Settlement of a Related Party Relationship

12 Months Ended

Dec. 31, 2019

Settlement of a Related Party Relationship

Exclusive License Agreement with PGEN Therapeutics

On October 5, 2018, the Company entered into the license agreement with PGEN. As between the Company and PGEN, the terms of the License Agreement replace and supersede the terms of: (a) that certain Exclusive Channel Partner Agreement by and between the Company and Precigen, dated January 6, 2011, as amended by the First Amendment to Exclusive Channel Partner Agreement effective September 13, 2011, the Second Amendment to the Exclusive Channel Partner Agreement effective March 27, 2015, and the Third Amendment to Exclusive Channel Partner Agreement effective June 29, 2016, which was subsequently assigned by Precigen to PGEN; (b) certain rights and obligations pursuant to that certain License and Collaboration Agreement effective March 27, 2015 between ZIOPHARM, Precigen and ARES TRADING Trading S.A., or Ares Trading, a subsidiary of Merck KGaA, or Merck, as assigned by Precigen to PGEN, or the Ares Trading Agreement; (c) that certain License Agreement between the Company, Precigen, and MD Anderson, with an effective date of January 13, 2015, or the MD Anderson License, which was subsequently assigned by Precigen and assumed by PGEN effective as of January 1, 2018; and (d) that certain Research and Development Agreement between the Company, Precigen and MD Anderson with an effective date of August 17, 2015, or the Research and Development Agreement, and any amendments or statements of work thereto.

Pursuant to the terms of the License Agreement, PGEN has granted the Company exclusive, worldwide rights to research, develop and commercialize (i) products utilizing PGEN’s RheoSwitch® gene switch, or RTS®, for the treatment of cancer, referred to as IL-12 Products, (ii) CAR products directed to (A) CD19 for the treatment of cancer, referred to as CD19 Products, and (B) a second target for the treatment of cancer, subject to the rights of Ares Trading to pursue such target under the Ares Trading Agreement, and (iii) T-cell receptor, or TCR, products designed for neoantigens for the treatment of cancer. PGEN has also granted the Company an exclusive, worldwide, royalty-bearing, sub-licensable license for certain patents relating to the

Sleeping Beauty

technology to research, develop and commercialize TCR products for both neoantigens and shared antigens for the treatment of cancer, referred to as TCR Products.

The Company is solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. The Company is required to use commercially reasonable efforts to develop and commercialize

IL-12

Products and CD19 Products and after a

two-year

period, the TCR Products.

PGEN has also granted the Company an exclusive, worldwide, royalty-bearing,

sub-licensable

license to research, develop and commercialize products utilizing an additional construct that expresses RTS

IL-12

for the treatment of cancer, referred to as Gorilla

IL-12

Products.

In consideration of the licenses and other rights granted by PGEN, we will pay PGEN an annual license fee of $100 thousand and we have agreed to reimburse PGEN for certain historical costs of the licensed programs up to

$1.0 million, payable quarterly. The Company determined that the fair value of this program was $1.0 million and this was expensed in accordance with ASC 730, Research and Development during the year ended December 31, 2018. The Company recorded a liability for $0.1

million

and

$1.0 million for the years ended December 31, 2019 and 2018, respectively, and has included these amounts in

ccrued expenses on the balance sheet.

The agreement also calls for an annual license fee of $100 thousand as long as the agreement is effective. The Company will also make milestone payments totaling up to an additional $52.5 million for each exclusively licensed program upon the initiation of later stage clinical trials and upon the approval of exclusively licensed products in various jurisdictions. In addition, the Company will pay PGEN tiered royalties ranging from

low-single

digit to high-single digit on the net sales derived from the sales of any approved

IL-12

Products and CAR Products. The Company will also pay PGEN royalties ranging from

low-single

digit to

mid-single

digit on the net sales derived from the sales of any approved TCR Products, up to a maximum royalty amount of $100.0 million in the aggregate. The Company will also pay PGEN 20% of any sublicensing income received by the Company relating to the licensed products.

The Company is responsible for all development costs associated with each of the licensed products, other than Gorilla

IL-12

Products. The Company and PGEN will share the development costs and operating profits for Gorilla

IL-12

Products, with the Company responsible for 80% of the development costs and receiving 80% of the operating profits, and PGEN responsible for the remaining 20% of the development costs and receiving 20% of the operating profits.

PGEN will pay the Company royalties ranging from

low-single

digits to

mid-single

digits on the net sales derived from the sale of PGEN’s CAR products, up to $50.0 million.

In consideration of the Company entering into the License Agreement, Precigen forfeited and returned to the Company all shares of the Company’s Series 1 preferred stock held by or payable to Precigen as of the date of the License Agreement. In addition, PGEN is required to transfer all of Ziopharm’s rights and obligations under the Ares Trading Agreement to Precigen (or its’ affiliate). As a result, Ziopharm shall not be responsible for any remaining obligations under the Merck Agreement. Additionally, Precigen forfeited and returned to the Company all shares of the Company’s Series 1 preferred stock held by or payable to Precigen as of the date of the License Agreement.

The Company determined that this transaction represented a capital transaction between related parties. The Company fair valued the preferred stock and the derivative liability on the date of the transaction, noting a total fair value of $163.3 million. The relinquishment of the Ziopharm’s obligation under the Ares Trading Agreement was also considered part of the overall capital transaction. The Company recognized an additional credit to accumulated deficit of $49.5 million as a result of the relief of the obligation under the Ares Trading Agreement (Note 7). The total amount of the settlement was $212.8 million.

The Company incurred approximately $7.4 million of transaction advisory costs with third-party vendors, of which $5.4 million was considered a direct cost associated with the Series 1 preferred stock extinguishment and is also included as part of the consideration transferred. The remaining $2.0 million of transaction costs were recognized as an expense during the year ended December 31, 2018.

The Company recognized a net credit to accumulated deficit of $207.3 million, calculated as the difference in the carrying value of the Series 1 preferred stock, derivative liability, and contract liability, and the consideration transferred of $5.4 million, in connection with the transaction. This amount is included in net income available to common shareholders in the calculation of earnings per share for the year ended December 31, 2018 (Note 3).