmunityBio, including the acquisition of $3.2 million of equipment to be utilized in the manufacture of the human adenovirus, or hAd5, vaccine candidate, and other net program related costs of $0.3 million.

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

We also experienced increases in research and development expense of $0.8 million due to higher laboratory and supplies expenses mainly driven by our COVID‑19 programs, higher facilities expenses of $0.4 million related to our new El Segundo facility leased during the third quarter of 2020, which will be used to manufacture and produce clinical products for our oncology product candidate trials, and higher compensation and related expenses of $0.4 million including fees for shared services rendered under our shared service agreement with NantWorks.

In addition, research and development expense increased by $0.4 million for other manufacturing and facility related expenses, including higher depreciation expense, property taxes, and other facility support costs.

These increases in research and development expense were partially offset by lower cell banking costs of $0.2 million and a decrease of $0.1 million in clinical trial costs.

Selling, General and Administrative

Selling, general and administrative expense increased $0.7 million during the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

The increase in selling, general and administrative expense was mainly attributable to increases in personnel costs of $0.5 million due primarily to higher compensation and related expenses, higher stock-based compensation expense of $0.5 million driven mainly by new awards granted during the current year which have a higher average grant date fair value, higher insurance costs of $0.3 million which was driven by increases in directors’ and officers’ insurance rates, higher software license fees of $0.3 million, and higher consulting costs of $0.1 million driven mainly by services related to finalizing our Joint COVID‑19 Collaboration Agreement with ImmunityBio.

These increases in selling, general and administrative expense were partially offset by a decrease in legal expenses of $0.8 million due primarily to a settlement of a contract dispute during the third quarter of 2020, and lower travel related expenses of $0.2 million due mainly to a decline in activity as a result of the ongoing COVID‑19 pandemic.

Other income decreased by $0.3 million during the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

The decrease in other income was due primarily to lower investment income, as we had higher net investment amortization expense of $0.4 million during the three months ended September 30, 2020, as compared to the year ago period.

The increase in net investment amortization expense was offset in part by increases related to foreign exchange gains and investment interest income.

Comparison of the nine months ended September 30, 2020 and 2019

Nine Months Ended

September 30,

(Unaudited, $ in thousands)

Operating expenses:

Research and development (including amounts with

related parties)

Selling, general and administrative (including amounts

with related parties)

Total operating expenses

Loss from operations

Other income (expense):

Investment income, net

Interest expense

Other income, net (including amounts with

related parties)

Total other income

Loss before income taxes

Income tax (expense) benefit

Research and Development

Research and development expense increased $6.4 million during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

The increase in research and development expense was primarily attributable to $3.5 million of expenses related to our Joint COVID‑19 Collaboration Agreement with ImmunityBio, including the acquisition of $3.2 million of equipment to be utilized in the manufacture of the human adenovirus, or hAd5, vaccine candidate, and other net program related costs of $0.3 million.

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

We also experienced increases in research and development expense of $2.5 million related to higher laboratory and supplies expense mainly driven by our COVID‑19 programs coupled with additional expenses related to readying our new El Segundo manufacturing facility leased during the third quarter of 2020, an increase of $1.4 million for other manufacturing and facility related expenses including higher depreciation expense and higher facilities and equipment maintenance costs, an increase in compensation and related expenses of $0.5 million including fees for shared services rendered under our shared service agreement with NantWorks, and increased lease expenses of $0.5 million mainly related to our new El Segundo facility leased during the third quarter of 2020 which will be used to manufacture and produce clinical products for our oncology product candidate trials.

In addition, research and development expense increased by $0.4 million due to higher cell banking costs, software license fees and other expenses.

These increases in research and development expense were offset in part by a decrease of $0.9 million related to impairment of laboratory equipment during the second quarter of 2019, a decrease of $0.9 million in clinical trial costs driven by decreased activity, and a decrease of $0.6 million in amortization expense due to the underlying asset being fully amortized as of March 2019.

Selling, General and Administrative

Selling, general and administrative expense increased $2.7 million during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

The increase in selling, general and administrative expense was primarily attributable to increases of $1.6 million due to higher corporate advisory services costs, $1.1 million due to higher compensation and related expenses, and higher insurance expense of $0.7 million which was driven by increases in directors’ and officers’ insurance rates.

