UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices)
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(Registrant’s Telephone Number, Including Area Code)
Securities Registered pursuant to Section 12(b) of the Act:
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Title of each class: |
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Name of each exchange on which registered: |
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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.
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).
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:
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of April 30, 2021 was
Sorrento Therapeutics, Inc.
Form 10-Q for the Quarter Ended March 31, 2021
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements.
SORRENTO THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts; unaudited)
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ASSETS |
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March 31, 2021 |
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December 31, 2020 |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable investment |
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— |
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Accounts receivables, net |
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Inventory |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangibles, net |
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Goodwill |
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Equity investments |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued payroll and related benefits |
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Accrued expenses |
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Current portion of deferred revenue |
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Current portion of operating lease liabilities |
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Acquisition consideration payable |
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Current portion of debt |
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Total current liabilities |
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Long-term debt, net of discount |
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Deferred tax liabilities, net |
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Deferred revenue |
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Derivative liabilities |
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Operating lease liabilities |
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Other long-term liabilities |
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Total liabilities |
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$ |
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$ |
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Commitments and contingencies (See Note 10) |
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Equity: |
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Sorrento Therapeutics, Inc. equity |
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Preferred stock, $ or outstanding |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Treasury stock, |
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Total Sorrento Therapeutics, Inc. stockholders’ equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements
3
SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts; unaudited)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Revenues: |
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Net product revenues |
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$ |
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$ |
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Service revenues |
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Total revenues |
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Operating costs and expenses: |
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Cost of products sold |
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Cost of services |
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Research and development |
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Acquired in-process research and development |
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— |
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Selling, general and administrative |
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Intangible amortization |
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Total operating costs and expenses |
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Loss from operations |
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Gain on derivative liabilities |
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Loss on foreign currency exchange |
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Interest expense, net |
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Gain on marketable investment |
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— |
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Loss on equity method investments |
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Loss on debt extinguishment, net |
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Other loss |
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Income (loss) before income tax |
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Income tax benefit |
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Net income (loss) |
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Net loss attributable to noncontrolling interests |
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Net income (loss) attributable to Sorrento |
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$ |
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$ |
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Net income (loss) per share - basic per share attributable to Sorrento |
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$ |
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$ |
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Net income (loss) per share - diluted per share attributable to Sorrento |
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$ |
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$ |
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Weighted-average shares used during period - basic per share attributable to Sorrento |
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Weighted-average shares used during period - diluted per share attributable to Sorrento |
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See accompanying notes to unaudited consolidated financial statements
4
SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands; unaudited)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Net income (loss) |
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$ |
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$ |
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Other comprehensive loss (gain): |
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Foreign currency translation adjustments |
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Total other comprehensive loss (gain) |
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Comprehensive income (loss) |
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Comprehensive loss attributable to noncontrolling interests |
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Comprehensive income (loss) attributable to Sorrento |
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$ |
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$ |
( |
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See accompanying notes to unaudited consolidated financial statements
5
SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands; unaudited)
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Three Months Ended March 31, 2021 |
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Common Stock |
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Treasury Stock |
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Accumulated |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional Paid-in Capital |
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Other Comprehensive Income (Loss) |
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Accumulated Deficit |
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Noncontrolling Interest |
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Total |
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Balance, December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Issuance of common stock under equity compensation plans |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock upon exercise of warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for equity offerings |
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— |
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— |
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— |
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— |
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— |
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Other acquisitions, license agreements and investments paid in equity |
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— |
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— |
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— |
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— |
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— |
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— |
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Changes to noncontrolling interests from increased ownership in Scilex Holding |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net Income (loss) |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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Balance, March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Three Months Ended March 31, 2020 |
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Common Stock |
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Treasury Stock |
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Accumulated |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional Paid-in Capital |
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Other Comprehensive Income (Loss) |
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Accumulated Deficit |
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Noncontrolling Interest |
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Total |
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Balance, December 31, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Issuance of common stock under equity compensation plans |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock upon exercise of warrants |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for public placement, net |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock from Aspire Purchase Agreement |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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Balance, March 31, 2020 |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to unaudited consolidated financial statements
6
SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
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Three Months Ended March 31, |
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Operating activities |
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2021 |
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2020 |
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Net income (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net loss to net cash used for operating activities: |
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Depreciation and amortization |
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Non-cash operating lease cost |
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Non-cash interest expense and amortization of debt issuance costs |
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Payment on Scilex Notes attributed to accreted interest related to the debt discount |
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( |
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— |
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Acquired in-process research and development |
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— |
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Stock-based compensation |
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Loss on debt extinguishment |
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Gain on derivative liabilities |
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( |
) |
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( |
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Gain on marketable investment |
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( |
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— |
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Loss on equity method investments |
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Deferred tax provision |
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( |
) |
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( |
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Changes in operating assets and liabilities, excluding effect of acquisitions: |
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Accounts receivable |
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( |
) |
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Accrued payroll |
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( |
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( |
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Prepaid expenses, deposits and other assets |
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Accounts payable |
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( |
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Accrued expenses and other liabilities |
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( |
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Deferred revenue |
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( |
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Other |
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( |
) |
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Net cash used for operating activities |
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( |
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( |
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Investing activities |
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Purchases of property and equipment |
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( |
) |
|
|
( |
) |
|
Other acquisitions and investments |
|
|
( |
) |
|
|
— |
|
|
Net cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
|
Financing activities |
|
|
|
|
|
|
|
|
|
Proceeds from equity offerings, net of issuance costs |
|
|
|
|
|
|
|
|
|
Proceeds from short-term debt, net of issuance costs |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and warrants |
|
|
|
|
|
|
|
|
|
Repayments of debt and other obligations |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
Net effect of exchange rate changes on cash |
|
|
( |
) |
|
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Changes to noncontrolling interests from increased ownership in Scilex Holding |
|
|
|
|
|
|
— |
|
|
Other acquisitions, license agreements and investments paid in equity |
|
|
|
|
|
|
— |
|
|
Property and equipment costs incurred but not paid |
|
|
|
|
|
|
|
|
|
Non-cash additions related to leasehold improvements |
|
|
|
|
|
|
— |
|
|
Reconciliation of cash, cash equivalents and restricted cash within the Company’s consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
- |
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to unaudited consolidated financial statements
7
SORRENTO THERAPEUTICS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
1. Description of Business and Basis of Presentation
Description of Business
Sorrento Therapeutics, Inc. (the “Company”) is a clinical stage, antibody-centric, biopharmaceutical company developing new therapies to treat cancers and COVID-19. The Company’s multimodal, multipronged approach to fighting cancer is made possible by its extensive immuno-oncology platforms, including key assets such as fully human antibodies (“G-MAB™ library”), clinical stage immuno-cellular therapies (“CAR-T”, “DAR-T™”), antibody-drug conjugates (“ADCs”) 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 test solutions, including COVITRACK™, COVISTIX™ and COVITRACE™.
