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

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

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

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

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

The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of April ~~24, 2020~~30, 2021 was ~~209,690,497.~~286,650,738.

ASSETS	March 31, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Current assets:
Cash and cash equivalents	$	21,897		$	22,521		$	41,678		$	56,464
Restricted cash		—			13,098
Marketable investment								194,431			—
Accounts receivables, net		10,023			14,454			16,309			15,506
Inventory		3,038			3,362			1,779			1,831
Prepaid expenses and other		14,674			14,153
Prepaid expenses								7,656			8,712
Other current assets								3,848			3,721
Total current assets		49,632			67,588			265,701			86,234
Property and equipment, net		28,470			29,888			34,681			31,861
Operating lease right-of-use assets		46,329			46,384			39,011			42,052
Intangibles, net		62,316			63,308			72,640			73,675
Goodwill		38,298			38,298			43,554			43,554
Cost method investments		237,008			237,008
Equity method investments		24,676			25,233
Restricted cash		45,050			45,150
Other, net		4,774			4,775
Equity investments								155,979			256,397
Other assets, net								2,049			2,049
Total assets	$	536,553		$	557,632		$	613,615		$	535,822
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	28,986		$	27,630		$	25,060		$	24,706
Accrued payroll and related benefits		15,507			15,914			16,286			20,859
Accrued expenses		14,241			18,728			27,728			19,198
Current portion of deferred revenue		3,777			3,643			1,120			4,485
Current portion of operating lease liabilities								3,734			3,626
Acquisition consideration payable		398			908			398			398
Current portion of derivative liabilities		7,280			8,800
Current portion of debt		16,585			36,261			21,718			23,208
Current portion of operating lease liabilities		3,374			3,322
Total current liabilities		90,148			115,206			96,044			96,480
Long-term debt, net of discount		182,958			199,088			79,956			92,258
Deferred tax liabilities, net		8,893			9,043			6,699			6,918
Deferred revenue		114,085			114,389			116,926			113,185
Derivative liabilities		36,600			35,000			33,200			35,400
Operating lease liabilities		52,094			52,111			49,354			50,301
Other long-term liabilities		549			39			549			549
Total liabilities	$	485,327		$	524,876		$	382,728		$	395,091
Commitments and contingencies (See Note 10)
Commitments and contingencies (See Note 10)
Equity:
Sorrento Therapeutics, Inc. equity
Preferred stock, $0.0001 par value; 100,000,000 shares authorized and 0 shares issued or outstanding		—			—			—			—
Common stock, $0.0001 par value 750,000,000 shares authorized and 204,566,004 and 167,798,120 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		23			18
Common stock, $0.0001 par value 750,000,000 shares authorized and 285,655,428 and 275,285,582 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively								29			28
Additional paid-in capital		875,712			788,122			1,236,195			1,172,346
Accumulated other comprehensive loss		(215	)		(270	)
Accumulated other comprehensive income (loss)								445			520
Accumulated deficit		(725,013	)		(659,818	)		(955,769	)		(958,279	)
Treasury stock, 7,568,182 shares at cost at March 31, 2020, and December 31, 2019		(49,464	)		(49,464	)
Treasury stock, 7,568,182 shares at cost at March 31, 2021, and December 31, 2020								(49,464	)		(49,464	)
Total Sorrento Therapeutics, Inc. stockholders’ equity		101,043			78,588			231,436			165,151
Noncontrolling interests		(49,817	)		(45,832	)		(549	)		(24,420	)
Total equity		51,226			32,756			230,887			140,731
Total liabilities and stockholders’ equity	$	536,553		$	557,632		$	613,615		$	535,822

	Three Months Ended March 31,						Three Months Ended March 31,
	2020			2019			2021			2020
Revenues:
Net product revenues	$	5,248		$	3,359		$	7,023		$	5,248
Service revenues		2,473			2,784			7,232			2,473
Total revenues		7,721			6,143			14,255			7,721
Operating costs and expenses:
Cost of products sold		548			441			852			548
Cost of services		1,891			1,867			2,534			1,891
Research and development		21,154			25,616			43,833			21,154
Acquired in-process research and development		—			75,301			7,512			—
Selling, general and administrative		26,299			25,122			43,394			26,299
Intangible amortization		992			966			1,035			992
Total operating costs and expenses		50,884			129,313			99,160			50,884
Loss from operations		(43,163	)		(123,170	)		(84,905	)		(43,163	)
(Loss) gain on trading securities		(59	)		94
Loss on partial debt settlement		(23,645	)		—
Gain (loss) on derivative liabilities		4,920			(14,501	)
(Loss) gain on foreign currency exchange		(147	)		313
Interest expense		(6,825	)		(9,080	)
Interest income		19			534
Loss before income tax		(68,900	)		(145,810	)
Gain on derivative liabilities								2,200			4,920
Loss on foreign currency exchange								(540	)		(147	)
Interest expense, net								(2,366	)		(6,806	)
Gain on marketable investment								94,431			—
Loss on equity method investments								(419	)		(556	)
Loss on debt extinguishment, net								(6,111	)		(23,645	)
Other loss								(78	)		(59	)
Income (loss) before income tax								2,212			(69,456	)
Income tax benefit		(276	)		(178	)		(206	)		(276	)
Loss on equity method investments		(556	)		(897	)
Net loss		(69,180	)		(146,529	)
Net income (loss)								2,418			(69,180	)
Net loss attributable to noncontrolling interests		(3,985	)		(38,458	)		(92	)		(3,985	)
Net loss attributable to Sorrento	$	(65,195	)	$	(108,071	)
Net loss per share - basic per share attributable to Sorrento	$	(0.36	)	$	(0.88	)
Net loss per share - diluted per share attributable to Sorrento	$	(0.36	)	$	(0.88	)
Net income (loss) attributable to Sorrento							$	2,510		$	(65,195	)
Net income (loss) per share - basic per share attributable to Sorrento							$	0.01		$	(0.36	)
Net income (loss) per share - diluted per share attributable to Sorrento							$	0.01		$	(0.36	)
Weighted-average shares used during period - basic per share attributable to Sorrento		182,609			122,281			280,604			182,609
Weighted-average shares used during period - diluted per share attributable to Sorrento		182,609			122,281			297,909			182,609

Three Months Ended March 31, 2020

Common Stock

Treasury Stock

Accumulated

Shares

Amount

Shares

Amount

Additional
Paid-in
Capital

Other
Comprehensive
Income (Loss)

Accumulated
Deficit

Noncontrolling
Interest

Total

Balance, December 31, 2019

167,798,120

$
18

7,568,182

$
(49,464
)

$
788,122

$
(270
)

$
(659,818
)

$
(45,832
)

$
32,756

Exercise of stock options, net

49,193

99

99

Issuance of common stock upon exercise of
   warrants

5,008,609

1

—

—

13,534

—

—

—

13,535

Issuance of common stock for public
   placement, net

2,090,802

1

—

—

7,325

—

—

—

7,326

Stock-based compensation

—

—

—

—

3,682

—

—

—

3,682

Issuance of common stock from
   Aspire Purchase Agreement

29,619,280

3

—

—

62,950

—

—

—

62,953

Foreign currency translation adjustment

—

—

—

—

—

55

—

55

Net loss

—

—

—

—

—

—

(65,195
)

(3,985
)

(69,180
)
Balance, March 31, 2020

204,566,004

$
23

7,568,182

$
(49,464
)

$
875,712

$
(215
)

$
(725,013
)

$
(49,817
)

$
51,226

	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

Three Months Ended March 31, 2019

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, 2018

122,280,092

$
13

7,568,182

$
(49,464
)

$
626,658

$
15

$
(367,750
)

$
(1,972
)

$
207,500

Issuance of common stock upon exercise of stock
options

31,825

—

—

—

81

—

—

—

81

Equity contribution related to Semnur acquisition

—

—

—

—

28,400

—

—

26,600

55,000

Stock-based compensation

—

—

—

—

1,976

—

—

—

1,976

Foreign currency translation adjustment

—

—

—

—

—

85

—

—

85

Net loss

—

—

—

—

—

—

(108,071
)

(38,458
)

(146,529
)
Balance, March 31, 2019

122,311,917

$
13

7,568,182

$
(49,464
)

$
657,115

$
100

$
(475,821
)

$
(13,830
)

$
118,113

	Three Months Ended March 31, 2020
	Common Stock				Treasury Stock							Accumulated
	Shares		Amount		Shares		Amount			Additional Paid-in Capital		Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interest			Total
Balance, December 31, 2019		167,798	$	18		7,568	$	(49,464	)	$	788,122	$	(270	)	$	(659,818	)	$	(45,832	)	$	32,756
Issuance of common stock under equity compensation plans		49		—		—		—			99		—			—			—			99
Issuance of common stock upon exercise of warrants		5,009		1		—		—			13,534		—			—			—			13,535
Issuance of common stock for public placement, net		2,091		1		—		—			7,325		—			—			—			7,326
Stock-based compensation		—		—		—		—			3,682		—			—			—			3,682
Issuance of common stock from Aspire Purchase Agreement		29,619		3		—		—			62,950		—			—			—			62,953
Foreign currency translation adjustment		—		—		—		—			—		55						—			55
Net loss		—		—		—		—			—		—			(65,195	)		(3,985	)		(69,180	)
Balance, March 31, 2020		204,566	$	23		7,568	$	(49,464	)	$	875,712	$	(215	)	$	(725,013	)	$	(49,817	)	$	51,226

	Three Months Ended March 31,						Three Months Ended March 31,
Operating activities	2020			2019			2021			2020
Net loss	$	(69,180	)	$	(146,529	)
Net income (loss)							$	2,418		$	(69,180	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		3,058			3,471			2,918			3,058
Non-cash operating lease cost		842			1,292			759			842
Non-cash interest expense and amortization of debt issuance costs		4,386			6,200			2,098			4,386
Payment on Scilex Notes attributed to accreted interest related to the debt discount								(4,548	)		—
Acquired in-process research and development		—			75,301			7,512			—
Stock-based compensation		3,682			1,976			23,660			3,682
Loss on partial debt settlement		23,645			—
(Gain) Loss on derivative liabilities		(4,920	)		14,501
Loss on debt extinguishment								6,111			23,645
Gain on derivative liabilities								(2,200	)		(4,920	)
Gain on marketable investment								(94,431	)		—
Loss on equity method investments		556			897			419			556
Deferred tax provision		(150	)		(186	)		(219	)		(150	)
Changes in operating assets and liabilities, excluding effect of acquisitions:
Accounts receivable		4,432			(3,575	)		(803	)		4,432
Accrued payroll		(407	)		(76	)		(4,573	)		(407	)
Prepaid expenses, deposits and other assets		185			(2,677	)		980			185
Accounts payable		728			(3,439	)		(76	)		728
Accrued expenses and other liabilities		(4,488	)		8,691			11,066			(4,488	)
Deferred revenue		(169	)		(319	)		376			(169	)
Other		(750	)		163			476			(750	)
Net cash used for operating activities		(38,550	)		(44,309	)		(48,057	)		(38,550	)
Investing activities
Purchases of property and equipment		(21	)		(5,228	)		(1,994	)		(21	)
Purchase of assets related to Semnur, net of cash acquired		—			(17,040	)
Other acquisitions and investments								(12	)		—
Net cash used for investing activities		(21	)		(22,268	)		(2,006	)		(21	)
Financing activities
Proceeds from equity offerings, net of issuance costs		69,896			—			42,209			69,896
Proceeds from short-term debt		725			—
Proceeds from short-term debt, net of issuance costs								11,769			725
Proceeds from exercise of stock options and warrants		13,634			81			10,597			13,634
Repayments of debt and other obligations		(59,533	)		(1,178	)		(29,218	)		(59,533	)
Net cash provided by (used for) financing activities		24,722			(1,097	)
Net cash provided by financing activities								35,357			24,722
Net change in cash, cash equivalents and restricted cash		(13,849	)		(67,674	)		(14,706	)		(13,849	)
Net effect of exchange rate changes on cash		27			57			(80	)		27
Cash, cash equivalents and restricted cash at beginning of period		80,769			213,330			56,464			80,769
Cash, cash equivalents and restricted cash at end of period	$	66,947		$	145,713		$	41,678		$	66,947
Supplemental disclosures:
Cash paid during the period for:
Interest		1,569			2,505			83			1,569
Supplemental disclosures of non-cash investing and financing activities:
Semnur acquisition consideration paid in equity		—			55,000
Semnur acquisition costs incurred but not paid					601
Changes to noncontrolling interests from increased ownership in Scilex Holding								23,963			—
Other acquisitions, license agreements and investments paid in equity								7,500			—
Property and equipment costs incurred but not paid		628			1,531			1,031			628
Non-cash additions related to leasehold improvements								2,279			—
Reconciliation of cash, cash equivalents and restricted cash within the Company’s consolidated balance sheets:
Cash and cash equivalents		21,897			90,971			41,678			21,897
Restricted cash		45,050			54,742			-			45,050
Cash, cash equivalents, and restricted cash	$	66,947		$	145,713		$	41,678		$	66,947

Sorrento Therapeutics, Inc.~~, together with its subsidiaries~~ (the “Company”), is a clinical stage, ~~and commercial biopharma~~antibody-centric, biopharmaceutical company ~~focused on delivering innovative and clinically meaningful~~developing new therapies to ~~patients~~treat cancers and ~~their families~~COVID-19. The Company’s multimodal, multipronged approach to ~~address unmet medical needs. The Company has programs assessing the use of~~fighting cancer is made possible by its ~~technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases.~~

~~At its core, the Company is an antibody-centric company and leverages its proprietary~~ extensive immuno-oncology platforms, including key assets such as fully human antibodies (“G-MAB™ ~~library and targeted delivery modalities to generate the next generation of cancer therapeutics. These modalities include proprietary chimeric antigen receptor T-cell therapy (“CAR-T”~~library”), ~~dimeric antigen receptor T-cell therapy~~clinical stage immuno-cellular therapies (“~~DAR-T”~~CAR-T”, “DAR-T™”), ~~antibody drug~~antibody-drug conjugates (“ADCs”) ~~as well as bispecific antibody approaches.~~

~~Outside of immuno-oncology programs, as part of the Company`s global aim to provide a wide range of therapeutic~~and clinical stage oncolytic virus (Seprehvir™). The Company is also developing potential antiviral therapies and vaccines against coronaviruses, including COVIGUARD™, COVI-AMG™, COVISHIELD™, Gene-MAb™, COVI-MSC™ and COVIDROPS™; and diagnostic ~~products~~test solutions, including COVITRACK™, COVISTIX™ and COVITRACE™.

The Company’s commitment to ~~meet underserved markets, the Company has made investments in~~life-enhancing therapies for patients is also demonstrated by its effort to advance a first-in-class (TRPV1 agonist) non-opioid pain management small molecule, resiniferatoxin (“RTX”), and is ~~currently conducting preclinical development~~SP-102 (10 mg, dexamethasone sodium phosphate viscous gel) (SEMDEXA™), a novel, viscous gel formulation of ~~multiple therapeutic, vaccine~~a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain, or sciatica, and ~~diagnostic product candidates utilizing its proprietary platforms~~through the commercialization of ZTlido^® (lidocaine topical system) 1.8% for the ~~potential~~ treatment ~~prevention and detection~~ of ~~COVID-19 and SARS-CoV-2.~~post-herpetic neuralgia.

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

These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020. Operating results for interim periods are not expected to be indicative of operating results for the Company’s ~~2020~~2021 fiscal year, or any subsequent period. The unaudited interim financial statements included herein reflect all normal and recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented.

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

During the three months ended March 31, ~~2020,~~2021, there have been no changes to the Company`s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 outside of new accounting pronouncements as described below.

The following table shows revenue disaggregated by product and service type for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board ~~(“FASB”)~~ issued Accounting Standards Update ~~(“ASU”) No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,~~ to improve financial reporting by requiring timely 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 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of the standard had no material impact on the Company’s consolidated financial statements.

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,~~ to improve the effectiveness of the disclosure requirements for fair value measurements. The ASU is effective for fiscal years and interim periods beginning after December 15, 2019. Amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty will be applied prospectively as of the beginning of the fiscal year of adoption with all other amendments being applied retrospectively to all periods presented upon their effective date. The adoption of the standard had no material impact on the Company’s consolidated financial statements.

~~In December 2019, the FASB issued ASU~~ No. 2019-12, Income Taxes Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for interim and annual periods for the Company beginning after December 15, ~~2020, with early adoption permitted.~~2020. The Company ~~is evaluating~~adopted the ~~impact this~~ standard ~~will have~~ on ~~its consolidated financial statements.~~

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 update also eliminated the qualitative assessment requirements for a reporting unit with zero or negative carrying value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted, and must be applied on a prospective basis.1, 2021. The adoption of the standard had no material impact on the ~~Company’s~~Company`s consolidated financial statements.

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

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

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

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

In March 2020, the Company filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”) with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on March 20, 2020. The Shelf Registration Statement provides the Company with the ability to offer up to $1.0 billion of securities, including equity and other securities as described in the Shelf Registration Statement. Pursuant to the Shelf Registration Statement, the Company may offer such 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.

