Sorrento Therapeutics, Inc. - Quarter Report: 2021 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36150

SORRENTO THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

33-0344842

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

4955 Directors Place

San Diego, California 92121

(Address of Principal Executive Offices)

(858) 203-4100

(Registrant’s Telephone Number, Including Area Code)

Securities Registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol (s)	Name of each exchange on which registered:
Common Stock, $0.0001 par value	SRNE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of October 23, 2021 was 306,335,789.

Sorrento Therapeutics, Inc.

Form 10-Q for the Quarter Ended September 30, 2021

Table of Contents


Part I	Financial Information	3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets (Unaudited) as of September 30, 2021 and December 31, 2020	3
	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020	8
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

Part II	Other Information	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
SIGNATURES		49

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share amounts; unaudited)


ASSETS	September 30, 2021			December 31, 2020
Current assets:
Cash and cash equivalents	$	39,735		$	56,464
Marketable investments		122,934			—
Accounts receivables, net		16,454			15,506
Inventory		5,427			1,831
Prepaid expenses		12,196			8,712
Other current assets		3,974			3,721
Total current assets		200,720			86,234
Property and equipment, net		45,750			31,861
Operating lease right-of-use assets		76,674			42,052
Intangibles, net		320,970			73,675
Goodwill		52,892			43,554
Equity investments		51,120			256,397
Other assets, net		4,664			2,049
Total assets	$	752,790		$	535,822
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,839		$	24,706
Accrued payroll and related benefits		16,674			20,859
Accrued expenses		23,575			19,198
Current portion of deferred revenue		2,284			4,485
Current portion of operating lease liabilities		11,644			3,626
Current portion of contingent consideration and acquisition consideration payable		65,682			398
Current portion of debt		27,486			23,208
Total current liabilities		175,184			96,480
Long-term debt, net of discount		83,495			92,258
Deferred tax liabilities, net		5,083			6,918
Deferred revenue		119,206			113,185
Derivative liabilities		35,300			35,400
Operating lease liabilities		79,930			50,301
Contingent consideration and acquisition consideration payable		121,504			549
Other long-term liabilities		1,761			—
Total liabilities	$	621,463		$	395,091
Commitments and contingencies (See Note 10)
Equity:
Sorrento Therapeutics, Inc. equity
Preferred stock, $0.0001 par value; 100,000,000 shares authorized and no shares issued or outstanding		—			—
Common stock, $0.0001 par value 750,000,000 shares authorized and 303,466,554 and 275,285,582 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		31			28
Additional paid-in capital		1,421,966			1,172,346
Accumulated other comprehensive loss		1,155			520
Accumulated deficit		(1,242,187	)		(958,279	)
Treasury stock, 7,568,182 shares at cost at September 30, 2021, and December 31, 2020		(49,464	)		(49,464	)
Total Sorrento Therapeutics, Inc. stockholders’ equity		131,501			165,151
Noncontrolling interests		(174	)		(24,420	)
Total equity		131,327			140,731
Total liabilities and stockholders’ equity	$	752,790		$	535,822

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share amounts; unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Revenues:
Net product revenues	$	7,562		$	7,874		$	22,439		$	18,916
Service revenues		4,500			3,879			17,389			9,565
Total revenues		12,062			11,753			39,828			28,481
Operating costs and expenses:
Cost of products sold		1,172			549			2,549			1,796
Cost of services		2,215			2,122			7,345			5,563
Research and development		49,448			32,003			147,787			77,307
Acquired in-process research and development		11,125			34,884			23,608			39,765
Selling, general and administrative		48,489			24,265			142,276			75,027
Intangible amortization		1,000			1,034			3,105			3,018
Total operating costs and expenses		113,449			94,857			326,670			202,476
Loss from operations		(101,387	)		(83,104	)		(286,842	)		(173,995	)
(Loss) gain on derivative liabilities		(1,800	)		(1,000	)		100			5,900
(Loss) gain on marketable investments		(13,483	)		—			17,047			—
Loss on debt extinguishment, net		—			—			(6,695	)		(51,939	)
(Loss) gain on foreign currency exchange		(300	)		30			(841	)		7
Interest expense, net		(2,900	)		(2,562	)		(7,282	)		(17,664	)
Other income		97			238			53			179
Loss before income tax		(119,773	)		(86,398	)		(284,460	)		(237,512	)
Income tax expense (benefit)		386			145			(461	)		(2,050	)
(Loss) gain on equity method investments		164			(566	)		(277	)		(5,821	)
Net loss		(119,995	)		(87,109	)		(284,276	)		(241,283	)
Net loss attributable to noncontrolling interests		(192	)		(3,086	)		(368	)		(14,324	)
Net loss attributable to Sorrento	$	(119,803	)	$	(84,023	)	$	(283,908	)	$	(226,959	)
Net loss per share - basic per share attributable to Sorrento	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)
Net loss per share - diluted per share attributable to Sorrento	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)
Weighted-average shares used during period - basic per share attributable to Sorrento		299,276			251,211			290,029			217,050
Weighted-average shares used during period - diluted per share attributable to Sorrento		299,276			257,670			290,029			223,509

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands; unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net loss	$	(119,995	)	$	(87,109	)	$	(284,276	)	$	(241,283	)
Other comprehensive income:
Foreign currency translation adjustments		22			669			635			714
Total other comprehensive income		22			669			635			714
Comprehensive loss		(119,973	)		(86,440	)		(283,641	)		(240,569	)
Comprehensive loss attributable to noncontrolling interests		(192	)		(3,086	)		(368	)		(14,324	)
Comprehensive loss attributable to Sorrento	$	(119,781	)	$	(83,354	)	$	(283,273	)	$	(226,245	)

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands; unaudited)


	Nine Months Ended September 30, 2021
	Common Stock				Treasury Stock								Accumulated
	Shares		Amount		Shares		Amount			Additional Paid-in Capital			Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interest			Total
Balance, December 31, 2020		275,286	$	28		7,568	$	(49,464	)	$	1,172,346		$	520		$	(958,279	)	$	(24,420	)	$	140,731
Issuance of common stock under equity compensation plans		500		—		—		—			5,394			—			—			—			5,394
Issuance of common stock upon exercise of warrants		2,550		—		—		—			9,050			—			—			—			9,050
Issuance of common stock for equity offerings		3,901		1		—		—			42,208			—			—			—			42,209
Other acquisitions, license agreements and investments paid in equity		851		—		—		—			7,500			—			—			—			7,500
Changes to noncontrolling interests from increased ownership in Scilex Holding		2,567		—		—		—			(23,963	)		—			—			23,963			—
Stock-based compensation		—		—		—		—			23,660			—			—			—			23,660
Foreign currency translation adjustment		—		—		—		—			—			(75	)					—			(75	)
Net Income (loss)		—		—		—		—			—			—			2,510			(92	)		2,418
Balance, March 31, 2021		285,655	$	29		7,568	$	(49,464	)	$	1,236,195		$	445		$	(955,769	)	$	(549	)	$	230,887
Issuance of common stock under equity compensation plans		300		—		—		—			1,377			—			—			—			1,377
Issuance of common stock for equity offerings		5,886		1		—		—			50,751			—			—			—			50,752
Equity issued for the acquisition of ACEA Therapeutics, Inc.		5,519		—		—		—			42,168			—			—			—			42,168
Other acquisitions, license agreements and investments paid in equity		615		—		—		—			5,378			—			—			—			5,378
Stock-based compensation		—		—		—		—			20,984			—			—			—			20,984
Foreign currency translation adjustment		—		—		—		—			—			688			—			—			688
Net loss		—		—		—		—			—			—			(166,615	)		(84	)		(166,699	)
Balance, June 30, 2021		297,975	$	30		7,568	$	(49,464	)	$	1,356,853		$	1,133		$	(1,122,384	)	$	(633	)	$	185,535
Issuance of common stock under equity compensation plans		337		—		—		—			1,281			—			—			—			1,281
Issuance of common stock for equity offerings		5,056		1		—		—			41,917			—			—			—			41,918
Other acquisitions, license agreements and investments paid in equity		99		—		—		—			812			—			—			—			812
Other changes to noncontrolling interests		—		—		—		—			—			—			—			651			651
Stock-based compensation		—		—		—		—			21,103			—			—			—			21,103
Foreign currency translation adjustment		—		—		—		—			—			22			—			—			22
Net loss		—		—		—		—			—			—			(119,803	)		(192	)		(119,995	)
Balance, September 30, 2021		303,467	$	31		7,568	$	(49,464	)	$	1,421,966		$	1,155		$	(1,242,187	)	$	(174	)	$	131,327

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	Nine Months Ended September 30, 2020
	Common Stock				Treasury Stock							Accumulated
	Shares		Amount		Shares		Amount			Additional Paid-in Capital		Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interest			Total
Balance, December 31, 2019		167,798	$	18		7,568	$	(49,464	)	$	788,122	$	(270	)	$	(659,818	)	$	(45,832	)	$	32,756
Issuance of common stock under equity compensation plans		49		—		—		—			99		—			—			—			99
Issuance of common stock upon exercise of warrants		5,009		1		—		—			13,534		—			—			—			13,535
Issuance of common stock for public placement, net		2,091		1		—		—			7,325		—			—			—			7,326
Stock-based compensation		—		—		—		—			3,682		—			—			—			3,682
Issuance of common stock from Aspire Purchase Agreement		29,619		3		—		—			62,950		—			—			—			62,953
Foreign currency translation adjustment		—		—		—		—			—		55						—			55
Net loss		—		—		—		—			—		—			(65,195	)		(3,985	)		(69,180	)
Balance, March 31, 2020		204,566	$	23		7,568	$	(49,464	)	$	875,712	$	(215	)	$	(725,013	)	$	(49,817	)	$	51,226
Exercise of stock options, net		877		—		—		—			3,797		—			—			—			3,797
Issuance of common stock upon exercise of warrants		8,115		1		—		—			25,326		—			—			—			25,327
Issuance of common stock for equity offerings		18,289		1		—		—			81,532		—			—			—			81,533
Stock-based compensation		—		—		—		—			3,335		—			—			—			3,335
Foreign currency translation adjustment		—		—		—		—			—		(10	)		—			—			(10	)
Net loss		—		—		—		—			—		—			(77,740	)		(7,253	)		(84,993	)
Balance, June 30, 2020		231,847	$	25		7,568	$	(49,464	)	$	989,702	$	(225	)	$	(802,753	)	$	(57,070	)	$	80,215
Exercise of stock options, net		288		—							1,177											1,177
Issuance of common stock upon exercise of warrants		19,957		2		—		—			53,874		—			—			—			53,876
Issuance of common stock for equity offerings		6,817		1		—		—			63,764		—			—			—			63,765
Equity issued for the acquisition of SmartPharm Therapeutics, Inc.		1,832		—		—		—			19,421		—			—			—			19,421
Other acquisitions, license agreements and investments paid in equity		997									6,975											6,975
Stock-based compensation		—		—		—		—			6,295		—			—			—			6,295
Foreign currency translation adjustment		—		—		—		—			—		669						—			669
Net loss		—		—		—		—			—					(84,023	)		(3,086	)		(87,109	)
Balance, September 30, 2020		261,738	$	28		7,568	$	(49,464	)	$	1,141,208	$	444		$	(886,776	)	$	(60,156	)	$	145,284

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


	Nine Months Ended September 30,
Operating activities	2021			2020
Net loss	$	(284,276	)	$	(241,283	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		9,603			8,790
Non-cash operating lease cost		3,057			2,802
Non-cash interest expense and amortization of debt issuance costs		5,899			10,440
Payment on Scilex Notes attributed to accreted interest related to the debt discount		(11,791	)		—
Acquired in-process research and development		23,608			39,765
Stock-based compensation		67,509			13,312
Loss on debt extinguishment, net		6,695			51,939
Gain on derivative liabilities		(100	)		(5,900	)
Gain on marketable investments		(17,047	)		—
Loss on equity method investments		277			5,821
Loss on contingent consideration		100			—
Deferred tax provision		(1,834	)		(1,989	)
Changes in operating assets and liabilities, excluding effect of acquisitions:
Accounts receivable		(697	)		(313	)
Accrued payroll		(4,941	)		2,016
Prepaid expenses, deposits and other assets		(6,058	)		4,588
Accounts payable		(3,549	)		(8,556	)
Accrued expenses and other liabilities		35,589			1,544
Deferred revenue		417			(385	)
Right-of-use assets, operating leases		(32,509	)		—
Other		364			(1,258	)
Net cash used for operating activities		(209,684	)		(118,667	)
Investing activities
Proceeds from sale of marketable investments		124,113			—
Purchases of property and equipment		(6,662	)		(3,840	)
ACEA acquisition consideration paid in cash, net of cash acquired		(754	)		—
Payments related to license agreements		—			(22,325	)
Other acquisitions and investments		(34,645	)		(2,344	)
Net cash used for investing activities		82,052			(28,509	)
Financing activities
Proceeds from equity offerings, net of issuance costs		134,878			213,009
Proceeds from short-term debt, net of issuance costs		35,053			7,815
Proceeds from exercise of stock options and warrants		13,255			97,810
Repayments of debt and other obligations		(72,711	)		(132,819	)
Net cash provided by financing activities		110,475			185,815
Net change in cash, cash equivalents and restricted cash		(17,157	)		38,639
Net effect of exchange rate changes on cash		428			768
Cash, cash equivalents and restricted cash at beginning of period		56,464			80,769
Cash, cash equivalents and restricted cash at end of period	$	39,735		$	120,176
Supplemental disclosures:
Cash paid during the period for:
Interest		86			3,148
Taxes		1,200			—
Supplemental disclosures of non-cash investing and financing activities:
Changes to noncontrolling interests from increased ownership in Scilex Holding		23,963			—
SmartPharm acquisition consideration paid in equity		—			19,421
ACEA acquisition consideration paid in equity		42,168			—
Other acquisitions, license agreements and investments paid in equity		13,689			9,544
Property and equipment costs incurred but not paid		1,162			1,524
Short-term debt		7,304			—
Reconciliation of cash, cash equivalents and restricted cash within the Company’s consolidated balance sheets:
Cash and cash equivalents		39,735			75,176
Restricted cash		—			45,000
Cash, cash equivalents, and restricted cash	$	39,735		$	120,176

See accompanying notes to unaudited consolidated financial statements

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SORRENTO THERAPEUTICS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

1. Description of Business and Basis of Presentation

Description of Business

Sorrento Therapeutics, Inc. (the “Company”) is a clinical stage and commercial, antibody-centric, biopharmaceutical company developing new therapies to treat cancers, pain (non-opioid treatments), autoimmune disease and COVID-19. The Company’s multimodal, multipronged approach to fighting cancer is made possible by its extensive immuno-oncology platforms, including key assets such as clinical stage fully human antibodies (“G-MAB™ library”), clinical stage immuno-cellular therapies (“CAR-T”, “DAR-T™”), clinical stage antibody-drug conjugates (“ADCs”) and oncolytic viruses (Seprehvec™). The Company is also developing potential antiviral therapies and vaccines against coronaviruses, including COVIGUARD™, COVI-AMG™, COVISHIELD™, COVI-MSC™ and COVIDROPS™ and diagnostic test solutions, including COVITRACK™, COVISTIX™ and COVITRACE™.

The Company’s commitment to life-enhancing therapies for patients is also demonstrated by its effort to advance a first-in-class (TRPV1 agonist) non-opioid pain management small molecule, resiniferatoxin (“RTX”), and SP-102 (10 mg, dexamethasone sodium phosphate viscous gel) (SEMDEXA™), a novel, viscous gel formulation of a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain, or sciatica, and through the commercialization of ZTlido® (lidocaine topical system) 1.8% for the treatment of post-herpetic neuralgia.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. All intercompany balances and transactions have been eliminated in consolidation.

