| Related-Party Debt | Related-Party Debt Related-Party Convertible Note at Fair Value On March 31, 2023, the company executed a $30.0 million promissory note with Nant Capital, an affiliated entity under common control of our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder. This note bears interest at Term Secured Overnight Financing Rate (Term SOFR) plus 8.0% per annum. The outstanding principal amount and any accrued and unpaid interest are due on the earlier of December 31, 2023 or upon the occurrence and continuation of an Event of Default (as defined in the note). The interest on this note shall be paid on a quarterly basis beginning on June 30, 2023. The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty. Upon receipt of a written notice of prepayment from the company, the note holder has the right, at its option, to convert the outstanding principal amount to be prepaid and the accrued and unpaid interest thereon (as specified in the notice of prepayment) into shares of the company’s common stock at a price of $2.28 per share. Additionally, the promissory note and accrued interest may be converted into shares of the company’s common stock at a conversion price of $2.28 per share (subject to appropriate adjustment from time to time for any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event), at the option of the note holder. The company received net proceeds of $29.9 million from this financing, net of a $0.1 million origination fee paid to the note holder. The note is accounted for under ASC 825-10-15-4 FVO election. Under the FVO election, the note is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. With each such remeasurement, the note will be adjusted to fair value, with the change in fair value recorded in other (expense) income, net , on the condensed consolidated statement of operations, except that the change in fair value resulting from a change in the instrument-specific credit risks is recorded as a component of other comprehensive income (loss) . As of June 30, 2023, we had a balance of $36.6 million in related-party convertible note at fair value , on the condensed consolidated balance sheet related to the convertible promissory note measured at fair value. The increase in fair value of $6.8 million was recorded in other (expense) income, net , on the condensed consolidated statement of operations during the six months ended June 30, 2023. There was no change in fair value related to the instrument-specific credit risks. Related-Party Convertible Notes On August 31, 2022, the company amended and restated an aggregate of $315.1 million (including outstanding principal and accrued and unpaid interest) of fixed-rate promissory notes held by entities affiliated with Dr. Soon-Shiong. Prior to the amendments and restatements, these notes bore and continue to bear interest at a per annum rate ranging from 3.0% to 6.0%, provide that the outstanding principal was and continues to be due and payable on September 30, 2025, and accrued and unpaid interest was or continues to be payable either upon maturity or, with respect to one of the notes, on a quarterly basis. Prior to the amendments and restatements, the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), either in whole or in part, at any time without premium or penalty and without the prior consent of the lender, now subject to an advance notice period of at least five business days during which the lender can convert the amount requested to be prepaid by the company into shares of the company’s common stock, as part of the amendment and restatement. The terms of these fixed-rate promissory notes were amended and restated to include a conversion feature that gives each lender, at its sole option, at any time (other than when the lender is in receipt of a written notice of prepayment from the borrower), the right to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $5.67 per share. Upon receipt of a written notice of prepayment from the borrower, the lender has the right, at its option, to convert the outstanding principal amount to be prepaid and the accrued and unpaid interest thereon (as specified in the notice of prepayment) into shares of the company’s common stock at a price of $5.67 per share. No other material terms or conditions of these fixed-rate promissory notes were modified as part of the August 31, 2022 amendments and restatements. As of June 30, 2023 and December 31, 2022, the carrying value of the fixed-rated convertible promissory notes of $250.1 million and $241.3 million, respectively, was recorded in related-party convertible notes and accrued interest, net of discount, on the condensed consolidated balance sheets. During the six months ended June 30, 2023 and 2022, the company made interest payments totaling $0.6 million and $1.2 million, respectively, related to our $40.0 million promissory note. Related-Party Nonconvertible Notes On June 13, 2023, the company executed a $30.0 million promissory note with Nant Capital, an entity affiliated with Dr. Patrick Soon-Shiong, Executive Chairman and Global Chief Scientific and Medical Officer. The company was able to request up to three (3) advances of $10.0 million each, pursuant to the note. The principal amount of each advance bears interest at Term SOFR plus 8.0% per annum. The accrued interest on any advance is payable on a quarterly basis. The outstanding principal amount and any accrued and unpaid interest on advances are due on the earlier of (i) December 31, 2023 or (ii) upon the occurrence and during the continuance of an Event of Default (as defined in the note). We may prepay the outstanding principal amount, together with any accrued interest, on any then-outstanding advances, at any time, in whole or in part, without premium or penalty, and without the prior consent of the Investor, upon five (5) days written notice to the Investor. We received net proceeds of approximately $29.9 million from this promissory note, net of a $0.1 million origination fee paid to Nant