The Company’s commitment to life-enhancing therapies for patients is also demonstrated by its effort to advance a first-in-class (TRPV1 agonist) non-opioid pain management small molecule, resiniferatoxin (“RTX”), and SP-102 (10 mg, dexamethasone sodium phosphate viscous gel) (SEMDEXA™), a novel, viscous gel formulation of a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain, or sciatica, and through the commercialization of ZTlido® (lidocaine topical system) 1.8% for the treatment of post-herpetic neuralgia.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. All intercompany balances and transactions have been eliminated in consolidation.
These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Operating results for interim periods are not expected to be indicative of operating results for the Company’s 2021 fiscal year, or any subsequent period. The unaudited interim financial statements included herein reflect all normal and recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented.
Use of Estimates
To prepare consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”), management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies
During the three months ended March 31, 2021, there have been no changes to the Company`s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 outside of new accounting pronouncements as described below.
Revenue Recognition
The following table shows revenue disaggregated by product and service type for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Scilex Pharmaceuticals Inc. product sales |
|
$ |
|
|
|
$ |
|
|
|
Other product revenue |
|
|
|
|
|
|
|
|
|
Net product revenue |
|
$ |
|
|
|
$ |
|
|
|
Concortis Biosystems Corporation |
|
$ |
|
|
|
$ |
|
|
|
Bioserv Corporation |
|
|
|
|
|
|
|
|
|
Other service revenue |
|
|
|
|
|
|
|
|
|
Service revenue |
|
$ |
|
|
|
$ |
|
|
8
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update No. 2019-12, Income Taxes Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for interim and annual periods for the Company beginning after December 15, 2020. The Company adopted the standard on
2.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has recurring losses from operations, recurring negative cash flows from operations and substantial cumulative net losses to date and anticipates that it will continue to do so for the foreseeable future as it continues to identify and invest in advancing product candidates, as well as expanding corporate infrastructure.
The Company has plans in place to obtain sufficient additional fundraising to fulfill its operating, debt servicing and capital requirements for the next 12 months. The Company’s plans include continuing to fund its operating losses and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, government grants or other arrangements. Although management believes such plans, if executed, should provide the Company sufficient financing to meet its needs, successful completion of such plans is dependent on factors outside of the Company’s control. As such, management cannot conclude that such plans will be effectively implemented within one year after the date that the financial statements are issued. As a result, management has concluded that the aforementioned conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are issued.
If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable, the Company may have to significantly delay, scale back or discontinue the development or commercialization of one or more of its product candidates. The Company may also seek collaborators for one or more of its current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Furthermore, the spread of COVID-19, which has caused a broad impact globally, may materially affect the Company economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could, in the future, negatively affect its liquidity. The consolidated financial statements do not reflect any adjustments that might be necessary if the Company is unable to continue as a going concern.
If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.
3. Fair Value Measurements
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketable investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities - non-current |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquisition consideration payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration payable - non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
9
|
|
|
Fair Value Measurements at December 31, 2020 |
|
|||||||||||||
|
|
|
Balance |
|
|
Quoted Prices in Active Markets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities - non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration payable - non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Derivative liabilities
The Company recorded a gain on derivative liabilities of $
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, 2021:
|
(in thousands) |
|
Fair Value |
|
|
|
Beginning Balance at December 31, 2020 |
|
$ |
|
|
|
Re-measurement of Fair Value |
|
|
( |
) |
|
Ending Balance at March 31, 2021 |
|
$ |
|
|
4. Investments
The Company’s equity method investments include an ownership interest in Immunotherapy NANTibody, LLC (“NANTibody”), NantCancerStemCell, LLC (“NantStem”) and ImmuneOncia Therapeutics, 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”).
On March 9, 2021, NantKwest, Inc. and ImmunityBio completed their previously announced
The Company’s investment in ImmunityBio has historically been included as an equity investment in its consolidated balance sheets and accounted for as an equity security without a readily determinable fair value. As of the 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 $
10
NANTibody
The Company’s investment in NANTibody is reported in equity method investments on its consolidated balance sheets and its share of NANTibody’s income or loss is recorded in loss on equity method investments on its consolidated statement of operations. The Company continues to hold
NANTibody recorded a net loss of $
The financial statements of NANTibody are not received sufficiently timely for the Company to record its portion of earnings or loss in the current financial statements and therefore the Company reports its portion of earnings or loss on a one quarter lag.
NantStem
The Company’s investment in NantStem is reported in equity method investments on its consolidated balance sheets and its share of NantStem’s income or loss is recorded in loss on equity method investments on its consolidated statement of operations. The Company is accounting for its interest in NantStem as an equity method investment, due to the significant influence the Company has over the operations of NantStem through its board representation and
NantStem recorded a net gain of $
The financial statements of NantStem are not received sufficiently timely for the Company to record its portion of earnings or loss in the current financial statements and therefore the Company reports its portion of earnings or loss on a one quarter lag.