These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Operating results for interim periods are not expected to be indicative of operating results for the Company’s 2021 fiscal year, or any subsequent period. The unaudited interim financial statements included herein reflect all normal and recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented.

Use of Estimates

To prepare consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”), management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Significant Accounting Policies

During the nine months ended September 30, 2021, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 outside of new accounting pronouncements as described below.

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Revenue Recognition

The following table shows revenue disaggregated by product and service type for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Scilex Pharmaceuticals Inc. product sales	$	7,525	$	7,837	$	22,313	$	18,806
Other product revenue		37		37		126		110
Net product revenue	$	7,562	$	7,874	$	22,439	$	18,916
Concortis Biosystems Corporation	$	3,164	$	2,261	$	12,094	$	5,089
Bioserv Corporation		968		1,498		3,549		4,116
Other service revenue		368		120		1,746		360
Service revenue	$	4,500	$	3,879	$	17,389	$	9,565

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, Income Taxes Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for interim and annual periods for the Company beginning after December 15, 2020. The Company adopted the standard on January 1, 2021. The adoption of the standard had no material impact on the Company’s consolidated financial statements.

2. Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has recurring losses from operations, recurring negative cash flows from operations and substantial cumulative net losses to date and anticipates that it will continue to do so for the foreseeable future as it continues to identify and invest in advancing product candidates, as well as expanding corporate infrastructure.

The Company has plans in place to obtain sufficient additional fundraising to fulfill its operating, debt servicing and capital requirements for the next 12 months. The Company’s plans include continuing to fund its operating losses and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, government grants or other arrangements. Although management believes such plans, if executed, should provide the Company sufficient financing to meet its needs, successful completion of such plans is dependent on factors outside of the Company’s control. As such, management cannot conclude that such plans will be effectively implemented within one year after the date that the financial statements are issued. As a result, management has concluded that the aforementioned conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are issued.

If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable, the Company may have to significantly delay, scale back or discontinue the development or commercialization of one or more of its product candidates. The Company may also seek collaborators for one or more of its current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Furthermore, the spread of COVID-19, which has caused a broad impact globally, may materially affect the Company economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could, in the future, negatively affect its liquidity. The consolidated financial statements do not reflect any adjustments that might be necessary if the Company is unable to continue as a going concern.

If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.

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3. Fair Value Measurements

The following tables present the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements at September 30, 2021
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	39,735	$	39,735	$	—	$	—
Marketable investments		122,934		4,198		—		118,736
Total assets	$	162,669	$	43,933	$	—	$	118,736
Liabilities:
Derivative liabilities - non-current	$	35,300	$	—	$	—	$	35,300
Contingent consideration and acquisition consideration payable		65,682		—		—		65,682
Contingent consideration and acquisition consideration payable - non-current		121,504		—		—		121,504
Total liabilities	$	222,486	$	—	$	—	$	222,486


	Fair Value Measurements at December 31, 2020
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	56,464	$	56,464	$	—	$	—
Total assets	$	56,464	$	56,464	$	—	$	—
Liabilities:
Derivative liabilities - non-current	$	35,400	$	—	$	—	$	35,400
Contingent consideration and acquisition consideration payable		398		—		—		398
Contingent consideration and acquisition consideration payable - non-current		549		—		—		549
Total liabilities	$	36,347	$	—	$	—	$	36,347

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Marketable Investments

As disclosed in Note 4, the Company holds shares of Celularity Inc. (“Celularity”) Class A Common Stock of which 19,922,124 shares with a value of approximately $118.7 million as of September 30, 2021 are subject to certain transfer restrictions. The shares held by the Company are measured at fair value at each reporting period based on the closing price of Celularity’s common stock on the last trading day of each reporting period, and the shares subject to transfer restrictions are adjusted for a discount for lack of marketability.

Contingent Consideration and Acquisition Consideration Payable

In connection with the acquisition of ACEA Therapeutics, Inc. (“ACEA”) as disclosed in Note 6, the Company preliminarily recorded estimated contingent consideration of $186.1 million as of the acquisition closing date of June 1, 2021. The Company assesses the fair value of contingent consideration using a discounted cash flow method combined with a Monte Carlo simulation model. Significant Level 3 assumptions used in the measurement include revenue projections, a discount rate of 14.4% and estimated probabilities of successful commercialization. As defined in Note 6, the Indebtedness Shares are subject to a true-up, as set forth in the ACEA Merger Agreement (as defined in Note 6), if the price at which such shares were issued is greater than the closing price of the Company’s common stock on the date that is six months after June 1, 2021 (“Put Option”). The Company assesses the fair value of the Put Option using a Black-Scholes model and Level 3 assumptions. As of June 1, 2021, the Company recorded a total fair value of $8.9 million associated with the Put Option. The Put Option is included within the current portion of the contingent consideration and acquisition consideration payable. During the nine months ended September 30, 2021, the Company recorded a loss of $0.1 million related to the change in fair value of the contingent consideration resulting from the passage of time since June 1, 2021.

Changes in estimated fair value of acquisition consideration payable, including contingent consideration liabilities, since December 31, 2020 are as follows:


(in thousands)	Fair Value
Beginning Balance at December 31, 2020	$	947
Contingent consideration related to the acquisition of ACEA Therapeutics, Inc.		186,139
Change in fair value measurement		100
Ending Balance at September 30, 2021	$	187,186

Derivative liabilities

The Company recorded a loss on derivative liabilities of $1.8 million and a gain of $0.1 million for the three and nine months ended September 30, 2021, respectively, which related to the compound derivative liabilities associated with the Scilex Notes (as defined in Note 7). The fair value of the derivative liabilities associated with the Scilex Notes was estimated using the discounted cash flow method combined with a Monte Carlo simulation model. This involves significant Level 3 inputs and assumptions, including a 6.5% risk adjusted net sales forecast and an effective debt yield of 14.7%.

The following table includes a summary of the derivative liabilities measured at fair value using significant unobservable inputs (Level 3) during the nine months ended September 30, 2021:


(in thousands)	Fair Value
Beginning Balance at December 31, 2020	$	35,400
Re-measurement of Fair Value		(100	)
Ending Balance at September 30, 2021	$	35,300

4. Investments

The Company’s investments include investments accounted for as equity method investments, equity investments without readily determinable fair value and equity investments with readily determinable fair value. As of September 30, 2021, the Company’s equity method investments include an ownership interest in Immunotherapy NANTibody, LLC (“NANTibody”), NantCancerStemCell, LLC (“NantStem”), Deverra Therapeutics, Inc. (“Deverra”), and ImmuneOncia Therapeutics, LLC, among others. The Company’s equity investments without readily determinable fair value include an ownership interest in NantBioScience, Inc. (“NantBioScience”), Aardvark Therapeutics, Inc. (“Aardvark”) and Elsie Biotechnologies, Inc. (“Elsie”), among others. The Company’s equity investments with readily determinable fair value include an ownership interest in Celularity.

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Celularity

On July 16, 2021, Celularity Inc. (“Pre-Merger Celularity”), a company of which the Company held an equity interest, completed its previously announced merger with GX Acquisition Corp. (the “Celularity Merger”). Following the completion of the Celularity Merger, the combined, publicly traded company formerly known as GX Acquisition Corp. was named Celularity Inc. (“Celularity”) and its Class A common stock commenced trading on the Nasdaq Capital Market on July 19, 2021 under the ticker “CELU”. In connection with the Celularity Merger, all outstanding shares of Series A Preferred Stock of Pre-Merger Celularity were converted into shares of Pre-Merger Celularity common stock and then each share of Pre-Merger Celularity common stock was converted into the right to receive shares of Class A common stock of the post-merger company. The Company received 19,922,124 shares of Class A common stock of the post-merger company in the Celularity Merger. The Company also purchased an aggregate of 500,000 shares of Class A common stock of Celularity for an aggregate purchase price of $5,000,000 in a private placement transaction that closed on July 16, 2021 concurrently with the closing of the Celularity Merger (the “Private Placement Shares”). Dr. Henry Ji, the Company’s Chief Executive Officer and Chairperson, and Jaisim Shah, a member of the Company’s Board of Directors, each served on the board of directors of Pre-Merger Celularity from June 2017 until the closing of the Celularity Merger in July 2021. Dr. Robin L. Smith, a member of the Company’s Board of Directors, served on the board of directors of Pre-Merger Celularity from August 2019 until the closing of the Celularity Merger in July 2021 and has served on the board of directors of Celularity since the closing of the Celularity Merger in July 2021.

The Company’s investment in Celularity has historically been included as an equity investment in its consolidated balance sheets and accounted for as an equity security without a readily determinable fair value. As of the trading commencement date, the Company accounts for its investment in Celularity as an equity security with a readily determinable fair value. As of September 30, 2021, the Company owned 20,422,124 shares of Class A common stock of Celularity. 19,922,124 shares of the Class A Common Stock of Celularity held by the Company are subject to transfer restrictions until the earliest to occur of (i) 365 days after July 16, 2021; (ii) the first day after the date on which the closing price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after July 16, 2021; or (iii) the date on which Celularity completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of Celularity’s public shareholders having the right to exchange their Class A Common Stock for cash, securities or other property, subject to certain exceptions (the “Restricted Shares”).

In connection with the change in fair value of the Restricted Shares, the Company recorded an unrealized loss on equity investment of $6.3 million during the three and nine months ended September 30, 2021. The Company has reclassified its investment in Celularity associated with the Restricted Shares to marketable investments under current assets within its consolidated balance sheets. The investment in Celularity associated with the Restricted Shares is classified as a current asset because the investment can be liquidated to finance the Company’s current operations once the transfer restrictions are lifted, which will occur before September 30, 2022. In connection with the change in fair value of the Private Placement Shares, the Company recorded an unrealized loss of $1.5 million on marketable investments during the three and nine months ended September 30, 2021. The Company classifies its investment in Celularity associated with the Private Placement Shares as marketable investments within its consolidated balance sheets. The investment in Celularity associated with the Private Placement Shares is classified as a current asset because the investment can be liquidated to finance the Company’s current operations.

ImmunityBio

On March 9, 2021, NantKwest, Inc. and ImmunityBio (formerly known as NantCell, Inc.) completed their previously announced 100% stock-for-stock merger (the “Merger”). The combined company operates under the name ImmunityBio, Inc. and its shares of common stock commenced trading on the Nasdaq Global Select Market on March 10, 2021 under the new ticker, “IBRX”. The former stockholders of ImmunityBio were entitled to receive 0.8190 shares of common stock of the combined company for each outstanding share of ImmunityBio common stock held immediately prior to the Merger. Prior to the closing of the Merger, the Company owned 10,000,000 shares of common stock of ImmunityBio, and the Company therefore received 8,190,000 shares of common stock of the post-merger company.

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Prior to the Merger, the Company’s investment in ImmunityBio was historically included as an equity investment in its consolidated balance sheets and accounted for as an equity security without a readily determinable fair value. As of the completion of the Merger, the Company accounted for its investment in ImmunityBio as an equity investment with a readily determinable fair value and reclassified its investment in ImmunityBio to marketable investments within its consolidated balance sheets. The investment in ImmunityBio was classified as a current asset because the investment was liquidated to finance the Company’s current operations. In connection with the change in fair value of its investment in ImmunityBio, the Company recorded a realized loss on marketable investments of $6.4 million during the three months ended September 30, 2021 and a realized gain on marketable investments of $24.1 million during the nine months ended September 30, 2021. The Company sold 8,190,000 shares of ImmunityBio common stock during the nine months ended September 30, 2021 for net proceeds to the Company of $124.0 million. The Company had no remaining shares of ImmunityBio common stock as of September 30, 2021.

Aardvark

During the nine months ended September 30, 2021, the Company paid $10.0 million in cash for 7,777,864 shares of Series B Preferred Stock of Aardvark. The Company accounts for its investment in Aardvark as an equity investment without a readily determinable fair value and carries its investment in Aardvark at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. Tien Lee, MD, a member of the board of directors of Scilex Holding Company (“Scilex Holding”), a majority owned subsidiary of the Company, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of the board of directors of the Company, is a member of the advisory board of Aardvark.

Deverra

During the nine months ended September 30, 2021, the Company paid approximately $10.2 million in consideration for 5,622,703 shares of common stock of Deverra, a development-stage, biotechnology company focused on developing cellular immunotherapy programs. The Company’s payment consisted of (i) the cancellation of certain promissory notes issued by Deverra to the Company with an aggregate principal amount of $6.0 million and unpaid accrued interest of approximately $0.1 million and (ii) a cash payment of $4.1 million. The Company has agreed to purchase additional shares of common stock of Deverra for an aggregate price of $10.0 million by January 1, 2022 and $10.0 million by April 1, 2022. The Company`s investment in Deverra’s common stock represents an equity method investment. However, as Deverra is not a business, the Company immediately expensed all costs associated with the investment and the total consideration paid was expensed as acquired in-process research and development during the three and nine months ended September 30, 2021.The Company has a variable interest in Deverra and Deverra is deemed to be a variable interest entity (“VIE”). The Company is not, however, the primary beneficiary of the VIE as it does not have the power to direct the activities of Deverra. In connection with the Company’s purchase of Deverra common stock, Dr. Henry Ji, the Company’s Chief Executive Officer and Chairperson, and Jaisim Shah, a member of the Company’s Board of Directors, were appointed to the board of directors of Deverra.

Elsie

During the nine months ended September 30, 2021, the Company paid $10.0 million in cash for 10,000,000 shares of Series A Preferred Stock of Elsie. The Company accounts for its investment in Elsie as an equity investment without a readily determinable fair value and carries its investment in Elsie at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. In connection with the Company's purchase of Elsie Series A Preferred Stock, Dr. Henry Ji was appointed to the board of directors of Elsie.

NANTibody

The Company’s investment in NANTibody is reported in equity method investments on its consolidated balance sheets and its share of NANTibody’s income or loss is recorded in income or loss on equity method investments on its consolidated statement of operations. The Company continues to hold 40% of the outstanding equity of NANTibody and NantCell, Inc. (“NantCell”) holds the remaining 60%. The Company’s investment in NANTibody had a carrying value of zero as of September 30, 2021 due to the Company’s share of cumulative losses. As of December 31, 2020, the carrying value of the Company’s investment in NANTibody was approximately $0.5 million.

NANTibody recorded a net loss of $1.1 million and $1.6 million for the three months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, NANTibody had $3.4 million in current assets, $8.8 million in current liabilities, $0.1 million in noncurrent assets and no noncurrent liabilities.

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The financial statements of NANTibody are not received sufficiently timely for the Company to record its portion of earnings or loss in the current financial statements and therefore the Company reports its portion of earnings or loss on a one quarter lag.

NantStem

The Company’s investment in NantStem is reported in equity method investments on its consolidated balance sheets and its share of NantStem’s income or loss is recorded in income or loss on equity method investments on its consolidated statement of operations. The Company is accounting for its interest in NantStem as an equity method investment, due to the significant influence the Company has over the operations of NantStem through its board representation and 20% voting interest. As of September 30, 2021, the carrying value of the Company’s investment in NantStem was approximately $18.4 million. As of December 31, 2020, the carrying value of the Company`s investment in NantStem was $18.1 million.

NantStem recorded a net income of $0.2 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, NantStem had $82.3 million in current assets, no current liabilities, $0.6 million in noncurrent assets and no noncurrent liabilities.

The financial statements of NantStem are not received sufficiently timely for the Company to record its portion of earnings or loss in the current financial statements and therefore the Company reports its portion of earnings or loss on a one quarter lag.