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

	Fair Value Measurements at March 31, 2021
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	41,678	$	41,678	$	0	$	0
Marketable investment		194,431		194,431		0		0
Total assets	$	236,109	$	236,109	$	0	$	0
Liabilities:
Derivative liabilities - non-current	$	33,200	$	0	$	0	$	33,200
Acquisition consideration payable		398		0		0		398
Acquisition consideration payable - non-current		549		0		0		549
Total liabilities	$	34,147	$	0	$	0	$	34,147

	Fair Value Measurements at March 31, 2020								Fair Value Measurements at December 31, 2020
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	21,897	$	21,897	$	—	$	—	$	56,464	$	56,464	$	0	$	0
Restricted cash		45,050		45,050		—		—
Total assets	$	66,947	$	66,947	$	—	$	—	$	56,464	$	56,464	$	0	$	0
Liabilities:
Derivative liabilities	$	7,280	$	—	$	—	$	7,280
Derivative liabilities - non-current		36,600		—		—		36,600		35,400		0		0		35,400
Acquisition consideration payable		398		—		—		398		398		0		0		398
Acquisition consideration payable - non-current		549		—		—		549		549		0		0		549
Total liabilities	$	44,827	$	—	$	—	$	44,827	$	36,347	$	0	$	0	$	36,347

Fair Value Measurements at December 31, 2019

Balance

Quoted Prices
in Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Cash and cash equivalents

$
22,521

$
22,521

$
—

$
—

Restricted cash

58,248

58,248

—

—

Total assets

$
80,769

$
80,769

$
—

$
—

Liabilities:

Derivative liabilities

$
8,800

$
—

$
—

$
8,800

Derivative liabilities - non-current

35,000

—

—

35,000

Acquisition consideration payable

908

—

—

908

Acquisition consideration payable - non-current

39

—

—

39

Total liabilities

$
44,747

$
—

$
—

$
44,747

The Company's financial assets and liabilities carried at fair value are comprised of cash, cash equivalents, restricted cash and acquisition consideration payable. Cash and cash equivalents consist of money market accounts and bank deposits which are highly liquid and readily tradable. These investments are valued using inputs observable in active markets for identical securities. The fair value of the acquisition consideration payable is measured on a recurring basis using significant unobservable inputs (Level 3). Acquisition consideration payable is measured using the income approach and discounting to present value the contingent payments expected to be made based on assessment of the probability that the company would be required to make such future payment. There were no changes to acquisition consideration payable during the three months ended March 31, 2020.

The Company recorded a gain on derivative liabilities of ~~$4.9~~$2.2 million for the three months ended March 31, ~~2020,~~2021, which related to the compound derivative liabilities associated with the ~~Initial Loan and the Early Conditional Loan~~Scilex Notes (as defined in Note 7) ~~and the Scilex Notes (as defined in~~. ~~Note 7~~). The ~~compound derivative liabilities consist of the fair value of various embedded features. Key significant, Level 3 inputs and assumptions for the Initial Loan and Early Conditional Loan (as defined in~~ ~~Note 7~~) consist of the estimated probability of restructuring debt arrangements during the first half of 2020 and estimated probabilities of satisfying certain commercial and financial milestones estimated using a with and without discounted cash flow approach applying a discount rate of approximately 23% as of March 31, 2020. As of March 31, 2020, the fair value of the derivative liabilities associated with the Scilex Notes was estimated using the discounted cash flow method under the income approach combined with a Monte Carlo simulation model. This involves significant Level 3 inputs and ~~assumptions. The key~~ assumptions, ~~for the Scilex Notes include~~ including a ~~7.3%~~7% risk adjusted net sales forecast, an effective debt yield of ~~24%,~~15% and an estimated ~~probabilities~~probability of ~~55% and~~ 100% of not obtaining marketing approval before ~~July 1, 2023 and~~ March 31, ~~2021, respectively, and an estimated probability of a Scilex Holding IPO that satisfies certain valuation thresholds and timing considerations.~~

The following table includes a summary of the derivative liabilities measured at fair value using significant unobservable inputs (Level 3) during the three months ended March 31, ~~2020:~~2021:

The Company’s ~~cost method investments primarily include an ownership interest in ImmunityBio, Inc., NantBioScience, Inc. (“NantBioScience”) and Celularity Inc. The Company’s~~ equity method investments ~~primarily~~ include an ownership interest in Immunotherapy NANTibody, LLC (“NANTibody”), NantCancerStemCell, LLC (“NantStem”) and ImmuneOncia Therapeutics, ~~LLC.~~LLC, among others. The Company’s other equity investments include an ownership interest in NantBioScience, Inc. (“NantBioScience”) and Celularity Inc. The Company`s marketable investment includes an ownership interest in ImmunityBio, Inc. (“ImmunityBio”).

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

The Company’s ~~cost~~investment in ImmunityBio has historically been included as an equity investment in its consolidated balance sheets and accounted for as an equity ~~method investments~~security without a readily determinable fair value. As of the completion of the Merger, the Company accounts for its investment in ImmunityBio as an equity investment with a readily determinable fair value and has reclassified its investment in ImmunityBio to marketable investment within its consolidated balance sheets. The investment in ImmunityBio is classified as a current asset because the investment can be liquidated to finance the Company’s current operations. In connection with the change in fair value of its investment in ImmunityBio, the Company recorded a gain on marketable investment of $94.4 million during the three months ended March 31, ~~2019 and 2020, respectively.~~2021.

~~In 2013, the Company acquired IgDraSol Inc. (“IgDraSol”), a private company focused~~The Company’s investment in NANTibody is reported in equity method investments on ~~the development~~its consolidated balance sheets and its share of ~~oncologic agents for the treatment~~NANTibody’s income or loss is recorded in loss on equity method investments on its consolidated statement of cancer, from a third party unrelated to the NantWorks, LLC (“NantWorks”) affiliated entities for 3.0 million shares of the Company’s common stock and $380,000 of cash for a total purchase price of $29.1 million. This transaction included the acquisition of IgDraSol’s lead compound, Cynviloq^TM~~, a micellar diblock copolymeric paclitaxel formulation drug product.~~

In May 2015, the Company entered into an agreement with NantPharma, LLC (“NantPharma”), a NantWorks company, pursuant to which the Company sold to NantPharma all of its equity interests in IgDraSol, which continued to hold the rights to Cynviloq^TM~~. Pursuant to the agreement, NantPharma paid the Company an upfront fee of $90.1 million, of which $60.0 million was required to be used by the Company to fund 2 joint ventures, as described below.~~

In April 2015, the Company and NantCell, Inc. (“NantCell”), a subsidiary of NantWorks, LLC (“NantWorks”), a private company owned by Dr. Patrick Soon-Shiong, established a new entity called Immunotherapy NANTibody, LLC (“NANTibody”) as a stand-alone biotechnology company with $100.0 million initial joint funding. NantCell owns 60% of the equity interest of NANTibody and agreed to contribute $60.0 million to NANTibody. The Company owns 40% of NANTibody and in July 2015, the Company had NantPharma contribute its portion of the initial joint funding of $40.0 million to NANTibody from the proceeds of the sale of IgDraSol. Additionally, the Company and NantCell were allowed to appoint 2 and3 representatives, respectively, to NANTibody’s 5-member Board of Directors. NANTibody focuses on accelerating the development of multiple immuno-oncology mAbs for the treatment of cancer, including but not limited to anti-PD-1, anti-PD-L1, anti-CTLA4mAbs and other immune-check point antibodies as well as ADCs and bispecific antibodies.

~~NANTibody had been formed to advance pre-clinical and clinical immunology assets contributed by the Company and NantCell.~~operations. The Company continues to hold 40% of the outstanding equity of NANTibody and NantCell, Inc. holds the remaining 60%. ~~Until July 2, 2017, NANTibody held approximately $100.0 million of cash and cash equivalents, and the Company recorded its~~The Company`s investment in NANTibody ~~at approximately $40.0 million. As an equity method investment,~~had a carrying value of 0 as of March 31, 2021 due to the Company’s ~~ratable portion~~share of ~~40%~~cumulative losses. As of ~~money expended for~~March 31, 2020, the development of intellectual property assets held by NANTibody would be reflected within income (loss) on equity method investments in its statement of operations. As a result of limited spending at NANTibody, the cash on hand at NANTibody remained at approximately $100.0 million since the inceptioncarrying value of the ~~NANTibody joint venture until July 2, 2017. Further, the Company’s equity method~~Company`s investment in NANTibody ~~remained at~~was approximately ~~$40.0~~$1.9 million.

NANTibody recorded a net loss of $0.8 million ~~until July 2, 2017.~~and $1.4 million for the three months ended December 31, 2020 and 2019, respectively. As of December 31, 2020, NANTibody had $4.9 million in current assets, $5.5 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.

In February 2018, NANTibody notified the Company that on July 2, 2017, NANTibody acquired all of the outstanding equity of IgDraSol in exchange for $90.1 million in cash. NANTibody purchased IgDraSol from NantPharma, which is controlled by NantWorks, an entity with a controlling interest in NantCell and NantPharma.NantStem

Although the Company has had a designee serving on the Board of Directors of NANTibody since the formation of NANTibody in April 2015, and although the Company has held 40% of the outstanding equity of NANTibody since NANTibody’s formation, neither the Company nor its director designee was given any advance notice of NANTibody’s purchase of IgDraSol or of any board meeting or action to approve such purchase. As such, the Company’s designee on NANTibody’s Board of Directors was not given an opportunity to consider or vote on the transaction as a director and the Company was not given an opportunity to consider or vote on the transaction in its position as a significant (40%) equity holder of NANTibody.

As a result of the July 2, 2017 purchase of IgDraSol, NANTibody’s cash and cash equivalents were reduced from $99.6 million as of June 30, 2017 to $9.5 million as of September 30, 2017, and NANTibody’s contributed capital was reduced from $100.0 million as of June 30, 2017 to $10.0 million as of September 30, 2017, to effect the transfer of IgDraSol from NantPharma to NANTibody. No additional information was provided to the Company to explain why NANTibody’s total assets as of September 30, 2017 were reduced by approximately $90.1 million. The Company requested, but did not receive, additional information from NANTibody for purposes of supporting the value of IgDraSol, including any information regarding clinical advancements in the entity since the sale of IgDraSol by the Company in May 2015.

Prior to the communication of the transfer of IgDraSol from NantPharma to NANTibody, the Company relied on the cash and cash equivalents of NANTibody for purposes of determining the value of its investment in NANTibody, which capital was expended by NANTibody to acquire IgDraSol on July 2, 2017. As a result of the transfer of IgDraSol, the Company reassessed the recoverability of its equity method investment in NANTibody as of July 2, 2017. In doing so, the Company considered the expected outcomes for the intellectual property assets held by NANTibody as of July 2, 2017. As a result of the lack of evidence of any development activity associated with any of the assets held in NANTibody, given the passage of time since the formation of the joint venture, many competitive products from other drug developers worldwide have advanced and/or commercialized for the targeted disease indications of the assets held in NANTibody, and given the Company’s minority interest in NANTibody (the investee), the Company concluded that it does not have the ability to recover the carrying amount of the investment and an other-than-temporary decline in the value of the investment had occurred. Accordingly, an impairment was recorded to the Company’s equity method investment in NANTibody for the three and nine months ended September 30, 2017. The fair value of the Company’s investment in ~~NANTibody was measured at fair value~~NantStem is reported in equity method investments on ~~July 2, 2017 using significant unobservable inputs (Level 3) due to the determination~~its consolidated balance sheets and its share of fair value requiring significant judgment, including the potential outcomes of the intellectual property assets held by NANTibody. For these reasons, fair value was determined by applying the Company’s 40% equity interest in NANTibody to the remaining cash and cash equivalents, which resulted in an impairment of $36.0 million. The impairment resulted in a revised carrying value of the Company’s investment in NANTibody of $3.7 million which approximated its ratable 40% ownership of the cash maintained by NANTibody expected to be used for future research and development. As of March 31, 2020 and 2019, the carrying value of the Company’s investment in NANTibody was approximately $1.9 million and $3.3 million, respectively.

~~NANTibody~~NantStem’s income or loss is recorded ~~a net loss of $1.4 million and $0.4 million for the three months ended December 30, 2019 and 2018, respectively. The Company recorded its portion of loss from NANTibody~~ in loss on equity method investments on its consolidated ~~statements~~statement of operations for the three months ended March 30, 2020 and 2019. As of December 31, 2019, NANTibody had $6.4 million in current assets, $1.5 million in current liabilities, $0.2 million in noncurrent assets and 0 noncurrent liabilities.

In July 2015, the Company and NantBioScience 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, L.P. (“Cambridge”), a related party to NantBioScience.

~~A loss related to other-than-temporary impairment of $0.5 million was recognized for the equity investment in NantStem for the year ended December 31, 2018.~~

operations. The Company is accounting for its interest in NantStem as an equity method investment, due to the significant influence the Company has over the operations of NantStem through its board representation and 20% voting interest. The Company’s investment in NantStem is reported in equity method investments on its consolidated balance sheets and its share of NantStem’s loss is recorded in loss on equity method investments on its consolidated statement of operations. As of March 31, 2020 and 2019, the carrying value of the Company’s investment in NantStem was approximately $18.2 million and $17.9 million as of March 31, 2021 and ~~$17.8~~2020, respectively.

NantStem recorded a net gain of $0.1 million and $0.2 million for the three months ended December 31, 2020 and 2019, respectively. As of December 31, 2020, NantStem had $80.9 million in current assets, $1.1 million in noncurrent assets and 0 current and 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 of $0.2 million and $1.0 million for the three months ended December 31, 2019 and 2018, respectively. The Company recorded its portion of income from NantStem in loss on equity method investments on its consolidated statements of operations for the three months ended March 31, 2020 and 2019. As of December 31, 2019, NantStem had $76.4 million in current assets, $0.1 million in current liabilities, $4.4 million in noncurrent assets and 0 noncurrent liabilities.

Intangible assets with indefinite useful lives totaling ~~$14.4~~$28.3 million are included in acquired in-process research and development in the table below. A summary of the Company’s identifiable intangible assets as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 is as follows (in thousands, except for years):

March 31, 2020	Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
March 31, 2021									Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
Customer relationships		6	$	1,585	$	1,407	$	178		6	$	1,585	$	1,433	$	152
Acquired developed technology		19		3,410		1,104	$	2,306
Acquired technology										19		3,410		1,280		2,130
Acquired in-process research and development		15		36,300		2,195	$	34,105		—		28,260		—		28,260
Technology placed in service										15		21,940		3,657		18,283
Patent rights		15		32,720		7,467	$	25,253		15		32,720		9,648		23,072
Assembled workforce		5	$	605	$	131	$	474		5		605	252			353
Internally developed software										2		520		130		390
Total intangible assets			$	74,620	$	12,304	$	62,316			$	89,040	$	16,400	$	72,640

December 31, 2019	Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
December 31, 2020									Weighted Average Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization		Intangibles, Net
Customer relationships		6	$	1,585	$	1,401	$	184		6	$	1,585	$	1,426	$	159
Acquired developed technology		19		3,410		1,060		2,350
Acquired technology										19		3,410		1,236		2,174
Acquired in-process research and development		15		36,300		1,828		34,472		—		28,260		—		28,260
Technology placed in service										15		21,940		3,291		18,649
Patent rights		15		32,720		6,922		25,798		15		32,720		9,103		23,617
Assembled workforce		5		605		101		504		5		605		222		383
Internally developed software										1		520		87		433
Total intangible assets			$	74,620	$	11,312	$	63,308			$	89,040	$	15,365	$	73,675

~~As of March 31, 2020, the weighted average amortization period for identifiable intangible assets is 14.8 years.~~ Aggregate amortization expense was $1.0 million for each of the three months ended March 31, ~~2020~~2021 and ~~2019.~~

2020. Estimated future amortization expense related to intangible assets, excluding indefinite-lived intangible assets, at March 31, ~~2020~~2021 is as follows (in thousands):

On March 31, 2020, the Company and Nanjing Hongjing Enterprise Management Consulting Co., Ltd. (“Nanjing Hongjing”) entered into a binding term sheet (the “Binding Term Sheet”) setting forth the terms and conditions by which the Company will sell to Nanjing Hongjing certain assets related to the Company’s operations in China (the “Acquisition”), which are partLicense Agreement with Icahn School of ~~the Sorrento segment. Subject to certain conditions,~~Medicine at the closing of the Acquisition, Nanjing Hongjing will pay the Company $30.0 million. The final terms of the Acquisition are subject to the negotiation and finalization of the definitive agreements relating to the Acquisition and the material terms of the Acquisition may differ from those set forth in the Binding Term Sheet. In addition, the closing of the Acquisition will be subject to various customary and other closing conditions. The carrying value of these assets as of March 31, 2020 and December 31, 2019 as well as results from operations for the three months ended March 31, 2020 and March 31, 2019 are not material.

In March ~~2019,~~2021, the Company entered into an ~~Agreement and Plan of Merger~~exclusive license agreement (the ~~“Merger~~“Mount Sinai License Agreement”) with ~~Semnur Pharmaceuticals, Inc.~~Icahn School of Medicine at Mount Sinai (“~~Semnur”~~Mount Sinai”) to acquire a worldwide, exclusive, sublicensable license to certain of Mount Sinai’s patents and ~~Scilex Holding~~monoclonal antibodies as well as technical information to develop, manufacture, commercialize, and exploit related products and services (“Licensed Products”) for all fields, uses, and applications, including for the diagnosis, prevention, treatment and cure of coronavirus.

As consideration for the Mount Sinai License Agreement, the Company ~~(“Scilex Holding”), whereby Semnur became a wholly-owned subsidiary~~paid Mount Sinai and upfront license fee of ~~Scilex Holding (the “Merger”), and thereby Scilex Holding acquired Semnur’s SEMDEXA~~^TM ~~(SP-102) technology for consideration valued at approximately $70.0~~$7.5 million ~~excluding contingent consideration, transaction costs of $3.1 million and~~

liabilities assumed of $4.2 million, which was allocated based on the relative fair value of the assets acquired. The $70.0 million of consideration consisted of approximately $15.0 million in cash and shares of Scilex Holding valued at approximately $55.0 million (the “Stock Consideration”).

