Sorrento Therapeutics, Inc. (NASDAQ: SRNE), together with its subsidiaries (collectively, the “Company”) is a clinical stage biotechnology company focused on delivering clinically meaningful therapies to patients and ~~their families, globally. The Company’s primary focus is to transform cancer into a treatable or chronically manageable disease. The Company also has programs assessing the use~~Summary of ~~its technologies~~Significant Accounting Policies

Basis of Presentation and ~~products in auto-immune, inflammatory, neurodegenerative, infectious diseases and pain indications with high unmet medical needs.~~

At its core, the Company is an antibody-centric company and leverages its proprietary G-MAB™ library to identify, screen and validate fully human antibodies against high impact oncogenic targets and mutations, immune modulators and intracellular targets. To date, the Company has screened over 100 validated targets and generated a numberPrinciples of fully human antibodies against these targets which are at various stages of preclinical development. These include PD-1, PD-L1, CD38, CD123, CD47, c-MET, VEGFR2, CCR2, OX40, TIGIT and CD137 among others.

The Company’s 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 antibody drug conjugates (“ADCs”), bispecific approaches, as well as T-Cell Receptor (“TCR”)-like antibodies. With LA Cell, Inc. (“LA Cell”), the Company’s joint venture with City of Hope, the Company’s objective is to become the global leader in the development of antibodies against intracellular targets such as STAT3, mutant KRAS, MYC, p53 and TAU. Additionally, the Company has acquired and is assessing the regulatory and strategic path forward for its portfolio of late stage biosimilar/biobetter antibodies based on Erbitux®~~, Remicade~~®~~, Xolair~~®~~, and Simulect~~® ~~as these may represent nearer term commercial opportunities.~~

With each of its programs, the Company aims to tailor its therapies to treat specific stages in the evolution of cancer, from elimination, to equilibrium and escape. In addition, the Company’s objective is to focus on tumors that are resistant to current treatments and where the Company can design focused trials based on a genetic signature or biomarker to ensure patients have the best chance of a durable and significant response. The Company has several immuno-oncology programs that are in or near to entering the clinic. These include cellular therapies, an oncolytic virus and a palliative care program targeted to treat intractable cancer pain. Finally, as part of its global aim to provide a wide range of therapeutic products to meet underserved therapeutic markets, the Company has made investments and developed a separate pain focused franchise which the Company believes will serve to provide short term upside to its core thesis.

~~Through September 30, 2017, the Company had devoted substantially all of its efforts to product development, raising capital and building infrastructure.~~

Consolidation

The accompanying ~~condensed~~ consolidated financial statements include the accounts of the ~~Company’s subsidiaries.~~subsidiaries of Sorrento Therapeutics, Inc. (the “Company”). 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 ~~condensed~~ 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.

In Certain amounts in the ~~opinion of management,~~prior period consolidated financial statements have been reclassified to conform with the unaudited financial information for the interim periods presented reflects all adjustments, which are only normal, recurring and necessary for a fair statement of financial position, results of operations and cash flows. current period presentation.

These ~~condensed~~ 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, ~~2016.~~2021, filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2022. Operating results for interim periods are not expected to be indicative of operating results for the Company’s ~~2017~~2022 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., 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 three months ended March 31, 2022, 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, 2021, filed with the SEC on March 11, 2022.

Revenue Recognition

The following table shows revenue disaggregated by product and service type for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Scilex Pharmaceuticals Inc. product sales	$	6,812	$	6,986
Sorrento Therapeutics, Inc. product revenues		3,178		37
Net product revenues	$	9,990	$	7,023
Concortis Biosystems Corporation	$	4,634	$	5,462
Bioserv Corporation		875		1,199
Other service revenues		2,886		571
Service revenues	$	8,395	$	7,232

The Company recorded $1.8 million in other service revenues associated with Celularity Inc. (“Celularity”) for the three months ended March 31, 2022. The Company held an ownership interest of approximately 14.8% of Celularity on a non-diluted basis at March 31, 2022. See Note 4 for details.

As

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Table of September 30, 2017, the Company had a $30.0 million outstanding principal balance on the long-term debt associated with the Loan and Security Agreement, dated November 23, 2016, by and among the Company and certain of its domestic subsidiaries (together with the Company, the “Borrowers”) and Hercules Capital, Inc. (“Hercules”), as amended (as so amended, the “Loan Agreement”). The Loan Agreement contains covenants requiring the Company (i) to achieve certain fundraising requirements by certain dates and (ii) to maintain $20.0 million of U.S. unrestricted cash prior to achieving the corporate and fundraising milestones. The Company's public offering of common stock in April 2017 for net proceeds of $43.5 million satisfied the fundraising requirements and fundraising milestone. As of September 30, 2017, the Company had $38.3 million of cash and cash equivalents (includes approximately $6.0 million of foreign cash), of which $20.0 million is required to be maintained subject to the minimum cash requirement of the Loan Agreement. Effective November 6, 2017, the Company and Hercules entered into an amendment to the Loan Agreement that reduced the minimum amount of U.S. unrestricted cash that the Company must maintain under the Loan Agreement to $8.0 million (see Note 18). The Company’s available cash and financing sources will not be sufficient to meet its current and anticipated cash requirements without additional fundraising. Accordingly, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

Contents

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 and to maintain compliance with the Loan Agreement covenants.~~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, ~~as planned,~~ 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 ~~be certain that~~conclude that such plans will be effectively implemented within one year after the date that the financial statements are issued.

ToAs a result, management has concluded that the ~~extent~~aforementioned conditions, among others, raise substantial doubt about the ~~Company is unable~~Company’s ability to execute on these plans, or is unable to amend the Loan Agreement to maintain compliance with the Loan Agreement covenants, the Company would be in default under the Loan Agreement and the outstanding loan balance may be declared immediately due and payable. Further, the provisions of the Loan Agreement allow for Hercules to exercisecontinue as a ~~material adverse event clause should the Company incur a material adverse event within the meaning provided by the Loan Agreement, which could include the~~ going concern ~~matters described herein. Should Hercules invoke~~for one year after the ~~material adverse event clause,~~date the outstanding loan balance may be declared immediately due and payable. Although reasonably possible, the Company believes that it is not probable that the material adverse event clause associated with the Loan Agreement will be exercised.

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 ~~research,~~ 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.

The ~~condensed~~ consolidated financial statements do not reflect any adjustments that might be necessary if the Company is unable to continue as a going concern.

In November 2014, the Company filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”) with the SEC, which was declared effective by the SEC in December 2014. This Shelf Registration Statement provides the Company with the ability to offer up to $250 million of securities, including equity and other securities as described in the registration statement. Included in the 2014 shelf registration is a sales agreement prospectus covering the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $50.0 million of the Company’s common stock that may be issued and sold under a sales agreement with MLV & Co. LLC (the “ATM Facility”). During the twelve months ended December 31, 2016 and the nine months ended September 30, 2017, the Company sold approximately $3.6 million and $4.1 million of net proceeds from shares of common stock under the ATM Facility, respectively. The Company can offer up to $41.9 million of additional shares of common stock under the ATM Facility, subject to certain limitations. On April 19, 2017, the Company completed a public offering of $47.5 million shares of common stock pursuant to the Shelf Registration Statement for net proceeds of approximately $43.5 million.

Pursuant to the Shelf Registration Statement, the Company may offer additional securities from time to time and through one or more methods of distribution, subject to market conditions and the Company’s capital needs. Specific terms and prices will be determined at the time of each offering under a separate prospectus supplement, which will be filed with the SEC at the time of any offering. However, the Company cannot be sure that such additional funds will be available on reasonable terms, or at all.

On April 3, 2016, the Company entered into a Securities Purchase Agreement (the “ABG Purchase Agreement”) with ABG SRNE Limited and Ally Bridge LB Healthcare Master Fund Limited (collectively, “Ally Bridge”), pursuant to which, among other things, the Company agreed to issue and sell to Ally Bridge and other purchasers designated by Ally Bridge (collectively, the “ABG Purchasers”), in a private placement transaction (the “ABG Private Placement”), up to $50.0 million in shares of the Company’s common stock and warrants to purchase shares of common stock. Upon the closing of the ABG Private Placement, the Company issued to the ABG Purchasers (1) an aggregate of 9,009,005 shares (the “ABG Shares”) of common stock,and (2) warrants to purchase an aggregate of 2,702,700 shares of common stock (each, an “ABG Warrant”). Each ABG Warrant had an exercise price of $8.50 per share, was immediately exercisable upon issuance, had a term of three years and was exercisable on a cash or cashless exercise basis.

Under the terms of the ABG Purchase Agreement, the Company was obligated to prepare and file with the SEC, within 30 days of the closing date of the ABG Private Placement, a registration statement to register for resale the ABG Shares and the shares of common stock issuable upon exercise of each ABG Warrant (the “ABG Warrant Shares”), and may be required to effect certain registrations to register for resale the ABG Shares and the ABG Warrant Shares in connection with certain “piggy-back” registration rights granted to the ABG Purchasers.

On April 3, 2016, the Company also entered into a Securities Purchase Agreement (collectively, the “Additional Purchase Agreements”) with each of Beijing Shijilongxin Investment Co., Ltd. ( “Beijing Shijilongxin”), FREJOY Investment Management Co., Ltd. (“Frejoy”) and Yuhan Corporation (“Yuhan”), pursuant to which, among other things, the Company agreed to issue and sell, in separate private placement transactions: (1) to Beijing Shijilongxin, 8,108,108 shares of common stock, and a warrant to purchase 1,176,471 shares of common stock, for an aggregate purchase price of $45.0 million; (2)to Frejoy, 8,108,108 shares of common stock, and a warrant to purchase 1,176,471 shares of common stock, for an aggregate purchase price of $45.0 million; and (3)to Yuhan, 1,801,802 shares of common stock, and a warrant to purchase 235,294 shares of common stock, for an aggregate purchase price of $10.0 million. The warrants issued pursuant to each of the Additional Purchase Agreements (collectively, the “Additional Warrants” and, together with each ABG Warrant, the “Warrants”) had an exercise price of $8.50 per share, were immediately exercisable upon issuance, had a term of three years and were exercisable on a cash or cashless exercise basis.

Under the terms of the Additional Purchase Agreements, each of Beijing Shijilongxin, Frejoy and Yuhan had the right to demand, at any time beginning six months after the closing of the transactions contemplated by the applicable Additional Purchase Agreement, that the Company prepare and file with the SEC a registration statement to register for resale such investor’s shares of common stock purchased pursuant to the applicable Additional Purchase Agreement and the shares of common stock issuable upon exercise of such investor’s Additional Warrant. In addition, the Company may be required to effect certain registrations to register for resale such shares in connection with certain “piggy-back” registration rights granted to Beijing Shijilongxin, Frejoy and Yuhan.

On May 2, 2016, the Company closed its private placement of common stock and warrants with Yuhan for gross proceeds of $10.0 million. Yuhan purchased 1,801,802 shares of common stock at $5.55 per share and a warrant to purchase 235,294 shares of common stock. The warrant was exercisable for three years at an exercise price of $8.50 per share.

Between May 31, 2016 and June 7, 2016, the Company closed on the remainder of the $150.0 million financing with the ABG Purchasers, Beijing Shijilongxin, and Frejoy. The ABG Purchasers led the financing and, together with Beijing Shijilongxin and Frejoy, collectively purchased 25,225,221 shares of common stock at $5.55 per share, and warrants to purchase 5,055,642 shares of common stock for total cash consideration of $86.5 million and secured promissory notes (the “Notes”) in an aggregate principal amount of $53.5 million.

On December 31, 2016, the Company entered into Warrant and Note Cancellation and Share Forfeiture Agreements (the “Cancellation and Forfeiture Agreements”) with certain investors (the “Investors”) that held an aggregate of 7,838,259 shares of common stock and certain of the Warrants granting the right to purchase an aggregate of 1,137,316 shares of common stock. Pursuant to the Cancellation and Forfeiture Agreements, effective December 31, 2016, the Warrants held by the Investors and the Notes, of which $43.5 million was then outstanding, were cancelled and the shares of common stock held by the Investors were forfeited and returned to the Company.

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.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management believes that these estimates are reasonable; however, actual results may differ from these estimates.

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company minimizes its credit risk associated with cash and cash equivalents by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. The Company has not experienced any losses on such accounts.

The Company follows accounting guidance on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires it to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts receivable and payable, and other financial instruments in current assets or current liabilities.

Marketable securities are designated either as trading or available-for-sale securities and are accounted for at fair value. Marketable securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Marketable securities that are readily available for use in current operations and are classified as short-term available-for-sale securities are reported as a component of current assets in the accompanying condensed consolidated balance sheets. Marketable securities that are not trading securities and are not considered available for use in current operations are classified as long-term available-for-sale securities and are reported as a component of long-term assets in the accompanying condensed consolidated balance sheets.

Securities that are classified as trading are carried at fair value, with changes to fair value reported as a component of income. Securities that are classified as available-for-sale are carried at fair value, with temporary unrealized gains and losses reported as a component of stockholders' equity until their disposition. The cost of securities sold is based on the specific identification method.

Grants receivable at September 30, 2017 and December 31, 2016 represent amounts due under several federal contracts with the National Institute of Allergy and Infectious Diseases (“NIAID”), a division of the National Institutes of Health (“NIH”). The Company considers the grants receivable to be fully collectible; accordingly, no allowance for doubtful amounts has been established. If amounts become uncollectible, they are charged to operations.

Accounts receivable at September 30, 2017 and December 31, 2016 consist of trade receivables from sales and services provided to certain customers, which are generally unsecured and due within 30 days. Estimated credit losses related to trade accounts receivable are recorded as general and administrative expenses and as an allowance for doubtful accounts within grants and accounts receivable, net. The Company reviews reserves and makes adjustments based on historical experience and known collectability issues and disputes. When internal collection efforts on accounts have been exhausted, the accounts are written off by reducing the allowance for doubtful accounts. As of each of September 30, 2017 and December 31, 2016, the allowance for doubtful accounts was $20 thousand and $26 thousand, respectively.

Property and equipment are carried at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which are generally three to five years. Leasehold improvements are amortized over the lesser of the life of the lease or the life of the asset. Repairs and maintenance are charged to expense as incurred.

The Company has engaged in business combination activity. The accounting for business combinations requires management to make judgments and estimates of the fair value of assets acquired, including the identification and valuation of intangible assets, as well as liabilities assumed. Such judgments and estimates directly impact the amount of goodwill recognized in connection with each acquisition, as goodwill presents the excess of the purchase price of an acquired business over the fair value of its net tangible and identifiable intangible assets.

During the first quarter of 2017, the Company identified an error in the valuation of acquisition consideration associated with the Scilex Pharmaceuticals Inc. (“Scilex”) acquisition, primarily related to the acquisition consideration payable, resulting in an overstatement of acquisition consideration payable of $6.5 million, and a corresponding overstatement of intangible assets of $6.7 million, goodwill of $4.6 million, deferred income tax liability of $2.8 million, additional paid-in capital of $0.6 million, and noncontrolling interest of $1.4 million as of December 31, 2016. The Company evaluated the materiality of this misstatement from quantitative and qualitative perspectives, and concluded that it was immaterial to the prior periods. Consequently, the Company corrected this error by recording the adjustment in the Company’s condensed consolidated balance sheet in the quarter ended March 31, 2017.

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if events occur indicating the potential for impairment. During its goodwill impairment review, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company proceeds to perform the two-step test for goodwill impairment. The first step involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to determine the amount of loss, which involves comparing the implied fair value of the goodwill to the carrying value of the goodwill. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the first step of the goodwill impairment test. The Company performed its annual assessment for goodwill impairment in the fourth quarter of 2016, noting no impairment. There have not been any triggering events indicating the potential for impairment through September 30, 2017.

The Company evaluates its long-lived and intangible assets with definite lives, such as property and equipment, acquired technology, customer relationships, patent and license rights, for impairment by considering competition by products prescribed for the same indication, the likelihood and estimated future entry of non-generic and generic competition with the same or similar indication and other related factors. The factors that drive the estimate of useful life are often uncertain and are

Acquisition consideration payable relates to the Company’s acquisition of businesses and various other assets and is recorded on the Company’s condensed consolidated balance sheets at fair value and is re-measured at each balance sheet date until such contingent liabilities have been settled, with changes in fair value recorded as gain on contingent liabilities. The Company estimates the fair value of contingent consideration based on level 3 inputs primarily driven by the probability of achieving certain financing or operating related milestones.

The condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2016 and stockholders’ equity and of cash flows for the nine months ended September 30, 2016 have been restated to correct for the effects of an immaterial error in the interim periods related to the re-measurement of acquisition consideration payable. As a result of the restatement, an adjustment of $1.7 million and $6.2 million to gain on contingent liabilities and an adjustment of $0.2 million and $0.3 million to research and development expense have been reflected in operating costs and expenses in the condensed consolidated statements of operations for the three and nine months ended September 30, 2016, respectively. This adjustment includes a gain of $991 thousand that relates to 2015 but was recognized in the three months ended March 31, 2016, thus is included in the condensed consolidated statement of operations for the nine months ended September 30, 2016. As a result of this adjustment, the financial results for the three months ended September 30, 2016 reflect the impact of the adjustment which resulted in a decrease in operating costs and expenses from $16.0 million to $14.5 million, an increase in net income attributable to the Company from $14.4 million to $15.9 million, and an increase in net income per share from $0.22 to $0.24 for the quarter ended September 30, 2016. The financial results for the nine months ended September 30, 2016 reflect the impact of the adjustment, which resulted in a decrease in operating costs and expenses from $89.0 million to $83.1 million, a decrease in net loss attributable to the Company from $48.9 million to $43.1 million, and a decrease in net loss per share from $(1.03) to ($0.91) for the nine months ended September 30, 2016.

Derivative liabilities are recorded on the Company’s condensed consolidated balance sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are exercised or expire, with changes in the fair value between reporting periods recorded as other income or expense. The Company estimates the fair value of derivative liabilities using the Black-Scholes option pricing model.

The Company holds a portfolio of investments in equity securities that are accounted for under either the equity method or cost method. Investments in entities over which the Company has significant influence but not a controlling interest are accounted for using the equity method, with the Company’s share of earnings or losses reported in loss on equity investments.

The Company’s cost method investments are included in cost method investments on the condensed consolidated balance sheets. The Company’s equity method investments are included in equity method investments on the condensed consolidated balance sheets.

All investments are reviewed on a regular basis for possible impairment. If an investment's fair value is determined to be less than its net carrying value and the decline is determined to be other-than-temporary, the investment is written down to its fair value. Such an evaluation is judgmental and dependent on specific facts and circumstances. Factors considered in determining whether an other-than-temporary decline in value has occurred include: the magnitude of the impairment and length of time that the market value was below the cost basis; financial condition and business prospects of the investee; the Company’s intent and ability to retain the investment for a sufficient period of time to allow for recovery in market value of the investment; issues that raise concerns about the investee's ability to continue as a going concern; any other information that the Company may be aware of related to the investment. The Company does not report the fair value of its equity investments in non-publicly traded companies because it is not practical to do so.

~~All research and development costs are charged to expense as incurred. Such costs primarily consist of lab supplies, contract services, stock-based compensation expense, salaries and related benefits.~~

The Company has acquired and may continue to acquire the rights to develop and commercialize new drug candidates. The up-front payments to acquire a new drug compound, as well as future milestone payments, are immediately expensed as acquired in-process research and development provided that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, have no alternative future use. Prior to November 8, 2016, all acquired in-process research and development was expensed immediately. The acquired in-process research and development related to the business combination of Virttu Biologics Limited ("Virttu") and Scilex for which certain products are under development and expected to be commercialized in the future was capitalized and recorded within “Intangibles, net” on the accompanying condensed consolidated balance sheet. Capitalized in-process research and development will be reviewed annually for impairment or more frequently as changes in circumstance or the occurrence of events suggest that the remaining value may not be recoverable.

~~The provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740~~ ~~“Income Taxes,”~~ addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Topic 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company has determined that it has uncertain tax positions.

The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates.

The Company has deferred tax assets, which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. As of each of December 31, 2016 and September 30, 2017, the Company maintained a full valuation allowance against its deferred tax assets, with the exception of an amount equal to its deferred tax liabilities, which can be expected to reverse over a definite life, an amount equal to its alternative minimum tax credits and state research and development tax credits for which there is no expiration and the deferred tax assets related to its Scilex investment.

The Company’s revenues are generated primarily from license fees, various NIH grant awards, and from the sale of customized reagents and the provision of contract development services. The revenue from the NIH grant awards is based upon subcontractor and internal costs incurred that are specifically covered by the grant, and where applicable, a facilities and administrative rate that provides funding for overhead expenses. These revenues are recognized when expenses have been incurred by subcontractors or when the Company incurs internal expenses that are related to the grant.

License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period upon the transfer of value to the customer.

Revenues from sales are generated from the sale of customized reagents which include industrial standard cytotoxins, linkers, and linker-toxins used for preparing ADCs. Contract development services include providing synthetic expertise to customers’ synthesis by delivering proprietary cytotoxins, linkers and linker-toxins and ADC service using industry standard toxin and antibodies provided by customers. Revenue is recognized when, (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered, (iii) the price is fixed or determinable, and (iv) collectability is reasonably assured. Royalty revenues will be recognized as earned per the terms of underlying royalty bearing contracts.

The Company is obligated to accept from customers the return of products sold that are damaged or do not meet certain specifications. The Company may authorize the return of products sold in accordance with the terms of its sales contracts, and estimates allowances for such amounts at the time of sale. The Company has not experienced any sales returns.

~~The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718 “Compensation – Stock Compensation,~~” which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock-based compensation cost is generally measured at the grant date, based on the calculated fair value of the award and an estimate of forfeitures, and is recognized as an expense, under the straight-line method, over the employee’s requisite service period (generally the vesting period of the equity grant).

The Company accounts for equity instruments, including restricted stock or stock options, issued to non-employees in accordance with authoritative guidance for equity based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated fair value determined using the Black-Scholes option-pricing model. The fair value of options and restricted stock granted to non-employees is re-measured over the vesting period, and the resulting changes in fair value are recognized as expense in the period of the change in proportion to the services rendered to date.

Comprehensive loss is primarily comprised of net loss and adjustments for the change in unrealized gains and losses on the Company’s investments in available-for-sale marketable securities, net of taxes. The Company displays comprehensive loss and its components in its condensed consolidated statements of comprehensive (loss) income.

Basic net loss per share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or the exercise of outstanding warrants. The treasury stock method and if-converted method are used to calculate the potential dilutive effect of these common stock equivalents. Potentially dilutive shares are excluded from the computation of diluted net loss per share when their effect is anti-dilutive. In periods where a net loss is presented, all potentially dilutive securities are anti-dilutive and are excluded from the computation of diluted net loss per share.

The Company is engaged primarily in the discovery and development of innovative therapies focused on oncology and the treatment of chronic cancer pain as well as immunology and infectious diseases based on its platform technologies. Accordingly, the Company has determined that it operates in one operating segment.

~~In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. ASU No. 2014-09 was originally effective for annual reporting periods beginning after December 15, 2016, and interim periods thereafter. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard for annual reporting periods beginning after December 15, 2017, and interim periods thereafter. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Company is in the process of evaluating the impact of ASU No. 2014-09 on its royalty and license revenues and does not expect a material impact to its grants and sales and services revenues. The standard allows for either a full retrospective or modified retrospective method of adoption. The Company expects to adopt this standard using the modified retrospective approach on its effective date, January 1, 2018.

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Financial Instruments--Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.~~ The ASU amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU No. 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~. ASU No. 2016-02 is aimed at making leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU No. 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU No. 2016-02 will have on its consolidated financial position, results of operations and cash flows.

~~In March 2016, the FASB issued ASU No. 2016-06,~~ ~~Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments,~~ which clarifies the steps required when assessing whether the economic characteristics and risks of call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts based on a four-step decision process. ASU No. 2016-06 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In March 2016, the FASB issued ASU No. 2016-07,~~ ~~Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,~~ requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for the equity method and eliminates the requirement for retroactive adjustment of the investment as a result of an increase in the level of ownership interest or degree of influence. ASU No. 2016-07 is effective for financial statements issued for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~ The ASU includes various provisions to simplify the accounting for share-based payments with the goal of reducing the cost and complexity of accounting for share-based payments. The amendments may significantly impact net income, earnings per share and the statement of cash flows as well as present implementation and administration challenges for companies with significant share-based payment activities. ASU No. 2016-09 is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The ASU also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application will be permitted for all organizations for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU No. 2016-13 will have on its consolidated financial position, results of operations and cash flows.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,~~ to improve financial reporting in regards to how certain transactions are classified in the statement of cash flows. The ASU requires that (1) debt extinguishment costs be classified as cash outflows for financing activities and provides additional classification guidance for the statement of cash flows, (2) the classification of cash receipts and payments that have aspects of more than one class of cash flows to be determined by applying specific guidance under generally accepted accounting principles, and (3) each separately identifiable source or use within the cash receipts and payments be classified on the basis of their nature in financing, investing or operating activities. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not believe the adoption of ASU No. 2016-15 will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business,~~ to clarify the definition of a business to add guidance for evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Specifically, this ASU provides a screen to assist entities in determining when a set should not be considered a business, which screen provides that if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar assets, the set is not a business. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not believe the adoption of ASU No. 2017-01 will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment (Topic 350)~~. This standard eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This guidance is effective

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting,~~ to provide clarity and reduce both the diversity in practice and cost of complexity when applying the guidance. Specifically, the ASU provides additional modification conditions in determining whether or not modification accounting should be applied. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not believe the adoption of ASU No. 2017-09 will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

On April 27, 2017, the Company entered into a Share Purchase Agreement (the “Virttu Purchase Agreement”) with TNK Therapeutics, Inc., a majority-owned subsidiary of the Company (“TNK”), Virttu, the shareholders of Virttu (the “Virttu Shareholders”) and Dayspring Ventures Limited, as the representative of the Virttu Shareholders, pursuant to which, among other things, TNK acquired from the Virttu Shareholders 100% of the outstanding ordinary shares of Virttu (the “Virttu Acquisition”).