5. Goodwill and Intangible Assets

The Company had goodwill of $52.9 million as of September 30, 2021, which preliminarily increased by $9.3 million as compared to $43.6 million as of December 31, 2020 due to the Company’s acquisition of ACEA. Goodwill for the Sorrento Therapeutics segment and Scilex segment was $46.2 million and $6.7 million, respectively, as of September 30, 2021.

Intangible assets with indefinite useful lives totaling $278.7 million are included in acquired in-process research and development in the table below. A summary of the Company’s identifiable intangible assets as of September 30, 2021 and December 31, 2020 is as follows (in thousands, except for years):


September 30, 2021	Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
Customer relationships		2	$	1,585	$	1,446	$	139
Acquired technology		19		3,410		1,368		2,042
Acquired in-process research and development		—		278,660		—		278,660
Technology placed in service		15		21,940		4,388		17,552
Patent rights		15		32,720		10,738		21,982
Assembled workforce		5		605		313		292
Internally developed software		2		520		217		303
Total intangible assets			$	339,440	$	18,470	$	320,970


December 31, 2020	Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
Customer relationships		6	$	1,585	$	1,426	$	159
Acquired technology		19		3,410		1,236		2,174
Acquired in-process research and development		—		28,260		—		28,260
Technology placed in service		15		21,940		3,291		18,649
Patent rights		15		32,720		9,103		23,617
Assembled workforce		5		605		222		383
Internally developed software		1		520		87		433
Total intangible assets			$	89,040	$	15,365	$	73,675

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Aggregate amortization expense was $1.0 million for each of the three months ended September 30, 2021 and 2020. Aggregate amortization expense was $3.1 million and $3.0 million for the nine months ended September 30, 2021 and 2020, respectively. Estimated future amortization expense related to intangible assets, excluding indefinite-lived intangible assets, at September 30, 2021 is as follows (in thousands):


Years Ending December 31,	Amount
2021 (Remaining three months)	$	1,035
2022		4,140
2023		4,048
2024		3,870
2025		3,845
Thereafter		25,372
Total expected future amortization	$	42,310

6. Significant Agreements and Contracts

Acquisition of ACEA Therapeutics, Inc.

On June 1, 2021, the Company completed the acquisition of ACEA pursuant to the terms of the Agreement and Plan of Merger (the “ACEA Merger Agreement”), dated as of April 2, 2021, by and among the Company, AT Merger Sub, Inc., an exempted company incorporated with limited liability in the Cayman Islands and wholly owned subsidiary of the Company, ACEA and Fortis Advisors LLC, as representative of the shareholders of ACEA, whereby ACEA became a wholly owned subsidiary of the Company. With operations in both China and the United States, ACEA is developing multiple clinical and preclinical-stage new chemical entity compounds, including the late clinical drug candidate, Abivertinib.

The total value of the consideration paid by the Company for the acquisition of ACEA was equal to $38.0 million plus approximately $1.9 million (which amount represented the Company’s agreed upon share of certain interest, fees and other expenses) resulting in an aggregate payment of approximately $39.9 million (which amount is subject to further adjustment for indebtedness, transaction expenses and cash, in each case pursuant to the terms of the ACEA Merger Agreement) (the “Closing Consideration”). Pursuant to the terms of the ACEA Merger Agreement, a portion of the Closing Consideration equal to (i) $38,059,326 was used to repay certain existing indebtedness of ACEA, which amount was paid to the holders thereof in the form of shares of common stock of the Company and an aggregate of 5,519,469 shares (“Indebtedness Shares”) of the Company’s common stock were issued in respect thereof based on a price per share equal to $6.8955 (representing the volume weighted average closing price per share of Common Stock, as reported on The Nasdaq Stock Market LLC, for the 10 consecutive trading days ending on the date that was three trading days prior to the Closing Date) and (ii) $100,000 was set aside for expenses incurred by the shareholders’ representative thereunder. The Indebtedness Shares are subject to a true-up, as set forth in the ACEA Merger Agreement, if the price at which such shares were issued is greater than the closing price of the Company’s common stock on the date that is six months after June 1, 2021.

In addition to the Closing Consideration, the Company will pay the ACEA equityholders (i) up to $450.0 million in additional payments, subject to the receipt of certain regulatory approvals and achievement of certain net sales targets with respect to the assets acquired from ACEA and (ii) five to ten percent of the annual net sales on specified royalty-bearing products (the “Earn-Out Consideration”). The fair value of the Earn-Out Consideration on the acquisition date was preliminarily estimated to be $186.1 million. The amount referenced in clause (i) of the preceding sentence includes the amounts that would have otherwise been due to ACEA under that certain License Agreement, dated July 13, 2020, between the Company and ACEA, which agreement was terminated in its entirety upon completion of the acquisition of ACEA.

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The preliminary purchase price allocation was calculated based on an upfront consideration of $44.1 million, which was based on the Company’s closing share price on June 1, 2021. The ACEA Merger Agreement resulted in net identifiable assets of approximately $230.2 million, which includes separate and distinct intangible assets comprised of acquired in-process research and development of $250.4 million, goodwill of $9.3 million, fair value of debt assumed of approximately $32.1 million and other net assets of approximately $2.6 million. The purchase price allocation is preliminary as the Company is still completing the valuation of the intangible assets, contingent consideration, taxes, the fair value of debt assumed and other net assets, changes to which may also increase or decrease the amount of goodwill recognized. Goodwill largely reflects the broad-spectrum and synergistic infrastructures and expertise in pharmaceutical and biological drug discovery, development and manufacturing, and expanded geographic coverage in China and North America. Goodwill is not deductible for tax purposes. Acquisition costs were expensed as incurred. Results of operations since the date of acquisition were not material. Customary tax related matters such as the filing of pre-acquisition tax returns are subject to finalization as of September 30, 2021, and such matters may result in adjustments to the purchase price allocation.

The Company is still in the process of finalizing the working capital adjustments and the purchase price allocation, given the timing of the acquisition and the size and scope of the assets and liabilities subject to valuation. While the Company does not expect material changes in the valuation outcome, certain assumptions and findings that were in place at the date of acquisition could result in changes in the purchase price allocation.

Asset Purchase Agreement with Aardvark Therapeutics, Inc.

In April 2021, the Company entered into an asset purchase agreement (the “Aardvark Asset Purchase Agreement”) with Aardvark to acquire Aardvark’s Delayed Burst Release Low Dose Naltrexone (DBR-LDN), or ARD-301, asset and intellectual property rights, for the treatment of chronic pain, fibromyalgia and chronic post-COVID syndrome. As consideration for the purchase of the assets, the Company paid Aardvark an upfront license fee of $5.0 million comprised of 616,655 shares of the Company’s common stock, and which was expensed as acquired in-process research and development during the nine months ended September 30, 2021. The Company also agreed to pay Aardvark (i) milestone payments upon the receipt of certain regulatory approvals, and (ii) milestone payments upon the Company’s achievement of certain commercial sales milestones. The Company will also pay certain royalties in the mid-single digit to low-double digit percentages of annual net sales by the Company. Tien Lee, MD, a member of the board of directors of Scilex Holding, a majority owned subsidiary of the Company, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of the board of directors of the Company, is a member of the advisory board of Aardvark. As discussed in Note 4, the Company holds an investment interest in Aardvark.

License Agreement with Icahn School of Medicine at Mount Sinai

In March 2021, the Company entered into an exclusive license agreement (the “Mount Sinai License Agreement”) with Icahn School of Medicine at Mount Sinai (“Mount Sinai”) to acquire a worldwide, exclusive, sublicensable license to certain of Mount Sinai’s patents and monoclonal antibodies as well as technical information to develop, manufacture, commercialize, and exploit related products and services (“Licensed Products”) for all fields, uses, and applications, including for the diagnosis, prevention, treatment and cure of coronavirus.

As consideration for the Mount Sinai License Agreement, the Company paid Mount Sinai an upfront license fee of $7.5 million comprised of 851,305 shares of the Company’s common stock, which was expensed as acquired in-process research and development during the three months ended March 31, 2021. The Company also agreed to pay Mount Sinai (i) certain milestone payments upon the achievement of certain clinical trial and regulatory milestones, and (ii) certain royalties in the low-single digit to mid-single digit percentages of annual net sales of Licensed Products by the Company and a share of any sublicense revenue received by the Company from sublicensees.

Acquisition of SmartPharm Therapeutics, Inc.

On September 1, 2020, the Company completed the acquisition of SmartPharm Therapeutics, Inc. (“SmartPharm”), a gene-encoded protein therapeutics company developing non-viral DNA and RNA gene delivery platforms for COVID-19, influenza and rare diseases with broad potential for application in enhancing antibody-centric therapeutics. The total base consideration paid to the holders of capital stock of SmartPharm in the acquisition was approximately $19.5 million, which was comprised of approximately 1.8 million shares of the Company’s common stock.

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The purchase price allocation resulted in net identifiable assets of $19.5 million, which includes separate and distinct indefinite lived intangible assets comprised of acquired in-process research and development of $13.9 million, goodwill of $5.3 million and other net assets of $0.3 million. Goodwill largely reflects the synergies expected to be achieved with SmartPharm’s gene delivery platforms and the assembled workforce. Goodwill is not deductible for tax purposes. Results of operations since the date of acquisition were not material.

License Agreement with NantCell

In April 2015, the Company and NantCell entered into a license agreement. Under the terms of the agreement, the Company granted an exclusive license to NantCell covering patent rights, know-how and materials related to certain antibodies, ADCs and two CAR-TNK products. NantCell agreed to pay a royalty not to exceed five percent (5%) to the Company on any net sales of products from the assets licensed by the Company to NantCell. In addition to the future royalties payable under this agreement, NantCell paid an upfront payment of $10.0 million to the Company and issued 10 million shares of NantCell common stock to the Company valued at $100.0 million based on an equity sale of NantCell common stock to a third party. The Company terminated the agreement, effective January 29, 2020, due to NantCell’s material breach of the agreement. The termination and remedies related to such termination are currently pending in an arbitration before the American Arbitration Association. On March 9, 2021, NantKwest, Inc. and ImmunityBio (formerly known as NantCell, Inc.) completed their previously announced 100% stock-for-stock merger (See Note 4).

7. Debt

2018 Purchase Agreements and Indenture for Scilex Pharmaceuticals Inc. (“Scilex Pharma”)

On September 7, 2018, Scilex Pharma entered into Purchase Agreements (the “2018 Purchase Agreements”) with certain investors (collectively, the “Scilex Note Purchasers”) and the Company. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million (the “Scilex Notes Offering”). In connection with the Scilex Notes Offering, Scilex Pharma also entered into an Indenture (the “Indenture”) governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee and collateral agent, and the Company. Pursuant to the Indenture, the Company agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Indenture. During the year ended December 31, 2020, Scilex Pharma repurchased an aggregate of $65.0 million in principal amount of the Scilex Notes.

During the nine months ended September 30, 2021, Scilex Pharma repurchased an additional $40.0 million in principal amount of the Scilex Notes. In connection with the repurchases, the Company recorded a loss on partial debt extinguishment of $14.0 million during the nine months ended September 30, 2021.

To estimate the fair value of the Scilex Notes, the Company uses the discounted cash flow method under the income approach, which involves significant Level 3 inputs and assumptions, combined with a Monte Carlo simulation as appropriate. The value of the debt instrument is based on the present value of future principal payments and the discounted rate of return reflective of the Company’s credit risk.

Borrowings of the Scilex Notes consisted of the following (in thousands):


	September 30, 2021			December 31, 2020
Principal	$	107,684		$	151,872
Unamortized debt discount		(32,470	)		(51,022	)
Unamortized debt issuance costs		(2,370	)		(3,698	)
Carrying value	$	72,844		$	97,152
Estimated fair value	$	114,800		$	122,300

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Future minimum payments under the Scilex Notes, based on a percentage of projected net sales of ZTlido, are estimated as follows (in thousands):


Year Ending December 31,
2021 (Remaining three months)		1,686
2022		7,340
2023		9,543
2024		11,677
2025		13,436
Thereafter		64,002
Total future minimum payments		107,684
Unamortized debt discount		(32,470	)
Unamortized capitalized debt issuance costs		(2,370	)
Total Scilex Notes		72,844
Current portion		(6,883	)
Long-term portion of Scilex Notes	$	65,961

The Company made principal payments of $44.2 million and $3.5 million during the nine months ended September 30, 2021 and 2020, respectively. The imputed effective interest rate at September 30, 2021 was 10.4%. The amount of debt discount and debt issuance costs included in interest expense for the three months ended September 30, 2021 and 2020 was approximately $1.9 million and $2.5 million, respectively. During the nine months ended September 30, 2021 and 2020, the amount of debt discount and debt issuance costs included in interest expense was $5.9 million and $8.2 million, respectively.

The Company identified a number of embedded derivatives that require bifurcation from the Scilex Notes and that were separately accounted for in the consolidated financial statements as derivative liabilities. Certain of these embedded features include default interest provisions, contingent rate increases, contingent put options, optional and automatic acceleration provisions and tax indemnification obligations. The fair value of the derivative liabilities associated with the Scilex Notes was estimated using the discounted cash flow method under the income approach combined with a Monte Carlo simulation model. This involves significant Level 3 inputs and assumptions, including a risk adjusted net sales forecast, an effective debt yield, estimated marketing approval probabilities for SP-103 and an estimated probability of an initial public offering by Scilex Holding that satisfies certain valuation thresholds and timing considerations (See Note 3). The Company re-evaluates this assessment each reporting period.

ACEA Significant Debt Arrangements

At the closing of the transactions contemplated by the ACEA Merger Agreement and as a result thereof, on June 1, 2021, the Company, as the indirect parent to Hangzhou ACEA Pharmaceutical Research Co., Ltd. (“ACEA Hangzhou”) and Zhejiang ACEA Pharmaceutical Co., Ltd. (“ACEA Zhejiang”), each of which are indirect subsidiaries of ACEA, succeeded to the financial obligations of ACEA Hangzhou and ACEA Zhejiang, each of whom are parties to agreements with ACEA Bio (Hangzhou) Co., Ltd. (“ACEA Bio”) (an entity unrelated to ACEA Hangzhou and ACEA Zhejiang) as set forth below.

Pursuant to that certain Contract, dated as of August 15, 2018, between ACEA Hangzhou and ACEA Bio, ACEA Hangzhou borrowed an aggregate of approximately $29.1 million (184,600,000 RMB) from ACEA Bio in a series of loans thereunder (the “Contract”). Each loan under the Contract is for a period of 10 years and the maturity dates thereof range from August 15, 2023 to August 15, 2028. Each loan is interest free for the first five years, after which time the interest rate is 5.39% per annum.

Pursuant to that certain Loan Agreement, dated as of January 6, 2018, between ACEA Zhejiang and ACEA Bio, ACEA Zhejiang borrowed approximately $1.3 million (8,000,000 RMB) from ACEA Bio (the “Loan Agreement”). The maturity date under the Loan Agreement is one year from the date when the loan was remitted to ACEA Zhejiang’s bank account and current maturity is January 1, 2022. The interest rate under the Loan Agreement is 4.786% per annum.

The outstanding principal amount under the Contract and Loan Agreement as of September 30, 2021 is $30.4 million. As part of the preliminary purchase price allocation, the Company estimated the fair value of the Contract and Loan Agreement to be approximately $17.1 million.