5. Goodwill and Intangible Assets
At both March 31, 2021 and December 31, 2020, the Company had goodwill of $
Intangible assets with indefinite useful lives totaling $
|
March 31, 2021 |
|
Weighted Average Amortization Period (Years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Intangibles, Net |
|
||||
|
Customer relationships |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in-process research and development |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Technology placed in service |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assembled workforce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally developed software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
11
|
December 31, 2020 |
|
Weighted Average Amortization Period (Years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Intangibles, Net |
|
||||
|
Customer relationships |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquired technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in-process research and development |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Technology placed in service |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assembled workforce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally developed software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Aggregate amortization expense was $
|
Years Ending December 31, |
|
Amount |
|
|
|
2021 (Remaining nine months) |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total expected future amortization |
|
$ |
|
|
12
6. Significant Agreements and Contracts
License Agreement with Icahn School of Medicine at Mount Sinai
In March 2021, the Company entered into an exclusive license agreement (the “Mount Sinai License Agreement”) with Icahn School of Medicine at Mount Sinai (“Mount Sinai”) to acquire a worldwide, exclusive, sublicensable license to certain of Mount Sinai’s patents and monoclonal antibodies as well as technical information to develop, manufacture, commercialize, and exploit related products and services (“Licensed Products”) for all fields, uses, and applications, including for the diagnosis, prevention, treatment and cure of coronavirus.
As consideration for the Mount Sinai License Agreement, the Company paid Mount Sinai and upfront license fee of $
Scilex Holding Ownership Increase
On January 29, 2021, the Company acquired additional shares of Scilex Holding Company (“Scilex Holding”), resulting in the Company holding approximately
Acquisition of SmartPharm Therapeutics, Inc.
On September 1, 2020, the Company completed the acquisition of SmartPharm Therapeutics, Inc. (“SmartPharm”), a gene-encoded protein therapeutics company developing non-viral DNA and RNA gene delivery platforms for COVID-19, Influenza and rare diseases with broad potential for application in enhancing antibody-centric therapeutics. The total base consideration paid to the holders of capital stock of SmartPharm in the acquisition was approximately $
The purchase price allocation resulted in net identifiable assets of $
License Agreement with NantCell
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 (
7. Debt
2018 Purchase Agreements and Indenture for Scilex
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 issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $
13
the Company. Pursuant to the Indenture, the Company agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Indenture. During the year ended December 31, 2020, Scilex Pharma repurchased an aggregate of $
In February 2021, Scilex Pharma repurchased an additional $
To estimate the fair value of the Scilex Notes, the Company uses the discounted cash flow method under the income approach, which involves significant Level 3 inputs and assumptions, combined with a Monte Carlo simulation as appropriate. The value of the debt instrument is based on the present value of future principal payments and the discounted rate of return reflective of the Company’s credit risk.
Borrowings of the Scilex Notes consisted of the following (in thousands):
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Principal |
|
$ |
|
|
|
$ |
|
|
|
Unamortized debt discount |
|
|
( |
) |
|
|
( |
) |
|
Unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Carrying value |
|
$ |
|
|
|
$ |
|
|
|
Estimated fair value |
|
$ |
|
|
|
$ |
|
|
Future minimum payments under the Scilex Notes, based on a percentage of projected net sales of ZTlido are estimated as follows (in thousands):
|
Year Ending December 31, |
|
|
|
|
|
2021 (Remaining nine months) |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future minimum payments |
|
|
|
|
|
Unamortized debt discount |
|
|
( |
) |
|
Unamortized capitalized debt issuance costs |
|
|
( |
) |
|
Total Scilex Notes |
|
|
|
|
|
Current portion |
|
|
( |
) |
|
Long-term portion of Scilex Notes |
|
$ |
|
|
The Company made principal payments of $
The Company identified a number of embedded derivatives that require bifurcation from the Scilex Notes and that were separately accounted for in the consolidated financial statements as derivative liabilities. Certain of these embedded features include default interest provisions, contingent rate increases, contingent put options, optional and automatic acceleration provisions and tax indemnification obligations. The fair value of the derivative liabilities associated with the Scilex Notes was estimated using the discounted cash flow method under the income approach combined with a Monte Carlo simulation model. This involves significant Level 3 inputs and assumptions, including a risk adjusted net sales forecast, an effective debt yield, estimated marketing approval probabilities for SP-103 and an estimated probability of an initial public offering by Scilex Holding that satisfies certain valuation thresholds and timing considerations. The Company re-evaluates this assessment each reporting period.
8. Stockholders’ Equity
Amended Sales Agreement
On December 4, 2020, the Company entered into Amendment No. 1 to that certain Sales Agreement dated April 27, 2020, with A.G.P./Alliance Global Partners, which provides that the Company may, from time to time, offer and sell securities to A.G.P./Alliance
14
Global Partners in at-the-market transactions (as amended, the “Amended Sales Agreement”). During the three months ended March 31, 2021, the Company issued and sold an aggregate of
9. Stock Based Compensation
2019 Stock Incentive Plan (“2019 Plan”)
Total stock-based compensation recorded as operating expense under the 2019 Plan was $
A summary of stock option activity under the 2019 Plan for the three months ended March 31, 2021 is as follows:
|
|
|
Options Outstanding |
|
|
Weighted- Average Exercise Price |
|
|
Aggregate Intrinsic Value (in thousands) |
|
|||
|
Outstanding at December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
Options Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Options Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Weighted-average grant date fair value |
|
$ |
|
|
|
$ |
|
|
|
Dividend yield |
|
|
|
% |
|
|
|
% |
|
Volatility |
|
|
|
% |
|
|
|
% |
|
Risk-free interest rate |
|
|
|
% |
|
|
|
% |
|
Expected life of options (years) |
|
|
|
|
|
|
||
A summary of RSU activity under the 2019 Plan for the three months ended March 31, 2021 is as follows:
|
|
|
Number of Shares |
|
|
Weighted- Average Grant Date Fair Value Per Share |
|
||
|
Outstanding at December 31, 2020 |
|
|
— |
|
|
$ |
— |
|
|
RSUs Granted |
|
|
|
|
|
|
|
|
|
RSUs Released |
|
|
( |
) |
|
|
|
|
|
RSUs Cancelled |
|
|
( |
) |
|
|
|
|
|
Outstanding at March 31, 2021 |
|
|
|
|
|
$ |
|
|
The fair value of RSUs is determined based on the closing market price of the Company’s common stock on the grant date.