Pursuant to the Merger Agreement, Scilex Holding also agreed to pay the holders of Semnur’s capital stock and options up to $280.0 million in aggregate contingent cash consideration based on the achievement of certain milestones, which is comprised of a $40.0 million payment that will be due upon obtaining the first approval of a New Drug Application of a Semnur product by the U.S. Food and Drug Administration (the “FDA”) and additional payments that will be due upon the achievement of certain amounts of net sales of Semnur products as follows: (a) a $20.0 million payment upon the achievement of $100.0 million in cumulative net sales of a Semnur product, (b) a $20.0 million payment upon the achievement of $250.0 million in cumulative net sales of a Semnur product, (c) a $50.0 million payment upon the achievement of $500.0 million in cumulative net sales of a Semnur product, and (d) a $150.0 million payment upon the achievement of $750.0 million in cumulative net sales of a Semnur product.

In March 2019, the Company also entered into an Exchange and Registration Rights Agreement (the “Exchange Agreement”) with the stockholders and stock option holders of Semnur. Pursuant to the Exchange Agreement, if within 18 months of the closing of the Merger, 100% of the outstanding equity of Scilex Holding has not been acquired by a third party or Scilex Holding has not entered into a definitive agreement with respect to, or otherwise consummated, a firmly underwritten offering of Scilex Holding’s capital stock that meets certain requirements and includes the Stock Consideration, then the holders of the Stock Consideration may collectively elect to exchange, during the 60-day period commencing the date that is the 18 month anniversary of the closing of the Merger, the Stock Consideration for851,305 shares of the Company’s common stock, with a value of $55.0 million (the “Semnur Share Exchange”) based on a price per share of the Company’s common stock equal to the greater of (a) the 30-day trailing volume weighted average price of one share of the Company’s common stock as reported on the Nasdaq Capital Market as of the consummation of the Semnur Share Exchange and (b) $5.55 (subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction).

The transaction was accounted for as an asset acquisition since substantially all the value of the gross assets was concentrated in a single asset. NaN contingent consideration was recorded as of December 31, 2019 or March 31, 2020 since the related regulatory approval milestones are not deemed probable until they actually occur. Approximately $75.3 millionwhich was expensed as acquired in-process research and development during the three months ended March 31, ~~2019.~~

~~In November 2019,~~2021. The Company also agreed to pay Mount Sinai (i) certain milestone payments upon the achievement of certain clinical trial and regulatory milestones, and (ii) certain royalties in the low-single digit to mid-single digit percentages of annual net sales of Licensed Products by the Company ~~entered into short-term working capital funding arrangements (the “Arrangements”) in which~~and a share of any sublicense revenue received by the Company ~~received proceeds of approximately $8.0~~ ~~million, for a fee of~~ 5% ~~per annum. These Arrangements are short-term in nature and are recorded within the current portion of debt. Additionally,~~from sublicensees.

On January 29, 2021, the Company ~~provided security deposits in an aggregate amount~~acquired additional shares of ~~approximately~~ $~~8.5~~ ~~million (RMB~~ ~~60.0~~ ~~million)~~Scilex Holding Company (“Scilex Holding”), ~~which is included in prepaid expenses and other current assets~~resulting in the ~~consolidated balance sheets~~Company holding approximately 99.9% of the outstanding common stock of Scilex Holding as of March 31, 2021.

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

The purchase price allocation resulted in net identifiable assets of $19.5 million, which includes separate and distinct indefinite lived intangible assets comprised of acquired in-process research and development of $13.9 million, goodwill of $5.3 million and other net assets of $0.3 million. Customary tax related matters such as the filing of pre-acquisition tax returns are subject to finalization as of March 31, 2021. Such matters may result in adjustments to the purchase price allocation, which has not changed since December 31, 2020.Goodwill largely reflects the synergies expected to be achieved with SmartPharm’s gene delivery platforms and the assembled workforce. Goodwill is not deductible for tax purposes. Results of operations since the date of acquisition were not material.

In April 2015, the Company and NantCell, Inc. (“NantCell”) entered into a license agreement. Under the terms of the agreement, the Company granted an exclusive license to NantCell covering patent rights, know-how and materials related to certain antibodies, ADCs and two CAR-TNK products. NantCell agreed to pay a royalty not to exceed five percent (5%) to the Company on any net sales of products ~~(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 10 million shares of NantCell common stock to the Company valued at $100.0 million based on ~~a recent~~an equity sale of NantCell common stock to a third party. ~~As of March 31,~~The Company terminated the agreement, effective January 29, 2020, ~~the Company had not yet provided all~~due to NantCell`s material breach of the ~~items noted~~agreement. The termination and remedies related to such termination are currently pending in an arbitration before the agreement, including research services for and on behalf of NantCell, and therefore has recorded the entire upfront payment and value of the equity interest received as deferred revenue. Specifically, only a portion of the materials associated with the licensed assets have been delivered while the majority of the licensed assets remain undelivered and the related research activities are still to be performed.American Arbitration Association. The Company ~~will recognize~~has therefore deferred recognition of the upfront payment and the value of the equity interest received ~~over~~until the ~~period beginning with the commencement of the last item delivered.~~arbitration is concluded or resolved. 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, less impairment, plus or minus changes resulting from observable price changes in ~~the consolidated balance sheets and evaluated~~orderly transactions for ~~other-than-temporary impairment on a quarterly basis.~~identical or similar investments of NantCell.

~~2018 Securities Purchase Agreement in Private Placement and Amendment to Warrants~~

In March 2018, the Company entered into a Securities Purchase Agreement (the “March 2018 Securities Purchase Agreement”) with certain accredited investors (the “March 2018 Purchasers”). Pursuant to the March 2018 Securities Purchase Agreement, the Company agreed to issue and sell to the March 2018 Purchasers, in a private placement, (1) convertible promissory notes in an aggregate principal amount of $120,500,000 (the “Notes”), and (2) warrants to purchase 8,591,794 shares of the common stock of the Company (the “Warrants”). In June 2018, the Company entered into an amendment (the “June 2018 Amendment”) to the March 2018

Securities Purchase Agreement. Under the terms of the June 2018 Amendment, the Company issued and sold to the March 2018 Purchasers (1) Notes in an aggregate principal amount of $37,848,750, and (2) Warrants to purchase an aggregate of 2,698,662 shares of Common Stock. The Notes accrued interest at a rate equal to 5.0% per annum and would have matured upon the earlier to occur of June 13, 2023 and the date of the closing of a change of control.

On November 8, 2019, the Company amended the Notes to provide that (a) the conversion price for the Notes was reduced from $7.0125 per share to $1.70 per share, and (b) upon the conversion of any portion of the outstanding principal amount of the Notes, all accrued but unpaid interest on such portion of the principal amount being converted shall also be converted into shares of the Company’s common stock at $1.70 per share. Pursuant to the Notes, as amended, the March 2018 Purchasers agreed to convert the full principal amount, plus all accrued but unpaid interest into shares of the Company’s common stock on November 8, 2019. The Company accounted for the conversion of the Notes as an induced conversion of debt and recorded a loss on settlement of debt of $27.8 million during the fourth quarter of 2019.

On September 7, 2018, Scilex Pharmaceuticals Inc. (“Scilex Pharma”) entered into Purchase Agreements (the “2018 Purchase Agreements”) with certain investors (collectively, the “Scilex Note Purchasers”) and the Company. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma ~~among other things,~~ issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million (the “Scilex Notes Offering”). In connection with the Scilex Notes Offering, Scilex Pharma also entered into an Indenture (the “Indenture”) governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee ~~(the “Trustee”)~~ and collateral agent, ~~(the “Collateral Agent”),~~ and

the Company. Pursuant to the Indenture, the Company agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the ~~Indenture (the “Guarantee”).~~

~~The net proceeds of~~Indenture. During the ~~Scilex Notes Offering were approximately $89.3 million, after deducting the Scilex Notes Offering expenses payable by~~year ended December 31, 2020, Scilex Pharma ~~and funding a segregated reserve account with $20.0~~repurchased an aggregate of $65.0 million (the “Reserve Account”) and a segregated collateral account with $25.0 million (the “Collateral Account”) pursuant to the terms of the Indenture. Funds in the Reserve Account will be released to Scilex Pharma upon receipt by the Trustee of an officer’s certificate under the Indenture from Scilex Pharma confirming receipt of a marketing approval letter from the FDA with respect to SP-103 (the “Marketing Approval Letter”) on or prior to July 1, 2023. Funds in the Collateral Account will be released upon receipt of a written consent authorizing such release from the holders of a majority in principal amount of the Scilex Notes issued, upon the occurrence and during the continuance of an event of default at the direction of the holders of a majority in principal amount of the Scilex Notes issued or upon the repayment in full of all amounts owed under the Scilex Notes.

The holders of the Scilex Notes (the “Holders”) will be entitled to receive quarterly payments of principal of the Scilex Notes equal to a percentage, in the range of 10% to 20% of the net sales of ZTlido^® ~~(lidocaine topical system 1.8%) (“ZTlido”) for the prior fiscal quarter, beginning on~~In February ~~15, 2019. If~~2021, Scilex Pharma has not received the Marketing Approval Letter by March 31, 2021, the percentage of net sales payable shall be increased to be in the range of 15% to 25%. If actual cumulative net sales of ZTlido from October 1, 2022 through September 30, 2023 are less than 60% of a predetermined target sales threshold for such period, then Scilex Pharma will be obligated to payrepurchased an additional ~~installment of principal of the Scilex Notes each quarter~~ $20.0 million in ~~an amount equal to an amount to be determined by reference to the amount of such deficiency.~~

The aggregate principal amount due under the Scilex Notes shall be increased by $28,000,000 on February 15, 2022 if actual cumulative net sales of ZTlido from the issue date of the Scilex Notes through December 31, 2021 do not equal or exceed 95% of a predetermined target sales threshold for such period. If actual cumulative net sales of ZTlido for the period from October 1, 2022 through September 30, 2023 do not equal or exceed 80% of a predetermined target sales threshold for such period, the aggregate principal amount shall also be increased on November 15, 2023 by an amount equal to an amount to be determined by reference to the amount of such deficiency.

The final maturity date of the Scilex Notes will be August 15, 2026. The Scilex Notes may be redeemed in whole at any time upon 30 days’ written notice at Scilex Pharma's option prior to August 15, 2026 at a redemption price equal to 100% of the then-outstanding principal amount of the Scilex Notes. In addition, upon a change of control of Scilex Pharma (as defined in the Indenture), each Holder shall have the right to require Scilex Pharma to repurchase all or any part of Holder’s Scilex Note at a repurchase price in cash equal to 101% of the then-outstanding principal amount thereof.

Pursuant to the terms of the Indenture, the Company issued an irrevocable standby letter of credit to Scilex Pharma (the “Letter of Credit”), which provides that, in the event that (1) Scilex Pharma does not hold at least $29,000,000 in unrestricted cash (which is inclusive of the amount in the Collateral Account) as of the end of any calendar month ending March 31, 2020 through and including the month ending March 31, 2021 or at least $35,000,000 in unrestricted cash (which is inclusive of the amount in the Collateral Account) at the end of any calendar month after March 31, 2021, (2) actual cumulative net sales of ZTlido from the issue date of the Scilex Notes through December 31, 2021 are less than a specified sales threshold for such period, or (3) actual cumulative net sales of

ZTlido for any calendar year during the term of the Scilex Notes, beginning with the 2022 calendar year, are less than a specified sales threshold for such calendar year, Scilex Pharma, as beneficiary of the Letter of Credit, will draw, and the Company will pay to Scilex Pharma, $35,000,000 in a single lump-sum amount as a subordinated loan. In the event that Scilex Pharma draws on the Letter of Credit, and the Company pays to Scilex Pharma, $35,000,000 in a single lump-sum amount as a subordinated loan, Holder shall have the right to require the Company to purchase all or any part of such Holder’s outstanding Scilex Notes in the principal amount of, and at a purchase price in cash equal to, $25,000,000 multiplied by such Holder’s pro rata portion of the then-outstanding Scilex Notes. The Letter of Credit will terminate upon the earliest to occur of: (a) the repayment of the Scilex Notes in full, (b) the actual net sales of ZTlido for any calendar year during the term of the Scilex Notes exceeding a certain threshold, (c) the consummation of an initial public offering on a major international stock exchange by Scilex Pharma that satisfies certain valuation thresholds, and (d) the replacement of the Letter of Credit with another letter of credit in form and substance, including as to the identity and creditworthiness of issuer, reasonably acceptable to the Holders of at least 80% in principal amount of outstanding Scilex Notes.

On October 1, 2019, Scilex Pharma, the Company, the Trustee and the Collateral Agent, and the beneficial owners of the Scilex Notes and the Holders entered into an omnibus amendment (the “Omnibus Amendment”) to: (i) the Indenture, and (ii) the Letter of Credit.

Under the terms of the Omnibus Amendment, among other things, the defined term “Change of Control” was revised to include, in addition to certain events described in the Indenture, (i) prior to the consummation of an initial public offering by Scilex Holding (the “Scilex Holding IPO”), the Company ceasing to own, directly or indirectly, a majority of the total voting and economic power of the issued and outstanding capital stock that is entitled to vote in the election of the Board of Directors (the “Voting Stock”) of Scilex Pharma, (ii) at any time following the consummation of the Scilex Holding IPO, Scilex Pharma becoming aware of the acquisition by any person or group acquiring, in a single or in a related series of transactions, by way of merger, amalgamation, consolidation or other business combination or purchase of beneficial ownership of a majority of the total voting power of the issued and outstanding Voting Stock of Scilex Pharma or Scilex Holding, and (iii) Scilex Holding failing at any time to own 100% of the capital stock of Scilex Pharma. The Omnibus Amendment also provides that Scilex Pharma will agree not to engage in or enter into any business other than the research, development, manufacture, sale, distribution, marketing, detailing, promotion, selling and securing of reimbursement of ZTlido and any future iterations, improvements or modifications thereof (the “Product”), on a worldwide basis (exclusive of Japan), and activities that are necessary for, or otherwise relevant to, the same, subject to certain exceptions. The Omnibus Amendment further provides that, if Scilex Holding fails to contribute $25.0 million of the proceeds of any Scilex Holding IPO to Scilex Pharma within three business days following the closing of the issuance and sale of Scilex Holding’s capital stock in the Scilex Holding IPO, such failure shall constitute an “Event of Default” under the Indenture.

In connection with the Omnibus Amendment, in the event of consummation of a Scilex Holding IPO that satisfies certain valuation thresholds, Scilex Pharma agreed to repurchase, from each Holder, Scilex Notes in a principal amount equal to (i) $20.0 million multiplied by (ii) a fraction the numerator of which will be the then outstanding principal amount of the Scilex Notes held by such Holder and the denominator of which will be the then outstanding principal amount of all of the outstanding Scilex Notes, at a purchase price in cash equal to 100% of the principal amount thereof (such repurchase, the “Effective Date Repurchase”). Pursuant to the Omnibus Amendment, the Holders agreed to release the funds in the Reserve Account for the purpose of consummating the Effective Date Repurchase and any remaining funds in the Reserve Account after the consummation of the Effective Date Repurchase will be released to Scilex Pharma by the Trustee and the Collateral Agent. After the consummation of the Effective Date Repurchase, the right of the Holders to require Scilex Pharma to repurchase $20.0 million principal amount upon failure to receive the Marketing Approval Letter with respect to SP-103 by July 1, 2023 shall have no further force and effect and the Reserve Account shall be closed.

The Omnibus Amendment also modified the Letter of Credit to provide that one of the conditions that will terminate the Letter of Credit will be the consummation of a Scilex Holding IPO that satisfies certain valuation thresholds. The Omnibus Amendment will be effective upon the satisfaction of certain terms and conditions, including the consummation of the Effective Date Repurchase. The Omnibus Amendment will terminate if the Omnibus Amendment does not become effective on or prior to October 1, 2020. The Company accounted for the Omnibus Amendment as a debt modification under ASC Topic 470-50 as modified terms were not substantially different than the pre-modified terms. The Company recorded ~~an additional $4.3~~a loss on partial debt extinguishment of $7.1 million~~debt discount in connection with~~ during the ~~Omnibus Amendment as of October 1, 2019.~~

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

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

The Company made principal payments of ~~$1.6~~$21.3 million and ~~$0.4~~$1.6 million during the three months ended March 31, 2021 and 2020, ~~and 2019, respectively, which were based on a percentage of net sales of ZTlido.~~respectively. The imputed effective interest rate at March 31, ~~2020~~2021 was ~~7.7%~~9.4%. The amount of debt discount and debt issuance costs included in interest expense for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 was approximately $2.1 million and $2.9 million, ~~and $4.6 million,~~ respectively. On April 13, 2021 the Company made an additional principal payment of $20.0 million.