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8. Stockholders’ Equity

Amended Sales Agreement

On December 4, 2020, the Company entered into Amendment No. 1 to that certain Sales Agreement dated April 27, 2020, with A.G.P./Alliance Global Partners, which provides that the Company may, from time to time, offer and sell securities to A.G.P./Alliance Global Partners in at-the-market transactions (as amended, the “Amended Sales Agreement”). During the nine months ended September 30, 2021, the Company issued and sold an aggregate of 14,844,426 shares of its common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to the Company of approximately $134.9 million. Subsequent to September 30, 2021 and through November 2, 2021, the Company sold an aggregate of 3,863,371 shares of its common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to the Company of approximately $25.2 million.

9. Stock Based Compensation

2019 Stock Incentive Plan (“2019 Plan”)

Total stock-based compensation expense under the 2019 Plan was $6.3 million and $5.0 million for the three months ended September 30, 2021 and 2020, respectively, and $21.7 million and $9.2 million for the nine months ended September 30, 2021 and 2020, respectively. The total unrecognized compensation expense related to unvested stock option grants as of September 30, 2021 was $66.0 million, with a weighted average remaining vesting period of 3.0 years. Total unrecognized compensation expense related to unvested restricted stock unit (“RSU”) grants as of September 30, 2021 was $30.2 million, with a weighted average remaining vesting period of 3.7 years.

A summary of stock option activity under the 2019 Plan for the nine months ended September 30, 2021 is as follows:


	Options Outstanding			Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020		18,762,920		$	4.97	$	—
Options Granted		6,707,485		9.34
Options Cancelled		(1,193,915	)	5.33
Options Exercised		(869,676	)	3.91
Outstanding at September 30, 2021		23,406,814		$	6.24	$	47,535

The estimated fair value of each stock option grant was determined on the grant date using the Black-Scholes valuation model with the following weighted-average assumptions:


	Nine Months Ended September 30,
	2021			2020
Weighted-average grant date fair value	$	7.58		$	4.14
Dividend yield		—	%		—	%
Volatility		110	%		104	%
Risk-free interest rate		0.95	%		0.45	%
Expected life of options (years)	5.7			5.7

A summary of RSU activity under the 2019 Plan for the nine months ended September 30, 2021 is as follows:


	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Outstanding at December 31, 2020		—		$	—
RSUs Granted		3,829,618			9.68
RSUs Released		(132,540	)		13.96
RSUs Cancelled		(209,208	)		9.96
Outstanding at September 30, 2021		3,487,870		$	9.50

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Scilex Holding Company

Under the Scilex Holding Company 2019 Stock Option Plan, total stock-based compensation expense was $1.5 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively, and $4.3 million and $4.1 million for the nine months ended September 30, 2021 and 2020, respectively. The total unrecognized compensation expense related to unvested stock option grants as of September 30, 2021 was $16.1 million, with a weighted average vesting period of 2.5 years.

Employee Stock Purchase Plan

Total stock-based compensation recorded as operating expense for the Company’s 2020 Employee Stock Purchase Plan was $0.3 million and $0.9 million for the three and nine months ended September 30, 2021, respectively.

CEO Performance Award

Total stock-based compensation recorded as operating expense for the 10-year CEO performance award that was granted to the Company’s chief executive officer in 2020 and tied solely to the Company achieving market capitalization milestones (the “CEO Performance Award”) was $13.1 million and $38.8 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, the Company had approximately $100.7 million of total unrecognized stock-based compensation expense remaining under the CEO Performance Award.

10. Commitments and Contingencies

Litigation

In the normal course of business, the Company may be named as a defendant in one or more lawsuits. Other than as set forth below, the Company is not a party to any outstanding material litigation and management is currently not aware of any legal proceedings that, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.

On April 3, 2019, the Company filed two legal actions against, among others, Patrick Soon-Shiong and entities controlled by him, asserting claims for, among other things, fraud and breach of contract, arising out of Dr. Soon-Shiong’s purchase of the drug Cynviloq™ from the Company in May 2015. The actions allege that Dr. Soon-Shiong and the other defendants, among other things, acquired the drug Cynviloq™ for the purpose of halting its progression to the market. Specifically, the Company has filed:



An arbitration demand with the American Arbitration Association in Los Angeles, California against NantPharma, LLC (“NantPharma”) and Chief Executive Officer Patrick Soon-Shiong, related to alleged fraud and breaches of the Stock Sale and Purchase Agreement, dated May 14, 2015, entered into between NantPharma and the Company, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 7, 2015. On May 24, 2019, NantCell, Inc., Dr. Soon-Shiong and Immunotherapy NANTibody LLC (“NANTibody”) General Counsel Charles Kim filed a motion in the Los Angeles Superior Court to stay or dismiss the Company’s arbitration demand. On October 9, 2019, the Los Angeles Superior Court denied the motion to stay or dismiss the arbitration demand, and the arbitration is ongoing against NantPharma. On March 5, 2020, the Company filed a legal action against Dr. Soon-Shiong in Los Angeles Superior Court, asserting claims for fraudulent inducement and common law fraud, arising out of Dr. Soon-Shiong’s purchase of the drug Cynviloq™ from the Company in May 2015. The action alleges that, among other things, Dr. Soon-Shiong acquired the drug Cynviloq™ for the purpose of halting its progression to the market. In connection with filing this civil action in the Los Angeles Superior Court, where the Company will have the right to a jury trial against Dr. Soon-Shiong, the Company has dismissed Dr. Soon-Shiong from the related, ongoing arbitration against NantPharma; and

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

An action in the Los Angeles Superior Court derivatively on behalf of NANTibody against NantCell, Inc., NANTibody Board Member and NantCell, Inc. Chief Executive Officer Patrick Soon-Shiong, and NANTibody officer Charles Kim, related to several breaches of the June 11, 2015 Limited Liability Company Agreement for NANTibody entered into between the Company and NantCell, Inc. The suit also alleges breaches of fiduciary duties and seeks, inter alia, a declaration that the Assignment Agreement entered into on July 2, 2017, between NantPharma and NANTibody is void and an equitable unwinding of the Assignment Agreement. The suit calls for the restoration of $90.05 million to the NANTibody capital account, thereby restoring the Company’s equity method investment in NANTibody to its invested amount as of June 30, 2017 of $40.0 million. On May 24, 2019, NantCell, Inc. and Dr. Soon-Shiong filed a cross-complaint against the Company and Dr. Henry Ji, seeking unspecified damages, as well as additional punitive damages and specific performance, related to alleged fraud, alleged breaches of the Exclusive License Agreement for certain antibodies (dated June 11, 2015 and entered into between NANTibody, LLC and the Company), and alleged tortious interference with contract. On May 24, 2019, NANTibody and NantPharma filed a new complaint in the action against the Company and Dr. Henry Ji, seeking unspecified damages, as well as additional punitive damages and specific performance, related to alleged fraud, alleged breaches of the Stock Sale and Purchase Agreement, alleged breaches of the Exclusive License Agreement for certain antibodies (dated April 21, 2015 and entered into between NantCell, Inc. and the Company), and alleged tortious interference with contract. On July 8, 2019, the Company and Dr. Henry Ji filed motions to compel the cross-complaint and new action to arbitration. On October 9, 2019, the Los Angeles Superior Court granted the motions to compel to arbitration all of the claims brought by NANTibody, NantCell, Inc. and NantPharma, and denied the motions to compel as to the claims brought by Dr. Soon-Shiong. Subsequently, NANTibody, NantCell, Inc., and NantPharma have re-filed their claims in arbitration with the American Arbitration Association. On May 4, 2020, the Company filed counterclaims against NANTibody and NantPharma related to breaches of the April 21, 2015 and June 11, 2015 Exclusive License Agreements. With the counterclaims, the Company is seeking money damages in an amount yet to be determined. The claims against Dr. Soon-Shiong have been stayed pending resolution of the claims filed in arbitration. The original derivative action is no longer stayed, and the parties are currently engaged in discovery in the suit.

On May 26, 2020, Wasa Medical Holdings filed a putative federal securities class action in the U.S. District Court for the Southern District of California, Case No. 3:20-cv-00966-AJB-DEB, against the Company, its President, Chief Executive Officer and Chairman of the Board of Directors, Henry Ji, Ph.D., and its SVP of Regulatory Affairs, Mark R. Brunswick, Ph.D. The action alleges that the Company, Dr. Ji and Dr. Brunswick made materially false and/or misleading statements to the investing public by publicly issuing false and/or misleading statements regarding STI-1499 and its ability to inhibit the SARS-CoV-2 virus infection and that such statements violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The suit seeks to recover damages caused by the alleged violations of federal securities laws, along with the plaintiffs’ reasonable costs and expenses incurred in the lawsuit, including counsel fees and expert fees. On June 11, 2020, Jeannette Calvo filed a second putative federal securities class action in the U.S. District Court for the Southern District of California, Case No. 3:20-cv-01066-JAH-WVG, against the same defendants alleging the same claims and seeking the same relief. On February 12, 2021, the U.S. District Court for the Southern District of California issued an order consolidating the cases and appointing a lead plaintiff, Andrew Zenoff (“Plaintiff”), and lead counsel. On April 5, 2021, Plaintiff filed a consolidated amended complaint in accordance with the U.S. District Court for the Southern District of California’s scheduling order. Pursuant to that scheduling order, the defendants filed their motion to dismiss on May 20, 2021 and Plaintiff filed its opposition to the motion on July 2, 2021. The defendants’ reply was filed on August 4, 2021. The U.S. District Court for the Southern District of California has taken the motion under submission without oral argument. The Company is defending these matters vigorously.

On July 26, 2021, Sachin Chaudhari filed a verified stockholder derivative complaint in the U.S. District Court for the Southern District of California, Case No. 0723211, against Dr. Ji, Mr. Brunswick, and the Company’s Board of Directors as defendants, and against the Company as a nominal defendant. The action alleges, among other things, that defendants breached their fiduciary duties, violated Section 20(a) of the Securities Exchange Act of 1934, as amended, engaged in waste and were unjustly enriched in connection with the alleged false and misleading statements referenced above. The suit seeks to recover on behalf of the Company those damages caused by the alleged breaches of duty and related claims, along with the plaintiffs’ reasonable costs and expenses incurred in the lawsuit, including counsel fees and expert fees. On July 27, 2021, Michael Sabatina filed a verified stockholder derivative complaint in the Delaware Chancery Court, Case No. 2021-0654 against Dr. Ji and Mr. Brunswick as defendants and against the Company as a nominal defendant alleging the same general claims and seeking the same general relief. Both of these derivative cases have been stayed by their respective courts pending resolution of the motion to dismiss the federal securities class action described above. The Company is defending these matters vigorously.

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Operating Leases

As of September 30, 2021, the Company’s leases have remaining lease terms of approximately 0.8 to 17.1 years, some of which include options to extend the lease terms for up to five years, and some of which allow for early termination. Short-term operating lease costs were immaterial.

Supplemental quantitative information related to leases includes the following (in thousands, except for years and percentages):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Operating cash flows used for operating leases	$	3,208		$	2,531		$	8,081		$	7,354
Right-of-use assets obtained in exchange for new and amended operating lease liabilities	$	39,967		$	1,083		$	40,141		$	1,878
Operating lease expense	$	3,725		$	2,580		$	8,623		$	7,550
Weighted average remaining lease term in years	15.5			8.6			15.5			8.6
Weighted average discount rate		12.8	%		12.2	%		12.8	%		12.2	%

Maturities of lease liabilities were as follows (in thousands):


Years ending December 31,	Operating leases
2021 (Remaining three months)	$	2,567
2022		10,355
2023		10,534
2024		10,520
2025		34,734
Thereafter		115,831
Total lease payments		184,541
Less imputed interest		(92,967	)
Total lease liabilities as of September 30, 2021	$	91,574

On September 23, 2021, the Company entered into a lease agreement with LLJ Sorrento Industrial LLC (the “9151 Rehco Road Lease”), by which the Company will lease premises located at 9151 Rehco Road, San Diego, California. The 9151 Rehco Road Lease has an initial term of 148-months. The 9151 Rehco Road lease commenced in September 2021.

On August 1, 2021, the Company entered into a lease agreement with HCP Life Science REIT, Inc. (the “Landlord”), by which the Company will lease the premises located at 4921 Directors Place, San Diego, California (the "4921 Directors Place Lease"). The 4921 Directors Place Lease has an initial term of 188-months. The 4921 Directors Place lease commenced in August 2021.

On September 1, 2021, the Company entered into a lease agreement with the Landlord (the “4930 Directors Place Lease”), by which the Company will lease the premises located at 4930 Directors Place, San Diego, California. The 4930 Directors Place Lease has an initial term of 188-months and includes approximately 163,205 rentable square feet. The 4930 Directors Place Lease provides for periodic rent increases, and renewal and termination options. The 4930 Directors Place Lease is expected to commence in 2023.

In connection with entry into the lease agreement for the 4930 Directors Place Lease, the Company`s existing lease agreements with the Landlord for 9380 Judicial Drive, 4921 Directors Place, 4955 Directors Place and 4939 Directors Place (the “Other Leases”) were extended to be coterminous with the term of the 4930 Directors Place Lease and the initial rent for the extension period of each of the Other Leases shall be at then current market rates.

11. Income Taxes

The Company maintains deferred tax assets that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These deferred tax assets include net operating loss carryforwards, research credits and temporary differences. In assessing the Company’s ability to realize deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As such, management has determined that it is appropriate to maintain a valuation allowance against the Company’s U.S. federal and state deferred tax assets, with the exception of an amount equal to schedulable deferred tax liabilities.

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The Company’s income tax benefit of $0.5 million and $2.1 million reflect effective tax rates of 0.2% and 0.9% for the nine months ended September 30, 2021 and 2020, respectively. The Company’s income tax expense of $0.4 million and $0.1 million reflect effective tax rates of 0.3% and 0.1% for the three months ended September 30, 2021 and 2020, respectively.

The difference between the expected statutory federal tax rate of 21% and the 0.2% effective tax rate for the nine months ended September 30, 2021 was primarily attributable to income tax expense associated with return to provision adjustments and income tax payments, offset by income tax benefits from stock-based compensation windfall, revaluation of deferred taxes for U.S. state blended effective tax rate adjustments, and changes in the valuation allowance.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 2007 and later are subject to examination by the U.S. and state tax authorities due to the existence of the net operating loss and research credit carryforwards.

12. Loss Per Share

For the three and nine months ended September 30, 2021 and 2020, basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.

The following table sets forth the reconciliation of basic and diluted loss per share for the three and nine months ended September 30, 2021 and 2020 (in thousands except per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Numerator
Net loss attributable to the Company	$	(119,803	)	$	(84,023	)	$	(283,908	)	$	(226,959	)
Net loss attributable to Semnur holders of Scilex Holding	$	—		$	(1,868	)	$	—		$	(8,524	)
Net loss used for diluted earnings per share	$	(119,803	)	$	(85,891	)	$	(283,908	)	$	(235,483	)

Denominator for Basic Loss Per Share		299,276			251,211			290,029			217,050
Potentially dilutive shares of Sorrento common stock issuable upon Semnur Share Exchange		—			6,459			—			6,459
Denominator for Diluted Loss Per Share		299,276			257,670			290,029			223,509
Basic Loss Per Share	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)
Diluted Loss Per Share	$	(0.40	)	$	(0.33	)	$	(0.98	)	$	(1.05	)

The potentially dilutive stock options that were excluded because the effect would have been anti-dilutive for the nine months ended September 30, 2021 and 2020 were 2.9 million and 9.3 million, respectively. The potentially dilutive warrants that were excluded because the effect would have been anti-dilutive for the nine months ended September 30, 2021 and 2020 were 16.0 million and 18.6 million, respectively.

13. Segment Information

The Company operates in two operating and reportable segments, Sorrento Therapeutics and Scilex. With the exception of unrestricted cash balances, the Company’s Chief Operating Decision Maker does not regularly review asset information by reportable segment and, therefore, it does not report asset information by reportable segment. The majority of long-lived assets for both segments are located in the United States.