Scilex Holding Company
Under the Scilex Holding Company 2019 Stock Option Plan, total stock-based compensation recorded as operating expense was $
Employee Stock Purchase Plan
Total stock-based compensation recorded as operating expense for the Company`s 2020 Employee Stock Purchase Plan was $
15
CEO Performance Award
Total stock-based compensation recorded as operating expense for the
10. Commitments and Contingencies
Litigation
In the normal course of business, the Company may be named as a defendant in one or more lawsuits. Other than as set forth below, the Company is not a party to any outstanding material litigation and management is currently not aware of any legal proceedings that, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.
On April 3, 2019, the Company filed two legal actions against, among others, Patrick Soon-Shiong and entities controlled by him, asserting claims for, among other things, fraud and breach of contract, arising out of Dr. Soon-Shiong’s purchase of the drug Cynviloq™ from the Company in May 2015. The actions allege that Dr. Soon-Shiong and the other defendants, among other things, acquired the drug Cynviloq™ for the purpose of halting its progression to the market. Specifically, the Company has filed:
|
|
• |
An arbitration demand with the American Arbitration Association in Los Angeles, California against NantPharma, LLC and Chief Executive Officer Patrick Soon-Shiong, seeking damages in excess of $ |
16
|
|
• |
An action in the Los Angeles Superior Court derivatively on behalf of NANTibody against NantCell, Inc., NANTibody Board Member and NantCell, Inc. Chief Executive Officer Patrick Soon-Shiong, and NANTibody officer Charles Kim, related to several breaches of the June 11, 2015 Limited Liability Company Agreement for NANTibody entered into between the Company and NantCell, Inc. The suit also alleges breaches of fiduciary duties and seeks, inter alia, a declaration that the Assignment Agreement entered into on July 2, 2017, between NantPharma, LLC and NANTibody is void and an equitable unwinding of the Assignment Agreement. The suit calls for the restoration of $ |
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.
Operating Leases
As of March 31, 2021, the Company’s leases have remaining lease terms of approximately , some of which include options to extend the lease terms for up to
Supplemental quantitative information related to leases includes the following (in thousands, except for years and percentages):
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating cash outflows used for operating leases |
|
$ |
|
|
|
$ |
|
|
|
ROU assets obtained in exchange for new and amended operating lease liabilities |
|
$ |
— |
|
|
$ |
|
|
|
Weighted average remaining lease term in years |
|
|
|
|
|
|
||
|
Weighted average discount rate |
|
|
|
% |
|
|
|
% |
17
Maturities of lease liabilities were as follows (in thousands):
|
Years ending December 31, |
|
Operating leases |
|
|
|
2021 (Remaining nine months) |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total lease payments |
|
|
|
|
|
Less imputed interest |
|
|
( |
) |
|
Total lease liabilities as of March 31, 2021 |
|
$ |
|
|
11. Income Taxes
The Company maintains deferred tax assets that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These deferred tax assets include net operating loss carryforwards, research credits and temporary differences. In assessing the Company’s ability to realize deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As such, management has determined that it is appropriate to maintain a valuation allowance against the Company’s U.S. federal and state deferred tax assets, with the exception of an amount equal to schedulable deferred tax liabilities.
The Company’s income tax benefit of $
The difference between the expected statutory federal tax rate of
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 2007 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.
12. Net Income (Loss) Per Share
For the three months ended March 31, 2021 and 2020, basic income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Potentially dilutive shares of common stock from outstanding stock options, RSUs and warrants are determined using the 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 (in thousands except per share amounts):
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|
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Three Months Ended March 31, |
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|||||
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|
|
2021 |
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|
2020 |
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||
|
Numerator |
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|
|
|
|
|
|
|
|
Net income (loss) used for basic and diluted income (loss) per share |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic income (loss) per share |
|
|
|
|
|
|
|
|
|
Potentially dilutive shares from stock options, RSUs and warrants |
|
|
|
|
|
|
— |
|
|
Denominator for diluted income (loss) per share |
|
|
|
|
|
|
|
|
|
Basic income (loss) per share |
|
$ |
|
|
|
$ |
( |
) |
|
Diluted income (loss) per share |
|
$ |
|
|
|
$ |
( |
) |
18
Shares of common stock issuable pursuant to stock options and warrants that would have been excluded because the effect would have been anti-dilutive consisted of the following (in thousands):
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Anti-dilutive shares for outstanding options and RSUs |
|
|
|
|
|
|
|
|
|
Anti-dilutive shares for outstanding warrants |
|
|
— |
|
|
|
|
|
13. Segment Information
The Company operates in
The following table presents information about the Company’s reportable segments for the three months ended March 31, 2021 and 2020 (in thousands):
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|
Three Months Ended March 31, |
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2021 |
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2020 |
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Sorrento Therapeutics |
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Scilex |
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Total |
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|
Sorrento Therapeutics |
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Scilex |
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Total |
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||||||
|
External revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Unrestricted cash |
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14. Subsequent Events
Merger Agreement for Proposed Acquisition of ACEA Therapeutics
On April 2, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ACEA Therapeutics, Inc., an exempted company incorporated with limited liability in the Cayman Islands (“ACEA”), 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 holders of securities of ACEA (the “ACEA Equityholders”) an amount equal to $
19
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains “forward-looking statements” about our expectations, beliefs or intentions regarding our potential product offerings, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made and are often identified by the use of words such as “assumes,” “plans,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” or “will,” and similar expressions or variations. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”). Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Overview
Sorrento Therapeutics, Inc., together with its subsidiaries (collectively, the “Company”, “we”, “us”, and “our”) is a clinical stage and commercial biopharmaceutical company focused on delivering innovative and clinically meaningful therapies to address unmet medical needs.