Virttu focuses on the development of oncolytic viruses that infect and selectively multiply in and destroy tumor cells without damaging healthy tissue. Its lead oncolytic virus candidate, Seprehvir, infects and replicates in cancer cells selectively, leaving normal cells unharmed.

Under the Virttu Purchase Agreement, the total amount of the consideration payable to the Virttu Shareholders in the Virttu Acquisition is equal to $25 million, less Virttu’s net debt (the “Virttu Base Consideration”). An additional $10 million contingent consideration is payable upon the achievement of certain regulatory milestones (as described below) (the “Regulatory Approval Consideration”).

At the closing of the Virttu Acquisition (the “Closing”), the Company issued to the Virttu Shareholders consideration valued at approximately $2.2 million, which consisted primarily of an aggregate of 797,081 shares (the “Virttu Closing Shares”) and approximately $557,000 in cash (the “Cash Consideration”). The issuance of the Virttu Closing Shares and the payment of the Cash Consideration satisfied TNK’s obligation to pay 20% of the Virttu Base Consideration at the Closing. Under the terms of the Virttu Purchase Agreement, the Company agreed to provide additional consideration to the Virttu Shareholders, as follows:

(1) Upon a financing resulting in gross proceeds (individually or in the aggregate) to TNK of at least $50.0 million (a “Qualified Financing”), TNK will issue to the Virttu Shareholders an aggregate number of shares of its capital stock (“TNK Capital Stock”) as is equal to the quotient obtained by dividing 80% of the Virttu Base Consideration by the lowest per share price paid by investors in the Qualified Financing (the “TNK Financing Consideration”); provided, however, that 20% of the TNK Financing Consideration shall be held in escrow until April 27, 2018 (the “Financing Due Date”), to be used to, among other things, satisfy the indemnification obligations of the Virttu Shareholders. In the event that a Qualified Financing does not occur, then on the Financing Due Date, the Company will issue to the Virttu Shareholders an aggregate number of shares of the Company’s common stock as is equal to the quotient obtained by dividing 80% of the Virttu Base Consideration, by $5.55 (as adjusted, as appropriate, to reflect any stock splits or similar events affecting the Company’s common stock after the Closing).

At April 27, 2017, the 80% of the Virttu Base Consideration was valued at $12.8 million. The fair value of the 80% of the Virttu Base Consideration is recorded as a current liability and will be adjusted quarterly for changes in fair value or as events and circumstances arise. At April 27, 2017, the contingent Regulatory Approval Consideration was valued at $1.0 million. The fair value of the contingent Regulatory Approval Consideration is recorded as a non-current liability within "Deferred rent and other" on the accompanying condensed consolidated balance sheet and will be adjusted quarterly for changes in fair value or as events and circumstances arise.

The consolidated financial statements include the preliminary results of operations from this transaction, which have been accounted for as a business combination, and require, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The preliminary valuation of the acquired assets and liabilities resulted in the recognition of identifiable assets of approximately $16.0 million comprised mainly of in-process research and development of approximately $15.4 million, deferred tax liabilities of $0.8 million and goodwill of approximately $1.4 million subject to final adjustments including tax related items. Various factors contributed to the establishment of goodwill, including an assembled workforce.

In connection with the Virttu transaction, we recorded acquisition costs of approximately $0.9 million in general and administrative expenses for the nine months ended September 30, 2017, for legal and related costs. Acquisition costs are expensed as incurred.

The purchase consideration, assets acquired, and liabilities assumed are preliminary and, as a result, are subject to change due to purchase price adjustments, additional information obtained related to fair value estimates, final tax adjustments and related items.

~~The acquisition of Virttu was not material to the Company's consolidated financial statements.~~

On November 8, 2016, the Company entered into a Stock Purchase Agreement (the “Scilex Purchase Agreement”) with Scilex and a majority of the stockholders of Scilex (the “Scilex Stockholders”) pursuant to which, on November 8, 2016, the Company acquired from the Scilex Stockholders, and the Scilex Stockholders sold to the Company, approximately 72% of the outstanding capital stock of Scilex (the “Scilex Acquisition”). The remainder of the outstanding capital stock of Scilex represents a noncontrolling interest of which approximately 23% continues to be held by ITOCHU CHEMICAL FRONTIER CORPORATION following the Scilex Acquisition.

Scilex focuses on the development and commercialization of specialty pharmaceutical products for the treatment of pain; its lead product, ZTlidoTM, is a branded lidocaine patch formulation being developed for the treatment of chronic pain. ZTlido™ (lidocaine patch 1.8%) will be manufactured by a contract manufacturer.

At the closing of the Scilex Acquisition, the Company issued to the Scilex Stockholders that were accredited investors (the “Accredited Scilex Stockholders”) consideration valued at $4.8 million, which consisted primarily of an aggregate of 754,911 shares of the Company’s common stock (the “Common Stock”). Under the terms of the Scilex Purchase Agreement, the Company agreed to provide additional consideration to the Accredited Scilex Stockholders upon the achievement of certain milestones, as follows:

(1) Upon receipt of notice from the U.S. Food and Drug Administration (the “FDA”) that the FDA has accepted Scilex’s resubmitted new drug application for ZTlidoTM for the treatment of postherpetic neuralgia (the “NDA”), the Company will deliver to the Accredited Scilex Stockholders a number of shares of Common Stock equal to the quotient obtained by dividing 10% of the total undiscounted purchase consideration of approximately $47.8 million (the “Adjusted Base Consideration”) by a price (the “FDA Acceptance Price”) equal to the closing market price of one share of Common Stock, as reported by the Nasdaq Stock Market LLC (“Nasdaq”) on the date of Scilex’s receipt of the FDA notice or, if no closing price is reported for such date, the closing price on the last preceding date for which such quotation exists; provided, however, that in no event shall the FDA Acceptance Price be greater than $25.32 or less than $6.33 (in each case as adjusted, as appropriate, to reflect any stock splits or similar events affecting the Common Stock).

On September 11, 2017, the Company received notice from the FDA that the FDA had accepted the NDA and the Company issued to the Accredited Scilex Stockholders consideration valued at $1.4 million, which consisted primarily of an aggregate of 754,930 shares of Common Stock.

(2) Upon receipt of notice from the FDA that the FDA has approved the NDA for commercialization, the Company will deliver to the Accredited Scilex Stockholders cash and shares of Common Stock in such proportion to be determined in the Company’s sole discretion, with a total value equal to 80% of the Adjusted Base Consideration (the “FDA Approval Consideration”). To the extent that the Company elects to pay any portion of the FDA Approval Consideration in shares of Common Stock, the number of shares shall be equal to the quotient obtained by dividing (a) the portion of the FDA Approval Consideration to be paid in shares of Common Stock by (b) a price (the “FDA Approval Price”) equal to the closing market price of one share of Common Stock, as reported by Nasdaq on the date of the Scilex’s receipt of the FDA notice or, if no closing price is reported for such date, the closing price on the last preceding date for which such quotation exists; provided, however, that in no event shall the FDA Approval Price be greater than $25.32 or less than $6.33 (in each case as adjusted, as appropriate, to reflect any stock splits or similar events affecting the Common Stock). However, in no event may the Company make an election with respect to the FDA Approval Consideration so as to cause the total number of shares of Common Stock issued in connection with the Scilex Acquisition to exceed 4.99% of the total number of shares of Common Stock of the Company outstanding as of immediately prior to the Closing (as adjusted, as appropriate, to reflect any stock splits or similar events affecting the Common Stock), unless the Company has obtained stockholder approval to issue a greater number of shares.

During the first quarter of 2017, the Company identified an error in the valuation of acquisition consideration associated with the Scilex Acquisition, primarily related to the acquisition consideration payable, resulting in an overstatement of acquisition consideration payable of $6.5 million, and a corresponding overstatement of intangible assets of $6.7 million, goodwill of $4.6 million, deferred income tax liability of $2.8 million, additional paid-in capital of $0.6 million, and noncontrolling interest of $1.4 million as of December 31, 2016. The Company evaluated the materiality of this misstatement from quantitative and qualitative perspectives, and concluded that it was immaterial to the prior periods. Consequently, the Company corrected this error by recording the adjustment in the Company’s condensed consolidated balance sheet in the quarter ended March 31, 2017.

At November 8, 2016, the contingent consideration was valued at $33.5 million, resulting in a total purchase consideration of approximately $38.2 million. The fair value of the contingent consideration is recorded as a current liability and will be periodically adjusted for changes in fair value or as events and circumstances arise. The remainder of the outstanding capital stock of Scilex represents a noncontrolling interest which was valued at $12.3 million at November 8, 2016.

The consolidated financial statements include the results of operations from this transaction, which have been accounted for as a business combination, and require, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The valuation of the acquired assets resulted in the recognition of identifiable assets of approximately $54.9 million comprised mainly of in-process research and development of $21.9 million and patents of $32.6 million. The valuation of the acquired liabilities resulted in the recognition of liabilities of approximately $17.9 million comprised mainly deferred tax liabilities of $13.9 million. The Company recorded goodwill of $13.5 million associated with the acquisition. The amounts in this footnote reflect the adjustment described above. Various factors contributed to the establishment of goodwill, including an assembled workforce.

In August 2015, the Company and TNK entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with BDL Products, Inc. (“BDL”) and the stockholders of BDL (“Stockholders”) pursuant to which the Stockholders sold all of their shares of capital stock in BDL to TNK for: (1) a cash payment of $100.00, and (2) $6.0 million in shares of TNK Class A Stock, subject to adjustment in certain circumstances, to be issued to the Stockholders upon a financing resulting in gross proceeds (individually or in the aggregate) to TNK of at least $50.0 million (a “Qualified Financing”). In accordance with subsequent amendments to the Stock Purchase Agreement, in the event a Qualified Financing does not occur by October 15, 2017 (which is subject to further extension as implied and based on previously amended dates) or TNK does not complete an initial public offering of shares of its capital stock by September 15, 2017, in lieu of receiving shares of TNK pursuant to the acquisition, the Stockholders shall receive an aggregate of 309,917 shares of the Company’s common stock, subject to adjustment in certain circumstances.

Although a Qualified Financing did not occur by October 15, 2017 and TNK did not complete an initial public offering by September 15, 2017, as of the date of the filing of this Quarterly Report on Form 10-Q, the Company has not issued shares to the Stockholders pursuant to the Stock Purchase Agreement as it is currently negotiating the terms of the Stock Purchase Agreement with the Stockholders.

In August 2015, the Company and TNK entered into a Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with CARgenix Holdings LLC (“CARgenix”) and the members of CARgenix (the “Members”) pursuant to which the Members sold all of their membership interests in CARgenix to TNK for: (1) a cash payment of $100.00, and (2) $6.0 million in shares of TNK Class A common stock (“TNK Class A Stock”), subject to adjustment in certain circumstances, to be issued to the Members upon a financing resulting in gross proceeds (individually or in the aggregate) to TNK of at least $50.0 million (a “Qualified Financing”). In accordance with an amendment to the Membership Interest Purchase Agreement entered into in March 2016, in the event a Qualified Financing did not occur by September 15, 2016 or TNK did not complete an initial public offering of shares of its capital stock by October 15, 2016, in lieu of receiving shares of TNK pursuant to the acquisition, the Members would receive an aggregate of 309,917 shares of the Company’s common stock, subject to adjustment in certain circumstances and to account for fractional shares. TNK did not complete a Qualified Financing by the amended financing deadline and the Company issued 309,916 shares of its common stock to the Members on October 7, 2016.

~~Level 1—Quoted prices in active markets for identical assets or liabilities.~~

~~Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.~~

~~Level 3—Unobservable inputs based on the Company's own assumptions.~~

Marketable Investments

As disclosed in Note 4, the Company holds 20,422,124 shares of Class A Common Stock of Celularity, of which, 19,922,124 shares with a value of approximately $154.4 million as of March 31, 2022 are subject to certain transfer restrictions. The ~~Company's financial assets and liabilities carried~~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 ~~comprised~~adjusted for a discount for lack of ~~cash and cash equivalents,~~ ~~acquisition consideration payable~~ ~~and derivative instruments. Cash and cash equivalents consist~~marketability. As of ~~money market accounts and~~

~~The following table includes a summary~~

4. Investments

As of March 31, 2022, the Company’s ~~contingent~~equity method investments include an ownership interest in Immunotherapy NANTibody, LLC (“NANTibody”), NantCancerStemCell, LLC (“NantStem”), Deverra Therapeutics, Inc. and ~~financing liabilities, related inputs used to determine~~ImmuneOncia Therapeutics, LLC, among others. The Company’s equity investments without readily determinable fair value include an ownership interest in NantBioScience, Inc., Aardvark Therapeutics, Inc. (“Aardvark”) and ~~the valuation methodologies used for the~~Elsie Biotechnologies, Inc. (“Elsie”), among others. The Company’s equity investments with readily determinable fair value ~~measurements using significant unobservable inputs (Level 3) at September 30, 2017:~~

include an ownership interest in Celularity.

Celularity

As of March 31, 2022, the Company owned 19,922,124 shares of Class A Common Stock of Celularity that are subject to transfer restrictions (the “Restricted Shares”).The ~~principal significant unobservable inputs used~~Company also owned 500,000 shares of Class A Common Stock of Celularity not subject to transfer restrictions (the “Private Placement Shares”). During the three months ended March 31, 2022, the Company recorded unrealized gains on marketable investments of $66.7 million and $1.8 million in connection with the ~~valuations of the contingent considerations are the discount rates and probabilities assigned to scenario outcomes. An increase~~changes in ~~the discount rate or regulatory milestone will cause a decrease in the~~ fair value of the ~~contingent consideration. Conversely, a decrease in~~Restricted Shares and the discount rate will cause an increase in the fair value of the contingent consideration. An increase in the probabilities assigned to certain scenarios will cause the fair value of contingent consideration to increase. Conversely, a decrease in the probabilities assigned to certain scenarios will cause the fair value of contingent considerations to decrease.

~~Marketable securities consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):~~

September 30, 2017
Cost Gross Unrealized Gains (Losses) Gross Realized Gains (Losses) Fair Value
Trading securities:

MedoveX common shares and warrants $ 750
$ 138
$ —
$ 888

On August 5, 2016, the Company entered into a Unit Purchase Agreement (the “Unit Purchase Agreement”) with MedoveX Corporation (“MedoveX”). Pursuant to the terms of the Unit Purchase Agreement, the Company purchased three Units for $750,000. Each Unit had a purchase price of $250,000 and consisted of (i) 208,333 shares of MedoveX common stock (the “MedoveX Common Stock”), and (ii) a warrant to purchase 104,167 shares of MedoveX Common Stock (the “MedoveX Warrant”). The MedoveX Warrant has an initial exercise price of $1.52 per share, subject to adjustment, and is initially exercisable six months following the date of issuance for a period of five years from the date of issuance. In addition, the Company entered into a Registration Rights Agreement with MedoveX pursuant to which MedoveX was required to file a registration statement registering for resale all shares of MedoveX Common Stock and shares of MedoveX Common Stock issuable pursuant to the MedoveX Warrant issued as part of the Units.

For the three months ended September 30, 2017 and 2016, the Company recorded a gain of $0.2 million and a gain of $0.5 million on trading securities. For the nine months ended September 30, 2017 and 2016, the Company recorded a loss of $0.2 million and a gain of $0.5 million on trading securities.Private Placement Shares, respectively. The Company’s investment in ~~MedoveX will be revalued on each balance sheet date. The fair value of the Company’s holding in MedoveX Common Stock at September 30, 2017~~Celularity is a Level 1 measurement. The fair value of the Company’s holdings in the MedoveX Warrant was estimated using the Black-Scholes option-pricing method. The risk-free rate was derived from the U.S. Treasury yield curve, matching the MedoveX Warrant’s term, in effect at the measurement date. The volatility factor was determined based on MedoveX’s historical stock prices. The warrant valuation is a Level 3 measurement.

~~The following table includes a summary of the warrant measured at fair value using significant unobservable inputs (Level 3) during the nine months ended September 30, 2017 (in thousands):~~

~~On July 27, 2015, NantKwest, Inc. (“NantKwest”) completed~~included within marketable investments under current assets within its initial public offering (“IPO”). Prior to the IPO, the Company’s investment in NantKwest was accounted for using the cost method and the total investment of $10.0 million was classified as part of cost method investments on the Company’s consolidated balance sheets. The common shares were subject to restrictions in a lock-up agreement through December 27, 2015 as well as limitations under Rule 144 of the Securities Act of 1933, as amended. As these were short term restrictions,

Aardvark

In 2021, the Company ~~did not apply a marketability discount. At December 31, 2015, the Company recorded an unrealized gain of $73.6~~paid $10.0 million ~~representing the difference between the $10.0 million cost basis and the estimated fair value net of tax, as accumulated other comprehensive income~~ in the stockholder's equity section of the Company’s consolidated balance sheet and as a change in unrealized gains and losses on marketable securities in the Company’s consolidated statements of comprehensive income (loss). The Company’s investment in NantKwest was revalued on each balance sheet date. The fair value of the Company’s holdings in NantKwest at December 31, 2015 was a Level 1 measurement.

In July 2016, the Company completed the transactions contemplated by a letter agreement (the “Letter Agreement”) with the Chan Soon-Shiong Family Foundation (“Foundation”) and Cambridge Equities, LP (“Cambridge”). Pursuant to the terms of the Letter Agreement, among other things, (i) the Company agreed to sell to Foundation, and Foundation agreed to purchase from the Company,cash for an aggregate of ~~5,618,326~~7,777,864 shares of ~~common stock~~Series B Preferred Stock of NantKwest held by the Company (representing all shares of NantKwest held by the Company), (ii) Foundation agreed to sell to the Company, and the Company agreed to purchase all reported shares held by Foundation and Cambridge, constituting an aggregate of 7,878,098 shares of Common Stock, (iii) Cambridge agreed to forfeit its right to purchase 500,000 shares of Common Stock issuable pursuant to a warrant to purchase 1,724,138 shares of Common Stock issued by the Company, and (iv) the Company agreed to pay to Foundation an aggregate of approximately $15.6 million. Effective upon closing, the Company repurchased the 7,878,098 shares of Common Stock.Aardvark. The Company ~~recognized~~accounts for its investment in Aardvark as an equity investment without a ~~gain of $27.2~~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. The Company’s investment in Aardvark was $10.0 million ~~on the sale of the NantKwest stock in its consolidated statement of operations for the twelve months ended December 31, 2016 as a result of the transaction.~~

~~Property and equipment consisted of the following~~ as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016 (in thousands):~~

September 30,
2017 December 31,
2016
Furniture and fixtures 1,089
458
Office equipment 518
326
Machinery and lab equipment 18,787
13,220
Leasehold improvements 6,833
3,625
27,227
17,630
Less accumulated depreciation (8,258 ) (4,922 )
$ 18,969
$ 12,707

~~Depreciation expense for the quarters ended September 30, 2017 and 2016 was $1.4 million and $0.5 million,~~2021, respectively. ~~Depreciation expense for the nine months ended September 30, 2017 and 2016 was $3.3 million and $1.4 million, respectively.~~

~~As of September 30, 2017, the aggregate carrying amount~~Tien Lee, MD, a member of the ~~Company’s cost-method investments in non-publicly traded companies was $237.0 million and included an ownership interest in NantCell, Inc.~~board of directors of Scilex Holding Company (“~~NantCell”~~Scilex Holding”), ~~NantBioScience, Inc. (“NantBioScience”), Globavir Biosciences, Inc., Brink Biologics, Inc., Coneksis, Inc., and Celularity Inc. (See Note 9).~~

~~As of December 31, 2016, the aggregate carrying amount~~a majority owned subsidiary of the ~~Company’s cost-method investments~~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.

Elsie

In 2021, the Company paid $10.0 million in ~~non-publicly traded companies was $112.0 million and included an ownership interest in NantCell, NantBioScience, Globavir Biosciences,~~cash for 10,000,000 shares of Series A Preferred Stock of Elsie Biotechnologies, Inc.~~, Brink Biologics, Inc. and Coneksis, Inc.~~

had a carrying value of 0 due to the Company’s share of cumulative losses. NANTibody recorded a net loss of $0.6 million for the three months ended December 31, 2021. As of December 31, 2021, NANTibody had $2.4 million in current assets, $10.1 million in current liabilities, $0.1 million in noncurrent assets and 0 noncurrent liabilities.

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.

~~NANTibody recorded net profit~~

NantStem

As of ~~$375 thousand and net profit of $0.1 million for the three months ended June 30, 2017 and~~ March 31, 2017, respectively. NANTibody recorded net loss of $1.0 million for the nine months ended June 30, 2017. The Company recorded its portion of loss from NANTibody in loss on equity investments on its condensed consolidated statement of operations for the three and nine months ended September 30, 2017 and 2016. As of June 30, 2017, NANTibody had $100.0 million in current assets and $387 thousand in current liabilities and no noncurrent assets or noncurrent liabilities.

In July 2015, the Company and NantBioScience, a wholly-owned subsidiary of NantWorks, established a new entity called NantCancerStemCell, LLC (“NantStem”) as a stand-alone biotechnology company with $100.0 million initial joint funding. As initially organized, NantBioScience was obligated to make a $60.0 million cash contribution to NantStem for a 60% equity interest in NantStem, and the Company was obligated to make a $40.0 million cash contribution to NantStem for a 40% equity interest in NantStem. Fifty percent of these contributions were funded in July 2015 and the remaining amounts were to be made by no later than September 30, 2015. The Company had NantPharma contribute its portion of the initial joint funding of $20.0 million to NantStem from the proceeds of the sale of IgDraSol. Pursuant to a Side Letter dated October 13, 2015, the NantStem joint venture agreement was amended to relieve the Company of the obligation to contribute the second $20.0 million payment, and its ownership interest in NantStem was reduced to 20%. NantBioScience’s funding obligations were unchanged. The Side Letter was negotiated at the same time the Company issued a call option on shares of NantKwest that it owned to Cambridge Equities, a related party to NantBioScience (“Cambridge”).

In the fourth quarter of 2015, the Company determined it had an other-than-temporary decline in the value of NantStem and recognized a loss of $4.0 million in loss on equity investments on its condensed consolidated statement of operations for the year ended December 31, 2015. There was no loss related to other-than-temporary impairment recognized for the equity investment for the year ended December 31, 2016 and the three and nine months ended September 30, 2017.

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. The Company’s investment in NantStem is reported in equity method investments on its condensed consolidated balance sheets and its share of NantStem’s loss is recorded in loss on equity investments on its condensed consolidated statement of operations. As of September 30, 2017,2022, the carrying value of the Company’s investment in NantStem was ~~approximately $18.6~~approximately $18.7 million. ~~The~~

0 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.

~~NantStem recorded net income~~

11

Table of $461 thousand and net income of $369 thousand for the three months ended June 30, 2017 and March 31, 2017, respectively. NantStem recorded net income of $375 thousand for the nine months ended June 30, 2017. The Company recorded its portion of loss from NANTibody in loss on equity investments on its condensed consolidated statement of operations for the three and nine months ended September 30, 2017 and 2016. As of June 30, 2017, NantStem had $82.1 million in current assets and $1 thousand in current liabilities and no noncurrent assets or noncurrent liabilities.

In March 2016, the Company and Yuhan Corporation, a South Korea company (“Yuhan”), entered into an agreement to form a joint venture company called ImmuneOncia Therapeutics, LLC (“ImmuneOncia”) to develop and commercialize a number of immune checkpoint antibodies against undisclosed targets for both hematological malignancies and solid tumors. Under the terms of the joint venture agreement, Yuhan contributed an initial investment of $10.0 million to ImmuneOncia, and the Company granted ImmuneOncia an exclusive license to one of its immune checkpoint antibodies for specified countries while retaining the rights for the U.S., European and Japanese markets, as well as global rights for ImmuneOncia to two additional antibodies that will be selected by ImmuneOncia from a group of pre-specified antibodies from the Company’s immuno-oncology antibody portfolio. During October 2016, funding and operations of ImmuneOncia commenced. Yuhan owns 51% of ImmuneOncia, while the Company owns 49%.

The Company is accounting for its interest in ImmuneOncia as an equity method investment, due to the significant influence the Company has over the operations of ImmuneOncia through its board representation and 49% voting interest while not sharing joint control with Yuhan. The Company’s investment in ImmuneOncia is reported in equity method investments on its condensed consolidated balance sheets and its share of ImmuneOncia’s loss is recorded in loss on equity investments on its condensed consolidated statement of operations. As of September 30, 2017, the carrying value of the Company’s investment in ImmuneOncia was approximately $8.5 million. The difference between the Company’s investment in ImmuneOncia and the Company’s 49% interest in the net assets of ImmuneOncia was approximately $0.3 million at September 30, 2017.

ImmuneOncia recorded net loss of $0.5 million and $2.0 million for the three and nine months ended September 30, 2017, respectively. The Company recorded its portion (49% equity interest) of loss from ImmuneOncia in loss on equity investments on its condensed consolidated statement of operations for the three and nine months ended September 30, 2017. As of September 30, 2017, ImmuneOncia had $8.0 million in current assets, $32 thousand in current liabilities, $9.9 million in noncurrent assets, and no noncurrent liabilities.

~~In April 2016, Yuhan purchased $10.0 million of shares of common stock, and warrants as part of the Company’s private placement offering.~~

Celularity incurred operating expense of approximately $1.4 million and $4.1 million for the three and nine months ended June 30, 2017, respectively, in its interim financial results. The Company recorded its portion of loss from Celularity in loss on equity investments on its condensed consolidated statement of operations until its conversion to cost method investment on August 15, 2017.