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The following table presents information about the Company’s reportable segments for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,
	2021									2020
(in thousands)	Sorrento Therapeutics			Scilex			Total			Sorrento Therapeutics			Scilex			Total
External revenues	$	4,537		$	7,525		$	12,062		$	3,927		$	7,826		$	11,753
Operating expenses		97,766			15,683			113,449			82,868			11,989			94,857
Operating loss		(93,229	)		(8,158	)		(101,387	)		(78,941	)		(4,163	)		(83,104	)
Unrestricted cash		35,380			4,355			39,735			71,004			4,172			75,176


	Nine Months Ended September 30,
	2021									2020
(in thousands)	Sorrento Therapeutics			Scilex			Total			Sorrento Therapeutics			Scilex			Total
External revenues	$	17,515		$	22,313		$	39,828		$	9,694		$	18,787		$	28,481
Operating expenses		278,195			48,475			326,670			157,559			44,917		$	202,476
Operating loss		(260,680	)		(26,162	)		(286,842	)		(147,865	)		(26,130	)		(173,995	)
Unrestricted cash		35,380			4,355			39,735			71,004			4,172			75,176

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains “forward-looking statements” about our expectations, beliefs or intentions regarding our potential product offerings, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made and are often identified by the use of words such as “assumes,” “plans,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” or “will,” and similar expressions or variations. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”). Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Overview

Sorrento Therapeutics, Inc., together with its subsidiaries (collectively, the “Company”, “we”, “us”, and “our”) is a clinical stage and commercial biopharmaceutical company focused on delivering innovative and clinically meaningful therapies to address unmet medical needs.

At our core, we are antibody-centric and leverage our proprietary G-MAB™ library and targeted delivery modalities to generate the next generation of cancer therapeutics. Our fully human antibodies include PD-1, PD-L1, CD38, CD123, CD47, BCMA, LAG3, CTLA-4, CD137 and SARS-CoV-2 neutralizing antibodies, among others. We also have programs assessing the use of our technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases.

Our vision is to leverage these antibodies in conjunction with proprietary targeted delivery modalities to generate the next generation of cancer therapeutics. These modalities include proprietary chimeric antigen receptor T-cell therapy (“CAR-T”), dimeric antigen receptor T-cell therapy (“DAR-T™”), antibody drug conjugates (“ADCs”) as well as bispecific antibody approaches. We acquired Sofusa®, a drug delivery technology, in July 2018, which delivers biologics directly into the lymphatic system to potentially achieve improved efficacy and fewer adverse effects than standard parenteral therapy. Additionally, our majority-owned subsidiary, Scilex Holding Company (“Scilex Holding”), acquired the assets of Semnur Pharmaceuticals, Inc. (“Semnur”) in March 2019. Semnur’s SEMDEXATM (“SP-102”) compound has the potential to become the first Food and Drug Administration (“FDA”)-approved epidural steroid product for the treatment of sciatica. In response to the global SARS-CoV-2 (“COVID-19”) pandemic, we are utilizing the Bruton’s tyrosine kinase (“BTK”) inhibitor (Abivertinib, acquired from ACEA Therapeutics, Inc.) in a U.S. Phase II study of cytokine storm associated with a COVID-19 infection and in a Phase II trial in Brazil in mild, moderate and severe COVID-19 patients. We are also internally developing and conducting clinical studies for potential coronavirus antiviral therapies and vaccines, including COVI-MSC™, COVI-AMG™, COVIDROPSTM, COVIGUARDTM and COVISHIELDTM; and diagnostic test solutions, including COVITRACK™, COVISTIX™ and COVITRACE™.

With each of our clinical and preclinical programs, we aim to tailor our therapies to treat specific stages in the evolution of a disease, from elimination, to equilibrium and escape. In addition, our objective in our immuno-oncology programs is to focus on tumors that are resistant to current treatments and where we can design focused trials based on a genetic signature or biomarker to ensure patients have the best chance of a durable and significant response. We have several immuno-oncology programs that are in or near to entering the clinic. These include cellular therapies, oncolytic viruses (SeprehvecTM) and a palliative care program targeted to treat intractable cancer pain (RTX). Our cellular therapy programs focus on CAR-T and DAR-T for adoptive cellular immunotherapy to treat both solid and liquid tumors.

From the start of the COVID-19 pandemic, our mission has been to leverage our deep expertise in developing targeted antibodies for cancer immunotherapy to create best-in-category treatments and diagnostics to ease suffering and assist in the global response to COVID-19. We have leveraged, and continue to leverage, our G-MAB library and antibody development engineering capabilities to advance a number of promising diagnostics and neutralizing antibody candidates to test and treat COVID-19 and the immune reactions associated with SARS-CoV-2 infection.

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Our first generation SARS-CoV-2 neutralizing antibody was STI-1499 (COVIGUARD™), which was engineered to prevent antibody dependent enhancement of disease. This antibody was then optimized to produce the highly potent STI-2020, which is being developed in two outpatient formulations: COVI-AMG (IV-push injection) and COVIDROPS (intranasal). A U.S. Food and Drug Administration (“FDA”)-cleared Phase I study of COVI-AMG has been completed, and the FDA has cleared a Phase II study of COVI-AMG in outpatients with COVID-19 and a Phase II study of COVI-AMG in hospitalized patients with moderate or severe COVID-19. We have also completed an FDA-cleared Phase I study of COVIDROPS of healthy volunteers and are currently enrolling patients with mild COVID-19 in an outpatient study in the UK. We are also developing two promising potential rescue treatments with Abivertinib, an oral next generation dual EGFR/BTK inhibitor, to treat moderate to severe hospitalized COVID-19 patients, and COVI-MSC™, human allogeneic adipose-derived mesenchymal stem cells for patients suffering from COVID-19-induced acute respiratory distress syndrome (ARDS). We have completed enrollment in an FDA-cleared Phase II study for Abivertinib and an FDA-cleared Phase Ib study for COVI-MSC. We are also working with the Brazilian Health Regulatory Agency (ANVISA) to conduct a COVID-19 study with Abivertinib and MSC. The Abivertinib study is fully enrolled and we are awaiting the clinical results, and we also have clearance to begin a Phase II study with COVI-MSC. In other preclinical development, we are rapidly screening new neutralizing antibodies to address the multiple emerging variants of SARS-CoV-2 to potentially combine with STI-2020 (COVI-AMG) in a cocktail therapy (COVISHIELD™). We are also developing a multi-variant mRNA vaccine to potentially provide protection for all of the current variants of concern.

In furtherance of our goal to develop products across the entire continuum of COVID-19 solutions, we are further developing a number of highly sensitive and rapid diagnostic tests. COVISTIX™ is a lateral flow antigen test that uses a proprietary platinum-based colloid and antibody combination, resulting in high sensitivity and accuracy. This is a simple and rapid (15-minute) test with a shallow nasal swab and is designed for point-of-care and at-home use. This product has been approved for use in Mexico as a point-of-care test. COVITRACK™ is a rapid SARS-CoV-2 IgG/IgM antibody test kit intended for use initially in clinical laboratories and in point of care settings to quickly identify individuals with anti-SARS-CoV-2 antibodies post-infection or post-vaccination. COVITRACE™ was licensed from Columbia University as a rapid single step on-site colorimetric detection test for SARS-COV-2 genomic RNA from a saliva sample using targeted nucleic acid amplification for high throughput point-of-care situations.

We have reported early data from Phase I trials of our carcinoembryonic antigen (“CEA”)-directed CAR-T program. We have treated five patients with stage 4, unresectable adenocarcinoma (four with pancreatic and one with colorectal cancer) and CEA-positive liver metastases with anti-CEA CAR-T. We successfully submitted an Investigational New Drug application (“IND”) for anti-CD38 CAR-T for the treatment of refractory or relapsed multiple myeloma (“RRMM”), obtained clearance from the FDA and commenced a human clinical trial for this indication in early 2018. We have dosed eleven patients. We intend to close this study to further enrollment and start up a similar anti-CD38 CAR-T construct without the myc-tag (which cannot be used in Europe), and to continue treating RRMM patients in a Phase Ib/IIa study, which is expected to begin enrollment in the fourth quarter of 2021. We have also received IND clearances from the FDA to start a Phase I trial for our anti-CD47 mAb (STI-6643) in patients with selected relapsed or refractory malignancies, and to start the first Phase I trial for our allogeneic CD38 DAR-T cell therapy in multiple myeloma patients, the first lead clinical candidate from our DAR-T platform.

Broadly speaking, we believe we are one of the world’s leading cell therapy companies today due to our investments in technology and infrastructure, which have enabled significant progress in developing our next-generation non-viral, “off-the-shelf” allogeneic DAR-T solutions. With “off-the-shelf” solutions, DAR-T therapy can truly become a drug product platform rather than a treatment procedure.

With respect to our ADC program, we began enrolling patients in the first quarter of 2021 in a Phase Ib ascending dose study of our CD38 ADC for systemic Amyloid light-chain (AL) amyloidosis and RRMM. An anti-TROP-2 ADC has been approved for clinical trials in China by our partners with a drug payload SN38 (a DNA polymerase inhibitor) (ESG-401) and we have now received FDA authorization to begin clinical trials in the U.S. Additionally, based upon our recently announced exclusive licensing arrangement with Mayo Clinic for its antibody-drug-nanoparticle albumin-bound (ADNAB™) platform, the next generation in ADC technology, we intend to file several INDs to treat various cancer targets.

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Outside of immuno-oncology programs, as part of our global aim to provide a wide range of therapeutic products to meet underserved markets, we have made investments in non-opioid pain management. These include resiniferatoxin (“RTX”), which is a non-opioid-based toxin that specifically targets transient receptor potential vanilloid-1 (“TRPV1”) which, depending on the site of injection, can ablate, or destroy, nerves expressing TRPV1 or temporarily defunctionalize them. TRPV1 is responsible for the noxious chronic and inflammatory pain signaling that occurs post injury or trauma but leaves other nerve functions intact. RTX has been granted orphan drug status for the treatment of intractable pain with end-stage cancer and two Phase Ib trials (intrathecal and epidural routes) have been completed. A Phase Ib trial studying tolerance and efficacy of RTX for the control of moderate to severe osteoarthritis knee pain was initiated in late 2018 and intermediate results have shown efficacy with no dose limiting toxicities. We have received clearances to proceed with Phase II clinical trials of RTX for treating severe cancer pain (epidural) and for treating moderate-to-severe osteoarthritis of the knee pain (intra-articular). Both trials are expected to commence in 2021 and enrollment in both trials is expected to be completed in 2022.

Also, in this area, we have developed in-house and acquired proprietary technologies to responsibly develop next generation, branded pharmaceutical products to better manage patients’ medical conditions, maximize the quality of life of patients and assist healthcare providers. The flagship product of our majority-owned subsidiary, Scilex Pharmaceuticals Inc. (“Scilex Pharma”), ZTlido® (lidocaine topical system 1.8%) (“ZTlido”), is a next-generation lidocaine delivery system, which was approved by the FDA for the treatment of postherpetic neuralgia, a severe neuropathic pain condition in February 2018, and was commercially launched in October 2018. Scilex Pharma has now built a full commercial organization, which includes sales, marketing, market access and medical affairs.

Impact of COVID-19 on Our Business

We are closely monitoring the COVID-19 pandemic and its potential impact on our business. In an effort to protect the health and safety of our employees, we took proactive action from the earliest signs of the outbreak, including implementing social distancing policies at our facilities, facilitating remote working arrangements and imposing employee travel restrictions.

For more information on the risks associated with COVID-19, refer to Part II, Item 1A, “Risk Factors” herein.

Recent Developments

Acquisition of ACEA Therapeutics, Inc.

On June 1, 2021, we completed the acquisition of ACEA Therapeutics, Inc. (“ACEA”) pursuant to the terms of the Agreement and Plan of Merger (the “ACEA Merger Agreement”), dated as of April 2, 2021, by and among us, AT Merger Sub, Inc., an exempted company incorporated with limited liability in the Cayman Islands and our wholly owned subsidiary, ACEA and Fortis Advisors LLC, as representative of the shareholders of ACEA, whereby ACEA became our wholly owned subsidiary. With operations in both China and the United States, ACEA is developing multiple clinical and preclinical-stage new chemical entity compounds, including the late clinical drug candidate, Abivertinib.

The total value of the consideration paid by us for the acquisition of ACEA was equal to $38.0 million plus approximately $1.9 million (which amount represented our agreed upon share of certain interest, fees and other expenses) resulting in an aggregate payment of approximately $39.9 million (which amount is subject to further adjustment for indebtedness, transaction expenses and cash, in each case pursuant to the terms of the ACEA Merger Agreement) (the “Closing Consideration”). Pursuant to the terms of the ACEA Merger Agreement, a portion of the Closing Consideration equal to (i) $38,059,326 was used to repay certain existing indebtedness of ACEA, which amount was paid to the holders thereof in the form of shares of our common stock and an aggregate of 5,519,469 shares (“Indebtedness Shares”) of our common stock were issued in respect thereof based on a price per share equal to $6.8955 (representing the volume weighted average closing price per share of Common Stock, as reported on The Nasdaq Stock Market LLC, for the 10 consecutive trading days ending on the date that was three trading days prior to the Closing Date) and (ii) $100,000 was set aside for expenses incurred by the shareholders’ representative thereunder. The Indebtedness Shares are subject to a true-up, as set forth in the ACEA Merger Agreement, if the price at which such shares were issued is greater than the closing price of our common stock on the date that is six months after June 1, 2021.

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In addition to the Closing Consideration, we will pay the ACEA equityholders (i) up to $450.0 million in additional payments, subject to the receipt of certain regulatory approvals and achievement of certain net sales targets with respect to the assets acquired from ACEA and (ii) five to ten percent of the annual net sales on specified royalty-bearing products (the “Earn-Out Consideration”). The fair value of the Earn-Out Consideration on the acquisition date was preliminarily estimated to be $186.1 million. The amount referenced in clause (i) of the preceding sentence includes the amounts that would have otherwise been due to ACEA under that certain License Agreement, dated July 13, 2020, between us and ACEA, which agreement was terminated in its entirety upon completion of the acquisition of ACEA.

The preliminary purchase price allocation was calculated based on an upfront consideration of $44.1 million, which was based on our closing share price on June 1, 2021. The ACEA Merger Agreement resulted in an upfront consideration of $44.1 million in net identifiable assets of approximately $230.2 million, which includes separate and distinct intangible assets comprised of acquired in-process research and development of $250.4 million, goodwill of $9.3 million, fair value of debt assumed of approximately $32.1 million and other net assets of approximately $2.6 million. The purchase price allocation is preliminary as we are still completing the valuation of the intangible assets, contingent consideration, taxes, the fair value of debt assumed and other net assets, changes to which may also increase or decrease the amount of goodwill recognized. Goodwill largely reflects the broad-spectrum and synergistic infrastructures and expertise in pharmaceutical and biological drug discovery, development and manufacturing, and expanded geographic coverage in China and North America. Goodwill is not deductible for tax purposes. Acquisition costs were recognized as incurred and compensation expense associated with pre-merger option awards was recognized for post-combination services. Results of operations since the date of acquisition were not material. Customary tax related matters such as the filing of pre-acquisition tax returns are subject to finalization as of September 30, 2021, and such matters may result in adjustments to the purchase price allocation.

We are still in the process of finalizing the working capital adjustments and the purchase price allocation, given the timing of the acquisition and the size and scope of the assets and liabilities subject to valuation. While we do not expect material changes in the valuation outcome, certain assumptions and findings that were in place at the date of acquisition could result in changes in the purchase price allocation.