At our core, we are antibody-centric and leverage our proprietary G-MAB™ library and targeted delivery modalities to generate the next generation of cancer therapeutics. Our fully human antibodies include PD-1, PD-L1, CD38, CD123, CD47, CTLA-4, CD137 and SARS-CoV-2 neutralizing antibodies, among others. We also have programs assessing the use of our technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases.
Our vision is to leverage these antibodies in conjunction with proprietary targeted delivery modalities to generate the next generation of cancer therapeutics. These modalities include proprietary chimeric antigen receptor T-cell therapy (“CAR-T”), dimeric antigen receptor T-cell therapy (“DAR-T”), antibody drug conjugates (“ADCs”) as well as bispecific antibody approaches. We acquired Sofusa®, a drug delivery technology, in July 2018, which delivers biologics directly into the lymphatic system to potentially achieve improved efficacy and fewer adverse effects than standard parenteral immunotherapy. Additionally, our majority-owned subsidiary, Scilex Holding Company (“Scilex Holding”), acquired the assets of Semnur Pharmaceuticals, Inc. (“Semnur”) in March 2019. Semnur’s SEMDEXATM (“SP-102”) compound has the potential to become the first Food and Drug Administration (“FDA”)-approved epidural steroid product for the treatment of sciatica. In response to the global SARS-CoV-2 (“COVID-19”) pandemic, we are utilizing the Bruton’s tyrosine kinase (“BTK”) inhibitor (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-MABTM, COVIDTRAPTM, COVI-MABTM, COVIGUARDTM, COVISHIELDTM , COVI-AMG™ and T-VIVA-19TM; and diagnostic 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 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, oncolytic viruses (SeprehvecTM) 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 with COVID-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
20
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 (COVIDTRAPTM) 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”), obtained clearance from the FDA and commenced a human clinical trial for this indication in early 2018. We have dosed eleven patients. We intend to close this study to further enrollment and start up a similar anti-CD38 CAR-T construct without the myc-tag (which cannot be used in Europe), and to continue treating RRMM patients in a Phase Ib/IIa study, which will begin enrollment in the first quarter of 2021. We filed INDs for our CD47 mAb and the first of 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.
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 next generation in ADC technology, we intend to 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 targets transient receptor potential vanilloid-1 (“TRPV1”) which, depending on the site of injection, can ablate, or destroy, nerves expressing TRPV1 or temporarily defunctionalize them. TRPV1 is responsible for the noxious chronic and inflammatory pain signaling that occurs post injury or trauma, but leaves other nerve functions intact. RTX has been granted orphan drug status for the treatment of intractable pain with end-stage cancer and two Phase Ib trials (intrathecal and epidural routes) in that indication 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 middle of 2021. We plan to start knee arthritis registrational trials after the 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, 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.
Impact of COVID-19 on Our Business
We are closely monitoring the COVID-19 pandemic and its potential impact on our business. In an effort to protect the health and safety of our employees, we took proactive action from the earliest signs of the outbreak, including implementing social distancing policies at our facilities, facilitating remote working arrangements and imposing employee travel restrictions.
21
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. 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 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” herein.
Results of Operations
Comparison of the Three Months Ended March 31, 2021 and 2020
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.
Revenues in our Sorrento Therapeutics segment increased from $2.5 million to $7.3 million for the three months ended March 31, 2021 compared to the same quarter of the prior year and were primarily attributed to higher contract manufacturing service revenues.
Revenues in our Scilex segment increased from $5.2 million to $7.0 million for the three months ended March 31, 2021 compared to the same quarter of the prior year and were attributed to increased product sales of ZTlido.
Cost of revenues. Cost of revenues for the three months ended March 31, 2021 and 2020 were $3.4 million and $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 increased by $0.6 million and was driven by the increase in revenues.
Cost of revenues for our Scilex segment increased by $0.3 million and was driven by higher sales of ZTlido.
Research and Development (“R&D”) Expenses. Research and development expenses for the three months ended March 31, 2021 and 2020 were $43.8 million and $21.2 million, respectively. Research and development expenses primarily include expenses associated with isolating and advancing human antibody drug candidates derived from our libraries, as well as advancing our RTX, COVID-19, SP-102, oncolytic virus, ADC and oncology programs. Such expenses consist primarily of salaries and personnel-related expenses, stock-based compensation expense, clinical development expenses, preclinical testing, lab supplies, consulting costs, depreciation and other expenses.
R&D expenses for our Sorrento Therapeutics segment increased by $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 increased costs associated with our research and development product 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.
Selling, General and Administrative (“SG&A”) Expenses. SG&A expenses for the three months ended March 31, 2021 and 2020 were $43.4 million and $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 $17.9 million and were primarily attributed to higher headcount and stock-based compensation expense compared to the same quarter of the prior year.
SG&A expenses for our Scilex segment decreased by approximately $0.8 million and were attributed to cost savings resulting from a more focused marketing strategy for ZTlido and savings arising from the transfer of a contracted to in-house sales force.
Gain on Derivative Liabilities. Gain on derivative liabilities for the three months ended March 31, 2021 was $2.2 million compared to a gain of $4.9 million in the same quarter in 2020 and was primarily attributed to revised probabilities and revised sales
22
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.
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 was $2.4 million and $6.8 million, respectively. The decrease resulted primarily from a decrease in interest expense associated with the 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 was $0.2 million and $0.3 million, respectively. The decrease in income tax benefit was primarily attributable to the impact of earnings in the current year.
Net 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 was $69.2 million.