On March 7, 2016, TNK agreed to issue to SiniWest Holdings, Inc. (“SiniWest Holdings”) $4.0 million in shares of TNK Class A Stock, subject to certain circumstances, to be issued upon a financing resulting in gross proceeds (individually or in the aggregate) to TNK of at least $10.0 million and a $1.0 million upfront cash payment in exchange for SiniWest Holdings transferring certain assets to TNK, including SiniWest Holdings’ 25% interest in Shanghai Three-Alliance Biotech Co. LTD, a China based company (“Shanghai Three”). The Company is accounting for its interest in Shanghai Three as an equity method investment, due to the significant influence the Company has over the operations of Shanghai Three through its 25% voting interest. The Company’s investment in Shanghai Three is reported in equity method investments on the condensed consolidated balance sheets and its share of Shanghai Three’s income or loss is recorded in income (loss) on equity investments on the condensed consolidated statement of operations. As of September 30, 2017, the carrying value of the Company’s investment in Shanghai Three was approximately $3.8 million.

The financial statements of Shanghai Three 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 quarter lag.

Shanghai Three incurred no operating expenses for the three and nine months ended June 30, 2017. As of June 30, 2017, Shanghai Three had $0.4 million in current assets, $2.9 million in current liabilities, $5.3 million in noncurrent assets, and $5.0 million in noncurrent liabilities.

In June 2016, the Company and TNK entered into a joint venture agreement with Shenyang Sunshine Pharmaceutical Company Ltd (“3SBio”), a China based company, to develop and commercialize proprietary immunotherapies, including those developed from, including or using TNK’s “CAR-T” technology targeting carcinoembryonic antigen (“CEA”) positive cancers. Due diligence and negotiations between 3SBio and the Company for the definitive agreement(s) are currently ongoing.

Under the terms of the agreement 3SBio will contribute an initial investment of $10.0 million to the joint venture and TNK will grant the joint venture an exclusive license to the CEA CAR-T technology and two additional CARs for cellular therapy for the Greater China market, including Mainland China, Hong Kong and Macau. 3SBio will own 51% of the joint venture while TNK will own 49%. As of September 30, 2017, funding and operations of the joint venture had not yet begun, as a result no investment has been recorded as of September 30, 2017.

~~In June 2016, 3SBio purchased $10.0 million of shares of common stock and warrants as part of the Company’s private placement offering.~~

~~At September 30, 2017, the Company had recorded goodwill of $38.3~~

Goodwill totaled $79.5 million ~~which reflects the adjustment described in Note 4. At December 31, 2016, the Company had recorded goodwill of $41.5 million. The Company performed a qualitative test for goodwill impairment~~ as of ~~December~~March 31, 2016. Based upon the results of the qualitative testing the Company concluded that it is more-likely-than-not that the fair values of the Company’s goodwill was in excess of its carrying value and therefore performing the first step of the two-step impairment test was unnecessary. No goodwill impairment was recognized2022. Goodwill for the ~~three~~Sorrento Therapeutics segment and ~~nine months ended September 30, 2017~~Scilex segment was $72.8 million and ~~2016. A summary of the Company's goodwill~~$6.7 million, respectively, as of ~~September 30, 2017, including the impact of acquisitions described~~March 31, 2022. Intangible assets with indefinite useful lives totaling $218.4 million are included in ~~Note 4 is as follows (in thousands):~~

~~The Company’s intangible assets, excluding goodwill, include acquired license and patent rights, core technologies, customer relationships and~~ acquired in-process research and ~~development. Amortization for~~development in the ~~intangible assets that have finite useful lives is generally recorded on a straight-line basis over their useful lives.~~ table below. A summary of the Company’s identifiable intangible assets as of ~~September 30, 2017, including the adjustment described in Note 4,~~March 31, 2022 and December 31, ~~2016~~2021 is as follows (in ~~thousands)~~thousands, except for years):


			March 31, 2022						December 31, 2021
March 31, 2022	Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
Customer relationships		2	$	1,585	$	1,459	$	126	$	1,585	$	1,453	$	132
Acquired technology		19		3,410		1,456		1,954		3,410		1,412		1,998
Acquired in-process research and development		—		218,430		—		218,430		218,430		—		218,430
Technology placed in service		15		21,940		5,119		16,821		21,940		4,754		17,186
Patent rights		15		32,720		11,828		20,892		32,720		11,283		21,437
Assembled workforce		5		605		373		232		605		343		262
Internally developed software		2		520		304		216		520		260		260
Total intangible assets			$	279,210	$	20,539	$	258,671	$	279,210	$	19,505	$	259,705

As

Aggregate amortization expense was $1.0 million for each of ~~September 30, 2017, the remaining weighted average life for identifiable intangible assets is 14 years.~~

Patent rights are stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets, determined to be approximately fifteen years or nineteen years from the date of transfer of the rights to the Company. Amortization expense for the three months ended ~~September 30, 2017~~March 31, 2022 and 2016 was $538 thousand and $1 thousand, respectively, which has been included in intangible amortization on the condensed consolidated statement of operations. Amortization expense for the nine months ended September 30, 2017 and 2016 was $1,597 thousand and $4 thousand, respectively, which has been included in intangible amortization on the condensed consolidated statement of operations.

Acquired technology is stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, determined to be approximately 19 years from the date of acquisition of the technology in December 2013. Amortization expense for the three months ended September 30, 2017 and 2016 was $44 thousand and $44 thousand, respectively, which has been included in intangibles amortization. Amortization expense for each of the nine months ended September 30, 2017 and

Customer relationships are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, determined to be approximately five years from the date of acquisition. Amortization expense for the three months ended September 30, 2017 and 2016, was $73 thousand and $66 thousand, respectively, which has been included in intangibles amortization. Amortization expense for the nine months ended September 30, 2017 and 2016 was $218 thousand and $198 thousand, respectively, which has been included in intangible amortization on the condensed consolidated statement of operations.

Acquired in-process research and development is stated at cost and may be immediately expensed if there is no alternative future use. Otherwise, the acquired in-process research and development is reviewed annually for impairment or more frequently as changes in circumstance or the occurrence of events suggest that the remaining value may not be recoverable.

2021. Estimated future amortization expense related to intangible assets, excluding indefinite-lived intangible assets, at ~~September 30, 2017~~March 31, 2022 is as follows (in thousands):


Years Ending December 31,	Amount
2022 (Remaining nine months)	$	3,106
2023		4,048
2024		3,870
2025		3,845
2026		3,845
Thereafter		21,527
Total expected future amortization	$	40,241

2022 Acquisitions

Acquisition of Virex

On ~~July 11, 2016,~~February 1, 2022, the Company ~~announced~~completed the acquisition of Virex Health, Inc. (“Virex”), a ~~license~~developer of at-home diagnostic platforms based in Boston, Massachusetts. In accordance with Accounting Standards Codification Topic 805, the Company recorded consideration transferred totaling $11.4 million, including $6.8 million in cash, $0.1 million in transaction costs paid in cash and ~~collaboration agreement (the "Servier License Agreement")~~1,281,662 shares of the Company's common stock, or $4.5 million of consideration based on the Company's closing share price on February 1, 2022. In connection with ~~Les Laboratoires Servier, SAS,~~the acquisition of Virex, the Company may pay up to $10.0 million in contingent consideration in a ~~corporation incorporated under~~combination of cash and stock subject to the ~~laws~~achievement of ~~France,~~certain regulatory milestones.

The transaction was accounted for as an asset acquisition since substantially all the value of the gross assets was concentrated in a single asset. No contingent consideration was recorded as of March 31, 2022. The Company fully expensed an amount of $11.7 million, representing the consideration transferred, net of short-term liabilities assumed, to acquired in-process research and ~~Institut de Recherches Internationales Servier, a company duly organized~~development.

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Table of Contents

2021 Acquisitions

Acquisition of ACEA

On June 1, 2021, the Company completed the acquisition of ACEA, which is developing multiple clinical and ~~existing under~~preclinical-stage new chemical entity compounds, including the ~~laws~~late clinical drug candidate, Abivertinib. The final purchase price allocation was calculated based on an upfront consideration of ~~France (individually and collectively, “Servier”) for the development, manufacture and commercialization of products using~~$44.1 million, which was based on the Company’s ~~fully human immuno-oncology anti-PD-1mAb STI-A1110~~closing share price on June 1, 2021, and will provide support for Servier’s initial development efforts. Pursuant to the financial terms of the Servier License Agreement, the Company received a non-refundable up-front payment of $27.4 millionresulted in July 2016, which has been recorded as deferred revenue in the Company’s condensed consolidated balance sheet and may also receive various payments based on commercial sales milestones related to annual sales levels. The Company will recognize the upfront payment over the expected period of performance of three years. During the quarter ended September 30, 2017, the Company recognized $2.3 million in license fee revenue pursuant to the Servier License Agreement. During the nine months ended September 30, 2017, the Company recognized $6.9 million in license fee revenue pursuant to the Servier License Agreement.

In August 2015, the Company entered into an exclusive licensing agreement to develop and commercialize multiple prespecified biosimilar and biobetter antibodies from Mabtech Limited. Under the termsdistinct intangible assets comprised of the agreement, the Company will develop and market these four mAbs for the North American, European and Japanese markets. The Company made an initial license payment of $10.0 million and in February 2016, paid an additional $10.0 million license payment, both of which were recognized as acquired in-process research and development ~~expense~~of $190.8 million, goodwill of $36.0 million, fair value of debt assumed of approximately $32.1 million, deferred tax liabilities of $31.4 million and other net assets of approximately $2.9 million. Pursuant to the terms of the merger agreement entered into with ACEA, a portion of the upfront consideration equal to $38.1 million was used to repay certain existing indebtedness of ACEA, which amount was paid to the holders thereof in the ~~condensed consolidated statements of operations as the Company determined there was no alternative future use for the license.~~

In June 2016, the Company agreed to accelerate and pay a $30.0 million milestone license payment which has been recognized as acquired in-process research and development expense in the condensed consolidated statements of operations,

In April 2016, the Company entered into an immunotherapy research collaboration agreement with Roger Williams Medical Center to provide certain clinical trial, research and manufacturing services. Under the terms of the agreement, Roger Williams Medical Center will perform pre-clinical and clinical research related to the development and delivery of CAR-T immunotherapies. In exchange, the Company granted Roger Williams Medical Center $6.0 million in shares of TNK Class A Stock, subject to adjustment in certain circumstances, to be issued upon a financing resulting in gross proceeds (individually or in the aggregate) to TNK of at least $20.0 million. The Company determined the fair value of this obligation was $3.4 million as of the April of 2016 agreement effective date, and the amount was recognized as prepaid expense and other and acquisition consideration payable in the condensed consolidated balance sheet. The Company will recognize the upfront payment over the expected performance period of five years. During each of the quarters ended September 30, 2017 and 2016, the Company recognized approximately $170 thousand in pre-clinical research and development expense pursuant to the agreement. During the nine months ended September 30, 2017 and 2016, the Company recognized approximately $510 thousand and $283 thousand in pre-clinical research and development expense pursuant to the agreement, respectively.

~~In April 2015,~~ the Company and ~~NantCell entered into a license agreement. Under the terms~~an aggregate 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 (as defined) 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 105.5 million shares of NantCell common stock to the Company valued at $100.0 million based on a recent equity sale of NantCell common stock to a third party. As of September 30, 2017, the Company had not yet provided all of the items noted in the agreement and therefore has recorded the entire upfront payment and value of the equity interest received as deferred revenue. The Company will recognize the upfront payment and the value of the equity interest received over the expected license period of approximately ten years on a straight-line basis. The Company’s ownership interest in NantCell does not provide the Company with control or the ability to exercise significant influence; therefore the $100.0 million investment is carried at cost in the condensed consolidated balance sheets and evaluated for other-than-temporary impairment on a quarterly basis.

~~In January 2010, the Company entered into a license agreement (the “TSRI License”~~(“Indebtedness Shares”) with The Scripps Research Institute (“TSRI”). Under the TSRI License, TSRI granted the Company an exclusive, worldwide license to certain TSRI patent rights and materials based on quorum sensing for the prevention and treatment of Staphylococcus aureus (“Staph”) infections, including Methicillin-resistant Staph. In consideration for the license, the Company: (i) issued TSRI a warrant for the purchase of common stock, (ii) agreed to pay TSRI a certain annual royalty commencing in the first year after certain patent filing milestones are achieved and (iii) agreed to pay a royalty on any sales of licensed products by the Company or its affiliates and a royalty for any revenues generated by the Company through its sublicense of patent rights and materials licensed from TSRI under the TSRI License. The TSRI License requires the Company to indemnify TSRI for certain breaches of the agreement and other matters customary for license agreements. The parties may terminate the TSRI License at any time by mutual agreement. In addition, the Company may terminate the TSRI License by giving 60 days’ notice to TSRI and TSRI may terminate the TSRI License immediately in the event of certain breaches of the agreement by the Company or upon the Company’s failure to undertake certain activities in furtherance of commercial development goals. Unless terminated earlier by either or both parties, the term of the TSRI License will continue until the final expiration of all claims covered by the patent rights licensed under the agreement. For the quarters ended September 30, 2017 and 2016, the Company recorded $72 thousand and $18 thousand in patent prosecution and maintenance costs associated with the TSRI License, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded $112 thousand and $40 thousand in patent prosecution and maintenance costs associated with the TSRI License, respectively. All such costs have been included in general and administrative expenses.

In June 2014, the NIAID awarded the Company a Phase II Small Business Technology Transfer (“STTR”) grant (the “Staph Grant III Award”) to support the advanced preclinical development of human bispecific antibody therapeutics to prevent and treat ~~Staphylococcus aureus~~ (“~~S. aureus” or “Staph”) infections, including methicillin-resistant~~ ~~S. aureus~~ ~~(“MRSA”). The project period for the Staph Grant III Award covered a two-year period which commenced in June 2014, which was~~

On August 15, 2016, the Company’s subsidiary, Scintilla Pharmaceuticals, Inc. (“Scintilla”) and Semnur Pharmaceuticals, Inc. (“Semnur”) entered into a binding term sheet (the “Semnur Binding Term Sheet”) setting forth the terms and conditions by which Scintilla will, through a subsidiary, purchase all of the issued and outstanding equity of Semnur (the “Semnur Acquisition”). The Semnur Binding Term Sheet provides that, contingent upon the execution of a definitive agreement between the parties (the “Definitive Agreement”) and subject to certain conditions, Scintilla will, at the closing of the Semnur Acquisition (the “Semnur Closing”), make an initial payment of $60.0 million (the “Initial Consideration”) to the equityholders of Semnur in exchange for all of the issued and outstanding equity of Semnur. The Initial Consideration will consist of $40.0 million in cash and $20.0 million in shares of the Company’s common stock ~~(the “Semnur Stock Consideration”)~~were issued in respect thereof based on a price per share equal to $6.8955. The ~~Semnur Binding Term Sheet also provides that~~Indebtedness Shares are subject to a true-up, as set forth in the ~~number of~~merger agreement entered into with ACEA, if the price at which such shares ofwere issued is greater than the ~~Company’s common stock comprising the Semnur Stock Consideration will be calculated based on the volume weighted average~~ closing price of the Company’s common stock ~~for the 30 consecutive trading days ending~~ on the date that is ~~three days prior to the execution of the Definitive Agreement. $6.0~~six months after June 1, 2021. The Company recorded $7.5 million of the Semnur Stock Consideration will be placed into escrow, a portion of which will be held for a period of up to six or 12 months to secure certain obligations of Semnur and its equityholders in connectionassociated with the ~~Semnur Acquisition. At the Semnur Closing, the Company will enter into~~true-up as a registration rights agreement with certain of Semnur’s equityholders, pursuant to which the Company will agree to seek the registration for resale of the shares of the Company’s common stock comprising the Semnur Stock Consideration.

current liability at March 31, 2022.

In addition to the ~~Initial~~Closing Consideration, ~~Scintilla~~the Company may pay ~~additional~~the ACEA equityholders contingent consideration of (i) up to ~~$140.0~~$450.0 million in additional payments, subject to ~~Semnur’s equityholders upon Scintilla’s completion of certain clinical studies and trials,~~the receipt of certain regulatory approvals and ~~the~~ achievement of certain net sales targets with respect to the assets acquired from ACEA and (ii) 5 to 10 percent of the annual net sales on specified royalty-bearing products. See Note 3 for details.

~~Under the Semnur Binding Term Sheet, either party may terminate the Semnur Binding Term Sheet.~~

three months ended March 31, 2022 and 2021, respectively.

Bridge Loan Agreement

On ~~October 6, 2017, the Semnur Binding Term Sheet was terminated without additional consideration, effective immediately.~~

A member of the Company’s board of directors is Semnur’s Chief Executive Officer and a member of its Board of Directors and currently owns approximately 5.5% of Semnur’s total outstanding capital stock.

~~In September 2013,~~February 16, 2022, the Company entered into a ~~$5.0 million loan and security agreement with two banks~~Bridge Loan Agreement pursuant to ~~which: (i) the lenders provided~~which the Company borrowed $45.0 million in the form of a ~~term~~bridge loan (the “Bridge Loan”), which ~~was funded~~bears no interest and will mature on June 16, 2022. Upon the occurrence and during the continuance of an “Event of Default” under the Loan Agreement, the Bridge Loan shall bear interest at ~~closing, (ii)~~the rate of 15% per annum. An “Event of Default” under the Loan Agreement includes, among other things, the Company’s failure to pay any principal of, or interest on, the Bridge Loan when such principal or interest becomes due and payable or to otherwise perform or observe the terms of the Loan Agreement (subject to cure periods), a material inaccuracy of the Company’s representations and warranties under the Loan Agreement, a failure by the Company to generally pay its debts as they become due or a bankruptcy, insolvency or similar event involving the Company. The Company repaid $10.0 million of the Bridge Loan during the three months ended March 31, 2022. Additionally, the Company repaid ~~its then outstanding equipment loan balance of $762,000, and (iii) the lenders received a warrant to purchase an aggregate 31,250 shares~~$10.0 million of the Bridge Loan in April 2022.

ACEA Significant Debt Arrangements

Borrowings under significant debt arrangements assumed in connection with the Company’s ~~common stock at an exercise price~~acquisition of ~~$8.00 per share exercisable for seven years from the date of issuance. The value~~ACEA consisted of the ~~warrants, totaling $215 thousand, was recorded as debt discount and additional paid-in capital.~~following (in thousands):


	March 31, 2022			December 31, 2021
Principal	$	29,112		$	29,048
Unamortized debt discount		(10,180	)		(10,642	)
Carrying value	$	18,932		$	18,406
Estimated fair value	$	16,900		$	17,100

On November 22, 2016, the Company paid off all obligations owing under, and terminated, the amended and restated loan and security agreement, as amended (the “Terminated Loan Agreement”). In connection with the repayment and discharge of indebtedness, the Company was required to pay pre-payment fees of approximately $49 thousand. The secured interests under the Terminated Loan Agreement were terminated in connection with the Company’s discharge of indebtedness.

On November 23, 2016, the Company and certain of its domestic subsidiaries (together with the Company, the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), as a lender and agent for several banks and other financial institutions or entities from time to time party to the Loan Agreement (collectively, the “Lenders”) for a term loan of up to $75.0 million, subject to funding in multiple tranches (the “Term Loan”). The Term Loan will mature on December ~~1, 2020. The proceeds of~~22, 2021 (as amended, the ~~Term Loan will be used for general corporate purposes and coincided with the repayment of the outstanding debt financing arrangement with Oxford Finance LLC and Silicon Valley Bank.~~

The first tranche of $50.0 million was funded upon execution of the Loan Agreement on November 23, 2016. Under the terms of the Loan Agreement, the Borrowers may, but are not obligated to, request additional funds of up to $25.0 million which are available until June 30, 2018, subject to approval by Hercules’ Investment Committee. Pursuant to the terms of the third amendment to the Loan Agreement entered into on March 15, 2017, the Company paid Hercules $1.5 million for a portion of the backend fee. Pursuant to the terms of the fourth amendment to the Loan Agreement entered into on March 23, 2017 (the “Fourth Amendment”“ATM Sales Agreement”), the Company repaid Hercules, without repayment penalty, $20.0 million of the outstanding principal and unpaid interest accrued thereon on March 23, 2017. The Fourth Amendment also provided for the following: (1) Hercules reduced the minimum amount of unrestricted cash that the Company must maintain under the Loan Agreement, and (2) the parties agreedpursuant to ~~change the date by~~ which the Company ~~must achieve a fundraising milestone.~~

~~Pursuant~~may issue and sell shares of its common stock by any method permitted by law deemed to be an “at the terms of the seventh amendment to the Loan Agreement entered into on November 6, 2017 (the “Seventh Amendment”), (i) the Company repaid Hercules, without repayment penalty, $10.0 million of the outstanding principal and unpaid interest accrued thereon on November 6, 2017, and (ii) Hercules agreed to reduce the minimum amount of unrestricted cash that the Company must maintainmarket offering” as defined in Rule 415 promulgated under the ~~Loan Agreement from $20.0 million to $8.0 million.~~

~~The Loan Agreement contains customary affirmative~~Securities Act of 1933, as amended, through Cantor Fitzgerald & Co., B. Riley Securities, Inc. and restrictive covenants and representations and warranties, including financial reporting obligations and significant limitations on dividends, indebtedness, liens (including a negative pledge on intellectual property and other assets)H.C. Wainwright & Co., collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. Additionally, the Loan Agreement contains covenants requiring the Borrowers (i) to achieve certain fundraising requirements by certain dates and (ii) to maintain $20.0 million of unrestricted cash prior to achieving its corporate and fundraising milestones. The Company's public offering for net proceeds of $43.5 million satisfied the fundraising requirements and fundraising milestone. Effective November 6, 2017, the Seventh Amendment to the Loan Agreement reduced the minimum amount of U.S. unrestricted cash that the Company must maintain under the Loan Agreement to $8.0 million. The breach of certain covenants under the Loan Agreement would result in the occurrence of an event of default. The Loan Agreement also contains other customary provisions, suchLLC, as expense reimbursement, non-disclosure obligations, as well as indemnification rights for the benefit of the Lenders. Upon the occurrence of an event of default and following any applicable cure periods, if any, a default interest rate of an additional 5.00% may be applied to the

In connection with the Loan Agreement, the Company issued Hercules a warrant, dated November 23, 2016 (the “Warrant”), to purchase up to 460,123 shares of Common Stock, at an initial exercise price of $4.89, subject to adjustment as provided in the Warrant. The Warrant is initially exercisable for 306,748 shares of common stock of the Company, and may automatically become exercisable for additional shares of common stock on such dates (if any) based upon the funding amounts of any additional tranches of the Term Loan that may be extended to the Borrowers. The Warrant will terminate, if not earlier exercised, on the earlier of November 23, 2023 and the closing of certain merger or other transactions in which the consideration is cash, stock of a publicly-traded acquirer or a combination thereof.

In September 2009, prior to the adoption of the 2009 Stock Incentive Plan, the Company’s Board of Directors approved the reservation and issuance of 8,000 non-statutory stock options to the Company’s non-employee directors. The options vested on the one year anniversary of the vesting commencement date in October 2010, and are exercisable for up to ten years from the grant date. No further shares may be granted under this plan and, as of September 30, 2017, 3,200 options with a weighted-average exercise price of $1.12 were outstanding.

In October 2009, the Company’s stockholders approved the 2009 Stock Incentive Plan. In July 2017, the Company’s stockholders approved, among other items, the amendment and restatement of the 2009 Stock Incentive Plan (as amended and restated, the “Stock Plan”) to increase the number of shares of the Company’s common stock authorized to be issued pursuant to the Stock Plan to 11,260,000. Such shares of the Company’s common stock are reserved for issuance to employees, non-employee directors and consultants of the Company. The Stock Plan provides for the grant of incentive stock options, non-incentive stock options, stock appreciation rights, restricted stock awards, unrestricted stock awards, restricted stock unit awards and performance awards to eligible recipients. Recipients of stock options shall be eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the Stock Plan is ten years. Employee option grants generally vest 25% on

~~The following table summarizes stock option activity as of September 30, 2017 and the changes for the period then ended (dollar values in thousands):~~

Options
Outstanding

Weighted-
Average
Exercise Price

Aggregate
Intrinsic
Value
Outstanding at December 31, 2016 4,332,876
$ 7.86
$ 427
Options Granted 3,110,100
$ 1.82

Options Canceled (510,676 ) $ 8.26

Options Exercised —
$ —

Outstanding at September 30, 2017 6,932,300
$ 5.14
$ 617

~~The aggregate intrinsic value of options exercised during each of~~sales agents. During the three months ended ~~September 30, 2017 and 2016 was $0 and $0 for each~~March 31, 2022, the Company sold an aggregate of ~~the nine months ended September 30, 2017 and 2016, respectively. The Company uses the Black-Scholes valuation model to calculate the fair value~~58,875,143 shares of its common stock ~~options. The fair value of employee stock options was estimated at the grant date using the following assumptions:~~

~~The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. Due~~pursuant to the ~~Company’s limited historical data,~~ATM Sales Agreement for aggregate net proceeds to the ~~estimated volatility incorporates~~Company of approximately $164.4 million. Subsequent to March 31, 2022 and through April 29, 2022, the ~~historical and implied volatility~~Company sold an aggregate of ~~comparable companies whose share prices are publicly available. The risk-free interest rate assumption was based on~~15,064,368 shares of its common stock pursuant to the ~~U.S. Treasury’s rates~~Amended Sales Agreement for ~~U.S. Treasury zero-coupon bonds with maturities similar~~aggregate net proceeds to ~~those~~the Company of ~~the expected term of the award being valued. The weighted average expected life of options was estimated using the average of the contractual term and the weighted average vesting term of the options.~~approximately $28.4 million.

The total unrecognized compensation ~~cost~~expense related to unvested ~~employee and director~~ stock option grants as of ~~September 30, 2017~~March 31, 2022 was ~~$8.8~~$51.5 million, ~~and the~~with a weighted average remaining vesting period ~~over which these grants are expected to vest is 3.0~~of 2.6 years.