Results of Operations

Comparison of the Three Months Ended September 30, 2021 and 2020

Revenues. Revenues were $12.1 million for the three months ended September 30, 2021, as compared to $11.8 million for the three months ended September 30, 2020.

Revenues in our Sorrento Therapeutics segment increased from $3.9 million to $4.5 million for the three months ended September 30, 2021 compared to the same quarter of the prior year and were primarily attributed to higher contract manufacturing service revenues.

Revenues in our Scilex segment decreased from $7.8 million to $7.5 million for the three months ended September 30, 2021 compared to the same period of the prior year. The decrease is attributed to higher gross-to-net provisions for Medicaid utilization related to sales of ZTlido.

Cost of revenues. Cost of revenues for the three months ended September 30, 2021 and 2020 were $3.4 million and $2.7 million, respectively, and relate to product sales, the sale of customized reagents and providing contract manufacturing services. These costs generally include employee-related expenses, including salary and benefits, direct materials and overhead costs including rent, depreciation, utilities, facility maintenance and insurance.

Cost of revenues for our Sorrento Therapeutics segment increased by $0.1 million and was driven by the increase in revenues.

Cost of revenues for our Scilex segment increased by $0.6 million and was attributed to higher provisions for excess inventories.

Research and Development (“R&D”) Expenses. R&D expenses for the three months ended September 30, 2021 and 2020 were $49.4 million and $32.0 million, respectively. R&D expenses primarily include expenses associated with isolating and advancing human antibody drug candidates derived from our libraries, as well as advancing our RTX, COVID-19, SP-102, oncolytic viruses, ADC and oncology programs. Such expenses consist primarily of salaries and personnel-related expenses, stock-based compensation expense, clinical development expenses, preclinical testing, lab supplies, consulting costs, depreciation and other expenses.

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R&D expenses for our Sorrento Therapeutics segment increased by $18.2 million as compared to the same quarter of the prior year and were driven by higher headcount and increased clinical development costs spent on advancing our various R&D programs.

R&D expenses for our Scilex segment decreased by $0.7 million as compared to the same quarter of the prior year and were driven by lower clinical development costs.

Acquired In-process Research and Development Expenses. Acquired in-process research and development expenses during the three months ended September 30, 2021 totaled $11.1 million, of which $10.2 million related to our investment in Deverra Therapeutics, Inc. during the period as further described in Note 4 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and $0.9 million related to investments in various licensing arrangements entered during the period.

Acquired in-process research and development expenses during the three months ended September 30, 2020 totaled $34.8 million and related to various licensing arrangements entered into during the period.

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses for the three months ended September 30, 2021 and 2020 were $48.5 million and $24.3 million, respectively, and consisted primarily of salaries and personnel-related expenses, stock-based compensation expense, professional fees, infrastructure expenses, legal and other general corporate expenses.

SG&A expenses for our Sorrento Therapeutics segment increased by approximately $20.4 million and were primarily attributed to higher headcount, professional fees and stock-based compensation expense as compared to the same quarter of the prior year.

SG&A expenses for our Scilex segment increased by approximately $3.8 million and were attributed to higher professional fees.

Loss on Derivative Liabilities. Loss on derivative liabilities for the three months ended September 30, 2021 was $1.8 million compared to a loss of $1.0 million in the same quarter in 2020 and was primarily attributed to revised probabilities and revised sales forecasts as further described in Note 3 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Loss on Marketable Investments. Loss on marketable investments reflects $6.4 million of realized losses from the sale of our shares of ImmunityBio, Inc. during the period and $7.7 million in unrealized losses related to the change in fair value of our shares of Celularity Inc. We recorded approximately $0.7 million in unrealized gains related to other investments during the period.

Interest Expense, net. Interest expense for the three months ended September 30, 2021 and 2020 was $2.9 million and $2.6 million, respectively. The decrease resulted primarily from a decrease in interest expense associated with the term loans with Oaktree Capital Management L.P. and affiliates (the “Oaktree Term Loans”), which were fully repaid in the year ended December 31, 2020. Interest income was immaterial for both periods.

Income Tax Expense. Income tax expense for the three months ended September 30, 2021 was $0.4 million as compared to $0.1 million for the three months ended September 30, 2020. The increase in income tax expense was primarily attributable to return to provision adjustments and income tax payments, offset by income tax benefits from stock-based compensation windfall, revaluation of deferred taxes for U.S. state blended effective tax rate adjustments, and changes in valuation allowance.

Net Loss. Net loss for the three months ended September 30, 2021 and 2020 was $120.0 million and $87.1 million, respectively.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Revenues. Revenues were $39.8 million for the nine months ended September 30, 2021, as compared to $28.5 million for the nine months ended September 30, 2020.

Revenues in our Sorrento Therapeutics segment increased from $9.7 million to $13.0 million for the nine months ended September 30, 2021, compared to the same period of the prior year and were primarily attributed to higher contract manufacturing service revenues.

Revenues in our Scilex segment increased from $18.8 million to $22.3 million for the nine months ended September 30, 2021 compared to the same period of the prior year and were attributed to increased product sales of ZTlido.

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Cost of revenues. Cost of revenues for the nine months ended September 30, 2021 and 2020 were $9.9 million and $7.4 million, respectively, and relate to product sales, the sale of customized reagents and providing contract manufacturing services. These costs generally include employee-related expenses including salary and benefits, direct materials and overhead costs including rent, depreciation, utilities, facility maintenance and insurance.

Cost of revenues for our Sorrento Therapeutics segment increased by $1.8 million and was driven by the increase in revenues.

Cost of revenues for our Scilex segment increased by $0.8 million and was attributed to higher sales volumes of ZTlido.

R&D Expenses. R&D expenses for the nine months ended September 30, 2021 and 2020 were $147.8 million and $77.3 million, respectively. R&D expenses primarily include expenses associated with isolating and advancing human antibody drug candidates derived from our libraries, as well as advancing our RTX, COVID-19, SP-102, oncolytic viruses, ADC and oncology programs. Such expenses consist primarily of salaries and personnel-related expenses, stock-based compensation expense, clinical development expenses, preclinical testing, lab supplies, consulting costs, depreciation and other expenses.

R&D expenses for our Sorrento Therapeutics segment increased by $71.0 million as compared to the same period of the prior fiscal year and were primarily driven by higher headcount and increased clinical development costs spent on advancing our various R&D programs.

R&D expenses for our Scilex segment decreased by $0.5 million as compared to the same period of the prior fiscal year and were primarily driven by lower clinical development cost.

Acquired In-process Research and Development Expenses. Acquired in-process research and development expenses for the nine months ended September 30, 2021 totaled $23.6 million and related to the Aardvark Asset Purchase Agreement and the entry into the Mount Sinai License Agreement during the period as further described in Note 6 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Additionally, $10.2 million related to our investment in Deverra Therapeutics, Inc. during the period as further described in Note 4 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and $0.9 million related to our investments in various licensing arrangements entered into during the period. Acquired in-process research and development expenses for the nine months ended September 30, 2020 totaled $39.7 million and primarily related to various licensing arrangements entered into during the period, as well as other investments in new technologies and preclinical programs.

SG&A Expenses. SG&A expenses for the nine months ended September 30, 2021 and 2020 were $142.3 million and $75.0 million, respectively, and consisted primarily of salaries and personnel-related expenses, stock-based compensation expense, professional fees, infrastructure expenses, legal and other general corporate expenses.

SG&A expenses for our Sorrento Therapeutics segment increased by approximately $63.9 million and were primarily attributed to higher headcount and stock-based compensation expense as compared to the same period of the prior year.

SG&A expenses for our Scilex segment increased by approximately $3.3 million and were primarily attributed to cost savings resulting from a shift to more favorable marketing programs for ZTlido and optimizing the sales force, partially offset by higher selling expenses to support higher sales volumes of ZTlido.

Gain on Derivative Liabilities. Gain on derivative liabilities for the nine months ended September 30, 2021 was $0.1 million compared to a gain of $5.9 million in the same period in 2020 and was primarily attributed to revised probabilities and revised sales forecasts as further described in Note 3 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain on Marketable Investments. Gain on marketable investments reflects $24.1 million of realized gains from the sale of our shares of ImmunityBio, Inc. during the period and $7.7 million in unrealized losses related to the change in fair value of our shares of Celularity Inc. We recorded approximately $0.7 million in unrealized gains related to other investments during the period.

Loss on Debt Extinguishment. Loss on debt extinguishment for the nine months ended September 30, 2021 was $6.7 million and was primarily attributed to the repurchases of the outstanding principal on the Scilex Notes, and was partially offset by short-term debt forgiveness. Loss on debt extinguishment for the nine months ended September 30, 2020 was $51.9 million and was attributed to the repayments of outstanding principal on the Oaktree Term Loans.

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Interest Expense. Interest expense for the nine months ended September 30, 2021 and 2020 was $7.3 million and $17.7 million, respectively. The decrease resulted primarily from a decrease in interest expense associated with the Oaktree Term Loans, which were fully repaid in the year ended December 31, 2020. Interest income was immaterial for both periods.

Income Tax Benefit. Income tax benefit for the nine months ended September 30, 2021 and 2020 was $0.5 million and $2.1 million, respectively. The decrease in income tax benefit was primarily attributable to return to provision adjustments and income tax payments, offset by income tax benefits from stock-based compensation windfall, revaluation of deferred taxes for U.S. state blended effective tax rate adjustments, and changes in valuation allowance.

Net Loss. Net loss for the nine months ended September 30, 2021 and 2020 was $284.3 million and $241.3 million, respectively.

Liquidity and Capital Resources

As of September 30, 2021, we had $39.7 million in cash and cash equivalents attributable in part to the following financing arrangements:

Debt Financings

ACEA Significant Debt Arrangements

At the closing of the transactions contemplated by the ACEA Merger Agreement and as a result thereof, on June 1, 2021, we, as the indirect parent to Hangzhou ACEA Pharmaceutical Research Co., Ltd. (“ACEA Hangzhou”) and Zhejiang ACEA Pharmaceutical Co., Ltd. (“ACEA Zhejiang”), each of which are indirect subsidiaries of ACEA, succeeded to the financial obligations of ACEA Hangzhou and ACEA Zhejiang, each of whom are parties to agreements with ACEA Bio (Hangzhou) Co., Ltd. (“ACEA Bio”) (an entity unrelated to ACEA Hangzhou and ACEA Zhejiang) as set forth below.

The outstanding principal amount under the Contract and Loan Agreement as of September 30, 2021 is $30.4 million. As a part of the preliminary purchase price allocation, we estimated the fair value of the Contract and Loan Agreement to be approximately $17.1 million.

Scilex Notes

In September 2018, Scilex Pharma entered into purchase agreements (the “2018 Purchase Agreements”) with certain investors (collectively, the “Scilex Note Purchasers”) and us. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million (the “Scilex Notes Offering”). In connection with the Scilex Notes Offering, Scilex Pharma also entered into an Indenture (the “Indenture”) governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee and collateral agent, and us. Pursuant to the Indenture, we agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Indenture.

On December 14, 2020, we, Scilex Pharma, U.S. Bank National Association, as trustee and collateral agent, and the beneficial owners of the Scilex Notes and the Scilex Note Purchasers entered into a Consent Under and Amendment No. 3 to Indenture and Letter of Credit (the “Amendment”), which amended: (i) the Indenture, and (ii) the irrevocable standby letter of credit that we issued to Scilex Pharma in connection with the Indenture.

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On December 14, 2020, and in connection with the Amendment, the aggregate $45.0 million in restricted funds held in previously established reserve and collateral accounts were released and Scilex Pharma utilized such funds to repurchase an aggregate of $45.0 million in principal amount of the Scilex Notes. Scilex Pharma also repurchased $20.0 million in principal amount of the Scilex Notes in each of December 2020, February 2021 and April 2021.

Equity Financings

Amended Sales Agreement

On December 4, 2020, we entered into Amendment No. 1 to that certain Sales Agreement, dated April 27, 2020, with A.G.P./Alliance Global Partners, which provides that we may, from time to time, offer and sell securities to A.G.P./Alliance Global Partners in at-the-market transactions (as amended, the “Amended Sales Agreement”). During the nine months ended September 30, 2021, we issued and sold an aggregate of 14,844,426 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds of approximately $134.9 million. Subsequent to September 30, 2021 and through November 2, 2021, we sold an aggregate of 3,863,371 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to us of approximately $25.2 million.

Marketable Investments

On March 9, 2021, NantKwest, Inc. and ImmunityBio completed their previously announced 100% stock-for-stock merger (the “Merger”). The combined company operates under the name ImmunityBio, Inc. and its shares of common stock commenced trading on the Nasdaq Global Select Market on March 10, 2021 under the new ticker, “IBRX”. The former stockholders of ImmunityBio were entitled to receive 0.8190 shares of common stock of the combined company for each outstanding share of ImmunityBio common stock held immediately prior to the Merger. Prior to the closing of the Merger, we owned 10,000,000 shares of common stock of ImmunityBio, and we therefore received 8,190,000 shares of common stock of the post-merger company.

Prior to the Merger, our investment in ImmunityBio was historically included as an equity investment in our consolidated balance sheets and accounted for as an equity security without a readily determinable fair value. As of the completion of the Merger, we accounted for our investment in ImmunityBio as an equity investment with a readily determinable fair value and reclassified our investment in ImmunityBio to marketable investments within our consolidated balance sheets. The investment in ImmunityBio was classified as a current asset because the investment was liquidated to finance our current operations. In connection with the change in fair value of our investment in ImmunityBio, we recorded a realized loss on marketable investments of $6.4 million during the three months ended September 30, 2021 and a realized gain on marketable investments of $24.1 million during the nine months ended September 30, 2021. We sold 8,190,000 shares of ImmunityBio common stock during the nine months ended September 30, 2021 for net proceeds to us of $124.0 million. We had no remaining shares of ImmunityBio common stock as of September 30, 2021.

On July 16, 2021, Celularity Inc. (“Pre-Merger Celularity”), a company of which we held an equity interest, completed its previously announced merger with GX Acquisition Corp. (the “Celularity Merger”). Following the completion of the Celularity Merger, the combined, publicly traded company formerly known as GX Acquisition Corp. was named Celularity Inc. (“Celularity”) and its Class A common stock commenced trading on the Nasdaq Capital Market on July 19, 2021 under the ticker “CELU”. In connection with the Celularity Merger, all outstanding shares of Series A Preferred Stock of Pre-Merger Celularity were converted into shares of Pre-Merger Celularity common stock and then each share of Pre-Merger Celularity common stock was converted into the right to receive shares of Class A common stock of the post-merger company. We received 19,922,124 shares of Class A common stock of the post-merger company in the Celularity Merger. We also purchased an aggregate of 500,000 shares of Class A common stock of Celularity for an aggregate purchase price of $5,000,000 in a private placement transaction that closed on July 16, 2021 concurrently with the closing of the Celularity Merger. Our investment in Celularity has historically been accounted for as an equity security without a readily determinable fair value. As of the trading commencement date, we account for our investment in Celularity as an equity security with a readily determinable fair value. As of September 30, 2021, we owned 20,422,124 shares of Class A common stock of Celularity. 19,922,124 shares of the Class A Common Stock of Celularity held by us are subject to transfer restrictions until the earliest to occur of (i) 365 days after July 16, 2021; (ii) the first day after the date on which the closing price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after July 16, 2021; or (iii) the date on which Celularity completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of Celularity’s public shareholders having the right to exchange their Class A Common Stock for cash, securities or other property, subject to certain exceptions.