Liquidity and Capital Resources
As of March 31, 2021, we had $41.7 million in cash and cash equivalents attributable in part to the following financing arrangements:
Debt Financings
Scilex Notes
In September 2018, Scilex Pharma entered into purchase agreements (the “2018 Purchase Agreements”) with certain investors (collectively, the “Scilex Note Purchasers”) and us. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million (the “Scilex Notes Offering”). In connection with the Scilex Notes Offering, Scilex Pharma also entered into an Indenture (the “Indenture”) governing the Scilex Notes with U.S. Bank National Association, a national banking association, as trustee and collateral agent, and us. Pursuant to the Indenture, we agreed to irrevocably and unconditionally guarantee, on a senior unsecured basis, the punctual performance and payment when due of all obligations of Scilex Pharma under the Indenture.
On December 14, 2020, we, Scilex Pharma, U.S. Bank National Association, as trustee and collateral agent, and the beneficial owners of the Scilex Notes and the Scilex Note Purchasers entered into a Consent Under and Amendment No. 3 to Indenture and Letter of Credit (the “Amendment”), which amended: (i) the Indenture, and (ii) the irrevocable standby letter of credit that we issued to Scilex Pharma in connection with the Indenture.
On December 14, 2020, and in connection with the Amendment, the aggregate $45.0 million in restricted funds held in previously established reserve and collateral accounts were released and Scilex Pharma utilized such funds to repurchase an aggregate of $45.0 million in principal amount of the Scilex Notes. Scilex Pharma also repurchased $20.0 million in principal amount of the Scilex Notes in each of December 2020 and February 2021.
Equity Financings
Amended Sales Agreement
On December 4, 2020, we entered into Amendment No. 1 to that certain Sales Agreement, dated April 27, 2020, with A.G.P./Alliance Global Partners, which provides that we may, from time to time, offer and sell securities to A.G.P./Alliance Global Partners in at-the-market transactions (as amended, the “Amended Sales Agreement”). During the three months ended March 31, 2020, we issued and sold an aggregate of 3,901,460 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds of approximately $42.2 million. Subsequent to March 31, 2021 and through April 30, 2021, we issued and sold an aggregate of 976,208 shares of our common stock pursuant to the Sales Agreement for aggregate net proceeds of approximately $7.7 million.
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Contingent Consideration
We have contingent consideration obligations in connection with certain acquisition and licensing transactions that are contingent upon achieving certain specified milestones or the occurrence of certain events, including those described within the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q. Upon the achievement of such milestones or the occurrence of such events, we will be obligated to make certain cash or stock payments in accordance with the terms of such acquisition and license agreements.
Use of Cash
Cash Flows from Operating Activities. Net cash used for operating activities was $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. 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 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.
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, 2021, we received $42.2 million from equity offerings, proceeds from short-term debt of $11.8 million and proceeds of $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 principal included within financing activities and $4.5 million was attributed to principal included in operating activities. We also repaid $11.8 million in other short-term debt. During the three months ended March 31, 2020, we repaid $55.5 million of outstanding principal under the prior term loans with Oaktree, and $2.3 million of related exit fees and prepayment fees thereon and a made payments of $1.6 million on the Scilex Notes. This use of cash was offset by proceeds received of $62.6 million 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. 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.
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Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to debt 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, 2020, and there have been no material changes during the three months ended March 31, 2021.
Contractual Obligations and Commitments
As of March 31, 2021, there were no material changes outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Off-Balance Sheet Arrangements
Since our inception through March 31, 2021, other than off balance sheet arrangements already disclosed, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
New Accounting Pronouncements
Refer to Note 1, “Significant Accounting Policies” and “Recent Accounting Pronouncements” in the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q for a discussion of recent accounting pronouncements.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
As of March 31, 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 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 marketable investment by $19.4 million.
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such terms are defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance. As a result, management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation performed, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we carried out an evaluation of any potential changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q. There has been no change to our internal control over financial reporting during our most recent fiscal quarter that our certifying officers concluded materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1.Legal Proceedings.
The information under the caption “Litigation” set forth in Note 10 in the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.is incorporated herein by reference.
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Item 1A.Risk Factors.
Our Annual Report on Form 10-K for the year ended December 31, 2020, Part I –Item 1A, Risk Factors, describes important risk factors that could cause our business, financial condition, results of operations and growth prospects to differ materially from those indicated or suggested by forward-looking statements made in this Quarterly Report on Form 10-Q or presented elsewhere by management from time to time. Except as set forth below, there have been no material changes in our risk factors since the filing of our Annual Report on Form 10-K for the year ended December 31, 2020. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.
Risks Related to Our Financial Position and Capital Requirements
We are a clinical stage company subject to significant risks and uncertainties, including the risk that we or our partners may never develop, obtain regulatory approval or market any of our product candidates or generate product related revenues.