The Company records equity instruments issued to non-employees as expense at their fair value over the related service period as determined in accordance with the authoritative guidance and periodically revalues the equity instruments as they vest. Stock-based Total unrecognized compensation expense related to ~~non-employee consultants recorded~~unvested restricted stock unit (“RSU”) grants as ~~operating expenses~~of March 31, 2022 was ~~$52 thousand and $67 thousand~~$23.9 million, with a weighted average remaining vesting period of 3.2 years.

A summary of stock option activity under the 2019 Plan for the three months ended ~~September 30, 2017 and 2016, respectively, and $178 thousand and $163 thousand~~March 31, 2022 is as follows:


	Options Outstanding			Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		22,515,513		$	6.19	$	—
Options Granted		0			—
Options Canceled		(990,246	)		6.88
Options Exercised		(15,499	)		2.37
Outstanding at March 31, 2022		21,509,768		$	6.16	$	803

A summary of RSU activity under the 2019 Plan for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2022 is as follows:


	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Outstanding at December 31, 2021		3,433,896		$	9.50
RSUs Granted		0			—
RSUs Released		(422,488	)		10.18
RSUs Canceled		(231,145	)		9.59
Outstanding at March 31, 2022		2,780,263		$	9.39

~~Common Stock Reserved for Future Issuance~~

~~Common stock reserved for future issuance consists of the following at September 30, 2017:~~



~~Common stock warrants outstanding under the underwriters agreement~~	~~182,600~~
~~Common stock warrants outstanding under the loan and security agreement~~	~~65,892~~
~~Common stock warrants outstanding under the Cambridge securities agreement~~	~~1,224,138~~
~~Common stock warrants outstanding under the Hercules securities agreement~~	~~306,748~~
~~Common stock warrants outstanding under private placements~~	~~4,153,620~~
~~Common stock options outstanding under the Non-Employee Director Plan~~	~~3,200~~
~~Authorized for future grant or issuance under the 2009 Stock Incentive Plan~~	~~3,756,796~~
~~Issuable under BDL acquisition agreement~~	~~309,916~~
~~Issuable under Scilex acquisition agreement~~	~~1,381,346~~
~~Issuable under Virttu acquisition agreement~~	~~3,603,604~~
~~Issuable under assignment agreement based upon achievement of certain milestones~~	~~80,000~~
	~~15,067,860~~

~~2017 Stock Option Plans~~

~~In June 2017, the Company’s subsidiary,~~

Scilex ~~adopted~~Holding Company

Under the Scilex ~~2017~~Holding Company 2019 Stock Option Plan, ~~reserved 4.0~~total stock-based compensation expense was $1.4 million ~~shares of Scilex common stock~~ and ~~awarded 1.0~~$1.9 million ~~options to certain Company personnel, directors~~for the three months ended March 31, 2022 and consultants under such plan. Stock options granted under this plan typically vest 1/4th of the shares on the first anniversary of the vesting commencement date and 1/48th of the remaining options vest each month thereafter. As of September 30, 2017, 0.8 million options were outstanding.

~~2015 Stock Option Plans~~

In May 2015, the Company’s subsidiary, TNK, adopted the TNK 2015 Stock Option Plan, reserved 10.0 million shares of TNK class A common stock and awarded 3.6 million options to certain Company personnel, directors and consultants under such plan. In November 2015, TNK awarded 0.5 million options to certain Company personnel. Stock options granted under this plan typically vest a portion immediately upon grant and the remaining options over two to four years or monthly over four years from the grant date and have a contractual term of ten years. Effective August 29, 2017, options to purchase an aggregate of 1.0 million shares were canceled. As of September 30, 2017, 1.7 million options were outstanding.

In May 2015, TNK granted a warrant to the Company’s CEO to purchase 9.5 million shares of TNK class B common stock, which have 10 to 1 voting rights. Warrant shares totaling 4.0 million were exercisable evenly over forty months and the remaining warrant shares were exercisable if certain defined events occur within four years from date of issuance at an initial exercise price of $0.01 per share. This warrant was canceled in its entirety effective August 29, 2017.

In May 2015, the Company’s subsidiary, LA Cell, Inc. (“LA Cell”), adopted the LA Cell 2015 Stock Option Plan reserved 10.0 million shares of LA Cell class A common stock and awarded 2.9 million options to certain Company personnel, directors and consultants under such plan. Stock options granted under this plan typically vest a portion immediately upon grant and the remaining options over two to four years or monthly over four years from the grant date and have a contractual term of ten years. Effective August 29, 2017, options to purchase an aggregate of 1.0 million shares were cancelled. As of September 30, 2017, 0.8 million options were outstanding.

In May 2015, LA Cell granted a warrant to the Company’s CEO to purchase 9.5 million shares of LA Cell class B common stock, which have 10 to 1 voting rights. Warrant shares totaling 4.0 million were exercisable evenly over forty months and the remaining warrant shares were exercisable if certain defined events occur within four years from date of issuance at an initial exercise price of $0.01 per share. This warrant was canceled in its entirety effective August 29, 2017.

In October 2015, the Company’s subsidiary, Concortis Biosystems, Corp. (“CBC”), adopted the CBC 2015 Stock Option Plan and reserved 10.0 million shares of CBC class A common stock and awarded 1.8 million options to certain Company personnel, directors and consultants under such plan. Stock options granted under this plan typically vest a portion immediately upon grant and the remaining options over two to four years or monthly over four years from the grant date and have a contractual term of ten years. Effective August 29, 2017, options to purchase an aggregate of 1.6 million shares were cancelled. As of September 30, 2017, 0.1 million options were outstanding.

In October 2015, CBC granted a warrant to the Company’s CEO to purchase 9.5 million shares of CBC class B common stock, which have 10 to 1 voting rights. Warrant shares totaling 4.0 million were exercisable evenly over forty months and the remaining warrant shares were exercisable if certain defined events occur within four years from date of issuance at an initial exercise price of $0.25 per share. This warrant was canceled in its entirety effective August 29, 2017.

In October 2015, the Company’s subsidiary, Scintilla, adopted the Scintilla 2015 Stock Option Plan, reserved 10.0 million shares of Scintilla class A common stock and awarded 2.1 million options to certain Company personnel, directors and consultants under such plan. Stock options granted under this plan typically vest a portion immediately upon grant and the remaining options over two to four years or monthly over four years from the grant date and have a contractual term of ten years. Effective August 29, 2017, options to purchase an aggregate of 0.8 million shares were canceled. As of September 30, 2017, 0.1 million options were outstanding.

In October 2015, Scintilla granted a warrant to the Company’s CEO to purchase 9.5 million shares of Scintilla class B common stock, which have 10 to 1 voting rights. Warrant shares totaling 4.0 million were exercisable evenly over forty months and the remaining warrant shares were exercisable if certain defined events occur within four years from date of issuance at an initial exercise price of $0.01 per share. This warrant was canceled in its entirety effective August 29, 2017.

In October 2015, the Company’s subsidiary, Sorrento Biologics, Inc. (“Biologics”), adopted the Biologics 2015 Stock Option Plan, reserved 10.0 million shares of Biologics class A common stock and awarded 2.6 million options to certain Company personnel, directors and consultants under such plan. Stock options granted under this plan typically vest a portion immediately upon grant and the remaining options over two to four years or monthly over four years from the grant date and have a contractual term of ten years. Effective August 29 2017, options to purchase an aggregate of 1.0 million shares were cancelled. As of September 30, 2017, 0.2 million~~options were outstanding.~~

In October 2015, Biologics granted a warrant to the Company’s CEO to purchase 9.5 million shares of Biologics class B common stock which have 10 to 1 voting rights. Warrant shares totaling 4.0 million were exercisable evenly over forty months and the remaining warrant shares were exercisable if certain defined events occur within four years from date of issuance at an initial exercise price of $0.01 per share. This warrant was canceled in its entirety effective August 29, 2017.

~~On August 29, 2017, the options and warrants were canceled in accordance with the terms of the Settlement Agreement and, as a result,~~2021, respectively. The total unrecognized compensation expense related to unvested stock option grants as of ~~$281 thousand associated~~March 31, 2022 was $7.0 million, with ~~these previously issued shares was accelerated and recognized upon cancellation.~~

~~The total director~~a weighted average vesting period of 1.6 years.

Employee Stock Purchase Plan

Total stock-based compensation recorded as operating ~~expenses by~~expense for the ~~Company for TNK, LA Cell, CBC, Scintilla and Biologics~~Company’s 2020 Employee Stock Purchase Plan was $0.3 million for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016 was $285 thousand and $42 thousand, respectively, and was $380 thousand and $125 thousand for the nine months ended September 30, 2017 and 2016,~~2021, respectively. ~~No unrecognized stock-based compensation expense related to unvested director stock option and warrant grants remained for these entities as~~

15

Table of September 30, 2017. The Company records equity instruments issued to non-employees as expense at their fair value over the related service period as determined in accordance with the authoritative guidance and periodically revalues the equity instruments as they vest. Stock based compensation expense related to non-employee consultants recorded as operating expenses by the Company for TNK, LA Cell, CBC, Scintilla and Biologics was $46 thousand and $47 thousand for the three months ended September 30, 2017 and 2016, respectively, and was $137 thousand and $139 thousand for each of the nine months ended September 30, 2017 and 2016, respectively.

The weighted-average assumptions used in the Black-Scholes option and warrant pricing model used by TNK, LA Cell, CBC, Scintilla and Biologics to determine the fair value of stock option grants for directors and non-employee consultants for the nine months ended September 30, 2017 were as follows: expected dividend yield – 0%, risk-free interest rate –2.42% to 2.48%, expected volatility – 65% to 77%, and expected term of 4.0 to 6.1 years.

~~2014 Stock Option Plan~~

In May 2014, the Company’s subsidiary, Ark Animal Health, Inc. (“Ark”), adopted the Ark 2014 Stock Option Plan and reserved and awarded 600,000 options to certain directors and consultants under such plan. Stock options granted under such plan typically vest a portion immediately upon grant and the remaining options over one year from the grant date and have a contractual term of ten years. Effective August 29, 2017, options to purchase an aggregate of 135,000 shares were canceled.As of September 30, 2017, 88,000 options were outstanding.

~~The total director and consultant~~Contents

CEO Performance Award

Total stock-based compensation recorded as operating ~~expenses by~~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 ~~for Ark for each of~~achieving market capitalization milestones (the “CEO Performance Award”) was $12.3million during the three months ended ~~September 30, 2017 and 2016 was $0 for each~~March 31, 2022. As of March 31, 2022, the ~~nine months ended September 30, 2017 and 2016. No~~Company had approximately $75.5 million of total unrecognized stock-based compensation expense ~~remains related to stock option grants as of September 30, 2017.~~

remaining under the CEO Performance Award.

~~14. Derivative Liability~~

On October 13, 2015, the Company wrote a call option to Cambridge, on up to 2.0 million shares of NantKwest common stock held by the Company (the “Option Agreement”). As of December 31, 2015, the Company held approximately 5.6 million shares of common stock of NantKwest, par value $.0001 per share, which was classified as available-for-sale and reported in its consolidated financial statements as marketable securities. The Option Agreement gave Cambridge the right to purchase up to 2.0 million shares at a price of $15.295 per share from time to time in the first quarter of 2016. There was no contractual option premium associated with this Option Agreement. The Option Agreement was a derivative as defined in ASC Topic 815 and was recognized at fair value every reporting period the Option Agreement was in effect, with changes in fair value recognized in current operations.

~~The call option expired unexercised on March 31, 2016 and the Company recorded a gain of $5.5 million upon the cancellation of the derivative liability.~~

~~As of September 30, 2017 and December 31, 2016, no derivative liability was recorded on the Company’s condensed consolidated balance sheets.~~

~~15.~~

10. Commitments and Contingencies

Litigation

In the normal course of business, the Company may be named as a defendant in one or more lawsuits. ~~The~~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.

~~Derivative Action Litigation~~

On April ~~25, 2016, Wildcat Liquid Alpha,~~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 (“~~WLA”~~NantPharma”) ~~filed a complaint in the Court of Chancery~~and Chief Executive Officer Patrick Soon-Shiong, related to alleged fraud and breaches of the ~~State of Delaware seeking an order compelling the Company to provide WLA with certain documents, books~~Stock Sale and ~~records for inspection and copying pursuant to an April 11, 2016 demand made by WLA (the “Inspection Demand Action”).~~

OnPurchase Agreement, dated May 13, 2016, WLA filed a derivative action in the Court of Chancery of the State of Delaware (the “WLA Action” and, together with the Inspection Demand Action, the “Actions”) against each of the members of the Company’s board of directors at the time, Henry Ji, William S. Marth, Kim D. Janda, Jaisim Shah, David H. Deming, and Douglas Ebersole (the “Prior Board”) and against the Company as nominal defendant. After the members of the Prior Board14, 2015, entered into between NantPharma and the Company, ~~moved to dismiss, on August 12, 2016, WLA~~ filed ~~an amended complaint containing both direct and derivative claims against each of the members of the Prior Board and against the Company~~ as nominal defendant, alleging, among other things: (1) breach of fiduciary duty with respect to the formation of, and certain options and warrants issued by, certain of the Company’s subsidiaries to Dr. Ji and members of the Prior Board (the “Subsidiary Options Claim”); (2) breach of fiduciary duty with respectExhibit 10.2 to the Company’s prior announcement that it had entered into a voting agreement with Yuhan Corporation (“Yuhan”) in connection with a transaction through which it purchased $10 million of shares of the Company’s common stock and warrants (the “Yuhan Agreement Claim”); (3) waste of corporate assets regarding the foregoing; (4) unjust enrichment regarding the foregoing; and (5) violation of 8 Del. C. § 160 based on the Yuhan voting agreement.

On March 17, 2017, the Company, the members of the Prior Board and WLA entered into a confidential settlement agreement and release (the “Settlement Agreement”) pursuant to which, among other things, each party agreed to forever release and not to sue the other party with respect to the claims asserted in the Actions and WLA agreed to take all actions to seek to dismiss the Actions without prejudice within ten business days following the execution of the Settlement Agreement. As part of the Settlement Agreement, the Company also agreed (1) to terminate all options and warrants currently outstanding in Company subsidiaries that have been granted to Dr. Ji and any other directors of the Company no later than 60 days after the Company’s next annual meeting of stockholders, (2) to grant WLA the right to designate a representative to attend all meetings of the Company’s board of directors in a nonvoting observer capacity, (3) to act in good faith to attempt to add two additional independent directors to the Company’s board of directors, and (4) to pay $400,000 as reimbursement for WLA’s out of pocket fees and expenses. In addition, WLA agreed to comply with a two-year standstill period, during which WLA is prohibited from engaging in certain actions relating to controlling or influencing the management of the Company. On August 29, 2017, the options and warrants were canceled in accordance with the terms of the Settlement Agreement and, as a result, unrecognized compensation expense associated with these previously issued time-vesting stock options and warrants was accelerated and recognized upon cancellation. Additionally, on September 26, 2017, the Company appointed two new independent directors to serve as members of the Board of Directors.

On May 31, 2017, the Court of Chancery of the State of Delaware entered an order providing for dismissal of the Actions without prejudice pursuant to the terms of the Settlement Agreement, to be effective upon the Company submitting to the Court of Chancery of the State of Delaware a notice of the filing of a CurrentQuarterly Report on Form ~~8-K~~10-Q filed with the Securities and Exchange Commission ~~which was~~on August 7, 2015. On May 24, 2019, NantCell, Inc., Dr. Soon-Shiong and Immunotherapy NANTibody LLC (“NANTibody”) General Counsel Charles Kim filed ~~on June 1, 2017.~~

a motion in the Los Angeles Superior Court to stay or dismiss the Company’s arbitration demand. On ~~September 8, 2016, Yvonne Williams~~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 ana legal action ~~both~~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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Table of Contents

•

An action in the Los Angeles Superior Court derivatively ~~and~~ on behalf of ~~a purported class of stockholders in the Court of Chancery~~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 ~~State~~June 11, 2015 Limited Liability Company Agreement for NANTibody entered into between the Company and NantCell, Inc. The suit also alleges breaches of ~~Delaware against each~~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 ~~members~~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 ~~Prior Board; George Ng, the Company’s Executive Vice President, Chief Administrative Officer,~~Exclusive License Agreement for certain antibodies (dated June 11, 2015 and ~~Chief Legal Officer; Jeffrey Su, the Company’s Executive Vice President & Chief Operating Officer;~~entered into between NANTibody, LLC and the ~~Company as nominal defendant, alleging: (1) breach of fiduciary duty~~Company), and alleged tortious interference with ~~respect to the Subsidiary Options Claim;~~contract. On May 24, 2019, NANTibody and (2) breach of fiduciary duty with respect to the Yuhan Agreement Claim (the “Williams Action”). The Company is unable to determine whether any loss will occur with respect to the Williams Action or to estimate the range of such potential loss; therefore, no amount of loss has been accrued by the Company as of the date of filing of this Quarterly Report on Form 10-Q. Furthermore, there is no guarantee that the Company will prevail in this suit or receive any relief if it does prevail.

~~Immunomedics Litigation~~

~~On June 26, 2015, Immunomedics, Inc. (“Immunomedics”)~~NantPharma filed a new complaint in the ~~United States~~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 ~~New Jersey (the “Immunomedics Action”)~~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 ~~Roger Williams Medical Center,~~Regulatory Affairs, Mark R. Brunswick, Ph.D. The action alleges that the Company, Dr. ~~Richard P. Junghans,~~Ji and Dr. ~~Steven C. Katz,~~Brunswick made materially false and/or misleading statements to the ~~Office~~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 ~~Board~~Securities Exchange Act of ~~Advisors~~1934, as amended, and Rule 10b-5 promulgated thereunder. The suit seeks to recover damages caused by the alleged violations of ~~Tufts University School of Medicine,~~federal securities laws, along with the plaintiffs’ reasonable costs and one or more individuals or entities to be identified later. This complaint (the "Initial Complaint") alleged, among other things: (1) breach of contract; (2) breach of covenant of good faith and fair dealing; (3) tortious interference with prospective economic gain; (4) tortious interference with contracts; (5) misappropriation; (6) conversion; (7) bailment; (8) negligence; (9) vicarious liability; and (10) patent infringement. Overall, the allegationsexpenses incurred in the ~~Initial Complaint were generally directed to an alleged material transfer agreement dated December 2008~~lawsuit, including counsel fees and Immunomedics’ alleged request for the return of certain alleged research material, as well as the alleged improper use and conversion of such research materials outside the scope of the material transfer agreement.

expert fees. On October 22, 2015, Immunomedics filed an amended complaint (the “First Amended Complaint”), which, among other things, no longer named the Board of Directors of Roger Williams Medical Center and The Office of the Board of Advisors of Tufts University School of Medicine as defendants. Roger Williams Medical Center and Tufts Medical Center were added as new defendants. On January 14, 2016, ImmunomedicsJune 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 ~~(the "Second Amended Complaint"), which, among other things, no longer named Tufts Medical Center as a defendant. In addition,~~in accordance with the ~~Second Amended Complaint contained allegations directed~~U.S. District Court for the Southern District of California’s scheduling order. Pursuant to two additional alleged material transfer agreements dated September 1993 and May 2010, respectively, and also added an allegation of unjust enrichment. The Second Amended Complaint also no longer asserted claims for (1) breach of covenant of good faith and fair dealing; (2) misappropriation; (3) bailment; (4) negligence; and (5) vicarious liability.

~~On October 12, 2016, Immunomedics filed a third amended complaint (the “Third Amended Complaint”), which added~~that scheduling order, the Company, TNK, BDL and CARgenix as defendants. TNK is a subsidiary of the Company and purchased BDL and CARgenix in August 2015. The Third Amended Complaint includes, among other things, allegations against the Company, TNK, BDL and CARgenix regarding (1) conversion; (2) tortious interference; and (3) unjust enrichment. On December 2, 2016, the Company, TNK, BDL, and CARgenixdefendants filed a motion to dismiss ~~Immunomedics’s complaint against them~~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. On or about November 18, 2021, the U.S. District Court for ~~lack of personal jurisdiction. On January 25, 2017,~~ the Southern District of ~~New Jersey granted this~~California issued an order granting the motion to dismiss with leave to amend. On November 30, 2021, Plaintiff filed a first amended consolidated complaint. On December 30, 2021, the defendants filed a motion to dismiss the first amended consolidated complaint. Pursuant to a stipulated scheduling order, the defendants filed their opposition to the motion on February 7, 2022, and the defendants filed their reply on February 28, 2022. On April 11, 2022, the U.S. District Court for the Southern District of California issued an order granting the motion to dismiss with leave to file an amended complaint by April 22, 2022. Plaintiff did not file an amended complaint by April 22, 2022. The Company ~~TNK, BDL~~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 ~~CARgenix were dismissed~~the Company’s Board of Directors as defendants, ~~from the case. The Immunomedics Action remains pending in the District of New Jersey against defendants Roger Williams Medical Center, Dr. Junghans,~~ and Dr. Katz. A trial date has not yet been set. The Company believes that the Immunomedics Action is without merit, and will vigorously defend itself against this and any further actions. However, should Immunomedics prevail against the Company ~~Roger Williams Medical Center or~~as a nominal defendant. The action alleges, among other things, that defendants ~~certain patent rights optioned, owned and/or licensed~~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 ~~Company could be at risk~~alleged breaches of ~~invalidity or enforceability, or~~duty and related claims, along with the ~~litigation could otherwise adversely impact~~plaintiffs’ reasonable costs and expenses incurred in the ~~Company’s ownership or other rights~~lawsuit, including counsel fees and expert fees. On July 27, 2021, Michael Sabatina filed a verified stockholder derivative complaint in ~~certain intellectual property. At this point in time,~~ the ~~Company is unable to determine whether any loss will occur with respect to the Immunomedics Action or to estimate the range of such potential loss; therefore, no amount of loss has been accrued by~~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

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derivative cases have been stayed by their respective courts pending resolution of the ~~date of filing of this Quarterly Report on Form 10-Q.~~

~~Operating Leases~~

motion to dismiss the federal securities class action described above. The Company ~~currently~~is defending these matters vigorously.

Operating Leases

Supplemental quantitative information related to leases includes the following ($ in ~~San Diego, California approximately 43,000 square feet~~thousands):


	Three Months Ended March 31,
	2022			2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	2,894		$	2,487
ROU assets obtained in exchange for new and amended operating lease liabilities	$	632		$	0
Weighted average remaining lease term in years	14.8			8.2
Weighted average discount rate		12.8	%		12.2	%

Maturities of corporate office and laboratory space, approximately 6,350 square feet of laboratory and office space at a second location and approximately 1,405 square feet of office space at a third location. The Company also previously leased approximately 1,800 square feet of office space in Cary, North Carolina, under a lease ~~which expired in March 2016 and was not renewed. The Company’s lease~~

~~agreements in San Diego,~~liabilities were as amended, for its corporate office and laboratory space, its second laboratory and office space and its third office space, expire in December 2026, November 2025 and September 2020, respectively. The Company also leases 25,381 square feet of office and laboratory space in Suzhou, China, which lease expires in June 2018. The Company leases 1,920 square feet of office, laboratory, and storage space in Scotland, which lease expires in March 2021.follows (in thousands):


Years ending December 31,	Operating leases
2022 (Remaining nine months)	$	10,371
2023		14,386
2024		14,410
2025		13,625
2026		13,367
2027		13,564
Thereafter		152,626
Total lease payments		232,349
Less imputed interest		(136,492	)
Total lease liabilities as of March 31, 2022	$	95,857

Additionally, the Company entered into a new lease in San Diego, California for approximately 76,700 square feet of additional corporate office and laboratory space as well as approximately 36,400 square feet for offices, facilities for cGMP fill and finish and storage space. The lease began in February of 2017 and expires in November 2023.

In July 2017, the Company entered into a new sublease in New York, New York for approximately 4,550 square feet of additional corporate office space. The sublease began in July of 2017 and expires in December 2020.

~~16.~~

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~~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~~Company’s U.S. federal and state deferred tax assets, with the exception of an amount equal to ~~its~~schedulable deferred tax liabilities, which can be expected to reverse over a definite life and an amount equal to its alternative minimum tax credits and state research and development tax credits for which there is no expiration and the deferred tax assets related to its Scilex subsidiary.

liabilities.

The Company’s income tax expense of ~~$54.4~~$1.5 million and income tax benefit of ~~$195 thousand~~$0.2 million reflect effective tax rates of ~~102.01%~~3.7% and ~~1.13%~~9.3% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively.

The difference between the expected statutory federal tax ~~expense~~rate of ~~35%~~21.0% and the ~~102.01%~~3.7% effective tax ~~expense~~rate for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2022 was primarily attributable to ~~the~~income tax expense associated with changes in valuation allowance ~~against most of the Company’s deferred tax assets~~ and the deferred tax expense related to the Company’s Celularity investment. For the nine months ended September 30, 2017, when compared to the same period in 2016, the increase in the tax expense and change in effective income tax rate was primarily attributable to the deferred tax expense recorded related to the Company’s Celularity investment.

A reconciliation of the income tax provision from operations computed by applying the statutory federal income tax rate of 35% to income (loss) from operations before income taxes to the income tax provision for the nine months ended September 30, 2017 was as follows (in thousands):

September 30, 2017
Income tax provision at federal statutory rate $ 18,661
State tax, net of federal tax benefit $ (176 )
Non-deductible expense and other $ 269
Impact of indefinite-lived deferred tax liabilities $ 38,962
Income tax credits $ (828 )
Decrease in valuation allowance $ (2,502 )
Income tax provision $ 54,386

Internal Revenue Code Section 382 rules apply to limit a corporation’s ability to utilize existing net operating loss carry forwards once the corporation experiences an ownership change as defined in the rules of Section 382. The Company’s ability to use its federal and state net operating losses may be limited due to Section 382 ownership change limitations that may have occurred or that could occur in the future. The Company has not yet completed a study to assess whether an ownership change has occurred or whether there have been changes since the Company became a “loss corporation” under the definition of Section 382. Due to the existence of the valuation allowance, it is not expected that any possible limitation will have an impactshortfalls on ~~the results of operations or financial position of the Company.~~

stock-based compensation benefits.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The ~~Company's~~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 ~~NOL~~net operating loss and research credit carryforwards.