Capital. As of June 30, 2023, the company had a promissory note outstanding with Nant Capital for $300.0 million in principal and a carrying balance of $280.9 million, net of unamortized discount of $19.1 million. The note bears an interest rate of Term SOFR plus 8.0% per annum, payable on a quarterly basis. In the event of a default on the loan (as defined in both the original and amended and restated promissory notes), including if the company does not repay the loan at maturity, the company has the right, at its sole option, to convert the outstanding principal amount and accrued and unpaid interest due under this note into shares of the company’s common stock at a price of $5.67 per share. During the six months ended June 30, 2023 and 2022, the company made interest payments totaling $19.1 million and $9.9 million, respectively, related to this note. As of June 30, 2023, the company had a promissory note outstanding with Nant Capital for $125.0 million in principal and a carrying balance of $121.3 million, net of unamortized discount of $3.7 million. The note bears an interest rate of Term SOFR plus 8.0% per annum, payable on a quarterly basis. The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty. During the six months ended June 30, 2023, the company made interest payments totaling $4.2 million related to this note. As of June 30, 2023, the company had a promissory note outstanding with Nant Capital for $50.0 million in principal and a carrying balance of $49.9 million, net of unamortized discount of $0.1 million. The note bears an interest rate of Term SOFR plus 8.0% per annum, payable on a quarterly basis. The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty. In the event of a Specified Transaction (as defined in the note), the note holder can request the outstanding principal and interest due on the loan be repaid in full upon consummation of such Specified Transaction. During the six months ended June 30, 2023, the company made interest payments totaling $1.6 million related to this note. Our related-party debt is summarized below (in thousands): Balances at June 30, 2023 Maturity Interest Principal Accrued Less: Total (Unaudited) Related-Party Nonconvertible Notes: Nant Capital (1) 2023 Term SOFR + 8.0% $ 505,000 $ — $ 23,106 $ 481,894 Related-Party Convertible Note Nant Capital (2) 2023 Term SOFR + 8.0% $ 30,000 $ — $ — $ 36,618 Related-Party Convertible Notes: Nant Capital 2025 5.0% $ 55,226 $ 10,914 $ 4,280 $ 61,860 Nant Capital 2025 6.0% 50,000 8,710 3,310 55,400 Nant Capital 2025 6.0% 40,000 — 2,159 37,841 NantMobile, LLC (NantMobile) 2025 3.0% 55,000 6,004 4,968 56,036 NantCancerStemCell, LLC (NCSC) 2025 5.0% 33,000 8,673 2,708 38,965 Total related-party convertible notes $ 233,226 $ 34,301 $ 17,425 $ 250,102 _______________ (1) As of June 30, 2023, the interest rate on the $30.0 million nonconvertible promissory note entered on June 13, 2023 was 13.11%, and the interest rate on the remaining related-party nonconvertible notes was 13.25%. (2) As of June 30, 2023, the interest rate on the related-party convertible note at fair value was 13.25%. Balances at December 31, 2022 Maturity Interest Principal Accrued PIK Less: Total Related-Party Nonconvertible Notes: Nant Capital (1) 2022 Term SOFR + 8.0% $ 475,000 $ — $ 43,099 $ 431,901 Related-Party Convertible Notes: Nant Capital 2025 5.0% $ 55,226 $ 9,320 $ 5,188 $ 59,358 Nant Capital 2025 6.0% 50,000 7,039 4,068 52,971 Nant Capital 2025 6.0% 40,000 — 2,580 37,420 NantMobile 2025 3.0% 55,000 5,110 5,978 54,132 NCSC 2025 5.0% 33,000 7,684 3,294 37,390 Total related-party convertible notes $ 233,226 $ 29,153 $ 21,108 $ 241,271 _______________ (1) The interest rate on our related-party nonconvertible notes as of December 31, 2022 was 12.59%. The following table summarizes the estimated future contractual obligations for our related-party debt as of June 30, 2023 (unaudited; in thousands): Principal Payments Interest Payments (1) Convertible Nonconvertible Convertible Non-convertible Total 2023 (excluding the six months ended June 30, 2023) $ 30,000 $ 505,000 $ 4,813 $ 39,465 $ 579,278 2024 — — 2,407 — 2,407 2025 233,226 — 61,050 — 294,276 Total principal and estimated interest $ 263,226 $ 505,000 $ 68,270 $ 39,465 $ 875,961 _______________ (1) Interest payments on our fixed-rate convertible notes are calculated based on contractual interest rates and scheduled maturity dates. Interest payments on our variable-rate notes are calculated based on Term SOFR plus the contractual spread per the loan agreements. As of June 30, 2023, the interest rate on the $30.0 million nonconvertible promissory note entered on June 13, 2023 was 13.11%, and the interest rate on the remaining related-party nonconvertible notes and convertible note at fair value was 13.25%. We conduct business with several affiliates under written agreements and informal arrangements. Below is a summary of outstanding balances and a description of significant relationships (in thousands): June 30, December 31, (Unaudited) Due from related party–NantBio, Inc. (NantBio) $ 1,294 $ 1,294 Due from related party–NantWorks 573 — Due from related party–Brink Biologics, Inc. (Brink Biologics) 36 271 Due from related parties–Various 122 325 Total due from related parties $ 2,025 $ 1,890 Due to related party–NantBio $ 943 $ 943 Due to related party–Duley Road, LLC (Duley Road) 153 1,431 Due to related party–Immuno-Oncology Clinic, Inc. (the Clinic) 37 109 Due to related party–NantWorks — 986 Due to related party–Various 26 — Total due to related parties $ 1,159 $ 3,469 Our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space. As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder. During June 2023, we net settled certain due from/due to related party balances with NantWorks and related affiliates that were outstanding as of December 31, 2022. NantWorks, LLC Shared Services Agreement Under the amended and restated shared services agreement with NantWorks dated as of June 2016, but effective as of August 2015, NantWorks, a