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Contingent Consideration

We have contingent consideration obligations in connection with certain acquisition and licensing transactions that are contingent upon achieving certain specified milestones or the occurrence of certain events, including those described within the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Upon the achievement of such milestones or the occurrence of such events, we will be obligated to make certain cash or stock payments in accordance with the terms of such acquisition and license agreements.

Use of Cash

Cash Flows from Operating Activities. Net cash used for operating activities was $209.7 million for the nine months ended September 30, 2021 as compared to $118.7 million for the nine months ended September 30, 2020. Net cash used reflects the cash spent on our research activities and cash spent to support the commercial launch of our products.

We expect to continue to incur substantial and increasing losses and negative net cash flows from operating activities as we seek to expand and support our clinical and preclinical development and research activities, support the commercial launch of our products and fund our joint ventures, collaborations and other third-party agreements.

Cash Flows from Investing Activities. Net cash used by investing activities was $82.1 million for the nine months ended September 30, 2021, and was attributed to proceeds of $124.1 million from sales of marketable investments, partially offset by $34.6 million related to various investments in new technologies and preclinical programs, $0.8 million in connection with the acquisition of ACEA, net of cash acquired, and approximately $6.7 million primarily attributed to expenditures on laboratory equipment. During the nine months ended September 30, 2020, net cash used by investing activities was $28.5 million, which was comprised of $22.3 million in licensing arrangements, $2.3 million in new technologies and preclinical programs and $3.8 million on equipment and building improvements.

Cash Flows from Financing Activities. Net cash provided by financing activities was $110.5 million for the nine months ended September 30, 2021 as compared to net cash provided by financing of $185.8 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, we received $134.9 million from equity offerings, proceeds from short-term debt of $35.1 million and proceeds of $13.3 million from common stock issuances and warrant exercises. During the nine months ended September 30, 2021, we repaid $44.2 million in principal amount of the Scilex Notes, of which $32.4 million was attributed to principal included within financing activities and $11.8 million was attributed to principal included in operating activities. We also repaid $40.3 million in other short-term debt. During the nine months ended September 30, 2020, we repaid $120.0 million of outstanding principal under the Term Loans, paid $6.3 million of related exit and prepayment fees thereon, made payments of $3.5 million on the Scilex Notes and repaid $3.0 million in short-term debt.

Future Liquidity Needs. We have principally financed our operations through underwritten public offerings and private debt and equity financings, as we have not generated any significant product related revenue from our principal operations to date. We will need to raise additional capital before we exhaust our current cash resources in order to continue to fund our research and development, including our plans for clinical and preclinical trials and new product development, as well as to fund operations generally. We will seek to raise additional funds through various potential sources, such as equity and debt financings or through corporate collaboration, grant agreements and license agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. These conditions, among others, raise substantial doubt about our ability to continue as a going concern.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we issue additional equity securities to raise funds, the ownership percentage of existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of common stock. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available.

We anticipate that we will continue to incur net losses into the foreseeable future as we: (i) advance our product pipeline and other product candidates into clinical trials, (ii) continue our development of, and seek regulatory approvals for, our product candidates in clinical trials, (iii) expand our corporate infrastructure, and (iv) incur our share of joint venture and collaboration costs for our products and technologies.

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Uses of Cash. We have and plan to expand our business and intellectual property portfolio through the acquisition of new businesses and technologies as well as entering into licensing arrangements.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to debt, derivative liabilities, revenue recognition, leases, contingent liabilities and acquisition consideration payable, income taxes and stock-based compensation. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and there have been no material changes during the three months ended September 30, 2021.

Contractual Obligations and Commitments

As of September 30, 2021, there were no material changes outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Off-Balance Sheet Arrangements

Since our inception through September 30, 2021, other than off-balance sheet arrangements already disclosed, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

New Accounting Pronouncements

Refer to Note 1, “Significant Accounting Policies” and “Recent Accounting Pronouncements” in the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk. Our exposure to market risk is confined to our cash and cash equivalents and debt. We have cash and cash equivalents and invest primarily in high-quality money market funds, which we believe are subject to limited credit risk. Due to the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. We do not believe that we have any material exposure to interest rate risk arising from our investments and we do not use derivative financial instruments to hedge against interest rate risk.

We are not subject to interest rate risk on the Scilex Notes associated with our 2018 Purchase Agreements as repayment of the Scilex Notes is determined by projected net sales as further discussed in Note 7 of the accompanying notes consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. For the Scilex Notes, changes in interest rates will generally affect the fair value of the debt instrument, but not our earnings or cash flows.

Capital Market Risk. We currently do not have significant revenues from grants or sales and services and we have no product revenues from our planned principal operations and therefore depend on funds raised through other sources. One source of funding is through future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price.

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Beginning in 2021, we held investments in equity securities with readily determinable fair values, which are included as current marketable and equity investments within our consolidated balance sheets. Our investment in these publicly traded equity securities are recorded at fair value and are subject to market price volatility. Changes in the fair value of such investments are recorded in our consolidated statement of operations within gain (loss) on marketable investments and gain (loss) on equity investments. A portion of our equity investments is subject to certain transfer restrictions and is adjusted for a discount for lack of marketability as further discussed in Note 3 and in Note 4 of the accompanying notes consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. As of September 30, 2021, a price change of 10 percent would increase or decrease the fair value of our current marketable and equity investments by approximately $12.3 million in the aggregate.

Concentration Risk. During the fiscal years ended December 31, 2020, 2019 and 2018, sales to the sole customer and third-party logistics distribution provider of Scilex Pharma, Cardinal Health, represented 100% of the net revenue of Scilex Pharma. This exposes us to concentration of customer risk. We monitor the financial condition of the sole customer of Scilex Pharma, limit our credit exposure by setting credit limits, and did not experience any credit losses for the years ended December 31, 2020, 2019 and 2018. As we continue to expand the commercialization of ZTlido, we are not limited to the current customer and have the option of expanding our distribution network with additional distributors through establishing our own affiliates, by acquiring existing third-party business or product rights or by partnering with additional third parties.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such terms are defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance. As a result, management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation performed, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we carried out an evaluation of any potential changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q. There has been no change to our internal control over financial reporting during our most recent fiscal quarter that our certifying officers concluded materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The information under the caption “Litigation” set forth in Note 10 in the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, 2020, Part I –Item 1A, Risk Factors, describes important risk factors that could cause our business, financial condition, results of operations and growth prospects to differ materially from those indicated or suggested by forward-looking statements made in this Quarterly Report on Form 10-Q or presented elsewhere by management from time to time. Except as set forth below, there have been no material changes in our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2020. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.

Risks Related to Our Financial Position and Capital Requirements

We are a clinical stage company subject to significant risks and uncertainties, including the risk that we or our partners may never develop, obtain regulatory approval or market any of our product candidates or generate product related revenues.

We are primarily a clinical and commercial stage biotechnology company that began operating and commenced research and development activities in 2009. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. There is no assurance that our libraries of fully-human mAbs or any of our other product candidates in development will be suitable for diagnostic or therapeutic use, or that we will be able to identify and isolate therapeutic product candidates, or develop, market and commercialize these candidates. We do not expect any of our product candidates in development, including, but not limited to, our fully-human mAbs, biosimilars/biobetters, fully human anti-PD-L1 checkpoint inhibitors derived from our proprietary G-MAB™ library platform, antibody drug conjugates (“ADCs”), bispecific antibodies (“BsAbs”), as well as Chimeric Antigen Receptor T Cells (“CAR-T”) and Dimeric Antigen Receptor T Cells (“DAR-T”) for adoptive cellular immunotherapy, resiniferatoxin (“RTX”), higher strength lidocaine topical system (SP-103) and non-opioid corticosteroid formulated as a viscous gel injection (SP-102) (“SEMDEXATM”) to be commercially available for a few years, if at all. Additionally, our COVID-19 related product candidates, including STI-1499 (neutralizing antibody; COVIGUARD TM), STI-2020 (affinity matured neutralizing antibody; COVI-AMG TM), STI-2099 (intranasal affinity matured neutralizing antibody; COVIDROPS TM), neutralizing antibody cocktail (COVISHIELD TM), STI-5656 (Abivertinib), STI-8282 (allogeneic adipose-derived mesenchymal stem cells; COVI-MSC TM), serological IgM/IgG antibody diagnostic test (COVITRACKTM), saliva-based antigen diagnostic test for SARS-CoV-2 (COVITRACE TM) and lateral flow viral antigen diagnostic test for SARS-CoV-2 (COVISTIX TM), are subject to uncertainties relating to product development, regulatory approval and commercialization, and further risks based on the constantly evolving situation affecting the United States and the international community. Even if we are able to commercialize our product candidates, there is no assurance that these candidates would generate revenues or that any revenues generated would be sufficient for us to become profitable or thereafter maintain profitability.

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We have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.

As of September 30, 2021 and December 31, 2020, we had an accumulated deficit of $1,242.2 million and $958.3 million, respectively. We continue to incur significant research and development and other expenses related to our ongoing operations. We have incurred operating losses since our inception, expect to continue to incur significant operating losses for the foreseeable future, and we expect these losses to increase as we: (i) advance RTX, STI-6129 (anti-CD38 ADC), SP-103, SEMDEXATM and our other product candidates, including our COVID-19 related product candidates, STI-2020 (COVI-AMGTM), STI-2099 (COVIDROPSTM), STI-8282 (COVI-MSCTM) and STI-5656 (Abivertinib), into further clinical trials and pursue other development, acquire, develop and manufacture clinical trial materials and increase other regulatory operating activities, (ii) conduct further studies for our preclinical COVID-19 related product candidates, including a neutralizing antibody cocktail (COVISHIELDTM), to advance to clinical trials and seek regulatory approval; (iii) incur incremental expenses associated with our efforts to further advance a number of potential product candidates into preclinical development activities, (iv) continue to identify and advance a number of fully human therapeutic antibody and ADC preclinical product candidates, (v) incur higher salary, lab supply and infrastructure costs incurred in connection with supporting all of our programs, (vi) invest in our joint ventures, collaborations or other third party agreements, (vii) incur expenses in conjunction with defending and enforcing our rights in various litigation matters, (viii) expand our corporate, development and manufacturing infrastructure, and (ix) support our subsidiaries, including Scilex Holding Company, Adnab, Inc., ACEA Therapeutics, Inc. and SmartPharm Therapeutics, Inc., in their clinical trial, development and commercialization efforts. As such, we are subject to all risks incidental to the development of new biopharmaceutical products and related companion diagnostics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization of our product candidates or continue our development programs.

Our operations have consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development of our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including building our own commercial organization to address certain markets. We will require additional capital for the further development and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures.

As a result of our recurring losses from operations, recurring negative cash flows from operations and substantial cumulative losses, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial statements for the year ended December 31, 2020 included a “going concern” explanatory paragraph indicating that our recurring losses from operations, negative working capital, recurring negative cash flows from operations and substantial cumulative net losses raise substantial doubt about our ability to continue as a going concern.

We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events could significantly harm our business, financial condition and prospects.

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

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the progress of the development of our fully-human mAbs, including biosimilars/biobetters, fully human anti-PD-L1 checkpoint inhibitors derived from our proprietary G-MAB™ library platform, ADCs, BsAbs, CAR-T and DAR-T for adoptive cellular immunotherapy, RTX, SP-103 and SEMDEXATM, and our COVID-19 product candidates;

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the number of product candidates we pursue;

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our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

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the time and costs involved in obtaining regulatory approvals;

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the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;

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our plans to establish sales, marketing and/or manufacturing capabilities;

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the effect of competing technological and market developments;

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the terms and timing of any collaborative, licensing and other arrangements that we may establish;

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general market conditions for offerings from biopharmaceutical companies;

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our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization;

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our obligations under our debt arrangements;

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the time and costs involved in defending and enforcing our rights in various litigation matters;

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our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

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the effect of the COVID-19 pandemic; and

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our revenues, if any, from successful development and commercialization of our product candidates, including ZTlido.

In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise additional funds through strategic collaborations, licensing arrangements, joint ventures, public or private equity or debt financing, bank lines of credit, asset sales, government grants or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us, or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our product candidates or marketing territories.

In addition, as discussed in the risk factor under the heading “The terms of our outstanding debt place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business” in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2020, the Scilex Indenture includes negative covenants that place limitations on the following: the incurrence of debt, the payment of dividends by Scilex Pharmaceuticals Inc. (“Scilex Pharma”), the repurchase of shares and, under certain conditions, making certain other restricted payments, the prepayment, redemption or repurchase of subordinated debt, a merger, amalgamation or consolidation involving Scilex Pharma, engaging in certain transactions with affiliates; and the making of investments other than those permitted by the Scilex Indenture.

Our inability to raise capital when needed would harm our business, financial condition and results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.

Our portfolio of marketable securities is subject to market, interest and credit risk that may reduce its value.

We maintain a portfolio of marketable securities. Changes in the value of our portfolio of marketable securities could adversely affect our earnings. In particular, the value of our investments may decline due to increases in interest rates, downgrades of the bonds and other securities included in our portfolio, instability in the global financial markets that reduces the liquidity of securities included in our portfolio, declines in the value of collateral underlying the securities included in our portfolio and other factors. In addition, the COVID-19 pandemic has and may continue to adversely affect the financial markets in some or all countries worldwide. Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio’s overall risk profile, the value of our investments may nevertheless decline.

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Risks Related to Our Business and Industry

We face potential business disruptions and related risks resulting from the COVID-19 pandemic, which could have a material adverse effect on our business, financial condition and results of operations.

In December 2019, a novel strain of coronavirus, or SARS-CoV-2, was reported to have surfaced in Wuhan, China. SARS-CoV-2 is the virus that causes COVID-19. The COVID-19 outbreak has grown into a global pandemic that has impacted Asia, the United States, Europe and other countries throughout the world. Financial markets have been experiencing extreme fluctuations that may cause a contraction in available liquidity globally as important segments of the credit markets react to the development. The pandemic may lead to a decline in business and consumer confidence. The global outbreak of COVID-19 continues to rapidly evolve. As a result, businesses have closed and limits have been placed on travel. The extent to which COVID-19 may impact our business, clinical trials and sales of ZTlido will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

We are monitoring the potential impact of the COVID-19 outbreak, and if COVID-19 continues to spread globally, including in the United States, we may experience disruptions that could severely impact the development of our product candidates, including:

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delays or difficulties in enrolling patients in our clinical trials as patients may be reluctant, or unable, to visit clinical sites;

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delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators, clinical site staff and potential closure of clinical facilities;

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decreases in patients seeking treatment for chronic pain;

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delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

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delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;

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changes in local regulations as part of a response to the COVID-19 outbreak, which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

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diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

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risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;

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delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and

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interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others.

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Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party suppliers in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain. Any manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testing activities. For example, we obtain our commercial supply of ZTlido and our clinical supply of SP-103 exclusively from Oishi and Itochu in Japan. The COVID-19 pandemic may result in delays in the procurement and shipping of ZTlido, which may have an adverse impact on our operating results.

On September 24, 2021, the Safer Federal Workforce Task Force issued written guidance to implement Executive Order 14042 (“Ensuring Adequate COVID Safety Protocols for Federal Contractors”), which was signed by President Biden on September 9, 2021. As a federal contractor, we have mandated that all of our employees and, in addition, contractors that enter our U.S. buildings and certain other locations, be fully vaccinated against COVID-19, subject to disability and religious exemptions, by December 8, 2021. Though it is difficult to predict the impact of this mandate, we may experience workforce constraints due to shortages of vaccinated personnel, strains on the labor market, limitations on hiring new employees and difficulty retaining and securing employees who are vaccinated, all of which could negatively affect our business and operations.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

In addition, the continued spread of COVID-19 globally could materially and adversely impact our operations, including without limitation, our sales and marketing efforts, sales of ZTlido, travel, employee health and availability, which may have a material and adverse effect on our business, financial condition and results of operations.