As of September 30, 2017, the Company had approximately $2.7 million of unrecognized tax benefits that, if recognized, would impact the effective income tax rate for continuing operations, subject to possible offset by an increase in the deferred tax asset valuation allowance. As of September 30, 2016, the Company had approximately $1.8 million ofunrecognized tax benefits that, if recognized, would impact the effective income tax rate for continuing operations, subject to possible offset by an increase in the deferred tax asset valuation allowance.

~~The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes.~~

12. Net (Loss) Income Per Share

For the nine months ended September 30, 2017 and 2016, no expense was recorded related to interest and penalties. The Company believes that no significant amount of the liabilities for uncertain tax positions will expire within twelve months of September 30, 2017.

~~17. Related Party Agreements~~

During the year ended December 31, 2015, the Company entered into a joint venture called Immunotherapy NANTibody, LLC, with NantCell, a wholly-owned subsidiary of NantWorks. In July 2015, the Company contributed its portion of the initial joint funding of $40.0 million to the NANTibody joint venture. The Company and NantCell have also entered into a license agreement pursuant to which the Company received a $10.0 million upfront license payment and $100.0 million of vested NantCell common stock.

During the year ended December 31, 2015, the Company entered into a joint venture called NantCancerStemCell, LLC, with NantBioScience, a wholly-owned subsidiary of NantWorks. In connection with negotiated changes to the structure of NantStem the Company issued a call option on shares of NantKwest that it owned to Cambridge, a related party to the Company and to NantBioScience. In April 2015, the Company purchased 1.0 million shares of NantBioScience common stock for $10.0 million.

In March 2016, the Company and Yuhan entered into an agreement to form a joint venture company called ImmuneOncia Therapeutics, LLC, to develop and commercialize a number of immune checkpoint antibodies against undisclosed targets for both hematological malignancies and solid tumors. As of September 30, 2017, the carrying value of the Company’s investment in ImmuneOncia Therapeutics, LLC was approximately $8.5 million. During the three months ended ~~June 30, 2016, Yuhan purchased $10.0 million of Common Stock~~March 31, 2022 and ~~warrants.~~

In June 2016, the Company and TNK entered into a joint venture agreement with 3SBio to develop and commercialize proprietary immunotherapies, including those developed from, including or using TNK’s CAR-T technology targeting CEA positive cancers. In June 2016, 3SBio purchased $10.0 million of Common Stock and warrants.

~~On August 15, 2017, the transactions contemplated~~2021, basic (loss) income per common share is computed by dividing net loss by the ~~Contribution Agreement closed. Dr. Henry Ji,~~weighted average number of common shares outstanding during the ~~Company's Chairman~~period.

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The following table sets forth the reconciliation of basic and diluted loss per share for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts):


	Three Months Ended March 31,
	2022			2021
Numerator
Net (loss) income attributable to the Company	$	(40,815	)	$	2,510
Net (loss) income used for diluted earnings per share	$	(40,815	)	$	2,510

Denominator for basic (loss) income per share		337,123			280,604
Potentially dilutive shares from stock options, RSUs and warrants		—			17,305
Denominator for diluted (loss) income per share		337,123			297,909
Basic income (loss) per share	$	(0.12	)	$	0.01
Diluted income (loss) per share	$	(0.12	)	$	0.01

Shares of common stock issuable pursuant to stock options and warrants that would have been excluded because the effect would have been anti-dilutive consisted of the ~~Board, President~~following (in thousands):


	Three Months Ended March 31,
	2022		2021
Anti-dilutive shares for outstanding options and RSUs		23,648		2,987

13. Segment Information

The Company operates in 2 operating and ~~Chief Executive Officer, Jaisim Shah, a member of~~reportable segments, Sorrento Therapeutics and Scilex. With the ~~Company’s Board of Directors and David Deming, a member of the Company’s Board of Directors, were previously appointed as members of the board of directors of Celularity.~~

On November 8, 2016, the Company entered into the Scilex Purchase Agreement, pursuant to which the Company acquired from the Scilex Stockholders approximately 72% of the outstanding capital stock of Scilex. Dr. Henry Ji, the Company’s President and Chief Executive Officer and a member of the Company’s Board of Directors, and George K. Ng, the Company’s Vice President, Chief Administrative Officer and Chief Legal Officer, were stockholders of Scilex prior to the acquisition transaction.

~~18. Subsequent Events~~

~~Termination of Binding Term Sheet with Semnur Pharmaceuticals, Inc.~~

~~On October 6, 2017, the Semnur Binding Term Sheet was terminated without additional consideration, effective immediately. (See Note 11).~~

~~Seventh Amendment to Loan and Security Agreement~~

Pursuant to the terms of the Seventh Amendment, (i) the Company repaid Hercules, without repayment penalty, $10.0 million of the outstanding principal and unpaid interest accrued thereon on November 6, 2017, and (ii) Hercules agreed to reduce the minimum amountexception of unrestricted cash ~~that~~balances, the ~~Company must maintain under the Loan Agreement from $20.0 million to $8.0 million.~~

~~Termination~~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 ~~License Agreement with Les Laboratoires Servier~~

Effective November 6, 2017, the Servier License Agreement was terminated based on mutually agreed upon terms pursuant to the Servier License Agreement. As a result, the remaining unrecognized revenue of approximately $16.7 million associated with license fees under the Servier License Agreement will be recognized and reflectedlong-lived assets for both segments are located in the United States.

The following table presents information about the Company’s ~~fourth quarter 2017 results. (See Note 11).~~reportable segments for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022									2021
	Sorrento Therapeutics			Scilex			Total			Sorrento Therapeutics			Scilex			Total
External revenues	$	11,573		$	6,812		$	18,385		$	7,269		$	6,986		$	14,255
Operating expenses		109,651			15,617			125,268			81,877			17,283			99,160
Operating loss		(98,078	)		(8,805	)		(106,883	)		(74,608	)		(10,297	)		(84,905	)
Unrestricted cash		78,189			33,717			111,906			31,109			10,569			41,678

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

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

~~We are~~

Sorrento Therapeutics, Inc. (collectively, “Sorrento,” the “Company,” “we,” “us,” and “our”) is a clinical and commercial stage ~~biotechnology~~biopharmaceutical company ~~focused on delivering clinically meaningful therapies~~developing next generation treatments for three major therapeutic areas: cancer, infectious disease and pain.

Cancer. Our best-in-category strategy is enabled by combining our fully human G-MAB™ antibody library with our ability to patients and their families, globally. Our primary focus is to transform cancer into a treatable or chronically manageable disease. We also have programs assessing the use of our technologies and products in auto-immune, inflammatory, neurodegenerative and infectious diseases and pain indications with high unmet medical needs.

~~At our core, we are an antibody-centric company and leverage our proprietary G-MAB™ library~~rapidly screen for highly potent and targeted ~~delivery modalities~~treatments and to ~~generate~~enhance the ~~next generation of cancer therapeutics. Our validated fully human antibodies include PD-1, PD-L1, CD38, CD123, CD47, c-MET, VEGFR2, CCR2, OX40, TIGIT and CD137 among others. Our vision is to leverage~~target product profile for these antibodies ~~in conjunction with~~by leveraging our extensive proprietary ~~targeted delivery modalities to generate the next generation of cancer therapeutics. These modalities include proprietary antibody drug~~immuno-oncology platforms such as immuno-cellular therapies (“DAR-T™”), antibody-drug conjugates (“ADCs”), ~~bispecific approaches,~~oncolytic virus (“Seprehvec™”) and lymphatic drug delivery (“Sofusa™”).

Infectious Disease. We have applied our antibody capability in the fight against COVID-19. We are developing highly sensitive and rapid diagnostics, and multi-model treatments for the SARS-CoV-2 virus and its variants. Our diagnostics platforms include the COVIMARK™ lateral flow antigen test (launched as ~~well as TCR-like antibodies. With LA Cell,~~COVISTIX™ in Mexico and Brazil), COVITRACK, a LAMP-based pathogen nucleic acid detection assay, and the VIREX™ platform, which leverages existing worldwide manufacturing infrastructure for glucometers and glucose strip tests to provide affordable and highly scalable, next-generation diagnostic solutions for infectious diseases, liver cancer and other biomarkers. We are also focused on bringing forward effective therapeutic solutions, including a next generation protease inhibitor antiviral pill, COVISHIELD™ IN (neutralizing antibody nasal drops) and variant agnostic rescue therapies, FUJOVEE ™ (Abivertinib) and OQORY™ (mesynstromal stem cells).

Pain. We are focusing our efforts on non-opioid and non-addictive pain treatments. The flagship product of our pain programs, ZTlido®, is being marketed by Scilex Pharmaceuticals Inc. (“~~LA Cell”~~Scilex”), our ~~joint venture with City~~majority-owned subsidiary. ZTlido was launched in October of ~~Hope, our objective is~~2018 as a prescription lidocaine topical product and has demonstrated superior adhesion and bioavailability compared to ~~become~~current lidocaine patches. Scilex has now built a full commercial organization, which includes sales, marketing, market access and medical affairs, and will leverage capability for the ~~global leader~~potential launch of next-generation products that are currently in ~~the development~~development. The first of antibodies against intracellular targets such as STAT3, mutant KRAS, MYC, p53 and TAU. Additionally, we have acquired and are assessing the regulatory and strategic path forward for our portfolio of late stage biosimilar/biobetter antibodies based on Erbitux®~~, Remicade~~®~~, Xolair~~®~~, and Simulect~~® as these ~~may represent nearer term commercial opportunities.~~

~~Although we intend to retain ownership and control of~~ product candidates, ~~by advancing their development, we regularly also consider, (i) partnerships with pharmaceutical or biopharmaceutical companies and (ii) license or sale~~SEMDEXA™, is an injectable viscous gel formulation of ~~certain products in each case, in order~~a widely used corticosteroid designed to ~~balance~~address the ~~risks and costs~~limitations associated with ~~drug discovery,~~off label corticosteroid epidural injections. We announced positive final results for the Phase 3 trial for SEMDEXA™ in March 2022.

We are also developing Resiniferatoxin (“RTX”), a naturally occurring and ultra-potent transient receptor potential vanilloid-1 agonist. When injected peripherally, a sustained desensitization occurs, resulting in reduction of noxious chronic pain symptoms that can last for months. RTX has the potential to be a multi-indication franchise asset and is nearing pivotal studies in intractable pain associated with cancer and moderate to severe knee osteoarthritis pain.

Recent pipeline product development and ~~commercialization with efforts~~business updates

•

In March 2022, we received FDA clearance to ~~maximize~~initiate a Phase 3 clinical trial of FUJOVEE™ (Abivertinib) in severe COVID-19 patients.

•

In March 2022, we received FDA clearance to initiate a Phase 1 clinical trial of COVISHIELD IN (STI-9199).

•

In March 2022, Scilex Holding Company (“Scilex Holding”), our ~~stockholders’ returns. Our partnering objectives include generating revenue through license fees, milestone-related development fees~~majority-owned subsidiary, announced highly significant positive final results from its SP-102 (SEMDEXA™) Phase 3 Pivotal Trial C.L.E.A.R. Program.

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•

In March 2022, Scilex Holding and ~~royalties as well as profit shares or joint ventures to generate potential returns from our product candidates and technologies.~~

~~Recent Developments~~

~~Termination of Binding Term Sheet Regarding Acquisition of Semnur Pharmaceuticals, Inc.~~

~~On August 15, 2016, our subsidiary, Scintilla Pharmaceuticals, Inc.~~Vickers Vantage Corp. I (Nasdaq: VCKA; VCKAW, VCKAU) (“~~Scintilla”~~VCKA”) ~~and Semnur Pharmaceuticals, Inc. (“Semnur”)~~, a special purpose acquisition company, entered into a ~~binding term sheet (the “Semnur Binding Term Sheet”) setting forth the terms and conditions by which Scintilla would, through a subsidiary, purchase all~~definitive business combination agreement. Upon closing of the ~~issued~~transaction, which is expected to occur by the third quarter of 2022 and ~~outstanding equity~~is subject to the approval of ~~Semnur. On October 6, 2017,~~VCKA’s shareholders and the ~~Semnur Binding Term Sheet was terminated without additional consideration, effective immediately.~~

~~Public Offering~~satisfaction or waiver of ~~Common Stock~~

~~On April 13, 2017, we entered into an underwriting agreement (the “Underwriting Agreement”) with Cantor Fitzgerald & Co., as representative of~~certain other customary closing conditions, the several underwriters named therein (the “Underwriters”), relating to an underwritten public offering (the “Offering”) of 23,625,084 shares of our common stock. The public offering price was $2.00 per share of our

common stock and warrants of the ~~Underwriters agreed~~combined company are expected to ~~purchase~~be listed on the Nasdaq under the ticker symbols “SCLX” and “SCLXW”, respectively.

•

In February 2022, we acquired Virex Health, Inc. (“Virex”). The consideration transferred totaled $11.4 million, including $6.8 million in cash, $0.1 million in transaction costs paid in cash and 1,281,662 shares of our common stock, ~~pursuant to~~or $4.5 million of consideration based on the ~~Underwriting Agreement at a~~Company's closing share price on February 1, 2022. In connection with the acquisition of ~~$1.8571 per share. Under the terms of the Underwriting Agreement,~~Virex, we ~~also granted to the Underwriters an option, exercisable in whole or in part at any time for a period of 30 days from the date of the closing of the Offering, to purchase~~may pay up to ~~an additional 3,543,763 shares of our common stock at the public offering price.~~

~~On April 19, 2017, the Offering was completed and resulted~~$10.0 million in net proceeds of approximately $43.5 million (excluding any sale of shares of common stock pursuant to the option granted to the Underwriters), after deducting underwriting discounts and commissions and estimated Offering expenses payable by us.

~~Acquisition of Virttu Biologics Limited~~

On April 27, 2017, we entered into a Share Purchase Agreement (the “Virttu Purchase Agreement”) with TNK Therapeutics, Inc., our majority-owned subsidiary (“TNK”), Virttu Biologics Limited (“Virttu”), the shareholders of Virttu (the “Virttu Shareholders”) and Dayspring Ventures Limited, as the representative of the Virttu Shareholders, pursuant to which, among other things, TNK acquired from the Virttu Shareholders 100% of the outstanding ordinary shares of Virttu (the “Virttu Acquisition”).

Virttu focuses on the development of oncolytic viruses that infect and selectively multiply in and destroy tumor cells without damaging healthy tissue. Its lead oncolytic virus candidate, Seprehvir, infects and replicates in cancer cells selectively, leaving normal cells unharmed.

Under the Virttu Purchase Agreement, the total amount of the consideration payable to the Virttu Shareholders in the Virttu Acquisition is equal to $25 million, less Virttu’s net debt (the “Virttu Base Consideration”). An additional $10 million contingent consideration ~~is payable upon~~in a combination of cash and stock, subject to the achievement of certain regulatory ~~milestones (as described below) (the “Regulatory Approval Consideration”).~~milestones.

At

Impact of COVID-19 on Our Business

We are closely monitoring the ~~closing of~~COVID-19 pandemic and its potential impact on our business. In an effort to protect the Virttu Acquisition (the “Closing”), we issued to the Virttu Shareholders consideration valued at approximately $2.2 million, which consisted primarily of an aggregate of 797,081 shares (the “Virttu Closing Shares”) and approximately $557,000 in cash (the “Cash Consideration”). The issuance of the Closing Shares and the payment of the Cash Consideration satisfied TNK’s obligation to pay 20% of the Virttu Base Consideration at the Closing. Under the terms of the Virttu Purchase Agreement, we agreed to provide additional consideration to the Virttu Shareholders, as follows:

(1) Upon a financing resulting in gross proceeds (individually or in the aggregate) to TNK of at least $50.0 million (a “Qualified Financing”), TNK will issue to the Virttu Shareholders an aggregate number of shares of its capital stock (“TNK Capital Stock”) as is equal to the quotient obtained by dividing 80% of the Virttu Base Consideration by the lowest per share price paid by investors in the Qualified Financing (the “TNK Financing Consideration”); provided, however, that 20% of the TNK Financing Consideration shall be held in escrow until April 27, 2018 (the “Financing Due Date”), to be used to, among other things, satisfy the indemnification obligations of the Virttu Shareholders. In the event that a Qualified Financing does not occur, then on the Financing Due Date, we will issue to the Virttu Shareholders an aggregate number of shareshealth of our ~~common stock as is equal~~employees we continue to ~~the quotient obtained by dividing 80%~~enforce standard safety protocols at our facilities and have implemented employee travel policies. For further information, refer to Part, II, Item 1A of ~~the Virttu Base Consideration, by $5.55 (as adjusted, as appropriate, to reflect any stock splits or similar events affecting our common stock after the Closing).~~

~~(2) Within 45 business days after Virttu becomes aware that certain governmental bodies in the United States, the European Union, the United Kingdom or Japan have approved for commercialization,~~this Quarterly Report on ~~or before October 26, 2024, Seprehvir (or any enhancement, combination or derivative thereof) as a monotherapy or in combination with one or more other active components (each~~Form 10-Q and “Part I –Item 1A - Risk Factors” of the first two such approvals by a governmental body being a “Regulatory Approval”), TNK shall pay half of the Regulatory Approval Consideration to the Virttu Shareholders, in a combination of (a) up to $5.0 million in cash (the “Regulatory Approval Cash”) and/or (b) (i) such number of shares of our common stock as is equal to the quotient obtained by dividing $5.0 million less the Regulatory Approval Cash (the “Regulatory Approval Share Value”) by the 30 Day VWAP (as defined below) of one share of our common stock; (ii) if TNK has completed its first public offering of TNK Capital Stock, the number of shares of TNK Capital Stock as is equal to the quotient obtained by dividing the Regulatory Approval Share Value by the 30 Day VWAP of one share of TNK Capital Stock; or (iii) such number of shares of common stock of a publicly traded company as is equal to the quotient obtained by dividing the Regulatory Approval Share Value by the volume weighted average price of the relevant security, as reported on the Nasdaq Capital Market (or other principal stock exchange or securities market on which the shares are then listed or quoted) for the thirty trading days immediately following the receipt of Regulatory Approval (the “30 Day VWAP”), with the composition of the Regulatory Approval Consideration to be at TNK’s option. In order for a second regulatory approval to qualify as a Regulatory Approval under the Purchase Agreement, the second approval must be granted by a different governmental body in a different jurisdiction than that which granted the first Regulatory Approval.

~~Celularity Transaction~~

On November 1, 2016, we loaned $5.0 million to Celularity, Inc., a research and development company (“Celularity”), pursuant to a promissory note issued by us to Celularity, as amended (as so amended, the “Celularity Note”), in connection with the entry into a nonbinding term sheet by us, TNK and Celularity. Pursuant to the terms of the Celularity Note, the loan will be due and payable in full on the earlier of November 1, 2017 and the occurrence of an event of default under the Celularity Note (the “Maturity Date”). In the event that Celularity meets certain minimum financing conditions prior to the Maturity Date, all outstanding amounts under the Celularity Note shall be forgiven and converted to equity. On May 31, 2017, we loaned an additional $2.0 million to Celularity pursuant to the terms of the Celularity Note. On June 14, 2017, we loaned an additional $1.0 million to Celularity. Additionally, on July 7, 2017, we loaned an additional $2.0 million to Celularity.

On June 12, 2017, we entered into a Contribution Agreement (the “Contribution Agreement”) with TNK and Celularity, pursuant to which, among other things, we and TNK agreed to contribute certain intellectual property rights related to our proprietary chimeric antigen receptor (“CAR”) constructs and related CARs to Celularity in exchange for shares of Celularity’s Series A Preferred Stock equal to 25% of Celularity’s outstanding shares of capital stock, calculated on a fully-diluted basis (the "Celularity Shares").

On August 15, 2017, the transactions contemplated by the Contribution Agreement closed and, on such date, among other things, (a) Celularity issued the Celularity Shares to TNK, and (b) we, TNK and Celularity entered into a License and Transfer Agreement (the "License Agreement"). Pursuant to the License Agreement (i) TNK and we agreed to provide to Celularity (1) our CAR constructs and related CARs for use worldwide in combination with placenta-derived cells and/or cord blood-derived cells for the treatment of any disease or disorder except that anti-CD38 CAR constructs and related CARs may also be used in adult cells for the treatment of multiple myeloma unless TNK exercises its termination rights, and (2) our know-how relating to the foregoing, (ii) TNK and we granted to Celularity a limited, perpetual, transferable and sublicensable license and covenant not to sue with respect to certain of their patents and other intellectual property rights, which license is exclusive for a subset of such patents, and (iii) Celularity agreed to pay to~~TNK 50% of the first $200 million and 20% thereafter of any upfront and milestone payments that Celularity receives in connection with any sublicense of acombination of anti-CD38 CAR constructs and either placenta-driven cells and/or cord blood–derived cells or adult cells.~~

~~Critical Accounting Policies and Estimates~~

Management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which are prepared in accordance with GAAP. 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 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.

During the quarter ended September 30, 2017, there were no significant changes to the items that we disclosed as our critical accounting policies and estimates in Note 3 to our consolidated financial statements for the year ended December 31, 2016 contained in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016, as amended, as~~2021, filed with the ~~SEC.~~

SEC on March 11, 2022.

Results of Operations

~~The following describes certain line items set forth in our condensed consolidated statements of operations.~~

Comparison of the Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~

2021

Revenues. ~~Revenues were $121.9~~


	Three Months Ended March 31,				Increase (decrease)
	2022		2021		$			%
	(in thousands, except percentages)
Sorrento Therapeutics segment
Product revenues	$	3,178	$	37	$	3,141		8489%
Service revenues		8,395		7,232		1,163		16%
Total revenues	$	11,573	$	7,269	$	4,304		59%
Scilex segment
Product revenues	$	6,812	$	6,986	$	(174	)	(2%)
Total revenues	$	18,385	$	14,255	$	4,130		29%

The increase in revenues in our Sorrento Therapeutics segment was attributed to $3.1 million ~~for~~in COVISTIX™ product sales during the three months ended September 30, 2017, as compared to $2.2 million for the three months ended September 30, 2016. The net increase of $119.7 million is primarily due to an increase in our royalty and license revenue of $117.1 million resulting primarily from our collaboration arrangements.

In June 2014, the National Institute of Allergy and Infectious Diseases (“NIAID”), a division of the National Institutes of Health, or NIH awarded us a Phase II STTR grant to support the advanced preclinical development of human bispecific antibody therapeutics to prevent and treat ~~Staphylococcus aureus~~ (~~S. aureus~~ ~~or Staph) infections, including methicillin-resistant~~ ~~S. aureus~~ (MRSA), or the Staph Grant III award. The project period for this Phase II grant covers a two-year period which commenced in June 2014, which was subsequently extended by one year, with total funds available of approximately $1 million per year. During the three months ended September 30, 2017 and 2016, we recorded $11 thousand and $135 thousand of revenue, respectively, associated with the Staph Grant III award.

We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the unpredictability of the demand for products and services offered as well as the timing and amount of grant awards, research and development reimbursements and other payments received under any strategic collaborations, if any.

March 31, 2022.

Cost of ~~revenues~~Revenues.


	Ended March 31,				Increase
	2022		2021		$		%
	(in thousands, except percentages)
Sorrento segment	$	4,614	$	2,534	$	2,080	82%
Scilex segment		1,144		852		292	34%
Total cost of revenues	$	5,758	$	3,386	$	2,372	70%

Cost of revenues ~~for the three months ended September 30, 2017 and 2016 were $1.1 million and $0.4 million, respectively, and~~ relate to product sales, the sale of customized reagents and providing contract ~~development~~manufacturing services. ~~The~~These costs generally include employee-related expenses, including salary and benefits, direct materials and overhead costs including rent, depreciation, utilities, facility maintenance and insurance.

The increase in cost of ~~$667 thousand is primarily attributable to increased indirect costs associated~~revenues in our Sorrento Therapeutics segment was consistent with the growth in revenues.

The increase in cost of revenues in our Scilex segment was driven by higher gross sales ~~and service revenues for next generation homogenous antibody drug conjugate development.~~

volumes of ZTlido.

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Research and Development (“R&D”) Expenses. ~~Research and development expenses for the three months ended September 30, 2017 and 2016 were $16.6 million and $10.4 million, respectively. Research anddevelopment~~


	Ended March 31,				Increase (decrease)
	2022		2021		$			%
	(in thousands, except percentages)
Sorrento segment	$	61,346	$	41,114	$	20,232		49%
Scilex segment		2,631		2,719		(88	)	(3%)
Total research and development expenses	$	63,977	$	43,833	$	20,144		46%

R&D expenses include ~~the costs to advance our CAR-T programs for solid tumors, our RTX program towards entering into future clinical trials, our biosimilar/biobetter antibodies development, costs to identify, isolate~~expenses associated with isolating and ~~advance~~advancing human antibody drug candidates derived from our libraries, as well as advancing our COVID-19, SP-102, SP-103, RTX, oncolytic viruses, ADC ~~preclinical drug candidates, preclinical testing expenses~~ and ~~the expenses associated with fulfilling our development obligations related to the NIH grant awards, collectively the NIH Grants.~~oncology programs. Such expenses consist primarily of salaries and ~~personnel related~~personnel-related expenses, stock-based compensation expense, clinical development expenses, preclinical testing, lab supplies, consulting costs, depreciation and other expenses.

The increase ~~of $6.2 million is primarily attributable to~~in R&D expenses in our Sorrento Therapeutics segment was driven by higher headcount and increased payroll expense for research and development. We expect research and development expenses to increase in absolute dollars as we: (i) advance our CAR-T programs, (ii) advance RTX into clinical trials and pursue other potential indications, the cost of acquiring, developing and manufacturing clinical trial materials, and other regulatory operating activities, (iii) advance our biosimilar/biobetter antibodies clinical development ~~program, (iv) incur incremental~~costs across our various R&D programs.