In addition, selling, general and administrative expense increased by $0.3 million as a result of higher legal expenses primarily due to contracting, trademark, and patent related legal fees and other corporate matters, and an increase of $0.3 million due to higher software license fees.

These increases in selling, general and administrative expense were offset in part by a decrease of $0.5 million in stock-based compensation expense, driven primarily by the completion of executive stock-based compensation vesting in March 2019, and decreases in travel and tradeshow related expenses of $0.5 million and $0.4 million, respectively, due mainly to a decline in activity as a result of the ongoing COVID‑19 pandemic.

Other income decreased by $1.0 million during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

The decrease in other income was due primarily to lower investment income, including a decrease in interest income, and an increase in net investment amortization expense during the nine months ended September 30, 2020, as compared to the year ago period.

Investment income decreased due mainly to a decline in the average yield on our marketable debt securities.

The decline in yield was driven in part by shorter contractual securities lives and broader economic and market conditions.

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.

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 debt securities.

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.

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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 September 30, 2020, we had cash and cash equivalents, and restricted cash of $27.9 million as compared to $15.7 million as of December 31, 2019.

The increase was attributable to cash flows provided by financing activities of $86.7 million, offset in part by cash used in operating and investing activities of $47.4 million and $27.2 million, respectively.

Investments in marketable debt securities were $62.1 million as of September 30, 2020, of which $61.4 million were short-term investments, as compared to $49.3 million as of September 30, 2019, of which $47.8 million were short-term investments.

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).

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.

The following table sets forth our primary sources and uses of cash for periods indicated:

Nine Months Ended

September 30,

(Unaudited, in thousands)

Three Months Ended

Cash provided by (used in):

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Financing activities

Net increase in cash, cash equivalents, and restricted cash

Effect of exchange rate changes on cash, cash equivalents,

and restricted cash

Net change in cash, cash equivalents, and restricted cash

Operating Activities

For the nine months ended September 30, 2020, our net cash used in operating activities of $47.4 million consisted of a net loss of $60.3 million, partially offset by $10.8 million in adjustments for non-cash items, and $2.1 million of cash provided by net working capital changes.

Adjustments for non-cash items primarily consisted of $6.9 million in depreciation and amortization, amortization of $2.3 million for operating lease right-of-use assets, $1.5 million in stock compensation expense, and $0.4 million related to amortization of net premiums on marketable debt securities, offset in part by a decrease of $0.3 million related to non-cash interest.

Changes in net working capital consisted primarily of increases from accounts payable of $4.3 million, accrued expenses and other liabilities of $1.6 million, due to related party of $1.1 million, and other assets of $0.1 million, partially offset by decreases in operating lease liabilities of $2.6 million, and prepaid expenses and other current assets of $2.3 million.

For the nine months ended September 30, 2019, our net cash used in operating activities of $46.5 million consisted of a net loss of $50.1 million, and $8.2 million of cash used by net working capital changes, partially offset by $11.9 million in adjustments for non-cash items.

Adjustments for non-cash items primarily consisted of $6.8 million in depreciation and amortization, $2.2 million in stock compensation expense, $1.9 million of non-cash lease expense related to operating lease right-of-use assets, $0.9 million of impairment related to laboratory equipment, and $0.2 million in non-cash interest.

Changes in net working capital consisted primarily of decreases in accrued expenses of $11.6 million, operating lease liabilities of $2.3 million, and due to related party of $0.8 million, partially offset by increases in prepaid, other current assets, and other assets of $6.2 million, and accounts payable of $0.3 million.

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 nine months ended September 30, 2020, net cash used in investing activities was $27.2 million, which included cash outflows of $85.6 million for purchases of marketable debt securities, and $2.2 million for purchases of property, plant and equipment, partially offset by cash inflows of $54.1 million from maturities of marketable debt securities, and $6.6 million from sales of marketable debt securities.

Our investments in property, plant and equipment during the nine months ended September 30, 2020, mainly related to the acquisition of GMP-in-a-Box equipment which will be used to manufacture our ceNK and MSC product candidates.