Management is actively monitoring the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition or liquidity for the remainder of fiscal year 2021 or fiscal year 2022.

Drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is risky and uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. It is not uncommon for companies in the pharmaceutical industry to suffer significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.

This drug candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through preclinical to early and late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes do carry the risk that they will not achieve these intended objectives.

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Other than with respect to ZTlido, we have not completed a corporate-sponsored clinical trial. Phase II trials are ongoing for RTX for knee osteoarthritis and COVIDROPS for COVID-19, and Phase I trials are ongoing for RTX for cancer-related pain and anti-CD38 DAR-T for multiple myeloma and a Phase III trial is ongoing for SEMDEXATM for the treatment of lumbosacral radicular pain. Non-clinical studies are ongoing and a Phase II trial is planned to start in the second half of 2021 with higher strength SP-103. We are currently in a Phase II study of Abivertinib for cytokine storm related to COVID-19 infection, a Phase II study of mesenchymal stem cells for the treatment of respiratory distress syndrome associated with COVID-19 infection and a Phase I study of STI-6129 for the treatment of amyloid light chain (AL) amyloidosis. Despite this, we may not have the necessary capabilities, including adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate, including our planned clinical trials of RTX, clinical trials of SP-103, clinical trials of SEMDEXATM, clinical trials of DAR-T, including targeting CD38 using a CAR-T cell therapy, our biosimilar/biobetters antibodies, clinical trials of our COVID-19 related product candidates and other product candidates, in a way that leads to our obtaining marketing approval for our product candidates in a timely manner, or at all.

In the event we are able to conduct a pivotal clinical trial of a product candidate, the results of such trial may not be adequate to support marketing approval. Because our product candidates are intended for use in life-threatening diseases, in some cases we ultimately intend to seek marketing approval for each product candidate based on the results of a single pivotal clinical trial. As a result, these trials may receive enhanced scrutiny from the FDA. For any such pivotal trial, if the FDA disagrees with our choice of primary endpoint or the results for the primary endpoint are not robust or significant relative to control, are subject to confounding factors, or are not adequately supported by other study endpoints, including possibly overall survival or complete response rate, the FDA may refuse to approve a New Drug Application, Biologics License Application or other application for marketing based on such pivotal trial. The FDA may require additional clinical trials as a condition for approving our product candidates.

There can be no assurance that the product candidates we are developing for the detection and treatment of COVID-19 will be granted an Emergency Use Authorization by the FDA. If no Emergency Use Authorization is granted or, once granted, it is terminated, we will be unable to sell our product candidates in the near future and will be required to pursue the drug or device approval process, which is lengthy and expensive.

An Emergency Use Authorization (“EUA”) would allow us to market and sell our COVID-19 product candidates, including COVISTIX, without the need to pursue the lengthy and expensive drug or device approval process. The FDA may issue an EUA during a public health emergency if it determines that the potential benefits of a product outweigh the potential risks and if other regulatory criteria are met. If an EUA is granted for any of our COVID-19 product candidates, we will rely on the FDA policies and guidance in connection with the marketing and sale of such product candidates. If these policies and guidance change unexpectedly and/or materially or if we misinterpret them, potential sales of our COVID-19 product candidates could be adversely impacted. In addition, the FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization. If granted, we cannot predict how long an EUA for our COVID-19 product candidates would remain in place. The termination of an EUA, if granted, could adversely impact our business, financial condition and results of operations.

We may also seek additional EUAs from the FDA for our other product candidates for the detection and/or treatment of COVID-19 and the SARS-CoV-2 virus. If granted, the additional EUAs would allow us to market and sell additional product candidates without the need to pursue the lengthy and expensive drug approval process. There is no guarantee that we will be able to obtain any additional EUAs. Failure to obtain additional EUAs or the termination of such EUAs, if obtained, could adversely impact our business, financial condition and results of operations.

Any disruption in our research and development facilities could adversely affect our business, financial condition and results of operations.

Our principal executive offices, which house our research and development programs, are in San Diego, California. Our facilities may be affected by natural or man-made disasters. Earthquakes are of particular significance since our facilities are located in an earthquake-prone area. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fires, floods and similar events. If our facilities are affected by a natural or man-made disaster, we may be forced to curtail our operations and/or rely on third-parties to perform some or all of our research and development activities. Although we believe we possess adequate insurance for damage to our property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In the future, we may choose to expand our operations in either our existing facilities or in new facilities. If we expand our worldwide manufacturing locations, there can be no assurance that this expansion will occur without implementation difficulties, or at all.

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In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, and has since spread to many other countries, including the United States. On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally, prompting many national, regional and local government, including California, to implement preventative and protective measures, such as travel restrictions, business restrictions, closures and quarantine and stay-at-home orders. These orders and others have been modified and may be further modified, amended and new orders may be adopted depending upon the COVID-19 transmission rates in our county and state, as well as other factors. If additional shelter-in-place or similar orders are adopted in the future and the operations in our principal executive offices or other facilities are deemed non-essential, we may not be able to operate for the duration of any shelter-in-place or similar order, which could negatively impact our business, operating results and financial condition.

Our business may be adversely affected if we do not manage our current growth and do not successfully execute our growth initiatives.

We have experienced growth in our headcount and operations, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We anticipate further growing through both internal development projects as well as external opportunities, which include the acquisition, partnering and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations. The availability of high quality development opportunities is limited and we are not certain that we will be able to identify candidates that we and our shareholders consider suitable or complete transactions on terms that are acceptable to us and our shareholders. In order to pursue such opportunities, we may require significant additional financing, which may not be available to us on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions and other strategic alliances and collaborations, we may not be able to integrate them or take full advantage of them and therefore may not realize the benefits that we expect.

To effectively manage our current and future potential growth, we will need to continue to enhance our operational, financial and management processes and to effectively expand, train and manage our employee base. Supporting our growth initiatives will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing and other areas of our business. If we do not successfully manage our current growth and do not successfully execute our growth initiatives, then our business and financial results may be adversely affected and we may incur asset impairment or restructuring charges.

The growth of our business depends on our ability to attract and retain qualified personnel and to develop and maintain key relationships.

The achievement of our commercial, research and development and external growth objectives depends upon our ability to attract and retain qualified scientific, manufacturing, sales and marketing and executive personnel and to develop and maintain relationships with qualified clinical researchers and key distributors. Competition for these people and relationships is intense and comes from a variety of sources, including pharmaceutical and biotechnology companies, universities and non-profit research organizations.

Risks Related to Acquisitions

We have acquired, and plan to continue to acquire, assets, businesses and technologies and may fail to realize the anticipated benefits of the acquisitions, and acquisitions can be costly and dilutive.

We have expanded, and plan to continue to expand, our assets, business and intellectual property portfolio through the acquisition of new assets, businesses and technologies.

For example, in November 2016, we acquired a majority of the outstanding capital stock of Scilex Pharma, which was contributed to our majority-owned subsidiary Scilex Holding in connection with the corporate reorganization of Scilex Holding and acquisition of Semnur by Scilex Holding in March 2019. These assets, together, constitute our Scilex segment. We also acquired Virttu Biologics Limited in 2017 and Sofusa® assets, a revolutionary drug delivery technology, in July 2018. We also acquired SmartPharm Therapeutics, Inc. in September 2020. In addition, in June 2021, we completed our acquisition of ACEA Therapeutics, Inc.

The success of any acquisition depends on, among other things, our ability to combine our business with the acquired business in a manner that does not materially disrupt existing relationships and that allows us to achieve development and operational synergies. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive to our stock value or development pipeline in the near or long term.

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It is possible that the integration process could result in the loss of key employees; the disruption of our ongoing business or the ongoing business of the acquired companies; or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to maintain relationships with third parties and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between us and the acquired company will also divert management’s attention from our core business and other opportunities that could have been beneficial to our stockholders. An inability to realize the full extent of, or any of, the anticipated benefits of the acquisition, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the completion of the acquisition. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive to our stock value or development pipeline in the near or long term.

We expect to incur additional costs integrating the operations of any companies we acquire, higher development and regulatory costs, and personnel, which cannot be estimated accurately at this time. If the total costs of the integration of our companies and advancement of acquired product candidates and technologies exceed the anticipated benefits of the acquisition, our financial results could be adversely affected.

In addition, we may issue shares of our common stock or other equity-linked securities in connection with future acquisitions of businesses and technologies. Any such issuances of shares of our common stock could result in material dilution to our existing stockholders.

Risks Related to Ownership of Our Common Stock

The market price of our common stock may fluctuate significantly, and investors in our common stock may lose all or a part of their investment.

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. For example, from October 1, 2020 to September 30, 2021, our closing stock price ranged from $5.76 to $16.51 per share, and from January 4, 2021 to October 29, 2021, our closing stock price ranged from $6.35 to $16.51 per share. The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:



actual or anticipated adverse results or delays in our clinical trials;



our failure to commercialize our product candidates, if approved;



unanticipated serious safety concerns related to the use of any of our product candidates;



adverse regulatory decisions;



changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;



legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates, government investigations and the results of any proceedings or lawsuits, including, but not limited to, patent or stockholder litigation;



our decision to initiate a clinical trial, not initiate a clinical trial or to terminate an existing clinical trial;



our dependence on third parties, including CROs;



announcements of the introduction of new products by our competitors;



market conditions in the pharmaceutical and biotechnology sectors;



announcements concerning product development results or intellectual property rights of others;



future issuances of common stock or other securities;



the addition or departure of key personnel;



failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public;



actual or anticipated variations in quarterly operating results;

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

our failure to meet or exceed the estimates and projections of the investment community;



overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies;



conditions or trends in the biotechnology and biopharmaceutical industries;



introduction of new products offered by us or our competitors;



announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;



issuances of debt or equity securities;



sales of our common stock by us or our stockholders in the future;



trading volume of our common stock;



ineffectiveness of our internal controls;



publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;



failure to effectively integrate the acquired companies’ operations;



general political and economic conditions;



effects of natural or man-made catastrophic events;



effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic; and



other events or factors, many of which are beyond our control.

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Further, the equity markets in general have recently experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility of our common stock might worsen if the trading volume of our common stock is low. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.

Our investors could experience substantial dilution of their investments as a result of subsequent exercises of our outstanding options, including the CEO Performance Award, or the grant of future equity awards by us.

As of September 30, 2021, 29.5 million shares of our common stock were reserved for issuance under our equity incentive plans, of which 23.1 million shares of our common stock were subject to options outstanding at such date at a weighted-average exercise price of $4.80 per share, 3.5 million shares were subject to restricted stock unit awards, 3.0 million shares of our common stock were reserved for issuance pursuant to our 2019 Stock Incentive Plan and 7.4 million shares of our common stock were reserved for issuance pursuant to our 2020 Employee Stock Purchase Plan. Over the past several months, we have experienced higher rates of stock option exercises compared to many earlier periods, and this trend may continue. In addition, 24,935,882 shares of our common stock are subject to the 10-year CEO performance award granted to Dr. Ji that is tied solely to achieving market capitalization milestones and has an exercise price of $17.30 per share. To the extent outstanding options are exercised, our existing stockholders may incur dilution.

We rely on equity awards to motivate current employees and to attract new employees. The grant of future equity awards by us to our employees and other service providers may further dilute our stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On July 12, 2021, we entered into a common stock purchase agreement (the “BioMed Stock Purchase Agreement”) with BioMed Protection ND, L.L.C. (“BioMed”), pursuant to which we issued 98,835 shares of our common stock to BioMed as partial consideration for the license BioMed granted to us pursuant to an exclusive license agreement between BioMed and us dated July 1, 2021. The issuance of the shares to BioMed was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder. BioMed represented that it was an “accredited investor,” as defined in Regulation D, and was acquiring the shares of common stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On September 1, 2021, we entered into a lease agreement (the “Lease Agreement”) with HCP Life Science REIT, Inc. (the “Landlord”) pursuant to which we agreed to lease from the Landlord premises located at 4930 Directors Place, San Diego, California (the “4930 Directors Place Lease”). The 4930 Directors Place Lease has an initial 188-month term and includes approximately 163,205 rentable square feet. The initial rent under the 4930 Directors Place Lease is approximately $5.10 per square foot and is subject to an annual increase. Not less than twelve months prior to the expiration of the then-current term of the 4930 Directors Place Lease, we have an option to extend the 4930 Directors Place Lease term for up to two additional five-year terms at then current market rates. The 4930 Directors Place Lease is expected to commence in 2023.

The foregoing description of the Lease Agreement is qualified in its entirety by reference to the full text of the Lease Agreement, which is filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q and incorporated herein by reference.

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Item 6. Exhibits.

EXHIBIT INDEX


Exhibit No.		Description

3.1		Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2013).

3.2		Certificate of Amendment of the Restated Certificate of Incorporation of Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 1, 2013).

3.3		Amended and Restated Bylaws of Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 15, 2019).

4.1		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 23, 2009).

4.2		Voting Agreement, dated as of April 29, 2016, by and between Sorrento Therapeutics, Inc. and Yuhan Corporation (incorporated by reference to Exhibit 4.12 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on June 29, 2016).

4.3		Registration Rights Agreement, dated November 8, 2016, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on November 8, 2016).

4.4		Registration Rights Agreement, dated April 27, 2017, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 28, 2017).

4.5		Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of December 11, 2017, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 21, 2017).

4.6		Registration Rights Agreement, dated December 21, 2017, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 21, 2017).

4.7		Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).

4.8		Registration Rights Agreement, dated June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).

4.9		Form of Warrant, dated November 7, 2018, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).

4.10		Registration Rights Agreement, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the parties identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).

4.11		Agreement and Consent, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the Warrant Holders party thereto (incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).

4.12		Form of Warrant, dated May 3, 2019, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 3, 2019).

4.13		Amendment No. 1 to the Registration Rights Agreement, dated as of May 3, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 3, 2019).

4.14		Form of Series A Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 28, 2019).

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4.15		Form of Series C Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 28, 2019).

4.16		Form of Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 8, 2019).

4.17		Amendment No. 2 to the Registration Rights Agreement, dated as of December 6, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 9, 2019).

4.18		Registration Rights Agreement, dated as of March 4, 2021, by and between Sorrento Therapeutics, Inc. and the Icahn School of Medicine at Mount Sinai (incorporated by reference to Exhibit 4.19 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 9, 2021).

10.1		Sorrento Gateway Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4930 Directors Place).

10.2		First Amendment to Office Lease, dated September 14, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4930 Directors Place).

10.3		Second Amendment to Office Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4955 Directors Place).

10.4		First Amendment to Office Lease, dated October 10, 2020, by and between Sorrento Therapeutics, Inc. and HCP Life Science Estates, Inc. (4939 Directors Place).

10.5		Second Amendment to Office Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4939 Directors Place).

31.1		Certification of Henry Ji, Ph.D., Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

31.2		Certification of Najjam Asghar, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.

32.1		Certification of Henry Ji, Ph.D., Principal Executive Officer and Najjam Asghar, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL) (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Sorrento Therapeutics, Inc.

Date:	November 5, 2021	By:	/s/ Henry Ji, Ph.D.
			Henry Ji, Ph.D.
			Chairman of the Board of Directors, Chief Executive Officer & President
			(Principal Executive Officer)

Date:	November 5, 2021	By:	/s/ Najjam Asghar
			Najjam Asghar
			Senior Vice President & Chief Financial Officer
			(Principal Financial Officer)