The decrease in R&D expenses associated with our efforts to further advance a number of potential product candidates into preclinical development activities, (v) continue to identify and advance a number of fully human therapeutic antibody and ADC preclinical product candidates, (vi) incur higher salary, lab supply and infrastructure costs incurred in connection with supporting all of our programs, and (vii) invest in our ~~JVs or other third party agreements.~~

Scilex segment was driven by lower clinical development expenses.

Acquired In-process Research and Development Expenses.

Acquired in-process research and development expenses ~~for~~during the three months ended ~~September 30, 2017~~March 31, 2022 totaled $12.3 million, which included $11.7 million related to our acquisition of Virex.

Acquired in-process research and ~~2016 were $902,000 and $0, respectively.~~

~~General and Administrative Expenses. General and administrative~~development expenses ~~for~~during the three months ended ~~September 30, 2017 and 2016 were $10.2~~March 31, 2021 totaled $7.5 million and ~~$5.3 million, respectively.~~related to licensing arrangements entered into during the period.

Selling, General and ~~administrative~~Administrative (“SG&A”)Expenses.


	Ended March 31,				Increase (decrease)
	2022		2021		$			%
	(in thousands, except percentages)
Sorrento segment	$	33,419	$	30,618	$	2,801		9%
Scilex segment		10,908		12,776		(1,868	)	(15%)
Total sales, general and administrative expenses	$	44,327	$	43,394	$	933		2%

SG&A expenses ~~consist primarily of~~relate to salaries and ~~personnel related~~personnel-related expenses, ~~for executive, finance and administrative personnel,~~ stock-based compensation expense, professional fees, infrastructure expenses, legal and ~~accounting expenses and~~ other general corporate expenses.

~~We expect general and administrative expenses to~~

The increase in ~~absolute dollars as we: (i) incur incremental~~SG&A expenses ~~associated with expanded operations and development efforts, (ii) compliance with our public reporting obligations, (iii) increased infrastructure costs, and (iv) invest~~ in our ~~JVs or other third party agreements.~~

~~Intangible Amortization~~Sorrento Therapeutics segment was attributed to increases in salary expenses, facilities expenses and professional fees as we have expanded our employee headcount and infrastructure since the same period of the prior year.

The decrease in SG&A expenses in our Scilex segment was attributed to lower professional fees.

Gain on Derivative Liabilities. ~~Intangible amortization~~Gain on derivative liabilities for the three months ended ~~September 30, 2017 and 2016~~March 31, 2022 was ~~$656 thousand and $112 thousand, respectively. The increase in the three months ended September 30, 2017 as~~$7.5 million compared to ~~the same period in 2016 is due to the intangible assets acquired as part of the Scilex acquisition in the fourth quarter of the prior year.~~

~~Gain (loss) on equity investments. Income (Loss) on equity investments~~$2.2 million for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~ was ~~$(507) thousand~~attributed to revised probabilities and ~~$323 thousand, respectively.~~

revised sales forecasts as further described in Note 3of 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 $68.5 million of unrealized gains related to the change in fair value of our shares of Celularity Inc. (“Celularity”).

Loss on debt extinguishment. In each of the three months ended March 31, 2022 and 2021, we recorded a loss on debt extinguishment of $4.8 million and $7.1 million, respectively, in connection with repurchases of outstanding principal on the Scilex Notes (as defined below).

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Interest Expense, net. Interest expense for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 was ~~$1.2~~$3.2 million and ~~$0.2~~$2.4 million, respectively. The increase inresulted from interest expense ~~resulted primarily from higher average borrowings under~~related to the ~~amended loan and security agreement.~~

~~Interest~~ ACEA significant debt arrangements as discussed below.

Income ~~(Expense)~~Tax Expense. ~~Interest income~~Income tax expense for the three months ended ~~September 30, 2017 and 2016~~March 31, 2022 was ~~$(265) thousand and $26 thousand, respectively. We expect that continued low interest rates will significantly limit our interest~~$1.5 million as compared to income ~~in the near term.~~

~~Income~~ tax ~~expense (benefit). Income tax~~benefit of $0.2 million for the three months ended ~~September 30, 2017 and 2016 was expense of $57.5 million and benefit of $(195,000), respectively.~~March 31, 2021. The increase in income tax expense ~~resulted mainly from the intangibles transferred~~was primarily attributable to ~~Celularity as a result of the closing of Contribution Agreement~~changes in ~~the quarter.~~

valuation allowance and shortfalls on stock-based compensation benefits.

Net ~~Income~~Loss (Income) . Net ~~income~~loss (income) for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 was ~~$37.5~~$40.5 million and ~~$15.7~~$2.4 million, respectively.

~~Comparison of the Nine Months Ended September 30, 2017 and 2016~~

~~Revenues~~. Revenues were $131.4 million for the nine months ended September 30, 2017, as compared to $4.1 million for the nine months ended September 30, 2016. The net increase of $127.3 million is primarily due to an increase in our royalty and license revenues of $121.9 million resulting primarily from our collaboration arrangements.

In June 2014, the National Institute of Allergy and Infectious Diseases (“NIAID”), a division of the National Institutes of Health, or NIH awarded us a Phase II STTR grant to support the advanced preclinical development of human bispecific antibody therapeutics to prevent and treat ~~Staphylococcus aureus~~ (~~S. aureus~~ ~~or Staph) infections, including methicillin-resistant~~ ~~S. aureus~~ (MRSA), or the Staph Grant III award. The project period for this Phase II grant covers a two-year period which commenced in June 2014, which was subsequently extended by one year, with total funds available of approximately $1 million per year. During the nine months ended September 30, 2017 and 2016, we recorded $206 thousand and $592 thousand of revenue, respectively, associated with the Staph Grant III award.

We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the unpredictability of the demand for products and services offered as well as the timing and amount of grant awards, research and development reimbursements and other payments received under any strategic collaborations, if any.

~~Cost of revenues~~. Cost of revenues for the nine months ended September 30, 2017 and 2016 were $3.0 million and $1.1 million, respectively, and relate to the sale of customized reagents and providing contract development services. The costs generally include employee-related expenses including salary and benefits, direct materials and overhead costs including rent, depreciation, utilities, facility maintenance and insurance. The increase of $1.9 million is primarily attributable to increased indirect costs associated with the higher sales and service revenues for next generation homogenous antibody drug conjugate development.

~~Research and Development Expenses. Research and development expenses for the nine months ended September 30, 2017 and 2016 were $42.7 million and $28.9 million, respectively. Research and~~development expenses include the costs to advance our CAR-T programs for solid tumors, our RTX program towards entering into future clinical trials, our biosimilar/biobetter antibodies development, costs to identify, isolate and advance human antibody drug candidates derived from our libraries as well as advancing our ADC preclinical drug candidates, preclinical testing expenses and the expenses associated with fulfilling our development obligations related to the NIH grant awards, collectively the NIH Grants. 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. The increase of $13.8 million is primarily attributable to increased payroll expense for research and development. We expect research and development expenses to increase in absolute dollars as we: (i) advance our CAR-T programs, (ii) advance RTX into clinical trials and pursue other potential indications, the cost of acquiring, developing and manufacturing clinical trial materials, and other regulatory operating activities, (iii) advance our biosimilar/biobetter antibodies clinical development program, (iv) incur incremental expenses associated with our efforts to further advance a number of potential product candidates into preclinical development activities, (v) continue to identify and advance a number of fully human therapeutic antibody and ADC preclinical product candidates, (vi) incur higher salary, lab supply and infrastructure costs incurred in connection with supporting all of our programs, and (vii) invest in our JVs or other third party agreements.

~~Acquired In-process Research and Development Expenses~~. Acquired in-process research and development expenses for the nine months ended September 30, 2017 and 2016 were $1.1 million and $45.0 million, respectively. The decrease is due to cost associated with the purchase price of the license rights from Mabtech Limited and the purchase price of the license rights from the City of Hope in the prior year.

~~General and Administrative Expenses~~. General and administrative expenses for the nine months ended September 30, 2017 and 2016 were $31.2 million and $14.0 million, respectively. General and administrative expenses consist primarily of salaries and personnel related expenses for executive, finance and administrative personnel, stock-based compensation expense, professional fees, infrastructure expenses, legal and accounting expenses and other general corporate expenses. The increase of $17.2 million is primarily attributable to higher salaries and related compensation expenses resulting from new hires and higher transaction costs.

We expect general and administrative expenses to increase in absolute dollars as we: (i) incur incremental expenses associated with expanded operations and development efforts, (ii) compliance with our public reporting obligations, (iii) increased infrastructure costs, and (iv) invest in our JVs or other third party agreements.

~~Intangible Amortization~~. Intangible amortization for the nine months ended September 30, 2017 and 2016 was $1.9 million and $0.3 million, respectively. The increase in the nine months ended September 30, 2017 as compared to the same period in 2016 is due to the intangible assets acquired as part of the Scilex acquisition in the fourth quarter of the prior year.

~~Income (loss) on equity investments. Income (loss) on equity investments for the nine months ended September 30, 2017 and 2016 was $(2,557) thousand and $294 thousand, respectively.~~

~~Interest Expense~~. Interest expense for the nine months ended September 30, 2017 and 2016 was $4.0 million and $0.8 million, respectively. The increase in interest expense resulted primarily from higher average borrowings under the amended loan and security agreement.

~~Interest Income~~. Interest income for the nine months ended September 30, 2017 and 2016 was $192 thousand and $84 thousand, respectively. We expect that continued low interest rates will significantly limit our interest income in the near term.

~~Income tax expense (benefit)~~. Income tax expense for the nine months ended September 30, 2017 and 2016 was $54.4 million and $(195,000), respectively. The increase in income tax expense resulted mainly from the intangibles transferred to Celularity as a result of the closing of Contribution Agreement in the quarter.

~~Net Loss. Net loss for the nine months ended September 30, 2017 and 2016 was $1.1 million and $46.0 million, respectively.~~

Liquidity and Capital Resources

As of ~~September 30, 2017,~~March 31, 2022, we had ~~$38.3~~$111.9 million in cash and cash ~~equivalents attributable~~equivalents. We have principally financed our operations through the liquidation of our short-term investments, 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 ~~part~~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 the ~~net proceeds received under the loan~~liquidation of our marketable investments, equity and ~~security agreement~~debt financings or through corporate collaboration, grant agreements and license agreements. We can give no assurances that we and certain of our domestic subsidiaries (collectively, the “Borrowers”) entered into with Hercules Capital, Inc. (“Hercules”) on November 23, 2016, as amended (as so amended, the “Loan Agreement”). As of September 30, 2017, we had $24.6 million of long term debt associated with the Loan Agreement. The Loan Agreement contains covenants requiring us (i)will be able to achieve certain fundraising requirements by certain dates, and (ii) to maintain $20.0 million of U.S. unrestricted cash prior to achieving the corporate and fundraising milestones. The Offering (as described below) satisfied the fundraising requirements and fundraising milestone. We are currently in compliance with these covenants, and have plans in place to maintain compliance with these covenants. Effective November 6, 2017, we and Hercules entered into an amendment to the Loan Agreement that reduced the minimum amount of U.S. unrestricted cash that we must maintain under the Loan Agreement to $8.0 million (see the disclosure in Part II, Item 5 of the Quarterly Report on Form 10-Q for additional details). To the extent we are unable to execute on these plans to maintain compliance with these covenants, or we are unable to amend the Loan Agreement to maintainsecure such compliance then we would be in default under the Loan Agreement and the outstanding loan balance may be declared immediately due and payable. If the outstanding loan balance was payable in the next 12 months and we are unable to secure additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing ~~we would not have enough cash~~will be sufficient to ~~fund~~meet our ~~operating and capital requirements for the next 12 months.~~ 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. ~~These factors raise substantial doubt about~~

We anticipate that we will continue to incur net losses into the foreseeable future as we: (i) advance our ~~ability~~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, (iv) incur our share of joint venture and collaboration costs, and (v) expand our business through the acquisition of new businesses, technologies and license agreements.

Marketable Investments

As of March 31, 2022, we owned 19,922,124 shares of Class A Common Stock of Celularity (Nasdaq: CELU) that are subject to ~~continue~~transfer restrictions, the latest of which is set to expire 365 days after July 16, 2021. We also owned 500,000 shares of Class A common Stock of Celularity not subject to transfer restrictions.

Equity Offerings

In December 2021, we amended the amended and restated sales agreement (as amended, the “ATM Sales Agreement”) whereby we may issue and sale shares of our common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, through Cantor Fitzgerald & Co., B. Riley Securities, Inc. and H.C. Wainwright & Co., LLC, as sales agents, to increase the amount of shares of our common stock that we may sell thereunder by an additional $5.0 billion in shares of our common stock. During the first quarter of 2022, we sold an aggregate of 58,875,143 shares of our common stock pursuant to the ATM Sales Agreement for aggregate net proceeds to us of approximately $164.4 million. Subsequent to March 31, 2022 and through April 29, 2022, we sold an aggregate of 15,064,368 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to us of approximately $28.4 million.

Scilex Notes

During the quarter ended March 31, 2022, Scilex Pharma repurchased $21.6 million in principal amount of the Scilex Notes. As of March 31, 2022, the aggregate principal amount of the Scilex Notes totaled $112.4 million.

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Bridge Loan Agreement (“Bridge Loan”)

On February 16, 2022, we entered into a ~~going concern. Our financial statements~~Bridge Loan pursuant to which we borrowed $45.0 million. The Bridge Loan bears no interest and ~~related notes thereto included elsewhere~~will mature on June 16, 2022. Upon the occurrence, and during the continuance, of an “Event of Default”, the Bridge Loan shall bear interest at the rate of 15% per annum. During the three months ended March 31, 2022, we repaid $10.0 million of the Bridge Loan. We repaid $10.0 million of the Bridge Loan in ~~this Quarterly Report on Form 10-Q do not include any adjustments~~April 2022.

ACEA Significant Debt Arrangements

The outstanding principal amount under ACEA significant debt arrangements assumed in connection with our 2021 acquisition of ACEA was $30.4 million as of March 31, 2022. The ACEA significant debt arrangements are comprised of a series of loans with maturity dates that ~~might result~~range from August 15, 2023 to August 15, 2028. Each loan is interest free for the ~~outcome~~first five years, after which time the interest rate is 5.39% per annum.

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 ~~this uncertainty.~~

certain events. 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.

Cash Flow Summary


	March 31, 2022			March 31, 2021
	(in thousands)
Net cash provided by (used by)
Operating activities	$	(83,360	)	$	(48,057	)
Investing activities		(13,664	)		(2,006	)
Financing activities		173,369			35,357

Use of Cash

Cash Flows from Operating Activities. Net cash used ~~for operating~~reflects the cash spent on our research activities ~~was $54.3 million for~~and cash spent to support the ~~nine months ended September 30, 2017 and is primarily attributable to~~commercial launch of our ~~net loss of $1.1 million and $54.4 million of deferred tax provision, offset by non-cash cost method investments of $116.2 million.~~

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~~third-party agreements.

Cash Flows from Investing Activities. Net cash used ~~for~~by investing activities was ~~$14.9~~$6.5 million ~~for~~and related to the ~~nine months ended September 30, 2017 as compared~~Virex acquisition consideration paid in cash, approximately $2.6 million primarily attributed to ~~$5.0~~expenditures on laboratory equipment, and $4.5 million ~~for the nine months ended September 30, 2016. The net cash used~~ related ~~primarily~~ to ~~equipment acquired for research~~other acquisitions and ~~development activities and investment in Celularity.~~

~~We expect to increase our investment in equipment as we seek to expand and progress our research and development capabilities.~~

investments.

Cash Flows from Financing Activities~~. Net cash provided by financing activities was $25.2 million for the nine months ended September 30, 2017 as compared to net cash provided financing of $86.6 million for the nine months ended~~

~~September 30, 2016, which was primarily due to the repayment associated with the amended loan and security agreement in the current year.~~

~~Future Liquidity Needs~~. We have principally financed our operations through underwritten public offerings and private equity financings with aggregate net proceeds of approximately $201.1 million, as we have not generated any product related revenue from our principal operations to date, and do not expect to generate significant revenue for several years, if ever. 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. As and if necessary, we will seek to raise additional funds through various potential sources, such as equity and debt financings, or through corporate collaboration 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.

We anticipate that we will continue to incur net losses into the foreseeable future as we: (i) advance RTX and other product candidates into clinical trials and potentially pursue other development, (ii) continue to identify and advance a number of potential mAb and ADC product candidates into preclinical development activities, (iii) continue our development of, and seek regulatory approvals for, our product candidates, (iv) expand our corporate infrastructure, including the costs associated with being a NASDAQ listed public company, and (v) incur our share of joint venture and collaboration costs for our products and technologies.

We plan to continue to fund our 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.

In November 2014, we filed a universal shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC in December 2014. This Shelf Registration Statement provides us with the ability to offer up to $250 million of securities, including equity and other securities as described in the registration statement. Included in the November 2014 shelf registration is a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $50.0 million of our common stock that may be issued and sold under a sales agreement with MLV & Co. LLC (the “ATM Facility”). During the ~~twelve months ended December 31, 2016 and the nine months ended September 30, 2017,~~first quarter of 2022, we ~~sold approximately $3.6~~received $164.4 million ~~and $2.1 million in~~from sales of shares of common stock under the ATM Facility, respectively. We can offer up to $41.8 million of additional shares of common stock under the ATM Facility, subject to certain limitations. On April 19, 2017, we completed the Offering of $47.5 million shares ofour common stock pursuant to the ~~shelf registration statement~~ATM Sales Agreement, proceeds from short-term debt of $57.1 million and ~~received net~~ proceeds of ~~approximately $43.5 million.~~

~~Pursuant~~$0.1 million from common stock option exercises. We repaid an aggregate of $21.6 million of the principal of the Scilex Notes, of which $15.2 million was attributed to ~~this Shelf Registration Statement, we may offer additional securities from time~~principal included within financing activities and $6.4 million was attributed to ~~time~~effective interest included in operating activities. We also repaid $33.1 million in other short-term debt.

Critical Accounting Policies and ~~through one or more methods~~Estimates

Management’s discussion and analysis of ~~distribution, subject~~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 ~~market conditions~~make estimates and ~~our capital needs. Specific terms~~judgments that affect the reported amounts of assets and ~~prices will be determined~~liabilities, related disclosure of contingent assets and liabilities at the ~~time~~date of ~~each offering~~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

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to be reasonable under ~~a separate prospectus supplement, which will be~~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, 2021, filed with the SEC aton March 11, 2022, and there have been no material changes during the ~~time~~three months ended March 31, 2022.

Material Cash Requirements

As of ~~any offering.~~

On April 3, 2016, we entered into a Securities Purchase Agreement (the “ABG Purchase Agreement”) with ABG SRNE Limited and Ally Bridge LB Healthcare Master Fund Limited (collectively, “Ally Bridge”), pursuant to which, among other things, we agreed to issue and sell to Ally Bridge and other purchasers that may be designated by Ally Bridge (collectively, the “ABG Purchasers”), in a private placement transaction (the “ABG Private Placement”), up to $50.0 million in shares of our common stock (“Common Stock”) and warrants to purchase shares of Common Stock. Upon the closingMarch 31, 2022, there were no material changes outside of the ~~ABG Private Placement, we issued to~~ordinary course of business, in our outstanding material contractual obligations from those disclosed under the ~~ABG Purchasers (1) an aggregate~~heading “Material Cash Requirements” within “Management’s Discussion and Analysis of ~~9,009,005 shares (the “ABG Shares”)~~Financial Condition and Results of ~~Common Stock,~~and (2) warrants to purchase an aggregate of 2,702,700 shares of Common Stock (each, an “ABG Warrant”). Each ABG Warrant had an exercise price of $8.50 per share, was immediately exercisable upon issuance, had a term of three years and was exercisableOperations” in our Annual Report on ~~a cash or cashless exercise basis.~~

~~Under~~Form 10-K for the ~~terms of the ABG Purchase Agreement, we were obligated to prepare and file~~fiscal year ended December 31, 2021, filed with the SEC within 30 days of the closing date of the ABG Private Placement, a registration statement to register for resale the ABG Shares and the shares of Common Stock issuable upon exercise of each ABG Warrant (the “ABG Warrant Shares”), and may be required to effect certain registrations to register for resale the ABG Shares and the ABG Warrant Shares in connection with certain “piggy-back” registration rights granted to the ABG Purchasers.

On April 3, 2016, we also entered into a Securities Purchase Agreement (collectively, the “Additional Purchase Agreements”) with each of Beijing Shijilongxin Investment Co., Ltd. ( “Beijing Shijilongxin”), FREJOY Investment Management Co., Ltd. (“Frejoy”) and Yuhan, pursuant to which, among other things, we agreed to issue and sell, in separate private placement transactions: (1) to Beijing Shijilongxin, 8,108,108 shares of Common Stock, and a warrant to purchase 1,176,471 shares of Common Stock, for an aggregate purchase price of $45.0 million; (2) to Frejoy, 8,108,108 shares of Common Stock, and a warrant to purchase 1,176,471 shares of Common Stock, for an aggregate purchase price of $45.0

million; and (3) to Yuhan, 1,801,802 shares of Common Stock, and a warrant to purchase 235,294 shares of Common Stock, for an aggregate purchase price of $10.0 million. The warrants to be issued pursuant to each of the Additional Purchase Agreements (collectively, the “Additional Warrants” and, together with each ABG Warrant, the “Warrants”) had an exercise price of $8.50 per share, were immediately exercisable upon issuance, had a term of three years and were exercisable on ~~a cash or cashless exercise basis.~~

Under the terms of the Additional Purchase Agreements, each of Beijing Shijilongxin, Frejoy and Yuhan had the right to demand, at any time beginning six months after the closing of the transactions contemplated by the applicable Additional Purchase Agreement, that we prepare and file with the SEC a registration statement to register for resale such investor’s shares of Common Stock purchased pursuant to the applicable Additional Purchase Agreement and the shares of Common Stock issuable upon exercise of such investor’s Additional Warrant. In addition, we may be required to effect certain registrations to register for resale such shares in connection with certain “piggy-back” registration rights granted to Beijing Shijilongxin, Frejoy and Yuhan.

On May 2, 2016, we closed our private placement of common stock and warrants with Yuhan for gross proceeds of $10.0 million. Yuhan purchased 1,801,802 shares of common stock at $5.55 per share and a warrant to purchase 235,294 shares of common stock. The warrant was exercisable for three years at an exercise price of $8.50 per share.

Between May 31, 2016 and June 7, 2016, we closed on the remainder of the $150.0 million financing. The ABG Purchasers led the financing and, together with Beijing Shijilongxin and Frejoy, collectively purchased 25,225,221 shares of common stock at $5.55 per share, and warrants to purchase 5,055,642 shares of common stock for total consideration of $140.0 million.

On November 23, 2016, we and the other Borrowers entered into the Loan Agreement with Hercules. The Loan Agreement provides for a term loan of up to $75.0 million, subject to funding in multiple tranches (the “Term Loan”). The proceeds of the Term Loan will be used for general corporate purposes and coincided with the repayment of the outstanding debt financing arrangement with Oxford Finance LLC and Silicon Valley Bank.

~~The first tranche of $50.0 million of the Term Loan was funded upon execution of the Loan Agreement on November 23, 2016. Under the terms of the Loan Agreement, as most recently amended in~~ March 2017, the Borrowers may, but are not obligated to, request additional funds of up to $25.0 million which are available until June 30, 2018, subject to approval by Hercules’ Investment Committee. The Term Loan will mature on December 1, 2020.

On December 31, 2016, we entered into Warrant and Note Cancellation and Share Forfeiture Agreements (the “Cancellation and Forfeiture Agreements”) with certain investors (the “Investors”) that held an aggregate of 7,838,259 shares of Common Stock and certain of the Warrants granting the right to purchase an aggregate of 1,137,316 shares of Common Stock. The Investors had also issued to us secured promissory notes (the “Notes”) in an aggregate principal amount of $53.5 million, of which $43.5 million was then outstanding. Pursuant to the Cancellation and Forfeiture Agreements, effective December 31, 2016, the Warrants held by the Investors and the Notes were cancelled and the shares of Common Stock held by the Investors were forfeited and returned to us.

On April 13, 2017, we entered into the Underwriting Agreement with the Underwriters, relating to the Offering of 23,625,084 shares of our common stock. The public offering price was $2.00 per share of our common stock and the Underwriters agreed to purchase the shares of common stock pursuant to the Underwriting Agreement at a price of $1.8571 per share. Under the terms of the Underwriting Agreement, we also granted to the Underwriters an option, exercisable in whole or in part at any time for a period of 30 days from the date of the closing of the Offering, to purchase up to an additional 3,543,763 shares of our common stock at the public offering price.

On April 19, 2017, the Offering was completed and resulted in net proceeds of approximately $43.5 million (excluding any sale of shares of common stock pursuant to the option granted to the Underwriters), after deducting underwriting discounts and commissions and estimated Offering expenses payable by us.

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

~~Off-Balance Sheet Arrangements~~

~~Since our inception through September 30, 2017, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.~~

11, 2022.

New Accounting Pronouncements

~~Refer to Note 1, “Nature of Operations and Business Activities,” in the accompanying notes to the condensed consolidated financial statements for a discussion of recent accounting pronouncements.~~

None.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Interest Rate Risk.~~ ~~Our exposure to~~

There have been no material changes in our market risk ~~is confined to our cash and cash equivalents. 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~~during the three months ended March 31, 2022 compared to the ~~low risk profile~~disclosures in Part II, Item 7A of our ~~investments, an immediate 10% change in interest rates would not have a material effect~~Annual Report on Form 10-K for the ~~fair market value of our portfolio. The interest rate under our loan and security agreement~~year ended December 31, 2021, filed with ~~Hercules Capital, Inc. is calculated at a prime-based variable rate, currently at 10.0%. We do not believe that we have any material exposure to interest rate risk arising from our investments.~~

~~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~~the SEC 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.