We are primarily a clinical stage biotechnology company that began operating and commenced research and development activities in 2009. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. There is no assurance that our libraries of fully-human mAbs or any of our other product candidates in development will be suitable for diagnostic or therapeutic use, or that we will be able to identify and isolate therapeutic product candidates, or develop, market and commercialize these candidates. We do not expect any of our product candidates in development, including, but not limited to, our fully-human mAbs, biosimilars/biobetters, fully human anti-PD-L1 checkpoint inhibitors derived from our proprietary G-MAB™ library platform, antibody drug conjugates (“ADCs”), bispecific antibodies (“BsAbs”), as well as Chimeric Antigen Receptor T Cells (“CAR-T”) and Dimeric Antigen Receptor T Cells (“DAR-T”) for adoptive cellular immunotherapy, resiniferatoxin (“RTX”), higher strength lidocaine topical system (SP-103) and non-opioid corticosteroid formulated as a viscous gel injection (SP-102) (“SEMDEXATM”) to be commercially available for a few years, if at all. Additionally, our COVID-19 related product candidates, including STI-1499 (neutralizing antibody; COVIGUARDTM), STI-2020 (affinity matured neutralizing antibody; COVI-AMGTM), STI-2099 (intranasal affinity matured neutralizing antibody; COVIDROPSTM), neutralizing antibody cocktail (COVISHIELDTM), STI-5656 (Abivertinib), STI-4398 (ACE2 receptor decoy protein; COVIDTRAPTM), STI-8282 (allogeneic adipose-derived mesenchymal stem cells; COVI-MSCTM), STI-2030 (Salicyn-30) serological IgM/IgG antibody diagnostic test (COVITRACKTM), saliva-based antigen diagnostic test for SARS-CoV-2 (COVITRACETM) and lateral flow viral antigen diagnostic test for SARS-CoV-2 (COVISTIXTM), 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, 2021 and December 31, 2020, we had an accumulated deficit of $955.8 million and $958.3 million, respectively. We continue to incur significant research and development and other expenses related to our ongoing operations. We have incurred operating losses since our inception, expect to continue to incur significant operating losses for the foreseeable future, and we expect these losses to increase as we: (i) advance RTX, STI-6129 (anti-CD38 ADC), SP-103, SEMDEXATM and our other product candidates, including our COVID-19 related product candidates, STI-2020 (COVI-AMGTM), STI-2099 (COVIDROPSTM), STI-8282 (COVI-MSCTM) and STI-5656 (Abivertinib), into further clinical trials and pursue other development, acquire, develop and manufacture clinical trial materials and increase other regulatory operating activities, (ii) conduct further studies for our preclinical COVID-19 related product candidates, including a neutralizing antibody cocktail (COVISHIELDTM), STI-4398 (COVIDTRAPTM), 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, (iv) continue to identify and advance a number of fully human therapeutic antibody and ADC preclinical product candidates, (v) incur higher salary, lab supply and infrastructure costs incurred in connection with supporting all of our programs, (vi) invest in our joint ventures, collaborations or other third party agreements, (vii) incur expenses in conjunction with defending and enforcing our rights in various litigation matters, (viii) expand our corporate, development and manufacturing infrastructure, and (ix) support our subsidiaries, including Scilex Holding Company and SmartPharm Therapeutics, Inc., in their clinical trial, development and commercialization efforts. As such, we are subject to all risks incidental to the development of new biopharmaceutical products and related companion diagnostics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We will require substantial additional funding, which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization of our product candidates or continue our development programs.
Our operations have consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development of our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including building our own commercial organization to address certain markets. We will
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require additional capital for the further development and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures.
As a result of our recurring losses from operations, recurring negative cash flows from operations and substantial cumulative losses, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial statements for the year ended December 31, 2020 included a “going concern” explanatory paragraph indicating that our recurring losses from operations, negative working capital, recurring negative cash flows from operations and substantial cumulative net losses raise substantial doubt about our ability to continue as a going concern.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events could significantly harm our business, financial condition and prospects.
Our future capital requirements will depend on many factors, including:
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the progress of the development of our fully-human mAbs, including biosimilars/biobetters, fully human anti-PD-L1 checkpoint inhibitors derived from our proprietary G-MAB™ library platform, ADCs, BsAbs, CAR-T and DAR-T for adoptive cellular immunotherapy, RTX, SP-103 and SEMDEXATM, and our COVID-19 product candidates; |
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the number of product candidates we pursue; |
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our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies; |
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the time and costs involved in obtaining regulatory approvals; |
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the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims; |
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our plans to establish sales, marketing and/or manufacturing capabilities; |
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the effect of competing technological and market developments; |
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the terms and timing of any collaborative, licensing and other arrangements that we may establish; |
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general market conditions for offerings from biopharmaceutical companies; |
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our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization; |
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our obligations under our debt arrangements; |
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the time and costs involved in defending and enforcing our rights in various litigation matters; |
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our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; |
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the effect of the COVID-19 pandemic; and |
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our revenues, if any, from successful development and commercialization of our product candidates, including ZTlido. |
In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise additional funds through strategic collaborations, licensing arrangements, joint ventures, public or private equity or debt financing, bank lines of credit, asset sales, government grants or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us, or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our product candidates or marketing territories.
In addition, as discussed in the risk factor under the heading “The terms of our outstanding debt place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business” below, the Scilex Indenture includes negative covenants that place limitations on the following: the incurrence of debt, the payment of dividends by Scilex Pharmaceuticals Inc. (“Scilex Pharma”), the repurchase of shares and, under certain conditions, making certain other restricted payments, the prepayment, redemption or repurchase of subordinated debt, a merger, amalgamation or consolidation involving Scilex Pharma, engaging in certain transactions with affiliates; and the making of investments other than those permitted by the Scilex Indenture.
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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.
Risks Related to Our Business and Industry
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 a Phase III trial is ongoing for SEMDEXATM for the treatment of lumbosacral radicular pain. Non-clinical studies are ongoing and a Phase II trial is planned to start in the second half of 2021 with higher strength SP-103. We are currently in a Phase II study of abivertinib for cytokine storm related to COVID-19 infection, a Phase 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 SEMDEXATM, 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.
There can be no assurance that the product candidates we are developing for the detection and treatment of COVID-19 will be granted an Emergency Use Authorization by the FDA. If no Emergency Use Authorization is granted or, once granted, it is terminated, we will be unable to sell our product candidates in the near future and will be required to pursue the drug approval process, which is lengthy and expensive.
On 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 IgM antibodies in sera of patients exposed to the SARS-CoV-2 virus. Additionally, on December 22, 2020, we announced the submission of an Emergency Use Authorization (“EUA”)
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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 EUA during a public health emergency if it determines that the potential benefits of a product outweigh the potential risks and if other regulatory criteria are met. If an EUA is granted for COVITRACK or COVISTIX, we will rely on the FDA policies and guidance in connection with the marketing and sale of COVITRACK and COVISTIX. If these policies and guidance change unexpectedly and/or materially or if we misinterpret them, potential sales of COVITRACK and COVISTIX could be adversely impacted. In addition, the FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization. If granted, we cannot predict how long an EUA for COVITRACK or COVISTIX would remain in place. The termination of an EUA for COVITRACK or COVISTIX, if granted, could adversely impact our business, financial condition and results of operations.