related party, provides corporate, general and administrative, certain research and development, and other support services. We are charged for the services at cost plus reasonable allocations of employee benefits, facilities, and other direct or fairly allocated indirect costs that relate to the employees providing the services. During the six months ended June 30, 2023 and 2022, we recorded $1.9 million and $2.3 million, respectively, in selling, general and administrative expense , and $1.0 million and $0.3 million of expense reimbursements, respectively, under this arrangement in research and development expense , on the condensed consolidated statements of operations. These amounts exclude certain general and administrative expenses provided by third-party vendors directly for our benefit, which were reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks. As of June 30, 2023 and December 31, 2022, we had a receivable of $0.6 million and a payable of $1.0 million, respectively, for all agreements with NantWorks, which are included in due from/due to related parties, on the condensed consolidated balance sheets. We also recorded $1.9 million and $2.0 million of prepaid expenses for various services that we expect will be passed through to the company from NantWorks as of June 30, 2023 and December 31, 2022, respectively, which are included in prepaid expenses and other current assets , on the condensed consolidated balance sheets. Facility License Agreement In 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 rentable square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility. In 2020, we amended this agreement to extend the term of this license agreement through December 31, 2021. Commencing on January 1, 2022, the license fee increased by 3% to approximately $56,120 per month. On May 6, 2022, we amended our facility license agreement with NantWorks to expand the licensed premises by 36,830 rentable square feet to an aggregate total of 46,330 rentable square feet. Effective May 1, 2022, the license fee is approximately $273,700 per month, which is subject to a 3% increase commencing on January 1 of each year. The space continues to be rented on a month-to-month basis, which can be terminated by either party with at least 30 days’ prior written notice to the other party. We recorded license fee expense for this facility totaling $1.7 million and $0.8 million during the six months ended June 30, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. Immuno-Oncology Clinic, Inc. We have entered into multiple agreements with t he Clinic to conduct clinical trials related to certain of our product candidates. The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic. Pursuant to the terms of the Clinic agreement (as amended), we made payments totaling $5.6 million in consideration of future services to be performed by the Clinic. In 2021, we completed a review of alternative structures that could support our more complex clinical trial requirements and made a decision to explore a potential transition of clinical trials at the Clinic to a new structure (including contracting with a new, non-affiliated professional corporation) to be determined and agreed upon by all parties. Based on this decision to explore a potential transition, we determined that it was more likely than not that the previously recorded prepaid asset would not result in the collection of fees for services performed by the Clinic as contemplated in the original agreements. As a result, we wrote down the remaining value of our prepaid asset and recorded approximately $4.4 million in research and development expense , on the condensed consolidated statement of operations during the year ended December 31, 2021 . We recorded $1.4 million and $1.3 million during the six months ended June 30, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic. As of June 30, 2023 and December 31, 2022 , we owed the Clinic an immaterial amount and $0.1 million, respectively, which are included in due to related parties, on the condensed consolidated balance sheets . NantBio, Inc. In August 2018, we entered into a supply agreement with NCSC, a 60% owned subsidiary of NantBio (with the other 40% owned by Sorrento). Under this agreement, we agreed to supply VivaBioCell’s proprietary GMP-in-a-Box bioreactors and related consumables, made according to specifications mutually agreed to with both companies. The agreement has an initial term of five years and renews automatically for successive one-year terms unless terminated by either party in the event of material default upon prior written notice of such default and the failure of the defaulting party to remedy the default within 30 days of the delivery of such notice, or upon 90 days’ prior written notice by NCSC. We recognized no revenue during the six months ended June 30, 2023 and 2022, respectively. We recorded $0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities , on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, we recorded a payable of $0.9 million, respectively, in due to related parties , on the condensed consolidated balance sheets related to this agreement. In 2018, we entered into a shared service agreement pursuant to which we are charged for services at cost, without mark-up or profit by NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services. In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects to the company. As of June 30, 2023 and December 31, 2022, we recorded a receivable of $1.3 million in due from related parties , respectively, on the condensed consolidated balance sheets for amounts we paid on behalf of NantBio during the year ended December 31, 2019. 605 Doug St, LLC In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 24,250 rentable square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility. The lease term was from July 2016 through July 2023. In June 2023, we exercised the option to extend the lease for one additional three-year term through July 2026. The base rent is approximately $72,385 per month, with annual increases of 3% that began in July 2017. We recorded lease expense for this facility of $0.4 million during the six months ended June 30, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. Duley Road, LLC In February 2017, we entered into a lease agreement with Duley Road, a related party that is indirectly controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 11,980 rentable square feet of office and cGMP manufacturing facility space in El Segundo, California. The lease term is from February 2017 through October 2024. We have the option to extend the initial term for two consecutive five-year periods through October 2034. The base rent is approximately $40,700 per month, with annual increases of 3%. Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California. The first lease is for the first floor of the building with approximately 5,650 rentable square feet. The lease has a seven-year term commencing in September 2019. The second lease is for the second floor of the building with approximately 6,488 rentable square feet. The lease has a seven-year term commencing in July 2019. Both floors of the building are used for research and development and office space. We have options to extend the initial terms of both leases for two consecutive five-year periods through 2036. The base rent for the two leases is approximately $35,800 per month, with annual increases of 3%. We recorded rent expense for these leases totaling $0.4 million during the six months ended June 30, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. As of June 30, 2023 and December 31, 2022, we recorded $0.2 million and $1.4 million of lease-related payables to Duley Road, respectively, in due to related parties , on the condensed consolidated balance sheets. 605 Nash, LLC In February 2021 , but effective on January 1, 2021 , we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 rentable square feet (the Initial Premises) i n a two-story mixed-use building containing approximately 64,643 rentable square feet at 605-607 Nash Street in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease term commenced in January 2021 and expires in December 2027 , and includes an option to extend the lease for one three-year term through December 2030 . The base rent is approximately $20,300 per month with an annual increase of 3% on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. In May 2021, but effective on April 1, 2021, we entered into an amendment to our Initial Premises lease with 605 Nash. The amendment expanded the leased square feet by approximately 57,760 rentable square feet (the Expansion Premises). The lease term of the Expansion Premises commenced in April 2021 and expires in March 2028, whereby the company has one option to extend the initial term for three years. Per the terms of the amendment, the term of the Initial Premises lease was extended for an additional three months and now expires on March 31, 2028. Base rent for the Expansion Premises is approximately $170,400 per month with annual increases of 3% on April 1 of each year. We are responsible for the build out of the facility space and associated costs. We recorded rent expense for the Initial and Expansion Premises leases totaling $1.1 million during the six months ended June 30, 2023 and 2022, respectively, i n research and development expense, on the condensed consolidated statements of operations. The terms of the initial and amended leases provided for tenant improvement allowances totaling $2.9 million for costs and expenses related to improvements made by us to the Initial and Expansion Premises, which were received from the landlord during the three months ended June 30, 2023. 420 Nash, LLC On September 27, 2021, we entered into a lease agreement with 420 Nash, LLC, a related party, whereby we leased an approximately 19,125 rentable square foot property located at 420 Nash Street, El Segundo, California, to be used primarily for the warehousing and storage of drug manufacturing supplies, products and equipment and ancillary office space. Under the terms of the lease agreement, the lease term began on October 1, 2021 and expires on September 30, 2026. The base rent is approximately $38,250 per month with an annual increase of 3% on October 1 of each year beginning in 2022 during the initial term. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance and operating expenses during the term of the lease. The company has options to extend the lease term for two additional consecutive periods of five years each. At the beginning of each option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3% during the option term. We have included the first option to extend the lease term for five years as part of the initial term of the lease as it is reasonably certain that we will exercise the option, which implies lease expiration in September 2031. We recorded $0.3 million of rent expense for this lease during the six months ended June 30, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. 23 Alaska, LLC On May 6, 2022, we entered into a lease agreement with 23 Alaska, LLC, a related party, for a 47,265 rentable square foot facility located at 2335 Alaska Ave., El Segundo, California, to be used primarily for pharmaceutical development and manufacturing, research and development, and office space. Under the terms of the agreement, the lease term began on May 1, 2022 and expires on April 30, 2027. The base rent is approximately $139,400 per month with an annual increase of 3% on May 1 of each year beginning in 2023 during the initial term. We are also required to pay $7,600 per month for parking during the initial term and extension term, if exercised. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance, and operating expenses during the term of the lease. The company has an option to extend the lease term for one additional consecutive five research and development expense , on the condensed consolidated statements of operations. |