March 11, 2022.

Item 4. Controls and Procedures.

~~We maintain disclosure controls~~

Evaluation of Disclosure Controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s regulations, rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, underProcedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, ~~of the effectiveness of the design and operation~~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 our 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 ~~end~~desired control objectives and in reaching a reasonable level of assurance. As a result, management was required to apply its judgment in evaluating the ~~period covered by this Quarterly~~cost-benefit relationship of possible controls and procedures.

As described in Item 9A of our Annual Report on Form ~~10-Q. Based~~10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 11, 2022, as a result of our former Chief Financial Officer`s passing in early 2022 as well as other considerations, management concluded that we did not employ sufficient accounting resources with appropriate experience and technical expertise to effectively execute controls over certain judgmental accounting areas. As a result, we identified certain of our control activities in the ~~foregoing,~~areas of revenue, business combinations, investments, debt, derivative liabilities and leases did not operate effectively and have been deemed deficient and the combination of the aforementioned deficiencies represents a material weakness in our internal control over financial reporting as of December 31, 2021.

To remediate the material weakness described above and to prevent similar deficiencies in the future, we are currently evaluating additional controls and procedures, which may include, but are not limited to:

• engaging additional independent third-party technical consultants to assist in performing the accounting analysis of complex transactions in the above mentioned accounting areas;

• recruiting and employing personnel with appropriate experience and technical expertise to enhance management’s review significant activities in the above-mentioned accounting areas; and

• conducting additional training for staff involved in the transactions in the above-mentioned accounting areas.

Our management will continue to improve the respective process and controls over the accounting areas affected by the identified material weakness. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

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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, ~~concluded that our disclosure controls and procedures were not effective as~~we carried out an evaluation of ~~the end of the period covered by this Quarterly Report on Form 10-Q as a result of the material weakness described below.~~

In March 2017, in connection with the preparation of our 2016 financial statements, we identified certain purchase agreements which contained terms for contingent consideration that were not identified timely and accounted for in our historical financial statements on a timely basis. Further, certain other purchase agreements containing terms for contingent consideration were identified timely, but we failed to adjust the liabilities forany potential changes ~~in fair value at each subsequent reporting period. Accordingly, we did not appropriately account for liabilities for contingent consideration payable and the related adjustments to earnings.~~

Based on these findings and the criteria discussed above, our management identified a material weakness in our review controls over unusual or non-recurring and significant transactions. Specifically, our controls were not properly designed to provide reasonable assurance that we (1) timely identify and assess the accounting implications of terms in unusual or non-recurring agreements and (2) reassess the valuation of associated assets or liabilities at the end of each reporting period.

As a result of the material weakness, we have initiated and will continue to implement remediation measures including, but not limited to, improving centralized documentation control, improving the internal communication procedures between senior executive management, accounting personnel, and related business owners, leveraging external accounting experts as appropriate, and strengthening policies and procedures related to the transferring of responsibilities and the handoff of personnel duties. We believe that our remediation measures will ensure that we timely identify terms in agreements that could have material accounting implications, assesses the accounting and disclosures implications of the terms, and accounts for such items in the financial statements appropriately. Any failure to implement these improvements to our internal control over financial reporting may render our future assertions as ineffective and potentially impact our ability to produce reliable financial reports, effectively manage the company or prevent fraud, and could potentially harm our business and our performance.

~~Changes in Internal Control Over Financial Reporting~~

~~There has been no change~~ in our internal control over financial reporting during the fiscal quarter ~~ended September 30, 2017~~covered by this Quarterly Report on Form 10-Q. Except for the controls and procedures being evaluated as described above, there has been no change to our internal control over financial reporting during our most recent fiscal quarter that ~~has~~our certifying officer concluded materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ~~As identified above, a material weakness was identified in our internal control over financial reporting as~~

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Table of ~~September 30, 2017. Our plans for remediating such material weakness, which would constitute changes in our internal control over financial reporting prospectively, are also enumerated above.~~

Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

To

The information under the ~~best of our knowledge, we (the “Company”) are not a party to any legal proceedings that, individually or~~caption “Litigation” set forth in Note 10 in the ~~aggregate, are deemed to be material to our financial condition or results of operations.~~

In the normal course of business, we may be named as a defendant in one or more lawsuits. We are 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 our financial condition or results of operations.

~~Derivative Action Litigation~~

On April 25, 2016, Wildcat Liquid Alpha, LLC (“WLA”) filed a complaint in the Court of Chancery of the State of Delaware seeking an order compelling the Company to provide WLA with certain documents, books and records for inspection and copying pursuant to an April 11, 2016 demand made by WLA (the “Inspection Demand Action”). On May 13, 2016, WLA filed a derivative action in the Court of Chancery of the State of Delaware (the “WLA Action” and, together with the Inspection Demand Action, the “Actions”) against each of the members of the Company’s board of directors at the time, Henry Ji, William S. Marth, Kim D. Janda, Jaisim Shah, David H. Deming, and Douglas Ebersole (the “Prior Board”) and against the Company as nominal defendant. After the members of the Prior Board and the Company moved to dismiss, on August 12, 2016, WLA filed an amended complaint containing both direct and derivative claims against each of the members of the Prior Board and against the Company as nominal defendant, alleging, among other things: (1) breach of fiduciary duty with respectaccompanying notes to the formation of, and certain options and warrants issued by, certain of the Company’s subsidiaries to Dr. Ji and members of the Prior Board (the “Subsidiary Options Claim”); (2) breach of fiduciary duty with respect to the Company’s prior announcement that it had entered into a voting agreement with Yuhan Corporation (“Yuhan”)consolidated financial statements in connection with a transaction through which it purchased $10 million of shares of the Company’s common stock and warrants (the “Yuhan Agreement Claim”); (3) waste of corporate assets regarding the foregoing; (4) unjust enrichment regarding the foregoing; and (5) violation of 8 Del. C. § 160 based on the Yuhan voting agreement.

On March 17, 2017, the Company, the members of the Prior Board and WLA entered into a confidential settlement agreement and release (the “Settlement Agreement”) pursuant to which, among other things, each party agreed to forever release and not to sue the other party with respect to the claims asserted in the Actions and WLA agreed to take all actions to seek to dismiss the Actions without prejudice within ten business days following the execution of the Settlement Agreement. As part of the Settlement Agreement, the Company also agreed (1) to terminate all options and warrants currently outstanding in Company subsidiaries that have been granted to Dr. Ji and any other director of the Company no later than 60 days after the Company’s next annual meeting of stockholders, (2) to grant WLA the right to designate a representative to attend all meetings of the Company’s board of directors in a nonvoting observer capacity, (3) to act in good faith to attempt to add two additional independent directors to the Company’s board of directors, and (4) to pay $400,000 as reimbursement for WLA’s out of pocket fees and expenses. In addition, WLA agreed to comply with a two-year standstill period, during which WLA is prohibited from engaging in certain actions relating to controlling or influencing the management of the Company. On August 29, 2017, the options and warrants were canceled in accordance with the terms of the Settlement Agreement.

On May 31, 2017, the Court of Chancery of the State of Delaware entered an order providing for dismissal of the Actions without prejudice pursuant to the terms of the Settlement Agreement, to be effective upon the Company submitting to the Court of Chancery of the State of Delaware a notice of the filing of a Current Report on Form 8-K with the Securities and Exchange Commission, which was filed on JunePart I, Item 1 ~~2017.~~

On September 8, 2016, Yvonne Williams filed an action both derivatively and on behalf of a purported class of stockholders in the Court of Chancery of the State of Delaware against each of the members of the Prior Board; George Ng, the Company’s Executive Vice President, Chief Administrative Officer, and Chief Legal Officer; Jeffrey Su, the Company’s Executive Vice President & Chief Operating Officer; and the Company as nominal defendant, alleging: (1) breach of fiduciary duty with respect to the Subsidiary Options Claim; and (2) breach of fiduciary duty with respect to the Yuhan Agreement Claim (the “Williams Action”). The Company is unable to determine whether any loss will occur with respect to the Williams Action or to estimate the range of such potential loss; therefore, no amount of loss has been accrued by the Company as of the date of filing of this Quarterly Report on Form ~~10-Q. Furthermore, there~~10-Q is ~~no guarantee that the Company will prevail in this suit or receive any relief if it does prevail.~~

~~Immunomedics Litigation~~

On June 26, 2015, Immunomedics, Inc. (“Immunomedics”) filed a complaint in the United States District Court for the District of New Jersey (the “Immunomedics Action”) against the Board of Directors of Roger Williams Medical Center, Dr.

Richard P. Junghans, Dr. Steven C. Katz, the Office of the Board of Advisors of Tufts University School of Medicine, and one or more individuals or entities to be identified later. This complaint (the “Initial Complaint”) alleged, among other things: (1) breach of contract; (2) breach of covenant of good faith and fair dealing; (3) tortious interference with prospective economic gain; (4) tortious interference with contracts; (5) misappropriation; (6) conversion; (7) bailment; (8) negligence; (9) vicarious liability; and (10) patent infringement. Overall, the allegations in the Initial Complaint were generally directed to an alleged material transfer agreement dated December 2008 and Immunomedics’ alleged request for the return of certain alleged research material, as well as the alleged improper use and conversion of such research materials outside the scope of the material transfer agreement.

On October 22, 2015, Immunomedics filed an amended complaint (the “First Amended Complaint”), which, among other things, no longer named the Board of Directors of Roger Williams Medical Center and The Office of the Board of Advisors of Tufts University School of Medicine as defendants. Roger Williams Medical Center and Tufts Medical Center were added as new defendants. On January 14, 2016, Immunomedics filed a second amended complaint (the “Second Amended Complaint”), which, among other things, no longer named Tufts Medical Center as a defendant. In addition, the Second Amended Complaint contained allegations directed to two additional alleged material transfer agreements dated September 1993 and May 2010, respectively, and also added an allegation of unjust enrichment. The Second Amended Complaint also no longer asserted claims for (1) breach of covenant of good faith and fair dealing; (2) misappropriation; (3) bailment; (4) negligence; and (5) vicarious liability.

On October 12, 2016, Immunomedics filed a third amended complaint (the “Third Amended Complaint”), which added the Company, TNK Therapeutics, Inc. (“TNK”), BDL Products, Inc. (“BDL”), and CARgenix Holdings LLC (“CARgenix”) as defendants. TNK is a subsidiary of the Company and purchased BDL and CARgenix in August 2015. The Third Amended Complaint includes, among other things, allegations against the Company, TNK, BDL and CARgenix regarding (1) conversion; (2) tortious interference; and (3) unjust enrichment. On December 2, 2016, the Company, TNK, BDL, and CARgenix filed a motion to dismiss Immunomedics’s complaint against them for lack of personal jurisdiction. On January 25, 2017, the District of New Jersey granted this motion, and the Company, TNK, BDL and CARgenix were dismissed as defendants from the case. The Immunomedics Action remains pending in the District of New Jersey against defendants Roger Williams Medical Center, Dr. Junghans, and Dr. Katz. A trial date has not yet been set. The Company believes that the Immunomedics Action is without merit, and will vigorously defend itself against this and any further actions. However, should Immunomedics prevail against the Company, Roger Williams Medical Center or other defendants, certain patent rights optioned, owned and/or licensedincorporated herein by the Company could be at risk of invalidity or enforceability, or the litigation could otherwise adversely impact the Company’s ownership or other rights in certain intellectual property. At this point in time, the Company is unable to determine whether any loss will occur with respect to the Immunomedics Action or to estimate the range of such potential loss; therefore, no amount of loss has been accrued by the Company as of the date of filing of this Quarterly Report on Form 10-Q.

reference.

Item 1A. Risk Factors.

Our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, filed with the SEC on March 11, 2022, in 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, ~~2016.~~2021, filed with the SEC on March 11, 2022. 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 have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.

As of March 31, 2022 and December 31, 2021, we had an accumulated deficit of $1,427.4 million and $1,386.6 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), STI-1492 (anti-CD38 DAR-T), STI-6643 (anti-CD47 antibody), SP-103, SEMDEXATM and our other product candidates, including our COVID-19 related product candidates, STI-2099 (COVIDROPS), STI-9167 (COVISHIELD), STI-8282 (COVI-MSC) 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 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 Bioserv Corporation, Levena Biopharma US Inc., Scilex Holding Company (“Scilex Holding”) 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.

Risks Related to our Business and Industry

We are ~~heavily dependent~~involved, and may become involved in the future, in disputes and other legal or regulatory proceedings that, if adversely decided or settled, could materially and adversely affect our business, financial condition and results of operations.

We are, and may in the future become, party to litigation, regulatory proceedings or other disputes. For example, on April 3, 2019, we 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 ~~success~~drug Cynviloq™ from our 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. As an additional example, on May 26, 2020, Wasa Medical Holdings filed a putative federal securities class action against us, our President, Chief Executive Officer and Chairman of the Board of Directors, Henry Ji, Ph.D., and our SVP of Regulatory Affairs, Mark R. Brunswick, Ph.D., alleging that we, Dr. Ji and Dr. Brunswick made materially false and/or misleading statements to the investing public regarding STI-1499 and its ability to inhibit the SARS-CoV-2 virus infection. A second putative federal securities class action was filed in the U.S. District Court for the Southern District of California against the same defendants alleging the same claims and seeking the same relief. In general, claims made by or against us in disputes and other legal or regulatory proceedings can be expensive and time consuming to bring or defend against, requiring us to expend significant resources and divert the efforts and attention of our ~~technologies~~management and ~~product candidates, and~~ other personnel from our business operations. While we intend to pursue any claims made by us, or defend against any claims brought against us, vigorously,

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we cannot ~~give~~predict the outcomes of such claims. Any failure to prevail in any ~~assurance that~~claims made by us or any ~~of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.~~

~~To date, we have invested a significant portion of our efforts and financial resources~~adverse determination against us in these proceedings, or even the allegations contained in the ~~acquisition~~claims, regardless of whether they are ultimately found to be without merit, may also result in settlements, injunctions or damages that could have a material adverse effect on our business, financial condition and ~~development~~results of ~~our product candidates. We have not demonstrated our ability~~operations.

Our plan to ~~perform~~complete the ~~functions necessary for~~transaction contemplated by the ~~successful acquisition, development or commercialization of the technologies we are seeking~~business combination agreement between Scilex Holding Company and Vickers Vantage Corp. I is subject to ~~develop. As an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the~~various risks and uncertainties ~~frequently encountered by companies in new~~ and rapidly evolving fields, particularly in the biopharmaceutical area. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize such product candidates. Our product candidates are currently in preclinical development or in clinical trials. Our business depends entirely on the successful development and commercialization of our product candidates, which may never occur. We currently generate no revenues from sales of any drugs, and we may never be able to develop or commercialize a marketable drug.

~~The successful development, and any commercialization, of our technologies and any product candidates would require us to successfully perform a variety of functions, including:~~

~~developing our technology platform;~~

~~seeking and obtaining intellectual property and/or proprietary rights to our technology and/or the technology of others;~~

~~identifying, developing, manufacturing and commercializing product candidates;~~

~~entering into successful licensing and other arrangements with product development partners;~~

~~participating in regulatory approval processes;~~

~~formulating and manufacturing products; and~~

~~conducting sales and marketing activities.~~

Our operations have been limited to organizing our company, acquiring, developing and securing our proprietary technology and identifying and obtaining early preclinical data or clinical data for various product candidates. These operations provide a limited basis for you to assess our ability to continue to develop our technology, identify product candidates, develop and commercialize any product candidates we are able to identify and enter into successful collaborative arrangements with other companies, as well as for you to assess the advisability of investing in our securities. Each of these requirements will require substantial time, effort and financial resources.

Each of our product candidates will require additional preclinical or clinical development, management of preclinical, clinical and manufacturing activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the U.S. Food and Drug Administration (the “FDA”), the United Kingdom’s Medicines and Healthcare Products Regulatory Agency (the “MHRA”), the European Medicines Agency (“EMA”) or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. In addition, our product development programs contemplate the development of companion diagnostics by our third-party collaborators. Companion diagnostics are subject to regulation as medical devices and must themselves be approved for marketing by the FDA, the MHRA, the EMA or certain other foreign regulatory agencies before we may commercialize our product candidates.

The regulatory approval processes of the FDA, the MHRA, the EMA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval from the FDA, the MHRA, the EMA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

~~We may fail to receive regulatory approval for our product candidates for many reasons, including the following:~~

~~the FDA, the MHRA, the EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;~~

we may be unable to demonstrate to the satisfaction of the FDA, the MHRA, the EMA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

~~the results of clinical trials may not meet the level of statistical significance required for approval by the FDA, the MHRA, the EMA or comparable foreign regulatory authorities;~~

~~the FDA, the MHRA, the EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;~~

~~the data collected from clinical trials of our product candidates~~ may not be ~~sufficient to support~~completed in accordance with the ~~submission~~expected plans or anticipated timeline, or at all and may not achieve the intended benefits, and will involve significant time, expense and management attention, any of which could negatively impact our businesses, financial condition and results of operations.

While we have previously announced that our majority owned subsidiary, Scilex Holding Company, entered into an ~~NDA,~~agreement and plan of merger (the “Business Combination Agreement”) with Vickers Vantage Corp. I, a ~~marketing authorization application~~Cayman Islands exempted company (“~~MAA”~~Vickers”) and Vantage Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Vickers (“Merger Sub”), there is no assurance that the transaction will be consummated. If the transactions contemplated by the Business Combination Agreement are not completed on favorable terms or ~~other submission~~at all, or ~~to obtain regulatory approval~~during the prescribed time period set forth in the ~~U.S.,~~Business Combination Agreement, we may experience negative reactions from the ~~United Kingdom,~~financial markets and from our stockholders. Moreover, even if the ~~European Union~~business combination is ultimately completed, there is no assurance that we will realize the intended benefits from such transaction. Further, we will be required to devote significant management and employee attention and resources to matters relating to the business combination. These matters have the potential to disrupt us from conducting business operations or ~~elsewhere;~~

~~the FDA, the MHRA, the EMA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical~~pursuing other business strategies and ~~commercial supplies;~~

~~the FDA, the MHRA, the EMA or comparable foreign regulatory authorities may fail to approve the companion diagnostics we contemplate developing with partners; and~~

~~the approval policies or regulations of the FDA, the MHRA, the EMA or comparable foreign regulatory authorities may significantly change in a manner rendering~~could adversely affect our ~~clinical data insufficient for approval.~~

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, financial condition, results of operations and ~~prospects.~~

~~In addition, even~~cash flows.

Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from our mergers and acquisitions could have an adverse impact on our financial condition and results of operations.

The total purchase price pertaining to our acquisitions in recent years have been allocated to net tangible assets, identifiable intangible assets, in-process research and development and goodwill. We evaluate goodwill and indefinite-lived intangible assets for impairment annually in our fiscal fourth quarter, or more frequently if ~~we were to obtain approval, regulatory authorities~~events or changes in circumstances indicate that the carrying value of a reporting unit may ~~approve any~~not be recoverable. We evaluate finite-lived intangible assets and long-lived assets for impairment if events or changes in circumstances indicate that the carrying value of the long-lived asset may not be recoverable. The assessment of impairment involves significant judgment and projections about future performance.

Future declines in the results of our ~~product candidates for fewer~~acquisitions and other factors could cause us to record an impairment of all or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a ~~product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any~~portion of the ~~foregoing scenarios could materially harm~~relevant goodwill in the ~~commercial prospects for our product candidates.~~

~~Other than a new drug application submitted by Scilex for Scilex’s lead product candidate, ZTlido~~^TM, we have not previously submitted a BLA or an NDA to the FDA, an MAA to the MHRA or the EMA or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if our clinical trials are successful. If we do not receive regulatory approvals for our product candidates, wefuture. We may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in some instances, upon our collaborators’ ability to obtain regulatory approval of the companion diagnostics to be used with our product candidates, as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patients that we are targeting for our product candidates are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

We plan to seek regulatory approval to commercialize our product candidates in the U.S., the United Kingdom, the European Union and in additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions. Further, the United Kingdom has voted to withdraw from the European Union. We cannot predict what consequences the withdrawal of the United Kingdom from the European Union might have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions.

We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully perform their contractual legal and regulatory duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates andachieve our business ~~could be substantially harmed.~~

~~We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data~~targets for ~~our ongoing preclinical and clinical programs. We rely on these parties for execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless,~~businesses we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with current good clinical practices (“cGCP”), which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, and comparable foreign regulatory authorities for all of our product candidates in clinical development.

~~Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we~~previously acquired or any of our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the MHRA, the EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications or may not approve our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with cGCP regulations. In addition, our clinical trials must be conducted with product produced under current good manufacturing practices (“cGMP”) regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for

other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delaysacquire in the future, which could result in our incurring additional goodwill and other intangible assets impairment charges. Further declines in our market capitalization increase the risk that we may be required to perform another goodwill impairment analysis, which could result in an impairment of up to the entire balance of our goodwill based on the quantitative assessment performed.

Moreover, to the extent the value of goodwill or ~~that these delays~~identifiable intangible assets or ~~challenges~~other long-lived assets become impaired, we will ~~not~~be required to incur material charges relating to the impairment. Any impairment charges could have a material adverse impact on our ~~business, financial condition~~results of operations and ~~prospects.~~

Ifthe market value of our common stock.

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Investors’ expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.

There is an increasing focus from certain investors, employees, regulators and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance (“ESG”) factors. Some investors and investor advocacy groups may use these factors to guide investment strategies and, in some cases, investors may choose not to invest in our company if they believe our policies relating to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement of corporate responsibility performance, and a variety of organizations currently measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. Investors, particularly institutional investors, use these ratings to benchmark companies against their peers and if we ~~cannot compete successfully against~~are perceived as lagging with respect to ESG initiatives, certain investors may engage with us to improve ESG disclosures or performance and may also make voting decisions, or take other ~~biotechnology and pharmaceutical companies, we may not be successful in developing and commercializing our technology~~actions, to hold us and our ~~business will suffer.~~

~~The biotechnology and pharmaceutical industries are characterized by intense competition and rapid technological advances, both in the U.S. and internationally.~~board of directors accountable. In addition, the ~~competition~~criteria by which our corporate responsibility practices are assessed may change, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate. We may face reputational damage in the ~~oncology and pain management markets, and~~event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies. In addition, the SEC has announced proposed rules that, among other ~~relevant markets,~~matters, will establish a framework for reporting of climate-related risks. To the extent the proposed rules impose additional reporting obligations, we could face increased costs. Separately, the SEC has also announced that it is ~~intense. Even~~scrutinizing existing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege our existing climate disclosures are misleading or deficient.

We may face reputational damage in the event our corporate responsibility initiatives or objectives do not meet the standards set by our investors, stockholders, lawmakers, listing exchanges or other constituencies, or if we are ~~able~~unable to ~~develop~~achieve an acceptable ESG or sustainability rating from third-party rating services. A low ESG or sustainability rating by a third-party rating service could also result in the exclusion of our ~~product candidates, proprietary platform technology and/or additional antibody libraries, each will compete~~common stock from consideration by certain investors who may elect to invest with ~~a number of existing and future technologies and product candidates developed, manufactured and marketed~~our competition instead. Ongoing focus on corporate responsibility matters by others. Specifically, we will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agenciesinvestors and other public and private research organizations. Many of these competitors have validated technologies with products already FDA-approved or in various stages of development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs and have substantially greater financial resources than we do, as well as significantly greater experience in:

~~developing product candidates and technologies generally;~~

~~undertaking preclinical testing and clinical trials;~~

~~obtaining FDA and other regulatory approvals of product candidates;~~

~~formulating and manufacturing product candidates; and~~

~~launching, marketing and selling product candidates.~~

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling and marketing their products as well. Smaller or early-stage companies or generic or biosimilar pharmaceutical manufacturers may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis drug products that are more effective or less costly than any drug candidate that we are currently developing or that we may develop. If approved, our product candidates will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors and later enter the market.

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA, the MHRA, the EMA or other regulatory approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business. If our technologies fail to compete effectively against third party technologies, our business will be adversely impacted.

~~We expect that our ability to compete effectively will depend upon our ability to:~~

~~successfully and efficiently complete clinical trials and submit for and obtain all requisite regulatory approvals in a cost-effective manner;~~

~~obtain and maintain a proprietary position for our products and manufacturing processes and other related product technology;~~

~~attract and retain key personnel;~~

~~develop relationships with physicians prescribing these products; and~~

~~build an adequate sales and marketing infrastructure for our product candidates.~~

Because we will be competing against significantly larger companies with established track records, we will have to demonstrate that, based on experience, clinical data, side-effect profiles and other factors, our product candidates, if approved, are competitive with other products.

Our global operations are exposed to political and economic risks, commercial volatility and events beyond our control in the countries in which we operate, some of which may be enhanced by our recent acquisition of Virttu Biologics Limited.

On April 27, 2017, we acquired Virttu Biologics Limited, which is based in the United Kingdom. In addition to challenges specific to the United States, our operations, including but not limited to our operations outside of the United States, are subject to a variety of political and economic risks, including risks arising from:

~~unexpected changes in international or domestic legal, regulatory or governmental requirements or regulations, including related to intellectual property or the biopharmaceutical industry;~~

~~unexpected increases in taxes or tariffs;~~

~~trade protection measures or import or export licensing requirements;~~

~~the inability to obtain necessary foreign regulatory or pricing approvals of products in a timely manner;~~

~~fluctuations in foreign currency exchange rates;~~

~~difficulties in staffing and managing international operations;~~

~~less favorable intellectual property or other applicable laws;~~

~~the effects of the implementation of the United Kingdom’s decision to voluntarily depart from the European Union;~~

~~currency controls that restrict or prohibit the payment of funds or the repatriation of earnings to the United States;~~

~~increased costs of compliance with general business and tax regulations in these countries or regions;~~

~~divergent legal systems and regulatory frameworks; and~~

~~political and economic instability or corruption.~~

~~These risks and others~~parties as described above may impose additional costs or expose us to new risks. Any failure or perceived failure by us in ~~our Annual Report on Form 10-K for the year ended December 31, 2016~~

~~may~~this regard could have a material adverse effect on our ~~global operations~~reputation and on our business, share price, financial condition, or results of operations, including the sustainability of our business over time.