We may also seek additional EUAs from the FDA for our other product candidates for the detection and/or treatment of COVID-19 and the SARS-CoV-2 virus. If granted, the additional EUAs would allow us to market and sell additional product candidates without the need to pursue the lengthy and expensive drug approval process. There is no guarantee that we will be able to obtain any additional EUAs. Failure to obtain additional EUAs or the termination of such EUAs, if obtained, could adversely impact our business, financial condition and results of operations.
Our business may be adversely affected if we do not manage our current growth and do not successfully execute our growth initiatives.
We have experienced growth in our headcount and operations, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We anticipate further growing through both internal development projects as well as external opportunities, which include the acquisition, partnering and in-licensing of products, technologies and companies or the entry into strategic alliances and collaborations. The availability of high quality development opportunities is limited and we are not certain that we will be able to identify candidates that we and our shareholders consider suitable or complete transactions on terms that are acceptable to us and our shareholders. In order to pursue such opportunities, we may require significant additional financing, which may not be available to us on favorable terms, if at all. Even if we are able to successfully identify and complete acquisitions and other strategic alliances and collaborations, we may not be able to integrate them or take full advantage of them and therefore may not realize the benefits that we expect.
To effectively manage our current and future potential growth, we will need to continue to enhance our operational, financial and management processes and to effectively expand, train and manage our employee base. Supporting our growth initiatives will require significant capital expenditures and management resources, including investments in research and development, sales and marketing, manufacturing and other areas of our business. If we do not successfully manage our current growth and do not successfully execute our growth initiatives, then our business and financial results may be adversely affected and we may incur asset impairment or restructuring charges.
The growth of our business depends on our ability to attract and retain qualified personnel and to develop and maintain key relationships.
The achievement of our commercial, research and development and external growth objectives depends upon our ability to attract and retain qualified scientific, manufacturing, sales and marketing and executive personnel and to develop and maintain relationships with qualified clinical researchers and key distributors. Competition for these people and relationships is intense and comes from a variety of sources, including pharmaceutical and biotechnology companies, universities and non-profit research organizations.
Risks Related to Ownership of Our Common Stock
The market price of our common stock may fluctuate significantly, and investors in our common stock may lose all or a part of their investment.
The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. For example, from March 31, 2020 to March 31, 2021, our closing stock price ranged from $1.73 to $18.82 per 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:
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actual or anticipated adverse results or delays in our clinical trials; |
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our failure to commercialize our product candidates, if approved; |
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unanticipated serious safety concerns related to the use of any of our product candidates; |
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adverse regulatory decisions; |
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changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals; |
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legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates, government investigations and the results of any proceedings or lawsuits, including, but not limited to, patent or stockholder litigation; |
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our decision to initiate a clinical trial, not initiate a clinical trial or to terminate an existing clinical trial; |
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our dependence on third parties, including CROs; |
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announcements of the introduction of new products by our competitors; |
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market conditions in the pharmaceutical and biotechnology sectors; |
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announcements concerning product development results or intellectual property rights of others; |
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future issuances of common stock or other securities; |
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the addition or departure of key personnel; |
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failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public; |
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actual or anticipated variations in quarterly operating results; |
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our failure to meet or exceed the estimates and projections of the investment community; |
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overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies; |
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conditions or trends in the biotechnology and biopharmaceutical industries; |
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introduction of new products offered by us or our competitors; |
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; |
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issuances of debt or equity securities; |
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sales of our common stock by us or our stockholders in the future; |
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trading volume of our common stock; |
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ineffectiveness of our internal controls; |
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publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; |
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failure to effectively integrate the acquired companies’ operations; |
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general political and economic conditions; |
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effects of natural or man-made catastrophic events |
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effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic; and |
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other events or factors, many of which are beyond our control. |
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Further, the equity markets in general have recently experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility of our common stock might worsen if the trading volume of our common stock is low. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
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.
Item 3.Defaults Upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
Not applicable.
Item 5.Other Information.
None.
Item 6.Exhibits.
32
EXHIBIT INDEX
|
Exhibit No. |
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Description |
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2.1^ |
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3.1 |
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3.2 |
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3.3 |
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4.1 |
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4.2 |
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4.3 |
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4.4 |
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4.5 |
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4.6 |
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4.7 |
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4.8 |
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4.9 |
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4.10 |
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33
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4.11 |
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4.12 |
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4.13 |
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4.14 |
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4.15 |
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4.16 |
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4.17 |
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4.18 |
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10.1† |
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10.2+*† |
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10.3 |
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10.4† |
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10.5#† |
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Sorrento Therapeutics, Inc. 2021 Cash-Settled Stock Appreciation Rights Plan.
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10.6#† |
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Sorrento Therapeutics, Inc. Stock Appreciation Rights Award Agreement. |
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31.1 |
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31.2 |
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32.1 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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34
|
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
|
Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL) (embedded within the Inline XBRL document) |
|
+ |
Non-material schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant hereby undertakes to furnish supplementally copies of any of the omitted schedules and exhibits upon request by the SEC. |
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# |
Management contract or compensatory plan. |
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* |
Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC. |
|
^ |
Non-material schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC. |
|
† |
Filed herewith. |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Sorrento Therapeutics, Inc. |
||
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Date: |
May 05, 2021 |
By: |
/s/ Henry Ji, Ph.D. |
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Henry Ji, Ph.D. |
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Chairman of the Board of Directors, Chief Executive Officer & President |
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(Principal Executive Officer) |
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Date: |
May 05, 2021 |
By: |
/s/ Najjam Asghar |
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Najjam Asghar |
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Senior Vice President & Chief Financial Officer |
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(Principal Financial Officer) |
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36