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

On ~~November 7, 2018,~~December 4, 2020, the Company ~~and certain of its domestic subsidiaries (the “Guarantors”)~~ entered into ~~a Term Loan~~Amendment No. 1 to that certain Sales Agreement ~~(the “Loan Agreement”)~~dated April 27, 2020, with certain funds and accounts managed by Oaktree Capital Management, L.P. (collectively, the “Lenders”) and Oaktree Fund Administration, LLC, as administrative and collateral agent (the “Agent”), for an initial term loan of $100.0 million (the “Initial Loan”) and a second tranche of $50.0 million, subject to the achievement of certain commercial and financial milestones between August 7, 2019 and November 7, 2019, and the satisfaction of certain customary conditions (the “Conditional Loan”). The Initial Loan matures on November 7, 2023 (the “Maturity Date”) and bears interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus the applicable margin, or 7%. The net proceeds of the Initial Loan were approximately $91.3 million, after deducting estimated loan costs, commissions, fees and expenses, and were used for general corporate purposes. In connection with the Loan Agreement, on November 7, 2018,A.G.P./Alliance Global Partners, which provides that the Company ~~issued~~may, from time to time, offer and sell securities to A.G.P./Alliance

Global Partners in at-the-market transactions (as amended, the ~~Lenders warrants to purchase 6,288,985 shares of the Company’s common stock (the “Initial Warrants”~~“Amended Sales Agreement”). The Initial Warrants have an exercise price per share of $3.28, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, are exercisable from May 7, 2019 through May 7, 2029 and will be exercisable on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the Initial Warrants (the “Initial Warrant Shares”), in which case the Initial Warrants shall also be exercisable on a cashless exercise basis. In connection with the Loan Agreement, on November 7, 2018, the Company and the Lenders entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which, among other things, the Company agreed to file one or more registration statements with the SEC for the purpose of registering for

~~resale the Initial Warrant Shares and the shares of common stock issuable upon exercise of warrants that may be issued in connection with the Conditional Loan (the “Conditional Warrants”).~~

On May 3, 2019, the Company, the Guarantors and the Lenders and the Agent entered into an amendment (the “Amendment”) to the Loan Agreement. Under the terms of the Amendment, among other things, the Lenders agreed to make available to the Company $20.0 million of the Conditional Loan, notwithstanding that the commercial and financial milestones had not occurred (the “Early Conditional Loan”). The Lenders also agreed to loan the Company the remaining $30.0 million of the Conditional Loan upon the satisfaction of the commercial and financial milestones between August 7, 2019 and November 7, 2019 (the “Remaining Conditional Loan” and, together with the Initial Loan and the Early Conditional Loan, the “Term Loans”). The Term Loans and the Early Conditional Loan will mature on November 7, 2023. The Term Loans may be prepaid by the Company, in whole or in part at any time, subject to a prepayment fee. Upon any prepayment or repayment of all or a portion of the Term Loans (including the Early Conditional Loan and the Remaining Conditional Loan), the Company has agreed to pay the Lenders an exit fee equal to 1.25% of the principal amount paid or prepaid amounting to approximately $1.5 million. The Early Conditional Loan was funded on May 3, 2019.

The Company accounted for the Amendment as a debt modification and not a debt extinguishment under ASC Topic 470-50, as the modified terms were not substantially different from the terms of the Loan Agreement. The Company incurred approximately $0.8 million in fees directly related to the Amendment, which were expensed as incurred.

In connection with the Amendment, on May 3, 2019, the Company issued to the Lenders warrants to purchase an aggregate of 1,333,304 shares of the Company’s common stock (the “2019 Warrants”). The 2019 Warrants have an exercise price per share of $3.94, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, will be exercisable from November 3, 2019 through November 3, 2029. The Company recorded a loss on derivative liabilities associated with the 2019 Warrants of $4.3 million on the issuance date.

The Loan Agreement provided that, in the event of an optional prepayment of all or any portion of the Term Loans prior to November 7, 2021, the Company would be obligated to pay a prepayment fee in an amount equal to the amount of interest that would have been paid on the principal amount of the Term Loans being prepaid for the period from and including the date of such prepayment to, but excluding, November 7, 2021, based on the interest rate in effect on the date of any such prepayment (the “Make-Whole Payment”), plus 3% of the principal amount of the Term Loans being so prepaid.

On December 6, 2019, the Company, the Guarantors and the Lenders and the Agent entered into an amendment (“Amendment No. 2”) to the Loan Agreement. Under the terms of Amendment No. 2, the Lenders agreed that, in the event of an optional prepayment of all or any portion of the Term Loans on or prior to March 31, 2020, the prepayment fee was equal to 3% of the principal amount of the Term Loans being prepaid, and the Company was not required to pay any Make-Whole Payment. Pursuant to Amendment No. 2, the Company also agreed to certain financial milestones and to fund and maintain, in a blocked liquidity account, an amount equal to (i) $2.5 million, or (ii) $20.0 million upon the achievement by the Company of certain financial milestones; provided, that the amount required to be maintained in the blocked liquidity account will be $10.0 million if the Company makes an optional prepayment of at least $50.0 million in principal amount of the Term Loans on or prior to March 31, 2020.

In connection with Amendment No. 2, on December 6, 2019, the Company paid the Lenders fees of approximately $1.4 million, which the Company recorded as a debt discount, and issued to the Lenders warrants to purchase an aggregate of 2,000,000 shares of the Company’s common stock (the “December 2019 Warrants”). The December 2019 Warrants have an exercise price per share of $3.26, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, will be exercisable from June 6, 2020 through June 6, 2030 and will be exercisable solely on a cash basis, unless there is not an effective registration statement covering the resale of the shares issuable upon exercise of the Warrants, in which case the December 2019 Warrants shall also be exercisable on a cashless exercise basis. The Company recorded a $6.0 million debt discount representing the fair value of the December 2019 Warrants with a corresponding increase to additional paid-in-capital. The debt discount is being recognized as interest expense over the life of the Term Loans using the effective interest method.

The Company, during the first quarter of 2020 and through May 7, 2020, repaid approximately $60.5 million of outstanding principal under the Term Loans plus approximately $4.8 million of related prepayment premium, exit fees and accrued interest thereon. Approximately $11.6 million of such repayment was effectuated through a release by the Lenders of all amounts held in a debt service reserve account for the benefit of the Lenders and of all amounts in the blocked liquidity account. The Company is no longer required to maintain any amounts in the debt service reserve account or the blocked liquidity account, but has committed to meet debt prepayment obligations of approximately $10 million, and pursue debt restructuring arrangements and the sale of one or more non-core assets in the first half of 2020. Certain of these features were accounted for in the consolidated financial statements as a derivative liability (See ~~Note 3~~).

In connection with the repayment of outstanding principal, the Company recorded a loss on partial debt settlement of $23.6 million. The Company accounted for the prepayment of principal as a partial debt extinguishment. However, under ASC Topic 470-50, the modified terms of the debt duringDuring the three months ended March 31, ~~2020 were not substantially different from the terms of the Loan Agreement and therefore were accounted for as a modification and not a debt extinguishment.~~

The fair value of the Term Loans was estimated using a discounted cash flow model with Level 3 inputs with key inputs that include debt yield, coupon rate and maturity dates. Borrowings under the Term Loans consisted of the following (in thousands):

Interest expense recognized for stated interest on the Term Loans totaled $2.1 million and $2.4 million for the three months ended March 31, 2020 and 2019, respectively. The amount of debt discount and debt issuance costs included in interest expense on the Term Loans for the three months ended March 31, 2020 and 2019 was approximately $1.5 million and $1.0 million, respectively.

The Company identified certain embedded derivatives that require bifurcation from the Initial Loan and Early Conditional Loan. Certain of these embedded features include a contingent accelerated repayment feature, which was accounted for in the consolidated financial statements as a derivative liability (see ~~Note 3). The Company re-evaluates this assessment each reporting period.~~

The Company is no longer required to maintain any amounts in the debt service reserve account or the blocked liquidity account, but has committed to meet debt prepayment requirements of approximately $10 million, and pursue debt restructuring arrangements and the sale of one or more non-core assets in the first half of 2020. Certain of these features were accounted for in the consolidated financial statement as a derivative liability (see ~~Note 3~~).

Both the 2018 Purchase Agreements and Indenture for Scilex and the Loan Agreement (collectively, the “Debt Arrangements”), provide that, upon the occurrence of an event of default, the lenders thereunder may, by written notice to the Company, declare all of the outstanding principal and interest under such Debt Arrangements immediately due and payable. For purposes of the Debt Arrangements, an event of default includes, among other things, (i) a failure to pay any amounts when due under the Debt Arrangements, (ii) a breach or other failure to comply with the covenants (including financial, notice and reporting covenants) under the Debt Arrangements, (iii) a failure to make any payment on, or other event triggering an acceleration under, other material indebtedness of the Company, which would include, with respect to the Loan Agreement, a failure or acceleration under the 2018 Purchase Agreements and Indenture for Scilex, and with respect to the 2018 Purchase Agreements and Indenture for Scilex, a failure or acceleration under the Loan Agreement, and (iv) the occurrence of certain insolvency or bankruptcy events (both voluntary and involuntary) involving the Company or certain of its subsidiaries. The Company is in compliance with event of default clauses under the Debt Arrangements.

In February 2020, the Company entered into a Common Stock Purchase Agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC, (“Aspire Capital”), pursuant to which Aspire Capital was committed to purchase up to an aggregate of $75.0 million of shares of the Company’s common stock over a 24-month term. Upon execution of the Aspire Purchase Agreement, the Company issued to Aspire Capital 897,308 shares of the Company’s common stock as a commitment fee. The Company is using any proceeds it receives under the Aspire Purchase Agreement for working capital and general corporate purposes and for the repayment of the Term Loans.

~~During the quarter ended March 31, 2020,~~2021, the Company issued and sold an aggregate of ~~28,721,972~~3,901,460 shares of ~~the Company’s~~its common stock pursuant to ~~Aspire Capital~~the Amended Sales Agreement for aggregate net proceeds to the Company of approximately ~~$62.6~~$42.2 million. Subsequent to March 31, ~~2020,~~2021 and through April 30, 2021, the Company issued and sold an aggregate of ~~5,103,038~~976,208 shares of its common stock pursuant to ~~Aspire Capital under~~ the ~~Aspire Purchase~~Sales Agreement for aggregate net proceeds to the Company of approximately ~~$12.4~~$7.7 million. On April 24, 2020, the Aspire Purchase Agreement terminated effective immediately in accordance with its terms as the Company issued and sold, as of such date, the full $75.0 million of shares available for issuance thereunder.

Total stock-based compensation recorded as operating expense under the 2019 Plan was $8.7 million and $2.1 million for the three months ended March 31, 2021 and 2020, respectively. Total unrecognized compensation expense related to unvested stock option grants as of March 31, 2021 was $46.4 million with a weighted average remaining vesting period of 2.8 years. Total unrecognized compensation expense related to unvested restricted stock unit (“RSU”) grants as of March 31, 2021 was $20.2 million, with a weighted average remaining vesting period of 4.0 years.

A summary of stock option activity under the ~~Sorrento Therapeutics, Inc. 2009 Stock Incentive Plan and the Sorrento Therapeutics, Inc.~~ 2019 ~~Stock Incentive~~ Plan for the three months ended March 31, ~~2020~~2021 is as ~~follows (in thousands, except price data):~~

The estimated fair value of each stock option grant was determined on the grant date using the Black-Scholes valuation model with the following weighted-average ~~assumptions. The Company granted 0 stock options during~~assumptions:

A summary of RSU activity under the 2019 Plan for the three months ended March 31, ~~2019.~~

~~Total~~The fair value of RSUs is determined based on the closing market price of the Company’s common stock on the grant date.

Under the Scilex Holding Company 2019 Stock Option Plan, total stock-based compensation recorded as operating ~~expenses~~expense was ~~$2.1~~$1.9 million and ~~$2.0~~$1.6 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The total unrecognized compensation ~~cost~~expense related to unvested stock option grants as of March 31, ~~2020~~2021 was ~~$17.9~~$20.1 million, ~~and the~~with a weighted average vesting period ~~over which these grants are expected to vest is 3.0~~of 2.9 years.

Total stock-based compensation ~~expense~~ recorded as operating ~~expenses~~expense for the Company`s 2020 Employee Stock Purchase Plan was ~~$1.6 million and $0.2~~$0.3 million for the three months ended March 31, 2021.

Total stock-based compensation recorded as operating expense for the 10-year CEO performance award that was granted to the Company’s chief executive officer in 2020 and ~~2019, respectively. The total unrecognized compensation cost related~~tied solely to ~~unvested stock option grants as~~the Company achieving market capitalization milestones (the “CEO Performance Award”) was $12.8 million for the three months ended March 31, 2021. As of March 31, ~~2020 was $14.2~~2021, the Company had approximately $126.7 million ~~and~~of total unrecognized stock-based compensation expense remaining under the ~~weighted average period over which these grants are expected to vest is 2.9 years.~~CEO Performance Award.

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

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

On May 26, 2020, Wasa Medical Holdings filed a putative federal securities class action in the U.S. District Court for the Southern District of California, Case No. 3:20-cv-00966-AJB-DEB, against the Company, its President, Chief Executive Officer and Chairman of the Board of Directors, Henry Ji, Ph.D., and its SVP of Regulatory Affairs, Mark R. Brunswick, Ph.D. The action alleges that the Company, Dr. Ji and Dr. Brunswick made materially false and/or misleading statements to the investing public by publicly issuing false and/or misleading statements regarding STI-1499 and its ability to inhibit the SARS-CoV-2 virus infection and that such statements violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The suit seeks to recover damages caused by the alleged violations of federal securities laws, along with the plaintiffs’ reasonable costs and expenses incurred in the lawsuit, including counsel fees and expert fees. On June 11, 2020, Jeannette Calvo filed a second putative federal securities class action in the U.S. District Court for the Southern District of California, Case No. 3:20-cv-01066-JAH-WVG, against the same defendants alleging the same claims and seeking the same relief. On February 12, 2021, the U.S. District Court for the Southern District of California issued an order consolidating the cases and appointing a lead plaintiff, Andrew Zenoff (“Plaintiff”), and lead counsel. On April 5, 2021, Plaintiff filed a consolidated amended complaint in accordance with the U.S. District Court for the Southern District of California’s scheduling order. Pursuant to that scheduling order, any responsive pleading or motion to dismiss by the defendants is due by May 20, 2021; Plaintiff’s opposition to any motion to dismiss filed by the defendants is due by July 5, 2021; and any reply by the defendants is due by August 4, 2021. No hearing date for any motion by the defendants has been set. The Company is defending these matters vigorously.

As of March 31, ~~2020,~~2021, the Company’s leases have remaining lease terms of approximately ~~0.7~~0.3 to ~~9.7~~8.7 years, some of which include options to extend the lease terms for up to five years, and some of which allow for early termination. Operating lease costs were approximately $2.5 million and $2.3 million for the three months ended March 31, 2020 and 2019, respectively, and were primarily comprised of long-term operating lease costs. Short-term operating lease costs were immaterial.

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

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

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryforwards generated in taxable years beginning after December 31, 2017, to offset 100% of taxable income for taxable years beginning before January 1, 2021, and 80% of taxable income in taxable years beginning after December 31, 2020. In addition, the CARES Act makes the Alternative Minimum Tax Credit 100% refundable for taxable years beginning in 2018 and 2019. The Company has recorded an income tax benefit of $0.1 million related to this legislation.

The Company’s income tax benefit of ~~$0.3~~ $0.2million and ~~$0.2~~$0.3 million reflect effective tax rates of ~~0.4%~~9.3% and ~~0.12%~~0.4% for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

The difference between the expected statutory federal tax rate of 21% and the ~~0.4%~~9.3% effective tax rate for the three months ended March 31, ~~2020~~2021 was primarily attributable to the valuation allowance against most of the Company’s deferred tax assets. For the three months ended March 31, ~~2020,~~2021, when compared to the same period in ~~2019,~~2020, the ~~increase in the tax benefit and~~ change in effective income tax rate was primarily attributable toa similar tax benefit year over year applied against the ~~impact~~amount of income in 2021 compared against the ~~Company’s valuation allowance.~~amount of loss in 2020.

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

As of March 31, 2020, approximately 14.7% of the outstanding capital stock of Scilex Holding represents a noncontrolling interest and continues to be held by ITOCHU CHEMICAL FRONTIER Corporation. Scilex Pharma has entered into a product development agreement with ITOCHU CHEMICAL FRONTIER Corporation, which serves as the sole manufacturer and supplier to Scilex Pharma for the ZTlidoproduct. During the three months ended March 31, 2020 and 2019, Scilex Pharma purchased approximately $0.7 million and $3.2 million, respectively, of inventory from ITOCHU CHEMICAL FRONTIER Corporation.

For the three months ended March 31, 2021 and 2020, ~~and 2019,~~ basic ~~loss~~income (loss) per common share is computed by dividing net ~~loss~~income (loss) by the weighted average number of shares of common ~~shares~~stock outstanding during the period. ~~Diluted earnings per share of common stock is calculated to give effect to all dilutive securities, using the treasury stock method and the if-converted method for potentially~~ Potentially dilutive shares of common stock ~~issuable upon~~from outstanding stock options, RSUs and warrants aredetermined using the ~~Semnur Share Exchange.~~average share price for each period under the treasury stock method. Proceeds from the exercises of stock options and warrants and the average amount of unrecognized compensation expense are assumed to be used to repurchase shares.

The following table sets forth the reconciliation of basic and diluted loss per share for the three months ended March 31, 2021 and 2020 ~~and 2019~~ (in ~~thousands)~~thousands except per share amounts):

Three Months Ended March 31,

2020

2019

Numerator

Net loss attributable to Sorrento

$
(65,195
)

$
(108,071
)
Net loss attributable to Semnur holders of Scilex Holding

—

—

Net loss used for diluted earnings per share

$
(65,195
)

$
(108,071
)

Denominator for Basic Loss Per Share

182,609

122,281

Potentially dilutive shares of Sorrento common stock issuable upon Semnur
Share Exchange

—

—

Denominator for Diluted Loss Per Share

182,609

122,281

Basic Loss Per Share

$
(0.36
)

$
(0.88
)
Diluted Loss Per Share

$
(0.36
)

$
(0.88
)

	Three Months Ended March 31,
	2021		2020
Numerator
Net income (loss) used for basic and diluted income (loss) per share	$	2,510	$	(65,195	)

Denominator for basic income (loss) per share		280,604		182,609
Potentially dilutive shares from stock options, RSUs and warrants		17,305		—
Denominator for diluted income (loss) per share		297,909		182,609
Basic income (loss) per share	$	0.01	$	(0.36	)
Diluted income (loss) per share	$	0.01	$	(0.36	)

Shares of common stock issuable pursuant to stock options ~~that would have been excluded because the effect would have been anti-dilutive for the three months ended March 31, 2020~~ and ~~2019 were 13.7 million and 3.9 million, respectively. The potentially dilutive~~ warrants that would have been excluded because the effect would have been anti-dilutive ~~for~~consisted of the three months ended March 31, 2020 and 2019 were 52.5 million and 4.5 million, respectively. Additionally, the Company excluded approximately 9.8 million potentially dilutive shares related to the Semnur Exchange because the effect would have been anti-dilutive.following (in thousands):

The Company operates in 2 operating and reportable segments, Sorrento Therapeutics and Scilex. With the exception of unrestricted cash balances, the Company’s Chief Operating Decision Maker does not regularly review asset information by reportable segment and, therefore, it does not report asset information by reportable segment. The majority of long-lived assets for both segments are located in the United States.

The following table presents information about the Company’s reportable segments for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):

	Three Months Ended March 31,																		Three Months Ended March 31,
	2020									2019									2021									2020
(in thousands)	Sorrento Therapeutics			Scilex			Total			Sorrento Therapeutics			Scilex			Total
																			Sorrento Therapeutics			Scilex			Total			Sorrento Therapeutics			Scilex			Total
External revenues	$	2,510		$	5,211		$	7,721		$	3,284		$	2,859		$	6,143		$	7,269		$	6,986		$	14,255		$	2,510		$	5,211		$	7,721
Operating expenses		33,248			17,636			50,884			35,131			94,182			129,313			81,877			17,283			99,160			33,248			17,636			50,884
Operating loss		(30,738	)		(12,425	)		(43,163	)		(31,847	)		(91,323	)		(123,170	)		(74,608	)		(10,297	)		(84,905	)		(30,738	)		(12,425	)		(43,163	)
Unrestricted cash		11,777			10,120			21,897			37,732			53,239			90,971			31,109			10,569			41,678			11,777			10,120			21,897

~~Equity Distribution~~Merger Agreement for Proposed Acquisition of ACEA Therapeutics

On April ~~27, 2020, the Company voluntarily terminated that certain Equity Distribution Agreement, dated October 1, 2019 (the “Distribution Agreement”), that~~2, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ~~JMP Securities LLC~~ACEA Therapeutics, Inc., an exempted company incorporated with limited liability in the Cayman Islands (“~~JMP Sales Agent”~~ACEA”), ~~effective immediately. Pursuant~~AT Merger Sub, Inc., an exempted company incorporated with limited liability in the Cayman Islands and wholly owned subsidiary of the Company (“Merger Sub”), and Fortis Advisors LLC, as representative of the shareholders of ACEA (the “Shareholders’ Representative”). The Merger Agreement provides for the merger of Merger Sub with and into ACEA (the “Merger”), with ACEA surviving as a wholly owned subsidiary of the Company.

As consideration for the Merger, following the closing of the Merger, the Company will pay to the ~~Distribution Agreement, the Company could offer and sell, from time~~holders of securities of ACEA (the “ACEA Equityholders”) an amount equal to ~~time, through the JMP Sales Agent, shares of~~$38,000,000 (plus the Company’s common stock having an aggregate offering price of up to $75,000,000. During the term of the Distribution Agreement, the Company sold an aggregate of 2,120,149 shares of its common stock thereunder for aggregate gross proceeds to the Company of approximately $7.4 million. The Distribution Agreement was terminable at will by the Company with no penalty.

On April 27, 2020, the Company entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners, as sales agent (the “Sales Agent”), pursuant to which the Company may offer and sell through or to the Sales Agent (the “Offering”) up to $250.0 million in shares of its common stock (the “Shares”). ~~Any Shares offered and sold in the Offering will be issued pursuant to the Shelf Registration Statement and the prospectus supplement relating to the Offering filed with the SEC on April 27, 2020.~~ ~~The Offering will terminate~~agreed upon ~~(a) the election of the Sales Agent upon the occurrence~~share of certain ~~adverse events, (b) three business days’~~

~~advance notice from one party~~interest, fees and other expenses), as such amount may be adjusted pursuant to ~~the other, or (c) the sale of all of the Shares. Under~~ the terms of the ~~Sales~~Merger Agreement for indebtedness, transaction expenses and cash (the “Closing Consideration”). A portion of the ~~Sales Agent~~Closing Consideration otherwise payable to the ACEA Equityholders will be ~~entitled to a commission at a fixed rate of 3.0% of~~set aside for expenses incurred by the ~~gross proceeds from each sale of shares under the Sales Agreement.~~

On April 27, 2020, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Arnaki Ltd. (the “Purchaser”), pursuant to which the Purchaser is committed to purchase up to an aggregate of $250.0 million of shares of the Company’s common stock over the 36-month term of the Purchase Agreement on the terms set forth therein. ~~Any Shares offered and sold~~Shareholders’ Representative. In addition to the ~~Purchaser will be issued pursuant~~Closing Consideration, and subject to the ~~Shelf Registration Statement~~achievement of certain clinical and ~~the prospectus supplement relating to offering of shares pursuant to the Purchase Agreement filed with the SEC on April 27, 2020.~~

~~On any business day over the term of the Purchase Agreement (each, a “Purchase Date”)~~sales milestones (as described below), the Company ~~has~~shall also pay the ~~right, in its sole discretion, to present the Purchaser with a purchase notice directing the Purchaser to purchase~~ACEA Equityholders (i) up to ~~650,000 shares of common stock per business day. The Company and the Purchaser also may mutually agree to increase the number of shares that may be sold to as much as an~~$450,000,000 in additional ~~3,600,000 shares per Purchase Date. The Company also has the right, in its sole discretion, to grant the Purchaser an option to purchase additional shares of common stock,~~payments, subject to ~~a maximum number~~the receipt of ~~shares determined~~certain regulatory approvals and achievement of certain net sales targets with respect to the assets acquired in the Merger and (ii) with respect to specified royalty-bearing products, 5 to 10 percent of the annual net sales thereof (the “Earn-Out Consideration” and together with the Closing Consideration, the “Merger Consideration”), in each case in accordance with the terms of an earn-out agreement to be entered into by ~~the Company on each Purchase Date. The aggregate purchase price paid by the Purchaser shall not exceed $5.0 million per Purchase Date, unless mutually agreed upon by~~and between the Company and the ~~Purchaser. The purchase price~~Shareholders’ Representative in connection with the closing of the ~~common stock pursuant to the Purchase Agreement will generally be equal to 97.5%~~Merger.

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

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

Sorrento Therapeutics, Inc., together with its subsidiaries (collectively, the “Company”, “we”, “us”, and “our”) is a clinical stage and commercial ~~biopharma~~biopharmaceutical company focused on delivering innovative and clinically meaningful therapies to ~~patients and their families to~~ address unmet medical needs. ~~We have programs assessing the use of our technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases.~~

At our core, we are an antibody-centric ~~company~~ and leverage our proprietary G-MAB™ library and targeted delivery modalities to generate the next generation of cancer therapeutics. Our fully human antibodies include PD-1, PD-L1, CD38, CD123, CD47, CTLA-4, ~~c-MET, VEGFR2, CCR2~~CD137 and ~~CD137~~SARS-CoV-2 neutralizing antibodies, among others. We also have programs assessing the use of our technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases.

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

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

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

Our first generation SARS-CoV-2 neutralizing antibody was STI-1499 (COVIGUARD™), which was engineered to prevent antibody dependent enhancement. This antibody was then optimized to produce the highly potent STI-2020, which is currently being developed in two outpatient formations: COVI-AMG (IV-push injection) and COVI-DROPS (nasal). COVI-AMG has been cleared by the U.S. Food and Drug Administration (“FDA”) for a Phase I study of healthy volunteers, a Phase II study in outpatients withCOVID-19 and a Phase II study in hospitalized patients with moderate or severe COVID-19, and we are awaiting FDA clearance for a Phase I study of COVIDROPS of healthy volunteers and patients with mild COVID-19. Sorrento also has developed two promising potential rescue treatments with Abivertinib, an oral next generation dual EGFR/BTK inhibitor, to treat moderate to severe hospitalized COVID-19 patients and COVI-MSC™, a human allogeneic adipose-derived mesenchymal stem cells for patients

suffering from COVID-19-induced acute respiratory distress (ARD). Both have been cleared by the FDA and are in Phase Ib clinical studies. We are also working with Brazilian regulators (“ANVISA”) to conduct a COVID-19 study with Abivertinib and potentially with COVI-AMG^TM. In pre-clinical development, we are rapidly screening new neutralizing antibodies to address the multiple emerging variants of SARS-CoV-2 to potentially add to STI-2020 in a cocktail (COVI-SHIELD™) and exploring novel mechanistic approaches such as soluble recombinant fusion protein traps (COVIDTRAP^TM) to potentially inhibit the binding of SARS-CoV-2’s spike protein with host ACE2 receptors, thereby potentially preventing viral cell entry.

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

We have reported early data from Phase I trials of our carcinoembryonic antigen (“CEA”)-directed CAR-T program. We have treated five patients with stage 4, unresectable adenocarcinoma (four with pancreatic and one with colorectal cancer) and CEA-positive liver metastases with anti-CEA CAR-T. We successfully submitted an Investigational New Drug application (“IND”) for anti-CD38 CAR-T for the treatment of refractory or relapsed multiple myeloma (“RRMM”) ~~and~~, obtained clearance from the ~~U.S. Food and Drug Administration (the~~ “FDA”) and commenced a human clinical trial for this indication in early 2018. We have dosed ~~five~~eleven patients. We intend to close this study to further enrollment and start up a similar anti-CD38 CAR-T construct without the myc-tag (which cannot be used in Europe), and to continue treating RRMM patients in a Phase Ib/IIa study, which will begin enrollment in the first quarter of 2021. We filed INDs for our CD47 mAb and ~~are continuing~~ the ~~enrollment~~first of ~~additional patients.~~our DAR-T platform product candidates in the first quarter of 2021.

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

With respect to our ADC program, we began enrolling patients in the first quarter of 2021 in a Phase Ib ascending dose study of our CD38 ADC for systemic Amyloid light-chain amyloidosis. Based upon our recently announced exclusive license from Mayo Clinic for its antibody-drug-nanoparticle albumin-bound (“ADNAB”) platform, the ~~approaches~~next generation in ADC technology, we ~~have taken~~intend to develop the “off-the-shelf” allogeneic CAR-T solutions is through Celularity, Inc., our joint venture with Celgene, United Therapeutics and others, (“Celularity”). Celularity focuses on developing cell therapies with placenta-derived and cord blood T cells, which have natural allogeneic “off-the-shelf” characteristics.file several INDs to treat various cancer targets.

Outside of immuno-oncology programs, as part of our global aim to provide a wide range of therapeutic products to meet underserved markets, we have made investments in non-opioid pain management. These include resiniferatoxin (“RTX”), which is a non-opioid-based toxin that specifically ~~ablates~~targets transient receptor potential vanilloid-1 (“TRPV1”) which, depending on the site of injection, can ablate, or destroy, nerves ~~that conduct~~expressing TRPV1 or temporarily defunctionalize them. TRPV1 is responsible for the noxious chronic and inflammatory pain ~~signals while leaving~~signaling that occurs post injury or trauma, but leaves other nerve functions ~~intact and is being studied for chronic pain treatment.~~intact. RTX has been granted orphan drug status for the treatment of intractable pain with end-stage cancer and two Phase IIb trials (intrathecal and epidural routes) in that indication ~~are concluding.~~have or will soon be completed. A Phase Ib trial studying tolerance and efficacy of RTX for the control of moderate to severe osteoarthritis knee pain was initiated in late 2018 and intermediate results have shown efficacy with no dose limiting toxicities. The osteoarthritis trial enrolled the last patient in the first quarter of 2020, and we expect to release the final safety clinical data by the ~~end~~middle of ~~2020. Knee~~2021. We plan to start knee arthritis registrational trials ~~are planned to start later in 2020 with a pivotal trial, pending meeting with~~after the ~~FDA and receiving clearance to proceed.~~completion of required preclinical studies.

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

Additionally, we are currently conducting preclinical development of multiple therapeutic, vaccine and diagnostic candidates for the potential treatment, prevention and detection of COVID-19 across our proprietary platforms, including natural killer cell therapies, neutralizing antibodies and soluble recombinant fusion protein traps (COVIDTRAP^TM~~) to potentially inhibit the binding of SARS-CoV-2’s spike protein with host ACE2 receptors, thereby potentially preventing viral cell entry. SARS-CoV-2 is the virus that causes COVID-19.~~

We are closely monitoring the COVID-19 pandemic and its potential impact on our business. We are an Essential Critical Infrastructure Provider, as our operations are critical to the continued operations of the healthcare infrastructure of the United States, as set forth by the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency. In an effort to protect the health and safety of our employees, we took proactive action from the earliest signs of the outbreak, including implementing social distancing policies at our facilities, facilitating remote working arrangements and imposing employee travel restrictions.

The COVID-19 pandemic has created uncertainties in the expected timelines for clinical stage biopharmaceutical companies such as ours, including possible delays in clinical trials and disruptions in the supply chain for raw materials used in clinical trial work. Such delays could materially impact our ~~business in future periods.~~ Furthermore, the spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. business.Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain. Accordingly, the extent to which the COVID-19 global pandemic impacts our business, results of operations and financial condition will depend on future developments, which ~~are highly uncertain and are difficult to predict; these~~remain unpredictable. These developments include, but are not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or address its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume. For more information on the risks associated with COVID-19, refer to Part II, Item 1A, ~~"Risk Factors"~~“Risk Factors” herein.

Revenues. Revenues were $14.3 million for the three months ended March 31, 2021, as compared to $7.7 million for the three months ended March 31, ~~2020, as compared~~2020.

Revenues in our Sorrento Therapeutics segment increased from $2.5 million to ~~$6.1~~$7.3 million for the three months ended March 31, ~~2019.~~

~~Revenues in our Sorrento Therapeutics segment decreased from $3.3 million to $2.5 million for the three months ended March 31, 2020~~2021 compared to the same quarter of the prior year and were primarily attributed to ~~lower~~higher contract manufacturing service ~~revenues and lower revenues from the sale of materials associated with our research and development arrangements.~~revenues.

Revenues in our Scilex segment increased from ~~$2.9~~$5.2 million to ~~$5.2~~$7.0 million for the three months ended March 31, ~~2020~~2021 compared to the same quarter of the prior year and were attributed to ~~the continued increase in market share and~~increased product sales of ~~ZTlido, which was commercially launched in October 2018.~~ZTlido.

Cost of revenues. Cost of revenues for the three months ended March 31, 2021 and 2020 ~~and 2019~~ were ~~$2.4~~$3.4 million and ~~$2.3~~$2.4 million, respectively, and relate to product sales, the sale of customized reagents and providing contract manufacturing 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.

Cost of revenues for our Sorrento Therapeutics segment ~~decreased~~increased by ~~$0.1~~$0.6 million and was ~~primarily attributable to lower~~driven by the increase in revenues.

Cost of revenues for our Scilex segment increased by ~~$0.2~~$0.3 million and was ~~mainly~~ driven by higher sales ~~volumes~~ of ZTlido.

Research and Development (“R&D”) Expenses. Research and development expenses for the three months ended March 31, 2021 and 2020 ~~and 2019~~ were ~~$21.2~~$43.8 million and ~~$25.6~~$21.2 million, respectively. Research and development expenses primarily include expenses associated with ~~SP-102, costs related to our RTX program activities towards entering into future clinical trials, costs to identify, isolate~~isolating and ~~advance~~advancing human antibody drug candidates derived from our libraries, as well as advancing our RTX, COVID-19, SP-102, oncolytic virus, ADC ~~preclinical drug candidates~~ and ~~preclinical testing expenses.~~oncology programs. Such expenses consist primarily of salaries and personnel-related expenses, stock-based compensation expense, clinical development expenses, preclinical testing, lab supplies, consulting costs, depreciation and other expenses.

R&D expenses for our Sorrento Therapeutics segment ~~decreased~~increased by ~~$5.7~~$22.5 million as compared to the same quarter of the prior year and were driven by higher headcount and increased clinical development costs across our R&D platforms.

R&D expenses for our Scilex segment increased by $0.2 million as compared to the same quarter of the prior year and were primarily driven by ~~reduced expenditures on lab supplies and lower pre-clinical spend compared to the prior year.~~

~~R&D expenses for our Scilex segment~~ increased ~~by $1.2 million as compared to the same quarter of the prior year and were primarily driven by~~ costs associated with our ~~SP-102~~research and development product ~~pipeline.~~portfolio.

Acquired In-process Research and Development Expenses. Acquired in-process research and development expenses during the three months ended March 31, 2021 totaled $7.5 million. These expenses primarily related to licensing arrangements entered into during the period. We did not have acquired in-process research and development expenses during the three months ended March 31, 2020. Acquired in-process research and development expenses for the three months ended March 31, 2019 was $75.3 million and were incurred due to acquired in-process research and development expenses associated with the acquisition of Semnur in March 2019.

Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses for the three months ended March 31, 2021 and 2020 ~~and 2019~~ were ~~$26.3~~$43.4 million and ~~$25.1~~$26.3 million, respectively, and consisted primarily of salaries and personnel-related expenses, stock-based compensation expense, professional fees, infrastructure expenses, legal and other general corporate expenses.

SG&A expenses for our Sorrento Therapeutics segment increased by approximately ~~$3.9~~$17.9 million and were primarily attributed to ~~increased legal~~higher headcount and ~~professional fees~~stock-based compensation expense compared to the same ~~period~~quarter of the prior year.

SG&A expenses for our Scilex segment decreased by approximately ~~$2.7~~$0.8 million and were ~~primarily~~ attributed to cost savings resulting from a ~~shift~~more focused marketing strategy for ZTlido and savings arising from the transfer of a contracted to ~~more favorable marketing programs for ZTlido.~~in-house sales force.

Gain on Derivative Liabilities. Gain on derivative liabilities for the three months ended March 31, ~~2020~~2021 was ~~$4.9~~$2.2 million compared to a ~~loss~~gain of ~~$14.5~~$4.9 million in the same ~~period~~quarter in ~~2019.~~

Loss on derivative liabilities for our Sorrento Therapeutics segment totaled $1.0 million. We recorded a $9.3 million loss attributed to the senior secured notes due 2026 issued by Scilex Pharma in an aggregate principal amount of $224.0 million (the “Scilex Notes”), pursuant to which the holders of the Scilex Notes could require us to repurchase Scilex Notes in certain circumstances. We recorded a $8.3 million gain associated with the modification of the Initial Loan and Early Conditional Loan (as defined below) and change in value associated with the contingent acceleration feature that occurred during the three months ended March 31, 2020 ~~as further described in~~ ~~Note 7~~ ~~and~~ ~~Note 3~~ ~~of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.~~

~~Gain on derivative liabilities for our Scilex segment was $5.9 million~~ and was primarily attributed to revised probabilities ~~related to expected timing of receipt of marketing approval for SP-103~~ and revised sales

forecasts as further described in Note 3 ~~of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.~~

~~Loss on Partial Debt Settlement. Loss on partial debt settlement for the three months ended March 31, 2020 was $23.6 million and was attributed to the repayments of outstanding principal on our Term Loans as further described in~~ ~~Note 7~~ of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Gain on Marketable Investment. Gain on marketable investment reflects the change in fair value of our investment in ImmunityBio, Inc.

Loss on Debt Extinguishment, net. Loss on debt extinguishment for the three months ended March 31, 2021 was $6.1 million and was primarily attributed to the repurchases of the outstanding principal on the Scilex Notes (as defined below).

Loss on debt extinguishment for same quarter of the prior year was $23.6 million and was attributed to the repayments of outstanding principal on our prior term loans with certain funds and accounts managed by Oaktree Capital Management, L.P. (collectively, “Oaktree”).

Interest Expense, net. Interest expense for the three months ended March 31, 2021 and 2020 ~~and 2019~~ was ~~$6.8~~$2.4 million and ~~$9.1~~$6.8 million, respectively. The decrease resulted primarily from a decrease in interest expense associated with the ~~Scilex Notes.~~Oaktree term loans, which were fully repaid in year ended December 31, 2020. Interest income was immaterial for both periods.

Income Tax Benefit. Income tax benefit for the three months ended March 31, 2021 and 2020 ~~and 2019~~ was ~~$0.3~~$0.2 million and ~~$0.2~~$0.3 million, respectively. The ~~increase~~decrease in income tax benefit was ~~attributed~~primarily attributable to the impact of ~~our valuation allowance.~~earnings in the current year.

Net ~~Loss~~Income (Loss). Net income for the three months ended March 31, 2021 was $2.4 million. Net loss for the three months ended March 31, 2020 ~~and 2019~~ was $69.2 ~~million and $146.5 million, respectively.~~ million.

As of March 31, ~~2020,~~2021, we had ~~$21.9~~$41.7 million in cash and cash equivalents attributable in part to the following financing arrangements:

In November 2018, we and certain of our domestic subsidiaries (the “Guarantors”) entered into a Term Loan Agreement (the “Loan Agreement”) with certain funds and accounts managed by Oaktree Capital Management, L.P. (collectively, the “Lenders”) and Oaktree Fund Administration, LLC, as administrative and collateral agent (the “Agent”), for an initial term loan of $100.0 million (the “Initial Loan”) and a second tranche of $50.0 million, subject to the achievement of certain commercial and financial milestones between August 7, 2019 and November 7, 2019, and the satisfaction of certain customary conditions (the “Conditional Loan”). The Initial Loan matures on November 7, 2023 (the “Maturity Date”) and bears interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus the applicable margin, or 7%. The Initial Loan was funded on November 7, 2018. The net proceeds of the Initial Loan were approximately $91.3 million, after deducting estimated loan costs, commissions, fees and expenses.

In May 2019, we, the Guarantors and the Lenders and the Agent entered into an amendment (the “Amendment”) to the Loan Agreement. Under the terms of the Amendment, among other things, the Lenders agreed to make available to us $20.0 million of the Conditional Loan notwithstanding that the commercial and financial milestones had not occurred (the “Early Conditional Loan”) with a maturity date of November 7, 2023. The net proceeds of the Early Conditional Loan were approximately $18.9 million, after deducting estimated loan costs, commission, fees and expenses. The Lenders also agreed to loan us the remaining $30.0 million of the Conditional Loan upon the satisfaction of the commercial and financial milestones (the “Remaining Conditional Loan” and, together with the Initial Loan and the Early Conditional Loan, the “Term Loans”). The commercial and financial milestones were not achieved by November 7, 2019 and therefore the Remaining Conditional Loan was not loaned to us.

The Loan Agreement provided that, in the event of an optional prepayment of all or any portion of the Term Loans prior to November 7, 2021, we would be obligated to pay a prepayment fee in an amount equal to the amount of interest that would have been paid on the principal amount of the Term Loans being prepaid for the period from and including the date of such prepayment to, but excluding, November 7, 2021, based on the interest rate in effect on the date of any such prepayment (the “Make-Whole Payment”), plus 3% of the principal amount of the Term Loans being so prepaid.

In December 2019, we, the Guarantors and the Lenders and the Agent entered into an amendment (“Amendment No. 2”) to the Loan Agreement. Under the terms of Amendment No. 2, the Lenders agreed that, in the event of an optional prepayment of all or any portion of the Term Loans on or prior to March 31, 2020, the prepayment fee was equal to 3% of the principal amount of the Term Loans being prepaid, and we were not required to pay any Make-Whole Payment. Pursuant to Amendment No. 2, we also agreed to certain financial milestones and to fund and maintain, in a blocked liquidity account, an amount equal to (i) $2.5 million, or (ii) $20.0 million upon the achievement by us of certain financial milestones; provided, that the amount required to be maintained in the blocked liquidity account will be $10.0 million if we make an optional prepayment of at least $50.0 million in principal amount of the Term Loans on or prior to March 31, 2020.

During the first quarter of 2020 and through May 7, 2020, we repaid approximately $60.5 million of outstanding principal under the Term Loans plus approximately $4.8 million of related prepayment premium, exit fees and accrued interest thereon. Approximately $11.6 million of such repayment was effectuated through a release by the Lenders of all amounts held in a debt service reserve account for the benefit of the Lenders and of all amounts in the blocked liquidity account. We are no longer required to maintain any amounts in the debt service reserve account or the blocked liquidity account, but have committed to meet debt prepayment requirements of approximately $10 million , and pursue debt restructuring arrangements and the sale of one or more non-core assets in the first half of 2020.

In September 2018, Scilex Pharma entered into purchase agreements (the “2018 Purchase Agreements”) with certain investors ~~(the “Purchasers”~~(collectively, the “Scilex Note Purchasers”) and us. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma ~~among other things,~~ issued and sold to the Scilex Note Purchasers ~~the Scilex Notes with~~senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million (the ~~“Offering”~~“Scilex Notes Offering”). The net proceeds of the Offering were approximately $89.3 million, after deducting the Offering expenses payable by Scilex Pharma and funding a segregated reserve account ($20.0 million) (the “Reserve Account”) and a

segregated collateral account ($25.0 million) (the “Collateral Account”) pursuant to the terms of an indenture governing the Scilex Notes (the “Indenture”). The net proceeds of the Offering have been used by Scilex Pharma to support the commercialization of ZTlido, for working capital and general corporate purposes in respect of the commercialization of ZTlido. In connection with the Scilex Notes Offering, Scilex Pharma also entered into ~~the~~an Indenture (the “Indenture”) governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee ~~(the “Trustee”)~~ and collateral agent, ~~(the “Collateral Agent”),~~ and us. Pursuant to the Indenture, we agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Indenture.

~~Pursuant to the terms of the Indenture,~~On December 14, 2020, we, ~~issued an irrevocable standby letter of credit to~~ Scilex Pharma, ~~(the “Letter of Credit”), which provides that, in the event that (1) Scilex Pharma does not hold at least $29,000,000 in restricted~~U.S. Bank National Association, as trustee and unrestricted cash (which is inclusive of the amount in the Collateral Account) as of the end of any calendar month ending March 31, 2020 through and including the month ending March 31, 2021 or at least $35,000,000 in unrestricted cash (which is inclusive of the amount in the Collateral Account) at the end of any calendar month after March 31, 2021, (2) actual cumulative net sales of ZTlido from the issue date of the Scilex Notes through December 31, 2021 are less than a specified sales threshold for such period, or (3) actual cumulative net sales of ZTlido for any calendar year during the term of the Scilex Notes, beginning with the 2022 calendar year, are less than a specified sales threshold for such calendar year, Scilex Pharma, as beneficiary of the Letter of Credit, will draw, and we will pay to Scilex Pharma, $35,000,000 in a single lump-sum amount as a subordinated loan, and upon receipt by Scilex Pharma of the subordinated loan, the holders of the Scilex Notes shall have the one-time right to require us to purchase up to an aggregate of $25,000,000 of the Scilex Notes then outstanding. The Letter of Credit will terminate upon the earliest to occur of: (a) the repayment of the Scilex Notes in full, (b) the actual net sales of ZTlido for any calendar year during the term of the Scilex Notes exceeding a certain threshold, (c) the consummation of an initial public offering on a major international stock exchange by Scilex Holding that satisfies certain valuation thresholds, and (d) the replacement of the Letter of Credit with another letter of credit in form and substance, including as to the identity and creditworthiness of issuer, reasonably acceptable to the holders of at least 80% in principal amount of outstanding Scilex Notes.

Funds in the Reserve Account will be released to Scilex Pharma upon receipt by the Trustee of an officer’s certificate under the Indenture from Scilex Pharma confirming receipt of a marketing approval letter from the FDA with respect to SP-103 (the “Marketing Approval Letter”) on or prior to July 1, 2023. Funds in the Collateral Account will be released upon receipt of a written consent authorizing such release from the holders of a majority in principal amount of the Scilex Notes issued, upon the occurrence and during the continuance of an event of default at the direction of the holders of a majority in principal amount of the Scilex Notes issued or upon the repayment in full of all amounts owed under the Scilex Notes.

The holders of the Scilex Notes will be entitled to receive quarterly payments of principal of the Scilex Notes equal to a percentage, in the range of 10% to 20% of the net sales of ZTlido for the prior fiscal quarter, beginning on February 15, 2019. If Scilex Pharma has not received the Marketing Approval Letter from the FDA with respect to SP-103 or a similar product with a concentration of not less than 5% by March 31, 2021, the percentage of net sales payable shall be increased to be in the range of 15% to 25%. If actual cumulative net sales of ZTlido from October 1, 2022 through September 30, 2023 are less than 60% of a predetermined target sales threshold for such period, then Scilex Pharma will be obligated to pay an additional installment of principal of the Scilex Notes each quarter in an amount equal to an amount to be determined by reference to the amount of such deficiency. The aggregate principal amount due under the Scilex Notes shall be increased by $28,000,000 on February 15, 2022 if actual cumulative net sales of ZTlido from the issue date of the Scilex Notes through December 31, 2021 do not equal or exceed 95% of a predetermined target sales threshold for such period. If actual cumulative net sales of ZTlido for the period from October 1, 2022 through September 30, 2023 do not equal or exceed 80% of a predetermined target sales threshold for such period, the aggregate principal amount shall also be increased on November 15, 2023 by an amount equal to an amount to be determined by reference to the amount of such deficiency.

~~In October 2019, Scilex Pharma, us, the Trustee, the Collateral Agent~~collateral agent, and the beneficial owners of the Scilex Notes and the ~~holders of such~~ Scilex ~~Notes listed on the signature pages thereto~~Note Purchasers entered into ~~an omnibus amendment~~a Consent Under and Amendment No. 3 to Indenture and Letter of Credit (the ~~“Omnibus Amendment”~~“Amendment”) to, which amended: (i) the Indenture, and (ii) the ~~Letter~~irrevocable standby letter of ~~Credit.~~

Incredit that we issued to Scilex Pharma in connection with the ~~Omnibus~~Indenture.

On December 14, 2020, and in connection with the Amendment, the aggregate $45.0 million in ~~the event of consummation of an initial public offering of Scilex Holding (a “Scilex Holding IPO”) that satisfies certain valuation thresholds,~~restricted funds held in previously established reserve and collateral accounts were released and Scilex Pharma ~~agreed~~utilized such funds to repurchase ~~from each holder~~an aggregate of ~~Scilex Notes, Scilex Notes~~$45.0 million in a principal amount ~~equal to (i)~~of the Scilex Notes. Scilex Pharma also repurchased $20.0 million ~~multiplied by (ii) a fraction the numerator of which will be the then outstanding~~in principal amount of the Scilex Notes ~~held by such holder~~in each of December 2020 and the denominator of which will be the then outstanding principal amount of all of the outstanding Scilex Notes, at a purchase price in cash equal to 100% of the principal amount thereof (such repurchase, the “Effective Date Repurchase”). Pursuant to the Omnibus Amendment, the holders of the Scilex Notes agreed to release the funds in the reserve account for the purpose of consummating the Effective Date Repurchase and the remaining funds in the reserve account after the consummation of the Effective Date Repurchase will be released to Scilex Pharma by the Trustee and the Collateral Agent.

The Omnibus Amendment also modifies the Letter of Credit to provide that one of the conditions that will terminate the Letter of Credit will be the consummation of a Scilex Holding IPO that satisfies certain valuation thresholds. The Omnibus Amendment will be effective upon the satisfaction of certain terms and conditions, including the consummation of the Effective Date Repurchase. The Omnibus Amendment will terminate if the Omnibus Amendment does not become effective on or prior to October 1, 2020.

Both the 2018 Purchase Agreements and Indenture for Scilex and the Loan Agreement (collectively, the "Debt Arrangements") provide that, upon the occurrence of an event of default, the lenders thereunder may, by written notice to us, declare all of the outstanding principal and interest under such Debt Arrangements immediately due and payable. For purposes of the Debt Arrangements, an event of default includes, among other things, (i) a failure to pay any amounts when due under the Debt Arrangements, (ii) a breach or other failure to comply with the covenants (including financial, notice and reporting covenants) under the Debt Arrangements, (iii) a failure to make any payment on, or other event triggering an acceleration under, other material indebtedness of us, which would include, with respect to the Loan Agreement, a failure or acceleration under the 2018 Purchase Agreements and Indenture for Scilex, and with respect to the 2018 Purchase Agreements and Indenture for Scilex, a failure or acceleration under the Loan Agreement, and (iv) the occurrence of certain insolvency or bankruptcy events (both voluntary and involuntary) involving us or certain of our subsidiaries. We are in compliance with the event of default clauses under the Debt Arrangements.February 2021.

In March 2020, we filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”) with the SEC, which was declared effective by the SEC on March 20, 2020. The Shelf Registration Statement provides us with the ability to offer up to $1.0 billion of securities, including equity and other securities as described in the registration statement. Pursuant to the Shelf Registration Statement, we may offer such securities from time to time and through one or more methods of distribution, subject to market conditions and our 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. As of May 7, 2020, approximately $500.0 million of securities remain available and unallocated for offerings of securities under the Shelf Registration Statement.

On April 27, 2020, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Arnaki Ltd. (the “Purchaser”), pursuant to which the Purchaser is committed to purchase up to an aggregate of $250.0 million of shares of our common stock over the 36-month term of the Purchase Agreement on the terms set forth therein. Any Shares offered and sold to the Purchaser will be issued pursuant to the Shelf Registration Statement and the prospectus supplement relating to offering of shares pursuant to the Purchase Agreement filed with the SEC on April 27, 2020.

On any business day over the term of the Purchase Agreement (each, a “Purchase Date”), we have the right, in our sole discretion, to present the Purchaser with a purchase notice directing the Purchaser to purchase up to 650,000 shares of our common stock per business day. We and the Purchaser also may mutually agree to increase the number of shares that may be sold to as much as an additional 3,600,000 shares per Purchase Date. We also have the right, in our sole discretion, to grant the Purchaser an option to purchase additional shares of common stock, subject to a maximum number of shares determined by us on each Purchase Date. The aggregate purchase price paid by the Purchaser shall not exceed $5.0 million per Purchase Date, unless mutually agreed upon by us and the Purchaser. The purchase price of our common stock pursuant to the Purchase Agreement will generally be equal to 97.5% of the daily volume weighted average purchase price of our common stock on the Purchase Date.

On December 4, 2020, we entered into Amendment No. 1 to that certain Sales Agreement, dated April 27, 2020, ~~we entered into a Sales Agreement (the “Sales Agreement”)~~ with A.G.P./Alliance Global Partners, ~~as sales agent (the “Sales Agent”), pursuant~~which provides that we may, from time to ~~which we may~~time, offer and sell ~~through or~~securities to A.G.P./Alliance Global Partners in at-the-market transactions (as amended, the “Amended Sales ~~Agent (the “Offering”) up to $250.0 million in shares of our common stock (the “Shares”~~Agreement”).~~Any Shares offered and sold in the Offering will be issued pursuant to the Shelf Registration Statement and the prospectus supplement relating to the Offering filed with the SEC on April 27, 2020.~~ The Offering will terminate upon (a) the election of the Sales Agent upon the occurrence of certain adverse events, (b) three business days’ advance notice from one party to the other, or (c) the sale of all of the Shares. Under the terms of the Sales Agreement, the Sales Agent will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sales Agreement.

In February 2020, we entered into a Common Stock Purchase Agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC, (“Aspire Capital”), pursuant to which Aspire Capital was committed to purchase up to an aggregate of $75.0 million of shares of our common stock over a 24-month term. Upon execution of the Aspire Purchase Agreement, we issued to Aspire Capital 897,308 shares of our common stock as a commitment fee. We have used the proceeds we receive under the Aspire Purchase Agreement for working capital and general corporate purposes and for the repayment of debt. The Aspire Purchase Agreement may be terminated by us at any time without any liability to us. Generally, Aspire Capital may terminate the Aspire Purchase Agreement at any time that an event of default exists. During the ~~quarter~~three months ended March 31, 2020, we issued and sold an aggregate of ~~28,721,972~~3,901,460 shares of our common stock pursuant to ~~Aspire Capital under~~ the ~~Aspire Purchase~~Amended Sales Agreement for aggregate net proceeds of approximately ~~$62.6~~$42.2 million. Subsequent to March 31, ~~2020,~~2021 and through April 30, 2021, we issued and sold an aggregate of ~~5,103,038~~976,208 shares of our common stock pursuant to ~~Aspire Capital under~~ the ~~Aspire Purchase~~Sales Agreement for aggregate net proceeds of approximately ~~$12.4~~$7.7 million. ~~On April 24, 2020,~~

We have contingent consideration obligations in connection with certain acquisition and licensing transactions that are contingent upon achieving certain specified milestones or the ~~Aspire Purchase Agreement terminated effective immediately~~occurrence of certain events, including those described within the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q. Upon the achievement of such milestones or the occurrence of such events, we will be obligated to make certain cash or stock payments in accordance with ~~its~~the terms ~~as we issued and sold, as~~ of such ~~date, the full $75.0 million of shares available for issuance thereunder.~~acquisition and license agreements.

In October 2019, we announced the closing of our previously announced registered direct offering of 10,869,566 shares of our common stock and warrants to purchase up to 10,869,566 shares of our common stock, at a combined purchase price of $2.30 per share and related warrant. The net proceeds from this offering were approximately $23.4 million, after deducting the placement agent’s fees and other estimated offering expenses and were received in October 2019.

In October 2019, we entered into an Equity Distribution Agreement (the “Distribution Agreement”) with JMP Securities LLC, as sales agent (the “JMP Sales Agent”), pursuant to which we could offer and sell, from time to time, through or to the JMP Sales Agent, as sales agent or principal, up to $75.0 million in shares of our common stock. Effective February 10, 2020, we voluntarily suspended our continuous offering and sale of shares under the Distribution Agreement. On April 27, 2020, we voluntarily terminated the Distribution Agreement. The Distribution Agreement was terminable at will by us with no penalty. During the term of the Distribution Agreement, we sold an aggregate of 2,120,149 shares of our common stock thereunder for aggregate gross proceeds of approximately $7.4 million.

In June 2019, we entered into an underwriting agreement with JMP Securities LLC, as representative of the several underwriters named therein, relating to a firm commitment underwritten public offering. The net proceeds from this offering were approximately $23.3 million, after deducting underwriting discounts and commissions and other estimated offering expenses and were received in July 2019.

In March 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Semnur, Scilex Holding, Sigma Merger Sub, Inc., the prior wholly-owned subsidiary of Scilex Holding, and Fortis Advisors LLC, solely as representative of the holders of Semnur equity (the “Semnur Equityholders”). Pursuant to the Merger Agreement, Scilex Holding agreed to pay the Semnur Equityholders up to $280.0 million in aggregate contingent cash consideration based on the achievement of certain milestones, including obtaining the first approval of a New Drug Application of a Semnur product by the FDA and the achievement of certain amounts of net sales of Semnur products.

In July 2018, we acquired Kimberly-Clark’s Sofusa® micro-needle drug delivery system platform (the “Sofusa Acquisition”). At the closing of the Sofusa Acquisition, we paid $10.0 million and agreed to pay additional consideration to Kimberly-Clark upon the achievement of certain regulatory and net sales milestones, as well as a percentage in the low double-digits of any non-royalty amounts received by us in connection with any license, sale or other grant of rights by us to develop or commercialize the Sofusa Assets (the “Sofusa Contingent Consideration”). The aggregate amount of the Sofusa Contingent Consideration payable by us will not exceed $300.0 million.

Cash Flows from Operating Activities. Net cash used for operating activities was $48.1 million for the three months ended March 31, 2021 as compared to $38.6 million for the three months ended March 31, ~~2020 as compared to $44.3 million for the three months ended March 31, 2019.~~2020. Net cash used reflects the cash spent on our research activities and cash spent to support the commercial launch of our products.

We expect to continue to incur substantial and increasing losses and negative net cash flows from operating activities as we seek to expand and support our clinical and pre-clinical 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 by investing activities was $2.0 million for the three months ended March 31, 2021, which was primarily attributed to expenditures on laboratory equipment. During the three months ended March 31, 2020, net cash used by investing activities related to purchases of equipment and was not ~~significant during~~significant.

Cash Flows from Financing Activities. Net cash provided by financing activities was $35.4 million for the three months ended March 31, 2021 as compared to net cash provided by financing activities of $24.7 million for the three months ended March 31, 2020. During the three months ended March 31, ~~2019, net cash used for investing activities was $22.3~~2021, we received $42.2 million from equity offerings, proceeds from short-term debt of $11.8 million and ~~our use~~proceeds of ~~cash for investing activities primarily related~~$10.6 million from common stock issuances and warrant exercises. We repaid $21.3 million in principal amount of the Scilex Notes, of which $16.8 million was attributed to ~~$17.0 million associated with the Semnur acquisition.~~

~~Cash Flows from Financing Activities. Net cash used by~~principal included within financing activities and $4.5 million was ~~$24.7~~attributed to principal included in operating activities. We also repaid $11.8 million ~~for the three months ended March 31, 2020 as compared to net cash provided by financing of $1.1 million for the three months ended March 31, 2019.~~ in other short-term debt. During the three months ended March 31, 2020, we repaid $55.5 million of outstanding principal under the ~~Term Loans,~~prior term loans with Oaktree, and $2.3 million inof related exit fees and prepayment fees thereon and a ~~payment~~made payments of $1.6 million on the Scilex Notes. ~~The~~This use of cash was offset by proceeds received of $62.6 million ~~in connection with the Aspire Purchase Agreement~~from equity offerings and an additional $21.0 million from common stock issuances and warrant exercises.

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

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

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

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

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to debt with detachable warrants, derivative liabilities, revenue recognition, leases, acquisition consideration payable, income taxes and stock-based compensation. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, and there have been no material changes during the three months ended March 31, ~~2020.~~2021.

As of March 31, ~~2020,~~2021, there were no material changes outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020.

Since our inception through March 31, ~~2020,~~2021, other than off balance sheet arrangements already disclosed, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

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

As of March 31, ~~2020, there has been no material change~~2021, we held an investment in an equity security with a readily determinable fair value, which is included as a current marketable investment within our consolidated balance sheets. Our investment in this publicly traded equity security is recorded at fair value and is subject to market price volatility. Changes in the fair value of this investment is recorded in our ~~assessment~~consolidated statement of operations within gain (loss) on marketable investment. As of March 31, 2021, a price change of 10 percent would increase or decrease the fair value of our sensitivity to market risk , including interest rate, capital market and concentration risks, since our presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.marketable investment by $19.4 million.

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

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

InThe information under the ~~normal course of business, we may be named as a defendant in one or more lawsuits. Other than as~~caption “Litigation” set forth ~~below, we are not a party to any outstanding material litigation and management is currently not aware of any legal proceedings that, individually or~~in Note 10 in the ~~aggregate, are deemed to be material to our financial condition or results of operations.~~

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 drug Cynviloq™ from us 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 progressionaccompanying notes to the ~~market. Specifically, we have filed:~~consolidated financial statements in Part I, Item 1 of this Form 10-Q.is incorporated herein by reference.

Our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, Part I –Item 1A, Risk Factors, describes important risk factors that could cause our business, financial condition, results of operations and growth prospects to differ materially from those indicated or suggested by forward-looking statements made in this Quarterly Report on Form 10-Q or presented elsewhere by management from time to time. Except as set forth below, there have been no material changes in our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.

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

We are primarily a clinical stage biotechnology company that began operating and commenced research and development activities in 2009. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. There is no assurance that our libraries of fully-human mAbs or any of our other product candidates in development will be suitable for diagnostic or therapeutic use, or that we will be able to identify and isolate therapeutic product candidates, or develop, market and commercialize these candidates. We do not expect any of our product candidates in development, including, but not limited to, our fully-human mAbs, biosimilars/biobetters, fully human anti-PD-L1 ~~and anti-PD-1~~ checkpoint inhibitors derived from our proprietary G-MAB™ library platform, antibody drug conjugates (“ADCs”), ~~SP-103,~~ bispecific antibodies (“BsAbs”), as well as Chimeric Antigen ~~Receptor-T Cell~~Receptor T Cells (“CAR-T”) and Dimeric Antigen Receptor T Cells (“DAR-T”) for adoptive cellular immunotherapy, resiniferatoxin (“RTX”), higher strength lidocaine topical system (SP-103) and non-opioid corticosteroid formulated as a viscous gel injection (SP-102) (“SEMDEXA^TM”) to be commercially available for a few years, if at all. Additionally, our COVID-19 related product candidates, including STI-1499 (neutralizing antibody; COVIGUARD^TM), STI-2020 (affinity matured neutralizing antibody; COVI-AMG^TM), STI-2099 (intranasal affinity matured neutralizing antibody; COVIDROPS^TM), neutralizing antibody cocktail (COVISHIELD^TM), STI-5656 (Abivertinib), STI-4398 (ACE2 receptor decoy protein; COVIDTRAP^TM), STI-8282 (allogeneic adipose-derived mesenchymal stem cells; COVI-MSC^TM), STI-2030 (Salicyn-30) serological IgM/IgG antibody diagnostic test (COVITRACK^TM), saliva-based antigen diagnostic test for SARS-CoV-2 (COVITRACE^TM) and lateral flow viral antigen diagnostic test for SARS-CoV-2 (COVISTIX^TM), are subject to uncertainties relating to product development, regulatory approval and commercialization, and further risks based on the constantly evolving situation affecting the United States and the international community. Even if we are able to commercialize our product candidates, there is no assurance that these candidates would generate revenues or that any revenues generated would be sufficient for us to become profitable or thereafter maintain profitability.

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

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, we had an accumulated deficit of ~~$725.0~~$955.8 million and ~~$659.8~~$958.3 million, respectively. We continue to incur significant research and development and other expenses related to our ongoing operations. We have incurred operating losses since our inception, expect to continue to incur significant operating losses for the foreseeable future, and we expect these losses to increase as we: (i) advance RTX, STI-6129 (anti-CD38 ADC), SP-103, SEMDEXA^TM and our other product candidates, including our COVID-19 related product candidates, STI-2020 (COVI-AMG^TM), STI-2099 (COVIDROPS^TM), STI-8282 (COVI-MSC^TM) and STI-5656 (Abivertinib), into further clinical trials and pursue other development, acquire, develop and manufacture clinical trial materials and increase other regulatory operating activities, (ii) conduct further studies for our preclinical COVID-19 related product candidates, including a neutralizing antibody cocktail (COVISHIELD^TM), STI-4398 (COVIDTRAP^TM), and STI-2030 (Salicyn-30), 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, ~~(iii)~~(iv) continue to identify and advance a number of fully human therapeutic antibody and ADC preclinical product candidates, ~~(iv)~~(v) incur higher salary, lab supply and infrastructure costs incurred in connection with supporting all of our programs, ~~(v)~~(vi) invest in our joint ventures, collaborations or other third party agreements, ~~(vi)~~(vii) incur expenses in conjunction with defending and enforcing our rights in various litigation matters, ~~(vii)~~(viii) expand our corporate, development and manufacturing infrastructure, and ~~(viii)~~(ix) support our subsidiaries, including Scilex Holding Company and SmartPharmTherapeutics, Inc., in their clinical trial, development and commercialization efforts. As such, we are subject to all risks incidental to the development of new biopharmaceutical products and related companion diagnostics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

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

Our operations have consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development of our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including building our own commercial organization to address certain markets. We will

require additional capital for the further development and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures.

As a result of our recurring losses from operations, recurring negative cash flows from operations and substantial cumulative losses, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial statements for the year ended December 31, ~~2019~~2020 included a “going concern” explanatory paragraph indicating that our recurring losses from operations, negative working capital, recurring negative cash flows from operations and substantial cumulative net losses raise substantial doubt about our ability to continue as a going concern.

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

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

In addition, as discussed in the risk factor under the heading “The terms of our outstanding debt place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business” below, the Loan Agreement contains restrictive covenants and limitations on certain indebtedness, liens, negative pledges, certain restricted payments, subsidiary distributions, investments, fundamental transactions, dispositions of assets and transactions with affiliates, and the Scilex Indenture ~~similarly~~ includes negative covenants that place limitations on the following: the incurrence of debt, the payment of dividends by Scilex Pharmaceuticals Inc. (“Scilex Pharma”), the repurchase of shares and, under certain conditions, making certain other restricted payments, the prepayment, redemption or repurchase of subordinated debt, a merger, amalgamation or consolidation involving Scilex Pharma, engaging in certain transactions with affiliates; and the making of investments other than those permitted by the Scilex Indenture.

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

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

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

We face potential business disruptions and related risks resulting from the recent outbreak of the novel coronavirus, which could have a material adverse effect on our business, financial condition and results of operations.

~~In December 2019, a novel strain of coronavirus, or~~ ~~SARS-CoV-2, was reported to have surfaced in Wuhan, China.~~ ~~SARS-CoV-2 is the virus that causes COVID-19.~~ The COVID-19 outbreak has grown into a global pandemic that has impacted Asia, United States, Europe and other countries throughout the world. Financial markets have been experiencing extreme fluctuations that may cause a contraction in available liquidity globally as important segments of the credit markets react to the development. The pandemic may lead to a decline in business and consumer confidence. The global outbreak of COVID-19 continues to rapidly evolve. As a result, businesses have closed and limits have been placed on travel. The extent to which COVID-19 may impact our business, clinical trials and sales of ZTlido® (lidocaine topical system 1.8%) (“ZTlido”) will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

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

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

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

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

Management is actively monitoring the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition or liquidity for fiscal year 2020.

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

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

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

Other than with respect to ZTlido, we have not completed a corporate-sponsored clinical trial. Phase I trials are ongoing for RTX for knee osteoarthritis, RTX for cancer-related pain and anti-CD38 CAR-T for multiple myeloma ~~and anti-CEA CAR-T for intrahepatic CEA positive metastases and for intraperitoneal tumor implantation (malignant ascites)~~ and a Phase III trial is ongoing for SEMDEXA^TM for the treatment of lumbosacral radicular pain. Non-clinical studies are ongoing and a Phase II trial is planned to start in the ~~first~~second half of 2021 with higher strength SP-103. We are currently in a Phase II study of abivertinib for cytokine storm related to COVID-19 infection, a Phase I study of mesenchymal stem cells for the treatment of respiratory distress syndrome associated with COVID-19 infection and Phase I studies of STI-1499, STI-2020 and STI-8282 in healthy adults and/or mild or hospitalized patients with COVID-19. Despite this, we may not have the necessary capabilities, including adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate, including our planned clinical trials of RTX, clinical trials of SP-103, clinical trials of SEMDEXA^TM, clinical trials of CAR-T, including targeting CD38 using a CAR-T cell therapy, our biosimilar/biobetters antibodies, clinical trials of our COVID-19 related product candidates and other product candidates, in a way that leads to our obtaining marketing approval for our product candidates in a timely manner, or at all.

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

~~The terms~~There can be no assurance that the product candidates we are developing for the detection and treatment of COVID-19 will be granted an Emergency Use Authorization by the FDA. If no Emergency Use Authorization is granted or, once granted, it is terminated, we will be unable to sell our ~~outstanding debt place restrictions on our operating~~product candidates in the near future and ~~financial flexibility. If we raise additional capital through debt financing,~~will be required to pursue the ~~terms of any new debt could further restrict our ability to operate our business.~~drug approval process, which is lengthy and expensive.

On ~~September 7, 2018, Scilex Pharma issued~~June 10, 2020, we announced the submission of an Emergency Use Authorization (“EUA”) to the FDA for our COVITRACK in vitro diagnostic test kit for the independent detection of IgG and ~~sold senior secured notes due 2026~~IgM antibodies in sera of patients exposed to the SARS-CoV-2 virus. Additionally, on December 22, 2020, we announced the submission of an ~~aggregate principal amount~~Emergency Use Authorization (“EUA”)

to the FDA for our COVISTIX in vitro diagnostic test kit for the rapid detection of the SARS-CoV-2 virus nucleocapsid antigen in nasal samples of patients.

An EUA would allow us to market and sell COVITRACK and/or COVISTIX without the need to pursue the lengthy and expensive drug approval process. The FDA may issue an ~~aggregate purchase price~~EUA during a public health emergency if it determines that the potential benefits of ~~$140,000,000 (the “Scilex Offering”). In~~a product outweigh the potential risks and if other regulatory criteria are met. If an EUA is granted for COVITRACK or COVISTIX, we will rely on the FDA policies and guidance in connection with the ~~Scilex Offering,~~marketing and sale of COVITRACK and COVISTIX. If these policies and guidance change unexpectedly and/or materially or if we ~~also entered into an indenture, as amended (the “Scilex Indenture”), governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee (the “Trustee”)~~misinterpret them, potential sales of COVITRACK and collateral agent, and Scilex Pharma. Pursuant to the Scilex Indenture, we agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Scilex Indenture.

The Scilex Indenture governing the Scilex Notes contains customary events of default with respect to the Scilex Notes (including a failure to make any payment of principal on the Scilex Notes when due and payable), and, upon certain events of default occurring and continuing, the Trustee by notice to Scilex Pharma, or the holders of at least 25% in principal amount of the outstanding Scilex Notes by notice to Scilex Pharma and the Trustee, may (subject to the provisions of the Scilex Indenture) declare 100% of the then-outstanding principal amount of the Scilex Notes toCOVISTIX could be due and payable. Upon such a declaration of acceleration, such principal will be due and payable immediately. In the case of certain events, including bankruptcy, insolvency or reorganization involving us or Scilex Pharma, the Scilex Notes will automatically become due and payable.

Pursuant to the Scilex Indenture, we and Scilex Pharma must also comply with certain covenants with respect to the commercialization of ZTlido, as well as customary additional affirmative covenants, such as furnishing financial statements to the holders of the Scilex Notes, minimum cash requirements and net sales reports, and negative covenants, including limitations on the following: the incurrence of debt, the payment of dividends, the repurchase of shares and, under certain conditions, making certain other restricted payments, the prepayment, redemption or repurchase of subordinated debt, a merger, amalgamation or consolidation involving Scilex Pharma, engaging in certain transactions with affiliates; and the making of investments other than those permitted by the Scilex Indenture.

On November 7, 2018, we and certain of our domestic subsidiaries (the “Guarantors”) entered into a Term Loan Agreement (the “Initial Loan Agreement”) with certain funds and accounts managed by Oaktree Capital Management, L.P. (collectively, the “Lenders”) and Oaktree Fund Administration, LLC, as administrative and collateral agent (the “Agent”), for an initial term loan of $100.0 million (the “Initial Loan”) and a second tranche of $50.0 million, subject to the achievement of certain commercial and financial milestones between August 7, 2019 and November 7, 2019, and the satisfaction of certain customary conditions (the “Original Delayed Draw Term Loan”). The Initial Loan was funded on November 7, 2018. On May 3, 2019, we, the Guarantors, the Lenders and the Agent entered into an amendment to the Initial Loan Agreement (the “First Amendment”). Under the First Amendment, the Lenders funded $20.0 million of the Original Delayed Draw Term Loan on May 3, 2019. ~~On December 6, 2019, we, the Guarantor~~s, the Lenders and the Agent entered into a second amendment to the Initial Loan Agreement (the “Second Amendment” and, the Initial Loan Agreement, as amended, the “Loan Agreement”). The Loan Agreement contains customary affirmative and

restrictive covenants and representations and warranties, including financial reporting obligations, financial milestones and limitations on indebtedness, liens, negative pledges, certain restricted payments, subsidiary distributions, investments, fundamental transactions, dispositions of assets and transactions with affiliates.adversely impacted. In addition, the FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization. If granted, we ~~have committed to meet debt prepayment requirements~~cannot predict how long an EUA for COVITRACK or COVISTIX would remain in place. The termination of ~~approximately $10 million, and pursue debt restructuring arrangements and~~ ~~the sale of one~~an EUA for COVITRACK or more non-core assets in the first half of 2020. The Loan Agreement also contains other customary provisions, such as expense reimbursement and confidentiality obligations, as well as indemnification rights for the benefit of the Lenders.

For purposes of the Scilex Indenture and the Loan Agreement, an event of default includes, among other things, (i) a failure to pay any amounts when due under such agreements, (ii) a breach or other failure to comply with the covenants (including financial, notice and reporting covenants) under such agreements, (iii) a failure to make any payment on, or other event triggering an acceleration under, other material indebtedness of us, which would include, with respect to the Loan Agreement, a failure or acceleration under the Scilex Indenture, and with respect to the Scilex Indenture, a failure or acceleration under the Loan Agreement, and (iv) the occurrence of certain insolvency or bankruptcy events (both voluntary and involuntary) involving us or certain of our subsidiaries.

~~If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.~~

~~Any disruption in our research and development facilities~~COVISTIX, if granted, could adversely ~~affect~~impact our business, financial condition and results of operations.

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

Our ~~principal executive offices, which house our research and development programs, are in San Diego, California. Our facilities~~business may be adversely affected ~~by natural~~if we do not manage our current growth and do not successfully execute our growth initiatives.

We have experienced growth in our headcount and operations, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We anticipate further growing through both internal development projects as well as external opportunities, which include the acquisition, partnering and in-licensing of products, technologies and companies or ~~man-made disasters. Earthquakes~~the entry into strategic alliances and collaborations. The availability of high quality development opportunities is limited and we are ~~of particular significance since~~not certain that we will be able to identify candidates that we and our ~~facilities~~shareholders consider suitable or complete transactions on terms that are ~~located in an earthquake-prone area. We are also vulnerable~~acceptable to ~~damage from other types of disasters, including power loss, attacks from extremist organizations, fires, floods~~us and ~~similar events. If~~ our ~~facilities are affected by a natural or man-made disaster,~~shareholders. In order to pursue such opportunities, we may be forced to curtail our operations and/or rely on third-parties to perform some or all of our research and development activities. Although we believe we possess adequate insurance for damage to our property and the disruption of our business from casualties, such insurancerequire significant additional financing, which may not ~~be sufficient to cover all of our potential losses and may not continue to~~ be available to us on ~~acceptable~~favorable terms, orif at all. ~~In the future,~~Even if we ~~may choose~~are able to expand our operations in either our existing facilities or in new facilities. If we expand our worldwide manufacturing locations, there can be no assurance that this expansion will occur without implementation difficulties, or at all.

In March 2020, the health officers of San Diego County, where our principal executive offices are located, issued shelter-in-place orders, which (i) direct all individuals living in those counties to shelter at their places of residence (subject to limited exceptions), (ii) direct all businessessuccessfully identify and ~~governmental agencies to cease non-essential operations at physical locations in those counties, (iii) prohibit all non-essential gatherings of any number of individuals,~~complete acquisitions and ~~(iv) order cessation of all non-essential travel. The shelter-in-place orders took effect in mid-March 2020~~other strategic alliances and the shelter-in-place orders in San Diego County are scheduled to continue until further notice from health officers of San Diego County. In addition, in mid-March 2020, the Governor of California and the State Public Health Officer and Director of the California Department of Public Health ordered all individuals living in the State of California to stay at their place of residence for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary activities) to mitigate the impact of the COVID-19 pandemic. The executive order exempts certain individuals needed to maintain continuity of operations of critical infrastructure sectors as determined by the federal government. If the operations in our principal executive offices or other facilities are deemed non-essential,collaborations, we may not be able to ~~operate for~~integrate them or take full advantage of them and therefore may not realize the ~~duration~~benefits that we expect.

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

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

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

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

The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. For example, from March 31, ~~2019~~2020 to March 31, ~~2020,~~2021, our closing stock price ranged from ~~$1.45~~$1.73 to ~~$4.76~~$18.82 per ~~share.~~share, and from January 4, 2021 to April 30, 2021, our closing stock price ranged from $6.93 to $16.51 per share. The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:

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.

~~None.~~Since December 31, 2020, we have issued the following securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”):

(1) On January 29, 2021, we entered into certain Exchange Agreements (the “Exchange Agreements”) with certain stockholders of Scilex Holding Company (“Scilex Holding”), pursuant to which we acquired additional shares of Scilex Holding in exchange for an aggregate of 2,567,456 shares of our common stock, which were issued on January 29, 2021. The issuance of the shares to the former Scilex Holding stockholders were not registered under the Securities Act in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder.Each of the former Scilex Holding stockholders represented that it was an “accredited investor,” as defined in Regulation D, and was acquiring the shares of common stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.

(2) On March 4, 2021, we entered into an exclusive license agreement (the “Mount Sinai License Agreement”) with Icahn School of Medicine at Mount Sinai (“Mount Sinai”) to acquire a worldwide, exclusive, sublicensable license to certain of Mount Sinai’s patents and monoclonal antibodies as well as technical information to develop, manufacture, commercialize, and exploit related products and services (“Licensed Products”) for all fields, uses, and applications, including for the diagnosis, prevention, treatment and cure of coronavirus. As consideration for the Mount Sinai License Agreement, we paid Mount Sinai and upfront license fee of $7.5 million comprised of 851,305 shares of our common stock, which were issued on March 12, 2021. The issuances of the shares to Mount Sinai were not registered under the Securities Act in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder.Mount Sinai represented that it was an “accredited investor,” as defined in Regulation D, and was acquiring the shares of common stock for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.

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.

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

Part I	Financial Information	3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets (Unaudited) as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020	3
	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	4
	Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	5
	Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	6
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2620
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3425
Item 4.	Controls and Procedures	3425

Part II	Other Information	3526
Item 1.	Legal Proceedings	3526
Item 1A.	Risk Factors	3627
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	4232
Item 6.	Exhibits	4232
SIGNATURES		4436

(in thousands)	Fair Value
Beginning Balance at December 31, 2019	$	43,800
Additions		8,800
Re-measurement of Fair Value		(8,720	)
Ending Balance at March 31, 2020	$	43,880

Years Ending December 31,	Amount		Amount
2020 (Remaining nine months)	$	2,975
2021		3,966
2021 (Remaining nine months)			$	3,105
2022		5,020		4,140
2023		5,015		4,048
2024		4,924		3,870
2025		4,899		3,845
Thereafter		35,517		25,373
Total expected future amortization	$	62,316	$	44,381

	Three Months Ended March 31, 2019
	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, 2018		122,280,092	$	13		7,568,182	$	(49,464	)	$	626,658	$	15	$	(367,750	)	$	(1,972	)	$	207,500
Issuance of common stock upon exercise of stock options		31,825		—		—		—			81		—		—			—			81
Equity contribution related to Semnur acquisition		—		—		—		—			28,400		—		—			26,600			55,000
Stock-based compensation		—		—		—		—			1,976		—		—			—			1,976
Foreign currency translation adjustment		—		—		—		—			—		85		—			—			85
Net loss		—		—		—		—			—		—		(108,071	)		(38,458	)		(146,529	)
Balance, March 31, 2019		122,311,917	$	13		7,568,182	$	(49,464	)	$	657,115	$	100	$	(475,821	)	$	(13,830	)	$	118,113

(in thousands)	Fair Value
Beginning Balance at December 31, 2020	$	35,400
Re-measurement of Fair Value		(2,200	)
Ending Balance at March 31, 2021	$	33,200

Year Ending December 31,
2020 (Remaining nine months)	$	4,713
2021		11,424
2021 (Remaining nine months)					3,731
2022		16,094			5,505
2023		20,636			7,157
2024		22,247			8,758
2025		23,287			10,077
Thereafter		121,628			95,377
Total future minimum payments		220,029			130,605
Unamortized debt discount		(65,138	)		(42,475	)
Unamortized capitalized debt issuance costs		(4,187	)		(3,096	)
Total Scilex Notes		150,704			85,034
Current portion		(7,172	)		(5,084	)
Long-term portion of Scilex Notes	$	143,532		$	79,950

	March 31, 2020			December 31, 2019
Principal	$	64,465		$	120,000
Unamortized debt discount		(21,676	)		(34,892	)
Unamortized debt issuance costs		(3,363	)		(7,945	)
Carrying value	$	39,426		$	77,163
Estimated fair value	$	50,900		$	70,460

	Options Outstanding			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at December 31, 2019		14,586,661		$	4.36	$	5,136
Options Granted		300,000		$	1.81
Options Canceled		(1,159,739	)	$	3.52
Options Exercised		(49,193	)	$	2.04
Outstanding at March 31, 2020		13,677,729		$	4.38	$	84

	Options Outstanding			Weighted- Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020		18,762,920		$	4.97	$	—
Options Granted		1,771,685			10.58
Options Cancelled		(474,188	)		4.81
Options Exercised		(368,375	)		4.20
Outstanding at March 31, 2021		19,692,042		$	5.49	$	62,105

	Three Months Ended March 31,
	2020
Weighted-average grant date fair value	$	1.36
Dividend yield		—	%
Volatility		94	%
Risk-free interest rate		0.71	%
Expected life of options (years)	5.9

	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
Outstanding at December 31, 2020		—		$	—
RSUs Granted		2,148,070			10.41
RSUs Released		(132,540	)		13.96
RSUs Cancelled		(5,941	)		10.18
Outstanding at March 31, 2021		2,009,589		$	10.18

	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,414		$	1,533

ROU assets obtained in exchange for new and amended operating lease liabilities	$	795		$	300

Weighted average remaining lease term in years - operating leases	9.1			9.9
Weighted average discount rate - operating leases		12.2	%		12.1	%

Years ending December 31,	Operating leases			Operating leases
2020 (Remaining nine months)	$	7,484
2021		9,713
2021 (Remaining nine months)				$	7,621
2022		9,765			10,054
2023		9,993			10,285
2024		10,117			10,418
2025		9,579			9,757
Thereafter		43,174			37,586
Total lease payments		99,825			85,721
Less imputed interest		(44,357	)		(32,633	)
Total lease liabilities as of March 31, 2020	$	55,468
Total lease liabilities as of March 31, 2021				$	53,088

Exhibit No.		Description

2.1^		Agreement and Plan of Merger, dated April 2, 2021, by and among Sorrento Therapeutics, Inc., AT Merger Sub, Inc., ACEA Therapeutics, Inc. and Fortis Advisors LLC, as representative of the shareholders of ACEA Therapeutics, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 5, 2021).

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		~~Registration Rights Agreement, dated as of February 10, 2020, by and between Sorrento Therapeutics, Inc. and Aspire Capital Fund, LLC~~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 ~~February 11, 2020)~~October 23, 2009).

~~10.1~~ 4.2		~~Common Stock Purchase~~Voting Agreement, dated as of ~~February 10, 2020,~~April 29, 2016, by and between Sorrento Therapeutics, Inc. and ~~Aspire Capital Fund, LLC~~Yuhan Corporation (incorporated by reference to Exhibit ~~10.1~~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 ~~February~~November 8, 2016).
4.4		Registration Rights Agreement, dated April 27, 2017, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 28, 2017).
4.5		Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of December 11, ~~2020)~~2017, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 21, 2017).
4.6		Registration Rights Agreement, dated December 21, 2017, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 21, 2017).
4.7		Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).
4.8		Registration Rights Agreement, dated June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).
4.9		Form of Warrant, dated November 7, 2018, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).
4.10		Registration Rights Agreement, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the parties identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).

4.11		Agreement and Consent, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the Warrant Holders party thereto (incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).
4.12		Form of Warrant, dated May 3, 2019, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 3, 2019).
4.13		Amendment No. 1 to the Registration Rights Agreement, dated as of May 3, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 3, 2019).
4.14		Form of Series A Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 28, 2019).
4.15		Form of Series C Warrant (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 28, 2019).
4.16		Form of Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 8, 2019).
4.17		Amendment No. 2 to the Registration Rights Agreement, dated as of December 6, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 9, 2019).
4.18		Registration Rights Agreement, dated as of March 4, 2021, by and between Sorrento Therapeutics, Inc. and the Icahn School of Medicine at Mount Sinai (incorporated by reference to Exhibit 4.19 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 9, 2021).

~~10.2*+~~10.1†		~~Omnibus Amendment No. 2 to Indenture~~Binding Term Sheet, dated as of February 24, 2021, by and ~~Letter of Credit,~~between Sorrento Therapeutics, Inc. and ANP Technologies, Inc.

10.2+*†		Exclusive License Agreement, dated as of March ~~30, 2020,~~4, 2021, by and ~~among Scilex Pharmaceuticals, Inc.,~~between Sorrento Therapeutics, Inc.~~, U.S. Bank National Association, as trustee and collateral agent,~~ and the ~~beneficial owners~~Icahn School of ~~the senior secured notes due 2026 and the holders of such securities listed on the signature pages.~~Medicine at Mount Sinai.

10.3		Stock Purchase 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 4.18 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 9, 2021).

10.4†		Amendment to Binding Term Sheet, dated as of ~~March 31, 2020,~~April 20, 2021, by and between Sorrento Therapeutics, Inc., and ~~Nanjing Hongjing Enterprise Management Consulting Co., Ltd.~~ANP Technologies, Inc.
10.5#†		Sorrento Therapeutics, Inc. 2021 Cash-Settled Stock Appreciation Rights Plan.
10.6#†		Sorrento Therapeutics, Inc. Stock Appreciation Rights Award Agreement.

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

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

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		Sorrento Therapeutics, Inc.

Date:	May ~~11, 2020~~05, 2021	By:	/s/ Henry Ji, Ph.D.
			Henry Ji, Ph.D.
			Chairman of the Board of Directors, Chief Executive Officer & President
			(Principal Executive Officer)

Date:	May ~~11, 2020~~05, 2021	By:	/s/ ~~Jiong Shao~~Najjam Asghar
			~~Jiong Shao~~Najjam Asghar
			~~Executive~~Senior Vice President & Chief Financial Officer
			(Principal Financial Officer)

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