We are subject to recently enacted state laws in California that require gender and diversity quotas for boards of directors of public companies headquartered in California.

In September 2018, California enacted Senator Bill 826 (“SB 826”), which generally requires public companies with principal executive offices in California to have at least two female directors on its board of directors if the company has at least five directors, and at least three female directors on its board of directors if the company has at least six directors.

Additionally, on September 30, 2020, California enacted Assembly Bill 979 (“AB 979”), which generally requires public companies with principal executive offices in California to include specified numbers of directors from “underrepresented communities”. A director from an “underrepresented community” means a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender. By December 31, 2021, each public company with principal executive offices in California was required to have at least one director from an underrepresented community. By December 31, 2022, a public company with more than four but fewer than nine directors will be required to have a minimum of two directors from underrepresented communities, and a public company with nine or more directors will need to have a minimum of three directors from underrepresented communities. On April 1, 2022, the Los Angeles Superior Court declared AB 979 unconstitutional and, although it is unclear whether this decision may be appealed, the State of California is currently precluded from enforcing AB 979.

We cannot assure that we can recruit, attract and/or retain qualified members of the board and meet gender quotas as required by SB 826, and our board of directors does not currently satisfy the quota required under SB 826. A failure to comply with SB 826 could result in fines from the California Secretary of State, with a $100,000 fine for the first violation and a $300,000 fine for each subsequent violation of SB 826, and our reputation may be adversely affected.

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.

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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 January 3, 2022 to April 29, 2022, our closing stock price ranged from $1.51 to $4.90 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;

• 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 March 31, 2022, 35.6 million shares of our common stock were reserved for issuance under our equity incentive plans, of which 21.5 million shares of our common stock were subject to options outstanding at such date at a weighted-average exercise price of $6.16 per share, 2.8 million shares of our common stock were subject to outstanding restricted stock units, 4.1 million shares of our common stock were reserved for issuance pursuant to our 2019 Stock Incentive Plan and 7.2 million shares of our common stock were reserved for issuance pursuant to our 2020 Employee Stock Purchase Plan. 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.

We have identified a material weakness in our internal control over financial reporting, and our financial controls and procedures may not in the future be sufficient to ensure timely and reliable reporting of financial information, which could, if not remediated, result in a material misstatement in our financial statements and could adversely affect our future results of operations, our stock price, and our ability to raise capital.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As previously disclosed on our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2022, our former Chief Financial Officer passed away unexpectedly on January 6, 2022. Due in large part to the unexpected passing of our former Chief Financial Officer, our management has identified that we did not employ sufficient accounting resources with appropriate experience and technical expertise to effectively execute controls over certain judgmental accounting areas. As a result, certain of our control activities in the areas of revenue, business combinations, investments, debt, derivative liabilities and leases did not operate effectively and have been deemed deficient and the combination of the aforementioned deficiencies represented a material weakness in our internal control over financial reporting as of December 31, 2021. The material weakness did not result in a restatement of previously issued annual consolidated financial statements or condensed interim consolidated financial statements.

As a result of the material weakness, we are in the process of evaluating remediation measures including, but not limited to, engagement of: (1) engaging additional independent third-party technical consultants to assist in performing the accounting analysis of complex transactions in the above mentioned accounting areas; (2) recruiting and employing personnel with appropriate experience and technical expertise to enhance management’s review significant activities in the above-mentioned accounting areas; and (3) conducting additional training for staff involved in the transactions in the above-mentioned accounting areas.. We believe that our remediation measures, if effectively implemented, will provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). We cannot assure you that the measures we have taken to date or any measures we may take in response to the material weakness in the future will be sufficient to remediate such material weakness or to avoid potential future material weaknesses. Any failure to implement these improvements to our internal control over financial reporting would result in a continued material weakness in our internal control and could impact our ability to produce reliable financial reports, effectively manage the company or prevent fraud, and could potentially harm our business and our performance. Even if we develop effective controls, these new controls may become inadequate because of changes in conditions or the degree of compliance with these policies or procedures may deteriorate. If we experience future material weaknesses or deficiencies in internal controls and we are unable to correct them in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC, will be adversely affected. Any such failure could negatively affect the market price and trading liquidity of our common stock, lead to delisting, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.

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

None.

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Item 3.Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

~~Seventh Amendment to Loan and Security Agreement~~

On November 6, 2017, the Borrowers and Hercules (as defined below) entered into an amendment (the “Amendment”) to the Loan Agreement. Pursuant to the terms of the Amendment, (1) we repaid Hercules, without repayment penalty, $10.0 million of the outstanding principal and unpaid interest accrued thereon on November 6, 2017, and (2) Hercules agreed to reduce the minimum amount of unrestricted cash that we must maintain under the Loan Agreement from $20.0 million to $8.0 million.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment, which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference. Certain terms of the Amendment have been omitted from this Quarterly Report on Form 10-Q and the version of the Amendment filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q pursuant to a Confidential Treatment Request submitted to the SEC.

~~Termination of License Agreement with Les Laboratoires Servier~~

Effective November 6, 2017, our license and collaboration agreement, dated July 6, 2016 (the "Servier License Agreement"), with Les Laboratoires Servier, SAS, a corporation incorporated under the laws of France, and Institut de Recherches Internationales Servier, a company duly organized and existing under the laws of France, was terminated based on mutually agreed upon terms pursuant to the Servier License Agreement.

None.

Item 6. Exhibits.

EXHIBIT INDEX



10.1* Exhibit No.		Description

2.1*^		~~License~~Agreement and ~~Transfer~~Plan of Merger, dated January 14, 2022, by and among Sorrento Therapeutics, Inc., VH Merger Sub I, Inc., VH Merger Sub II, LLC, Virex Health, Inc. and Fortis Advisors LLC, as representative of the stockholders of Virex Health, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 17, 2022).

2.2*		Agreement and Plan of Merger, dated as of March 17, 2022, by and among Vickers Vantage Corp. I, Vantage Merger Sub Inc. and Scilex Holding Company (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2022.).

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 ~~August 15,~~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.~~, TNK Therapeutics, Inc.~~ and ~~Celularity, Inc.~~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).

~~10.2~~ 4.5		~~Amendment No. 2~~Form of Common Stock Purchase Warrant issued to ~~Contribution~~investors pursuant to the Securities Purchase Agreement, dated as of ~~August 10,~~December 11, 2017, by and among Sorrento Therapeutics, Inc.~~, TNK~~ 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 ~~Celularity, Inc.~~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).

10.3* 4.7		~~Seventh Amendment~~Form of Common Stock Purchase Warrant issued to ~~Loan~~investors pursuant to the Securities Purchase Agreement, dated as of June 13, 2018, by and ~~Security~~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).

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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).

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, ~~2017,~~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		Bridge Loan Agreement, dated as of February 16, 2022, by and between Sorrento Therapeutics, Inc. and B. Riley Commercial Capital, LLC.

10.2#		Outside Director Compensation Policy.

10.3		Sponsor Support Agreement, dated as of March 17, 2022, by and among Vickers Vantage Corp. I and each of the Persons set forth on Schedule I attached thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2022).

10.4		Company Stockholder Support Agreement, dated as of March 17, 2022, by and among Sorrento Therapeutics, Inc., ~~certain of its domestic subsidiaries,~~Scilex Holding Company and ~~Hercules Capital, Inc.~~Vickers Vantage Corp. I. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2022).

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 Dean Ferrigno,~~and 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 ~~Dean Ferrigno,~~ 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
~~101.SCH~~		Inline XBRL Taxonomy Extension Schema Document
101.CAL
~~101.CAL~~		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
~~101.DEF~~		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
~~101.LAB~~		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
~~101.PRE~~		Inline XBRL Taxonomy Extension Presentation Linkbase Document


* 104	~~The Registrant has requested confidential treatment with respect to certain portions of~~	Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL) (embedded within the ~~exhibit. Omitted portions have been filed separately with the SEC.~~Inline XBRL document)

33

Table of Contents

* Non-material schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC.

^ Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) information that the Registrant treats as private or confidential. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC.

# Management contract or compensatory plan.

34

Table of Contents

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 9, 2017~~ May 5, 2022	By:	/s/ Henry Ji, Ph.D.
			Henry Ji, Ph.D.
			Chairman of the Board of Directors, Chief Executive Officer, & President and Interim Chief Financial Officer
			(Principal Executive ~~Officer)~~

~~Date:~~	~~November 9, 2017~~	~~By:~~	~~/s/ Dean Ferrigno~~
			~~Dean Ferrigno~~
			~~Chief Accounting~~ Officer
			( and Principal Financial ~~and Accounting~~ Officer)

58

35



Delaware		33-0344842
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)


Title of each class:	Trading Symbol (s)	Name of each exchange on which registered:
~~(858) 203-4100~~ ~~(Registrant’s Telephone Number, Including Area Code)~~ Common Stock, $0.0001 par value	SRNE	The Nasdaq Stock Market LLC



Large accelerated filer	☐ ☒	Accelerated filer	☒ ☐

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

Emerging growth company	☐



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	38,323		$	82,398
Marketable securities	888			1,106
Grants and accounts receivables, net	1,693			1,696
Income tax receivable	1,525			1,289
Prepaid expenses and other, net	2,279			3,165
Total current assets	44,708			89,654
Property and equipment, net	18,969			12,707
Intangibles, net	71,675			64,766
Goodwill	38,298			41,548
Cost method investments	237,008			112,008
Equity method investments	70,686			76,994
Other, net	3,440			3,909
Total assets	$	484,784		$	401,586
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	12,984		$	8,282
Accrued payroll and related benefits	4,158			3,565
Current portion of deferred compensation	—			1,012
Accrued expenses	4,441			4,741
Current portion of deferred revenue	14,666			9,666
Current portion of deferred rent	13			248
Acquisition consideration payable	44,682			48,362
Current portion of debt	2,407			209
Total current liabilities	83,351			76,085
Long-term debt	24,575			47,107
Deferred tax liabilities	105,659			53,238
Deferred revenue	127,133			134,376
Deferred rent and other	5,757			4,278
Total liabilities	346,475			315,084
Commitments and contingencies
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 78,521,438 and 50,882,856 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	9			6
Additional paid-in capital	357,898			303,865
Accumulated other comprehensive income (loss)	123			(118		)
Accumulated deficit	(177,545		)	(174,252		)
Treasury stock, 7,568,182 shares at cost at September 30, 2017, and December 31, 2016, respectively	(49,464		)	(49,464		)
Total Sorrento Therapeutics, Inc. stockholders' equity	131,021			80,037
Noncontrolling interests	7,288			6,465
Total equity	138,309			86,502
Total liabilities and stockholders' equity	$	484,784		$	401,586


ASSETS	March 31, 2022			December 31, 2021
Current assets:
Cash and cash equivalents	$	111,906		$	36,665
Marketable investments		158,751			90,217
Accounts receivables, net		24,674			18,715
Inventory		14,086			8,106
Prepaid expenses		13,558			11,804
Other current assets		8,140			7,482
Total current assets		331,115			172,989
Property and equipment, net		41,705			41,325
Operating lease right-of-use assets		84,894			85,173
Intangibles, net		258,671			259,705
Goodwill		79,525			79,525
Equity investments		50,667			51,271
Other assets, net		9,059			4,830
Total assets	$	855,636		$	694,818
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	25,018		$	27,414
Accrued payroll and related benefits		25,391			21,503
Accrued expenses		48,149			37,975
Current portion of deferred revenue		673			1,108
Current portion of operating lease liabilities		12,451			11,539
Current portion of contingent consideration		28,068			397
Acquisition consideration		7,537			7,537
Current portion of debt		56,942			31,980
Total current liabilities		204,229			139,453
Long-term debt, net of discount		96,085			110,627
Deferred tax liabilities, net		3,512			2,426
Deferred revenue		117,667			118,942
Derivative liabilities		28,200			35,700
Operating lease liabilities		83,406			83,431
Contingent consideration		94,578			124,349
Other long-term liabilities		1,761			1,761
Total liabilities	$	629,438		$	616,689
Commitments and contingencies (See Note 10)
Equity:
Sorrento Therapeutics, Inc. equity
Common stock, $0.0001 par value 750,000,000 shares authorized and 375,168,017 and 314,573,225 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		38			32
Additional paid-in capital		1,703,610			1,513,758
Accumulated other comprehensive (loss) income		(223	)		1,026
Accumulated deficit		(1,427,419	)		(1,386,604	)
Treasury stock, 7,568,182 shares at cost at March 31, 2022, and December 31, 2021		(49,464	)		(49,464	)
Total Sorrento Therapeutics, Inc. stockholders’ equity		226,542			78,748
Noncontrolling interests		(344	)		(619	)
Total equity		226,198			78,129
Total liabilities and stockholders’ equity	$	855,636		$	694,818



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



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



Part I	Financial Information	1 3
Item 1.	~~Condensed~~ Consolidated Financial Statements (Unaudited)	1 3
	~~Condensed~~ Consolidated Balance Sheets (Unaudited) as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021	1 3
	~~Condensed~~ Consolidated Statements of Operations (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021	2 4
	~~Condensed~~ Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss (Income) (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021	3 5
	~~Condensed~~ Consolidated Statements of Stockholders’ Equity (Unaudited) for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021	4 6
	~~Condensed~~ Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021	5 7
	Notes to ~~Condensed~~ Consolidated Financial Statements (Unaudited)	7 8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40 20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48 25
Item 4.	Controls and Procedures	48 25

Part II	Other Information	50 27
Item 1.	Legal Proceedings	50 27
Item 1A.	Risk Factors	51 27
Item 5.2.	~~Other Information~~Unregistered Sales of Equity Securities and Use of Proceeds	56 31
Item 6.3.	~~Exhibits~~Defaults Upon Senior Securities	56 32
~~Signatures~~Item 4.	57Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
SIGNATURES		35



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
Grant	$	11		$	142		$	206		$	899
Royalty and license	118,667			1,535			123,500			1,560
Sales and services	3,232			566			7,743			1,674
Total revenues	121,910			2,243			131,449			4,133
Operating costs and expenses:
Costs of revenues	1,085			418			2,965			1,072
Research and development	16,604			10,382			42,667			28,903
Acquired in-process research and development	902			—			1,102			45,000
General and administrative	10,214			5,267			31,194			13,982
Intangible amortization	656			112			1,948			334
Gain on contingent liabilities and acquisition consideration payable	(4,468		)	(1,687		)	(8,558		)	(6,184		)
Total operating costs and expenses	24,993			14,492			71,318			83,107
Income (Loss) from operations	96,917			(12,249		)	60,131			(78,974		)
Gain on sale of marketable securities	—			27,193			—			27,193
Gain (loss) on trading securities	231			491			(218		)	491
Gain (loss) on derivative liability	—			—			—			5,520
Gain (loss) on foreign currency exchange	(215		)	—			(215		)	—
Gain (loss) on equity investments	(507		)	323			(2,557		)	294
Interest expense	(1,208		)	(236		)	(4,017		)	(816		)
Interest income (expense)	(265		)	26			192			84
Income (loss) before income tax	94,953			15,548			53,316			(46,208		)
Income tax expense (benefit)	57,480			(195		)	54,386			(195		)
Net income (loss)	37,473			15,743			(1,070		)	(46,013		)

Net loss attributable to noncontrolling interests	3,514			(147		)	2,223			(2,948		)
Net income (loss) attributable to Sorrento	$	33,959		$	15,890		$	(3,293	)	$	(43,065	)
Net income (loss) per share - basic per share attributable to Sorrento	$	0.44		$	0.24		$	(0.05	)	$	(0.91	)
Net income (loss) per share - diluted per share attributable to Sorrento	$	0.44		$	0.24		$	(0.05	)	$	(0.91	)
Weighted-average shares used during period - basic per share attributable to Sorrento	76,887			66,193			66,122			47,581
Weighted-average shares used during period - diluted per share attributable to Sorrento	76,888			66,527			66,122			47,581


	Three Months Ended March 31,
	2022			2021
Net income (loss) income	$	(40,540	)	$	2,418
Other comprehensive income (loss):
Foreign currency translation adjustments		(1,249	)		(75	)
Total other comprehensive income (loss)		(1,249	)		(75	)
Comprehensive (loss) income		(41,789	)		2,343
Comprehensive gain (loss) attributable to noncontrolling interests		275			(92	)
Comprehensive (loss) income attributable to Sorrento	$	(42,064	)	$	2,435



	Common Stock			Treasury Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Subscription Receivable		Accumulated Deficit			Noncontrolling Interest
	Shares	Amount		Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Subscription Receivable		Accumulated Deficit			Noncontrolling Interest			Total
Balance, December 31, 2016	50,882,856	$	6	7,568,182	(49,464	)	$	303,865		$	(118	)	$	—	$	(174,252	)	$	6,465		$	86,502
Scilex acquisition adjustments	—	—		—	—		(627		)	—			—		—			(1,400		)	(2,027		)
Issuance of common stock for business combinations	1,552,011	—		—	—		3,053			—			—		—			—			3,053
Issuance of common stock for public placement and investments, net	26,082,325	3		—	—		47,641			—			—		—			—			47,644
Issuance of common stock for private placement and investments, net	4,246	—		—	—		30			—			—		—			—			30
Stock-based compensation	—	—		—	—		3,936			—			—		—			—			3,936
Foreign currency translation adjustment	—	—		—	—		—			241			—		—			—			241
Net loss	—	—		—	—		—			—			—		(3,293		)	2,223			(1,070		)
Balance, September 30, 2017	78,521,438	$	9	7,568,182	(49,464	)	$	357,898		$	123		$	—	$	(177,545	)	$	7,288		$	138,309


	Three Months Ended March 31, 2022
	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, 2021		314,573	$	32		7,568	$	(49,464	)	$	1,513,758	$	1,026		$	(1,386,604	)	$	(619	)	$	78,129
Issuance of common stock under equity compensation plans		438		—		—		—			132		—			—			—			132
Issuance of common stock for equity offerings		58,875		6		—		—			164,431		—			—			—			164,437
Acquisitions consideration paid in equity		1,282		—		—		—			4,435		—			—			—			4,435
Stock-based compensation		—		—		—		—			20,854		—			—			—			20,854
Foreign currency translation adjustment		—		—		—		—			—		(1,249	)		—			—			(1,249	)
Net loss		—		—		—		—			—		—			(40,815	)		275			(40,540	)
Balance, March 31, 2022		375,168	$	38		7,568	$	(49,464	)	$	1,703,610	$	(223	)	$	(1,427,419	)	$	(344	)	$	226,198


	Three Months Ended March 31, 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


	Fair Value Measurements at March 31, 2022
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Marketable investments	$	158,751	$	4,355	$	0	$	154,396
Total assets	$	158,751	$	4,355	$	0	$	154,396
Liabilities:
Derivative liabilities - non-current	$	28,200	$	0	$	0	$	28,200
Contingent consideration		28,068		0		0		28,068
Contingent consideration - non-current		94,578		0		0		94,578
Total liabilities	$	150,846	$	0	$	0	$	150,846


	Fair Value Measurements at December 31, 2021
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Marketable investments	$	90,217	$	2,560	$	0	$	87,657
Total assets	$	90,217	$	2,560	$	0	$	87,657
Liabilities:
Derivative liabilities - non-current	$	35,700	$	0	$	0	$	35,700
Contingent consideration		397		0		0		397
Contingent consideration - non-current		124,349		0		0		124,349
Total liabilities	$	160,446	$	0	$	0	$	160,446



	Fair Value Measurements at September 30, 2017
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	38,323	$	38,323	$	—	$	—
Marketable securities	$	888	$	700	$	—	$	188
Total assets	$	39,211	$	39,023	$	—	$	188
Liabilities:
Acquisition consideration payable - Current	$	44,682	$	—	$	—	$	44,682
Acquisition consideration payable - Non-current	$	1,032	$	—	$	—	$	1,032
Total liabilities	$	45,714	$	—	$	—	$	45,714

	Fair Value Measurements at December 31, 2016
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	82,398	$	82,398	$	—	$	—
Marketable securities	$	1,106	$	831	$	—	$	275
Total assets	$	83,504	$	83,229	$	—	$	275
Liabilities:
Acquisition consideration payable	$	48,362	$	—	$	—	$	48,362
Total liabilities	$	48,362	$	—	$	—	$	48,362


(in thousands)	Fair Value (Level 3)
Beginning Balance at December 31, 2021	$	87,657
Change in fair value measurement of Restricted Shares		66,739
Ending Balance at March 31, 2022	$	154,396


(in thousands)	Fair Value
Beginning Balance at December 31, 2021	$	124,746
Change in fair value measurement		(2,100	)
Ending Balance at March 31, 2022	$	122,646



(in thousands)	Fair Value
Beginning Balance at December 31, 2016	48,362
Scilex acquisition adjustment (See Note 4)	(6,500		)
Acquisition consideration payable – current year acquisitions (See Note 4)	12,807
Contingent consideration (Non-current) – current year acquisitions (See Note 4)	983
Re-measurement of Fair Value	(8,558		)
Payment of current year contingent consideration	(1,380		)
Ending Balance at September 30, 2017	$	45,714



(in thousands)	Fair Value Measurements at September 30, 2017		Valuation Methodology	Significant Unobservable Input	Weighted Average (range, if applicable)
BDL Contingent Consideration	$	1,057	Multiple outcome discounted cash flow	Discount Rate Percent probabilities assigned to scenarios	6.82% 10% and 90%
Virttu Contingent Consideration (Non-current)	$	1,032	Multiple outcome discounted cash flow	Discount Rate Probability of Regulatory Milestone	12.21% 16%
Virttu Contingent Consideration	$	10,104	Multiple outcome discounted cash flow	Discount Rate Percent probabilities assigned to scenarios	3.21% 30% and 70%
Scilex Contingent Consideration	$	28,900	Monte Carlo simulation method	Discount Rate Probability of Regulatory Milestones	11.39% 95%
Concortis Contingent Consideration	$	534	Multiple outcome discounted cash flow	Discount Rate Percent probabilities assigned to scenarios	19.20% 20%
Shanghai Three Contingent Consideration	$	1,635	Multiple outcome discounted cash flow	Discount Rate Percent probabilities assigned to scenarios	12.21% 50%
RWMC Contingent Consideration	$	2,452	Multiple outcome discounted cash flow	Discount Rate, Percent probabilities assigned to scenarios	12.21% 50%



	September 30, 2017
	Carrying Value		Fair Value
Debt Obligations:
Term Loan	26,982		26,982

Total Fair Value of Debt Obligations:	$	26,982	$	26,982



	December 31, 2016
	Carrying Value		Fair Value
Debt Obligations:
Term Loan	47,316		47,316

Total Fair Value of Debt Obligations:	$	47,316	$	47,316



	September 30, 2017
	Cost		Gross Unrealized Gains (Losses)		Gross Realized Gains (Losses)		Fair Value
Trading securities:
MedoveX common shares and warrants	$	750	$	138	$	—	$	888



	Total
Beginning balance at December 31, 2016	$	275
Change in fair value of warrant	(87		)
Ending balance at September 30, 2017	$	188



	September 30, 2017			December 31, 2016
Furniture and fixtures	1,089			458
Office equipment	518			326
Machinery and lab equipment	18,787			13,220
Leasehold improvements	6,833			3,625
	27,227			17,630
Less accumulated depreciation	(8,258		)	(4,922		)
	$	18,969		$	12,707



	Total
Balance at December 31, 2016	$	41,548
Scilex Acquisition Adjustment	(4,645		)
Goodwill Acquired from Virttu Acquisition	1,384
Foreign Currency Translation Adjustments	$	11
Balance at September 30, 2017	$	38,298



	September 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Intangibles, net
Customer relationships	$	1,585	$	1,018	$	567
Acquired technology	3,410		665		2,745
Acquired in-process research and development	37,660		—		37,660
Patent rights	32,720		2,017		30,703
Total intangible assets	$	75,375	$	3,700	$	71,675


Year Ending December 31,
2022 (Remaining nine months)		6,680
2023		12,005
2024		13,637
2025		14,746
2026		65,345
Total future minimum payments		112,413
Unamortized debt discount		(24,400	)
Unamortized capitalized debt issuance costs		(1,786	)
Total Scilex Notes		86,227
Current portion		(9,438	)
Long-term portion of Scilex Notes	$	76,789



Face value of loan	$	50,000
Repayment principal and backend fee	(21,500		)
Fair value of warrant	(1,377		)
Capitalized debt issuance costs	(1,681		)
Accretion of debt issuance costs and other	1,182
Accretion of debt discount	358
Balance at September 30, 2017	26,982



Year Ending December 31,
2017	758
2018	8,322
2019	13,612
2020	14,935
Total future minimum payments	37,627
Unamortized interest	(7,587		)
Debt discount	(1,377		)
Capitalized debt issuance costs	(1,681		)
Total minimum payment	26,982
Current portion	(2,407		)
Long-term debt	$	24,575



	Options Outstanding		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at December 31, 2016	4,332,876		$	7.86	$	427
Options Granted	3,110,100		$	1.82
Options Canceled	(510,676	)	$	8.26
Options Exercised	—		$	—
Outstanding at September 30, 2017	6,932,300		$	5.14	$	617



	September 30, 2017
Income tax provision at federal statutory rate	$	18,661
State tax, net of federal tax benefit	$	(176	)
Non-deductible expense and other	$	269
Impact of indefinite-lived deferred tax liabilities	$	38,962
Income tax credits	$	(828	)
Decrease in valuation allowance	$	(2,502	)
Income tax provision	$	54,386