For the nine months ended September 30, 2019, net cash provided by investing activities was $9.3 million, which was primarily attributable to cash inflows of $87.1 million from maturities of marketable debt securities, and $2.5 million from sales of marketable debt securities, partially offset by cash outflows of $76.8 million for purchases of marketable debt securities, and $3.5 million for purchases of property, plant and equipment.

During the nine months ended September 30, 2019 our purchases of marketable debt securities included our investment of $39.2 million of cash proceeds received during March 2019 from the exercise of stock options and warrants, together with reinvestment of excess cash related to maturing securities.

Our investments in property, plant and equipment during the nine months ended September 30, 2019 mainly related to our El Segundo, California, facilities.

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.

Financing Activities

For the nine months ended September 30, 2020, net cash provided by financing activities was $86.7 million, which consisted of proceeds from the issuance of 8,521,500 shares of common stock, net of issuance cost paid, of $86.3 million, and proceeds of $0.9 million resulting from the exercise of stock options.

Net cash used in financing activities during the nine months ended September 30, 2020, consisted of $0.5 million related to net share settlement of vested RSUs for payment of employee payroll taxes.

For the nine months ended September 30, 2019, net cash provided by financing activities was $38.7 million, which primarily consisted of cash proceeds of $35.2 million and $4.1 million resulting from the exercise of warrants and stock options, respectively, by our Chairman during March 2019, partially offset by $0.5 million used for stock repurchases, including commissions, and $0.1 million related to net share settlement of vested RSUs for payment of employee payroll taxes.

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 related to the non-clinical use of our cell lines and intellectual property, and we have no products approved for commercial sale and have not generated any revenue from product sales.

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.

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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 including those related to our Joint CVOID-19 Collaboration agreement with a related party;

continue research and development, including preclinical and clinical development of our existing product candidates;

potentially seek regulatory approval for our product candidates;

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incur additional legal, accounting and other expenses in operating as a public company.

Based upon our current operating plan, we expect that our existing cash, cash equivalents, and marketable debt securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following the issuance date of the financial statements .

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.

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.

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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.

Our future capital requirements will depend on many factors, including:

the timing of, and the costs involved in, preclinical and clinical development and obtaining any regulatory approvals for our product candidates;

the impacts of COVID‑19 on our operations;

the costs of manufacturing, distributing and processing our product candidates;

the number and characteristics of any other product candidates we develop or acquire;

our ability to establish and maintain strategic collaborations, licensing or other commercialization arrangements and the terms and timing of such arrangements including our arrangements with ImmunityBio and its subsidiaries and Viracta;

the degree and rate of market acceptance of any approved products;

the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of other products or treatments;

the expenses needed to attract and retain skilled personnel;

the costs associated with being a public company;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing intellectual property claims, including litigation costs and the outcome of such litigation;

the timing, receipt and amount of sales of, or royalties on, any approved products;

any product liability or other lawsuits related to our product candidates or the company.

Because all of our product candidates are in various stages of preclinical and clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of any of our product candidates or whether, or when, we may achieve profitability.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements.

We do not have any committed external source of funds.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.

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 ;

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;

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

During the nine months ended September 30, 2020, there have been no material changes outside the ordinary course of business in our contractual obligations from those disclosed in the section entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2019.

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.

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 Security and Exchange Commission rules.

Critical Accounting Policies and Significant Judgments and Estimates

In the notes to our audited consolidated financial statements and in “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations ” included in our 2019 Annual Report on Form 10‑K, we have disclosed those accounting policies that we consider to be significant in determining our results of operations and financial condition.

Except as noted below, there have been no other material changes to those policies that we consider to be significant since the filing of our 2019 Annual Report on Form 10‑K.

The accounting principles used in preparing our unaudited condensed consolidated financial statements conform in all material respects to U.S.

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.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

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

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.

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Actual results could differ from those estimates.

Collaboration Arrangements

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

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

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

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

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

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

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

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

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

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

Our collaboration arrangements are further discussed within Note 7, Collaboration and License Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report.

Recently Adopted Accounting Policies

Refer to Note 2 – Summary of Significant Accounting Policies , of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to 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.

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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis