# EDGAR Filing Document

**Accession Number:** 0000850261
**File Stem:** 0000950170-23-008238
**Filing Date:** 2023-3
**Character Count:** 829965
**Document Hash:** db5cda027ff26d7cdfb817e2f10cfbf7
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950170-23-008238.hdr.sgml**: 20230316

**ACCESSION NUMBER**: 0000950170-23-008238

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 128

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230316

**DATE AS OF CHANGE**: 20230315

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Sorrento Therapeutics, Inc.
- **CENTRAL INDEX KEY:** 0000850261
- **STANDARD INDUSTRIAL CLASSIFICATION:** BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836]
- **IRS NUMBER:** 330344842
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-36150
- **FILM NUMBER:** 23736613

**BUSINESS ADDRESS:**
- **STREET 1:** 4955 DIRECTORS PLACE
- **CITY:** SAN DIEGO
- **STATE:** CA
- **ZIP:** 92121
- **BUSINESS PHONE:** 858-203-4100

**MAIL ADDRESS:**
- **STREET 1:** 4955 DIRECTORS PLACE
- **CITY:** SAN DIEGO
- **STATE:** CA
- **ZIP:** 92121

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** QUIKBYTE SOFTWARE INC
- **DATE OF NAME CHANGE:** 19920703

?xml version="1.0" encoding="ASCII"? 10-K

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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM** 10-K

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☒ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the fiscal year ended:** **December 31,** 2022

☐ **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** 001-36150

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SORRENTO THERAPEUTICS, INC.

**(Exact Name of Registrant as Specified in Its Charter)**

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| | |
|:---|:---|
| Delaware | 33-0344842 |
| (State or Other Jurisdiction of<br>Incorporation or Organization) | (I.R.S. Employer<br>Identification No.) |
| 4955 Directors Place<br>San Diego**,** California | 92121 |
| (Address of Principal Executive Offices) | (Zip Code) |

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**(**858**)** 203-4100

**(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** | **Trading Symbol (s)** | **Name of exchange on which registered** |
| Common Stock, par value $0.0001 per share | SRNEQ |  |

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**Securities registered pursuant to Section 12(g) of the Act: None**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ☐ Yes ☒ No

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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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| | | | |
|:---|:---|:---|:---|
| Large accelerated filer | **☒** | Accelerated filer | **☐** |
| Non-accelerated filer | **☐** | Smaller reporting company | ☐ |
| 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of voting stock held by non-affiliates of the registrant is calculated based upon the closing sale price of the common stock on June 30, 2022 (the last trading day of the registrant's second fiscal quarter of 2022), as reported on the Nasdaq Capital Market, was approximately $856.3 million.

At March 8, 2023, the registrant had 551,281,154 shares of common stock outstanding.

**DOCUMENTS INCORPORATED BY REFERENCE**

None.

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**SORRENTO THERAPEUTICS, INC.**

**ANNUAL REPORT ON FORM 10-K**

**FISCAL YEAR ENDED DECEMBER 31, 2022**

**TABLE OF CONTENTS**

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| | | |
|:---|:---|:---|
|  |  | **Page No.** |
| [PART I](#part_i) |  | 2 |
| Item 1. | [<u>Business</u>](#item_1_business) | 2 |
| Item 1A. | [<u>Risk Factors</u>](#item_1a_risk_factors_) | 26 |
| Item 1B. | [<u>Unresolved Staff Comments</u>](#item_1b_unresolved_staff_comments) | 77 |
| Item 2. | [<u>Properties</u>](#item_2_properties) | 77 |
| Item 3. | [<u>Legal Proceedings</u>](#item_3_legal_proceedings) | 77 |
| Item 4. | [<u>Mine Safety Disclosures</u>](#item_4_mine_safety_disclosures) | 77 |
| [PART II](#part_ii) |  | 78 |
| Item 5. | [<u>Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</u>](#item_5_market_for_registrants_common_equ) | 78 |
| Item 6. | [<u>\[Reserved\]</u>](#item_6_selected_financial_data) | 78 |
| Item 7. | [<u>Management's Discussion and Analysis of Financial Condition and Results of Operations</u>](#item_7_managements_discussion_analysis_f) | 79 |
| Item 7A. | [<u>Quantitative and Qualitative Disclosures About Market Risk</u>](#item_7a_quantitative_qualitative_disclos) | 91 |
| Item 8. | [<u>Financial Statements and Supplementary Data</u>](#item_8_financial_statements_supplementar) | 91 |
| Item 9. | [<u>Changes in and Disagreements With Accountants on Accounting and Financial Disclosure</u>](#item_9_changes_in_disagreements_with_acc) | 91 |
| Item 9A. | [<u>Controls and Procedures</u>](#item_9a_controls_procedures) | 91 |
| Item 9B. | [<u>Other Information</u>](#item_9b_or_information) | 93 |
| Item 9C. | [<u>Disclosure Regarding Foreign Jurisdictions that Prevent Inspections</u>](#item_9_c) | 93 |
| [PART III](#part_iii) |  | 94 |
| Item 10. | [<u>Directors, Executive Officers and Corporate Governance</u>](#item_10_directors_executive_ficers_corpo) | 94 |
| Item 11. | [<u>Executive Compensation</u>](#item_11_executive_compensation) | 97 |
| Item 12. | [<u>Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</u>](#item_12_security_ownership_certain_benef) | 112 |
| Item 13. | [<u>Certain Relationships and Related Transactions and Director Independence</u>](#item_13_certain_relationships_related_tr) | 115 |
| Item 14. | [<u>Principal Accounting Fees and Services</u>](#item_14_principal_accounting_fees_servic) | 117 |
| [PART IV](#part_iv) |  | 118 |
| Item 15. | [<u>Exhibits, Financial Statement Schedules</u>](#item_15_exhibits_financial_statement_sch) | 118 |
| Item 16. | [<u>Form 10-K Summary</u>](#item_16_form_10k_summary) | 123 |

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i

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**FORWARD-LOOKING STATEMENTS**

This Annual Report on Form 10-K (this "Form 10-K") contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Item 1—"Business," Item 1.A—"Risk Factors" and Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations" but appear throughout the Form 10-K. Examples of forward-looking statements include, but are not limited to our expectations, beliefs or intentions regarding our potential product offerings, business, financial condition, results of operations, strategies or prospects and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "ongoing," "opportunity," "plan," "potential," "predicts," "seek," "should," "will," or "would," and similar expressions and variations or negatives of these words. These forward-looking statements are based on the expectations, estimates, projections, beliefs and assumptions of our management based on information currently available to management, all of which are subject to change. Such forward-looking statements are subject to risks, uncertainties and other factors that are difficult to predict and could cause our actual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed under Item 1.A—"Risk Factors" in this Annual Report on Form 10-K. Furthermore, such forward-looking statements speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update or revise publicly any forward-looking statements to reflect events or circumstances after the date of such statements for any reason, except as otherwise required by law.

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**PART I**

**Item 1. Business.**

**Overview**

Sorrento Therapeutics, Inc. (together with its subsidiaries, "Sorrento", the "Company", "we", "us" and "our") is a clinical and commercial stage biopharmaceutical company developing a portfolio of next-generation treatments for three major therapeutic areas: cancer, infectious disease and pain. We are focused on transforming science into Saving Life Medicines™ by advancing innovative product programs into focused commercial entities, like Scilex Holding Company (Nasdaq: SCLX) ("Scilex Holding").

Cancer. Our proprietary fully human G-MAB™ antibody library and ACEA small molecule library are the engines driving an innovative pipeline of new solutions for cancer. These molecular entities are then enhanced by leveraging our extensive proprietary immuno-oncology platforms, such as immuno-cellular therapies ("DAR-T™"), antibody-drug conjugates ("ADCs"), oncolytic virus ("Seprehvec™") and lymphatic drug delivery ("Sofusa™").

Infectious Disease. We are focused on preventing, detecting and treating in the fight against COVID-19 today, and aim to be positioned to address the pandemic threats of tomorrow. We have applied our antibody and small molecule capability to develop highly sensitive and rapid diagnostics, and multi-modal treatments for the SARS-CoV-2 virus and its variants.

Our diagnostics platforms include the COVIMARK™ lateral flow antigen test (launched as COVISTIX™ in Mexico and Brazil) and the VIREX™ platform, which leverages existing worldwide manufacturing infrastructure for glucometers and glucose strip tests to provide affordable and highly scalable, next-generation diagnostic solutions for infectious diseases, liver cancer and other biomarkers. Therapeutic solutions include a next-generation mRNA Omicron vaccine (STI-1557), a next-generation protease inhibitor antiviral pill (STI-1558) as a stand-alone treatment (not requiring the Ritonavir booster) and a variant agnostic mesenchymal stromal cell therapy for people with "long" COVID19. We also continue to evaluate neutralizing antibody approaches effective against emerging variants of concern.

Pain. In November 2022, we announced the Nasdaq debut of Scilex Holding following the completion of its business combination with Vickers Vantage Corp. I, a special purpose acquisition company. Scilex Holding, with two commercial products and a robust pipeline, is focused on becoming the global pain management leader committed to social, environmental, economic and ethical principles to responsibly develop pharmaceutical products to maximize quality of life. Scilex Holding is an innovative revenue-generating company with its flagship product, ZTlido®, launched in October of 2018 as a prescription lidocaine topical product, which has demonstrated superior adhesion and bioavailability compared to current lidocaine patches. In 2022, Scilex Holding also entered into an exclusive agreement with Romeg Therapeutics, LLC to market and distribute U.S. Food and Drug Administration (the "FDA")-approved Gloperba® in the U.S. for painful gout flares. Scilex Holding has built a commercial organization focused on neurologists and pain specialists and intends to leverage this capability for the potential launch of next-generation products that are currently in development. The first of these product candidates, SEMDEXA™, is an injectable viscous gel formulation of a widely used corticosteroid designed to address the limitations associated with off label corticosteroid epidural injections. SEMDEXA™ has completed its pivotal study and Scilex Holding is preparing for its new drug application ("NDA") submission.

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

**Voluntary Filing Under Chapter 11**

As previously reported in our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the "SEC") on February 13, 2023, we and our wholly owned direct subsidiary, Scintilla Pharmaceuticals, Inc. (together with us, the "Debtors"), commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Chapter 11 proceedings are jointly administered under the caption In re Sorrento Therapeutics, Inc., et al. (the "Chapter 11 Cases"). We continue to operate our business in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. At hearings before the Bankruptcy Court on February 16, 2023 and February 21, 2023, we obtained approval from the Bankruptcy Court of certain "first day" motions containing customary relief intended to assure our ability to continue our ordinary course operations during the Chapter 11 Cases.

Additional information about the Chapter 11 Cases, including access to documents filed with the Bankruptcy Court, is available online at https://cases.stretto.com/sorrento, a website administered by Stretto, a third-party bankruptcy claims and noticing agent. The information on that website is not incorporated by reference into, and does not constitute part of, this Annual Report on Form

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10-K.

DIP Term Sheet

As previously reported in our Current Report on Form 8-K filed with the SEC on February 22, 2023, we and Scintilla executed that certain Debtor-In-Possession Term Loan Facility Summary of Terms and Conditions (the "DIP Term Sheet") with JMB Capital Partners Lending, LLC ("JMB Capital" or the "DIP Lender"), pursuant to which JMB Capital (or its designees or its assignees) is providing us with a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $75,000,000 in term loan commitments (the "DIP Facility"), subject to the terms and conditions set forth in the DIP Term Sheet. On February 20, 2023, we filed the Debtors' Emergency Motion For Entry of Interim and Final Orders (I) Authorizing The Debtors to (A) Obtain Senior Secured Superpriority Postpetition Financing and (B) Use Cash Collateral, (II) Granting Liens and Providing Claims With Superpriority Administrative Expense Status, (III) Modifying The Automatic Stay, (IV) Scheduling A Final Hearing, and (V) Granting Related Relief (the "DIP Motion") seeking the Bankruptcy Court's approval of the DIP Facility and certain related relief. A copy of the DIP Term Sheet was attached to the Motion.

At a hearing before the Bankruptcy Court on February 21, 2023, the Bankruptcy Court granted the DIP Motion and entered an interim order (the "Interim DIP Order") approving the DIP Facility on an interim basis and providing us with the necessary liquidity to continue to operate in Chapter 11. Upon entry of the Interim DIP Order and satisfaction of all applicable conditions precedent, as set forth in the DIP Term Sheet, we were authorized to make a single, initial draw of $30,000,000 on the DIP Facility (the "Initial Draw"). Definitive financing documentation, including a credit agreement and other documents evidencing the DIP Facility (collectively, the "DIP Documents"), will be negotiated and executed as soon as possible following the Initial Draw on the DIP Facility. The remaining amount of the DIP Facility will be available to the Debtors, subject to entry of an order granting the DIP Motion on a final basis (the "Final Order") and compliance with the terms, conditions, and covenants to be set forth in the definitive DIP Documents, through additional draws of no less than $5,000,000 each upon five business days' written notice to the DIP Lender. The DIP Facility contains economic and other terms that are the most favorable to us compared to the other proposals received by us, including, among others: (i) immediate access to interim financing of up to $30,000,000 (with up to $75,000,000 to be available in the aggregate), (ii) minimum draws of $5,000,000, (iii) interest at a per annum rate equal to 14% payable in cash on the first day of each month in arrears (and a default interest rate that shall accrue at an additional per annum rate of 3% plus the non-default interest, payable in cash on the first day of each month), and (iv) other fees and charges as described in the DIP Term Sheet. The DIP Facility is secured by first-priority liens on substantially all of the Debtors' unencumbered assets, subject to certain enumerated exceptions, and second-priority liens on those assets of the Debtors that are encumbered by certain permitted liens (as set forth in the Interim DIP Order).

The DIP Facility matures on the earliest of: (i) July 31, 2023; (ii) the effective date of any Chapter 11 plan of reorganization with respect to the Debtors; (iii) the consummation of any sale or other disposition of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code; (iv) the date of the acceleration of the DIP Loans and the termination of the DIP Commitments in accordance with the DIP Documents (each as defined in the DIP Term Sheet); (v) dismissal of the Chapter 11 Cases or conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code; and (vi) forty-five (45) days after the filing of the DIP Motion (or such later date as agreed to by the DIP Lender), unless the Final Order has been entered by the Bankruptcy Court on or prior to such date. The DIP Facility does not contain a roll-up or cross-collateralization of prepetition debt or otherwise dictate how prepetition claims will be addressed in a Chapter 11 plan.

The Debtors anticipate seeking final approval of the DIP Facility at a final hearing on the DIP Motion on or around March 29, 2023, or any such other date that is no later than forty-five (45) days following the date of filing of the DIP Motion, as required under the DIP Term Sheet.

Listing

On February 13, 2023, we received written notice (the "Delisting Notice") from the staff of The Nasdaq Stock Market LLC ("Nasdaq") notifying us that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, the staff of Nasdaq had determined that our common stock will be delisted from Nasdaq. In the Delisting Notice, the staff of Nasdaq referenced the Chapter 11 Cases and associated public concerns raised by them, concerns regarding the residual equity interest of the existing listed securities holders and concerns about our ability to sustain compliance with all requirements for continued listing on Nasdaq. The Delisting Notice also indicated that we may appeal Nasdaq's determination pursuant to procedures set forth in Nasdaq Listing Rule 5800 Series. On February 21, 2023, we requested an appeal of Nasdaq's determination and a hearing before a Nasdaq hearings panel. We subsequently determined not to continue with the appeal process. In accordance with the Delisting Notice, trading of our common stock on Nasdaq was suspended at the opening of business on February 23, 2023, and at such time, our common stock

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commenced trading on the Pink Open Market under the symbol "SRNEQ".

**Our Strategy**

Our primary goal is to leverage our antibody and small molecule development expertise to address significant unmet medical needs that can significantly improve a patient's quality of life. In the face of the ongoing COVID-19 pandemic, we marshalled our resources to generate antibody-based treatments and diagnostic initiatives for COVID-19 in addition to acquiring other treatment assets to treat the entire spectrum of COVID-19 infections, from outpatients with mild infections, to hospitalized patients with moderate or severe infections. Despite the COVID-19 pandemic, we continue to make progress in our oncology programs and programs for refractory chronic pain conditions, such as intractable pain due to advanced cancer or knee osteoarthritis.

Our core strategic objectives and resources are:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Use a deliberate process to screen and optimize our lead product candidates to fill identified unmet needs and advance them rapidly into the clinic. Once demonstrated to be safe and efficacious, we plan to continue to drive through later-phase (II and III) studies toward an NDA filing. Early in this process, we evaluate each program for potential accelerated approval or breakthrough therapy designation to fast-track development.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Collaborate with key opinion leaders and leading clinical and research institutes to enhance our clinical development plans and achieve our goals. We currently have such agreements in place with the Mayo Clinic, Karolinska Institute, The Scripps Research Institute, The Icahn School of Medicine at Mount Sinai, the National Institutes of Health ("NIH") and Tufts Medical School, among others.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Maximize differentiation of active antibody programs by leveraging proprietary platforms, such as DAR-T, our antibody-drug conjugate platform, our ADNAB platform, and our Sofusa<sup>TM</sup>Lymphatic Drug Treatment platform to treat various immune-related disorders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. Continue to build clinical development capability to rapidly advance priority programs through development decision gates. These include novel cellular therapy programs (CD38 DAR-T), ADC programs (CD38 ADC), checkpoint inhibitors (CD47, PD-L1) and small molecules (Abivertinib and STI-1558). We will continue to develop our fully human monoclonal antibody ("mAb") portfolio for new ADCs and bispecific mAbs. In addition, we expect to commence several proof of concept clinical trials with our ADNAB and Sofusa device platforms to fully exploit the potential of these potentially disruptive technologies. We anticipate generating data to support more than a dozen new investigational new drug applications ("INDs") each year, including in 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. Manufacture our preclinical and clinical trial materials to support Phase I and II trial manufacturing needs in-house. We have established quality control and quality assurance programs to ensure that our products are produced under current good manufacturing practices ("cGMPs"), and other applicable domestic and foreign regulations.

6. Continue strategic partnerships to share in the risk reward of our core franchises and to derive near-term value from our key programs. Our partnering objectives include generating revenue through license fees, milestone-related development fees and royalties as well as profit shares or joint ventures to generate potential returns from our product candidates and technologies. As clinical programs advance toward commercialization, we will evaluate the strategy to maximize the human impact, commercial impact and value to stockholders.

**Segment Information**

We operate in two operating and reportable segments, Sorrento Therapeutics and Scilex.

**Sorrento Therapeutics.** The Sorrento Therapeutics segment is organized around our Immune-Oncology therapeutic area, leveraging our proprietary G-MAB™ antibody library and targeted delivery modalities to generate the next-generation of cancer therapeutics. These modalities include proprietary chimeric antigen receptor T-cell ("CAR-T"), DAR-T, ADCs as well as oncolytic viruses approaches. Additionally, this segment also includes Abivertinib, an oral next-generation dual EGFR/BTK inhibitor, Sofusa, a drug delivery technology that delivers biologics directly into the lymphatic system to potentially achieve improved efficacy and fewer adverse effects than standard parenteral immunotherapy, and RTX, which is a non-opioid-based neurotoxin currently in clinical trials for late stage cancer pain and moderate to severe osteoarthritis of the knee pain. This segment further includes the full suite of COVID-19 treatments, diagnostics and vaccines under development.

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**Scilex.** The Scilex segment is largely organized around our non-opioid pain management operations and clinical pipeline. Revenues from the Scilex segment are exclusively derived from the sale of ZTlido.

**Clinical Programs**

**G-MAB**™**: Fully-human Antibody Library Platform**

Our G-MAB library ("G-MAB"), which is the foundation of many of our product candidates, was initially invented by Henry Ji, Ph.D., our co-founder, President and Chief Executive Officer. We believe our proprietary G-MAB library is one of the industry's largest and most diverse fully-human antibody libraries, with an estimated one quadrillion unique antibodies available for drug discovery and development. We believe G-MAB may offer the following advantages over competing antibody discovery technologies:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•G-MAB has been designed to provide a full spectrum of human immunoglobulin gene recombination in fully-human mAbs. Unlike chimeric and humanization technologies, G-MAB has allowed the generation of antibodies with fully-human sequences without the challenges and limitations of animal-to-human gene conversion procedures.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Because G-MAB represents an in vitro human mAb library technology, research suggests that it may enable faster and cost-effective in vitro screening of a large number of antigens. G-MAB is designed so that any antigen of interest can be investigated, with no dependence on the successful induction of a host immune response against the antigen.

The following is a depiction of the types of fully-human mAbs that we have derived from G-MAB. It includes antibodies that bind to a wide range of targets, from small molecular weight antigens to large protein complexes antigens, such as G-Protein Coupled Receptors, a difficult class of antigens to raise therapeutics antibodies against.

![img177033684_0.jpg](img177033684_0.jpg)

Our objective is to leverage G-MAB to develop first-in-class or best-in-class antibody drug candidates that will possess greater efficacy and potentially fewer side effects as compared to existing drugs and develop them as novel monotherapies (PD-L1, CD47), ADCs, e.g., CD38, BCMA, components of bispecific antibodies, and as part of our adoptive cell therapy (CD38 DAR-T or dimeric antigen receptor-T cell) and oncolytic virus program (Seprehvec).

To date, we have screened over 100 validated targets and generated a number of fully-human antibodies against these targets which are at various stages of development. These include PD-1, PD-L1, CD38, CD47, BCMA, CTLA-4, CD123, CD47, LAG3, ROR1, CCR2 and CD137, among others. Upon the completion of preclinical studies, our objective is to, independently or in tandem with our strategic collaborators, file INDs for the most promising product candidates.

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![img177033684_1.jpg](img177033684_1.jpg)

![img177033684_2.jpg](img177033684_2.jpg)

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![img177033684_3.jpg](img177033684_3.jpg)

![img177033684_4.jpg](img177033684_4.jpg)

**COVID-19 (SARS-CoV-2)**

COVID-19 is now transitioning from pandemic to endemic phase with rapidly mutating SARS-CoV-2 Omicron variants. Infection with COVID-19 continues to be a significant public health concern, especially in high-risk populations who may develop progressive symptoms requiring hospitalization. Some patients are long COVID-19 survivors, who continue to have persistent symptoms such as shortness of breath, fatigue, headaches, palpitations and impairments in mental health and cognition.

We have tapped into the ACEA small molecule library to identify a potent protease inhibitor (STI-1558 or OVYDSO<sup>TM</sup>) with a dual mechanism of action, which is being developed as a standalone oral treatment for COVID-19 and does not require co-administration of Ritonavir as a booster. We also have developed a novel next-generation mRNA Omicron vaccine which, in addition to intramuscular administration, could be developed with the Sofusa MuVaxx lymphatic delivery system, which has the potential to improve vaccine efficacy and reduce the dose required. Paired with our highly sensitive and specific diagnostic tests for COVID-19 in development, we are one of the few companies with multi-modal solutions aimed to prevent, detect and treat across the COVID-19 continuum.

PREVENT: **STI-1557** is a single variant mRNA vaccine designed to protect against B1.1.529 (Omicron) and its subvariants. The mRNA construct is codon-optimized for optimal expression in humans and mutations were introduced into S protein to produce a prefusion-stabilized SARS-CoV-2 S(2P) protein. The mutations potentially reduce the release of free S1 protein into circulation. STI-1557 is further encapsulated in a proprietary lipid nanoparticle formulation ("LNP") to protect mRNAs from degradation and enable potent translation of the S protein in host cells after intramuscular ("IM") delivery, thus inducing an adaptive immune response.

DETECT: **COVIMARK**<sup>TM</sup> **(Trademarked COVISTIX**<sup>TM</sup> **in Mexico and Brazil)** is a lateral flow rapid diagnostic test that offers early and accurate SARS-CoV-2 detection to not only protect the population, but also to facilitate early treatment, which may result in improved outcomes for patients who become infected. Using our unique capability to rapidly screen and select highly specific and strong-binding antibodies, we developed COVISTIX, a highly sensitive 15-minute antigen test for detection of the SARS-CoV-2 virus. The test uses a proprietary platinum/gold colloidal core plus a 2 antibody combination that yields up to 100-fold increases in sensitivity over conventional lateral flow colloidal gold assays. COVIMARK has also demonstrated high sensitivity across all variants, including Omicron and its subvariants, and maintained its sensitivity even in an "all-comers" (asymptomatic and symptomatic) patient population. This technology is ideally suited for either rapid point-of-care ("POC") testing or at-home use. COVISTIX has been Emergency Use Authorization ("EUA") cleared in, and is being marketed in, Mexico (COFEPRIS) and Brazil (ANVISA), and is CE-marked in Europe for IVD professional POC use. We are awaiting regulatory clearance from Canada (Health

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Canada) under our EUA application. COVIMARK information has been filed and is pending approval in Brazil as an at home self-test version of COVISTIX.

Virex Health, Inc. ("Virex") was acquired by Sorrento in February of 2022. Its primary goal is to provide a highly accurate, scalable and affordable solution for the clinical need to rapidly and quantitatively detect emerging pathogens. Motivated by the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) pandemic, Virex re-envisioned and repurposed the common and widely used glucometer to detect a virus instead. Central to Virex's vision is to capitalize from the existing manufacturing infrastructure for glucometers and glucose strips for rapid production and scale-up. The Virex platform technology combines the advances in lateral flow assays with electrochemical detection as in a glucometer. Virex envisions a platform technology that is independent of both sample used (saliva, nasal swab, blood, urine) and pathogen target analyte for rapid and sensitive detection of pathogens. Once developed, the Virex platform may be adapted to detect multiple pathogens by changing out the detection antibodies (from the Sorrento G-MAB library) and modifying the system software. This system is being developed to detect current infectious diseases (COVID, FLU, RSV), sexually transmitted diseases and oncology biomarkers.

TREAT: **OVYDSO (STI-1558)** is a highly bioavailable prodrug which in its active form (AC1115) binds to Cys-145 of the catalytic domain of Mpro, which is near 100% conserved in all known SARS-CoV-2 variants and achieves a broad-spectrum anti-SARS-CoV-2 activity against the original WuHan/Washington strain as well as subsequent variants of concern ("VoCs"), such as Delta and Omicron. STI-1558 is also a Cathepsin L inhibitor, which may block effective viral entry into host cells. The oral bioavailability is up to 85% with fast absorption and enhanced drug exposure in plasma, which has the potential to allow early treatment of COVID-19 at home by oral administration. OVYDSO is rapidly converted to AC1115 in a non-enzymatic process in the bloodstream.

Based upon a completed Phase I study in Australia (n=58), OVYDSO achieves pharmacokinetic levels necessary to avoid the need for co-administration of a potent CYP3A4 inhibitor (e.g., Ritonavir) to increase the plasma exposure allowing for standalone treatment with low risk for drug-drug interactions. Single oral doses up to 2000 mg and twice daily ("BID") doses up to 800 mg for more than a week were well-tolerated. This data was confirmed in a separate study conducted in China in healthy subjects for single doses up to 2000 mg and in patients positive for COVID-19 up to 800 mg BID. Additionally, preliminary viral load data suggests that OVYDSO can reduce viral load rapidly with more than a log-10 reduction by day 3 of treatment. A pivotal trial is planned to start early in 2023 in China and Phase II studies are planned in both the U.S. and Mexico. This oral drug has straightforward formulation with good stability and simple manufacture with controlled cost appropriate for scalability of active pharmaceutical ingredient ("API") synthesis with controlled cost allowing for global accessibility and application.

**Oncology and Immunomodulator Indications**

**Allogeneic Anti-CD38 KOKI DAR-T (STI-1492) Program**

The membrane glycoprotein CD38 is widely found on the surface of lymphoid and myeloid lineages, including B, T and NK cells, but is absent from most mature resting lymphocytes, with the notable exception of terminally differentiated plasma cells. Because CD38 is highly expressed on multiple myeloma cells, it represents a valuable and validated therapeutic target against myeloma. Multiple myeloma is a hematologic malignancy in which clonal plasma cells accumulate in the bone marrow or extramedullary sites and give rise to clinical complications such as painful, lytic bone lesions, hypercalcemia, renal impairment, cytopenias, and symptomatic plasmacytomas.

We have developed an innovative dimeric antigen receptors DAR-T cell ("DAR-T") allogeneic cellular therapy platform based on the complete antigen-binding fragment ("Fab") of the parental antibody. During the production of STI-1492, there is a "knock-in" of the DAR into the T-cell receptor ("TCR") alpha constant region gene. The TCR alpha is simultaneously inactivated ("knock-out") by this DAR knock-in process, allowing allogeneic T cells to be administered therapeutically without the development of graft-versus-host disease. In addition, STI-1492 utilizes a 4-1BB co-stimulatory domain. The anti-CD38 DAR design is associated with enhanced cytotoxic activity, longer persistence and potentially less toxicity as compared with the conventional anti-CD38 CAR design in preclinical studies. The ability to administer this agent as modified allogeneic T cells allows STI-1492 to be stored as an off-the-shelf agent that eliminates the need for leukapheresis and the treatment delay for the manufacturing process for each individual patient associated with autologous cellular therapy. It is generally accepted that Fabs more closely mimic the functional and biophysical properties of natural antibodies. Our data showed that the DAR-T cells exhibited a higher functional activity with regards to cytotoxicity against target-expressing tumor cells compared to CAR-T cells. In preclinical mouse models, the DAR-T cells demonstrated increased anti-tumor potency.

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Our non-viral knock-out knock-in ("KOKI") technology may offer several potential benefits over existing virus-based technology using transgene-encoding lentivirus, retrovirus or adeno-associated virus to introduce antigen receptor constructs into healthy donor (allogeneic) or cancer patient (autologous) T cells. These potential advantages of our KOKI technology include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•site-specific integration of transgenes into a pre-selected locus in the T cell genome;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•streamlined method for transgene construct production without need for laborious and time-consuming virus production, release and validation processes, resulting in a shorter research and development timelines for IND-enabling activities; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•applicability to both autologous and allogeneic cellular therapies.

After completion of a successful IND submission for STI-1492 (anti-CD38 DAR-T), an allogeneic non-viral anti-CD38 A2 KOKI DAR-T cell agent (second generation anti-CD38 "knock-out knock-in" dimeric antigen receptor 4-1BBζ - engineered T cells) for subjects with relapsed/refractory multiple myeloma ("RRMM"). We began dosing subjects in the first-in-human ascending dose study in the fourth quarter of 2022. We have also established a partnership with Karolinska Institutet in Stockholm to study the use of STI-1492 in RRMM. To date, there have been no infusion reactions, cytokine release syndrome, graft versus host disease and delayed immune reactions. The CD38 construct is the first of a platform of products to be generated. We are currently applying our DAR-T technology to our ongoing cell therapy programs for multiple hematological and solid tumor indications.

**Anti-CD38 Antibody-Drug Conjugate ("ADC") Program** 

AL amyloidosis is an incurable disease that is characterized by a clonal population of bone marrow plasma cells that produces a monoclonal light chain immunoglobulin. The clonal plasma cells often make up less than 10% of the nucleated cells in the bone marrow in patients with AL amyloidosis. The light chain immunoglobulin is of a ĸ or λ type and is produced as either an intact molecule or a fragment. The light chain protein produced by the dysfunctional plasma cells associated with AL amyloidosis is misfolded, forming β-pleated sheets that deposit in tissues in the form of amyloid fibrils. The insoluble tissue protein deposits interfere with organ function and the soluble circulating light chains may be toxic to organs as well. The clinical features of AL amyloidosis depend on which organs are involved and may include restrictive cardiomyopathy, nephrotic syndrome, hepatic dysfunction, peripheral and/or autonomic neuropathy and signs or symptoms of an atypical multiple myeloma.

**STI-6129 (anti-CD38 ADC)** is composed of a human monoclonal anti-CD38 A2 antibody (STI-5171) covalently bound by a chemical linker to a dolastatin tubulin inhibitor chemotherapeutic derivative (duostatin 5.2). STI-5171 was generated from Sorrento's proprietary G-MAB antibody library. The binding affinity of STI-5171 to CD38 is comparable to that of daratumumab but it binds to different epitopes (Sorrento data on file). The STI-6129 ADC is produced by conjugation of the drug-linker-duostatin moiety to the parent STI-5171 monoclonal antibody. The heavy chain of the STI-5171 parent antibody included in the STI-6129 ADC has been modified by a C246→S mutation that substitutes a serine amino acid for cysteine. This substitution results in an antibody with 3 inter-chain disulfide bonds instead of the 4 disulfide bonds present in wild type IgG1 antibodies and provides an ADC with drug to antibody ratio of 3 (Sorrento data on file). Using the proprietary covalent linker technology, we hope to avoid premature release of the toxin in the bloodstream to eliminate most of the off-target adverse events, such as ocular toxicity. Upon binding to CD38 target cell surface antigen, the STI-6129 ADC is internalized by the cell and undergoes lysosomal degradation resulting in the release of the duostatin 5.2 chemotherapeutic agent.

After a successful IND submission, STI-6129 is currently enrolling patients in an ascending dose study to identify the maximum tolerated dose to be used for the treatment of AL amyloidosis, RRMM, solid tumors such as metastatic lung or esophageal cancer and t-cell acute lymphoblastic leukemia or acute myeloid leukemia. We have also established a partnership with Karolinska Institutet in Stockholm to study the use of STI-6129 in AL amyloid and RRMM. To date, no ocular toxicity has been observed. Once a recommended Phase II dose is identified, an expansion cohort will be enrolled.

**Anti-CD47 fully-human mAb (STI-6643):** Several studies have described the role of cluster of differentiation 47/Signal regulatory protein-alpha ("CD47/SIRPα") interaction in regulating macrophage-mediated phagocytosis and dendritic cell-mediated cross-priming of T cells. CD47 is a ubiquitously expressed immuno-regulatory glycoprotein (also known as integrin-associated protein) of the immunoglobulin superfamily best known for its so-called 'don't eat me' function that prevents phagocytic removal of healthy cells by the body's immune system. Many cancers present high levels of this signal on their cell surface, thereby disrupting anti-cancer immune responses. Given CD47's essential role as a negative checkpoint for innate immunity and subsequent adaptive immunity, the CD47-SIRPα axis has been explored as a new target for cancer immunotherapy and its disruption has demonstrated

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great therapeutic promise in reestablishing antitumor activity in vivo. However, significant anemia and thrombocytopenia has plagued early product candidates (e.g., Hu5F9-G4 or magrolimab, a humanized IgG4 monoclonal antibody) due to CD47 expression on normal cells, particularly aging red blood cells which may lose this 'marker of self' becoming susceptible to clearance by splenic macrophages.

STI-6643 demonstrated minimal T, B or NK cell depletion as opposed to reference clones (prepared based on sequence analysis) which could result in improved efficacy by preserving the infiltrating anti-tumor immune cells. While preclinical studies suggested that STI-6643 would produce reduced hemolysis, the initial clinical results demonstrated the need to identify a priming dose to avoid significant post-dose anemia. While we are continuing enrollment with IV administration, we also have amended our protocol to incorporate Sofusa's DoseConnect device to administer STI-6643 lymphatically to see if introduction of the product into the lymphatic space will reduce anemia while maintaining efficacy.

**FUJOVEE (Abivertinib; STI-5656):** FUJOVEE is a novel dual target irreversible tyrosine kinase inhibitor. It is a 3<sup>rd</sup> oral epidermal growth factor receptor ("EGFR") that has shown benefit in treating patients with advanced non-small cell lung cancer ("NSCLC") resistant to first-line EGFR inhibitors due to T790M mutant forms of EGFR. It is also a Bruton's tyrosine kinase ("BTK") inhibitor that irreversibly binds to the BTK receptor, preventing the phosphorylation of the receptor. Due to this effect, it has shown potent immunomodulatory activities in vitro with potent inhibition of key pro-inflammatory cytokine production, including IL-1 beta, IL-6 and TNF-alpha. These cytokines may be associated with acute respiratory distress syndrome ("ARDS") or COVID-19-induced respiratory distress and with cytokine release syndrome or cytokine storm. As a BTK inhibitor, FUJOVEE has shown benefit in treating various B cell lymphomas ("BCLs") and may be beneficial in blocking extra-gonadal androgen production, which is associated with a worse outcome in metastatic castrate resistant prostate cancer ("mCRPC").

In a pivotal study conducted in China of FUJOVEE as a second line treatment of heavily pretreated NSCLC patients with resistant EGFR mutations, 227 heavily pretreated NSCLC patients were enrolled and 209 were response evaluable with up to 38.8 months of follow up. An independent review committee determined that the confirmed overall response rate ("ORR") was 56.5% (118/209), the complete response rate was 5.3% (11/209) and the median overall survival was 28.2 months. FUJOVEE was well-tolerated at doses up to 600 mg daily.

Based on these results, we are closing the study to calculate more mature IRC data, have requested a pre-NDA meeting with the FDA and anticipate formal NDA filings with other regulatory agencies in different countries.

FUJOVEE has also been studied in various BCLs in China, including marginal zone lymphoma, mantle cell lymphoma, chronic lymphocytic lymphoma, follicular lymphoma and hairy cell lymphoma at doses up to 200 mg BID. In the initial study, the ORR was 81.8% and the disease control rate was 95.8%. The treatment was well-tolerated across all treatment cohorts.

Finally, based on preclinical data showing that 3β-hydroxysteroid dehydrogenase-1 ("3βHSD1"), an enzyme that converts dihydroepiandosterone (DHEA) to testosterone or dihydrotestosterone (T/DHT) and is also necessary for de novo androgen synthesis from cholesterol, there has been a recognition of 3βHSD1 as a biomarker for patients with mCRPC who are likely to have a worse outcome. Preclinical data showed that BTK inhibitors can block this enzyme system, thereby reducing extragonadal androgen production. We have partnered with the Prostate Cancer Clinical Trial Consortium ("PCCTC") to begin enrolling in the Phase II MAVERICK study early in 2023. In this study, PCCTC investigators will profile whole exome DNA, whole transcriptome RNA and proteins from samples collected from participants enrolled in the trial, creating a molecular blueprint to better understand mechanisms of response and resistance following therapy. The MAVERICK study is the first biomarker clinical trial for patients with the HSD3B1 adrenal-permissive genotype in men with mCRPR and will evaluate the efficacy and safety of FUJOVEE plus abiraterone.

**Oncolytic Virus (STI-1386; Seprehvec®):** We previously completed two trials using herpes simplex virus lacking infected cell protein 34.5 ("HSV1716") or Seprehvir®, a first-generation oncolytic virus, to treat solid pediatric or young adult non-central nervous system tumors or malignant pleural mesothelioma with intratumoral, intravenous or intrapleural administration. A second-generation product, Seprehvec is a platform that can generate a number of possible product candidates. We successfully completed an IND submission targeting pancreatic cancer, soft tissue sarcomas and hepatic metastases and expect enrollment in the first quarter of 2023.

**Anti-Programmed Cell Death Ligand 1 (PDL-1) mAb:** We and our joint venture partner ImmuneOncia Therapeutics, Inc., which is located in South Korea, recently released the results of the Phase II study using IMC-001 (STI-3031) to treat patients with extranodal natural killer T cell ("NK/T") lymphoma, nasal type, a rare cancer that occurs mostly in Asian countries. In this study, 60% (six out of ten evaluable patients) achieved an objective response with STI-3031, all of whom showed a complete response. Four of these six

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patients were on treatment for over a year, indicating an outstanding safety profile and durable response.

We licensed a different PDL-1 mAb (socazolimab) from our G-MAB library to China Oncology Focus Ltd. ("COF"), an affiliate of Lee's Pharmaceutical Holdings, Ltd., for Mainland China, Hong Kong, Macau and Taiwan. Socazolimab had previously been granted breakthrough designation by the National Medical Products Administration in the People's Republic of China. In mid-2022, it was announced that COF had fully enrolled 498 patients with extensive stage small cell lung cancer in a randomized, double blinded, placebo-controlled trial of socazolimab combined with chemotherapy as first-line therapy. Additionally, an NDA is pending for treatment of recurrent or metastatic cervical cancer.

**Antibody-Drug Nanoparticle Albumin Bound ("ADNAB") Platform:** We have partnered with Svetomir Markovic, MD, Ph.D. at Mayo Clinic Rochester to use the nanoparticle human serum albumin bound paclitaxel (nab paclitaxel or other chemotherapeutic agents) platform to bind various monoclonal antibodies to the external surface of the albumin micelles to form stable complexes that can be designed to target specific cancers for delivery directly to the tumor microenvironment. This partnership would leverage our existing Sorrento mAb library, PD-1, PD-L1, CD38, CD47, BCMA, CTLA-4, CD123, CD47, LAG3, ROR1, VEGFR2, CCR2 and CD137, among others, to create ADNAB products that may enhance tumor response. The first programs (B cell lymphomas, melanoma and gynecological cancers) are already ongoing under investigator-initiated INDs that we support. We initiated a trial with Mayo Clinic physicians to use our PD-L1 (STI-3031) mAb in an investigator-initiated trial in solid tumor.

**Sofusa**<sup>TM</sup> **Lymphatic Delivery System ("S-LDS"):** Sofusa is a novel technology platform designed for targeted drug delivery to lymphatics vessels and lymph nodes. Abnormal immune system function is implicated in many conditions such as cancer and autoimmune diseases (e.g., rheumatoid arthritis, multiple sclerosis and psoriasis). Sofusa's proprietary nanotopography draped microneedles have been shown to reversibly open tight junctions in the skin and facilitate paracellular and transcellular transport across the epidermis. In preclinical biodistribution studies, this proprietary microneedle and microfluidics system has consistently demonstrated the ability to deliver over 40-fold in drug concentration to lymph nodes (with lower drug concentration in systemic organs) when compared to traditional IV and subcutaneous ("SC") injections. For drugs that target the immune system, Sofusa offers the potential to achieve a superior clinical response with potentially lower doses and/or side effects versus systemic injections or infusions.

Initial clinical proof of concept programs are focused on anti-TNFα in rheumatoid arthritis ("RA") and in cancer with a checkpoint inhibitor (anti-PD-1) in cutaneous T-cell lymphoma ("CTCL"). The Sofusa division also has a research collaboration with Mayo Clinic to explore lymphatic targeting in melanoma and lymphoma. The first 12-week cohort of the Phase Ib open label RA study has been completed (n=10). Patients who were enrolled in this study had inadequate response to the standard 50mg dose of an approved TNF inhibitor subcutaneous ("SC") treatment and were switched to Sofusa lymphatic treatment. In this study, 100% (10 of 10) patients achieved a significant improvement in disease activity and lymphatic function following initiation of Sofusa lymphatic treatment, with dose levels at half of the prior SC dose or less. Disease activity as measured by DAS28 scores improved an average of 34% and reduction in tender joint count achieved a 70% improvement in these patients. The CTCL study and Mayo Clinic melanoma studies are currently enrolling.

Based upon our Sofusa core microneedle technology, we also developed the Sofusa MuVaxx™ device for the administration of small volume peptides and vaccines. The skin (rich in dendritic cells) and lymph nodes are the primary organs for generating both humoral immunity (IgM and IgG) and cellular immunity (memory T-Cells) for long-term protection. In a preclinical study using a model Ovalbumin ("OVA") protein antigen, Sofusa MuVaxx demonstrated a 60-100 fold increase in anti-OVA IgG antibodies versus intramuscular ("IM") injections, and in another preclinical COVID-19 vaccine study the Sofusa device resulted in 10-40X higher T-Cell response versus IM and intradermal injections. The Sofusa MuVaxx device is designed to be a simple low-cost attachment to a standard syringe for rapid large-scale deployment of our vaccine candidates and, due to the small needle size, is expected to result in a pain-free injection. The Sofusa MuVaxx is being developed with our mRNA Omicron vaccine.

**Chronic Pain**

**Resiniferatoxin ("RTX") Programs:** RTX is a naturally occurring compound obtained from cactus-like succulents of the Euphorbia species. An ultra-potent TRPV1 agonist, RTX belongs to the same general TRPV1 agonist family as capsaicin, the active ingredient in red chili peppers, but differs from capsaicin in its unique binding properties and thousand-fold higher potency. As an agonist, RTX produces a sustained opening of calcium channels expressed on neurons, either in the end-terminals or cell bodies of unmyelinated C-fibers or thinly myelinated A-delta fibers. The effect from this sustained calcium influx depends on the location that RTX is injected. When injected peripherally near end-terminals (e.g., intra-articularly), a sustained defunctionalization or desensitization occurs resulting in reduction in noxious chronic pain symptoms that can last for months. When injected neuraxially (intrathecally or epidurally) rapid programmed cell death of TRPV1-expressing neurons targeted by the RTX injection can produce

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long-lasting improvement in noxious chronic pain that has been refractory to treatment (e.g., cancer related pain). RTX does not interact with and leaves intact unaffected non-TRPV1-expressing nerves (touch, motor control and position sense).

An investigator-sponsored Phase I clinical trial of intrathecal RTX has been ongoing at the NIH under a Cooperative Research and Development Agreement. To date, 18 patients with terminal cancer pain have been treated intrathecally at the NIH. Additional enrollment in this study is on-going with a last dose level being finalized.

In the fourth quarter of 2022, the NIH obtained clearance for a new IND to treat intractable Morton's neuroma using a local peripheral injection of RTX in an ascending dose study. The study will measure the ability of RTX to relieve acute and chronic neuropathic pain with a perineural administration of RTX. Positive results would inform the ability of RTX to be used in replacement of or to lower use of opioids in neuropathic and peripheral painful conditions such as CRPS or for local surgical applications such as below the knee amputations.

After concluding a Phase Ib clinical trial with epidural RTX in subjects with intractable pain due to advanced cancer, a Phase II placebo-controlled study was cleared to proceed in 2022 and is expected to enroll in the first quarter of 2023. This study will enroll approximately 120 patients and is designed to identify a pivotal dose to carry forward into a pivotal trial and to confirm the safety profile of epidural RTX in advanced cancer patients. The study will also monitor opioid consumption in the advanced stage cancer population, with the goal of confirming RTX as a viable opioid-sparing therapeutic approach for patients with otherwise intractable pain.

After concluding a Phase Ib clinical trial with intra-articular RTX administration for moderate-to-severe osteoarthritis ("OA") of the knee, a Phase II placebo- and active-controlled study was cleared to proceed and completed enrollment in the third quarter of 2022. This study enrolled approximately 120 patients and is designed to identify a pivotal dose to carry forward into a pivotal trial, confirm the safety profile of intra-articular RTX, and to demonstrate the efficacy and durability of reduction in pain due to knee OA.

Additional preclinical efforts are underway to pursue other indications for RTX including trigeminal neuralgia, burning mouth syndrome and peripheral nerve block to treat neuropathic pain.

Additional preclinical efforts have been conducted with a goal of meeting regulatory Phase III pivotal studies requirements.

API and drug product ("DP") registration batches have been manufactured at commercial scale in 2022 and are undergoing long-term stability monitoring throughout 2023 to 2026. We established high quality and high volume (projected up to 50,000 vials per batch) cGMPs at two separate geographical sites in anticipation of market needs.

Phase III studies are scheduled to be initiated by the second half of 2023.

**Scilex Holding**

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Scilex Holding is an innovative revenue-generating company focused on acquiring, developing and commercializing non-opioid pain management products for the treatment of acute and chronic pain. The following chart illustrates the current product and product candidates for which Scilex Holding has worldwide commercialization rights, except with respect to Japan for ZTlido and SP-103 and U.S. only rights for Gloperba :

![img177033684_5.jpg](img177033684_5.jpg)

**ZTlido**

ZTlido is a lidocaine topical system (1.8%) approved for the relief of pain associated with post-herpetic neuralgia ("PHN"). PHN is a chronic neuropathic pain syndrome that results as a complication following an infection of herpes zoster, also known as shingles. Herpes zoster symptoms typically resolve after a few weeks, but the pain caused by the nerve injury can persist for months to years in the affected area. ZTlido is designed as a lighter, thinner product which has improved adhesion relative to Lidoderm (lidocaine patch 5%), while providing a bioequivalent delivery of lidocaine in an efficient drug delivery system.

We launched ZTlido in October 2018 with support from an integrated commercial organization using a dedicated contract sales force and our own sales management, marketing and managed care capabilities. We currently market ZTlido through a dedicated sales force of 60 individuals, targeting approximately 10,000 primary care physicians, pain specialists, neurologists and palliative care physicians. We are utilizing a multi-channel marketing strategy to expand awareness and utilization of ZTlido. There is coverage for ZTlido from national and regional pharmacy benefit managers, health maintenance organizations, Medicare and Medicaid plans for over approximately 200 million covered lives.

**SEMDEXA** 

SEMDEXA is a Phase III product candidate we are developing to be an injectable viscous gel formulation of a widely used corticosteroid designed to address the serious risks posed by off-label epidural steroid injections ("ESIs") for the treatment of sciatica, a pathology of low back pain. We believe SEMDEXA, if successfully developed, has the potential to reduce the disability related to sciatica and help delay or avoid spine surgery. SEMDEXA has been granted fast track designation by the FDA and, if approved, could become the only FDA-approved alternative to off-label ESIs, which are administered over 12 million times annually in the United States. Enrollment for the Phase III trial was completed in the second half of 2021. We announced top-line data from this study in December 2021. The SP-102 pivotal Phase III trial 12-week data demonstrated a highly statistically significant greater effect over placebo for primary and secondary endpoints with no safety risks identified. Based on the current results, we submitted a request to the FDA for Breakthrough Therapy Designation, which will help expedite the overall development program and potential market approval. We also expect to submit a pre-NDA meeting request to the FDA in the first half of 2023.

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**SP-103**

SP-103 is an investigational, non-aqueous lidocaine topical system undergoing clinical development in acute low back pain conditions. SP-103 builds on the learnings from ZTlido because both products share a similar adhesive drug delivery formulation and manufacturing technology. If approved, we believe that SP-103 could become the first-in-class lidocaine topical product for low back pain indications. All current uses of topical lidocaine products for low back pain are off-label. SP-103 has three times the drug load of ZTlido (108 mg versus 36 mg) in the adhesive system to potentially deliver a threefold level of the drug within a targeted area, still with the convenience of a single topical system. Additionally, SP-103 is designed to deliver a localized dose of lidocaine that is threefold greater than any lidocaine topical product that we are aware of either on the market or in development. If approved, we believe SP-103 may be able to address the limitations of prescription lidocaine patches in treating acute low back pain by delivering a higher dose of lidocaine to the application site. We initiated the Phase II trial in the second quarter of 2022. The FDA granted fast track status in the third quarter of 2022.

**SP-104**

We are developing SP-104, a novel low-dose delayed-release naltrexone hydrochloride formulation for the treatment of fibromyalgia. Fibromyalgia is considered a neurosensory disorder characterized in part by abnormalities in pain processing by the central nervous system. Increased understanding of the biological bases underlying fibromyalgia is rapidly leading to a new era of specific pharmacologic therapy for the condition. Fibromyalgia affects approximately 3-6% of the adult population. There are estimated to be between 8-10 million individuals with fibromyalgia in the United States. Fibromyalgia is the second most common disorder that rheumatologists encounter, as it is seen in 15% of evaluated patients. Approximately 8% of patients cared for in primary care clinics have fibromyalgia. Women have a higher frequency of fibromyalgia. Prominent fibromyalgia researchers and specialists estimate the costs in the U.S. to be between $12-14 billion each year and it accounts for a loss of approximately 1-2% of the national overall productivity. Current FDA-approved treatments for fibromyalgia include duloxetine, pregabalin, and milnacipran. Despite the availability of these treatments, there is a large unmet need in the marketplace as these treatments have response rates of less than 50%, ranging from 27-40%. Two Phase I studies were completed and are designed to characterize the pharmacokinetics of SP-104 and the safety of SP-104 relative to the known naltrexone adverse effects. We plan to initiate a Phase II clinical trial in the first half of 2023.

**Patents and Other Proprietary Rights**

We are able to protect our technology from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents, is effectively maintained as a trade secret, or is protected by confidentiality agreements. Accordingly, patents and other proprietary rights are essential elements of our business.

We have multiple issued patents and pending patent applications in the U.S. and in selected foreign jurisdictions that cover our G-MAB technology, G-MAB™-derived antibodies, other proprietary antibody-centric technologies, engineered cytokine technologies and pain management compounds, including, but not limited to, the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. The G-MAB discovery antibody library technology. Certain aspects of this technology are covered by issued patents and are the subject matter of pending patent applications with potential patent coverage to at least 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. The G-MAB-derived immuno-oncology antibody candidate portfolio. Certain of these antibody candidates are covered by issued patents and are the subject matter of pending patent applications and granted patents with potential patent coverage to at least 2039.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. The bispecific antibody technology directed to the combination of two different monoclonal antibodies or fragments that can target multiple or different antigens. The bispecific antibody technology is the subject matter of pending applications with potential patent coverage to at least 2040.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The COVID-19 technologies and product candidates, including neutralizing antibodies (COVI-AMG, COVIDROPS and COVISHIELD), other therapeutic and/or product candidates and diagnostic platforms, are the subject of pending patent applications with potential patent coverage to at least 2043.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The ADC technology using proprietary conjugation chemistries (called C-Lock<sup>TM</sup> and K-Lock<sup>TM</sup>), initially developed by Concortis Biosystems, Corp., one of our subsidiaries. This ADC technology is the subject matter of pending patent applications and granted patents with potential patent coverage to at least 2033. Additional ADC directed to different antigen targets and/or toxin derivatives are the subject matter of pending patent applications and granted patents with potential patent coverage to at least 2042.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. The CAR-T-based technology is an immunotherapy platform. Candidates arising from the platform are the subject matter of pending applications with potential patent coverage to at least 2038.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. The DAR-T-based technology is an allogeneic immunotherapy platform and is the subject of pending patent applications with potential patent coverage to at least 2039. Candidates arising from the platform are the subject matter of pending applications with potential patent coverage to at least 2040.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. The oncolytic virus technology is a human herpes simplex virus-based immunotherapy platform designed to target and destroy tumor cells while also stimulating anti-tumor patient immune responses. It is the subject of pending patent applications with potential patent coverage to at least 2036. We have filed patent applications on improvements to this technology with potential patent coverage to at least 2040.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9. The corticosteroid injectable pain management technology, which is formulated as a viscous gel injection for the treatment of lumbosacral radicular pain/sciatica, was obtained by the acquisition of Semnur Pharmaceuticals in March 2019 and it is the subject matter of pending patent applications and granted patents with potential patent coverage to at least 2036.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10. The RTX-based pain management technology is an experimental TRPV1 agonist agent developed as a single injection pain treatment that ablates afferent nerves that conduct pain signals while sparing other nerve functions. Certain aspects of this technology are covered by an issued patent in the U.S. providing patent protection to at least 2034 and are the subject matter of pending patent applications that will provide potential patent coverage to at least 2040.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11. The lidocaine-based pain management technology was obtained by the acquisition of Scilex Pharmaceuticals Inc. ("Scilex Pharma"). Certain aspects of this technology are covered by several issued U.S. patents, which will not expire until at least 2031. Additional patent applications to improvements of this technology have been filed and have the potential to provide patent coverage to at least 2039 and may require the completion of clinical trials that compare the cost-effectiveness.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12. The Sofusa technology was acquired from Kimberly-Clark Corporation ("KCC"); Kimberly-Clark Global Sales, LLC ("KCGS"); and Kimberly-Clark Worldwide, Inc. ("KCW" and together with KCC and KCGS, "Kimberly-Clark") in July 2018 as a novel technology platform designed to deliver large molecules, such as antibodies, directly into lymphatic capillaries and tumor draining lymph nodes. This micro-epidermal infusion system features a proprietary microneedle array and microfluidics reservoir. The Sofusa technology is the subject of multiple granted and pending applications with potential patent coverage to at least 2040. Additionally, we have filed additional patent applications directed to methods of treating or preventing various diseases via administration of agents using the Sofusa technology, including therapeutic antibodies and vaccines, with potential patent coverage to at least 2043.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13. The Cytimm technology is an engineered cytokine-based platform that discovers and develops immunotherapeutics for autoimmune and oncological indications. Certain aspects of this technology are covered by pending patent applications with potential patent coverage to at least 2043.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14. The kinase inhibitor based technology designed to treat proliferation disorders and other diseases related to the dysregulation of kinase (such as inflammatory diseases, auto immune diseases and neurodegenerative diseases) was obtained by acquisition of ACEA. This technology is the subject matter of pending patent applications and granted patents with potential patent coverage to at least 2033. Additional applications directed to the use of protein kinase inhibitors for different indications are the subject matter of pending patent applications with potential patent coverage to at least 2042.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15. The protease inhibitors based technology designed to treat viral infections was obtained by acquisition of Texas A&M technology and independent development of protease inhibitors in-house. This technology is the subject matter of pending patent applications with potential patent coverage to at least 2043.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16. The new RNA/DNA transfection technology (using innovative new lipids) was developed in-house. This technology is the subject matter of pending patent applications with potential patent coverage to at least 2044.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17. The nano-immuno conjugate technology designed to treat cancer was obtained by licensing Mayo Clinic's technology. This technology is the subject matter of pending patent applications and granted patents with potential patent coverage to at least 2032.

Certain factors can either extend patent terms or provide other forms of exclusivity (e.g., data exclusivity) for varying periods depending on the date of patent filing, date of grant or the legal term of a patent in the various jurisdictions in which patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, also depends upon the type of patent, the scope of claim coverage and the availability of legal remedies in the particular country.

While trade secret protection is an essential element of our business and we have taken security measures to protect our proprietary information and trade secrets, we cannot guarantee that our unpatented proprietary technology will afford us significant commercial protection. We seek to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interest in any intellectual

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property arising from their work for us. All employees sign an agreement not to engage in any conflicting employment or activity during their employment with us and not to disclose or misuse our confidential information. However, it is possible that these agreements may be breached or invalidated and, if so, there may not be an adequate corrective remedy. Accordingly, we cannot guarantee that employees, consultants or third parties will not breach the confidentiality provisions in our contracts, infringe or misappropriate our trade secrets or other proprietary rights, or that measures we are taking to protect our proprietary rights will be adequate.

In the future, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert such claims against us or against the licensors of technology licensed to us, or whether those claims will harm our business. If we are forced to defend ourselves against such claims, whether they are with or without merit and whether they are resolved in favor of, or against, our licensors or us, we may face costly litigation and the diversion of management's attention and resources. As a result of such disputes, we may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, or at all.

**Competition**

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products and intellectual property. While we believe that our scientific knowledge, technology and development experience provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, some or all of which may have greater access to capital or resources than we do. For any products that we may ultimately commercialize, not only will we compete with any existing therapies and those therapies currently in development, but we will also have to compete with new therapies that may become available in the future.

We expect that the market will become increasingly competitive in the future. Many of our competitors, either alone or together with their collaborative partners, operate larger research and development programs, and have substantially greater commercial and financial resources than we do, as well as significantly greater experience in developing product candidates and technologies, undertaking preclinical studies and clinical trials, obtaining FDA and other regulatory approvals of product candidates, formulating and manufacturing product candidates and launching, marketing and selling product candidates. As a result, these companies may obtain marketing approval more quickly than we are able and may be more effective in developing, selling and marketing their products.

**Immunotherapy**

Immunotherapy is an active area of research and several immune-related products have been identified in recent years that modulate the immune system. Many of these products utilize dendritic cells, a form of immune cell that presents cancer target peptides to T cells and that can in turn result in T-cell activation. More recently, bispecific antibodies and checkpoint inhibitors (for instance PD-1/PD-L1 antibodies) have been identified as having utility in the treatment of cancer. Bi-specific antibodies commonly target both the cancer peptide and the TCR, thus bringing both cancer cells and T cells into close proximity to maximize the chance of TCR binding and hence an immune response to the cancer cells. Checkpoint inhibitors, on the other hand, work by targeting receptors that inhibit T-cell effectiveness and proliferation and thereby essentially activate T cells. Other immunotherapies that are being actively investigated include: antibody drug complexes, TCR-mimic antibodies, oncolytic viruses and cancer vaccines.

We are aware of companies developing therapies in various areas related to our specific research and development programs. Specifically, there are a growing number of pharmaceutical, biotechnology, and academic institutions researching and developing autologous and allogeneic CAR-T therapies in both the solid and liquid tumor setting. These CAR-T cell therapies are at a variety of stages of preclinical, clinical development and approval. Such therapies are directed towards a broad target spectrum, including but not limited to: DLL3, EGFR, GD2, HER-2, IL13rα2, Lewis Y, L1-CAM, Mesothelin, MUC16, PSCA, PSMA and ROR1. The two approved CAR-T therapies both target CD19. We are also aware of allogeneic CAR-T programs in development.

**RTX**

The pain management field in particular is a growing industry due to increased attention on opioid usage for pain, which has created a rapidly emerging market and has fueled an increased interest in opioid alternatives. Various small and early-stage companies in the non-opioid pain management field may also prove to be significant competitors, particularly if they enter into collaborative arrangements with large, established companies.

**COVID-19 Product Candidates** 

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**Neutralizing antibodies ("nAbs"):** We have several nAbs either in development or in the clinic. These nAbs are directed against the COVID-19 spike protein and have varying degrees of effectiveness dependent on the VoC being targeted. The lead nAb during 2021, STI-2020, was shown to be effective in preclinical studies against the original Washington strain as well as the delta VoC. With the meteoric rise of the omicron VoC late in 2021, we identified a new highly potent nAb, STI-9167, which we initially obtained under an exclusive license from Mount Sinai and modified to be a fully-human nAb with modifications to reduce the potential for antibody-dependent enhancement or human tissue cross-reactivity. This nAb is highly effective in preclinical studies against Omicron and Omicron plus and we filed an IND early in the first quarter of 2022 to begin human safety studies of both the IV and intranasal formulations. There are several other companies which have nAbs in early development. In addition, companies that are involved in vaccine development are indirect competitors in this space, although the vaccines approved to date and known to be in development are not nAbs-based.

**Bruton's Tyrosine Kinase Inhibitors ("BTKi"):** We have completed Phase II trials with Abivertinib, our dual EGFR/BTKi, to treat ARD due to COVID-19. There are several other BTKis approved for oncology conditions that could theoretically be used to treat COVID-19-induced ARD. For example, Acalabrutinib (Calquence) was used in two Phase II studies but failed to meet its primary endpoint.

**Adipose-derived mesenchymal stromal or stem cells (AdMSCs):** We are currently enrolling two Phase II studies treating COVID-19-induced ARD and ARDS in the U.S. and Brazil. There are a large number of companies and universities exploring various MSCs (adipose, bone marrow, cord blood, umbilical and other sources) in Phase I and II studies to treat moderate to severe COVID-19.

**Scilex Holding**

ZTlido and our product candidate, SP-103, if approved, will likely face competition from prescription, generic, and over-the-counter topical lidocaine patches, including Lidoderm and generic lidocaine patches manufactured by Teva, Mylan and Par Pharmaceutical, Inc. Additionally, SP-103, if approved, will likely compete with various opioid pain medications, non-steroidal anti-inflammatory drugs ("NSAIDs"), muscle relaxants, antidepressants and anticonvulsants, particularly as we seek approval for the treatment of acute low back pain.

SP-102, if approved, has the potential to become the first FDA-approved epidural steroid product for the treatment of sciatica. While there are currently no FDA-approved ESIs indicated for the treatment of sciatica, Scilex Holding is aware of certain non-steroid product candidates in development. SP-102, if approved, will compete with various opioid pain medications, NSAIDs, muscle relaxants, antidepressants, anticonvulsants and surgical procedures. Procedures may include nerve blocks and transcutaneous electrical nerve stimulations. We may also face indirect competition from the off-label and unapproved use of branded and generic injectable steroids.

While there are currently no formulations containing naltrexone in clinical development for the treatment of fibromyalgia, Scilex Holding is aware of certain non-opioid therapeutics currently in a late-stage Phase III pipeline containing two 505(b)(2) development programs. Scilex's product candidate, SP-104, will likely face direct competition from these candidates.

The key competitive factors affecting the success of ZTlido, SEMDEXA, SP-103 and SP-104 are likely to be their efficacy, durability, safety, price and the availability of reimbursement from government and other third-party payors.

**Government Regulation**

Government authorities in the U.S. (including federal, state and local authorities) and in other countries extensively regulate, among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion and export and import of pharmaceutical products, such as those we are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, debarment and partial or total suspension of production or withdrawal of the product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.

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**U.S. Government Regulations**

In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process required by the FDA before product candidates may be marketed in the U.S. generally involves the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA's Good Laboratory Practice regulations. Preclinical testing generally includes evaluation of our product candidates in the laboratory or in animals to characterize the product and determine safety and efficacy;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•submission to the FDA of an IND, which is required prior to conducting human clinical trials and must be updated annually;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed indication;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•submission to the FDA of a Biologics License Application ("BLA") for marketing approval for biological products, or an NDA for marketing approval for a new drug, after completion of all pivotal clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a determination by the FDA within 60 days of its receipt of a BLA or an NDA to file the BLA or NDA for review;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the active pharmaceutical ingredient ("API") and finished drug product are produced and tested to assess compliance with cGMP regulations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•satisfactory completion of an FDA pre-approval inspection of one or more of the clinical sites at which the clinical trials were conducted;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•at the discretion of the FDA, a public Advisory Committee Meeting where the data is reviewed by experts who discuss the data and give their opinion (which the FDA is not obliged to follow) of the adequacy of the data to support an approval; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•FDA review and approval of a BLA or an NDA prior to any commercial marketing or sale of the drug in the U.S.

In addition, we are subject to regulation under state, federal and international laws and regulations regarding occupational safety, laboratory practices, import and export of materials and products, environmental protection and the use and handling of hazardous substance control, and other regulations. Our clinical trial and research and development activities involve the controlled use of hazardous materials and chemical compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our financial resources. In addition, disposal of radioactive materials used in our clinical trials and research efforts may only be made at approved facilities. We believe that we are in material compliance with all applicable laws and regulations including those relating to the handling and disposal of hazardous and toxic waste.

An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human studies. The IND also includes results of animal studies or other human studies, as appropriate, as well as manufacturing information, analytical data and any available clinical data or literature to support the use of the investigational new drug. An IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to the proposed clinical trials. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before clinical trials can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with Good Clinical Practices ("GCPs"), which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must be obtained from each clinical trial site's institutional review board ("IRB") before the trials may be initiated, and the IRB must monitor the study until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.

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The pre-approval clinical investigation of a drug is generally divided into three phases (the numbers of subjects/patients are approximate and vary from indication to indication). Although the phases are usually conducted sequentially, they may overlap or be combined. The three phases of an investigation are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Phase I. Phase I includes the initial introduction of an investigational new drug into humans. Phase I clinical trials are typically closely monitored and may be conducted in patients with the target disease or condition or in healthy volunteers. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational drug in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness. During Phase I clinical trials, sufficient information about the investigational drug's pharmacokinetics and pharmacological effects may be obtained to permit the design of well-controlled and scientifically valid Phase II clinical trials. The total number of participants included in Phase I clinical trials varies, but is generally in the range of 20 to 80.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Phase II. Phase II includes controlled clinical trials conducted to preliminarily or further evaluate the effectiveness of the investigational drug for a particular indication(s) in patients with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the drug. Phase II clinical trials are typically well-controlled, closely monitored, and conducted in a limited patient population, usually involving no more than several hundred participants.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Phase III. Phase III clinical trials are generally controlled clinical trials conducted in an expanded patient population generally at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the drug has been obtained, and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug product, and to provide an adequate basis for product approval. Phase III clinical trials usually involve several hundred to several thousand participants. In general, two Phase III trials are needed for an approval.

A pivotal trial is a clinical trial that adequately meets regulatory agency requirements for the evaluation of a drug candidate's efficacy and safety such that it can be used to justify the approval of the product. Generally, pivotal trials are also Phase III trials but may be Phase II trials if the trial design provides a well-controlled and reliable assessment of clinical benefit, particularly in situations where there is an unmet medical need.

The FDA, the IRB or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated checkpoints based on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug product information is submitted to the FDA in the form of a BLA or an NDA requesting approval to market the product for one or more indications.

The application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product's chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product to the satisfaction of the FDA.

Once the BLA or NDA submission has been accepted for filing, the FDA's goal is to review applications within ten months of submission or, if the application relates to an unmet medical need in a serious or life-threatening indication, six months from submission. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.

During the evaluation of the BLA or NDA, the FDA conducts inspections of manufacturing facilities where the drug product and/or its API will be produced and some of the clinical sites that conducted the trials, and it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional clinical data, an additional pivotal Phase III clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or

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manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the BLA or NDA does not satisfy the criteria for approval. The FDA could also approve the BLA or NDA with a Risk Evaluation and Mitigation Strategies ("REMS") plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase IV clinical trials and surveillance to further assess and monitor the product's safety and effectiveness after commercialization. Regulatory approval of oncology products often requires that patients in clinical trials be followed for long periods to determine the overall survival benefit of the drug.

After regulatory approval of a drug product is obtained, we are required to comply with a number of post-approval requirements. As a holder of an approved BLA or NDA, we would be required to report, among other things, certain adverse reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional labeling for any of our products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval to ensure and preserve the long term stability of the drug product. The FDA periodically (about every two years) inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

We rely, and expect to continue to rely, on third parties for the production, distribution, shipping and storage of clinical and commercial quantities of our product candidates. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved BLA or NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product's approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA's policies may change, which could delay or prevent regulatory approval of our product candidates under development.

**Europe/Rest of World Government Regulations**

In addition to regulations in the U.S., we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products.

Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the U.S. have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application ("CTA") must be submitted to each country's national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country's requirements, clinical trial development may proceed.

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

To obtain regulatory approval of an investigational drug under European Union regulatory systems, we must submit a marketing authorization application. The application used to file the NDA in the U.S. is similar to that required in Europe, with the exception of, among other things, country-specific document requirements. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

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**Available Special Regulatory Procedures**

Formal Meetings

We can engage and seek guidance from health authorities relating to the development and review of investigational drugs, as well as marketing applications. In the U.S., there are different types of official meetings that may occur between us and the FDA. Each meeting type is subject to different procedures. Conclusions and agreements from each of these meetings are captured in the official final meeting minutes issued by the FDA. Meetings with the FDA are free.

The European Medicines Agency ("EMA") also provides the opportunity for dialogue with us. This is usually done in the form of Scientific Advice, which is given by the Scientific Advice Working Party of the Committee for Medicinal Products for Human Use ("CHMP"). A fee is incurred with each Scientific Advice meeting.

Advice from either the FDA or EMA is typically provided based on specific questions concerning, for example, quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical trials and pharmaco-vigilance plans and risk-management programs. Such advice is not legally binding on the sponsor. To obtain binding commitments from health authorities in the U.S. and the European Union, Special Protocol Assessment ("SPA") or Protocol Assistance procedures are available. An SPA is an evaluation by the FDA of a protocol with the goal of reaching an agreement with the sponsor that the protocol design, clinical endpoints and statistical analyses are acceptable to support regulatory approval of the product candidate with respect to effectiveness in the indication studied. The FDA's agreement to an SPA is binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining the safety or effectiveness of the product after clinical trials begin, or if the trial sponsor fails to follow the protocol that was agreed upon with the FDA. There is no guarantee that a trial will ultimately be adequate to support an approval even if the trial is subject to an SPA.

Orphan Drug Designation

The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the U.S., or, if it affects more than 200,000 individuals in the U.S., there is no reasonable expectation that the cost of developing and making the drug for this type of disease or condition will be recovered from sales in the U.S. In the European Union, the EMA's Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union Community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product.

In the U.S., orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of 7 years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity.

In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following drug or biological product approval. This period may be reduced to 6 years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Authorization Procedures in the European Union

Medicines can be authorized in the European Union by using either the centralized authorization procedure or national authorization procedures.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Centralized procedure. The EMA implemented the centralized procedure for the approval of human medicines to facilitate marketing authorizations that are valid throughout the European Union. This procedure results in a single marketing authorization issued by the EMA that is valid across the European Union, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human medicines that are: derived from biotechnology processes, such as genetic engineering, contain a new active substance indicated for the treatment of certain diseases, such as

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HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions, and officially designated orphan medicines.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•For medicines that do not fall within these categories, an applicant has the option of submitting an application for a centralized marketing authorization to the EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•National authorization procedures. There are also two other possible routes to authorize medicinal products in several countries, which are available for investigational drug products that fall outside the scope of the centralized procedure:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one European Union country of medicinal products that have not yet been authorized in any European Union country and that do not fall within the mandatory scope of the centralized procedure.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one European Union Member State, in accordance with the national procedures of that country. Following this, further marketing authorizations can be sought from other European Union countries in a procedure whereby the countries concerned agree to recognize the validity of the original, national marketing authorization.

Priority Review/Standard Review (U.S.) and Accelerated Review (European Union)

Based on results of the Phase III clinical trial(s) submitted in a BLA or NDA, upon the request of an applicant, the FDA may grant the BLA or NDA a priority review designation, which sets the target date for FDA action on the application at six months. Priority review is granted where preliminary estimates indicate that a product, if approved, has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists, or a significant improvement compared to marketed products is possible. If criteria are not met for priority review, the BLA or NDA is subject to the standard FDA review period of 10 months. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

Under the Centralized Procedure in the European Union, the maximum timeframe for the evaluation of a marketing authorization application is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, which is defined by three cumulative criteria: (i) the seriousness of the disease (e.g., heavy disabling or life-threatening diseases) to be treated; (ii) the absence or insufficiency of an appropriate alternative therapeutic approach; and (iii) anticipation of high therapeutic benefit. In this circumstance, EMA ensures that the opinion of the CHMP is given within 150 days, excluding clock stops.

There can be no assurance that we or any of our partners would be able to satisfy one or more of these requirements to conduct preclinical or clinical trials or receive any regulatory approvals.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the U.S. and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

In 2003, the U.S. government enacted legislation providing a partial prescription drug benefit for Medicare beneficiaries, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and

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Education Reconciliation Act (collectively, the "Healthcare Reform Law"), substantially changed the way healthcare is financed in the U.S. by both government and private insurers. Among other cost containment measures, the Healthcare Reform Law established:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•An annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•A new Medicare Part D coverage gap discount program in which pharmaceutical manufacturers who wish to have their drugs covered under Part D must offer discounts to eligible beneficiaries during their coverage gap period (the "donut hole"); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•A new formula that increases the rebates a manufacturer must pay under the Medicaid Drug Rebate Program.

In addition, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal government, which shall take effect in 2023. Under the Inflation Reduction Act of 2022, Congress authorized Medicare beginning in 2026 to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars. This provision is limited in terms of the number of pharmaceuticals whose prices can be negotiated in any given year and it only applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years. Drugs and biologics that have been approved for a single rare disease or condition are categorically excluded from price negotiation. Further, the new legislation provides that if pharmaceutical companies raise prices in Medicare faster than the rate of inflation, they must pay rebates back to the government for the difference. The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.

We expect that federal, state and local governments in the U.S. will continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing.

Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed upon. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the U.S. has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Other Healthcare Laws and Compliance Requirements

If we obtain regulatory approval for any of our product candidates, we may be subject to various federal and state laws targeting fraud and abuse in the healthcare industry. For example, in the U.S., there are federal and state anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services or reward past purchases or recommendations. Violations of these laws can lead to civil and criminal penalties, including fines, imprisonment and exclusion from participation in federal healthcare programs.

The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs. The reach of the Anti-Kickback Statute was broadened by the Healthcare Reform Law, which, among other things, amended the intent requirement of the federal Anti-Kickback Statute and the applicable criminal healthcare fraud statutes contained within 42 U.S.C. § 1320a-7b, effective March 23, 2010. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent

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claim for purposes of the civil False Claims Act (discussed below) or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.

The federal False Claims Act imposes liability on any person who, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The "qui tam" provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government and to share in any monetary recovery. In addition, various states have enacted false claims laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of $11,803 to $23,607 (each subject to adjustment for inflation) for each separate false claim.

Also, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") created several new federal crimes, including healthcare fraud, and false statements relating to healthcare matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private third-party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services.

In addition, we may be subject to, or our marketing activities may be limited by HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which established uniform standards for certain "covered entities" (healthcare providers, health plans and healthcare clearinghouses) and their business associates governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information.

**Antibody Clinical Development**

We currently focus our research efforts primarily on the identification and isolation of human antibody drug candidates and further characterize these antibody candidates in in vitro and in vivo functional testing. Due to our limited financial resources, we intend to actively seek product development and commercialization partners from the biopharmaceutical industry to help us advance the clinical development of select product candidates.

**Marketing and Sales**

With the exception of our subsidiary, Scilex Holding, we currently do not have any sales capabilities. We intend to license to, or enter into strategic alliances with, larger companies in the biopharmaceutical businesses or use the services of contract sales organizations, which are equipped to market and/or sell our products, if any, through their well-developed marketing and sales teams and distribution networks. We intend to license some or all of our worldwide patent rights to more than one third party to achieve the fullest development, marketing and distribution of any products we develop.

**Manufacturing and Raw Materials**

We currently manufacture the majority of our preclinical and clinical materials in-house, and use contract manufacturers for the manufacture of some of our product candidates. We may or may not manufacture the products we develop, if any. As of December 31, 2021, our ZTlido product is manufactured by ITOCHU CHEMICAL FRONTIER Corporation. Our internal manufacturing and contract manufacturers are subject to extensive governmental regulation. Regulatory authorities in our markets require that pharmaceutical products be manufactured, packaged and labeled in conformity with cGMPs. We have established a quality control and quality assurance program, which includes a set of standard operating procedures and specifications designed to ensure that our products are manufactured in accordance with cGMPs, and other applicable domestic and foreign regulations.

**Employees and Human Capital**

As of December 31, 2022, we had 949 employees and 8 consultants and advisors. A significant number of our management and our other employees and consultants have worked or consulted with pharmaceutical, biotechnology or medical product companies. While we have been successful in attracting skilled and experienced scientific personnel, there can be no assurance that we will be able to attract or retain the necessary qualified employees and/or consultants in the future.

None of our employees are covered by collective bargaining agreements and we consider relations with our employees to be good. We focus on identifying, recruiting, developing and retaining a team of highly talented and motivated employees. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and

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cash-based compensation awards, as well as providing our employees with the opportunity to participate in our employee stock purchase plan, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. The success of our business is fundamentally connected to the well-being, health and safety of our employees. In an effort to protect the health and safety of our employees, we took proactive action from the earliest signs of the COVID-19 outbreak, which included implementing social distancing policies at our facilities, facilitating remote working arrangements and imposing employee travel restrictions.

**Corporate Information**

On September 21, 2009, QuikByte Software, Inc., a Colorado corporation and shell company ("QuikByte"), consummated its acquisition of Sorrento Therapeutics, Inc., a Delaware corporation and private concern ("STI"), in a reverse merger (the "Merger").

We were originally incorporated as San Diego Antibody Company in California in 2006 and were renamed "Sorrento Therapeutics, Inc." and reincorporated in Delaware in 2009, prior to the Merger. QuikByte was originally incorporated in Colorado in 1989. Following the Merger, on December 4, 2009, QuikByte reincorporated under the laws of the State of Delaware (the "Reincorporation"). Immediately following the Reincorporation, on December 4, 2009, we merged with and into QuikByte, the separate corporate existence of STI ceased and QuikByte continued as the surviving corporation (the "Roll-Up Merger"). Pursuant to the certificate of merger filed in connection with the Roll-Up Merger, QuikByte's name was changed from "QuikByte Software, Inc." to "Sorrento Therapeutics, Inc."

**Address**

Our principal executive offices are located at 4955 Directors Place, San Diego, CA 92121, and our telephone number at that address is (858) 203-4100. Our website is www.sorrentotherapeutics.com. Any information contained on, or that can be accessed through, our website is not incorporated by reference into, nor is it in any way part of this Annual Report on Form 10-K.

**Available Information**

We file electronically with the SEC our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and reports filed pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. We make available on our website at www.sorrentotherapeutics.com, free of charge, copies of these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Copies of our annual report to stockholders will also be made available, free of charge, upon written request.

The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

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**Item 1A. Risk Factors.**

**Risk Factor Summary** 

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission before making investment decisions regarding our common stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We are subject to risks and uncertainties associated with our Chapter 11 cases.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The DIP Facility has substantial restrictions and financial covenants and if we are unable to comply with the covenant requirements under the DIP Facility, it could have a material adverse impact on our financial condition, operating results and cash flows.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Even if a plan of reorganization is consummated, we may not be able to achieve our stated goals and continue as a going concern.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We are a clinical and commercial stage company subject to significant risks and uncertainties, including the risk that we or our partners may fail to develop, obtain regulatory approval or market our product candidates or generate product related revenues.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We are heavily dependent on the success of our technologies and product candidates, and we cannot give any assurance that our product candidates will receive regulatory approval, which is necessary before they can be commercialized.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We may expend our limited resources to pursue a particular product, product candidate or indication and fail to capitalize on products, product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We may not be able to manufacture our products or product candidates in commercial quantities, which would prevent us from commercializing our products and product candidates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•With respect to ZTlido®, COVIMARK™ or COVISTIX™ and any of our product candidates for which we may receive regulatory approvals, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our failure to successfully discover, acquire, develop and market additional product candidates or approved products would impair our ability to grow.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our commercial success depends upon us attaining significant market acceptance of our product candidates, if approved for sale, among physicians, patients, healthcare payors and major operators of cancer and other clinics.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Price controls may be imposed, which may adversely affect our future profitability.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our collaborations depend upon the efforts of third parties to fund and manage the development of many of our potential product candidates, and failure of those third-party collaborators to assist or share in the costs of product development could materially harm our business, financial condition and results of operations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If we are unable to retain and recruit qualified scientists and advisors, or if any of our key executives, key employees or key consultants discontinues his or her employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We will need to increase the size of our company and may not effectively manage our growth.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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 or comparable foreign authorities. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Interim "top-line" and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We have acquired, and plan to continue to acquire, assets, businesses and technologies and may fail to realize the anticipated benefits of the acquisitions, and acquisitions can be costly and dilutive.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Any acquisitions we make could disrupt our business and seriously harm our financial condition.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our long-term success depends on intellectual property protection; if our intellectual property rights are invalidated or circumvented, our business will be adversely affected.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Claims that we infringe upon the rights of third parties may give rise to costly and lengthy litigation, and we could be prevented from selling products, forced to pay damages, and defend against litigation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If we breach any of the agreements under which we license commercialization rights to our product candidates from third parties, we could lose license rights that are important to our business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•From time to time we may need to license patents, intellectual property and proprietary technologies from third parties, which may be difficult or expensive to obtain.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our strategic investments may result in losses.

**Risks Related to our Bankruptcy**

**We are subject to risks and uncertainties associated with our Chapter 11 cases.**

On February 13, 2023, we along with our wholly owned subsidiary, Scintilla Pharmaceuticals, Inc. (together, the "Debtors"), filed voluntary petitions seeking relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas. The Debtors' Chapter 11 proceedings are jointly administered under the caption In re Sorrento Therapeutics, Inc., et al. (the "Chapter 11 Cases").

Our operations and ability to develop and execute our business plan, our financial condition, our liquidity and our continuation as a going concern, are subject to the risks and uncertainties associated with our bankruptcy. These risks include the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to prosecute, confirm and consummate a plan of reorganization with respect to the Chapter 11 Cases;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the high costs of bankruptcy cases and related fees;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to maintain our relationships with our suppliers, service providers, customers, employees and other third parties;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to maintain contracts that are critical to our operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to execute competitive contracts with third parties while tainted with a bankruptcy legacy;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to attract, motivate and retain key employees;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the ability of third parties to seek and obtain court approval to terminate contracts and other agreements with us;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to retain our current management team;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the ability of third parties to seek and obtain court approval to convert the Chapter 11 Cases to a Chapter 7 proceeding; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the actions and decisions of our shareholders, creditors and other third parties who have interests in our Chapter 11 Cases that may be inconsistent with our plans.

Delays in our Chapter 11 Cases increase the risks of us being unable to reorganize our business and emerge from bankruptcy and increase our costs associated with the bankruptcy process.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with our Chapter 11 Cases could adversely affect our relationships with our suppliers, service providers, customers, employees and other third parties, which in turn could adversely affect our operations and financial condition. Also, pursuant to the Bankruptcy Code, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with our Chapter 11 Cases, we cannot accurately predict or quantify the ultimate impact that events that occur during our Chapter 11 Cases will have on our business, financial condition and results of operations, and there is no certainty as to our ability to continue as a going concern.

**We may not be able to obtain confirmation of a Chapter 11 plan of reorganization.** 

To emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to the adequacy of disclosure with respect to a Chapter 11 plan of reorganization, solicit and obtain the requisite acceptances of such a reorganization plan and fulfill other statutory conditions for confirmation of such a plan.

**Even if a Chapter 11 plan of reorganization is consummated, it will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, we may not be able to achieve our stated goals and continue as a going concern.** 

Any plan of reorganization may affect both our capital structure and the ownership, structure and operation of our business and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. In addition, a plan of reorganization will rely upon financial projections developed by us with the assistance of our financial advisor/investment banker, including with respect to fees, revenues, debt service, and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (1) our ability to substantially change our capital structure, (2) our ability to obtain adequate liquidity and financing sources, (3) our ability to maintain clients', investors' and strategic partners' confidence in our viability as a continuing enterprise and to attract and retain sufficient business from and partnership endeavors with them, (4) our ability to retain key employees and (5) the overall strength and stability of general economic conditions. The failure of any of these factors could materially adversely affect the successful reorganization of our business. Consequently, there can be no assurance that the results or developments that may be contemplated by a plan of reorganization, even if confirmed by the Bankruptcy Court and implemented by us, will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.

**Even if a plan of reorganization is consummated, we may not be able to achieve our stated goals and continue as a going concern.** 

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Even if a plan of reorganization is consummated, we may continue to face a number of risks that are beyond our control, such as changes in economic conditions, changes in the financial markets, changes in investment values or the industry in general, changes in demand for our products and increasing expenses. Some of these risks typically become more acute when a case under the Bankruptcy Code continues for a protracted period of time without indication of how or when the transactions under a Chapter 11 plan of reorganization will close. As a result of these and other risks, we cannot guarantee that any plan of reorganization would achieve our stated goals. Furthermore, even if our debts were reduced or discharged through any plan of reorganization, we may need to raise additional funds through one or more public or private debt or equity financings or other means to fund our business after the completion of the Chapter 11 Cases. Our access to additional capital may be limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms. As a result, any plan of reorganization may not become effective and, thus, we cannot assure you of our ability to continue as a going concern, even if a plan of reorganization is confirmed.

**We have substantial liquidity needs and may not be able to obtain sufficient liquidity to confirm a plan of reorganization and exit bankruptcy.** 

Although we have lowered our capital budget and plan to reduce the scale of our operations, our business remains capital intensive. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with our Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout our Chapter 11 Cases. There are no assurances that our current liquidity is sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases, allow us to proceed with the confirmation of a Chapter 11 plan of reorganization and allow us to emerge from bankruptcy. We can provide no assurance that we will be able to secure additional postpetition financing or exit financing sufficient to meet our liquidity needs or, if sufficient funds are available, offered to us on acceptable terms.

**The DIP Facility has substantial restrictions and financial covenants and if we are unable to comply with the covenant requirements under the DIP Facility, it could have a material adverse impact on our financial condition, operating results and cash flows.** 

In connection with the Chapter 11 Cases and in order to provide required liquidity during the Chapter 11 process, on February 19, 2023, the Debtors executed that certain Debtor-In-Possession Term Loan Facility Summary of Terms and Conditions (the "DIP Term Sheet") with JMB Capital Partners Lending, LLC ("JMB Capital" or the "DIP Lender"), pursuant to which JMB Capital (or its designees or its assignees) are providing the Debtors with a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $75,000,000 in term loan commitments (the "DIP Facility"), subject to the terms and conditions set forth in the DIP Term Sheet.

In addition to customary affirmative and negative covenant obligations, the DIP Facility requires the Debtors to comply with a weekly operating budget, subject to certain permitted variances.

If the Debtors are unable to comply with the covenant requirements under the DIP Facility, it could have a material adverse impact on our financial condition, operating results and cash flows.

**In certain limited instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code.**

Upon a showing of cause, the Bankruptcy Court may convert a Chapter 11 bankruptcy case to a case under Chapter 7 of the Bankruptcy Code ("Chapter 7"). In such event, our business operations would generally cease and a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code.

**As a result of the Chapter 11 Cases, our historical financial information may not be indicative of our future performance, which may be volatile.**

During the Chapter 11 Cases, we expect our financial results to continue to be volatile as restructuring activities and expenses impact our consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the filing of the Chapter 11 Cases. If a plan of reorganization is approved and implemented, our existing capital structure may be fundamentally altered. If we emerge from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to our historical consolidated financial statements. In connection with the Chapter 11 Cases,

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it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Such charges could be material to our consolidated financial position, liquidity and results of operations.

**We may be subject to claims that will not be discharged in the Chapter 11 Cases, which could have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations.**

The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from, among other things, substantially all debts arising prior to consummation of a plan of reorganization. With few exceptions, all claims against us that arose prior to the filing of the Chapter 11 Cases or before consummation of a plan of reorganization (i) would be subject to compromise and/or treatment under a plan of reorganization and/or (ii) would be discharged in accordance with the Bankruptcy Code and the terms of a plan of reorganization. Subject to the terms of a plan of reorganization and orders of the Bankruptcy Court, any claims not ultimately discharged pursuant to a plan of reorganization could be asserted against us and may have an adverse effect on our business, cash flows, liquidity, financial condition and results of operations on a post-reorganization basis.

**If we operate under the Bankruptcy Court**'**s protection for a long period of time, or for a longer period of time than expected, our business may be harmed.**

Our future results are dependent upon the successful confirmation and implementation of a plan of reorganization. Our being subject to a long period of operations under the Bankruptcy Court's protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as the proceedings related to the Chapter 11 Cases continue, our senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on our business operations. A prolonged period of operating under the Bankruptcy Court's protection also may make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, the longer the proceedings related to the Chapter 11 Cases continue, the more likely it is that our clients, investors, strategic partners and service providers will lose confidence in our ability to reorganize our businesses successfully and seek to establish alternative advisory and/or other commercial relationships, as applicable. Furthermore, so long as the Chapter 11 Cases continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases. We cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to any plan of reorganization. Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from Chapter 11 protection.

**Adverse publicity in connection with the Chapter 11 Cases or otherwise could negatively affect our businesses.**

Adverse publicity or news coverage relating to us, including, but not limited to, publicity or news coverage in connection with the Chapter 11 Cases, may negatively impact our efforts to establish and promote a positive image after emergence from the Chapter 11 Cases.

**The Chapter 11 Cases limit the flexibility of our management team in running our business.**

While we operate our business as debtor-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the Bankruptcy Court prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with the various other parties-in-interest and one or more hearings. Other parties-in-interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events. In addition, constraints on our activities as debtor-in-possession may place limitations and restrictions on our business activities and resources. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.

W**e may experience employee attrition as a result of the Chapter 11 Cases.**

As a result of the Chapter 11 Cases, we may experience employee attrition, and our employees may face considerable distraction and uncertainty. A loss of key personnel or material erosion of employee morale could adversely affect our business and results of operations. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us through the pendency of the Chapter 11 Cases is limited by certain restrictions on the implementation of incentive programs under the Bankruptcy Code. The loss of services of members of our senior management team

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could impair our ability to execute our business strategies and implement operational initiatives, which may have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations.

**Risks Related to Our Financial Position and Capital Requirements**

**We are a clinical and commercial stage company subject to significant risks and uncertainties, including the risk that we or our partners may fail to develop, obtain regulatory approval or market our product candidates or generate product related revenues.**

We are primarily a clinical and commercial 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 monoclonal antibodies ("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 derived from our proprietary G-MAB library platform (e.g., PD-L1, CD47), 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), non-opioid corticosteroid formulated as a viscous gel injection (SP-102) ("SEMDEXA<sup>TM</sup>") and lymphatic drug delivery system (Sofusa) to be commercially available for a few years, if at all. Additionally, our COVID-19 related product candidates, including STI-2020 (affinity matured neutralizing antibody; COVI-AMG), STI-2099 (intranasal affinity matured neutralizing antibody; COVIDROPS), STI-9167 (broad-spectrum neutralizing antibody; COVISHIELD), STI-5656 (Abivertinib), STI-8282 (allogeneic adipose-derived mesenchymal stem cells; COVI-MSC), STI-1558 (SARS-CoV-2 Oral Mpro inhibitor), serological IgM/IgG antibody diagnostic test (COVITRACK) and lateral flow viral antigen diagnostic test for SARS-CoV-2 (COVISTIX), 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 do not have many products that are approved for commercial sale and therefore do not expect to generate any revenues from product sales from most of our product candidates in the foreseeable future, if ever.**

We have generated limited product related revenues to date, and, with the exception of ZTlido® (lidocaine topical system 1.8%) ("ZTlido"), do not expect to generate any such revenues for at least the next several years, if at all. To obtain revenues from sales of our product candidates, we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for, manufacturing and marketing products with commercial potential. We may never succeed in these activities, and we may not generate sufficient revenues to continue our business operations or achieve profitability.

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

As of December 31, 2022 and 2021, we had an accumulated deficit of $1,959.4 million and $1,386.6 million, respectively. We continue to incur significant research and development and other expenses related to our ongoing operations. We have incurred operating losses since our inception, expect to continue to incur significant operating losses for the foreseeable future, and we expect these losses to increase as we: (i) advance RTX, STI-6129 (anti-CD38 ADC), STI-1492 (anti-CD38 DAR-T), STI-6643 (anti-CD47 antibody), SP-103, SEMDEXA<sup>TM</sup> and our other product candidates, including our COVID-19-related product candidates, STI-2099 (COVIDROPS), STI-9167 (COVISHIELD), STI-1558 (SARS-CoV-2 Oral Mpro inhibitor), and STI-8282 (COVI-MSC), into further clinical trials and pursue other development, acquire, develop and manufacture clinical trial materials and increase other regulatory operating activities, (ii) conduct further studies for our preclinical COVID-19 related product candidates to advance to clinical trials and seek regulatory approval; (iii) incur incremental expenses associated with our efforts to further advance a number of potential product candidates into preclinical development activities, (iv) continue to identify and advance a number of fully human therapeutic antibody and ADC preclinical product candidates, (v) incur higher salary, lab supply and infrastructure costs incurred in connection with supporting all of our programs, (vi) invest in our joint ventures, collaborations or other third party agreements, (vii) incur expenses in conjunction with defending and enforcing our rights in various litigation matters, (viii) expand our corporate, development and manufacturing infrastructure, and (ix) support our subsidiaries, including Bioserv Corporation, Levena Biopharma US Inc., 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.

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

Our operations have consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development of our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including building our own commercial organization to address certain markets. We will require additional capital for the further development and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures.

As a result of our recurring losses from operations, recurring negative cash flows from operations and substantial cumulative losses, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial statements for the year ended December 31, 2022 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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the progress of the development of our fully human mAbs, including biosimilars/biobetters, derived from our proprietary G-MAB library platform, ADCs, BsAbs, CAR-T and DAR-T for adoptive cellular immunotherapy, Abivertinib, GeneMAb, RTX, Sofusa, SP-103 and SEMDEXA<sup>TM</sup> and our COVID-19 product candidates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the number of product candidates we pursue;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the time and costs involved in obtaining regulatory approvals;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our plans to establish sales, marketing and/or manufacturing capabilities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effect of competing technological and market developments;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the terms and timing of any collaborative, licensing and other arrangements that we may establish;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•general market conditions for offerings from biopharmaceutical companies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our obligations under our debt arrangements;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the time and costs involved in defending and enforcing our rights in various litigation matters;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified personnel;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effect of the COVID-19 pandemic; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our revenues, if any, from successful development and commercialization of our product candidates, including ZTlido.

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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.

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**

**We are heavily dependent on the success of our technologies and product candidates, and we cannot give any assurance that our product candidates will receive regulatory approval, which is necessary before they can be commercialized.** 

To date, we have invested a significant portion of our efforts and financial resources in the acquisition and development of our product candidates. As an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize such product candidates. Other than ZTlido, our product candidates are currently in preclinical development or in clinical trials. Our business depends entirely on the successful development and commercialization of our product candidates, which may never occur. We currently do not generate significant revenues from sales of any products, and we may not be able to develop or commercialize our product candidates.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•developing our technology platform;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•identifying, developing, manufacturing and commercializing product candidates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•entering into successful licensing and other arrangements with product development partners;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•participating in regulatory approval processes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•formulating and manufacturing products; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•conducting sales and marketing activities.

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

Each of our product candidates will require additional preclinical or clinical development, management of preclinical, clinical and manufacturing activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or

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promote any of our product candidates before we receive regulatory approval from the U.S. Food and Drug Administration (the "FDA"), the United Kingdom's Medicines and Healthcare Products Regulatory Agency (the "MHRA"), the European Medicines Agency (the "EMA") or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. In addition, our product development programs contemplate the development of companion diagnostics by our third-party collaborators. Companion diagnostics are subject to regulation as medical devices and must themselves be approved for marketing by the FDA, the MHRA, the EMA or certain other foreign regulatory agencies before we may commercialize our product candidates.

**Delays in clinical testing could result in increased costs to us and delay our ability to generate revenue.**

Although we are currently engaging in and planning for certain clinical trials, there can be no assurance that the FDA will accept our proposed trial designs. We may experience delays in our clinical trials, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•obtaining regulatory approval to commence a trial;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•reaching agreement on acceptable terms with prospective contract research organizations ("CROs") and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•obtaining institutional review board ("IRB") approval at each site;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•recruiting suitable patients to participate in a trial;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•clinical sites deviating from trial protocol or dropping out of a trial;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•having patients complete a trial or return for post-treatment follow-up;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•developing and validating companion diagnostics on a timely basis, if required;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•adding new clinical trial sites; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•manufacturing sufficient quantities of product candidate for use in clinical trials.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating, as well as the COVID-19 pandemic. Furthermore, we intend to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we intend to have agreements governing their committed activities, but we will have limited influence over their actual performance.

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We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Monitoring Committees (also known as Data and Safety Monitoring Board or Data and Safety Monitoring Committee) for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

**Competition for patients in conducting clinical trials may prevent or delay product development and strain our limited financial resources.**

Many pharmaceutical companies are conducting clinical trials in patients with the disease indications that our product candidates target. As a result, we must compete with them for clinical sites, physicians and the limited number of patients who fulfill the stringent requirements for participation in clinical trials. Also, due to the confidential nature of clinical trials, we do not know how many of the eligible patients may be enrolled in competing studies and who are consequently not available to us for our clinical trials.

In addition, certain of our clinical trials have been affected by and may continue to be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment for our non-COVID-19 product candidates have been and may continue to be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients have not been and others may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, any inability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact our clinical trial operations.

Our clinical trials may be delayed or terminated due to the inability to enroll enough patients. Patient enrollment depends on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the study and potential reduced enrollment due to the COVID-19 pandemic. The delay or inability to meet planned patient enrollment may result in increased costs and delays or termination of the trial, which could have a harmful effect on our ability to develop products.

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

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

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

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

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application ("NDA") or a Biologics License Application ("BLA"), a marketing authorization application ("MAA") or other submission or to obtain regulatory approval in the U.S., the United Kingdom, the European Union or elsewhere;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the data obtained from studies in one jurisdiction, such as the United States, may not be accepted by regulatory authorities in other jurisdictions, and certain jurisdictions may require data from studies conducted in their country in order to obtain regulatory approval;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the approval policies or regulations of the FDA, the MHRA, the EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

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

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Other than an NDA submitted by Scilex Pharmaceuticals Inc. ("Scilex Pharma") for Scilex Pharma's lead product candidate, ZTlido, which was approved by the FDA in February 2018, and an MAA filed in Europe (which was subsequently withdrawn in 2019), we have not previously submitted a BLA or an NDA to the FDA, an MAA to the MHRA or the EMA or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if our clinical trials are successful. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in some instances, upon our collaborators' ability to obtain regulatory approval of the companion diagnostics to be used with our product candidates, as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patients that we are targeting for our product candidates are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

We plan to seek regulatory approval to commercialize our product candidates in the U.S., the United Kingdom, the European Union and in additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products or product candidates will be harmed. Further, the United Kingdom has withdrawn from the European Union. We cannot predict what consequences the withdrawal of the United Kingdom from the European Union might have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions.

**Inadequate funding for the FDA, the MHRA, the EMA and comparable foreign authorities and government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.**

The ability of the FDA, the MHRA, the EMA and comparable foreign authorities to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes and the impact of crises that hinder its operations, such as COVID-19. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other

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government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA, the MHRA, the EMA and comparable foreign authorities may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

**Our approach to the discovery and development of product candidates that target ADCs or ADNABs is unproven, and we do not know whether we will be able to develop any products of commercial value.**

ADCs and our antibody-drug-nanoparticle albumin-bound ("ADNAB") platform are emerging technologies and, consequently, it is conceivable that such technologies may ultimately fail to identify commercially viable products to treat human patients with cancer or other diseases. Due to the unproven nature of ADCs and ADNABs, significant further research and development activities will be required. We may incur substantial costs in connection with such research and development activities and there is no guarantee that these activities will lead to the identification of commercially viable products.

**We may expend our limited resources to pursue a particular product, product candidate or indication and fail to capitalize on products, product candidates or indications that may be more profitable or for which there is a greater likelihood of success.**

We are currently advancing multiple product candidates for a variety of indications. Simultaneously advancing so many product candidates creates a significant strain on our limited human and financial resources. As a result, we may not be able to provide sufficient resources to any single product candidate to permit the successful development and commercialization of such product candidate, causing material harm to our business. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products.

If, due to our limited resources and access to capital, we prioritize development of certain product candidates that ultimately prove to be unsuccessful, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

**Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.**

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

Additionally, if we receive marketing approval for one or more of our product candidates, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•regulatory authorities may withdraw approvals of such products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•regulatory authorities may require additional warnings on the label;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•we could be sued and held liable for harm caused to patients; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our reputation may suffer.

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Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate or for particular indications of a product candidate, if approved, and could significantly harm our business, results of operations and prospects.

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

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

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

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

**If we fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.**

We currently manufacture some of our preclinical and clinical materials in-house. In addition, we may enter into collaboration and license agreements with certain collaborators, pursuant to which we may, among other things, agree to carry out manufacturing of our collaborators' material and product candidates. However, we only recently began manufacturing such materials and do not have significant prior experience manufacturing preclinical or clinical materials or product candidates. Before we can begin commercial manufacture of our or any potential collaborators' materials or product candidates, regulatory authorities must approve marketing applications that identify manufacturing facilities operated by us or our contract manufacturers that have passed regulatory inspection and manufacturing processes that are acceptable to the regulatory authorities. In addition, our pharmaceutical manufacturing facilities are continuously subject to scheduled and unannounced inspection by the FDA and international regulatory authorities, before and after product approval, to monitor and ensure compliance with cGMP and other regulations. Additionally, we may use contract manufacturers for the manufacture of our product candidates from time to time based on capacity needs. Although we are not involved in the day-to-day operations of our contract manufacturers, we are ultimately responsible for ensuring that our products are manufactured in accordance with cGMP regulations.

Due to the complexity of the processes used to manufacture our product candidates and our potential collaborators' product candidates, we may be unable to continue to pass or initially pass federal or international regulatory inspections in a cost-effective manner. For the same reason, any potential third-party manufacturer of our product candidates may be unable to comply with cGMP

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regulations in a cost-effective manner and may be unable to initially or continue to pass a federal or international regulatory inspection.

If we, or third-party manufacturers with whom we contract, are unable to comply with manufacturing regulations, we may be subject to delay of approval of our product candidates, warning or untitled letters, fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

With specific regard to ZTlido and other drug products we do not manufacture in-house, but rather through a third-party manufacturer, if a third-party manufacturer upon which we rely fails to produce drug candidates that we require on a timely basis, or to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the trials, regulatory submissions, required approvals or commercialization of our drug candidates. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, which include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. The third-party manufacturers we contract with may not perform as agreed or may terminate their agreements with us. Any of these factors could cause us to delay or suspend any future clinical trials, regulatory submissions, required approvals or commercialization of one or more of our drug candidates, entail higher costs and result in our being unable to effectively commercialize products.

**Material necessary to manufacture product candidates may not be available on commercially reasonable terms, or at all, which may delay the development and commercialization of product candidates.**

There are a limited number of suppliers for raw materials that we use to manufacture our products and product candidates and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for clinical trials, and if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by us. We typically do not have any agreements for the commercial production of these raw materials. Any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to obtain or replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates. If we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.

**We may not be able to manufacture our products or product candidates in commercial quantities, which would prevent us from commercializing our products and product candidates.**

We are largely dependent on our third-party manufacturers to conduct process development and scale-up work necessary to support greater clinical development and commercialization requirements for our products and product candidates. Carrying out these activities in a timely manner, and on commercially reasonable terms, is critical to the successful development and commercialization of our products and product candidates. We expect our third-party manufacturers are capable of providing sufficient quantities of our products and product candidates to meet anticipated clinical and full-scale commercial demands; however, if third parties with whom we currently work are unable to meet our supply requirements, we will need to secure alternate suppliers or face potential delays or shortages. While we believe that there are other contract manufacturers with the technical capabilities to manufacture our products and product candidates, we cannot be certain that identifying and establishing relationships with such sources would not result in significant delay or material additional costs.

**The complexities and regulations related to our manufacturing and development services businesses subject us to potential risks.**

Through certain subsidiaries, we offer development (e.g., conjugation) and manufacturing services that are highly complex, due in part to strict regulatory requirements. A failure of our quality control systems in our facilities could cause problems to arise in connection with facility operations for a variety of reasons, including equipment malfunction, contamination, failure to follow specific manufacturing instructions, protocols and standard operating procedures, problems with raw materials or environmental factors. Such problems could affect production of a single manufacturing run or a series of runs, requiring the destruction of products, or could halt manufacturing operations altogether. In addition, our failure to meet required quality standards may result in our failure to timely deliver products to our customers or collaborators, which in turn could damage our reputation for quality and service. Any such incident could, among other things, lead to increased costs, lost revenue, reimbursement to customers for lost drug substance, damage to and possibly termination of existing customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other manufacturing runs. With respect to our commercial manufacturing, if problems are not

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discovered before the product is released to the market, we may be subject to regulatory actions, including product recalls, product seizures, injunctions to halt manufacture and distribution, restrictions on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such issues could subject us to litigation and/or liability for damages, the cost of which could be significant.

Regulatory agencies may periodically inspect our manufacturing facilities to ensure compliance with applicable legal, regulatory and local requirements, such as cGMP requirements. Failure to comply with these requirements may subject us to possible legal or regulatory actions, such as suspension of manufacturing, seizure of product or voluntary recall of a product.

**We face potential business disruptions and related risks resulting from the COVID-19 pandemic, which could have a material adverse effect on our business, financial condition and results of operations.** 

The COVID-19 pandemic continues to impact the global economy. Financial markets have experienced, and continue to experience, extreme fluctuations that may cause a contraction in available liquidity globally as important segments of the credit markets react to the development. The COVID-19 pandemic continues to rapidly evolve, and the extent to which COVID-19 may impact our business, clinical trials and sales of ZTlido will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the continued spread of the disease and variants thereof, including any future variants, the duration of the outbreak, vaccination rates, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

We continue to monitor the impact of the COVID-19 pandemic, and we may continue to experience disruptions that could severely impact the development of our product candidates, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•delays or difficulties in enrolling patients in our clinical trials as patients may be reluctant, or unable, to visit clinical sites;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators, clinical site staff and potential closure of clinical facilities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•decreases in patients seeking treatment for chronic pain;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•changes in local regulations as part of a response to the COVID-19 outbreak, which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•risk that participants enrolled in our clinical trials will contract COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others.

Any manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testing activities. For example, we obtain our commercial supply of ZTlido and our clinical supply of SP-103 exclusively from Oishi Koseido Co., Ltd. and Itochu CHEMICAL FRONTIER Corporation in Japan. The COVID-19 pandemic or an outbreak of another infectious disease could result in delays in the procurement and shipping of ZTlido, which may have an adverse impact on our operating results.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the continued duration of, the COVID-19 pandemic may be difficult to assess or predict, there could be continued disruption of the global financial markets, reducing our ability to access capital, which could in the future negatively

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affect our liquidity. In addition, a recession or market correction resulting from the COVID-19 pandemic and related factors could materially affect our business and the value of our common stock.

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

Management is actively monitoring the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce. Given the continued evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition or liquidity for fiscal year 2023.

**Failure to comply with existing and future regulatory requirements as a contract manufacturing organization could adversely affect our business, results of operations and financial condition.**

Operations as a contract manufacturing organization ("CMO") are highly regulated. As a CMO, we are required to comply with the regulatory requirements of various local, state, provincial, national and international regulatory bodies having jurisdiction in the countries or localities in which we may manufacture products or product candidates or in which our collaborators' products or product candidates are distributed. In particular, we are subject to laws and regulations concerning development, testing, manufacturing processes, equipment and facilities, including compliance with cGMPs, import and export regulations, and product registration and listing, among other things. As a result, our facilities are subject to regulation by the FDA, as well as regulatory bodies of other jurisdictions such as the EMA, depending on the countries in which our collaborators develop the products or product candidates we manufacture on their behalf. As we expand our operations and geographic scope, we may be exposed to more complex and new regulatory and administrative requirements and legal risks, any of which may require expertise in which we have little or no experience. It is possible that compliance with new regulatory requirements could impose significant compliance costs on us. Such costs could have a material adverse effect on our business, financial condition and results of operations.

These regulatory requirements impact many aspects of our operations, including manufacturing, developing, storage, distribution, import and export and record keeping related to collaborators' products or product candidates. Noncompliance with any applicable regulatory requirements can result in government refusal to approve (i) facilities for testing or manufacturing product candidates or (ii) potential products for commercialization. The FDA and other regulatory agencies can delay, limit or deny approval for many reasons, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•changes to the regulatory approval process, including new data requirements for products or product candidates in those jurisdictions, including the United States, in which our customers may be seeking approval;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•that a collaborator's product or product candidate may not be deemed to be safe or effective;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the ability of the regulatory agency to provide timely responses as a result of its resource constraints; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•that the manufacturing processes or facilities may not meet the applicable requirements.

In addition, if new legislation or regulations are enacted or existing legislation or regulations are amended or are interpreted or enforced differently, we may be required to obtain additional approvals or operate according to different manufacturing or operating standards. This may require a change in our development and manufacturing techniques or additional capital investments in our facilities. Any related costs may be significant. If we fail to comply with applicable regulatory requirements in the future, then we may be subject to warning letters and/or civil or criminal penalties and fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, restrictions on the import and export of products, debarment, exclusion, disgorgement of profits, operating restrictions and criminal prosecution and the loss of contracts and resulting revenue losses. Inspections by regulatory authorities that identify any deficiencies could result in remedial actions, production stoppages or facility closure, which would disrupt the manufacturing process and supply of product to our collaborators. In addition, such failure to comply could expose us to contractual and product liability claims, including claims by collaborators for reimbursement for lost or damaged active pharmaceutical ingredients or recall or other corrective actions, the costs of which could be significant.

In addition, certain product candidates we manufacture must undergo preclinical and clinical evaluations relating to product safety and efficacy before they are approved as commercial therapeutic products. The regulatory authorities having jurisdiction in the countries in which we or our collaborators intend to market their products may delay or put on hold clinical trials or delay approval of a product or determine that the product is not approvable. The FDA or other regulatory agencies can delay approval of a product candidate if our manufacturing facility, including any newly commissioned facility, is not able to demonstrate compliance with cGMPs, pass other aspects of pre-approval inspections or properly scale up to produce commercial supplies. The FDA and comparable government authorities having jurisdiction in the countries in which we or our collaborators may market approved products have the authority to withdraw product approval or suspend manufacture if there are significant problems with raw materials or supplies,

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quality control and assurance or the product we manufacture is adulterated or misbranded. If our manufacturing facilities and services are not in compliance with FDA and comparable government authorities, we may be unable to obtain or maintain the necessary approvals to continue manufacturing product candidates for our customers, which would materially adversely affect our results of operations and financial condition.

**The consumers of any approved products we manufacture for our collaborators may significantly influence our business, results of operations and financial condition.**

We will depend on, and have no control over, consumer demand for any approved products we manufacture for our collaborators. Consumer demand for our collaborators' products could be adversely affected by, among other things, delays in health regulatory approval, the inability of our collaborators to demonstrate the efficacy and safety of their products, the loss of patent and other intellectual property rights protection, the emergence of competing or alternative products, including generic drugs, the degree to which private and government payment subsidies for a particular product offset the cost to consumers and changes in the marketing strategies for such products. If the products we manufacture for our collaborators do not gain market acceptance, our revenues and profitability may be adversely affected.

Continued changes to the healthcare industry, including ongoing healthcare reform, adverse changes in government or private funding of healthcare products and services, legislation or regulations governing the privacy of patient information or patient access to care, or the delivery, pricing or reimbursement of pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to purchase fewer services from us or influence the price that others are willing to pay for our services. Changes in the healthcare industry's pricing, selling, inventory, distribution or supply policies or practices could also significantly reduce our revenue and profitability.

If production volumes of key products that we manufacture for our collaborators decline, results of operations and financial condition may continue to be adversely affected.

**If we do not successfully commercialize our products, our business, financial condition and results of operations will be materially and adversely affected.**

With the exception of Scilex Holding Company ("Scilex Holding") (which commercially launched, through Scilex Pharma, ZTlido in late October 2018, using a contract sales organization to conduct its primary sales activities but now has its own sales force), we currently have no sales and marketing organization. If any of our other product candidates are approved by the FDA, we intend to market that product through our own sales force. We will incur significant additional expenses and commit significant additional management resources to establish our sales force. We may not be able to establish these capabilities despite these additional expenditures. We will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire and train sales and marketing personnel. If we elect to rely on third parties to sell our product candidates in the U.S., we may receive less revenue than if we sold our products directly. In addition, although we would intend to use due diligence in monitoring their activities, we may have little or no control over the sales efforts of those third parties. In the event we are unable to develop our own sales force or collaborate with a third party to sell our product candidates, we may not be able to commercialize our product candidates which would negatively impact our ability to generate revenue.

Scilex Holding's commercialization efforts of ZTlido have been primarily focused in the United States. Commercialization of ZTlido and other future product candidates outside of the United States, to the extent pursued, is likely to require collaboration with one or more third parties.

In addition to the risks discussed elsewhere in this section, Scilex Holding's ability to successfully commercialize and generate revenues from ZTlido depends on a number of factors, including, but not limited to, Scilex Holding's ability to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•develop and execute its sales and marketing strategies for Scilex Holding's products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•achieve, maintain and grow market acceptance of, and demand for, Scilex Holding's products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third-party payors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•maintain, manage or scale the necessary sales, marketing, manufacturing, managed markets, and other capabilities and infrastructure that are required to successfully integrate and commercialize our products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•obtain adequate supply of Scilex Holding's products;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•maintain and extend intellectual property protection for Scilex Holding's products; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•comply with applicable legal and regulatory requirements.

If Scilex Holding is unable to successfully achieve or perform these functions, Scilex Holding will not be able to maintain or increase its product revenues and our business, financial condition and results of operations will be materially and adversely affected.

**We may need others to market and commercialize our product candidates in international markets.**

In the future, if appropriate regulatory approvals are obtained, we may commercialize our product candidates in international markets. However, we have not decided how to commercialize our product candidates in those markets. We may decide to build our own sales force or sell our products through third parties. If we decide to sell our product candidates in international markets through a third party, we may not be able to enter into any marketing arrangements on favorable terms or at all. In addition, these arrangements could result in lower levels of income to us than if we marketed our product candidates entirely on our own. If we are unable to enter into a marketing arrangement for our product candidates in international markets, we may not be able to develop an effective international sales force to successfully commercialize those products in international markets. If we fail to enter into marketing arrangements for our products and are unable to develop an effective international sales force, our ability to generate revenue would be limited.

**With respect to ZTlido®, COVIMARK™ or COVISTIX™ and any of our product candidates for which we may receive regulatory approvals, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.**

Our FDA approval for ZTlido® and any other regulatory approvals that we may receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval. The future discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•fines, warning letters or holds on clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•product seizure or detention, or refusal to permit the import or export of products; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•injunctions or the imposition of civil or criminal penalties.

The FDA's policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

**We will need to obtain FDA approval of any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.**

A pharmaceutical product cannot be marketed in the U.S. or other countries until we have completed rigorous and extensive regulatory review processes, including approval of a brand name. Any brand names we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office (the "PTO"). The FDA typically conducts a review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA may also object to a product brand name if it believes the name

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inappropriately implies medical claims. If the FDA objects to any of our proposed product brand names, we may be required to adopt an alternative brand name for our product candidates. If we adopt an alternative brand name, we would lose the benefit of our existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product brand name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.

**Our failure to successfully discover, acquire, develop and market additional product candidates or approved products would impair our ability to grow.**

As part of our growth strategy, we intend to develop and market additional products and product candidates. We are pursuing various therapeutic opportunities through our product pipeline. We may spend several years completing our development of any particular current or future internal product candidate, and failure can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. In addition, because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select, discover and acquire promising pharmaceutical product candidates and products. Failure of this strategy would impair our ability to grow.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.

In addition, future acquisitions may entail numerous operational and financial risks, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•disruption of our business and diversion of our management's time and attention to develop acquired products or technologies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•higher than expected acquisition and integration costs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•increased amortization expenses;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•impairment of our ability to obtain intellectual property rights or rights to commercialize additional product candidates, or increased cost to obtain such rights;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•inability to motivate key employees of any acquired businesses; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•assumption of known and unknown liabilities.

Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.

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**Our commercial success depends upon us attaining significant market acceptance of our product candidates, if approved for sale, among physicians, patients, healthcare payors and major operators of cancer and other clinics.**

Even if we obtain regulatory approval for our product candidates, the product may not gain market acceptance among physicians, health care payors, patients and the medical community, which are critical to commercial success. Market acceptance of any product candidate for which we receive approval depends on a number of factors, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the efficacy and safety as demonstrated in clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the timing of market introduction of such product candidate as well as competitive products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the clinical indications for which the product candidate is approved;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•acceptance by physicians, major operators of cancer clinics and patients of the product candidate as a safe and effective treatment;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the safety of such product candidate seen in a broader patient group, including its use outside the approved indications;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the availability, cost and potential advantages of alternative treatments, including less expensive generic drugs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the availability of adequate reimbursement and pricing by third-party payors and government authorities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the product labeling or product insert required by the FDA or regulatory authority in other countries;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the approval, availability, market acceptance and reimbursement for a companion diagnostic, if any;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the prevalence and severity of adverse side effects; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effectiveness of our sales and marketing efforts.

If any product candidate that we develop does not provide a treatment regimen that is as beneficial as, or is perceived as being as beneficial as, the current standard of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, patients and third-party payors, our ability to generate revenues from that product would be substantially reduced. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion, and may never be successful.

**If we cannot compete successfully against other biotechnology and pharmaceutical companies, we may not be successful in developing and commercializing our technology and our business will suffer.** 

The biotechnology and pharmaceutical industries are characterized by intense competition and rapid technological advances, both in the U.S. and internationally. In addition, the competition in the oncology and pain management markets, and other relevant markets, is intense. Even if we are able to develop our product candidates, proprietary platform technology and/or additional antibody libraries, each will compete with a number of existing and future technologies and product candidates developed, manufactured and marketed by others. Specifically, we will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have validated technologies with products already FDA-approved or in various stages of development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs and have substantially greater financial resources than we do, as well as significantly greater experience in:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•developing product candidates and technologies generally;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•undertaking preclinical testing and clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•obtaining FDA and other regulatory approvals of product candidates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•formulating and manufacturing product candidates; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•launching, marketing and selling product candidates.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the

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

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

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•attract and retain key personnel;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•develop relationships with physicians prescribing these products; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•build an adequate sales and marketing infrastructure for our product candidates.

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

**Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.**

There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. We intend to seek approval to market our product candidates in the U.S., Europe and other selected foreign jurisdictions. Market acceptance and sales of our product candidates in both domestic and international markets will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for any of our product candidates and may be affected by existing and future health care reform measures. Government and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our product candidates. These payors may conclude that our product candidates are less safe, less effective or less cost-effective than existing or future introduced products, and third-party payors may not approve our product candidates for coverage and reimbursement or may cease providing coverage and reimbursement for these product candidates.

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

In some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.

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**Price controls may be imposed, which may adversely affect our future profitability.** 

In some countries, including member states of the European Union (the "EU"), the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take a significant amount of time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices, and in certain instances render commercialization in certain markets infeasible or disadvantageous from a financial perspective. In some countries, we or our collaborators may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product and/or our product candidates to other available products in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third party payors or government authorities may lead to further pressure on the prices or reimbursement levels. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, the commercial launch of our product and/or product candidates could be delayed, possibly for lengthy periods of time, we or our collaborators may not launch at all in a particular country, we may not be able to recoup our investment in one or more product candidates, and there could be a material adverse effect on our business.

Recently, there has been considerable public and government scrutiny in the United States of pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals. There have also been several recent state legislative efforts to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices or price increases. Adoption of new legislation at the federal or state level could affect demand for, or pricing of, our product candidates, if approved, and could diminish our ability to establish what we believe is a fair price for our products, ultimately diminishing our revenue for our products if they are approved.

In addition, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal government, which shall take effect in 2023. Under the Inflation Reduction Act of 2022, Congress authorized Medicare beginning in 2026 to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars. This provision is limited in terms of the number of pharmaceuticals whose prices can be negotiated in any given year and it only applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years. Drugs and biologics that have been approved for a single rare disease or condition are categorically excluded from price negotiation. Further, the new legislation provides that if pharmaceutical companies raise prices in Medicare faster than the rate of inflation, they must pay rebates back to the government for the difference. The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.

**Healthcare reform measures could hinder or prevent our product candidates' commercial success.**

In both the U.S. and certain foreign jurisdictions, there have been, and we expect there will continue to be a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. The U.S. government and other governments have shown significant interest in pursuing healthcare reform. In particular, the Medicare Modernization Act of 2003 revised the payment methodology for many products under the Medicare program in the U.S. This has resulted in lower rates of reimbursement. In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the "Healthcare Reform Law"), was enacted. The Healthcare Reform Law substantially changed the way healthcare is financed by both governmental and private insurers. Such government-adopted reform measures may adversely impact the pricing of healthcare products and services in the U.S. or internationally and the amount of reimbursement available from governmental agencies or other third-party payors.

There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. For example, there have been public announcements by members of the U.S. Congress regarding their plans to repeal and replace the Healthcare Reform Law and Medicare, and the Biden administration has announced plans to amend and expand the scope of the Healthcare Reform Law. Although we cannot predict the ultimate content or timing of any healthcare reform legislation, potential changes resulting from any amendment, repeal, replacement or expansion of these programs, including any reduction in the future availability of healthcare insurance benefits, could adversely affect our business and future results of operations. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect the demand for any product candidates for which we may obtain regulatory approval, as well as our ability to set satisfactory prices for our products, to generate revenues, and to achieve and maintain profitability.

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**Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics could harm our long-term drug development strategy.**

As one of the key elements of our clinical development strategy, we seek to identify patients within a disease category or indication who may derive selective and meaningful benefit from the product candidates we are developing. In collaboration with partners, we plan to develop companion diagnostics to help us to more accurately identify patients within a particular category or indication, both during our clinical trials and in connection with the commercialization of certain of our product candidates.

Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and require separate regulatory approval prior to commercialization. We typically do not develop companion diagnostics internally and thus we are dependent on the sustained cooperation and effort of our third-party collaborators in developing and obtaining approval for these companion diagnostics. We and our collaborators may encounter difficulties in developing and obtaining approval for the companion diagnostics, including issues relating to selectivity/specificity, analytical validation, reproducibility or clinical validation. Any delay or failure by our collaborators to develop or obtain regulatory approval of the companion diagnostics could delay or prevent approval of our product candidates. In addition, our collaborators may encounter production difficulties that could constrain the supply of the companion diagnostics, and both they and we may have difficulties gaining acceptance of the use of the companion diagnostics in the clinical community. If such companion diagnostics fail to gain market acceptance, it would have an adverse effect on our ability to derive revenues from sales of our products. In addition, any diagnostic company with whom we contract may decide to discontinue selling or manufacturing the companion diagnostic that we anticipate using in connection with development and commercialization of our product candidates or our relationship with such diagnostic company may otherwise terminate. In such instances, we may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our product candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our product candidates.

**Our collaborations depend upon the efforts of third parties to fund and manage the development of many of our potential product candidates, and failure of those third-party collaborators to assist or share in the costs of product development could materially harm our business, financial condition and results of operations.**

Our strategy for the development and commercialization of our proprietary product candidates has included the formation of joint ventures and collaborative arrangements with third parties. Potential third parties include biopharmaceutical, pharmaceutical and biotechnology companies, academic institutions and other entities. Third-party collaborators may assist us in:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•funding research, preclinical development, clinical trials and manufacturing;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•seeking and obtaining regulatory approvals;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•seeking and obtaining intellectual property and/or other proprietary rights to technology; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•successfully commercializing any future product candidates.

Our collaborations limit our ability to control the efforts devoted to many of our product candidates in such arrangements and our earlier stage pipeline is dependent upon identifying new potential collaborators. For example, our most recent joint ventures require us to conduct research and provide potential product candidates in addition to making capital contributions to continue the further development of those products. We generally do not have control over the management of the joint ventures and are minority holders in most of those ventures, which may result in limitations on our ability to successfully develop product candidates, obtain intellectual property and/or other proprietary rights and fund clinical trials through those joint ventures.

In addition, if we are not able to establish further collaboration agreements, we may be required to undertake product development and commercialization at our own expense. Such an undertaking may limit the number of product candidates that we will be able to develop, significantly increase our capital requirements and place additional strain on our internal resources.

Our failure to enter into additional collaborations could materially harm our business, financial condition and results of operations.

In addition, our dependence on licensing, collaboration and other agreements with third parties may subject us to a number of risks. These agreements may not be on terms that prove favorable to us and may require us to relinquish certain rights in our product candidates. To the extent we agree to work exclusively with one collaborator in a given area, our opportunities to collaborate with other entities could be curtailed. Lengthy negotiations with potential new collaborators may lead to delays in the research, development or commercialization of product candidates. The decision by our collaborators to pursue alternative technologies or the

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failure of our collaborators to develop or commercialize successfully any product candidate to which they have obtained rights from us could materially harm our business, financial condition and results of operations.

**We may seek to establish collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.**

From time to time we may engage in efforts to enter into licensing, distribution and/or collaboration agreements with one or more pharmaceutical or biotechnology companies to assist us with development and/or commercialization of our other product candidates. If we are successful in entering into such agreements, we may not be able to negotiate agreements with economic terms similar to those negotiated by other companies. We may not, for example, obtain significant upfront payments, substantial royalty rates or milestones. If we fail to enter into any such agreements in a timely manner or at all, our efforts to develop and/or commercialize our product candidates may be undermined. In addition, if we do not raise funds through any such agreements, we will need to rely on other financing mechanisms, such as sales of debt or equity securities, to fund our operations. Such financing mechanisms, if available, may not be sufficient or timely enough to advance our programs forward in a meaningful way in the short-term.

We may not be successful in entering into additional collaborations as a result of many factors, including the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•competition in seeking appropriate collaborators;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a reduced number of potential collaborators due to recent business combinations in the pharmaceutical industry;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•inability to negotiate collaborations on acceptable terms;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•inability to negotiate collaborations on a timely basis;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a potential collaborator's evaluation of our product or product candidates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a potential collaborator's resources and expertise; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•restrictions due to an existing collaboration agreement.

If we are unable to enter into collaborations, we may have to curtail the commercialization or the development of any product candidate on which we are seeking to collaborate, reduce or delay its development program or those for other of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to develop or commercialize our product candidates.

Even if we enter into collaboration agreements and strategic partnerships or license our intellectual property, we may not be able to maintain them or they may be unsuccessful, which could delay our timelines or otherwise adversely affect our business.

**We, as well as any collaborators or licensees of our technologies and services, will not be able to commercialize our product candidates if preclinical studies do not produce successful results or clinical trials do not demonstrate safety and efficacy in humans.**

Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and have an uncertain outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. We, as well as any licensees and collaborators, may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent the commercialization of product candidates based on our technologies, including the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Preclinical or clinical trials may produce negative or inconclusive results, which may require additional preclinical testing, additional clinical trials or the abandonment of projects that we, our licensees or our collaborators expect to be promising. For example, promising animal data may be obtained about the anticipated efficacy of a product candidate and then human tests may not result in such an effect. In addition, unexpected safety concerns may be encountered that would require further testing even if the product candidate produced an otherwise favorable response in human subjects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Initial clinical results may not be supported by further or more extensive clinical trials. For example, we or a licensee may obtain data that suggest a desirable response from a product candidate in a small human study, but when tests are conducted on larger numbers of people, the same extent of response may not occur. If the response generated by a product candidate is too low or occurs in too few treated individuals, then the product candidate will have no commercial value.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Enrollment in any of our or any of our licensee's or collaborator's clinical trials may be slower than projected, resulting in significant delays. The cost of conducting a clinical trial increases as the time required to enroll adequate numbers of human subjects to obtain meaningful results increases. Enrollment in a clinical trial can be a slower-than-anticipated process because of competition from other clinical trials, because the study is not of interest to qualified subjects, or because the stringency of requirements for enrollment limits the number of people who are eligible to participate in the clinical trial.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We, our licensees or our collaborators might have to suspend or terminate clinical trials if the participating subjects are being exposed to unacceptable health risks. Animal tests do not always adequately predict potential safety risks to human subjects. The risk of any product candidate is unknown until it is tested in human subjects, and if subjects experience adverse events during the clinical trial, the trial may have to be suspended and modified or terminated entirely.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Regulators or institutional review boards may suspend or terminate clinical research for various reasons, including safety concerns or noncompliance with regulatory requirements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Any regulatory approval ultimately obtained may be limited or subject to restrictions or post-approval commitments that render the product not commercially viable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The effects of our technology-derived or technology-enhanced product candidates may not be the desired effects or may include undesirable side effects.

Significant clinical trial delays could allow our competitors to bring products to market before we, any of our licensees or our collaborators do and impair our ability to commercialize our technologies and product candidates based on our technologies. Poor clinical trial results or delays may make it impossible to license a product candidate or so reduce its attractiveness to prospective licensees that we will be unable to successfully develop and commercialize such a product candidate.

**Because our development activities are expected to rely heavily on sensitive and personal information, an area which is highly regulated by privacy laws, we may not be able to generate, maintain or access essential patient samples or data to continue our research and development efforts in the future on reasonable terms and conditions, which may adversely affect our business.**

Although we are not subject to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), as we are neither a Covered Entity nor Business Associate (as defined in HIPAA and the Health Information Technology and Clinical Health Act (the "HITECH Act")), we may have access to very sensitive data regarding patients whose tissue samples are used in our studies. This data will contain information that is personal in nature. The maintenance of this data is subject to certain privacy-related laws, which impose upon us administrative and financial burdens, and litigation risks. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use, disclosure and protection of health-related and other personal information. For instance, the rules promulgated by the Department of Health and Human Services under HIPAA create national standards to protect patients' medical records and other personal information in the U.S. These rules require that healthcare providers and other covered entities obtain written authorizations from patients prior to disclosing protected health care information of the patient to companies. If the patient fails to execute an authorization or the authorization fails to contain all required provisions, then we will not be allowed access to the patient's information and our research efforts can be substantially delayed. Furthermore, use of protected health information that is provided to us pursuant to a valid patient authorization is subject to the limits set forth in the authorization (i.e., for use in research and in submissions to regulatory authorities for product approvals). As such, we are required to implement policies, procedures and reasonable and appropriate security measures to protect individually identifiable health information we receive from covered entities, and to ensure such information is used only as authorized by the patient. Any violations of these rules by us could subject us to civil and criminal penalties and adverse publicity and could harm our ability to initiate and complete clinical trials required to support regulatory applications for our product candidates. In addition, HIPAA does not replace federal, state, or other laws that may grant individuals even greater privacy protections.

California enacted the California Consumer Privacy Act ("CCPA"), which creates new individual privacy rights for California consumers and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA requires covered companies to provide new disclosure to consumers about such companies' data collection, use and sharing practices, provide such consumers new ways to opt-out of certain sales or transfers of personal information, and provide consumers with additional causes of action. The CCPA went into effect on January 1, 2020, and beginning July 1, 2020, the California Attorney General may bring enforcement actions for violations. The CCPA, among other things, requires covered companies to provide disclosures to California consumers concerning the collection and sale of personal information, and will give such consumers the right to opt-out of certain sales of personal information. The CCPA may increase our company's compliance costs and potential liability, and we cannot yet predict the impact of the CCPA on our business. In addition, a new California privacy law, the California Privacy Rights Act (the "CPRA") was passed by California voters on November 3, 2020. The CPRA created additional obligations with

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respect to processing and storing personal information that went into effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). Further, Virginia passed the Consumer Data Protection Act, Colorado passed the Colorado Privacy Act, Utah passed the Consumer Privacy Act and Connecticut passed the Connecticut Data Privacy Act, all of which become effective in 2023. These other state privacy laws will impose many similar obligations regarding the processing and storing of personal information as the CCPA and the CPRA.

International data protection laws, including Regulation 2016/679, known as the General Data Protection Regulation ("GDPR"), may also apply to health-related and other personal information obtained outside of the United States. The GDPR went into effect on May 25, 2018. The GDPR strengthened data protection requirements in the European Union, as well as potential fines for noncompliant companies of up to the greater of €20 million or 4% of annual global revenue. The regulation imposes numerous new requirements for the collection, use, storage and disclosure of personal information, including more stringent requirements relating to consent and the information that must be shared with data subjects about how their personal information is used, the obligation to notify regulators and affected individuals of personal data breaches, extensive new internal privacy governance obligations and obligations to honor expanded rights of individuals in relation to their personal information, including the right to access, correct and delete their data. In addition, the GDPR includes restrictions on cross-border data transfers. The GDPR increased our responsibility and liability in relation to personal data that we process where such processing is subject to the GDPR, and we may be required to put in place additional mechanisms to ensure compliance with the GDPR, including as implemented by individual countries. Further, the United Kingdom's exit from the European Union, often referred to as Brexit, has created additional complexity as, while the United Kingdom and European Union laws are similar, the United Kingdom is now a separate and distinct regulatory environment.

Failure to comply with data protection laws and regulations could result in government enforcement actions, which may involve civil and criminal penalties, private litigation and/or adverse publicity and could negatively affect our operating results and business. Claims that we have violated individuals' privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

We can provide no assurance that future legislation will not prevent us from generating or maintaining personal data or that patients will consent to the use of their personal information, either of which may prevent us from undertaking or publishing essential research. These burdens or risks may prove too great for us to reasonably bear and may adversely affect our ability to achieve profitability or maintain profitably in the future.

**Our therapeutic product candidates for which we intend to seek approval as biological products may face competition sooner than expected.**

With the enactment of the Biologics Price Competition and Innovation Act of 2009 ("BPCIA") as part of the Health Care Reform Law, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as "interchangeable." The FDA defines an interchangeable biosimilar as a product that, in terms of safety or diminished efficacy, presents no greater risk when switching between the biosimilar and its reference product than the risk of using the reference product alone. Under the BPCIA, an application for a biosimilar product cannot be submitted to the FDA until four years, or approved by the FDA until 12 years, after the original brand product identified as the reference product was approved under a BLA. The new law is complex and is only beginning to be interpreted by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

Although we believe that if any of our product candidates were to be approved as biological products under a BLA, such approved products should qualify for the 12-year period of exclusivity, there is a risk that the U.S. Congress could amend the BPCIA to significantly shorten this exclusivity period, potentially creating the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. In addition, a competitor could decide to forego the biosimilar route and submit a full BLA after completing its own preclinical studies and clinical trials. In such cases, any exclusivity to which we may be eligible under the BPCIA would not prevent the competitor from marketing its product as soon as it is approved.

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**The regulatory path forward for biosimilar/biobetter product candidates is not clear.**

We have acquired and are assessing the regulatory and strategic path forward for our portfolio of late stage biosimilar/biobetter antibodies based on Erbitux, Remicade, Xolair and Simulect. While the enactment of the BPCIA created an abbreviated pathway for the approval of biosimilar and interchangeable biological products, there is still considerable uncertainty with respect to the FDA's approval process. While applications based on biosimilarity may not be required to duplicate the entirety of preclinical and clinical testing used to establish the underlying safety and effectiveness of the reference product, the FDA may refuse to approve an application if there is insufficient information to show that the active ingredients are the same or to demonstrate that any impurities or differences in active ingredients do not affect the safety, purity or potency of the product. In addition, applications based on biosimilarity will not be approved unless the product is manufactured in facilities designed to assure and preserve the biological product's safety, purity and potency. Due to the uncertainty surrounding the approval of biosimilar/biobetter products, as well as other risk factors identified in this Annual Report on Form 10-K, our portfolio of late stage biosimilar/biobetter antibodies may never result in commercially viable products.

**We may be exposed to liability claims associated with the use of hazardous materials and chemicals. If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.**

Our research and development activities may involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for using, storing, handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot eliminate the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations. Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. Moreover, we do not currently maintain hazardous materials insurance coverage. In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could materially harm our business.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

**If we are unable to retain and recruit qualified scientists and advisors, or if any of our key executives, key employees or key consultants discontinues his or her employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business.**

We may not be able to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Diego, California area. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the successful development of any product candidates, our ability to raise additional capital and our ability to implement our overall business strategy. In addition, our CMO operations will depend, in part, on our ability to attract and retain an appropriately skilled and sufficient workforce to operate our development and manufacturing facilities. The facilities are located in a growing biotechnology hub and competition for skilled workers will continue to increase as the industry undergoes further growth in the area.

We are highly dependent on key members of our management and scientific staff, especially Henry Ji, Ph.D., Chairman of the Board, Chief Executive Officer and President. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel. The loss of any of our executive officers, key employees or key consultants and our inability to find suitable replacements could impede the achievement of our research and development objectives, and potentially harm our business, financial condition and prospects. Furthermore, recruiting and retaining qualified scientific personnel to perform research and development work in the future is critical to our success. We may be unable to attract and retain personnel on acceptable terms given the competition among biotechnology, biopharmaceutical and health care companies, universities and non-profit research institutions for experienced scientists. Certain of our current officers, directors, scientific advisors and/or consultants or certain of the officers, directors, scientific advisors and/or consultants hereafter appointed may from time to time serve as officers, directors, scientific advisors and/or consultants of other biopharmaceutical or biotechnology companies. We do not maintain "key man" insurance policies on any of our officers or employees. All of our employees are employed "at will" and, therefore, each employee may leave our employment at any time.

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We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. In addition, we may experience employee turnover as a result of the ongoing "great resignation" occurring throughout the U.S. economy, which has impacted job market dynamics. New hires require training and take time before they achieve full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. In addition, regulation or legislation impacting the workforce, such as the proposed rule published by the Federal Trade Commission which would, if issued, generally prevent employers from entering into non-compete with employees and require employers to rescind existing non-competes, may lead to increased uncertainty in hiring and competition for talent. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.

We plan to grant stock options or other forms of equity awards in the future as a method of attracting and retaining employees, motivating performance and aligning the interests of employees with those of our stockholders. If we are unable to implement and maintain equity compensation arrangements that provide sufficient incentives, we may be unable to retain our existing employees and attract additional qualified candidates. If we are unable to retain our existing employees, including qualified scientific personnel, and attract additional qualified candidates, our business and results of operations could be adversely affected.

**Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.**

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care fraud and abuse laws and regulations, comply with laws and regulations (including, but not limited to the Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1 ("FCPA")) and internal policies restricting payments to government agencies and representatives, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

**We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.**

If we obtain FDA approval for any of our product candidates, as we have with ZTlido through Scilex Pharma, and begin commercializing those products in the U.S., our operations may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•HIPAA, as amended by the HITECH Act, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

**If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.**

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk for the commercialization of any products, including ZTlido, which is marketed and sold through our subsidiary, Scilex Holding. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•decreased demand for our product candidates or products that we may develop;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•injury to our reputation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•withdrawal of clinical trial participants;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•initiation of investigations by regulators;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or mandatory product recalls;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•costs to defend the related litigation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a diversion of management's time and our resources;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•substantial monetary awards to trial participants or patients;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•product recalls, withdrawals or labeling, marketing or promotional restrictions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•loss of revenues from product sales; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the inability to commercialize our product candidates.

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In addition, through our contract manufacturing operations, we may manufacture product candidates intended for use in humans. These activities could expose us to risk of liability for personal injury or death to persons using such product candidates or approved products. We seek to reduce our potential liability through measures such as contractual indemnification provisions with collaborators (the scope of which may vary by collaborator, and the performances of which are not secured) and insurance maintained by us and our collaborators. Our business, financial condition and results of operations could be materially adversely affected if we are required to pay damages or incur defense costs in connection with a claim that is outside the scope of the indemnification agreements, if the indemnity, although applicable, is not performed in accordance with its terms or if our liabilities exceed the amount of applicable insurance or indemnity. In addition, we could be held liable for errors and omissions in connection with the services we perform.

Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance and errors and omissions insurance that we believe is appropriate for our company. Although we maintain product liability insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have insufficient or no coverage. If we have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, we may not have, or be able to obtain, sufficient capital to pay such amounts. In addition, insurance coverage is becoming increasingly expensive, and we may not be able to maintain insurance coverage at a reasonable cost. We also may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise. Consequently, a product liability claim may result in losses that could be material to our business, financial condition and results of operations.

**We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, results of operations and financial condition.**

Our operations are subject to certain anti-corruption laws, including the FCPA, the UK Bribery Act and other anti-corruption laws that apply in countries where we do business. The FCPA and other anti-corruption laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We and our commercial partners operate in a number of jurisdictions that pose a high risk of potential FCPA violations and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered in the U.S. and in the EU, including applicable import and export control regulations such as those regulations under the Convention on International Trade in Endangered Species of Wild Fauna and Flora, also known as the Washington Convention, economic sanctions on countries and persons, customs requirements and currency exchange regulations (collectively, "Trade Control Laws").

There can be no assurance that we will be completely effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA or other legal requirements, such as Trade Control Laws. Any investigation of potential violations of the FCPA, other anti-corruption laws or Trade Control Laws by U.S., EU or other authorities could have an adverse impact on our reputation, our business, results of operations and financial condition. Furthermore, should we be found not to be in compliance with the FCPA, other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, as well as the accompanying legal expenses, any of which could have a material adverse effect on our reputation and liquidity, as well as on our business, results of operations and financial condition.

**Federal regulation and enforcement may adversely affect the implementation of cannabis laws, and such regulations may negatively impact our business operations, revenues and profits.** 

As previously disclosed, we have formed a Chinese joint venture with LifeTech Scientific Co., Ltd. to commercialize our proprietary water soluble cannabidiol ("CBD") formulation technologies for consumer and pharmaceutical applications in Asia (excluding Japan). We have also formed a related business unit, Scintilla Health, Inc., to explore commercial opportunities of our water-soluble CBD formulation technologies for both consumer and pharmaceutical applications in North America, Europe and other parts of the world.

Currently, there are over 30 states in the United States, plus the District of Columbia, that have laws and/or regulations that recognize, in one form or another, medical benefits or other uses for CBD infused or cannabis related products. These states have also

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passed laws governing the use and sale of cannabis products and others are considering similar legislation. Nonetheless, at least some provisions of these state laws are in direct conflict with the United States Federal Controlled Substances Act (21 U.S.C. § 811) ("CSA"), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug, which is viewed as having a high potential for abuse, has no currently-accepted use for medical treatment in the U.S., and lacks acceptable safety for use under medical supervision. Under the CSA, the policies and regulations of the federal government and its agencies are that cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited.

Uncertainty remains the rule under the CSA. There is disagreement between the government and the courts regarding the precise scope of the CSA. Some courts have held that CBD is excluded from the CSA, which they believe, only covers the Tetrahydrocannabinol ("THC") chemical. Others have held that CBD is covered by the CSA when it is derived from the cannabis plant. On December 20, 2018, the Agricultural Improvement Act of 2018 (the "2018 Farm Bill") legalized the cultivation and production of hemp, a variation on the cannabis plant that contains CBD but less than 0.3% THC (the psychoactive chemical of the cannabis plant), providing at least some certainty about sources of legal CBD. Our water-soluble CBD formulation technologies are expected to utilize hemp.

Unless and until Congress amends the CSA to clarify precisely what is covered by the CSA, there is a risk that federal authorities may enforce current federal law against us despite our efforts to source our products from legal sources, and we may be deemed to be producing and/or dispensing marijuana-based products in violation of federal law. There is no assurance as to the timing or scope of any such potential amendment to the CSA. Active enforcement of the current federal regulatory position on cannabis may thus directly or indirectly, and adversely, affect our business, operations, revenues and any profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings and stated federal policy remains uncertain.

The Department of Justice ("DOJ") has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property and has instead relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states from implementing their own laws that authorized the use, distribution, possession or cultivation of medical marijuana.

Under the 2018 Farm Bill, the FDA has been given the authority to regulate CBD when incorporated into a food, drug or cosmetic substance. Immediately following the passage of the 2018 Farm Bill, the FDA signaled its intent to use this power. On May 31, 2019, the FDA held public hearings to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling and sale of products containing cannabis or cannabis-derived compounds, including CBD. Currently, the FDA has not issued any guidance, rules or regulations regarding the use of CBD in foods, drugs or cosmetics. Because our water-soluble CBD formulation technologies may be used to produce CBD for inclusion in food or beverages, any FDA rules and regulations limiting our ability to source, manufacture and sell CBD products, or limiting the consumer's ability to purchase and use the products, could have a material adverse effect on our business, financial condition and results of operations.

**We will need to increase the size of our company and may not effectively manage our growth.**

Our success will depend upon growing our business and our employee base. Our future growth, if any, may cause a significant strain on our management, and our operational, financial and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial and management systems and to expand, train, manage and motivate our employees. These demands may require the hiring of additional management personnel and the development of additional expertise by management. Any increase in resources devoted to research and product development without a corresponding increase in our operational, financial and management systems could have a material adverse effect on our business, financial condition, and results of operations.

**A fast track product designation or other designation to facilitate product candidate development may not lead to faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.**

A product sponsor may apply for fast track designation from the FDA if a product is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an unmet medical need for this condition ("Fast Track Designation"). The FDA has broad discretion whether or not to grant this designation. We have received Fast Track Designation for SEMDEXA<sup>TM</sup>, which is in development for the treatment of lumbosacral radicular pain. Even though SEMDEXA<sup>TM</sup> has received Fast Track Designation, we may not experience a faster process, review or approval compared to conventional FDA

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procedures. Fast Track Designation does not accelerate clinical trials, mean that regulatory requirements are less stringent or provide assurance of ultimate marketing approval by the FDA. Instead, Fast Track Designation provides opportunities for frequent interactions with FDA review staff, as well as eligibility for priority review, if relevant criteria are met, and rolling review. The FDA may rescind the fast track designation if it believes that the designation is no longer supported by data from our clinical development program. The FDA may also withdraw any fast track designation at any time.

**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. 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 may 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 an NDA, a BLA 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 or comparable foreign authorities. 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.**

An Emergency Use Authorization ("EUA") would allow us to market and sell our COVID-19 product candidates, including COVISTIX, without the need to pursue the lengthy and expensive drug or device 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 any of our COVID-19 product candidates, we will rely on the FDA policies and guidance in connection with the marketing and such product candidates. If these policies and guidance change unexpectedly and/or materially or if we misinterpret them, potential sales of our COVID-19 product candidates 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 our COVID-19 product candidates would remain in place. The termination of an EUA, if granted, could adversely impact our business, financial condition and results of operations.

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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. Moreover, as the national health emergency is currently expected to expire in May 2023, and upon such expiration, we will likely no longer be permitted to seek EUAs for the detection and/or treatment of COVID-19 and the SARS-CoV-2 virus, and would have to obtain FDA approvals through the standard process.

**Interim "top-line" and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.**

From time to time, we may publish interim "top-line" or preliminary data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary or interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment and dosing continues and more patient data become available. Preliminary or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business, financial condition and results of operations.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. Data disclosures must be carefully managed to conform to limitations on preapproval promotion and laws related to clinical trial registration and posting of results. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, product, product candidate or our business. If the top-line data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, financial condition and results of operations.

**Any disruption in our research and development facilities could adversely affect our business, financial condition and results of operations.**

Our principal executive offices, which house our research and development programs, are in San Diego, California. Our facilities may be affected by natural or man-made disasters. Earthquakes are of particular significance since our facilities are located in an earthquake-prone area. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fires, floods, droughts or other extreme weather events and similar events, including those that may result from climate change generally. If our facilities are affected by a natural or man-made disaster, we may be forced to curtail our operations and/or rely on third-parties to perform some or all of our research and development activities. Although we believe we possess adequate insurance for damage to our property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In the future, we may choose to expand our operations in either our existing facilities or in new facilities. If we expand our worldwide manufacturing locations, there can be no assurance that this expansion will occur without implementation difficulties, or at all.

**Our business and operations would suffer in the event of system failures.**

Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, cybersecurity attacks or hacking, natural disasters, terrorism, war and telecommunication and electrical failures. In addition, as a result of the COVID-19 pandemic, we may face increased cybersecurity risks due to our reliance, and the reliance of our CROs, contractors and consultants reliance, on internet technology and the number of our employees, and employees of our CROs, contractors and consultants, who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could

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result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, damage to our reputation, suffer loss or harm to our intellectual property rights and the further research, development and commercial efforts of our products and product candidates could be delayed. If we are held liable for a claim against which we are not insured or for damages exceeding the limits of our insurance coverage, whether arising out of cybersecurity matters, or from some other matter, that claim could have a material adverse effect on our results of operations.

Further, a cybersecurity attack, data breach or privacy violation that leads to disclosure or modification of, or prevents access to, patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. Our ability to effectively manage and maintain our internal business information, and to ship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning system and other information systems. Portions of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems implementation work. Cybersecurity attacks in particular are evolving and include, but are not limited to, threats, malicious software, ransom ware, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, misappropriation of confidential or otherwise protected information and corruption of data. If we are unable to prevent such cybersecurity attacks, data security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive patient data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

**Increasing use of social media could give rise to liability, breaches of data security, or reputational damage.**

We and our employees are increasingly utilizing social media tools as a means of communication both internally and externally. Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us or our employees to communicate about our products or business may cause us to be found in violation of applicable requirements. In addition, our employees may knowingly or inadvertently make use of social media in ways that may not comply with our code of business conduct and ethics or other legal or contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of personal information of our employees, clinical trial patients, customers, and others. Furthermore, negative posts or comments about us or our products in social media could seriously damage our reputation, brand image, and goodwill. Any of these events could have a material adverse effect on our business, prospects, operating results, and financial condition and could adversely affect the price of our common stock.

**Our ability to utilize our net operating loss and tax credit carryforwards may be limited.**

Section 382 of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder ("Section 382") limit a corporation's ability to utilize existing net operating loss and tax credit carryforwards once the corporation experiences an ownership change as defined in Section 382. Under the Tax Cuts and Jobs Act of 2017, as modified by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), U.S. federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such U.S. federal net operating losses is limited to 80 percent of taxable income beginning in 2021. The CARES Act also reinstated the net operating loss carryback provisions whereby net operating losses incurred in calendar tax years 2018, 2019 and 2020 may be carried back to offset taxable income of the five tax years preceding the year of the loss. We have undergone ownership changes for purposes of Section 382 in the current and prior years. For the year ended December 31, 2022, the ownership change may result in limitations on the utilization of certain deferred tax assets in future periods of which we are carrying a full valuation allowance against. If any deferred tax assets were to expire unused because of Section 382 limitations, there would be a corresponding adjustment to the related valuation allowance. Future equity offerings or acquisitions that have equity as a component of the purchase price could constitute an ownership change under Section 382. If and when any other ownership change occurs, utilization of our net operating loss and tax credit carryforwards may be limited by Section 382, which could potentially result in increased future tax liability to us.

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**Comprehensive tax reform legislation could adversely affect our business and financial condition.**

Our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, and the outcome of income tax audits in various jurisdictions. We regularly assess all of these matters to determine the adequacy of its tax provision, which is subject to significant discretion.

**Our operations in China subject us to risks and uncertainties relating to the laws and regulations of China.**

Certain of our operations are currently based in China. Under its current leadership, the government of China has been pursuing economic reform policies, including by encouraging foreign trade and investment. However, there is no assurance that the Chinese government will continue to pursue such policies, that such policies will be successfully implemented, that such policies will not be significantly altered, or that such policies will be beneficial to our operations in China. China's system of laws can be unpredictable, especially with respect to foreign investment and foreign trade. The promulgation of new laws and regulations and changes to existing laws and regulations may adversely affect foreign investors and foreign entities with operations in China. For example, the U.S. government has called for substantial changes to foreign trade policy with China and has recently raised, and has proposed to further raise in the future, tariffs on several Chinese goods. China has retaliated with increased tariffs on U.S. goods, which we anticipate will increase our cost of doing business in China. Any further changes in U.S. trade policy could trigger retaliatory actions by affected countries, including China, resulting in trade wars and in increased costs for goods imported into the United States and our ability to sell goods and services in the affected countries. Such an outcome may reduce customer demand for our products and services, especially if parties required to pay those tariffs increase their prices, or if trading partners limit their trade with the United States. If these consequences are realized, this may materially and adversely affect our sales and our business.

Additionally, the biopharmaceutical industry in China is strictly regulated by the Chinese government. Changes to Chinese regulations affecting biopharmaceutical companies are unpredictable and may have a material adverse effect on our Chinese operations and on our business and financial condition.

**Our global operations are exposed to political and economic risks, commercial volatility and events beyond our control in the countries in which we operate.**

In addition to challenges specific to the United States, our operations, including but not limited to our operations outside of the United States, are subject to a variety of political and economic risks, including risks arising from:

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•unexpected increases in taxes or tariffs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•trade protection measures or import or export licensing requirements;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•fluctuations in foreign currency exchange rates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•difficulties in staffing and managing international operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•less favorable intellectual property or other applicable laws;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effects of the United Kingdom's withdrawal from the European Union;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•divergent legal systems and regulatory frameworks; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•political and economic instability or corruption.

These risks and others may have a material adverse effect on our global operations and on our business and financial condition.

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

We are, and may in the future become, party to litigation, regulatory proceedings or other disputes. For example, on April 3, 2019, we filed two legal actions against, among others, Patrick Soon-Shiong and entities controlled by him, asserting claims for, among other things, fraud and breach of contract, arising out of Dr. Soon-Shiong's purchase of the drug Cynviloq™ from our company in May 2015. The actions allege that Dr. Soon-Shiong and the other defendants, among other things, acquired the drug Cynviloq™ for the purpose of halting its progression to the market. On December 20, 2022, the arbitrator in the arbitration related to alleged breaches of the May 14, 2015 Stock Sale and Purchase Agreement entered into between us and NantPharma, LLC, related to the development of the cancer drug Cynviloq™ issued an award ("Cynviloq Award") granting contractual damages of $125 million to us, reflecting the value of lost milestone payments for the approval of Cynviloq for the treatment of breast and lung cancers. On December 2, 2022, the arbitrator in the arbitration before the American Arbitration Association against NantCell, Inc. ("NantCell") and Immunotherapy NANTibody LLC ("NANTibody") relating to alleged breaches of the April 21, 2015 Exclusive License Agreement entered into between us NantCell and the June 11, 2015 Exclusive License Agreement entered into between us and NANTibody, issued an award (the "Antibody Award") granting contractual damages and pre-award interest in the amounts of $156,829,562 to NantCell and $16,681,521 to NANTibody, exclusive of post-award, prejudgment interest, which will accrue at 9% per annum (the "Award"). On December 21, 2022, the Los Angeles Superior Court entered judgement upon the Antibody Award and ordered us to pay to the Nant Entities the amounts awarded in the Antibody Award. In February 8, 2023, the Los Angeles Superior Court stayed enforcement of the Antibody Award judgment for 70 days only to the extent that the Antibody Award judgment exceeds the approximately $50.0 million difference between the amount of the Antibody Award and the amount of the Cynviloq Award. The Company filed a petition to confirm the Cynviloq Award with the Los Angeles Superior Court on February 2, 2023. NantPharma filed an opposition motion to vacate the Cynviloq Award on February 13, 2023. The Court will hold a hearing on the petition to confirm and opposition to vacate on March 16, 2023. As an additional example, on May 26, 2020, Wasa Medical Holdings filed a putative federal securities class action against us, our President, Chief Executive Officer and Chairman of the Board of Directors, Henry Ji, Ph.D., and our SVP of Regulatory Affairs, Mark R. Brunswick, Ph.D., alleging that we, Dr. Ji and Dr. Brunswick made materially false and/or misleading statements to the investing public regarding STI-1499 and its ability to inhibit the SARS-CoV-2 virus infection (the "Wasa Matter"). A second putative federal securities class action was filed in the U.S. District Court for the Southern District of California against the same defendants alleging the same claims and seeking the same relief, which matter was consolidated by the U.S. District Court for the Southern District of California with the Wasa Matter (the "Consolidated Matter"). On June 3, 2022, judgment was entered in the favor of defendants in the Consolidated Matter. Plaintiff in the Consolidated Matter appealed the judgment in late June 2022 and filed its opening appellate brief in October 2022. The defendants in the Consolidated Matter, as appellees, filed their answering brief in December 2022, and the appellant filed a response in January 2023. The Consolidated Matter is still pending. In general, claims made by or against us in disputes and other legal or regulatory proceedings can be expensive and time consuming to bring or defend against, requiring us to expend significant resources and divert the efforts and attention of our management and other personnel from our business operations. While we intend to pursue any claims made by us, or defend against any claims brought against us, vigorously, we cannot predict the outcomes of such claims. Any failure to prevail in any claims made by us or any adverse determination against us in these proceedings, or even the allegations contained in the claims, regardless of whether they are ultimately found to be without merit, may also result in settlements, injunctions or damages that could have a material adverse effect on our business, financial condition and results of operations.

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

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

Future declines in the results of our acquisitions and other factors could cause us to record an impairment of all or a portion of the relevant goodwill in the future. We may not be able to achieve our business targets for businesses we previously acquired or will acquire in the future, which could result in our incurring additional goodwill and other intangible asset impairment charges. Further declines in our market capitalization increase the risk that we may be required to perform another goodwill impairment analysis, which could result in an impairment of up to the entire balance of our goodwill based on the quantitative assessment performed.

Moreover, to the extent the value of goodwill or identifiable intangible assets or other long-lived assets become impaired, we will be required to incur material charges relating to the impairment. For example, in June 2022, we decided to put on hold for future evaluation the development of Abivertinib, which was acquired from ACEA Therapeutics, Inc. in 2021, for the treatment of hospitalized COVID-19 patients, which resulted in us determining that approximately $90.8 million associated with the acquired

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in-process research and development assets had been impaired and recorded within the loss on impairment of intangible assets in our consolidated statement of operations for the three months ended June 30, 2022. During the fourth quarter of 2022, we discontinued the development of Abivertinib for the treatment of COVID-19, which resulted in additional impairment of $32.0 million associated with the remaining in-process research and development ("IPR&D") asset balance at December 31, 2022. Additionally, we recorded an impairment loss of $1.4 million associated with another IPR&D intangible asset at December 31, 2022, as a result of revised timelines for commercialization See [<u>Note 7</u>](#n8_significant_agreements_contracts) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K for additional details. Any other impairment charges could have a material adverse impact on our results of operations and the market value of our common stock.

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

There is an increasing focus from certain investors, employees, regulators and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance ("ESG") factors. Some investors and investor advocacy groups may use these factors to guide investment strategies and, in some cases, investors may choose not to invest in our company if they believe our policies relating to corporate responsibility are inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement of corporate responsibility performance, and a variety of organizations currently measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. Investors, particularly institutional investors, use these ratings to benchmark companies against their peers and if we are perceived as lagging with respect to ESG initiatives, certain investors may engage with us to improve ESG disclosures or performance and may also make voting decisions, or take other actions, to hold us and our board of directors accountable. In addition, the criteria by which our corporate responsibility practices are assessed may change, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are unable to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate. We may face reputational damage in the event that our corporate responsibility procedures or standards do not meet the standards set by various constituencies. In addition, the U.S. Securities and Exchange Commission (the "SEC") has announced proposed rules that, among other matters, will establish a framework for reporting of climate-related risks. To the extent the proposed rules impose additional reporting obligations, we could face increased costs. Separately, the SEC has also announced that it is scrutinizing existing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege our existing climate disclosures are misleading or deficient.

We may face reputational damage in the event our corporate responsibility initiatives or objectives do not meet the standards set by our investors, stockholders, lawmakers, listing exchanges or other constituencies, or if we are unable to achieve an acceptable ESG or sustainability rating from third-party rating services. A low ESG or sustainability rating by a third-party rating service could also result in the exclusion of our common stock from consideration by certain investors who may elect to invest with our competition instead. Ongoing focus on corporate responsibility matters by investors and other parties as described above may impose additional costs or expose us to new risks. Any failure or perceived failure by us in this regard could have a material adverse effect on our reputation and on our business, share price, financial condition, or results of operations, including the sustainability of our business over time**.**

**The market opportunity for our products and product candidates or any we develop may be smaller than we estimate.** 

The potential market opportunity for our products and product candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our products and product candidates include several key assumptions of the current market size and current pricing for commercially available products and are based on industry and market data obtained from industry publications, studies conducted by us, our industry knowledge, third-party research reports and other surveys. While we believe our estimates are reasonable and reliable, they may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of diseases and disorders. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for any product or product candidate we develop may be limited or may not be amenable to treatment with such product candidate, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.

Our business, financial condition and results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, the COVID-19 pandemic resulted in businesses suspending or terminating global operations and travel, self-imposed or government-mandated quarantines, and an overall slowdown of economic activity in many areas. In addition, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine, and the adoption of comprehensive sanctions in response

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thereto by, among others, the European Union, the U.S., and the United Kingdom, which sanctions restrict a wide range of trade and financial dealings with Russia and Russian persons, as well as certain regions in Ukraine. A severe or prolonged economic downturn could result in a variety of risks to our business, including our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, service providers, manufacturers or other partners and there is a risk that one or more would not survive or be able to meet their commitments to us under such circumstances. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

**Previously enacted state laws in California seek to impose gender and diversity quotas for boards of directors of public companies headquartered in California.**

In September 2018, California enacted Senate Bill 826 ("SB 826"), which generally required public companies with principal executive offices in California to have at least two female directors on its board of directors if the company has at least five directors, and at least three female directors on its board of directors if the company has at least six directors. On May 13, 2022, the Los Angeles Superior Court declared SB 826 unconstitutional and, although the California Secretary of State has directed counsel to file an appeal of decision, the State of California is currently precluded from enforcing SB 826.

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

If the State of California successfully appeals the court decisions regarding SB 826 or AB 979, we cannot assure that we can recruit, attract and/or retain qualified members of the board and meet gender or diversity quotas as previously required by SB 826 or AB 979, and our board of directors does not currently satisfy the quota previously required under SB 826 and, as currently constituted, would not satisfy the quota previously required under AB 979 by December 31, 2022. A failure to comply with any such quota requirement could result in fines from the California Secretary of State, and our reputation may be adversely affected.

**Our majority owned subsidiary, Scilex Holding, is a public company and its management may need to devote substantial time to the operating of Scilex Holding as a public company.**

As of March 6, 2023, we beneficially own approximately 44.2% of the outstanding shares of common stock of Scilex Holding (Nasdaq: SCLX and SCLW), which began trading on the Nasdaq Capital Market on November 11, 2022. Scilex Holding is now subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, as well as rules and regulations adopted, and to be adopted, by the SEC and Nasdaq and, as a result, will incur significant legal, accounting and other expenses that it did not incur as a private company. Scilex Holding's management and other personnel will need to devote a substantial amount of time to these compliance initiatives and our management and other personnel may need to devote a substantial amount of time to assist Scilex Holding in its compliance initiatives. Moreover, these rules and regulations will substantially increase its legal and financial compliance costs and to make some activities more time-consuming and costly, which will increase its operating expenses, which may affect its operating results and financial condition, which may affect the value of our investment in Scilex Holding and may impact our stock price, business, prospects, operating results, and financial condition.

**Risks Related to Acquisitions**

**We have acquired, and plan to continue to acquire, assets, businesses and technologies and may fail to realize the anticipated benefits of the acquisitions, and acquisitions can be costly and dilutive.**

We have expanded, and plan to continue to expand, our assets, business and intellectual property portfolio through the acquisition of new assets, businesses and technologies.

For example, in November 2016, we acquired a majority of the outstanding capital stock of Scilex Pharma, which was contributed to our majority-owned subsidiary Scilex Holding in connection with the corporate reorganization of Scilex Holding and acquisition of Semnur by Scilex Holding in March 2019. These assets, together, constitute our Scilex segment. As of March 6, 2023,

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we held approximately 42.5% of the outstanding voting stock of Scilex Holding. We also acquired Virttu Biologics Limited in 2017, Sofusa assets, a revolutionary drug delivery technology, in July 2018 and SmartPharm Therapeutics, Inc. in September 2020. In June 2021, we acquired ACEA Therapeutics, Inc. and in February 2022, we acquired Virex Health, Inc.

The success of any acquisition depends on, among other things, our ability to combine our business with the acquired business in a manner that does not materially disrupt existing relationships and that allows us to achieve development and operational synergies. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive to our stock value or development pipeline in the near or long term.

It is possible that the integration process could result in the loss of key employees, the disruption of our ongoing business or the ongoing business of the acquired companies or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to maintain relationships with third parties and employees or to achieve the anticipated benefits of the acquisition. Integration efforts between us and the acquired company will also divert management's attention from our core business and other opportunities that could have been beneficial to our stockholders. An inability to realize the full extent of, or any of, the anticipated benefits of the acquisition, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the completion of the acquisition. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive to our stock value or development pipeline in the near or long term.

We expect to incur additional costs integrating the operations of any companies we acquire, higher development and regulatory costs, and personnel, which cannot be estimated accurately at this time. If the total costs of the integration of our companies and advancement of acquired product candidates and technologies exceed the anticipated benefits of the acquisition, our financial results could be adversely affected.

In addition, we may issue shares of our common stock or other equity-linked securities in connection with future acquisitions of businesses and technologies. Any such issuances of shares of our common stock could result in material dilution to our existing stockholders.

**We may be required to make milestone payments to the former stockholders of Semnur in connection with our development and commercialization of SEMDEXA**<sup>TM</sup>**, which could adversely affect the overall profitability of SEMDEXA**<sup>TM</sup>**, if approved.**

Under the terms of the Agreement and Plan of Merger that Scilex Holding entered into with Semnur Pharmaceuticals, Inc. ("Semnur"), Sigma Merger Sub, Inc., the prior wholly owned subsidiary of Scilex Holding, Fortis Advisors LLC, solely as representative of the holders of Semnur equity (the "Semnur Equityholders"), and us, for limited purposes, Scilex Holding is obligated to pay the Semnur Equityholders up to an aggregate of $280.0 million in contingent cash consideration based on the achievement of certain milestones. A $40.0 million payment will be due upon obtaining the first approval of an NDA by the FDA of any Semnur product, which includes SEMDEXA. Additional payments of up to $240 million will be due upon the achievement of certain cumulative net sales of Semnur products.

These milestone obligations could impose substantial additional costs on our Scilex operating segment, divert resources from other aspects of its business, and adversely affect the overall profitability of SEMDEXA, if approved. We may need to obtain additional financing to satisfy these milestone payments, and cannot be sure that any additional funding, if needed, will be available on terms favorable to us, or at all.

**If we acquire companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value, and adversely affect our operating results and the value of our common stock.**

As part of our business strategy, we may continue to acquire, enter into joint ventures with, or make investments in complementary or synergistic companies, services, and technologies in the future. Acquisitions and investments involve numerous risks, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•difficulties in identifying and acquiring products, technologies, proprietary rights or businesses that will help our business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•difficulties in integrating operations, technologies, services, and personnel;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•diversion of financial and managerial resources from existing operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the risk of entering new development activities and markets in which we have little to no experience;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•risks related to the assumption of known and unknown liabilities; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•risks related to our ability to raise sufficient capital to fund additional operating activities.

As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, we may incur costs in excess of what we anticipate, and management resources and attention may be diverted from other necessary or valuable activities.

**Any acquisitions we make could disrupt our business and seriously harm our financial condition.**

We have in the past made (and may, from time to time, consider) acquisitions of complementary companies, products or technologies. Acquisitions involve numerous risks, including difficulties in the assimilation of the acquired businesses, the diversion of our management's attention from other business concerns and potential adverse effects on existing business relationships. In addition, any acquisitions could involve the incurrence of substantial additional indebtedness. We cannot assure you that we will be able to successfully integrate any acquisitions that we pursue or that such acquisitions will perform as planned or prove to be beneficial to our operations and cash flow. Any such failure could seriously harm our business, financial condition and results of operations.

**Risks Related to Our Intellectual Property**

**Our ability to protect our intellectual property rights will be critically important to the success of our business, and we may not be able to protect these rights in the U.S. or abroad.**

Our success, competitive position and future revenues will depend in part on our ability to obtain and maintain patent protection for our product candidates, methods, processes and other technologies, to prevent third parties from infringing on our proprietary rights, exclude others from using our technology and to operate without infringing upon the proprietary rights of third parties. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by maintaining trade secrets and by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. The first of the antibody family patent applications was issued in 2014, and we continue to file additional patent applications for our product candidates and technology.

We have commenced generating a patent portfolio to protect each product candidate in our pipeline. However, the patent position of biopharmaceutical companies involves complex legal and factual questions, and therefore we cannot predict with certainty whether any patent applications that we have filed or that we may file in the future will be approved, will cover our products or product candidates or that any resulting patents will be enforced. In addition, third parties may challenge, seek to invalidate, limit the scope of or circumvent any of our patents, once they are issued. Thus, any patents that we own or license from third parties or joint venture or development partners may not provide any protection against competitors. Any patent applications that we have filed or that we may file in the future, or those we may license from third parties or joint venture or development partners, may not result in patents being issued. Moreover, disputes between our licensing or joint development partners and us may arise over license scope, or ownership, assignment, inventorship and/or rights to use or commercialize patent or other proprietary rights, which may adversely impact our ability to obtain and protect our proprietary technology and products. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with similar technologies or products.

In addition, the laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. If we fail to apply for intellectual property protection or if we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive position, as well as our business, financial condition and results of operations.

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Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the PTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel or service providers to pay these fees when due. Additionally, the PTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. In addition, we are responsible for the payment of patent fees for patent rights that we have licensed from other parties. If any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to the licensor for any costs and consequences of any resulting loss of patent rights.

**We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.**

Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent's claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

**Our long-term success depends on intellectual property protection; if our intellectual property rights are invalidated or circumvented, our business will be adversely affected.** 

Our long-term success depends on our ability to continually discover, develop and commercialize innovative new pharmaceutical products. Without strong intellectual property protection, we would be unable to generate the returns necessary to support the enormous investments in research and development and capital as well as other expenditures required to bring new drugs to the market and for commercialization.

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Intellectual property protection varies throughout the world and is subject to change over time. In the U.S., for small molecule drug products, such as ZTlido (which is held by our subsidiary, Scilex Holding), the Hatch-Waxman Act provides generic companies powerful incentives to seek to invalidate our pharmaceutical patents. As a result, we expect that our U.S. patents on major pharmaceutical products will be routinely challenged, and there can be no assurance that our patents will be upheld. We face generic manufacturer challenges to our patents outside the U.S. as well. In addition, competitors or other third parties may claim that our activities infringe patents or other intellectual property rights held by them. If successful, such claims could result in our being unable to market a product in a particular territory or being required to pay damages for past infringement or royalties on future sales.

**If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.**

Our success also depends upon the skills, knowledge and experience of our scientific and technical personnel and our consultants and advisors, as well as our licensors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, or prior to seeking patent protection, we rely on trade secret protection and confidentiality agreements. Unlike some of our competitors, in addition to certain manufacturing processes, we maintain our proprietary libraries for ourselves as trade secrets. To this end, we require all our employees, consultants, advisors and contractors to enter into agreements which prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer. Moreover, our third-party licensing partners may retain rights in some of our proprietary or joint trade secrets, know-how, patented inventions or other proprietary information, including rights to sublicense and rights of publication, which may adversely impact our ability to obtain patents and protect trade secrets, know-how or other proprietary information. In addition, the U.S. government may retain rights in some of our patents or other proprietary information.

Third party competitors may seek to challenge the validity of our patents, thereby rendering them unenforceable or we may seek to challenge third party competitor patents if such third parties seek to interpret or enforce a claim scope going well beyond the actual enabled invention.

In addition, many of the formulations used and processes developed by us in manufacturing any of our collaborators' products are subject to trade secret protection, patents or other intellectual property protections owned or licensed by such collaborator. While we make significant efforts to protect our collaborators' proprietary and confidential information, including requiring our employees to enter into agreements protecting such information, if any of our employees breaches the non-disclosure provisions in such agreements, or if our collaborators make claims that their proprietary information has been disclosed, our reputation may suffer damage and we may become subject to legal proceedings that could require us to incur significant expenses and divert our management's time, attention and resources.

**Claims that we infringe upon the rights of third parties may give rise to costly and lengthy litigation, and we could be prevented from selling products, forced to pay damages, and defend against litigation.**

Third parties may assert patent or other intellectual property infringement claims against us or our strategic partners or licensees with respect to our technologies and product candidates or potential product candidates. If our products, methods, processes and other technologies infringe upon the proprietary rights of other parties, we could incur substantial costs and we may have to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•obtain licenses, which may not be available on commercially reasonable terms, if at all, and may be non-exclusive, thereby giving our competitors access to the same intellectual property licensed to us;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•redesign our products or processes to avoid infringement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•stop using the subject matter validly claimed in the patents held by others;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•pay damages; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our valuable management resources.

Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. Furthermore, as a result of a patent infringement suit brought against us or our strategic partners or licensees, we or our strategic partners or licensees may be forced to stop or delay developing, manufacturing or selling technologies, product candidates or potential products that are claimed to infringe a third party's intellectual property unless that party grants us or our strategic partners' or licensees' rights to use its intellectual property. Ultimately, we may be unable to develop some of our technologies or potential products or may have to discontinue development of a product candidate or cease some of our business operations as a result of patent infringement claims, which could severely harm our business.

In addition, our collaborators' products may be subject to claims of intellectual property infringement and such claims could materially affect our CMO business if their products cease to be manufactured and they have to discontinue the use of the infringing technology which we may provide. Any of the foregoing could affect our ability to compete or could have a material adverse effect on our business, financial condition and results of operations.

**Our position as a relatively small company may cause us to be at a significant disadvantage in defending our intellectual property rights and in defending against infringement claims by third parties.**

Litigation relating to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an industry dominated by very large companies may cause us to be at a significant disadvantage in defending our intellectual property rights and in defending against claims that our technology infringes or misappropriates third party intellectual property rights. However, we may seek to use various post-grant administrative proceedings, including new procedures created under the America Invents Act, to invalidate potentially overly-broad third party rights. Even if we can defend our position, the cost of doing so may adversely affect our ability to grow, generate revenue or become profitable. In the course of the ongoing litigation or any future additional litigation to which we may be subject, we may not be able to protect our intellectual property at a reasonable cost, or at all. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal, contractual or intellectual property rights, which could have a significant adverse effect on our business.

**Third-party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.**

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties.

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including PTO administrative proceedings, such as inter partes reviews, and reexamination proceedings before the PTO or oppositions and revocations and other comparable proceedings in foreign jurisdictions. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.

Despite safe harbor provisions, third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents, of which we are currently unaware, with claims to materials, formulations, methods of doing research or library screening, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent published applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtain a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a license, limit our uses, or until such patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.

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Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, obtain one or more licenses from third parties, cease marketing our products or developing our product candidates, limit our uses, pay royalties or redesign our infringing product candidates, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly.

**We may not be able to protect our intellectual property rights throughout the world.**

Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

**Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete.**

Because we operate in the highly technical field of research and development of biologics and small molecule drugs, we rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others will not develop the same or similar technologies on their own. We have taken steps, including entering into confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors, to protect our trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the party's relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the U.S. may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

**If we breach any of the agreements under which we license commercialization rights to our product candidates from third parties, we could lose license rights that are important to our business.**

We license the use, development and commercialization rights for all of our product candidates and may enter into similar licenses in the future. Under each of our existing license agreements we are subject to commercialization and development, diligence obligations, milestone payment obligations, royalty payments and other obligations. If we fail to comply with any of these obligations or otherwise breach our license agreements, our licensing partners may have the right to terminate the license in whole or in part.

For example, certain of our joint development and/or licensing agreements set forth diligence milestones including timelines in which certain clinical trials should be initiated. Due to the uncertainty of drug development and clinical trials as set forth above, we may not be able to meet these diligence milestones, which could result in loss of exclusivity or loss of our rights to develop certain products or services pursuant to those agreements.

Generally, the loss of any one of our current licenses or other licenses in the future could materially harm our business, prospects, financial condition and results of operations.

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**Intellectual property rights do not necessarily address all potential threats to our competitive advantage.**

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our pending patent applications may not lead to issued patents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We may not develop additional proprietary technologies that are patentable; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The patents of others may have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business, results of operations and prospects.

**From time to time we may need to license patents, intellectual property and proprietary technologies from third parties, which may be difficult or expensive to obtain.**

We may need to obtain licenses to patents and other proprietary rights held by third parties to successfully develop, manufacture and market our drug products. As an example, it may be necessary to use a third party's proprietary technology to reformulate one of our drug products in order to improve upon the capabilities of the drug product. If we are unable to timely obtain these licenses on reasonable terms, our ability to commercially exploit our drug products may be inhibited or prevented.

**We remain responsible for payments of all milestone and license fees to Samyang Biopharmaceuticals Corporation pursuant to our agreement with NantPharma.**

As a result of our acquisition of IgDraSol, Inc. in September 2013, we became a party to an Exclusive Distribution Agreement, as amended, with Samyang Biopharmaceuticals Corporation ("Samyang") in connection with our development of Cynviloq™ which contained various milestone and license fees to be paid to Samyang. On May 14, 2015, we sold all our equity interests in IgDraSol, Inc. to NantPharma, LLC ("NantPharma"). As part of the sale, we agreed with NantPharma to be responsible for and pay all milestone and license fees required to be paid to Samyang under the Exclusive Distribution Agreement following notification from NantPharma when such milestone and license fees become due and payable. If such milestone or licenses fees become due and payable, the payment thereof could materially harm our business and financial condition.

**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 January 3, 2022 to December 30, 2022, our closing stock price ranged from $0.73 to $4.84

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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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•actual or anticipated adverse results or delays in our clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our failure to commercialize our product candidates, if approved;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•unanticipated serious safety concerns related to the use of any of our product candidates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•adverse regulatory decisions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our decision to initiate a clinical trial, not initiate a clinical trial or to terminate an existing clinical trial;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our dependence on third parties, including CROs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•announcements of the introduction of new products by our competitors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•market conditions in the pharmaceutical and biotechnology sectors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•announcements concerning product development results or intellectual property rights of others;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•future issuances of common stock or other securities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the addition or departure of key personnel;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•actual or anticipated variations in quarterly operating results;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our failure to meet or exceed the estimates and projections of the investment community;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•conditions or trends in the biotechnology and biopharmaceutical industries;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•introduction of new products offered by us or our competitors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•issuances of debt or equity securities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•sales of our common stock by us or our stockholders in the future;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•trading volume of our common stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•ineffectiveness of our internal controls;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•failure to effectively integrate the acquired companies' operations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•general political and economic conditions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•effects of natural or man-made catastrophic events;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•other events or factors, many of which are beyond our control.

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

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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.

Additionally, as previously disclosed, on February 13, 2023, we, along with Scintilla Pharmaceuticals, Inc., filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, thereby commencing the Chapter 11 Cases. The price of our common stock has been volatile following the commencement of the Chapter 11 Cases and our common stock may decrease in value or become worthless. Accordingly, any trading in our common stock during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common stock. As discussed below, recoveries in the Chapter 11 Cases for holders of common stock, if any, will depend upon several factors, including, but not limited to, our ability to negotiate and confirm a plan, the terms of such plan and the value of our assets. Although we cannot predict how our common stock will be treated under a plan, we expect that common stockholders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured indebtedness, are paid in full. Consequently, there is a significant risk that the holders of our common stock will receive no recovery under the Chapter 11 Cases and that our common stock will be worthless.

Moreover, on February 13, 2023, we received written notice (the "Delisting Notice") from the staff of The Nasdaq Stock Market LLC ("Nasdaq") notifying us that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, the staff of Nasdaq had determined that our common stock will be delisted from Nasdaq. In the Delisting Notice, the staff of Nasdaq referenced the Chapter 11 Cases and associated public concerns raised by them, concerns regarding the residual equity interest of the existing listed securities holders and concerns about our ability to sustain compliance with all requirements for continued listing on Nasdaq. The Delisting Notice also indicated that we may appeal Nasdaq's determination pursuant to procedures set forth in Nasdaq Listing Rule 5800 Series. On February 21, 2023, we requested an appeal of Nasdaq's determination and a hearing before a Nasdaq hearings panel. We subsequently determined not to continue with the appeal process. In accordance with the Delisting Notice, trading of our common stock on Nasdaq was suspended at the opening of business on February 23, 2023, and at such time, our common stock commenced trading on the Pink Open Market under the symbol "SRNEQ". We can provide no assurance that our common stock will continue to trade on the Pink Open Market, whether broker-dealers will continue to provide public quotes of our common stock on this market, whether the trading volume of our common stock will be sufficient to provide for an efficient trading market or whether quotes for our common stock will continue on this market in the future, which could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our common stock. Furthermore, because of the limited market and generally low volume of trading in our common stock, the price of our common stock could be more likely to be affected by broad market fluctuations, general market conditions, changes in the markets' perception of our securities, and announcements made by us or third parties with interests in the Chapter 11 Cases.

**Trading on the Pink Open Market is volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares. The market for our common stock is limited and persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid by them.**

Our common stock is quoted on the Pink Open Market. Trading in stock quoted on the Pink Open Market is often thin and characterized by wide fluctuations in trading prices, due to many factors, some of which may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the Pink Open Market is not a stock exchange, and trading of securities on the Pink Open Market is often more sporadic than the trading of securities listed on a stock exchange such as Nasdaq or the New York Stock Exchange. The Pink Open Market is not a liquid market, and therefore there is currently only a limited public market for our common stock. We cannot assure you that an active public market for our common stock on the Pink Open Market will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may decline. These factors may result in investors having difficulty reselling any shares of our common stock.

**The market price of Scilex Holding's common stock and warrants may fluctuate significantly, and we may lose all or part of our 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. From November 11, 2022, the first day Scilex Holding's common stock and warrants were listed on the Nasdaq Capital Market, to December 30, 2022, the closing price of Scilex Holding's common stock ranged from $2.87 to $10.11 and the closing price of Scilex Holding's warrants ranged from $0.1299 to $0.4501. The market price of Scilex Holding's common stock and

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warrants may fluctuate significantly in response to numerous factors, many of which are beyond our and Scilex Holding's control, and may include those described in the risk factor above under the heading "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." Price volatility of Scilex Holding's common stock and warrants may affect the value of our investment in Scilex Holding, which could have a material adverse effect on our stock price and our business, prospects, operating results, and financial condition.

**We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.**

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our capital stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if the common stock price appreciates.

**Our strategic investments may result in losses.**

We periodically make strategic investments in various public and private companies with businesses or technologies that may complement our business. The market values of these strategic investments may fluctuate due to market conditions and other conditions over which we have no control. Other-than-temporary declines in the market price and valuations of the securities that we hold in other companies would require us to record losses related to our investment. This could result in future charges to our earnings. It is uncertain whether or not we will realize any long-term benefits associated with these strategic investments.

**A sale of a substantial number of shares of the common stock may cause the price of our common stock to decline.**

If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, including shares issued in connection with the exercise of outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management's attention and harm our business.

The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of biotechnology and biopharmaceutical companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of our securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management's attention and resources, which could adversely affect our business.

**Our quarterly operating results may fluctuate significantly.**

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•variations in the level of expenses related to our development programs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the addition or termination of clinical trials;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•any intellectual property infringement lawsuit in which we may become involved;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•regulatory developments affecting our product candidates; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially.

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**Existing stockholders' interest in us may be diluted by additional issuances of equity securities and raising funds through acquisitions, lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.**

We may issue additional equity securities to fund future expansion and pursuant to equity incentive or employee benefit plans. We may also issue additional equity for other purposes. These securities may have the same rights as our common stock or, alternatively, may have dividend, liquidation or other preferences to our common stock. The issuance of additional equity securities will dilute the holdings of existing stockholders and may reduce the share price of our common stock.

If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our product candidates, potential products or proprietary technologies, or grant licenses on terms that may not be favorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the development of our product candidates.

**Our investors could experience substantial dilution of their investments as a result of subsequent exercises of our outstanding options, including the CEO Performance Award, or the grant of future equity awards by us.** 

As of December 31, 2022, 74.8 million shares of our common stock were reserved for issuance under our equity incentive plans, of which 20.9 million shares of our common stock were subject to options outstanding at such date at a weighted-average exercise price of $6.05 per share, 8.3 million shares of our common stock were subject to outstanding restricted stock units, 39.2 million shares of our common stock were reserved for issuance pursuant to our 2019 Stock Incentive Plan and 6.4 million shares of our common stock were reserved for issuance pursuant to our 2020 Employee Stock Purchase Plan. In addition, 24,935,882 shares of our common stock are subject to the 10-year CEO performance award granted to Dr. Ji that is tied solely to achieving market capitalization milestones and has an exercise price of $17.30 per share. To the extent outstanding options are exercised, our existing stockholders may incur dilution.

We rely on equity awards to motivate current employees and to attract new employees. The grant of future equity awards by us to our employees and other service providers may further dilute our stockholders.

**Our directors and executive officers own a significant percentage of our capital stock, and they may make decisions that you do not consider to be in your best interests or those of our other stockholders.**

As of January 31, 2023, our directors and executive officers beneficially owned, in the aggregate, approximately 2.0% of our outstanding voting securities. As a result, if some or all of them acted together, they would have the ability to exert significant influence over the election of our board of directors and the outcome of issues requiring approval by our stockholders. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company that may be favored by other stockholders. This could prevent transactions in which stockholders might otherwise recover a premium for their shares over current market prices.

**Our certificate of incorporation, as amended, and bylaws provide for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of our officers and/or directors.**

Our certificate of incorporation, as amended, bylaws and applicable Delaware law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person's promise to repay us, therefore if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us, which we will be unable to recover.

**Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our common stock.**

Provisions in our certificate of incorporation, as amended, and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation, as amended, authorizes our board of directors to issue up to 100,000,000 shares of "blank check" preferred stock. As a result, without further stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire us.

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We are also subject to the anti-takeover provisions of the General Corporation Law of the State of Delaware. Under these provisions, if anyone becomes an "interested stockholder," we may not enter into a "business combination" with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change in control of us. An "interested stockholder" means, generally, someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock within the past three years, subject to certain exceptions as described in the General Corporation Law of the State of Delaware.

**Our Amended and Restated Bylaws provide that the Court of Chancery in the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.**

This choice of forum provision in our Bylaws may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. In addition, stockholders who do bring a claim in the Court of Chancery in the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. Furthermore, the enforceability of similar choice of forum provisions in other companies' governing documents has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provision in our Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

**Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.**

There have been changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Sarbanes-Oxley Act of 2002, new regulations promulgated by the SEC and rules promulgated by the national securities exchanges. The Dodd-Frank Act, enacted in July 2010, expanded federal regulation of corporate governance matters and imposes requirements on public companies to, among other things, provides stockholders with a periodic advisory vote on executive compensation and also adds compensation committee reforms and enhanced pay-for-performance disclosures. While some provisions of the Dodd-Frank Act were effective upon enactment, others have been and will be implemented upon the SEC's adoption of related rules and regulations. The scope and timing of the adoption of such rules and regulations is uncertain and, accordingly, the cost of compliance with the Dodd-Frank Act is also uncertain. Areas subject to potential change, amendment or repeal include the Dodd-Frank Act, including § 619 (12 U.S.C. § 1851) known as the Volcker Rule and various swaps and derivatives regulations, the authority of the Federal Reserve and the Financial Stability Oversight Council, and renewed proposals to separate banks' commercial and investment banking activities.

These new or changed laws, regulations and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Members of our board of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our

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business. If the actions we take in our efforts to comply with new or changed laws, regulations and standards differ from the actions intended by regulatory or governing bodies, we could be subject to liability under applicable laws or our reputation may be harmed.

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

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

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on March 11, 2022, as a result of our former Chief Financial Officer`s passing in early January 2022 as well as other considerations, management concluded that we did not employ sufficient accounting resources with appropriate experience and technical expertise to effectively execute controls over certain judgmental and technical accounting areas. As a result, we identified certain of our control activities were deficient and the combination of the aforementioned deficiencies were deemed to represent a material weakness in our internal control over financial reporting as of December 31, 2021. While we have taken actions to remediate this material weakness, including (i) recruiting and employing personnel with appropriate experience and technical expertise to enhance management's assessment of judgmental and technical accounting areas, (ii) conducting additional training for staff involved in judgmental and technical accounting areas, and (iii) engaging additional independent third-party technical consultants to assist in performing accounting analyses of complex transactions, completion of our remediation efforts is ongoing. As such management has concluded the aforementioned material weakness has not been remediated as of December 31, 2022. As a result, certain of our control activities in the areas of revenue, business combinations, investments, debt, derivative liabilities, intangibles and contingent consideration did not operate effectively and have been deemed deficient and the combination of the aforementioned deficiencies represents a material weakness in our internal control over financial reporting as of December 31, 2022. The material weakness did not result in a restatement of previously issued annual consolidated financial statements or condensed interim consolidated financial statements.

During the fiscal year ending 2023, we will continue evaluating our remediation measures as described above to determine if such measures have been effectively implemented and will provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). We cannot assure you that the measures we have taken to date or any measures we may take in response to the material weakness in the future will be sufficient to remediate such material weakness or to avoid potential future material weaknesses. Any failure to implement these improvements to our internal control over financial reporting would result in a continued material weakness in our internal control and could impact our ability to produce reliable financial reports, effectively manage the company or prevent fraud, and could potentially harm our business and our performance. Even if we develop effective controls, these new controls may become inadequate because of changes in conditions or the degree of compliance with these policies or procedures may deteriorate. If we experience future material weaknesses or deficiencies in internal controls and we are unable to correct them in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC, will be adversely affected. Any such failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.

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**Item 1B. Unresolved Staff Comments.**

None.

**Item 2. Properties.**

The following table sets forth our principal properties as of December 31, 2022, all of which are leased:

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| | | | |
|:---|:---|:---|:---|
| **Location** | **Lease term** | **Square<br>footage** | **Primary use** |
| **Sorrento Therapeutics segment** | **Sorrento Therapeutics segment** | **Sorrento Therapeutics segment** | **Sorrento Therapeutics segment** |
| San Diego, CA(1) | 2038 - option to extend for one additional 5-year period | 77000 | Research and development |
| San Diego, CA | 2034 - option to extend for one additional 10-year period | 69000 | Research and development |
| San Diego, CA(1) | 2038 - option to extend for one additional 5-year period | 61000 | Administrative, research and development |
| San Diego, CA(1) | 2038 - option to extend for one additional 5-year period | 43000 | Research and development |
| San Diego, CA(1)(2) | 2038 - option to extend for one additional 5-year period | 30000 | Principal executive offices and Administrative |
| San Diego, CA | 2029 - option to extend for one additional 5-year period | 36000 | Contract manufacturing |
| San Diego, CA | 2025 | 11000 | Research and development |
| San Diego, CA | 2025 - option to extend for one additional 5-year period | 9000 | Research and development |
| Suzhou, China | 2025 | 50000 | Contract manufacturing, research and development |
| **Scilex segment** | **Scilex segment** | **Scilex segment** | **Scilex segment** |
| Palo Alto, CA | 2024 - option to extend for one additional 3-year period | 6000 | Administrative |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)These facilities are leased on coterminous terms that are based on a 188 month lease that is estimated to commence in the first half of 2023 when such necessary construction has been completed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)This facility is utilized by both the Sorrento Therapeutics and Scilex segments.

**Item 3. Legal Proceedings.**

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

Information regarding reportable legal proceedings is contained in [<u>Note 11</u>](#n12_commitments_contingencies) of the accompanying notes to consolidated financial statements in this Annual Report on Form 10-K under the heading "Litigation".

For discussion of our ongoing bankruptcy proceedings, see Part I, Item 1. Business subsection "Voluntary Filing Under Chapter 11".

**Item 4. Mine Safety Disclosures.**

None.

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**PART II**

**Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.**

**Market Information**

Our common stock was previously listed and traded on the Nasdaq Capital Market under the symbol "SRNE". As a consequence of the Chapter 11 Cases, beginning February 23, 2023, our shares common stock are trading on the OTC Pink Open Market under the symbol "SRNEQ".

**Holders of Record**

As of January 31, 2023, there were 197 holders of record of our common stock.

**Performance Graph**

The following graph compares the cumulative total stockholder return on our common stock from December 31, 2017 to December 31, 2022 with the cumulative total return of (i) the Nasdaq Market Index and (ii) the Nasdaq Biotechnology Index. This graph assumes the investment of $100.00 after the market closed on December 31, 2016 in our common stock, and in the Nasdaq Market Index and the Nasdaq Biotechnology Index, and it assumes any dividends are reinvested. The stock price performance included in this graph is not necessarily indicative of future stock price performance.

![img177033684_6.jpg](img177033684_6.jpg)

**Item 6. [Reserved]**

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**Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.**

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the cautionary note regarding "Forward-Looking Statements" contained elsewhere in this Annual Report on Form 10-K. Additionally, you should read the "Risk Factors" section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

**Overview**

Sorrento Therapeutics, Inc. is a clinical and commercial stage biopharmaceutical company developing a portfolio of next generation treatments for three major therapeutic areas: cancer, infectious disease and pain.

Cancer. Our proprietary fully human G-MAB™ antibody library and ACEA small molecule library are the engines driving an innovative pipeline of new solutions for cancer. These molecular entities are then enhanced by leveraging our extensive proprietary immuno-oncology platforms such as immuno-cellular therapies ("DAR-T™"), antibody-drug conjugates ("ADCs"), oncolytic virus ("Seprehvec™") and lymphatic drug delivery ("Sofusa™").

Infectious Disease. We have applied our antibody capability in the fight against COVID-19. We are developing highly sensitive and rapid diagnostics, and multi-modal treatments for the SARS-CoV-2 virus and its variants. Our diagnostics platforms include the COVIMARK™ lateral flow antigen test (launched as COVISTIX™ in Mexico and Brazil). We are also focused on bringing forward effective therapeutic solutions, including FUJOVEE™ (Abivertinib) and a protease inhibitor antiviral pill (STI-1558) as a stand-alone treatment.

Pain. In November 2022, Scilex Holding Company ("Scilex Holding"), our majority owned subsidiary, completed its business combination with Vickers Vantage Corp. I, a special purpose acquisition company. The flagship product of Scilex Holding, ZTlido®, was launched in 2018 as a prescription lidocaine topical product and has demonstrated superior adhesion and bioavailability compared to current lidocaine patches. Scilex Holding has built a commercial organization focused on neurologists and pain specialists and will leverage this capability for the potential launch of next-generation products that are currently in development. The first of these product candidates, SEMDEXA™, is an injectable viscous gel formulation of a widely used corticosteroid designed to address the limitations associated with off label corticosteroid epidural injections. SEMDEXA™ has completed its pivotal study and Scilex Holding is preparing for its new drug application ("NDA") submission.

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

**Voluntary Filing Under Chapter 11**

As previously reported in our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the "SEC") on February 13, 2023, we and our wholly owned direct subsidiary, Scintilla Pharmaceuticals, Inc. (together with us, the "Debtors"), commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Chapter 11 proceedings are jointly administered under the caption In re Sorrento Therapeutics, Inc., et al. (the "Chapter 11 Cases"). We continue to operate our business in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. At hearings before the Bankruptcy Court on February 16, 2023 and February 21, 2023, we obtained approval from the Bankruptcy Court of certain "first day" motions containing customary relief intended to assure our ability to continue our ordinary course operations during the Chapter 11 Cases.

DIP Term Sheet

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As previously reported in our Current Report on Form 8-K filed with the SEC on February 22, 2023, we and Scintilla executed that certain Debtor-In-Possession Term Loan Facility Summary of Terms and Conditions (the "DIP Term Sheet") with JMB Capital Partners Lending, LLC ("JMB Capital" or the "DIP Lender"), pursuant to which JMB Capital (or its designees or its

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assignees) are providing us with a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $75,000,000 in term loan commitments (the "DIP Facility"), subject to the terms and conditions set forth in the DIP Term Sheet. On February 20, 2023, we filed the Debtors' Emergency Motion For Entry of Interim and Final Orders (I) Authorizing The Debtors to (A) Obtain Senior Secured Superpriority Postpetition Financing and (B) Use Cash Collateral, (II) Granting Liens and Providing Claims With Superpriority Administrative Expense Status, (III) Modifying The Automatic Stay, (IV) Scheduling A Final Hearing, and (V) Granting Related Relief (the "DIP Motion") seeking the Bankruptcy Court's approval of the DIP Facility and certain related relief. A copy of the DIP Term Sheet was attached to the Motion.

At a hearing before the Bankruptcy Court on February 21, 2023, the Bankruptcy Court granted the DIP Motion and entered an interim order (the "Interim DIP Order") approving the DIP Facility on an interim basis and providing us with the necessary liquidity to continue to operate in Chapter 11. Upon entry of the Interim DIP Order and satisfaction of all applicable conditions precedent, as set forth in the DIP Term Sheet, we were authorized to make a single, initial draw of $30,000,000 on the DIP Facility (the "Initial Draw"). Definitive financing documentation, including a credit agreement and other documents evidencing the DIP Facility (collectively, the "DIP Documents"), will be negotiated and executed as soon as possible following the Initial Draw on the DIP Facility. The remaining amount of the DIP Facility will be available to the Debtors, subject to entry of an order granting the DIP Motion on a final basis (the "Final Order") and compliance with the terms, conditions, and covenants to be set forth in the definitive DIP Documents, through additional draws of no less than $5,000,000 each upon five business days' written notice to the DIP Lender. The DIP Facility contains economic and other terms that are the most favorable to us compared to the other proposals received by us, including, among others: (i) immediate access to interim financing of up to $30,000,000 (with up to $75,000,000 to be available in the aggregate), (ii) minimum draws of $5,000,000, (iii) interest at a per annum rate equal to 14% payable in cash on the first day of each month in arrears (and a default interest rate that shall accrue at an additional per annum rate of 3% plus the non-default interest, payable in cash on the first day of each month), and (iv) other fees and charges as described in the DIP Term Sheet. The DIP Facility is secured by first-priority liens on substantially all of the Debtors' unencumbered assets, subject to certain enumerated exceptions, and second-priority liens on those assets of the Debtors that are encumbered by certain permitted liens (as set forth in the Interim DIP Order).

The DIP Facility matures on the earliest of: (i) July 31, 2023; (ii) the effective date of any Chapter 11 plan of reorganization with respect to the Debtors; (iii) the consummation of any sale or other disposition of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code; (iv) the date of the acceleration of the DIP Loans and the termination of the DIP Commitments in accordance with the DIP Documents (each as defined in the DIP Term Sheet); (v) dismissal of the Chapter 11 Cases or conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code; and (vi) forty-five (45) days after the filing of the DIP Motion (or such later date as agreed to by the DIP Lender), unless the Final Order has been entered by the Bankruptcy Court on or prior to such date. The DIP Facility does not contain a roll-up or cross-collateralization of prepetition debt or otherwise dictate how prepetition claims will be addressed in a Chapter 11 plan.

The Debtors anticipate seeking final approval of the DIP Facility at a final hearing on the DIP Motion on or around March 29, 2023, or any such other date that is no later than forty-five (45) days following the date of filing of the DIP Motion, as required under the DIP Term Sheet.

Listing

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February 13, 2023, we received written notice (the "Delisting Notice") from the staff of The Nasdaq Stock Market LLC ("Nasdaq") notifying us that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, the staff of Nasdaq had determined that our common stock will be delisted from Nasdaq. In the Delisting Notice, the staff of Nasdaq referenced the Chapter 11 Cases and associated public concerns raised by them, concerns regarding the residual equity interest of the existing listed securities holders and concerns about our ability to sustain compliance with all requirements for continued listing on Nasdaq. The Delisting Notice also indicated that we may appeal Nasdaq's determination pursuant to procedures set forth in Nasdaq Listing Rule 5800 Series. On February 21, 2023, we requested an appeal of Nasdaq's determination and a hearing before a Nasdaq hearings panel. We subsequently determined not to continue with the appeal process. In accordance with the Delisting Notice, trading of our common stock on Nasdaq was suspended at the opening of business on February 23, 2023, and at such time, our common stock commenced trading on the Pink Open Market under the symbol "SRNEQ".

**Significant Developments in the Quarter Ended December 31, 2022**

• In December 2022, we completed the Phase Ib enrollment of COVID-19 patients in China to assess the safety and efficacy of STI-1558 oral treatment.

• In December 2022, we submitted a pre-NDA request meeting to the FDA to gain insights from the FDA for potential regulatory approval pathway for Abivertinib (FUJOVEE<sup>TM</sup>) for the treatment of NSCLC.

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• On November 11, 2022, Scilex Holding shares began trading on the Nasdaq Capital Market under the ticker symbol "SCLX". Scilex Holding's trading debut comes after the completion of its business combination with Vickers Vantage Corp. I, a special purpose acquisition company. The combined company now operates as Scilex Holding Company.

• In November 2022, we announced positive topline results from the completed Phase I study in Australia demonstrating STI-1558 was well tolerated and achieved pharmacokinetic levels confirming adequate blood levels were achieved to continue development of this oral antiviral treatment without the need for a Ritonavir booster.

• In November 2022, we announced preliminary safety and efficacy data from a Phase IB study in China, which demonstrated that the safety profile was comparable between healthy uninfected subjects and infected subjects and that STI-1558 resulted in a dramatic rapid reduction in viral load.

• In October 2022, we completed a Phase I study of its oral main viral protease (M<sup>pro</sup>) inhibitor, STI-1558, conducted in Australia with 58 healthy volunteers.

**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 of our employees, we continue to enforce standard safety protocols at our facilities and have implemented employee travel policies.

**Results of Operations**

The following discussion of our operating results explains material changes in our results of operations for the years ended December 31, 2022 and 2021. The discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We operate in two operating and reportable segments, Sorrento Therapeutics and Scilex.

**Comparison of the Years Ended December 31, 2022 and 2021**

Revenues.

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| | | | |
|:---|:---|:---|:---|
| Dollars in thousands | **Years Ended December 31,** | **Years Ended December 31,** | **Increase (decrease)** |
| **Sorrento Therapeutics segment** | **2022** | **2021** | **%** |
| Product revenues | $6963 | $189 | 3584% |
| Service revenues | 17842 | 24169 | (26%) |
| Total revenues | $24805 | $24358 | 2% |
| **Scilex segment** |  |  |  |
| Product revenues | $38034 | $28546 | 33% |
| **Total revenues** | $62839 | $52904 | 19% |

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Revenues were $62.8 million for the year ended December 31, 2022, as compared to $52.9 million for the year ended December 31, 2021.

The increase in revenues in our Sorrento Therapeutics segment was primarily attributed to $4.8 million in COVISTIX™ product sales, $2.0 million in other product sales and $2.3 million in other service revenues. These increases were partially offset by $8.6 million of lower contract manufacturing service revenues in 2022 compared to the prior year.

Revenues in our Scilex segment increased from $28.5 million to $38.0 million for the year ended December 31, 2022 as compared to the prior year due to increased product sales of ZTlido.

Cost of revenues.

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Increase** |
| Dollars in thousands | **2022** | **2021** | $**%** |
| Sorrento Therapeutics segment | $22655 | $9398 | 141% |
| Scilex segment | 10797 | 3633 | 197% |
| **Total cost of revenues** | $33452 | $13031 | 157% |

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Cost of revenues for the years ended December 31, 2022 and 2021 were $33.5 million and $13.0 million, respectively, and relate to product sales, the sale of customized reagents and providing contract manufacturing services. The costs generally include

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employee-related expenses, including salary and benefits, direct materials and overhead costs including rent, depreciation, utilities, facility maintenance and insurance.

The increase in cost of revenues in our Sorrento Therapeutics segment was driven by increased product sales and an $11.0 million increase in inventory reserves associated with COVISTIX™ product as compared to the prior year.

The increase in cost of revenues in our Scilex segment were driven by higher sales volumes of ZTlido and royalties to our ZTlido manufacturer as compared to the prior year.

Research and development expenses.

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Increase (decrease)** |
| Dollars in thousands | **2022** | **2021** | **%** |
| Sorrento Therapeutics segment | $212171 | $197721 | 7% |
| Scilex segment | 9055 | 9201 | (2%) |
| **Total research and development expenses** | $221226 | $206922 | 7% |

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Research and development expenses for the years ended December 31, 2022 and 2021 were $221.2 million and $206.9 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 FUJOVEE (Abivertinib), OVYDSO, SP-102, SP-103, RTX, oncolytic virus, ADC and oncology programs, among others. 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. We track external development costs by program; however, we do not allocate laboratory supplies, research and development ("R&D") materials, personnel costs, share-based payments, facilities costs or other internal costs to specific development programs.

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

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| | | | |
|:---|:---|:---|:---|
| Dollars in thousands | **Years ended December 31,** | **Years ended December 31,** | **Increase (decrease)** |
| **Type of expense** | **2022** | **2021** | **%** |
| Third party clinical and pre-clinical R&D expenses by program |  |  |  |
| &nbsp;&nbsp;&nbsp;Abivertinib | $9063 | $3268 | 177% |
| &nbsp;&nbsp;&nbsp;Resiniferatoxin ("RTX") | 12704 | 11176 | 14% |
| &nbsp;&nbsp;&nbsp;COVID-19 therapies and diagnostics, excluding Abivertinib | 27917 | 40437 | -31% |
| &nbsp;&nbsp;&nbsp;Immuno-oncology and other programs | 28549 | 25486 | 12% |
| Total third party clinical and pre-clinical R&D expenses by program | 78233 | 80367 | -3% |
| Laboratory supplies and R&D materials expenses | 23026 | 21740 | 6% |
| Salary, consulting and other personnel costs | 53387 | 46005 | 16% |
| Non-cash share-based compensation expenses | 12382 | 15343 | -19% |
| Facility, depreciation and other expenses | 45143 | 34266 | 32% |
| &nbsp;&nbsp;&nbsp;Total research and development expenses - Sorrento Therapeutics segment | 212171 | 197721 | 7% |
| &nbsp;&nbsp;&nbsp;Total research and development expenses - Scilex segment | 9055 | 9201 | -2% |
| **Total research and development expenses** | $221226 | $206922 | 7% |

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Third party clinical and pre-clinical R&D expenses for our Sorrento Therapeutics segment largely fluctuated as a result of the timing of clinical trial spend and the timing of our acquisition of ACEA Therapeutics, Inc. ("ACEA") (Abivertinib), which occurred in June 2021. Salaries, personnel costs and facilities expenses increased as compared to the same periods in the prior year as we continue expanding our R&D personnel headcount and infrastructure to support our R&D programs.

We expect our research and development expenses for our Scilex segment to increase as we incur incremental expenses associated with our product candidates that are currently under development and in clinical trials. Product candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, we expect to incur significant research and development expenses in connection with our Phase 3 clinical trial for SEMDEXA, our ongoing Phase 2 clinical trials for SP-103, and initiation of Phase 2 trials for SP-104.

Acquired in-process research and development expenses. Acquired in-process research and development expenses for the year ended December 31, 2022 was $12.3 million, which included $11.7 million related to our acquisition of Virex Health, Inc. Acquired in-process research and development expenses for the year ended December 31, 2021 was $24.2 million and related to the asset purchase agreement with Aardvark Therapeutics, Inc., for $5.0 million and the entry into the exclusive license agreement with Icahn

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School of Medicine at Mount Sinai for $7.5 million during the period as further described in [<u>Note 7</u>](#n8_significant_agreements_contracts) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K and $10.2 million related to our investment in Deverra Therapeutics, Inc. during the period, as further described in [<u>Note 5</u>](#n6_investments) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K. The remainder for the year ended December 31, 2021, related to our investments in various licensing arrangements entered into during the period.

Selling, general and administrative ("SG&A") expenses.

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Increase (decrease)** |
| Dollars in thousands | **2022** | **2021** | **%** |
| Sorrento Therapeutics segment | $118529 | $146273 | (19%) |
| Scilex segment | 63808 | 50583 | 26% |
| **Total sales, general and administrative expenses** | $182337 | $196856 | (7%) |

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SG&A expenses for the years ended December 31, 2022 and 2021, were $182.3 million and $196.9 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.

The decrease in SG&A expenses in our Sorrento Therapeutics segment was attributed to lower professional fees, including a decrease in legal and consulting costs by approximately $11.9 million, lower stock-based compensation expenses of $12.1 million and lower personnel costs of $5.6 million. Infrastructure-related expenses increased by $1.9 million compared to the prior fiscal year.

The increase in SG&A expenses in our Scilex segment were primarily attributed to increases in legal, consulting and insurance expenses compared to the prior fiscal year.

Increase (decrease) on contingent consideration. Gain on contingent consideration for the year ended December 31, 2022 was $75.4 million compared to a loss on contingent consideration of $9.2 million for the year ended December 31, 2021 and was attributed to the change in fair value of the Earn-Out Consideration associated with the acquisition of ACEA (see [<u>Note 3</u>](#n4_fair_value_measurements) and [<u>Note 7</u>](#n8_significant_agreements_contracts) of the accompanying notes to consolidated financial statements in this Annual Report on Form 10-K).

Loss on impairment of intangible assets. Loss on impairment of intangible assets for the year ended December 31, 2022 was $124.2 million, of which $122.8 million was attributed to the impairment of in-process research and development assets acquired from ACEA in 2021, as further described in [<u>Note 6</u>](#n8_significant_agreements_contracts) of the accompanying notes to consolidated financial statements in this Annual Report on Form 10-K.

Legal settlements. We recorded $64.8 million in net legal settlements expense during the year ended December 31, 2022, which was attributed to the NantCell/NANTibody Arbitration disclosed in [<u>Note 11</u>](#n12_commitments_contingencies) of the accompanying notes to consolidated financial statements in this Annual Report on Form 10-K.

Gain (loss) on derivative liabilities. Gain on derivative liabilities for our Scilex segment for the year ended December 31, 2022 was $7.3 million compared to a loss on derivative liabilities of $0.3 million for the year ended December 31, 2021 and was mainly attributed to the change in fair value of the derivatives ascribed to the senior secured notes due 2026 (the "Scilex Notes") as further described in [<u>Note 3</u>](#n4_fair_value_measurements) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K. There were no gains or losses on derivative liabilities for our Sorrento Therapeutics segment during the years ended December 31, 2022 and 2021.

Loss on marketable and equity investments. Loss on marketable investments for the year ended December 31, 2022 reflects $63.9 million in unrealized losses related to the change in fair value of our shares of Celularity Inc. ("Celularity"). Loss on equity investments for the year ended December 31, 2022 was $20.0 million and was attributed to other-than-temporary impairments of our equity investments without readily determinable fair value. Loss on marketable investments for the year ended December 31, 2021 reflects $39.8 million in unrealized losses related to the change in fair value of our shares of Celularity, $24.1 million of realized gains from the sale of our shares of ImmunityBio, Inc., and $0.7 million in realized gains related to other investments during the year ended December 31, 2021.

Gain (loss) on debt extinguishment. Gain on debt extinguishment for the year ended December 31, 2022 was $27.0 million and was attributable to repurchases of the aggregate principal amount of the Scilex Notes and was partially offset by a loss of debt extinguishment attributed to repayments made on the Bridge Loans (as defined below) during the year. Loss on debt extinguishment for the year ended December 31, 2021 was $6.7 million and was attributable to the repurchases of the outstanding principal on the Scilex Notes, and was partially offset by short-term debt forgiveness.

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Scilex Notes principal increase. Actual cumulative net sales of ZTlido from the issue date of the Scilex Notes through December 31, 2021 did not equal or exceed 95% of a predetermined target sales threshold for such period, which resulted in a $28.0 million increase in the principal amount of the Scilex Notes, effective February 15, 2022. As a result, we recorded the increase of $28.0 million in principal and non-operating expense at December 31, 2021.

Interest expense. Interest expense for the years ended December 31, 2022 and 2021 was $8.6 million and $10.2 million, respectively. The decrease was attributed to the Scilex Notes as a result of the repurchases of aggregate principal. We recorded an offsetting increase in interest expense related to the ACEA significant debt arrangements and the Bridge Loans due to the timing of initiation of such loans. Interest income was immaterial for both periods.

Loss on equity method investments. Loss on equity method investments for the year ended December 31, 2022 was $18.4 million and was largely attributed to the other-than-temporary impairment of our NantStem equity method investment.

Income tax benefit. Income tax benefit for the years ended December 31, 2022 and 2021 was $2.4 million and $33.5 million, respectively. The higher income tax benefit during the year ended December 31, 2021 was primarily due to deferred tax liabilities recognized in 2021 from the ACEA acquisition resulting in a release of valuation allowance in 2021 compared to 2022.

Net loss. Net loss for the year ended December 31, 2022 was $577.8 million as compared to a net loss of $429.1 million for 2021, as a result of the factors discussed above.

**Comparison of the Years Ended December 31, 2021 and 2020**

For a discussion regarding our financial condition and results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020, please refer to the discussion under the heading "Results of Operations— Comparison of the Years Ended December 31, 2021 and 2020" in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 11, 2022.

**Liquidity and Capital Resources**

**Voluntary Filing Under Chapter 11**

We expect to continue operations in the normal course for the duration of the Chapter 11 Cases. To ensure ordinary course operations, we have obtained approval from the Bankruptcy Court for certain "first day" motions to continue our ordinary course operations after the filing date. We have also received interim approval from the Bankruptcy Court for $75.0 million of financing from JMB Capital Partners Lending, LLC, which will provide us with immediate liquidity so that we can continue operating our business as usual during the Chapter 11 Cases and pay the costs and professional fees associated therewith. However, for the duration of our Chapter 11 Cases, our operations and our ability to develop and execute our business plan, our financial condition, our liquidity and our continuation as a going concern are subject to a high degree of risk and uncertainty associated with our Chapter 11 Cases. The outcome of the Chapter 11 Cases is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court.

As of December 31, 2022, we had $23.6 million in cash and cash equivalents attributable in part to proceeds from the following arrangements and agreements.

**The Failure of Silicon Valley Bank**

On March 10, 2023, we became aware that the Federal Deposit Insurance Corporation ("FDIC") issued a press release (the "FDIC press release") stating that Silicon Valley Bank, Santa Clara, California ("SVB") was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the Treasury Department announced that depositors of SVB will have access to all of their money starting March 13, 2023. We had approximately $2.8 million cash deposited with SVB as of each of December 31, 2022, February 13, 2023 when the Debtors commenced voluntary proceedings under Chapter 11, and March 10, 2023. On March 14, 2023, we regained access to the full amount of our cash that was deposited with SVB.

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**Debt Financings**

**Scilex Notes**

On September 28, 2022, Scilex Pharma repurchased (the "Repurchase") all of the outstanding aggregate principal amount of the Scilex Notes. As of immediately prior to the Repurchase, the aggregate principal amount of the Scilex Notes was approximately $67.7 million, and Scilex Pharma repurchased the Scilex Notes for an aggregate cash payment of approximately $39.7 million as the holders of the Scilex Notes forgave and discharged an aggregate of $28.0 million of principal amount of the Scilex Notes in connection with the Repurchase. See [<u>Note 8</u>](#n8_debt) of the accompanying notes to consolidated financial statements in this Annual Report on Form 10-K for additional details regarding the Scilex Notes.

**February Bridge Loan and September Bridge Loan (collectively, the "Bridge Loans")**

On September 30, 2022, we entered into a bridge loan pursuant to which we borrowed $41.6 million (the "September Bridge Loan"). The September Bridge Loan bears interest at 6% per annum and matured on January 31, 2023. Upon the occurrence, and during the continuance, of an "Event of Default", the September Bridge Loan shall bear interest at the rate of 15% per annum. We repaid $36.0 million of the September Bridge Loan during the fourth quarter of 2022. We repaid the remaining balance of $5.7 million in January 2023.

On February 16, 2022, we entered into a bridge loan pursuant to which we had borrowed $45.0 million (the "February Bridge Loan"). As of December 31, 2022, the February Bridge Loan was fully repaid.

**ACEA Significant Debt Arrangements**

The outstanding principal amount under ACEA significant debt arrangements assumed in connection with our 2021 acquisition of ACEA was $26.7 million as of December 31, 2022. The ACEA significant debt arrangements are comprised of a series of loans with maturity dates that range from August 15, 2023 to August 15, 2028. Each loan is interest free for the first five years, after which time the interest rate is 5.39% per annum.

**Marketable Investments**

As of December 31, 2022, we owned 20,422,124 shares of Class A Common Stock of Celularity (Nasdaq: CELU).

**Equity Financings**

**At-the-Market Sales Agreement**

On April 27, 2020, we entered into a Sales Agreement (the "Sales Agreement") with A.G.P./Alliance Global Partners, as sales agent (the "Agent"), pursuant to which we could offer and sell through or to the Agent up to $250.0 million in shares of its common stock (the "Shares"). On December 4, 2020, we entered into Amendment No. 1 (the "December 2020 Amendment") to the Sales Agreement, which amended the Sales Agreement to provide that we could offer and sell, from time to time, through or to the Agent, up to an additional $450.0 million in shares of our common stock, such that we could offer and sell up to an aggregate of $700.0 million in shares of our common stock pursuant to the Sales Agreement, as amended by the December 2020 Amendment (the "Original Amended Sales Agreement").

On December 3, 2021, we amended and restated the Original Amended Sales Agreement to include Cantor Fitzgerald & Co., B. Riley Securities, Inc. and H.C. Wainwright & Co., LLC as additional sales agents for our "at the market offering" program (the "Amended and Restated Sales Agreement").

On December 23, 2021, we entered into Amendment No. 1 (the "December 2021 Amendment") to the Amended and Restated Sales Agreement, with Cantor Fitzgerald & Co., B. Riley Securities, Inc. and H.C. Wainwright & Co., LLC (the "Sales Agents").

The December 2021 Amendment amended the Amended and Restated Sales Agreement to provide that we may offer and sell, from time to time, through or to the Sales Agents, as sales agents and/or principals, up to an additional $5,000,000,000 in shares of our common stock (the "Additional Shares"), such that we may offer and sell up to an aggregate of $5,442,943,290 in shares of our common stock (the "Offering") pursuant to the Amended and Restated Sales Agreement, as amended by the December 2021 Amendment (the "Amended Sales Agreement"), inclusive of $442,943,290 in shares sold pursuant to the Original Amended Sales Agreement and the Amended and Restated Sales Agreement through December 22, 2021. Any Additional Shares offered and sold in the Offering will be issued pursuant to our shelf registration statement on Form S-3ASR (the "Registration Statement"), which became

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automatically effective upon filing with the SEC on December 23, 2021. The Additional Shares may be offered only by means of a prospectus forming a part of the Registration Statement.

Subject to the terms and conditions of the Amended Sales Agreement, each Sales Agent will use its commercially reasonable efforts to sell the shares of our common stock from time to time, based upon our instructions. Under the Amended Sales Agreement, the Sales Agents may sell the shares of our common stock by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

We have no obligation to sell any shares of our common stock pursuant to the Amended Sales Agreement, and may at any time suspend offers under the Amended Sales Agreement. The Offering will terminate upon (i) the election of the Sales Agents upon the occurrence of certain adverse events, (ii) three business days' advance notice from us to the Sales Agents or a Sales Agent (with respect to itself) to us, or (iii) the sale of all $5,442,943,290.81 of shares of our common stock pursuant thereto.

Under the terms of the Amended Sales Agreement, the Sales Agents will be entitled to a commission at an initial fixed rate of 3.0% of the gross proceeds from each sale of shares of our common stock under the Amended Sales Agreement, which percentage may be adjusted (but not above 3.0%) based on the aggregate amount of securities sold by the Sales Agents pursuant to the Amended Sales Agreement. As discussed above, on February 13, 2023, the Debtors commenced voluntary proceedings under Chapter 11. Sales of shares of our common stock under the Amended Sales Agreement are subject to the pre-approval by the Bankruptcy Court during the pendency of the Chapter 11 Cases.

We currently intend to use any additional net proceeds from the Offering for working capital and general corporate purposes, which may include capital expenditures, research and development expenditures, regulatory affairs expenditures, clinical trial expenditures, acquisitions of new technologies and investments, business combinations and the repayment, refinancing, redemption or repurchase of indebtedness or capital stock. We also may use a portion of the net proceeds to repurchase or redeem a portion or all of the Scilex Notes.

During the year ended December 31, 2022, we sold an aggregate of 205,374,865 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to us of approximately $402.3 million. Subsequent to December 31, 2022 and through February 9, 2023, we sold an aggregate of 28,335,932 shares of our common stock pursuant to the Amended Sales Agreement for aggregate net proceeds to us of approximately $28.4 million.

**Universal Shelf Registration Statement**

On December 23, 2021, we filed an automatic universal shelf registration statement on Form S-3 (the "WKSI Shelf Registration Statement") with the SEC as a well-known seasoned issuer as defined in Rule 405 under the Securities Act. The WKSI Shelf Registration Statement provides us with the ability to offer an indeterminate amount of securities, including equity and other securities as described in the WKSI Shelf Registration Statement. Pursuant to the WKSI Shelf Registration Statement, we may offer such securities from time to time and through one or more methods of distribution, subject to market conditions and our capital needs. Specific terms and prices will be determined at the time of each offering under a separate prospectus supplement, which will be filed with the SEC at the time of any offering. In connection with the WKSI Shelf Registration Statement, we entered into the Amended Sales Agreement (discussed above) and included in the WKSI Shelf Registration Statement a prospectus covering $5,000,000,000 of shares of our common stock issuable pursuant to the Amended Sales Agreement. We will no longer qualify as a well-known seasoned issuer upon the filing of this Annual Report on Form 10-K and therefore, if we wish to have a shelf registration statement, available will either need to convert the WKSI Shelf Registration to a non-well-known seasoned issuer shelf registration statement or file a new shelf registration statement.

**Yorkville Standby Equity Purchase Agreement**

On November 17, 2022, Scilex Holding entered into a Standby Equity Purchase Agreement (the "Yorkville Purchase Agreement") with YA II PN, Ltd. ("Yorkville"), whereby Scilex Holding has the right, but not the obligation, to sell to Yorkville up to $500.0 million of shares of its common stock from time to time at Scilex Holding's sole and absolute discretion during the 36 months following the execution of the Yorkville Purchase Agreement, subject to certain conditions. As consideration for Yorkville's commitment to purchase shares of common stock at Scilex Holding's direction upon the terms and subject to the conditions set forth in the Yorkville Purchase Agreement, upon execution of the Yorkville Purchase Agreement, Scilex Holding issued 250,000 shares of common stock to Yorkville and paid a $10,000 structuring fee. On February 8, 2023, Scilex Holding entered into an Amended and Restated Standby Equity Purchase Agreement with Yorkville (the "A&R Yorkville Purchase Agreement"), amending, restating and superseding the Yorkville Purchase Agreement dated November 17, 2022. Pursuant to the A&R Yorkville Purchase Agreement, the shares of Scilex common stock, if any, that Scilex Holding elects to sell to Yorkville pursuant to a Yorkville Advance will be

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purchased at a price equal to 98% of the lowest daily volume weighted average price of the common stock for any trading day on the date of delivery of a written purchase notice to Yorkville.

**B. Riley Standby Equity Purchase Agreement**

On January 8, 2023, Scilex Holding entered into a Standby Equity Purchase Agreement (the "B. Riley Purchase Agreement") with B. Riley Principal Capital II, LLC ("B. Riley"), whereby Scilex Holding shall have the right, but not the obligation, to sell to B. Riley up to $500.0 million of its shares of Scilex Holding's common stock from time to time at Scilex Holding's sole and absolute discretion any time during the 36 months following the execution of the B. Riley Purchase Agreement, subject to certain conditions. Scilex Holding expects to use the net proceeds received from this for working capital and general corporate purposes. As consideration for B. Riley's commitment to purchase shares of common stock at Scilex Holding's direction upon the terms and subject to the conditions set forth in the B. Riley Purchase Agreement, upon execution of the B. Riley Purchase Agreement, Scilex Holding issued 250,000 shares of common stock to B. Riley and paid a $10,000 structuring fee.

**Scilex Holding Business Combination**

On November 10, 2022, Scilex Holding consummated the previously-announced business combination (the "Business Combination") pursuant to that certain Agreement and Plan of Merger, dated as of March 17, 2022 (as amended, restated or supplemented from time to time, including by Amendment No. 1 to Agreement and Plan of Merger, dated as of September 12, 2022) (the "Merger Agreement"), by and among Scilex Holding, Vantage Merger Sub Inc., Scilex Holding's then-wholly owned subsidiary (the "Merger Sub"), and the pre-Business Combination Scilex Holding Company ("Legacy Scilex"). Pursuant to the terms of the Merger Agreement, Scilex Holding effected a deregistration under the Cayman Islands Companies Act (as revised) and a domestication under Section 388 of the Delaware General Corporation Law, as amended (the "DGCL"), pursuant to which Scilex Holding's jurisdiction of incorporation was changed from the Cayman Islands to the State of Delaware, and, on the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the DGCL, Merger Sub merged with and into Legacy Scilex (the "Merger" or the "Business Combination"), with Legacy Scilex surviving as Scilex Holding's wholly owned subsidiary. On November 11, 2022, shares of Scilex Holding Company ("Scilex Holding") began trading on the Nasdaq Capital Market under the ticker symbol "SCLX". In connection with the Business Combination, Scilex Holding changed its name from Vickers Vantage Corp. I to Scilex Holding Company.

**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 of this Form 10-K. Upon the achievement of such milestones or the occurrence of such events, we will be obligated to make certain cash or stock payments in accordance with the terms of such acquisition and license agreements.

**Cash Flow Summary** 

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| | | |
|:---|:---|:---|
|  | **December 31,<br>2022** | **December 31,<br>2021** |
|  | **(in thousands)** | **(in thousands)** |
| Net cash provided by (used by) |  |  |
| Operating activities | $(293857) | $(281821) |
| Investing activities | (28518) | 79847 |
| Financing activities | 311718 | 181332 |

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**Use of Cash** 

Cash Flows from Operating Activities. Net cash used for operating activities was $293.9 million for year ended December 31, 2022 as compared to $281.8 million for the year ended December 31, 2021. Net cash used reflects the cash spent on our research activities and cash spent to support the commercial launch of our products.

Associated with the voluntary filing of Chapter 11 in February 2023, we plan to lower our operating budget and further reduce the scale of our operations, in addition to funding ongoing operations, we have incurred and expect to incur significant professional fees and other costs in connection with and throughout our Chapter 11 cases.

We expect to continue to incur substantial and increasing losses and negative net cash flows from operating activities.

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Cash Flows from Investing Activities. Net cash used by investing activities was $28.5 million for the year ended December 31, 2022 and was attributed to the spend of approximately $8.3 million related to various investments in new technologies and preclinical programs, $6.5 million in connection with the acquisition of Virex Health, net of cash acquired, and approximately $13.7 million primarily attributed to expenditures on laboratory equipment. During the year ended December 31, 2021, net cash provided by investing activities was $79.8 million and we spent approximately $35.3 million related to various investments in new technologies and preclinical programs, $0.8 million in connection with the acquisition of ACEA, net of cash acquired, and approximately $8.9 million primarily attributed to expenditures on laboratory equipment.

Cash Flows from Financing Activities. Net cash provided by financing activities was $311.7 million for year ended December 31, 2022 as compared to $181.3 million for year ended December 31, 2021. During the year ended December 31, 2022, we received $402.3 million from equity offerings, proceeds from short-term debt of $96.1 million, proceeds of $1.2 million from common stock issuances and warrant exercises and $0.4 million of proceeds net of transaction costs paid relating to the Scilex Business Combination. During the year ended December 31, 2022, we repaid $106.0 million in principal amount of the Scilex Notes, of which $84.8 million was attributed to principal included within financing activities and $21.2 million was attributed to principal included in operating activities. We also repaid $103.5 million in other short-term debt. During the year ended December 31, 2021, we repaid $45.9 million in principal amount of the Scilex Notes, of which $32.7 million was attributed to principal included within financing activities and $13.1 million was attributed to principal included in operating activities. We also repaid $53.0 million in other short-term debt.

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 expect to continue operations in the normal course for the duration of the Chapter 11 Cases. To ensure ordinary course operations, we have obtained approval from the Bankruptcy Court for certain "first day" motions to continue our ordinary course operations after the filing date. We have also received interim approval from the Bankruptcy Court for $75.0 million of financing from JMB Capital Partners Lending, LLC, which will provide us with immediate liquidity so that we can continue operating our business as usual during the Chapter 11 Cases and pay the costs and professional fees associated therewith. However, for the duration of our Chapter 11 Cases, our operations and our ability to develop and execute our business plan, our financial condition, our liquidity and our continuation as a going concern are subject to a high degree of risk and uncertainty associated with our Chapter 11 Cases. The outcome of the Chapter 11 Cases is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court. 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. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K, do not include any adjustments that might result from the outcome of these uncertainties.

We anticipate that we will continue to incur net losses into the foreseeable future as we develop and consummate a Chapter 11 plan of reorganization and advance our product pipeline and other product candidates.

**Material Cash Requirements** 

As of December 31, 2022, our material contractual obligations are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Short-term operating lease liabilities as disclosed in [<u>Note 11</u>](#n12_commitments_contingencies) in the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Short-term accrued legal settlements of $174.8 million, inclusive of interest, as disclosed in [<u>Note 11</u>](#n12_commitments_contingencies);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Short-term debt of $5.7 million related to the September Bridge Loan discussed above; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•In connection with the acquisition of ACEA as further discussed in [<u>Note 7</u>](#n8_significant_agreements_contracts), we recorded short term acquisition consideration of $7.5 million as of December 31, 2022.

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Our material long-term contractual obligations include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Long-term operating lease liabilities as disclosed in [<u>Note 11</u>](#n12_commitments_contingencies) in the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•In connection with the acquisition of ACEA as further discussed in [<u>Note 7</u>](#n8_significant_agreements_contracts), we recorded long term contingent consideration of $48.4 million as of December 31, 2022; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Long-term debt of $26.7 million related to the ACEA Significant Debt Arrangements discussed above.

**Critical Accounting Estimates**

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe the following accounting policies and estimates are most critical to aid in understanding and evaluating our reported financial results.

Revenue Recognition. Our revenues are generated from product revenues, the sale of customized reagents and other materials, contract manufacturing services, grant revenue and other service revenues. We do not have significant costs associated with costs to obtain contracts with our customers. Substantially all of our revenues and accounts receivable result from contracts with customers.

We recognize revenue when control of the products is transferred to the customers in an amount that reflects the consideration we expect to receive from the customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract and the contract price, allocating the contract price to the distinct performance obligations in the contract and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. We recognize revenue for satisfied performance obligations only when no significant reversals are expected (see [<u>Note 1</u>](#n1_organization_significant_accounting_p) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K).

Rebates are discounts that we pay under either government or private health care programs. Government rebate programs include state Medicaid drug rebate programs, the Medicare coverage gap discount programs and the Tricare programs. Commercial rebate and fee programs relate to contractual agreements with commercial healthcare providers, under which we pay rebates and fees for access to and position on that provider's patient drug formulary. Rebates and chargebacks paid under government programs are generally mandated under law, whereas private rebates and fees are generally contractually negotiated with commercial healthcare providers. Both types of rebates vary over time. We record a reduction to gross product sales at the time the customer takes title to the product based on estimates of expected rebate claims. We monitor the sales trends and adjust for these rebates on a regular basis to reflect the most recent rebate experience and contractual obligations. Reserves for rebates and chargebacks are recorded as accrued rebates and fees under current liabilities within our consolidated balance sheet.

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Investments in Other Entities. We hold a portfolio of investments in equity securities. Investments in entities over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in loss on equity investments. Our other equity investments are carried at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments.

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

If the amount allocated to the convertible debt results in an effective per share conversion price less than the fair value of our common stock on the commitment date, the intrinsic value of this beneficial conversion feature is recorded as a discount to the convertible debt with a corresponding increase to additional paid in capital. The beneficial conversion feature discount is equal to the difference between the effective conversion price and the fair value of our common stock at the commitment date, unless limited by the remaining proceeds allocated to the debt.

We may enter financing arrangements, the terms of which involve significant assumptions and estimates, including future net product sales, in determining interest expense, amortization period of the debt discount, as well as the classification between current and long-term portions. In estimating future net product sales, we assess prevailing market conditions using various external market data against our anticipated sales and planned commercial activities. Consequently, we impute interest on the carrying value of the debt and record interest expense using an imputed effective interest rate. We reassess the expected payments each reporting period and account for any changes through an adjustment to the effective interest rate on a prospective basis, with a corresponding impact to the classification of our current and long-term portions.

Intangible assets. In order to estimate the fair value of our identifiable intangible assets and other long-lived assets, we primarily use an income approach, using the present value of estimated future cash flows from those assets. The key assumptions that we use in our discounted cash flow model are the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows, the time value of money, and other factors that a willing market participant would consider. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows.

Contingent consideration. The fair value of contingent consideration liabilities assumed in business combinations is recorded as part of the purchase price consideration of the acquisition and is determined using a discounted cash flow model or Monte Carlo simulation model. The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility rates, projections associated with applicable milestones, discount rates and the related probabilities and payment structure in the contingent consideration arrangement. Fair value adjustments to contingent consideration liabilities are recorded through operating expenses in the consolidated statement of operations. Contingent consideration arrangements assumed by an asset acquisition will be measured and accrued when such contingency is resolved.

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**Recent Accounting Pronouncements**

Refer to [<u>Note 1</u>](#n1_organization_significant_accounting_p) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk.**

Interest Rate Risk. Our exposure to market risk is confined to our cash and cash equivalents and debt. We have cash and cash equivalents and invest primarily in high-quality money market funds, which we believe are subject to limited credit risk. Due to the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. We do not believe that we have any material exposure to interest rate risk arising from our investments and we do not use derivative financial instruments to hedge against interest rate risk.

Capital Market Risk. We currently do not have significant revenues from grants or sales and services and we have no product revenues from our planned principal operations and therefore depend on funds raised through other sources. One source of funding is through future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price.

Beginning in 2021, we held investments in marketable investments with readily determinable fair values, which are included as current marketable investments within our consolidated balance sheets. Our investment in these publicly traded equity securities is recorded at fair value and is subject to market price volatility. Changes in the fair value of such investments are recorded in our consolidated statement of operations within loss on marketable investments.

Concentration Risk. Prior to April 2, 2022, sales to Scilex's sole distributor represented 100% of Scilex's net revenue. On April 2, 2022, Scilex announced the expansion of its direct distribution network to national and regional wholesalers and pharmacies. The distributor continued to provide traditional third-party logistics functions for Scilex. Scilex had four customers during the year ended December 31, 2022, which individually generated 10% or more of our total product revenue. These customers accounted for 78% of our consolidated product revenue for the year ended December 31, 2022, individually ranging between 17% to 23%. As of December 31, 2022, these customers represented 82% of our consolidated outstanding accounts receivable, individually ranging between 22% to 33%.

**Item 8. Financial Statements and Supplementary Data.**

Our consolidated financial statements and supplementary data required by this item are set forth at the pages indicated in Item 15(a)(1) and (a)(2), respectively, of this Annual Report on Form 10-K.

**Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.**

None.

**Item 9A. Controls and Procedures.**

**Disclosure Controls and Procedures**

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's regulations, rules and forms and that such information is accumulated and communicated to our management, including our principal officers, as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report on Form 10-K as a result of the material weakness described below.

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**Management's Report on Internal Control Over Financial Reporting**

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer and Principal Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of an issuer's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that an issuer's receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of an issuer's assets that could have a material effect on the consolidated financial statements. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, the application of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that compliance with the policies or procedures may deteriorate.

As required by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022. Management's assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 Framework) ("COSO"). Based on management's assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2022, due to the material weakness in our internal control over financial reporting, as follows: As previously disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on March 11, 2022, as a result of our former Chief Financial Officer`s passing in early January 2022 as well as other considerations, management concluded that we did not employ sufficient accounting resources with appropriate experience and technical expertise to effectively execute controls over certain judgmental and technical accounting areas. As a result, we identified certain of our control activities were deficient and the combination of the aforementioned deficiencies were deemed to represent a material weakness in our internal control over financial reporting as of December 31, 2021. While we have taken actions to remediate this material weakness, including (i) recruiting and employing personnel with appropriate experience and technical expertise to enhance management's assessment of judgmental and technical accounting areas, (ii) conducting additional training for staff involved in judgmental and technical accounting areas, and (iii) engaging additional independent third-party technical consultants to assist in performing accounting analyses of complex transactions, completion of our remediation efforts is ongoing. As such management has concluded the aforementioned material weakness has not been remediated as of December 31, 2022. As a result, certain of our control activities in the areas of revenue, business combinations, investments, debt, derivative liabilities, intangibles and contingent consideration did not operate effectively and have been deemed deficient and the combination of the aforementioned deficiencies represents a material weakness in our internal control over financial reporting as of December 31, 2022.

Ernst & Young, LLP, our independent registered public accounting firm, has issued a report on our internal control over financial reporting as of December 31, 2022. See "Report of Independent Registered Public Accounting Firm – Opinion on Internal Control over Financial Reporting" beginning on Page F-2 of this Annual Report on Form 10-K.

**Planned Remediation of Material Weaknesses**

During the fiscal year ending December 31, 2023, we will continue evaluating our remediation measures as described above to determine if such measures have been effectively implemented and will provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP. Any failure to implement these improvements to our internal control over financial reporting would result in a continued material weakness in our internal control and could impact our ability to produce reliable financial reports, effectively manage the company or prevent fraud, and could potentially harm our business and our performance.

**Changes in Internal Control over Financial Reporting** 

Except for the implementation of additional controls and procedures as described above, there were no changes in our internal control over financial reporting (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As identified above under "Management's Report on Internal Control Over Financial Reporting", a material weakness was identified in our internal control over financial reporting as of December 31, 2022. Our plans for remediating such material weakness,

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enumerated above, will continue to constitute changes in our internal control over financial reporting, prospectively, when such remediation plans are effectively implemented.

**Inherent Limitations over Internal Controls**

Our management, including our Principal Executive Officer and Principal Financial Officer, intends that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

**Item 9B. Other Information.**

Not applicable.

**Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.**

Not applicable.

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**PART III**

**Item 10. Directors, Executive Officers and Corporate Governance.**

**Board of Directors**

The following table sets forth the names, ages as of March 10, 2023, and certain other information for each member of our board of directors (our "Board"):

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| | | |
|:---|:---|:---|
| **Name** | **Age** | **Position** |
| Henry Ji, Ph.D. | 58 | Chairman of the Board, President and Chief Executive Officer |
| Dorman Followwill | 59 | Lead Independent Director |
| Kim D. Janda, Ph.D. | 65 | Director |
| David Lemus | 60 | Director |
| Tammy Reilly | 60 | Director |
| Jaisim Shah | 62 | Director |
| Yue Alexander Wu, Ph.D. | 59 | Director |

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**Henry Ji, Ph.D.,** co-founded and has served as a director of Sorrento since January 2006, served as its Chief Scientific Officer from November 2008 to September 2012, as its Interim Chief Executive Officer from April 2011 to September 2012, as its President and Chief Executive Officer since September 2012, as Chairman of the Board since August 2017 and as Interim Chief Financial Officer from January 2022 to May 2022. Dr. Ji also served as our Secretary from September 2009 to June 2011. Dr. Ji has served as the Executive Chairman and board member of Scilex Holding, since its inception in March 2019. In 2002, Dr. Ji founded BioVintage, Inc., a research and development company focusing on innovative life science technology and product development, and has served as its President since 2002. From 2001 to 2002, Dr. Ji served as Vice President of CombiMatrix Corporation, a publicly traded biotechnology company that develops proprietary technologies, including products and services in the areas of drug development, genetic analysis, molecular diagnostics and nanotechnology. During his tenure at CombiMatrix, Dr. Ji was responsible for strategic technology alliances with biopharmaceutical companies. From 1999 to 2001, Dr. Ji served as Director of Business Development and in 2001 as Vice President, of Stratagene Corporation (later acquired by Agilent Technologies, Inc.) where he was responsible for novel technology and product licensing and development. In 1997, Dr. Ji co-founded Stratagene Genomics, Inc., a wholly owned subsidiary of Stratagene Corporation, and served as its President and Chief Executive Officer from its founding until 1999. Dr. Ji previously served as a director of Celularity Inc. from June 2017 to July 2021. Dr. Ji is the holder of several issued and pending patents in the life science research field and is the sole inventor of Sorrento's intellectual property. Dr. Ji has a Ph.D. in Animal Physiology from the University of Minnesota and a B.S. in Biochemistry from Fudan University.

Dr. Ji has demonstrated significant leadership skills as President and Chief Executive Officer of Stratagene Genomics, Inc. and Vice President of CombiMatrix Corporation and Stratagene Corporation and brings more than 18 years of biotechnology and biopharmaceutical experience to his position on our Board. Dr. Ji's extensive knowledge of the industry in which we operate, as well as his unique role in our day-to-day operations as our President and Chief Executive Officer, allows him to bring to our Board a broad understanding of the operational and strategic issues we face.

**Dorman Followwill** has served as a director of our Company since October 2017 and as our lead independent director since August 2020. Mr. Followwill was Senior Partner, Transformational Health at Frost & Sullivan, a business consulting firm involved in market research and analysis, growth strategy consulting and corporate training across multiple industries, from 2016 to September 2020. Prior to that time, he served in various roles at Frost & Sullivan, including Partner on the Executive Committee managing the P&L of the business in Europe, Israel and Africa, and Partner overseeing the Healthcare and Life Sciences business in North America, since initially joining Frost & Sullivan to help found the Consulting practice in January 1988. Mr. Followwill has more than 30 years of organizational leadership and management consulting experience, having worked on hundreds of consulting projects across all major regions and across multiple industry sectors, each project focused around the strategic imperative of growth. He obtained his BA from Stanford University in The Management of Organizations in 1985.

We believe that Mr. Followwill's extensive knowledge and understanding of the healthcare and life sciences industries qualify him to serve on our Board.

**Kim D. Janda, Ph.D.,** has served as a director of our Company since April 2012. Dr. Janda has served as Ely R. Callaway, Jr. Chaired Professor in the Departments of Chemistry, Immunology and Microbial Science at The Scripps Research Institute since 1996 and as the Director of the Worm Institute of Research and Medicine (WIRM) at The Scripps Research Institute since 2005. Furthermore, Dr. Janda has served as a Skaggs Scholar within the Skaggs Institute of Chemical Biology, also at The Scripps Research Institute, since 1996. Dr. Janda holds a B.S. degree from the University of South Florida in Clinical Chemistry and a doctoral degree

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from the University of Arizona with Robert B. Bates in natural product total synthesis. A hallmark of his research is that Dr. Janda has been able to uniquely combine principles of medicinal chemistry together with modern molecular biology, immunology and neuropharmacology, allowing the creation of both synthetic/natural molecules and processes with biological, chemical and physical properties. Dr. Janda has published over 425 original publications in refereed journals and founded the biotechnological companies CombiChem, Drug Abuse Sciences and AIPartia. Dr. Janda is associate editor of Bioorg & Med. Chem., PloS ONE and serves, or has served, on numerous journals including J. Comb. Chem., Chem. Reviews, J. Med. Chem., The Botulinum Journal, Bioorg. & Med. Chem. Lett., and Bioorg. & Med. Chem. Over a career of almost 25 years, Dr. Janda has provided numerous seminal contributions and is considered one of the first scientists to merge chemical and biological approaches into a cohesive research program. Dr. Janda serves on the Scientific Advisory Boards of Materia, Inc. and Singapore Ministry of Education (MOE), EP1 Physical Sciences.

Dr. Janda has almost 25 years of experience in life sciences and very strong technical expertise relating to the discovery and development of antibody therapeutics, which gives him a unique understanding of the research challenges and opportunities facing our company. As an experienced scientist and inventor on multiple patents in the life sciences industry, Dr. Janda brings critical insights into the operational requirements of a discovery and development company as well as to our overall business and strategies relating to our ongoing development efforts, and serves as the chair of our Scientific Advisory Board.

**David Lemus** has served as a director of our Company since October 2017. He currently serves as a non-executive board member of Silence Therapeutics, plc (Nasdaq: SLN) and BioHealth Innovation, Inc., and served previously on several other boards of public and private companies as a non-executive director. Most recently, Mr. Lemus served as Chief Executive Officer of IronShore Pharmaceuticals Inc. from January 2020 to April 2022. He served from November 2017 to September 2018 as the Interim Chief Operating Officer and Chief Financial Officer of Proteros biosciences GmbH. Previously, from January 2016 to May 2017, he served as Interim Chief Financial Officer and Chief Operating Officer of Medigene AG. Prior to this, from 2011 to 2015, he was employed by Sigma Tau Pharmaceuticals, Inc., and served as the company`s Chief Executive Officer. Previous to this role, Mr. Lemus served as Chief Financial Officer and Executive V.P. of MorphoSys AG for more than 13 years. Prior to MorphoSys AG, Mr. Lemus held various management positions at Hoffman La Roche, and was the Group Treasurer of Lindt & Spruengli AG. Mr. Lemus received an M.S. from the Massachusetts Institute of Technology Sloan School of Management in 1988 and a B.S. in Accounting from the University of Maryland in 1984. Mr. Lemus is also a certified public accountant licensed in the State of Maryland.

We believe that Mr. Lemus' extensive accounting and financial background and business experience in the life sciences industry qualify him to serve on our Board.

**Tammy Reilly** has served as a director of our Company since May 2022. As the managing partner of TRDx, LLC, an independent life sciences advisory company that she founded in March 2008, she has advised life science companies on life cycle management and business development solutions. Concurrently, from November 2009 to January 2018, Ms. Reilly served as a founder and Managing Partner of Real Life Products, LLC, a consumer merchandising and manufacturing company that launched and sold patented products via e-commerce and major retail chains, including Walmart, Home Depot and Amazon. From October 2004 to March 2008, she served as Chief Commercial Officer of XDx, Inc., which is now known as CareDx, Inc. (Nasdaq: CDNA). Prior to that, Ms. Reilly served in various roles at Roche Laboratories for over 14 years, including sales and marketing leadership positions in the specialty areas of oncology, virology and transplantation and most recently in 2004 as Executive Vice President for Oncology and Dermatology, managing a business with over $1 billion in revenue. Ms. Reilly received a B.S. degree in Special Education from the University of Delaware in 1985 and a MBA from the University of Delaware in 1988.

We believe that Ms. Reilly's more than 30 years of life science and pharmaceutical business and operating experience qualifies her to serve on our Board.

**Jaisim Shah** has served as a director of our Company since September 2013. He has more than 25 years of global biopharma experience including over 15 years in senior management leading business development, commercial operations, investor relations, marketing and medical affairs. Mr. Shah has served as the President and Chief Executive Officer and board member of Scilex Holding since its inception in March 2019. He has also served as the Chief Executive Officer and board member of Semnur Pharmaceuticals, Inc. since its inception in 2013. Prior to Semnur, Mr. Shah was a consultant to several businesses, including Sorrento, and was the Chief Business Officer of Elevation Pharmaceuticals, where Mr. Shah led a successful sale of Elevation to Sunovion in September 2012. Prior to Elevation, Mr. Shah was president of Zelos Therapeutics, where Mr. Shah focused on financing and business development. Prior to Zelos, Mr. Shah was the Senior Vice President and Chief Business Officer at CytRx, a biopharmaceutical company. Previously, Mr. Shah was Chief Business Officer at Facet Biotech and PDL BioPharma where he completed numerous licensing/partnering and strategic transactions with pharmaceutical and biotech companies. Prior to PDL, Mr. Shah was at Bristol-Myers Squibb, most recently as Vice President of Global Marketing where he received the "President's Award" for completing one of the most significant collaborations in the company's history. Previously, Mr. Shah was at F. Hoffman-La Roche in international marketing and was global business leader for corporate alliances with Genentech and Idec. Mr. Shah previously served as a director of

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Celularity Inc. from June 2017 to July 2021. Mr. Shah holds an M.A. in Economics from the University of Akron and an M.B.A. from Oklahoma University.

We believe that Mr. Shah's extensive operational, executive and business development experience qualifies him to serve on our Board.

**Yue Alexander Wu, Ph.D.,** has served as a director of our Company since August 2016. He is co-founder and CEO of Cothera Bioscience, Inc., a translation medicine and precision therapeutics company. He was previously President, Chief Executive Officer and Chief Strategy Officer of Crown Bioscience International, a leading global drug discovery and development solutions company, which he co-founded in 2006, until 2017. From 2004 to 2006, Dr. Wu was Chief Business Officer of Starvax International Inc. in Beijing, China, a biotechnology company focusing on oncology and infectious diseases. From 2001 to 2004, Dr. Wu was a banker with Burrill & Company where he was head of Asian Activities. Dr. Wu has served as a director of CASI Pharmaceuticals, Inc. (Nasdaq: CASI) since June 2013. Dr. Wu received his Ph.D. in Molecular Cell Biology and his MBA from University of California at Berkeley. He earned an M.S. in Biochemistry from University of Illinois, Urbana-Champaign and his B.S. in Biochemistry from Fudan University in Shanghai, China.

We believe that Dr. Wu's scientific background and business experience qualify him to serve on our Board.

**Agreements with Directors**

None of our directors was selected pursuant to any arrangement or understanding, other than compensation arrangements in the ordinary course of business.

**Audit Committee**

We have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Audit Committee is currently comprised of Messrs. Followwill and Lemus and Dr. Wu. Mr. Lemus serves as the Chairperson of the Audit Committee.

Our Board has determined that Mr. Lemus is an audit committee financial expert, as defined under applicable SEC rules, and that Messrs. Followwill and Lemus and Dr. Wu meet the background and financial sophistication requirements under the rules of The Nasdaq Stock Market LLC. In making these determinations, the Board made a qualitative assessment of each of Messrs. Followwill's and Lemus' and Dr. Wu's level of knowledge and experience based on a number of factors, including each individual's formal education and experience. Both our independent registered public accounting firm and internal financial personnel regularly meet privately with our Audit Committee and have unrestricted access to the Audit Committee. The information under the heading "Board Independence" in Item 13 below is incorporated herein by reference.

**Director Nominations**

No material changes have been made to the procedures by which security holders may recommend nominees to our Board from those that were described in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders that was filed with the SEC on November 1, 2022.

**Executive Officers**

The following table sets forth the names, ages as of March 10, 2023, and certain other information for each member of our executive officers. Dr. Ji's background is discussed under the section "Board of Directors."

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| | | |
|:---|:---|:---|
| **Name** | **Age** | **Position** |
| Henry Ji, Ph.D. | 58 | Chairman of the Board, President and Chief Executive Officer |
| Elizabeth Czerepak | 67 | Executive Vice President and Chief Financial Officer |

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**Elizabeth Czerepak** has served as our Executive Vice President and Chief Financial Officer since May 2022. She has over 35 years of experience in big pharma, biotechnology and venture capital. Ms. Czerepak has also served as the Executive Vice President, Chief Financial Officer and Chief Business Officer of Scilex Holding since May 2022. Prior to joining Sorrento and Scilex Holding, Ms. Czerepak served as the Chief Financial Officer of BeyondSpring Inc. (Nasdaq: BYSI), a global biopharmaceutical company focused on developing innovative immuno-oncology cancer therapies, from September 2020 to May 2022. From May 2018 to January 2020, Ms. Czerepak served as the Chief Financial Officer and the Chief Business Officer of Genevant Sciences, Inc., a technology-focused

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lipid nanoparticle delivery company. From 2015 to 2018 she served as the Chief Financial Officer and Executive Vice President of Corporate Development of Altimmune, Inc., a clinical stage vaccines company, and from 2014 to 2015, she served as the Chief Financial Officer and the Chief Business Officer of Isarna Therapeutics Inc., which develops selective transforming growth factor beta inhibitors for cancer, ophthalmic and fibrotic diseases. From 2011 to 2014, Ms. Czerepak served as the Chief Financial Officer, Secretary, Principal Accounting Officer and Head of Human Resources at Cancer Genetics, Inc., a company that develops and commercializes molecular diagnostics. Prior to that, she served as a Managing Director at JPMorgan Chase & Co. and Bear, Stearns & Co., a General Partner at Bear Stearns Health Innoventures L.P., a venture capital fund and as a NASD (now FINRA) Registered Representative (Series 7 and Series 63). Since February 2020, Ms. Czerepak has served as a director and chair of the audit committee of Delcath Systems, Inc., an interventional oncology company focused on the treatment of liver cancer. Ms. Czerepak previously served on the board of directors of Spectrum Pharmaceuticals, Inc. from June 2019 to December 2020. Ms. Czerepak served on our board of directors from October 2021 until her appointment as our Executive Vice President and Chief Financial Officer and previously served on the board of directors of Scilex Holding from September 2019 to October 2020. She holds a B.A. magna cum laude in Spanish and Mathematics Education from Marshall University and a M.B.A. from Rutgers University in 1982. In 2020, Ms. Czerepak earned a Corporate Director Certificate from Harvard Business School.

**Family Relationships**

There are no family relationships between or among any of our executive officers or directors.

**Legal Proceedings with Directors or Executive Officers**

There are no legal proceedings related to any of our directors or executive officers that require disclosure pursuant to Items 103 or 401(f) of Regulation S-K.

**Code of Ethics**

We have adopted the Sorrento Therapeutics, Inc. Code of Business Conduct and Ethics that applies to all of our employees, executive officers and directors. The Code of Business Conduct and Ethics is available to stockholders on our Internet website at www.sorrentotherapeutics.com/investors/corporate-governance. If we make any substantive amendments to our Code of Business Conduct and Ethics or grant any waiver from a provision of our Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our Internet website at investors.sorrentotherapeutics.com/corporate-governance/governance-overview and/or in our public filings with the SEC.

**Delinquent Section 16(a) Reports**

During the year ended December 31, 2022, Henry Ji, Ph.D., our Chief Executive Officer and a Chairman of our board of directors, filed one Form 4 late with respect to acquisitions of shares upon the exercise of certain put options written by BioVintage, Inc., an entity of which Dr. Ji is the sole owner, effected on each of December 2, 2022 and December 21, 2022.

**Item 11. Executive Compensation.**

**Compensation Discussion and Analysis**

**Compensation Philosophy**

The primary goals of our Board with respect to executive compensation are to attract and retain talented and dedicated executives, to tie annual and long-term cash and stock incentives to achievement of specified performance objectives and to create incentives resulting in increased stockholder value. To achieve these goals, our Compensation Committee recommends to our Board executive compensation packages, generally comprising a mix of salary, discretionary bonus and equity awards. Although we have not adopted any formal guidelines for allocating total compensation between equity compensation and cash compensation, we have implemented and maintain compensation plans that tie a substantial portion of our executives' overall compensation to achievement of corporate goals.

**Role of Compensation Consultants**

The Compensation Committee has the power to engage independent advisors to assist it in carrying out its responsibilities. For 2022, the Compensation Committee re-engaged Compensia, Inc. ("Compensia"), a national compensation consulting firm, and Prescient Healthcare Group ("Prescient") as its compensation consultants to review and advise on our compensation practices. The Compensation Committee assessed the independence of Compensia and Prescient pursuant to SEC rules and concluded that the work of each of Compensia and Prescient has not raised any conflict of interest.

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In June and August 2022, Compensia evaluated the compensation arrangements for the Company's chief executive officer against a comparable group of similar life sciences companies and its own proprietary data. In preparing such evaluation, the comparable group of life sciences companies consisted of the following companies, determined to: (i) generally have lead drug candidates in the same stages as ours; (ii) generally have similar revenues as us, and(iii) generally have similar market capitalization as us:

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| | |
|:---|:---|
| AbCellera Biologics Inc. | Inovio Pharmaceuticals, Inc. |
| Aclaris Therapeutics Inc. | MacroGenics, Inc. |
| Adaptive Biotechnologies Corp. | Mersana Therapeutics, Inc.  |
| Allogene Therapeutics, Inc. | Mirati Therapeutics, Inc. |
| Arcus Biosciences, Inc. | Nektar Therapeutics  |
| Arrowhead Pharmaceuticals, Inc.  | SpringWorks Therapeutics, Inc. |
| Fate Therapeutics, Inc. | Turning Point Therapeutics, Inc. |
| Heron Therapeutics, Inc. | Twist BioScience Corporation |
| ImmunityBio, Inc.  | Vir Biotechnology, Inc. |
| ImmunoGen, Inc. | Xencor, Inc. |

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For March and June 2022, Prescient evaluated the compensation arrangements for the Company's chief executive officer and the members of its Board against a comparable group of similar life sciences companies and its own proprietary data. The comparable group of life sciences companies used by Prescient in its analysis consisted of the following companies that have approved products or product candidates that are competitive with the Company's products and product candidates:

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| | |
|:---|:---|
| AbbVie Inc. | Jazz Pharmaceuticals plc |
| Alnylam Pharmaceuticals, Inc. | Merck KGaA |
| Amgen Inc. | Merck Sharp & Dohme Corp.  |
| Arrowhead Pharmaceuticals, Inc. | Moderna, Inc. |
| AstraZeneca PLC | Novartis AG |
| Bayer AG | Pfizer Inc. |
| BioHaven Pharmaceutical Holding Company Ltd. | PTC Therapeutics, Inc. |
| BioNTech SE | Regeneron Pharmaceuticals, Inc. |
| Bristol-Myers Squibb Company | Roche Holding AG |
| Eli Lilly and Company  | Sanofi |
| Gilead Sciences, Inc. | Sarpeta Therapeutics, Inc. |
| GlaxoSmithKline plc | Takeda Pharmaceutical Company Limited |
| Incyte Corporation | Teva Pharmaceutical Industries Limited |
| Johnson & Johnson | Vertex Pharmaceuticals Incorporated |

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In 2022, Compensia and Prescient reviewed and advised the Compensation Committee on the matters described above.

In setting 2022 compensation, the Compensation Committee reviewed the competitive market analyses provided by Compensia and Prescient and compared our chief executive officer's base salary, target annual performance bonus and equity compensation value, separately and in the aggregate, to amounts paid to similarly-situated executives at our peer companies. The Compensation Committee believes that targeting compensation towards similarly situated executives at our peer companies helps achieve the compensation objectives described above. However, compensation for each named executive officer may vary from this range depending on other factors the Compensation Committee considers relevant, such as internal pay equity among our named executive officers or levels of authority, responsibility and experience of our named executive officers that exceed the norms for individuals holding comparably-titled positions at other companies.

**Elements of Compensation**

We evaluate individual executive performance with a goal of setting compensation at levels our Board or any applicable committee thereof believes are comparable with executives in other companies of similar size and stage of development while taking into account our relative performance and our own strategic goals. The compensation received by our named executive officers consists of the following elements:

**Base Salary**

Base salaries for our executives are established based on the scope of their responsibilities and individual experience, taking into account competitive market compensation paid by other companies for similar positions within our industry.

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The Compensation Committee considers compensation data from the peer companies to the extent the executive positions at these companies are considered comparable to our positions and informative of the competitive environment. Compensation data for our peer group were collected from available proxy-disclosed data. This information was gathered and analyzed for the 25th, 50th and 75th percentiles for annual base salary, short-term incentive pay elements and long-term incentive pay elements.

The amended and restated employment agreement between us and Dr. Ji, dated May 9, 2017, provided for an annual base salary for Dr. Ji of $600,000, as may be adjusted from time to time. In May 2018, the Compensation Committee increased Dr. Ji's annual base salary from $600,000 to $670,000 with retroactive effect to January 1, 2018. Dr. Ji's salary was not adjusted, and remained $670,000, during 2019. In June 2020, after considering a competitive market analysis provided by Compensia in June 2020, the Compensation Committee increased Dr. Ji's annual base salary to $700,000, with retroactive effect to January 1, 2020. In June 2021, after considering a competitive market analysis provided by Compensia in June 2021, the Compensation Committee increased Dr. Ji's annual base salary to $1,000,000, with retroactive effect to January 1, 2021. Following discussions with Dr. Ji regarding his compensation in the second half of 2021, culminating in a process rooted in the findings of a Prescient competitive analysis of two key factors: (1) a detailed analysis of each member of the peer group's pipeline of products in clinical trials (as defined from IND filing, Ph. I, Ph. II, Ph. III, up to and including an NDA filing), and (2) a detailed competitive compensation analysis of a peer group with similar pipeline dynamics, and after considering both a June 2021 competitive analysis from Compensia as well as a more expansive Prescient competitive analysis, in December 2021, the Compensation Committee increased Dr. Ji's annual base salary to $1,500,000, with retroactive effect to January 1, 2021. After reviewing and considering the analyses prepared by Compensia and Prescient in 2022, the Compensation Committee determined not to make any changes to Dr. Ji's salary, and his salary remained $1,500,000 throughout 2022.

The employee offer letter between us and Ms. Czerepak, dated April 27, 2022, provides for an initial annualized base salary of $300,000.

The offer letter between us and Najjam Asghar, our former Senior Vice President and Chief Financial Officer, dated April 24, 2019, provided for an annual base salary of $300,000, as could be adjusted from time to time. In October 2020, the Compensation Committee considered the competitive market analysis provided by Compensia in June 2020 and increased Mr. Asghar's annual base salary to $400,000, retroactive to August 18, 2020, the effective date of his promotion to Senior Vice President and Chief Financial Officer. In March 2021, the Compensation Committee increased Mr. Asghar's salary to $450,000, with retroactive effect to January 1, 2021. The main drivers that the Compensation Committee considered in setting Mr. Asghar's salary increase were as follows: (1) the increase still fit comfortably within a reasonable range within the peer group in the June 2020 Compensia competitive analysis, and (2) the Compensation Committee considered the increase important for both motivational and retention purposes. Mr. Asghar passed away on January 6, 2022.

**Variable Pay**

We design our variable pay programs to be both affordable and competitive in relation to the market. We monitor the market and adjust our variable pay programs as needed. Our variable pay programs, such as our bonus program, are designed to motivate employees to achieve overall goals. Our programs are designed to avoid entitlements, to align actual payouts with the actual results achieved, and to be easy to understand and administer.

Bonuses

For 2022, Dr. Ji's target annual bonus was equal to 300% of his annual salary, which the Compensation Committee set in December 2021 after considering the competitive market analyses provided by Compensia in August 2022. For 2022, Ms. Czerepak's target annual bonus was equal to 50% of her annual base salary. Mr. Asghar passed away on January 6, 2022 and therefore was not eligible for a bonus for 2022. Ms. Czerepak was also awarded a $50,000 signing bonus in connection with her becoming our Executive Vice President and Chief Financial Officer and a separate $50,000 signing bonus from Scilex Holding in connection with her becoming the executive Vice President, Chief Business Officer and Chief Financial Officer of Scilex Holding.

As of the date of the filing of this Annual Report on Form 10-K, the Compensation Committee has not yet determined the annual bonus amount, if any, that will be awarded to each of Dr. Ji and Ms. Czerepak for 2022. We expect the Compensation Committee to assess 2022 performance and determine the 2022 annual bonus awards, if any, for each of Dr. Ji and Ms. Czerepak in the second half of 2023. Once such annual bonus amounts, if any, have been determined, we will, in accordance with Securities and Exchange Commission rules and regulations, file a Current Report on Form 8-K or otherwise disclose the 2022 annual bonus amounts within four business days after the Compensation Committee has assessed 2022 performance and determined the 2022 annual bonus awards for Dr. Ji and Ms. Czerepak.

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**Equity-Based Incentives**

Salaries and bonuses are intended to compensate our executive officers for short-term performance. We also have adopted an equity incentive program intended to reward longer-term performance and to help align the interests of our named executive officers with those of our stockholders. We believe that long-term performance is achieved through an ownership culture that rewards performance by our named executive officers through the use of equity incentives. Our equity incentive plan has been established to provide our employees, including our named executive officers, with incentives to help align those employees' interests with the interests of our stockholders.

When making equity-award decisions, the Compensation Committee considers market data, the grant size, the forms of long-term equity compensation available to it under our existing plans and the status of previously granted awards. The amount of equity incentive compensation granted reflects the executives' expected contributions to our future success. Existing ownership levels are not a factor in award determination, as the Compensation Committee does not want to discourage executives from holding significant amounts of our stock.

Future equity awards that we make to our named executive officers will be driven by our sustained performance over time, our named executive officers' ability to impact our results that drive stockholder value, their level of responsibility, their potential to fill roles of increasing responsibility, and competitive equity award levels for similar positions in comparable companies. Equity forms a key part of the overall compensation for each executive officer and is evaluated each year as part of the annual performance review process and incentive payout calculation.

The amounts awarded to the named executive officers are based on the Compensation Committee's subjective determination of what is appropriate to incentivize the executives. Generally, the grants to named executive officers vest over: (i) a four-year period with 25% vesting on each anniversary of the grant date, or (ii) a four-year period with 1/4 of the shares vesting on the first anniversary of the applicable vesting commencement date, and 1/48 of the shares vesting thereafter on a monthly basis. All equity awards to our employees, including named executive officers, and to directors have been granted and reflected in our financial statements, based upon the applicable accounting guidance, with the exercise price equal to the fair market value of one share of common stock on the grant date.

In order to encourage a long-term perspective and to encourage key employees to remain with us, our stock options typically have annual vesting over a four-year period and a term of ten years. Generally, vesting ends upon termination of services and exercise rights of vested options cease three months after termination of services. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.

In September 2022, the Compensation Committee determined to grant to Dr. Ji long-term equity based incentives in the form of (i) a restricted stock unit award with respect to 2,500,000 shares of our common stock (the "Initial RSU Award") and (ii) a restricted stock unit award with respect to 1,500,000 shares of our common stock (the "Second RSU Award" and together with the Initial RSU Award, the "RSU Awards"). The Second RSU Award was conditioned upon and subject to our stockholders' approval of a proposed amendment to the 2019 Stock Incentive Plan (the "2019 Plan") to increase the maximum number of shares authorized for issuance thereunder presented at our 2022 Annual Meeting of Stockholders, held on December 15, 2022 (the "2022 Annual Meeting"). Our stockholders approved the amendment to the 2019 Plan at the 2022 Annual Meeting. Each RSU Award vests as follows: 1/4th of the original number of shares of Common Stock subject to such RSU Award shall vest on the one year anniversary of the grant date, and 1/4th of the original number of shares of Common Stock subject to such RSU Award shall vest on an annual basis thereafter, subject to Dr. Ji's continued service to the Company through each such vesting date. The Compensation Committee considered the competitive market analyses provided by Compensia in June and August 2022 and Prescient in March and June 2022 and other data in determining the number of options granted to Dr. Ji. In addition to the inputs from both Compensia and Prescient, the Compensation Committee considered a competitive assessment of the local peer group of chief executive officers in San Diego in August 2022, which ranked Dr. Ji at 42 out of the peer group of 50 chief executive officers in the local market. Given the Top 2 Criteria for the Compensation Committee to consider in weighing chief executive officer compensation – retention and motivation – the Compensation Committee determined the equity grant to be warranted. Moreover, the Compensation Committee consulted three different peer groups across three different sets of competitive criteria before arriving at a final decision, utilizing extensive rigor in the assessment process.

In May 2022, in connection with her appointment as our Executive Vice President and Chief Financial Officer, Ms. Czerepak was granted a long-term equity based incentive in the form of an option to purchase 350,000 shares of our common stock, 25% of which shares shall vest on May 18, 2023 and 1/48<sup>th</sup> of which shall vest monthly thereafter, subject to Ms. Czerepak's continued service with us through each vesting date. The Compensation Committee considered the fact that the Company's chief financial

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officer compensation had consistently come in below market peer groups across multiple analyses performed by both Prescient and Compensia in granting this equity award to Ms. Czerepak and determining the number of shares subject thereto.

CEO Performance Award

On August 7, 2020, the Compensation Committee approved a grant to Dr. Ji of a 10-year CEO performance award tied solely to achieving market capitalization milestones (the "CEO Performance Award") which was approved by our stockholders at the 2020 Annual Meeting of Stockholders held on October 16, 2020. The CEO Performance Award consists of a 10-year option to purchase an aggregate of 24,935,882 shares of our common stock, which was equal to 10% of our outstanding shares of common stock on the day prior to the date of grant, and vests in ten tranches. Each of the ten tranches vests only if a market capitalization milestone is achieved, which requires two market capitalization prongs to be met to achieve each milestone: (1) a six calendar month trailing average (based on trading days) and (2) a 30-calendar day trailing average (based on trading days). To meet the first market capitalization milestone, our current market capitalization must increase to $5.0 billion. For the next two milestones, our market capitalization must continue to increase in additional $2.0 billion increments. For the three milestones thereafter, our market capitalization must increase in additional $3.0 billion increments. For the next three milestones thereafter, our market capitalization must increase in additional $4.0 billion increments. For the final milestone, our market capitalization must increase by an additional $5.0 billion. Thus, for Dr. Ji to fully vest in the award, our market capitalization must increase to $35.0 billion. The exercise price per share subject to the CEO Performance Award is $17.30, which is a 20% premium to the closing sales price of our common stock on August 7, 2020, the date the CEO Performance Award was approved by the Compensation Committee. As of March 10, 2023, none of the CEO Performance Award was vested.

**Benefits Programs**

We design our benefits programs to be both affordable and competitive in relation to the market while conforming to local laws and practices. We monitor the market and local laws and practices and adjust our benefits programs as needed. We design our benefits programs to provide an element of core benefits and, to the extent possible, offer options for additional benefits, be tax-effective for employees in each country and balance costs and cost sharing between us and our employees.

**Timing of Equity Awards**

Only the Compensation Committee may approve stock option grants to our executive officers. Stock options are generally granted at meetings of the Compensation Committee or pursuant to a unanimous written consent of the Compensation Committee. The exercise price of a newly granted option is the closing price of our common stock on the date of grant.

**Executive Equity Ownership**

We encourage our executives to hold a significant equity interest in our company. However, we do not have specific share retention and ownership guidelines for our executives.

**Hedging and Pledging Policies**

Our Insider Trading and Window Period Policy prohibits any director, officer, employee or consultant from engaging in "short sales" of our equity securities and from engaging in hedging transactions involving our equity securities, provided that our Board, or a committee comprised solely of independent members of our Board, may approve a hedging transaction as long as the transaction does not hedge or offset any decrease in the market value of our equity securities. Further, our Insider Trading Policy restricts our designated insiders from pledging our equity securities as collateral for a loan or otherwise unless the transaction is pre-cleared by our Insider Trading Compliance Officer. As a condition of pre-approving any pledge of our equity securities, any designated insider seeking to pledge securities must clearly demonstrate his or her financial capacity to repay the loan without resort to the pledged securities.

**Consideration of Advisory Votes to Approve the Compensation of our Named Executive Officers**

We value the opinions of our stockholders, including as expressed through advisory votes to approve the compensation of our named executive officers ("Say-on-Pay Votes"). In our most recent Say-on-Pay Vote, conducted at our 2022 Annual Meeting, held on December 15, 2022, our stockholders did not approve the compensation of our named executive officers on an advisory basis, with approximately 22.7% of the votes cast in favor of the fiscal 2021 compensation of our named executive officers. In setting fiscal 2023 compensation, we will consider the outcome of the Say-on-Pay Vote during the 2022 Annual Meeting and will continue to consider the outcome of future Say-on-Pay Votes, as well as stockholder feedback received throughout the year, when making compensation decisions for our executive officers.

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**Effect of Accounting and Tax Treatment on Compensation Decisions**

In the review and establishment of our compensation programs, we consider the anticipated accounting and tax implications to us and our executives.

Generally, Section 162(m) of the Code disallows public companies a tax deduction for federal income tax purposes of compensation in excess of $1 million paid to their chief executive officer and certain other specified officers in any taxable year. For tax years ending prior to December 31, 2017, compensation in excess of $1 million could only be deducted if it was "performance-based compensation" within the meaning of Section 162(m) of the Code or qualified for one of the other exemptions from the deduction limit. The exemption from Section 162(m) of the Code's deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered officers (which now also includes our Chief Financial Officer) in excess of $1 million will generally not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. We seek to maintain flexibility in compensating our executives in a manner designed to promote our corporate goals and, therefore, while we are mindful of the benefit of the full deductibility of compensation, our Compensation Committee has not adopted a policy requiring that any or all compensation to be deductible. Our Compensation Committee may authorize compensation payments that are not fully tax deductible if we believe that such payments are appropriate to attract and retain executive talent or meet other business objectives.

**Role of Executives in Executive Compensation Decisions**

The Board and our Compensation Committee generally seek input from our Chief Executive Officer, Dr. Ji, when discussing the performance of, and compensation levels for, executives other than himself. The Compensation Committee also works with Dr. Ji and our Chief Financial Officer to evaluate the financial, accounting, tax and retention implications of our various compensation programs. Neither Dr. Ji nor any of our other executives participate in deliberations relating to his compensation.

**Compensation Risk Management**

We have considered the risk associated with our compensation policies and practices for all employees, and we believe we have designed our compensation policies and practices in a manner that does not create incentives that could lead to excessive risk taking that would have a material adverse effect on us for the following reasons:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We structure our compensation to consist of base salary, variable pay, equity-based pay and benefits. The base portion of compensation is designed to provide a steady income regardless of our stock price performance so that executives do not feel pressured to focus exclusively on stock price performance to the detriment of other important business measures. Our variable pay and equity-based pay programs are designed to reward both short- and long-term corporate performance. For short-term performance, our variable pay programs are designed to motivate employees to achieve overall goals. For long-term performance, our stock option and restricted stock unit awards generally vest over four years and are only valuable if our stock price increases over time. We believe that these variable elements of compensation are a sufficient percentage of overall compensation to motivate executives to produce superior short- and long-term corporate results, while the fixed element is also sufficiently high that the executives are not encouraged to take unnecessary or excessive risks in doing so.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our bonus program has been structured around attainment of overall corporate goals for the past several years and we have seen no evidence that it encourages unnecessary or excessive risk taking.

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**SUMMARY COMPENSATION TABLE**

The following table provides certain summary information concerning compensation awarded to, earned by or paid to each person who served as our principal executive officer or our principal financial officer at any time during fiscal year 2022 (collectively, the "named executive officers"). We did not have any other executive officers during fiscal year 2022.

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp;&nbsp;**Name and Principal Position** | **Year** | **Salary($)** |  | **Bonus ($)** |  | **Stock Awards ($)(1)** | **Option<br>Awards ($)(2)** |  | **All Other<br>Compensation<br>($)(3)** | **Total($)** |
| Henry Ji, Ph.D. | 2022 | 2027361 | (5) | \* | (6) | 8040000 |  |  | 2532 | 10069893 |
| &nbsp;&nbsp;&nbsp;Chairman of the Board, Chief | 2021 | 1639250 | (7) |  |  |  | 18085250 |  | 52829 | 19777329 |
| &nbsp;&nbsp;&nbsp;Executive Officer and President(4) | 2020 | 839250 | (8) | 560000 |  |  | 156087048 | (9) | 51406 | 157537704 |
| Elizabeth Czerepak | 2022 | 345833 | (11) | 100400 | (6)(12) |  | 436415 |  | 2641 | 885289 |
| &nbsp;&nbsp;&nbsp;Executive Vice President and Chief Financial Officer(10) |  |  |  |  |  |  |  |  |  |  |
| Najjam Asghar | 2022 | 39735 |  |  |  |  |  |  | 395 | 40130 |
| &nbsp;&nbsp;&nbsp;Former Senior Vice President and | 2021 | 450000 |  |  |  | 579995 | 832650 |  | 37342 | 1899987 |
| &nbsp;&nbsp;&nbsp;Chief Financial Officer(13) | 2020 | 318371 |  | 160000 |  |  | 1520628 |  | 33321 | 2032320 |

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(1)These amounts represent the aggregate grant date fair value of restricted stock unit awards to the applicable named executive officer in the relevant fiscal year, computed in accordance with FASB ASC Topic 718. The dollar amounts listed do not necessarily reflect the dollar amounts of compensation actually realized or that may be realized by the applicable named executive officer. For a detailed description of the assumptions used for purposes of determining grant date fair value, see [<u>Note 10</u>](#n11_stock_incentive_plans) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K.

(2)These amounts represent the aggregate grant date fair value of awards for grants of options to purchase shares of our common stock and, for 2020 for Dr. Ji and for 2022 for Ms. Czerepak, options to purchase shares of Scilex Holding, to the applicable named executive officer in the relevant fiscal year, computed in accordance with FASB ASC Topic 718. The dollar amounts listed do not necessarily reflect the dollar amounts of compensation actually realized or that may be realized by the applicable named executive officer. For a detailed description of the assumptions used for purposes of determining grant date fair value, see [<u>Note 10</u>](#n11_stock_incentive_plans) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K.

(3)Comprised of payments for executive disability benefits.

(4)Dr. Ji also served as our Interim Chief Financial Officer (principal financial officer) from January 2022 to May 2022.

(5)Comprised of $1,400,813 of salary paid by us and $626,548 of salary paid by Scilex Holding for Dr. Ji's role as its Executive Chairperson.

(6)Does not include for 2022 the amount of any annual bonus that may be awarded to the named executive officer as the Compensation Committee has not, as of the date of the filing of this Annual Report on Form 10-K, yet determined the annual bonus amounts, if any, that will be awarded to the named executive officer for 2022. See "Elements of Compensation-Variable Pay-Bonuses" above for a discussion of the target bonus amount for the named executive officer for fiscal year 2022. We expect the Compensation Committee to assess 2022 performance and determine the 2022 annual bonus award for the named executive officer in the second half of 2023. The named executive officer may also be entitled to receive a bonus from Scilex Holding in connection with his or her roles as an executive officer of Scilex Holding; however, the amount of any such bonus has not yet been determined. Once such annual bonus amounts, if any, have been determined, we will, in accordance with Securities and Exchange Commission rules and regulations, file a Current Report on Form 8-K or otherwise disclose the 2022 annual bonus amounts within four business days after the Compensation Committee has assessed 2022 performance and determined the 2022 annual bonus awards for the named executive officer.

(7)Comprised of $1,500,000 of salary paid by us and $139,250 of salary payable by Scilex Holding for Dr. Ji's role as its Executive Chairperson, which Scilex Holding salary was approved by our stockholders at the annual meeting of our stockholders held on October 16, 2020.

(8)Comprised of $700,000 of salary paid by us and $139,250 of salary payable by Scilex Holding for Dr. Ji's role as its Executive Chairperson, which Scilex Holding salary was approved by our stockholders at the annual meeting of stockholders held on October 16, 2020. Excludes $301,750 of salary that would have been payable by Scilex Holding for Dr. Ji's role as its Executive

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Chairperson, which amount was foregone by Dr. Ji as it was not approved by our stockholders at our 2021 annual meeting of stockholders held on November 15, 2021.

(9)Includes $150,317,148 of grant date fair value attributable to the CEO Performance Award, which was approved by our stockholders at our 2020 Annual Meeting of Stockholders held on October 16, 2020. Excludes $6,510,980 of grant date fair value attributable to the option to purchase 7,844,554 shares of common stock of Scilex Holding that was foregone and relinquished by Dr. Ji as it was not approved by our stockholders at our 2021 annual meeting of our stockholders held on November 15, 2021.

(10)Ms. Czerepak was appointed as our Executive Vice President and Chief Financial Officer effective May 18, 2022. Prior to her appointment as our Executive Vice President and Chief Financial Officer, Ms. Czerepak served as a non-employee director. Amounts in this table do not include amounts received by Ms. Czerepak in connection with her service as a non-employee director in 2022, which are shown in "Director Compensation" below.

(11)Comprised of $172,916 of salary paid by us and $172,917 of salary paid by Scilex Holding for Ms. Czerepak's role as its Executive Vice President, Chief Financial Officer and Chief Business Officer.

(12)Comprised of a $50,000 signing bonus awarded to Ms. Czerepak in connection with her becoming our Executive Vice President and Chief Financial Officer and a $50,000 signing bonus awarded to Ms. Czerepak in connection with her becoming Scilex Holding's Executive Vice President, Chief Financial Officer and Chief Business Officer and a $400 spot bonus awarded to Ms. Czerepak.

(13)Mr. Asghar was promoted to the role of Senior Vice President and Chief Financial Officer for the Company in August 2020. Mr. Asghar passed away on January 6, 2022.

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**GRANTS OF PLAN-BASED AWARDS DURING FISCAL YEAR 2022**

The following table shows for fiscal year 2022, certain information regarding grants of plan-based awards to our named executive officers:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Named Executive<br>Officer** | **Grant Date** | **Date of Board/Compensation Committee Approval** | **All Other Stock Awards: Number of shares of stock or units (#)** | **All Other Option<br>Awards: Number of<br>Securities Underlying<br>Options (#)** | **Exercise Price Per<br>Share ($/ Share)** | **Grant Date Fair Value of Stock and Option Awards ($)(1)** |
| Henry Ji, Ph.D. | 9/2/2022 | 9/2/2022 | 2500000 |  | 2.01 | 5025000 |
|  | 9/2/2022 | 9/2/2022 | 1500000 |  | 2.01 | 3015000 |
| Elizabeth Czerepak | 5/18/2022 | 4/28/2022 |  | 350000 | 1.51 | 528000 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)The amounts shown in this column do not reflect dollar amounts actually received by our named executive officers. Instead, these amounts represent the aggregate grant date fair value of the stock option and restricted stock unit awards determined in accordance with FASB ASC Topic 718. The valuation assumptions used in determining the amounts are described in [<u>Note 10</u>](#n11_stock_incentive_plans) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K. With respect to options, our named executive officers will only realize compensation to the extent the trading price of our common stock is greater than the exercise price of such stock options on the date the options are exercised.

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**OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END**

The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of December 31, 2022. Except for the options set forth in the table below, no other equity awards were held by any our named executive officers as of December 31, 2022:

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Stock Awards** | **Stock Awards** |
| **Name** | **Option Grant<br>Date** |  | **Date of Board/Compensation Committee Approval** | **Vesting<br>Commencement<br>Date** | **Number of<br>Securities<br>Underlying<br>Unexercised<br>Options (#)<br>Exercisable** | **Number of<br>Securities<br>Underlying<br>Unexercised<br>Earned<br>Options(#)<br>Unexercisable** | **Option<br>Exercise<br>Price<br>($)(1)** | **Option<br>Expiration<br>Date** | **Number of Shares or Units of Stock That Have Not Vested (#)** | **Market Value of Shares of Stock That Have Not Vested ($)** |
| Henry Ji, Ph.D. | 10/29/2013 | (2) | 10/29/2013 | 10/1/2013 | 101000 |  | 8.40 | 10/29/2023 |  |  |
|  | 10/7/2014 | (2) | 10/7/2014 | 10/7/2014 | 100000 |  | 4.32 | 10/7/2024 |  |  |
|  | 2/24/2015 | (3) | 2/24/2015 | 2/24/2015 | 80000 |  | 12.78 | 2/24/2025 |  |  |
|  | 2/24/2015 | (2) | 2/24/2015 | 2/24/2015 | 80000 |  | 12.78 | 2/24/2025 |  |  |
|  | 3/11/2016 | (2) | 3/11/2016 | 3/11/2016 | 100000 |  | 5.79 | 3/11/2026 |  |  |
|  | 8/12/2016 | (2) | 8/12/2016 | 8/12/2016 | 300000 |  | 6.52 | 8/12/2026 |  |  |
|  | 9/14/2017 | (2) | 9/14/2017 | 9/14/2017 | 750000 |  | 1.80 | 9/14/2027 |  |  |
|  | 5/17/2018 | (2) | 5/17/2018 | 5/17/2018 | 750000 |  | 7.20 | 5/17/2028 |  |  |
|  | 4/14/2019 | (2) | 4/19/2019 | 4/14/2019 | 1375000 | 125000 | 3.78 | 4/14/2029 |  |  |
|  | 8/14/2019 | (2)(4) | 6/6/2019 | 3/18/2019 | 1686960 | 323235 | 1.73 | 6/6/2029 |  |  |
|  | 6/15/2020 | (2) | 6/14/2020 | 6/15/2020 | 937500 | 562500 | 4.89 | 6/15/2030 |  |  |
|  | 10/16/2020 | (5) | 8/7/2020 | 8/7/2020 |  | 24935882 | 17.30 | 8/7/2030 |  |  |
|  | 8/30/2021 | (2) | 8/29/2021 | 8/30/2021 | 833333 | 1666667 | 8.86 | 8/30/2031 |  |  |
|  | 9/2/2022 | (6) | 9/2/2022 | 9/2/2022 |  |  |  |  | 2500000 |  |
|  | 9/2/2022 | (6) | 12/15/2022 | 9/2/2022 |  |  |  |  | 1500000 |  |
| Elizabeth Czerepak | 9/23/2019 | (4) | 10/14/2019 | 9/23/2019 | 328330 | 75768 | 1.73 | 10/14/2029 |  |  |
|  | 11/18/2021 | (7) | 11/18/2021 | 12/18/2021 | 50000 |  | 6.01 | 11/18/2031 |  |  |
|  | 5/18/2022 | (2) | 4/28/2022 | 5/18/2023 |  | 350000 | 1.51 | 5/18/2032 |  |  |
| Najjam Asghar(8) | 11/29/2019 | (2) | 11/29/2019 | 11/29/2019 | 26042 | 23958 | 2.92 | 11/29/2029 |  |  |
|  | 12/6/2019 | (2) | 12/6/2019 | 12/6/2019 | 25000 | 25000 | 3.52 | 12/6/2029 |  |  |
|  | 6/15/2020 | (2) | 6/14/2020 | 6/15/2020 | 30000 | 50000 | 4.89 | 6/15/2020 |  |  |
|  | 11/12/2020 | (2) | 10/23/2020 | 8/18/2020 | 40000 | 80000 | 6.10 | 11/12/2030 |  |  |
|  | 12/21/2020 | (2)(4) | 12/21/2020 | 12/21/2020 | 187500 | 562500 | 1.16 | 12/21/2030 |  |  |
|  | 3/16/2021 | (6) | 3/16/2021 | 3/16/2021 |  | 100000 | 10.18 | 3/16/2031 |  |  |
|  | 3/16/2021 | (6) | 3/16/2021 | 3/16/2021 |  |  |  |  | 56974 | 264929 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Represents the fair market value of a share of our common stock, as determined by the Board, on the option's grant date.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Shares subject to the option vest and become exercisable over a four-year period, with 1/4 of the shares vesting on the first anniversary of the Vesting Commencement Date, and 1/48 of the shares vesting following each one-month period of the participant's continued employment or service with the Company thereafter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)62.5% of the shares subject to the option vested over a four-year period, with 1/4 of the shares vesting on the first anniversary of the Vesting Commencement Date, and 1/48 of the shares vesting following each one-month period of the participant's continued employment or service with the Company thereafter. The remaining 37.5% of the shares subject to the option vested upon the consummation of a certain strategic transaction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)Represents options granted by our subsidiary, Scilex Holding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)Reflects the CEO Performance Award, which is intended to compensate Dr. Ji over its 10-year maximum term and will vest only if certain pre-established market capitalization milestones are achieved, which requires two market capitalization prongs to be met to achieve each milestone: (1) a six-calendar month trailing average (based on trading days); and (2) a 30-calendar day trailing average (based on trading days). For the first tranche to vest, Sorrento's market capitalization has to increase to $5 billion. For the next two tranches to vest, Sorrento must increase its market capitalization in additional $2 billion increments, then by increments of $3 billion for the three tranches after that, then by increments of $4 billion for the next three tranches and a final increment of $5 billion for the final tranche—up to a total market capitalization of $35 billion. For each tranche that is achieved, Dr. Ji will vest and earn the right to exercise the option for that number of shares of Sorrento common stock that corresponds to approximately 1% of Sorrento's total outstanding shares, calculated as of August 6, 2020. The option, to the extent vested, will be exercisable until August 7, 2030 (ten years from the date of grant). The CEO Performance Award was approved by our stockholders at the 2020 Annual Meeting of Stockholders held on October 16, 2020. As of December 31, 2021, none of the CEO Performance Award was vested.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6)1/4th of the shares subject to the restricted stock unit award were to vest on each one year anniversary of the grant date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7) In connection with Ms. Czerepak's appointment as a member of Board effective November 18, 2021, Ms. Czerepak was granted an option to purchase 100,000 shares. 1/12th of the shares subject to the option vested on December 18, 2021 and 1/12th of the shares subject to the option was to vest on a monthly basis thereafter. In connection with Ms. Czerepak's appointment as our Executive Vice President and Chief Financial Officer on May 18, 2022 and resignation from the Board, this option ceased vesting and only the 50,000 shares subject to the option that were vested as of May 18, 2022 remain outstanding, with the remaining 50,000 unvested shares subject to the option cancelled as of May 18, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8)Mr. Asghar passed away on January 6, 2022.

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**OPTION EXERCISES AND STOCK VESTED**

There were no stock options exercised by our named executive officers during the fiscal year ended December 31, 2022, and no restricted stock unit awards held by any of our named executive officers vested during 2022.

**PENSION BENEFITS, NONQUALIFIED DEFINED CONTRIBUTION AND OTHER**

**NONQUALIFIED DEFERRED COMPENSATION**

No pension benefits were paid to any of our named executive officers during the fiscal year ended December 31, 2022. We do not currently sponsor any non-qualified defined contribution plans or non-qualified deferred compensation plans.

**Employment, Severance, Separation and Change in Control Agreements**

**Chief Executive Officer Amended and Restated Employment Agreement**

On May 9, 2017, we entered into an Amended and Restated Employment Agreement (the "Restated Agreement") with Dr. Ji. Pursuant to the Restated Agreement, Dr. Henry Ji will continue to serve as our President and Chief Executive Officer for an initial term of three years commencing on May 9, 2017. Following this initial three year term, the Restated Agreement shall renew automatically for additional 12 month terms unless either we or Dr. Ji provide written notice of non-renewal at least three months in advance of the expiration of the then-current term. The Restated Agreement supersedes and replaces a prior employment agreement with Dr. Ji, dated September 21, 2012, as amended on October 18, 2012.

Pursuant to the Restated Agreement, Dr. Ji shall (i) receive an annual base salary (the "Annual Base Salary") of $600,000, as may be adjusted from time to time; (ii) be eligible to participate in an annual incentive program, with a target annual bonus incentive equal to 55% of his then-current Annual Base Salary (the "Annual Bonus"); and (iii) receive employee benefits, paid personal leave and expense reimbursement in accordance with our policies. In addition, Dr. Ji's performance will be reviewed by the Board at least annually, and his Annual Base Salary, target Annual Bonus and any other compensation will be subject to adjustment by the Board, provided that Dr. Ji's Annual Base Salary and target Annual Bonus may not be adjusted downward.

Pursuant to the Restated Agreement, we have the right to terminate Dr. Ji's employment at any time with or without "cause" (as defined in the Restated Agreement). In addition, Dr. Ji may resign with or without "good reason" (as defined in the Restated Agreement) upon 30 days' written notice to us. Under each such circumstance, Dr. Ji will be entitled to receive any accrued but unpaid base salary as of the date of termination or resignation, any expenses owed to him and any amount accrued and arising from his participation in, or vested benefits accrued under, any employee benefit plans, programs or arrangements, including any 401(k), profit sharing or pension plan (collectively, the "Termination Payments").

In the event that Dr. Ji's employment is terminated by us without "cause" or by our non-renewal of the term of the Restated Agreement, or by Dr. Ji for "good reason," in either case outside of a Change of Control Window (as defined below), then, subject to Dr. Ji's timely execution and non-revocation of a release in favor of us, Dr. Ji will be entitled to receive the following: (i) the Termination Payments; (ii) an amount equal to his then-current Annual Base Salary, payable in a lump sum; (iii) an amount equal to his pro-rata then-current target Annual Bonus, payable in a lump sum; (iv) 12 months of health insurance benefits for Dr. Ji and for his eligible dependents who were covered under our health insurance plans as of the date his employment was terminated; and (v) one year of accelerated vesting of Dr. Ji's then-outstanding awards of equity compensation, with performance-criteria deemed satisfied at target.

If Dr. Ji's employment is terminated without "cause" or by our non-renewal of the term of the Restated Agreement, or by Dr. Ji for "good reason," in either case during the period commencing three months prior to a Change of Control and ending 12 months after a Change of Control (as defined in the Restated Agreement) (the "Change of Control Window"), then, subject to Dr. Ji's timely execution and non-revocation of a release in favor of us, Dr. Ji will be entitled to receive the following: (i) the Termination Payments; (ii) an amount equal to twice his then-current Annual Base Salary, payable in a lump sum; (iii) an amount equal to twice his pro-rata then-current target Annual Bonus, payable in a lump sum; (iv) 24 months of health insurance benefits for Dr. Ji and for his eligible dependents who were covered under our health insurance plans as of the date his employment was terminated; and (v) accelerated vesting of Dr. Ji's then-outstanding awards of equity compensation, with performance-criteria deemed satisfied target.

The CEO Performance Award does not provide for automatic acceleration of vesting upon a change in control event; however, in the event of a change of control, the achievement of the market capitalization milestones will be based on our market capitalization determined by the product of the total number of outstanding shares of our common stock immediately before the change of control multiplied by the per share price (plus the per share value of any other consideration) received by our stockholders in the change of

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control. Any portion of the CEO Performance Award that does not vest in accordance with the above will be forfeited automatically as of immediately prior to the effective time of the change of control and never shall become vested.

**Executive Vice President and Chief Financial Officer Offer Letter**

On April 27, 2022, we entered in an employee offer letter with Ms. Czerepak ("Czerepak Sorrento Offer Letter"). Pursuant to the Czerepak Sorrento Offer Letter, (i) we paid Ms. Czerepak a $50,000 signing bonus, (ii) Ms. Czerepak's annualized salary for services is initially $300,000 and (iii) she is initially eligible to receive an annual performance bonus of 50% of her base salary. Her salary and performance bonus percentage may be adjusted in the future at the discretion of the Compensation Committee. Ms. Czerepak's employment with the Company will be on an "at will" basis. In the event that Ms. Czerepak's employment is terminated other than for "cause" (as defined in the Czerepak Sorrento Offer Letter) or she resigns for "good reason" (as defined in the Czerepak Sorrento Offer Letter) and Ms. Czerepak is not offered a full-time position at Scilex Holding, we will continue to pay her then-current base salary for 12 months following such termination of her employment.

On April 27, 2022, Scilex Holding also entered into an offer letter with Ms. Czerepak (the "Czerepak Scilex Offer Letter"), pursuant to which Ms. Czerepak serves as the Executive Vice President, Chief Business Officer, and Chief Financial Officer of Scilex Holding. Under the Czerepak Scilex Offer Letter, Ms. Czerepak's annual base salary is $300,000 and she was awarded a $50,000 signing bonus. Scilex Holding also agreed to grant Ms. Czerepak an incentive stock option to purchase 350,000 shares of common stock of Scilex Holding which shall vest over a four year period, whereby 1/4th of the shares subject to the option shall vest on the date that is one year after the vesting commencement date and an additional 1/48th of the shares subject to the option shall vest on the same date of each month thereafter, subject to Ms. Czerepak providing continuous service (as defined in the equity incentive plan pursuant to which the option will be granted) on each such vesting date, inclusive In addition, all of the shares subject to the option will vest upon the occurrence of a change in control (as defined in the Scilex Holding Company 2022 Equity Incentive Plan) that occurs prior to the termination of her continuous service. . Ms. Czerepak's employment with Scilex Holding will be on an "at will" basis. However, if Scilex Holding terminates Ms. Czerepak's employment other than for cause or Ms. Czerepak resigns from her employment with Scilex Holding for good reason (each, as defined in the Czerepak Scilex Offer Letter), subject to Ms. Czerepak's execution and delivery of a release of claims in a form prescribed by Scilex Holding, and as long as Ms. Czerepak has not been offered a full-time position at us with a base salary and annual bonus potential of not less than the combined base salary and target bonus she received from both Scilex Holding and us, if any, as of immediately prior to the termination of her employment, Scilex Holding will continue to pay Ms. Czerepak her base salary for a period of twelve months.

**Former Chief Financial Officer Change of Control Severance Agreement**

On November 5, 2020, we entered into a Change of Control and Severance Agreement (the "Severance Agreement") with Mr. Asghar. Pursuant to the Severance Agreement, if Mr. Asghar's employment was terminated without "cause" or by Mr. Asghar for "good reason," in either case during the period commencing three months prior to a Change of Control (as defined in the Severance Agreement) and ending 12 months after a Change of Control, then, subject to Mr. Asghar's timely execution and non-revocation of a release in favor of us, Mr. Asghar would have been entitled to receive the following: (i) an amount equal to his then-current annual base salary, payable in a lump sum; (ii) an amount equal to his then-current target annual bonus, payable in a lump sum; (iii) 12 months of health insurance benefits for Mr. Asghar and for his eligible dependents who were covered under the Company's health insurance plans as of the date his employment was terminated; and (iv) accelerated vesting of Mr. Asghar's then-outstanding awards of equity compensation, with performance-criteria, if any, deemed satisfied at target. Mr. Asghar passed away on January 6, 2022 and this agreement is therefore no longer in effect.

**POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL** 

Other than the provisions of the executive severance benefits to which our named executive officers would be entitled to at December 31, 2022 (the last trading day of the year) as set forth above, we have no liabilities under termination or change in control conditions. We do not have a formal policy to determine executive severance benefits. Each executive severance arrangement is negotiated on an individual basis.

The tables below estimate the current value of amounts payable to our named executive officers that were serving as such as of the end of December 31, 2022 in the event that a termination of employment occurred on December 30, 2022 (the last trading day of the year). The closing price of our common stock, as reported on the Nasdaq Capital Market, was $0.886 on December 30, 2022. The following tables exclude certain benefits, such as accrued vacation, that are available to all employees generally. The actual amount of payments and benefits that would be provided can only be determined at the time of a change in control and/or the named executive officer's qualifying separation from the Company.

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**Henry Ji, Ph.D.**

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **By Sorrento Without<br>Cause or by Dr. Ji<br>for Good Reason or<br>Sorrento's Non-<br>Renewal Outside<br>of Change of<br>Control Window** |  | **By Sorrento Without<br>Cause or by Dr. Ji<br>for Good Reason or<br>Sorrento's Non-<br>Renewal During<br>Change of Control<br>Window** |  |
| Cash Payments | $2027361 |  | $4054722 |  |
| Continuation of Benefits | 16880 |  | 33759 |  |
| Value of Option Shares Accelerated | 637500 | (1) | 2550000 | (2) |
| Total Cash Benefits and Payments | $2681741 |  | $6638481 |  |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Consists of the value of one year of vesting of the in-the-money stock options held by Dr. Ji as of December 31, 2022, the vesting of which would be accelerated. The CEO Performance Award was not in-the-money as of December 31, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Consists of the value of 100% of the in-the-money stock options held by Dr. Ji as of December 31, 2022, the vesting of which would be accelerated. The CEO Performance Award was not in-the-money as of December 31, 2022.

**Elizabeth Czerepak**

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| | |
|:---|:---|
|  | **By Sorrento Without<br>Cause or by Ms. Czerepak<br>for Good Reason** |
| Cash Payments | $345833 |
| Total Cash Benefits and Payments | $345833 |

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**DIRECTOR COMPENSATION**

The following table sets forth summary information concerning the total compensation paid to our non-employee directors in 2022 for services to our company:

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Name** | **Fees Earned<br>or Paid<br>in Cash<br>($)** |  | **Option<br>Awards<br>($)(1)** | **All Other<br>Compensation<br>($)** |  | **Total<br>($)** |
| Dorman Followwill | 250018 | (2) |  |  |  | 250018 |
| Elizabeth A. Czerepak(3) | 36955 |  |  |  |  | 36955 |
| Kim D. Janda, Ph.D. | 82500 |  |  |  |  | 82500 |
| David Lemus | 181326 | (4) |  |  |  | 181326 |
| Tammy Reilly | 51230 |  | 124690 |  |  | 175920 |
| Jaisim Shah | 82500 |  |  | 785733 | (5) | 868233 |
| Yue Alexander Wu, Ph.D. | 150000 |  |  |  |  | 150000 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)These amounts represent the aggregate grant date fair value of awards for grants of options to each listed director for the fiscal year ended December 31, 2022, computed in accordance with FASB ASC Topic 718. These amounts do not represent the actual amounts paid to or realized by the directors during the fiscal year ended December 31, 2022. The value as of the grant date for stock options is recognized over the number of months of service required for the stock option to vest in full. For a detailed description of the assumptions used for purposes of determining grant date fair value, see [<u>Note 10</u>](#n11_stock_incentive_plans) of the accompanying notes to the consolidated financial statements in this Annual Report on Form 10-K. As of December 31, 2022, our non-employee directors held options to purchase the following number of shares of our common stock: Mr. Followwill—490,000; Dr. Janda—692,143; Mr. Lemus—490,000; Ms. Reilly—100,000; Mr. Shah—735,000; and Dr. Wu—525,000.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Comprised of $184,500 of fees paid by us for Mr. Followwill's services as a member of the Board and $65,518 of fees paid by Scilex Holding for Mr. Followwill's service as a member of the board of directors of Scilex Holding.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)Ms. Czerepak resigned as a member of the Board effective May 18, 2022, in connection with her becoming our Executive Vice President and Chief Financial Officer. Amounts in this table do not include compensation received by Ms. Czerepak following her appointment as our Executive Vice President and Chief Financial Officer, which are shown above under "Summary Compensation Table."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)Comprised of $120,000 of fees paid by us for Mr. Lemus' services as a member of the Board and $61,326 of fees paid by Scilex Holding for Mr. Lemus' service as a member of the board of directors of Scilex Holding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)Comprised of $773,298 of salary paid by Scilex Holding to Mr. Shah in connection with his service as President and Chief Executive Officer of Scilex Holding and $12,435 of other compensation in the form of matching contributions made to Mr. Shah under Scilex Holding Company's 401(k) plan.

**Outside Director Compensation Policy**

Our amended and restated outside director compensation policy in effect during 2022 provided that each non-executive director received a $82,500 annual cash retainer, with the amount being increased to $117,000 for any Independent Lead Director or Board chairperson. Further, the chairperson of each of our Audit, Compensation and Corporate Governance and Nominating Committees received an additional annual cash retainer of $37,500. Other members of our Audit, Compensation and Corporate Governance and Nominating Committees received an additional cash retainer of $15,000. As a new director, Ms. Reilly was granted an option to purchase 100,000 shares of common stock, which vests monthly over a period of 12 months from the date of grant, subject to continued service through each vesting date. None of our other outside directors were granted any equity awards in 2022.

Additionally, we reimbursed each outside director for reasonable travel expenses related to such director's attendance at Board and committee meetings.

Messrs. Followwill and Lemus each serve on the board of directors of Scilex Holding and received fees paid by Scilex for their service. Scilex Holding's non-employee director compensation policy in effect during 2022 provided that each non-employee director received a $82,500 annual cash retainer. Further, the chairperson of each of Scilex Holding's Audit, Compensation and Corporate Governance and Nominating Committees received an additional annual cash retainer of $37,500. Other members of Scilex Holding's Audit, Compensation and Corporate Governance and Nominating Committees received an additional cash retainer of $15,000. Scilex Holding also reimbursed each outside director for reasonable travel expenses related to such director's attendance at board and committee meetings.

**Other Compensation**

We intend to provide benefits and perquisites for our named executive officers at levels comparable to those provided to other executive officers in our industry. Our Board or any applicable committee thereof, in its discretion, may revise, amend or add to the benefits and perquisites of any named executive officer as it deems it advisable and in the best interest of the Company and our stockholders.

**Compensation Committee Interlocks and Insider Participation**

Our Compensation Committee consists of two directors, each of whom is a non-employee director: Mr. Followwill and Dr. Wu. Dr. Wu serves as the Chairperson of the Compensation Committee. During 2022, neither Mr. Followwill nor Dr. Wu was an officer or employee of ours, was formerly an officer of ours or had any relationship requiring disclosure by us under Item 404 of Regulation S-K. No interlocking relationship as described in Item 407(e)(4) of Regulation S-K exists between any of our executive officers or Compensation Committee members, on the one hand, and the executive officers or compensation committee members of any other entity, on the other hand, nor has any such interlocking relationship existed in the past.

**Compensation Committee Report**

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K of the SEC's rules and regulations with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

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**Compensation Committee**

Dr. Yue Alexander Wu

Mr. Dorman Followwill

The foregoing Compensation Committee Report shall not be deemed to be "soliciting material," deemed "filed" with the SEC or subject to the liabilities of Section 18 of the Exchange Act. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate by reference future filings, including this Annual Report on Form 10-K, in whole or in part, the foregoing Compensation Committee Report shall not be incorporated by reference into any such filings.

**Pay Ratio Disclosure**

As of the date of the filing of this Annual Report on Form 10-K, the pay ratio for Dr. Ji, our Chief Executive Officer, is not calculable. The pay ratio is not calculable as the Compensation Committee has not, as of the date of the filing of this Annual Report on Form 10-K, yet determined the annual bonus amounts, if any, that will be awarded our Chief Executive Officer for 2022. We expect the Compensation Committee to assess 2022 performance and determine the 2022 annual bonus award and actual total compensation for our Chief Executive Officer in the second half of 2023. Once such annual bonus amount, if any, has been determined, we will, in accordance with Securities and Exchange Commission rules and regulations, file a Current Report on Form 8-K or otherwise disclose the pay ratio within four business days after the Compensation Committee has assessed 2022 performance and determined the 2022 annual bonus awards and actual total compensation for our Chief Executive Officer.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

The following table sets forth information as of January 31, 2023, with respect to the beneficial ownership of shares of our common stock by:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•each person or group known to us to be the beneficial owner of more than five percent of our common stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•each of our directors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•each of our named executive officers; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•all of our current directors and executive officers as a group.

This table is based upon information supplied by officers, directors, and principal stockholders and a review of Schedules 13D and 13G, if any, filed with the SEC. Other than as set forth below, we are not aware of any other beneficial owner of more than five percent of our common stock as of January 31, 2023. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

Applicable percentage ownership is based on 545,413,912 shares of common stock outstanding as of January 31, 2023, adjusted as required by rules promulgated by the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options and warrants that are either immediately exercisable or exercisable on or before April 1, 2023, which is 60 days after January 31, 2023. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Sorrento Therapeutics, Inc., 4955 Directors Place, San Diego, California 92121.

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| | | | |
|:---|:---|:---|:---|
|  | **Beneficial Ownership of<br>Common Stock** | **Beneficial Ownership of<br>Common Stock** | **Beneficial Ownership of<br>Common Stock** |
| **Name of Beneficial Owner** | **Number of<br>Shares** |  | **Percentage<br>of Class** |
| **Named Executive Officers and Directors:** |  |  |  |
| Dr. Henry Ji, Chairman of the Board, President and Chief Executive Officer | 8844173 | (1) | 1.6% |
| Elizabeth Czerepak, Executive Vice President and Chief Financial Officer | 50000 | (2) | \* |
| Dorman Followwill, Lead Independent Director | 341088 | (3) | \* |
| Dr. Kim Janda, Director | 491101 | (2) | \* |
| David Lemus, Director | 338958 | (2) | \* |
| Tammy Reilly, Director | 83333 | (2) | \* |
| Jaisim Shah, Director | 696591 | (4) | \* |
| Dr. Yue Alexander Wu, Director | 378958 | (5) | \* |
| **All Current Officers and Directors as a Group (8 persons)** | 11224202 | (6) | 2.0% |
| **5% Stockholders:** |  |  |  |
| BlackRock, Inc. | 39423641 | (7) | 7.2% |
| State Street Corporation | 50637571 | (8) | 9.3% |
| The Vanguard Group | 29535954 | (9) | 5.4% |

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\* Less than 1%.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Comprised of (i) 2,265,805 shares of common stock held directly, (ii) 2,271,693 shares of common stock held in family trusts, of which Dr. Ji is a co-trustee with his wife Vivian Q. Zhang, (iii) 40,000 shares of common stock held directly by Dr. Ji's wife, (iv) 4,057,875 shares of common stock issuable pursuant to stock options in Dr. Ji's name exercisable within 60 days after January 31, 2023, (v) 500 shares of common stock held by BioVintage, Inc., an entity that Dr. Ji is the sole owner of ("BioVintage"), (vi) 188,800 shares of common stock issuable pursuant to call options held by BioVintage exercisable within 60 days after January 31, 2023, and (vii) 19,500 shares of common stock issuable pursuant to put options held by BioVintage exercisable within 60 days after January 31, 2023. Each of Dr. Ji and Vivian Q. Zhang, while acting as co-trustees, have the power to act alone and have those actions binding on both trustees' and the trusts' assets, including voting and dispositive power over the shares of common stock held by the family trusts.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Comprised solely of shares of common stock issuable pursuant to stock options exercisable within 60 days after January 31, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)Comprised of (i) 2,130 shares of common stock held directly, and (ii) 338,958 shares of common stock issuable pursuant to stock options exercisable within 60 days after January 31, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)Comprised of (i) 112,633 shares of common stock held directly, and (ii) 583,958 shares of common stock issuable pursuant to stock options exercisable within 60 days after January 31, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)Comprised of (i) 5,000 shares of common stock held directly, and (ii) 373,958 shares of common stock issuable pursuant to stock options exercisable within 60 days after January 31, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6)Comprised of shares included under "Named Executive Officers and Directors."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7)BlackRock, Inc. ("BlackRock") filed a Schedule 13G/A on February 3, 2023 reporting that it had sole voting power with respect to 37,359,391 shares of common stock and sole dispositive power with respect to 39,423,641shares of common stock in its capacity as a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) under the Exchange Act. BlackRock's address is 55 East 52nd Street, New York, New York 10055.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8)State Street Corporation ("State Street") filed a Schedule 13G/A on February 9, 2023 reporting that it had shared voting power with respect to 49,842,248shares and shared dispositive power with respect to 50,637,571shares of common stock in its capacity as a parent holding company or control person in accordance with Rule 13d-1(b)(1)(ii)(G) under the Exchange Act. State Street's address is State Street Financial Center, 1 Lincoln Street, Boston MA 02111.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9) The Vanguard Group ("Vanguard") filed a Schedule 13G/A on February 9, 2023 reporting that it had shared voting power with respect to 402,147 shares, sole dispositive power with respect to 28,723,816 shares and shared dispositive power with respect to 812,138 shares of common stock in its capacity as an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E) under the Exchange Act. Vanguard's address is 100 Vanguard Blvd., Malvern, PA 19355.

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**SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS**

The following table sets forth additional information with respect to the shares of common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements in effect as of December 31, 2022. The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options and the number of shares remaining available for future grant, excluding the shares to be issued upon exercise of outstanding options.

**Equity Compensation Plan Information**

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Plan Category** | **Number of<br>securities to<br>be issued<br>upon<br>exercise of<br>outstanding<br>options,<br>warrants<br>and rights<br>(a)** |  | **Weighted-<br>average<br>exercise<br>price of<br>outstanding<br>options,<br>warrants<br>and rights** | **Number of<br>securities<br>remaining<br>available for<br>future<br>issuance<br>under equity<br>compensation<br>plans<br>(excluding<br>securities<br>reflected in<br>column (a))** |  |
| Equity compensation plans approved by security holders | 29146260 | (1) | $6.05 | 70585979 | (2) |
| Equity compensation plans not approved by security holders |  |  |  |  |  |
| Total | 29146260 |  | $6.05 | 70585979 |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Includes 8,284,498 RSUs granted under the 2019 Plan for which there is no exercise price reflected in column (b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Comprised of shares available for future issuance under the 2019 Plan, the Amended and Restated 2009 Stock Incentive Plan, the 2020 Employee Stock Purchase Plan and the CEO Performance Award.

**Item 13. Certain Relationships and Related Transactions, and Director Independence.**

**Review, Approval or Ratification of Transactions with Related Persons**

The Board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. The Board has not adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. However, the Board has followed the following standards: (i) all related party transactions must be fair and reasonable and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by the Board and (ii) all related party transactions should be authorized, approved or ratified by the affirmative vote of a majority of the directors who have no interest, either directly or indirectly, in any such related party transaction.

**Transactions with Related Persons**

The following is a description of transactions or series of transactions since January 1, 2022, or any currently proposed transaction, to which we have been a party, in which the amount involved in the transaction or series of transactions exceeds $120,000 and in which any of our directors, executive officers or persons who we know held more than five percent of any class of our capital stock, including their immediate family members, had or will have a direct or indirect material interest, other than compensation arrangements that are described under Item 11 of this Annual Report on Form 10-K.

**Dr. Janda Consulting Agreement**

On July 15, 2020, we entered into a consulting agreement with Kim Janda, Ph.D., a member of our Board, pursuant to which Dr. Janda agreed to provide consulting and advisory services to us through July 15, 2024 in exchange for (i) a one-time fee of $250,000, which was payable at a rate of 1/12th per month over twelve months, and (ii) an option to purchase up to 150,000 shares of our common stock, which was granted on August 7, 2020 and vests at a rate of 1/48th per month commencing on July 15, 2020. On October 8, 2021, we entered into an amendment to the consulting agreement with Dr. Janda whereby the one-time fee was increased to $301,091, payable through September 30, 2022.

------

**Transactions with Aardvark Therapeutics, Inc. and Scilex Holding**

In April 2021, we entered into an asset purchase agreement (the "Aardvark Asset Purchase Agreement") with Aardvark Therapeutics, Inc. to acquire Aardvark's Delayed Burst Release Low Dose Naltrexone (DBR-LDN), or ARD-301, asset and intellectual property rights, for the treatment of chronic pain, fibromyalgia and chronic post-COVID syndrome. As consideration for the purchase of the assets, we paid Aardvark an upfront license fee of $5.0 million comprised of 616,655 shares of our common stock. We also agreed to pay Aardvark (i) milestone payments upon the receipt of certain regulatory approvals, and (ii) milestone payments upon our achievement of certain commercial sales milestones. We will also pay certain royalties in the mid-single digit to low-double digit percentages of annual net sales by us. In May 2021, we paid $5.0 million in cash for 3,888,932 shares of Series B Preferred Stock of Aardvark. In July 2021, we paid consideration of $5.0 million in cash for an additional 3,888,932 shares of Series B Preferred Stock of Aardvark, resulting in an increase in our ownership interest in Aardvark to approximately 8%. Tien Lee, MD, a member of the board of directors of Scilex Holding Company, our majority owned subsidiary, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of our Board, is a member of the advisory board of Aardvark.

Subsequent to the acquisition, Sorrento designated Scilex Holding, our majority owned subsidiary, to lead all development efforts related to SP-104 and on May 12, 2022, we entered into a bill of sale and assignment and assumption agreement, with Scilex Holding pursuant to which we sold, conveyed, assigned and transferred to Scilex Holding all of our rights, title and interest in and to the SP-104 Assets (including PCT/US2021/053645 and all patents and patent applications that claim priority rights thereto) and Scilex Holding assumed all of our rights, liabilities and obligations under the Aardvark Asset Purchase Agreement (the "SP-104 Acquisition").

As consideration for the SP-104 Acquisition, Scilex Holding issued a promissory note in the aggregate principal amount of $5,000,000 to us (the "Promissory Note"). The Promissory Note matures seven years from the date of issuance and bears interest at the rate equal to the lesser of (a) 2.66% simple interest per annum and (b) the maximum interest rate permitted under law. The Promissory Note is payable in cash, shares of Scilex Holding common stock (any shares so issued, the "Consideration Shares") or any combination thereof, at Scilex Holding's sole discretion, and may be prepaid in whole or in part at any time without penalty. Scilex Holding also agreed to file with the SEC a resale registration statement relating to the resale by us of any Consideration Shares that may be issued to us, within 60 days of the issuance of such Consideration Shares.

Tien Lee, MD, a member of the board of directors of Scilex Holding, our majority owned subsidiary, is the founder, chief executive officer and member of the board of directors of Aardvark. Kim D. Janda, Ph.D., a member of our Board, is a member of the advisory board of Aardvark. Kim D. Janda, Ph.D., a member of our Board, is a member of the advisory board of Aardvark. Since May 2021, Henry Ji, Ph.D., a member of our Board and our Chief Executive Officer and President, has served on the board of directors of Aardvark as our designee.

**Indemnification Agreements with Directors and Executive Officers**

We have entered into indemnity agreements with certain directors, officers and other key employees of ours under which we agreed to indemnify those individuals under the circumstances and to the extent provided for in the agreements, for expenses, damages, judgments, fines, settlements and any other amounts they may be required to pay in actions, suits or proceedings which they are or may be made a party or threatened to be made a party by reason of their position as a director, officer or other agent of ours, and otherwise to the fullest extent permitted under Delaware law and our Amended and Restated Bylaws. We also have an insurance policy covering our directors and executive officers with respect to certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or otherwise. We believe that these provisions and insurance coverage are necessary to attract and retain qualified directors, officers and other key employees.

**Board Independence**

Our Board is responsible for establishing corporate policies and for our overall performance, although it is not involved in our day-to-day operations. Our Board consults with our counsel to ensure that our Board's determinations are consistent with all relevant securities and other laws and regulations regarding the definition of "independent," including those set forth in the rules of The Nasdaq Stock Market LLC, as in effect from time to time. Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, us, our senior management and our independent registered public accounting firm, our Board has determined that all of our directors, other than Dr. Ji, Dr. Janda and Mr. Shah, are independent.

------

**Item 14. Principal Accounting Fees and Services.**

The following table represents aggregate fees billed to us for the fiscal years ended December 31, 2022 and December 31, 2021 by Ernst & Young LLP, our independent registered public accounting firm for each period. All fees described below were pre-approved by the Audit Committee.

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31** | **Year Ended December 31** |
|  | **2022** | **2021** |
| Audit Fees (1) | $4183000 | $2491222 |
| Audit-Related Fees |  |  |
| Tax Fees |  |  |
| All Other Fees |  |  |
| Total Fees | $4183000 | $2491222 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Audit fees consisted of fees for services rendered in connection with the annual audit of our consolidated financial statements, quarterly reviews of financial statements included in our quarterly reports on Form 10-Q, and the audit of internal control over financial reporting. Audit fees also consisted of services provided in connection with issuances of consents included in registration statements, standalone audits, consultation on accounting matters, and SEC registration statement services.

**Audit Committee's Pre-Approval Policies and Procedures**

The Audit Committee has adopted a policy for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee's approval of the scope of the engagement of the independent auditors or on an individual explicit case-by-case basis before the independent registered public accounting firm are engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committee members, but the decision must be reported to the full Audit Committee at its next scheduled meeting. By the adoption of this policy, the Audit Committee has delegated the authority to pre-approve services to the Chairperson of the Audit Committee, subject to certain limitations.

The Audit Committee has determined that the rendering of services by Ernst & Young LLP other than audit services is compatible with maintaining the principal accounting firm's independence.

------

**PART IV**

**Item 15. Exhibits, Financial Statement Schedules.**

(a)(1) Financial Statements

Reference is made to the Index to Consolidated Financial Statements of Sorrento Therapeutics, Inc., appearing on page F-1 of this Annual Report on Form 10-K.

All other schedules not listed above have been omitted because of the absence of conditions under which they are required, or because the required information is included in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits

---

| | |
|:---|:---|
| **Exhibit**<br>**No.** | **Description** |
| &nbsp;&nbsp;&nbsp;&nbsp;2.1\* | [<u>Agreement and Plan of Merger between Sorrento Therapeutics, Inc. and IgDraSol, Inc. dated September 9, 2013 (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on September 11, 2013).</u>](https://www.sec.gov/Archives/edgar/data/850261/000119312513363203/d595928dex21.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;2.2\* | [<u>Share Purchase Agreement, dated April 27, 2017, by and among Sorrento Therapeutics, Inc., TNK Therapeutics, Inc., Virttu Biologics, Limited, the shareholders of Virttu Biologics Limited and Dayspring Ventures Limited as representative of the shareholders of Virttu Biologics Limited (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on April 28, 2017).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420417022859/v465350_ex2-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;2.3 | [<u>Amendment No. 1 to Share Purchase Agreement, effective April 27, 2018, by and among Sorrento Therapeutics, Inc., TNK Therapeutics, Inc. and Dayspring Ventures Limited, as representative of the shareholders of Virttu Biologics Limited (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420418022884/tv492315_ex10-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;2.4\* | [<u>Agreement and Plan of Merger, dated as of March 18, 2019, by and among Sorrento Therapeutics, Inc., Semnur Pharmaceuticals, Inc., Scilex Holding Company, Sigma Merger Sub, Inc. and Fortis Advisors LLC, solely as the Equityholders' Representative (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on March 22, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420419015420/tv516899_ex2-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;2.5 | [<u>Amendment No. 1 to Agreement and Plan of Merger, dated as of August 7, 2019, by and between Scilex Holding Company and Fortis Advisors LLC, solely as the Equityholders' Representative (incorporated by reference to Exhibit 2.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 12, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000085026119000036/exhibit22.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;2.6\* | [<u>Agreement and Plan of Merger, dated August 20, 2020, by and among Sorrento Therapeutics, Inc., SP Merger Sub, Inc., SmartPharm Therapeutics, Inc. and John C. Thomas, Jr., as representative of the stockholders of SmartPharm Therapeutics, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 20, 2020).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465920097286/tm2029047d1_ex2-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;2.7\* | [<u>Agreement and Plan of Merger, dated April 2, 2021, by and among Sorrento Therapeutics, Inc., AT Merger Sub, Inc., ACEA Therapeutics, Inc. and Fortis Advisors, LLC, as representative of the shareholders of ACEA Therapeutics, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on April 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465921046346/tm2111982d1_ex2-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;2.8\*^ | [<u>Agreement and Plan of Merger, dated January 14, 2022, by and among Sorrento Therapeutics, Inc., VH Merger Sub I, Inc., VH Merger Sub II, LLC, Virex Health, Inc. and Fortis Advisors LLC, as representative of the stockholders of Virex Health, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on February 1, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922005189/tm223238d1_ex2-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;3.1 | [<u>Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 15, 2013).</u>](https://www.sec.gov/Archives/edgar/data/850261/000119312513222066/d501657dex31.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;3.2 | [<u>Certificate of Amendment of the Restated Certificate of Incorporation of Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the SEC on August 1, 2013).</u>](https://www.sec.gov/Archives/edgar/data/850261/000119312513313772/d577580dex31.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;3.3 | [<u>Amended and Restated Bylaws of Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K filed with the SEC on March 15, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000085026119000002/exhibit33amendedandrestate.htm) |

---

------

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;4.1 | [<u>Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on October 23, 2009).</u>](https://www.sec.gov/Archives/edgar/data/850261/000119312509212862/dex41.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.2 | [<u>Voting Agreement, dated as of April 29, 2016, by and between Sorrento Therapeutics, Inc. and Yuhan Corporation (incorporated by reference to Exhibit 4.12 to the Registrant's Registration Statement on Form S-3 filed with the SEC on June 29, 2016).</u>](https://www.sec.gov/Archives/edgar/data/850261/000119312516636555/d188896dex412.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.3 | [<u>Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of December 11, 2017, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on December 21, 2017).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420417064823/tv481767_ex4-2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.4 | [<u>Form of Common Stock Purchase Warrant issued to investors pursuant to the Securities Purchase Agreement, dated as of June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420418034252/tv496497_ex4-2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.5 | [<u>Registration Rights Agreement, dated June 13, 2018, by and among Sorrento Therapeutics, Inc. and the purchasers identified on Schedule A thereto (incorporated by reference to Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on August 9, 2018).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420418034252/tv496497_ex4-3.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.6 | [<u>Form of Warrant, dated November 7, 2018, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).</u>](https://www.sec.gov/Archives/edgar/data/850261/000085026118000033/exhibit41.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.7 | [<u>Registration Rights Agreement, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the parties identified on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).</u>](https://www.sec.gov/Archives/edgar/data/850261/000085026118000033/exhibit42.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.8 | [<u>Agreement and Consent, dated November 7, 2018, by and among Sorrento Therapeutics, Inc. and the Warrant Holders party thereto (incorporated by reference to Exhibit 10.6 of the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 9, 2018).</u>](https://www.sec.gov/Archives/edgar/data/850261/000085026118000033/exhibit106.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.9 | [<u>Form of Warrant, dated May 3, 2019, issued by Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on May 3, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420419023619/tv520470_ex4-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.10 | [<u>Amendment No. 1 to the Registration Rights Agreement, dated as of May 3, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on May 3, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420419023619/tv520470_ex4-2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.11 | [<u>Form of Series A Warrant (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on June 28, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420419033099/tv524516_ex4-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.12 | [<u>Form of Series C Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed with the SEC on June 28, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420419033099/tv524516_ex4-3.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.13 | [<u>Form of Warrant (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the SEC on October 8, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000114420419047672/tv530777_ex4-1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.14 | [<u>Amendment No. 2 to the Registration Rights Agreement, dated as of December 6, 2019, by and among Sorrento Therapeutics, Inc. and the persons party thereto (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed with the SEC on December 9, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465919070778/tm1924746d1_ex4-2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.15 | [<u>Registration Rights Agreement, dated as of March 4, 2021, by and between Sorrento Therapeutics, Inc. and the Icahn School of Medicine at Mount Sinai (incorporated by reference to Exhibit 4.19 to the Registrant's Registration Statement on Form S-3 filed with the SEC on April 9, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000156459021018359/srne-ex419_50.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.16 | [<u>Description of Securities of Sorrento Therapeutics, Inc. (incorporated by reference to Exhibit 4.19 to the Registrant's Annual Report on Form 10-K filed with the SEC on March 11, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017022003472/srne-ex4_19.htm) |
| 10.1± | [<u>Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on September 7, 2012).</u>](https://www.sec.gov/Archives/edgar/data/850261/000129993312002093/exhibit1.htm) |
| 10.2 | [<u>Lease Agreement, dated September 12, 2016, between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 9, 2016).</u>](https://www.sec.gov/Archives/edgar/data/850261/000156459016028583/srne-ex104_472.htm) |

---

------

---

| | |
|:---|:---|
| 10.3 | [<u>First Amendment to Office Lease, dated October 19, 2018, between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K filed with the SEC on March 15, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000085026119000002/sti-exhibit1015.htm) |
| 10.4± | [<u>Amended and Restated Employment Agreement between Sorrento Therapeutics, Inc. and Henry Ji, Ph.D. dated May 9, 2017 (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 15, 2017).</u>](https://www.sec.gov/Archives/edgar/data/850261/000156459017011020/srne-ex105_471.htm) |
| 10.5 | [<u>Lease Agreement, dated November 13, 2018, between Sorrento Therapeutics, Inc. and HCP Life Science Estates, Inc. (incorporated by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K filed with the SEC on March 15, 2019).</u>](https://www.sec.gov/Archives/edgar/data/850261/000085026119000002/sti-exhibit1030.htm) |
| 10.7± | [<u>Performance Stock Option Award Agreement, dated as of August 7, 2020, by and between Sorrento Therapeutics, Inc. and Henry Ji, Ph.D. (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the SEC on October 20, 2020).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465920116491/tm2033330d2_ex10-3.htm) |
| 10.8± | [<u>Sorrento Therapeutics, Inc. 2020 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on October 20, 2020).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465920116491/tm2033330d2_ex10-1.htm) |
| 10.9†^ | [<u>Exclusive License Agreement, dated as of March 4, 2021, by and between Sorrento Therapeutics, Inc. and the Icahn School of Medicine at Mount Sinai (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000156459021024135/srne-ex102_212.htm) |
| 10.10± | [<u>Sorrento Therapeutics, Inc. 2021 Cash-Settled Stock Appreciation Plan (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000156459021024135/srne-ex105_187.htm) |
| 10.11± | [<u>Sorrento Therapeutics, Inc. Stock Appreciation Rights Award Agreement (incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000156459021024135/srne-ex106_188.htm) |
| 10.12^ | [<u>Earn-Out Agreement, dated June 1, 2021, by and between Sorrento Therapeutics, Inc. and Fortis Advisors LLC (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on June 4, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465921076995/tm2118385d1_ex10-1.htm) |
| 10.13 | [<u>Contract, dated August 15, 2018, by and between Hangzhou ACEA Pharmaceutical Research Co., Ltd. and ACEA Bio (Hangzhou) Co., Ltd. (translated into English from its original text in Chinese) (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on June 4, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465921076995/tm2118385d1_ex10-2.htm) |
| 10.14 | [<u>Loan Agreement, dated January 6, 2018, by and between Zhejiang ACEA Pharmaceutical Co., Ltd. and ACEA Bio (Hangzhou) Co., Ltd. (translated into English from its original text in Chinese) (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the SEC on June 4, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465921076995/tm2118385d1_ex10-3.htm) |
| 10.15 | [<u>Sorrento Gateway Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4930 Directors Place) (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017021003247/srne-ex10_1.htm) |
| 10.16 | [<u>First Amendment to Office Lease, dated September 14, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4930 Directors Place) (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017021003247/srne-ex10_2.htm) |
| 10.17 | [<u>Second Amendment to Office Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4955 Directors Place) (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017021003247/srne-ex10_3.htm) |
| 10.18 | [<u>First Amendment to Office Lease, dated October 10, 2020, by and between Sorrento Therapeutics, Inc. and HCP Life Science Estates, Inc. (4939 Directors Place) (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017021003247/srne-ex10_4.htm) |
| 10.19 | [<u>Second Amendment to Office Lease, dated September 1, 2021, by and between Sorrento Therapeutics, Inc. and HCP Life Science REIT, Inc. (4939 Directors Place) (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 5, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017021003247/srne-ex10_5.htm) |
| 10.20† | [<u>Amended and Restated Sales Agreement, dated as of December 3, 2021, by and among Sorrento Therapeutics, Inc., Cantor Fitzgerald & Co., B. Riley Securities, Inc., H.C. Wainwright & Co., LLC and A.G.P/Alliance Global Partners (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the SEC on December 3, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465921146371/tm2134539d1_ex1-1.htm) |

---

------

---

| | |
|:---|:---|
| 10.21 | [<u>Amendment No. 1 to Amended and Restated Sales Agreement, dated as of December 23, 2021, by and among Sorrento Therapeutics, Inc., Cantor Fitzgerald & Co., B. Riley Securities, Inc. and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the SEC on December 23, 2021).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465921153227/tm2136220d1_ex1-2.htm) |
| 10.22# | [<u>Outside Director Compensation Policy (incorporated by reference to Exhibit 10.2 to the Registration's Quarterly Report on Form 10-Q filed with the SEC on May 5, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017022007887/srne-ex10_2.htm)<br>|
| 10.23 | [<u>Company Sponsor Support Agreement, dated as of March 17, 2022, by and among the Registrant and Vickers Vantage Corp. I (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on March 18, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922035362/tm229691d1_ex10-2.htm) |
| 10.24 | [<u>Sponsor Support Agreement, dated as of March 17, 2022, by and among Vickers Vantage Corp. I and each of the Persons set forth on Schedule I attached thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on March 18, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922035362/tm229691d1_ex10-1.htm) |
| 10.26± | [<u>Offer Letter, dated April 27, 2022, between Sorrento Therapeutics, Inc. and Elizabeth A. Czerepak (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on April 28, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922051721/tm2213863d1_ex10-1.htm) |
| 10.27± | [<u>Offer Letter, dated April 27, 2022, between Scilex Holding Company and Elizabeth A. Czerepak (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on April 28, 2022).<br></u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922051721/tm2213863d1_ex10-2.htm) |
| 10.28^† | [<u>License and Commercialization Agreement, dated June 14, 2022, between Scilex Holding Company and RxOmeg Therapeutics, LLC (incorporated by reference to Exhibit 10.44 to the Registration Statement on Form S-4/A filed by Vickers Vantage Corp. I with the SEC on June 27, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1820190/000110465922074469/vcka-20220331xex10d44.htm)<br>|
| 10.29\* | [<u>Contribution and Satisfaction of Indebtedness Agreement, dated as of September 12, 2022, by and among Sorrento Therapeutics, Inc., Scilex Holding Company and Scilex Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on September 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922099755/tm2225658d1_ex10-1.htm) |
| 10.30 | [<u>Stockholder Agreement, dated as of September 12, 2022, by and among Sorrento Therapeutics, Inc. and Vickers Vantage Corp. I (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the SEC on September 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922099755/tm2225658d1_ex10-2.htm) |
| 10.31 | [<u>Amendment No. 1 to Sponsor Support Agreement, dated as of September 12, 2022, by and among Vickers Vantage Corp. I, Scilex Holding Company and each of the Persons set forth on Schedule I attached thereto (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed with the SEC on September 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465922099755/tm2225658d1_ex10-3.htm) |
| 10.32± | [<u>Sorrento Therapeutics, Inc. 2019 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on December 16, 2022).</u>](https://www.sec.gov/Archives/edgar/data/850261/000095017022026672/srne-ex10_1.htm) |
| 21.1 | [<u>List of Subsidiaries</u>](srne-ex21_1.htm) |
| 23.1 | [<u>Consent of Ernst & Young LLP</u>](srne-ex23_1.htm) |
| 24 | [<u>Power of Attorney (included on signature page hereto)</u>](#power_attorney) |
| 31.1 | [<u>Certification of Henry Ji, Ph.D., Principal Executive Officer and Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.</u>](srne-ex31_1.htm) |
| 31.2 | [<u>Certification of Elizabeth Czerepak, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.</u>](srne-ex31_2.htm) |
| 32.1 | [<u>Certification of Henry Ji, Ph.D., Principal Executive Officer, and Elizabeth Czerepak, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.</u>](srne-ex32_1.htm) |
| 99.1 | [<u>Debtor-In-Possession Term Loan Facility Summary of Terms and Conditions (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed with the SEC on February 22, 2023).</u>](https://www.sec.gov/Archives/edgar/data/850261/000110465923023902/tm237448d1_ex99-1.htm) |

---

---

| | |
|:---|:---|
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |

---

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| | |
|:---|:---|
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |

---

\* 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.

± Management contract or compensatory plan.

^ 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) of the type that the Registrant treats as private or confidential. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC.

† Non-material schedules and exhibits have been omitted pursuant to Item 601(a)(5) 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.

------

**Item 16. Form 10-K Summary.**

None.

------

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | |
|:---|:---|:---|
| March 15, 2023 | SORRENTO THERAPEUTICS, INC. | SORRENTO THERAPEUTICS, INC. |
|  | By: | /s/ Henry Ji, Ph.D. |
|  |  | **Henry Ji, Ph.D.**<br>**Chairman of the Board of Directors, Chief Executive Officer & President** |

---

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Henry Ji, Ph.D. and Elizabeth Czerepak as his or her attorney-in-fact, with full power of substitution and resubstitution, for him and her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | **Title(s)** | **Date** |
| /s/ Henry Ji, Ph.D. | Chairman of the Board of Directors, Chief Executive <br>Officer & President | March 15, 2023 |
| **Henry Ji, Ph.D.** | (Principal Executive Officer) |  |
| /s/Elizabeth A. Czerepak | Executive Vice President, Chief Financial Officer | March 15, 2023 |
| **Elizabeth A. Czerepak**  | (Principal Financial Officer)  |  |
| /s/ Dorman Followwill | Director | March 15, 2023 |
| **Dorman Followwill** |  |  |
| /s/ Kim D. Janda, Ph.D. | Director | March 15, 2023 |
| **Kim D. Janda, Ph.D.** |  |  |
| /s/ David Lemus | Director | March 15, 2023 |
| **David Lemus** |  |  |
| /s/ Tammy Reilly | Director | March 15, 2023 |
| **Tammy Reilly** |  |  |
| /s/ Jaisim Shah | Director | March 15, 2023 |
| **Jaisim Shah** |  |  |
| /s/ Yue Alexander Wu | &nbsp;&nbsp;&nbsp;&nbsp;Director  | March 15, 2023 |
| **Yue Alexander Wu, Ph.D.** |  |  |

---

------

**Sorrento Therapeutics, Inc.**

**Index to Consolidated Financial Statements**

---

| | |
|:---|:---|
|  | **Page** |
| [<u>Reports of Independent Registered Public Accounting Firm - Ernst & Young LLP (PCAOB ID:</u>42<u>)</u>](#report_independent_registered_public_acc) | F-2 |
| [<u>Consolidated Balance Sheets—As of December 31, 2022 and 2021</u>](#consolidated_balance_sheets) | F-6 |
| [<u>Consolidated Statements of Operations—For the Years Ended December 31, 2022, 2021 and 2020</u>](#consolidated_statements_operations) | F-7 |
| [<u>Consolidated Statements of Comprehensive Loss—For the Years Ended December 31, 2022, 2021 and 2020</u>](#consolidated_statements_comprehensive_in) | F-8 |
| [<u>Consolidated Statements of Stockholders' Equity (Deficit) —For the Years Ended December 31, 2022, 2021 and 2020</u>](#consolidated_statements_stockholders_equ) | F-9 |
| [<u>Consolidated Statements of Cash Flows—For the Years Ended December 31, 2022, 2021 and 2020</u>](#consolidated_statements_cash_flows) | F-10 |
| [<u>Notes to Consolidated Financial Statements</u>](#notes_to_consolidated_financial_statemen) | F-11 |

---

------

**Report of Independent Registered Public Accounting Firm**

To the Stockholders and the Board of Directors of Sorrento Therapeutics, Inc.

**Opinion on Internal Control over Financial Reporting**

We have audited Sorrento Therapeutics, Inc.'s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Sorrento Therapeutics, Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment in the section, "Management's Annual Report on Internal Control over Financial Reporting". Management has identified that certain of the Company's control activities in the areas of revenue, business combinations, investments, debt, derivative liabilities, contingent consideration, and intangibles did not operate effectively and have been deemed deficient and the combination of the aforementioned deficiencies represents a material weakness in the Company's internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report dated March 15, 2023, which expressed an unqualified opinion thereon that included an explanatory paragraph regarding the Company's ability to continue as a going concern.

**Basis for Opinion**

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

**Definition and Limitations of Internal Control Over Financial Reporting** 

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

------

/s/ Ernst & Young LLP

San Diego, California

March 15, 2023

------

**Report of Independent Registered Public Accounting Firm**

To the Stockholders and the Board of Directors of Sorrento Therapeutics, Inc.

**Opinion on the Fina**n**cial Statements**

We have audited the accompanying consolidated balance sheets of Sorrento Therapeutics, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 15, 2023 expressed an adverse opinion thereon.

**The Company's Ability to Continue as a Going Concern**

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in [<u>Note 2</u>](#n2_liquidity_going_concern) to the consolidated financial statements, the Company has negative working capital, has suffered recurring losses from operations, has recurring negative cash flows from operations, and has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also described in [<u>Note 2</u>](#n2_liquidity_going_concern). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical Audit Matter**

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by

------

communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

---

| | |
|:---|:---|
|  | &nbsp;&nbsp;**Valuation of contingent consideration liabilities associated with the prior year acquisition of ACEA Therapeutics, Inc.** |
| &nbsp;&nbsp;Description of the Matter | &nbsp;&nbsp;As disclosed in [<u>Note 7</u>](#n8_significant_agreements_contracts) of the consolidated financial statements, the Company completed the acquisition of ACEA Therapeutics, Inc. ("ACEA") on June 1, 2021. The transaction was accounted for as a business combination. In connection with the acquisition, the Company recognized a liability on the acquisition date for consideration payable that is contingent upon achieving certain regulatory and sales-based milestones. The Company determines the fair value of these contingent consideration arrangements, both as part of the initial purchase price allocation and on an ongoing basis each reporting period, until the arrangements are settled. As of December 31, 2022, the amount recorded for future estimated contingent consideration related to the ACEA acquisition is $48.4 million.<br>Auditing the Company's estimate of contingent consideration liabilities associated with the prior year acquisition of ACEA was complex due to the significant estimation uncertainty in determining the fair value of contingent consideration liabilities. The significant estimation uncertainty was primarily due to the sensitivity of the fair value to underlying assumptions including discount rates, revenue projections and estimated probabilities of successful commercialization. These significant assumptions are forward-looking and could be affected by future economic and market conditions.<br>|
| &nbsp;&nbsp;How We Addressed the Matter in Our Audit | &nbsp;&nbsp;Our substantive audit procedures included, among others, involving our internal valuation specialists to assist us in evaluating and testing the valuation methodologies and significant assumptions stated above. For example, we compared the significant assumptions to current industry, market and economic trends, to historical results of the Company's business or other guideline companies in the same industry and to other sources. Furthermore, we performed, among other procedures, independent comparative calculations to estimate certain significant assumptions and compared our estimates with those of the Company. We also performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value of the contingent consideration liabilities recorded that would result from changes in the assumptions. |

---

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2020.

San Diego, California

March 15, 2023

------

**SORRENTO THERAPEUTICS, INC.**

**CONSOLIDATED BALANCE SHEETS**

(In thousands, except for share amounts)

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
| **ASSETS** | **2022** | **2021** |
| **Current assets:** |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $23634 | $36665 |
| &nbsp;&nbsp;&nbsp;Marketable investments | 26344 | 90217 |
| &nbsp;&nbsp;&nbsp;Accounts receivables, net | 24469 | 18715 |
| &nbsp;&nbsp;&nbsp;Inventory | 9976 | 8106 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses | 8807 | 11804 |
| &nbsp;&nbsp;&nbsp;Other current assets | 3143 | 7482 |
| **Total current assets** | 96373 | 172989 |
| &nbsp;&nbsp;&nbsp;Property and equipment, net | 51971 | 41325 |
| &nbsp;&nbsp;&nbsp;Operating lease right-of-use assets | 86464 | 85173 |
| &nbsp;&nbsp;&nbsp;Intangibles, net | 136902 | 259705 |
| &nbsp;&nbsp;&nbsp;Goodwill | 80269 | 79525 |
| &nbsp;&nbsp;&nbsp;Equity investments | 17176 | 51271 |
| &nbsp;&nbsp;&nbsp;Other assets, net | 3685 | 4830 |
| **Total assets** | $472840 | $694818 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)** |  |  |
| **Current liabilities:** |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $47515 | $27414 |
| &nbsp;&nbsp;&nbsp;Accrued payroll and related benefits | 7884 | 21503 |
| &nbsp;&nbsp;&nbsp;Accrued expenses and liabilities | 58756 | 37975 |
| &nbsp;&nbsp;&nbsp;Accrued legal settlements | 174752 |  |
| &nbsp;&nbsp;&nbsp;Current portion of deferred revenue | 652 | 1108 |
| &nbsp;&nbsp;&nbsp;Current portion of operating lease liabilities | 13880 | 11539 |
| &nbsp;&nbsp;&nbsp;Current portion of contingent consideration | 397 | 397 |
| &nbsp;&nbsp;&nbsp;Acquisition consideration | 7800 | 7537 |
| &nbsp;&nbsp;&nbsp;Current portion of debt | 16286 | 31980 |
| **Total current liabilities** | 327922 | 139453 |
| Long-term debt, net of discount | 19130 | 110627 |
| Deferred tax liabilities, net | 591 | 2426 |
| Deferred revenue | 7098 | 118942 |
| Derivative liabilities | 300 | 35700 |
| Operating lease liabilities | 85208 | 83431 |
| Contingent consideration | 48949 | 124349 |
| Other long-term liabilities | 5311 | 1761 |
| **Total liabilities** | $494509 | $616689 |
| Commitments and contingencies **(Note 11)** |  |  |
| **Equity (Deficit):** |  |  |
| **Sorrento Therapeutics, Inc. equity (deficit)** |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $0.0001 par value; 750,000,000 shares authorized and 522,817,137 and 314,573,225 shares issued and outstanding at December 31, 2022 and 2021, respectively | 52 | 32 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 1988753 | 1513758 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive income | 1501 | 1026 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (1959447) | (1386604) |
| &nbsp;&nbsp;&nbsp;Treasury stock, 7,568,182 shares at cost at December 31, 2022 and 2021 | (49464) | (49464) |
| **Total Sorrento Therapeutics, Inc. stockholders' equity (deficit)** | (18605) | 78748 |
| **Noncontrolling interests** | (3064) | (619) |
| &nbsp;&nbsp;&nbsp;Total equity (deficit) | (21669) | 78129 |
| **Total liabilities and equity (deficit)** | $472840 | $694818 |

---

See accompanying notes

------

**SORRENTO THERAPEUTICS, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**For the Years Ended December 31, 2022, 2021 and 2020**

(In thousands, except for per share amounts)

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Revenue: |  |  |  |
| &nbsp;&nbsp;&nbsp;Net product revenues | $44996 | $28735 | $26628 |
| &nbsp;&nbsp;&nbsp;Service revenues | 17843 | 24169 | 13358 |
| Total revenues | 62839 | 52904 | 39986 |
| Operating costs and expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;Cost of product sold | 28913 | 3851 | 2149 |
| &nbsp;&nbsp;&nbsp;Cost of services | 4539 | 9180 | 7791 |
| &nbsp;&nbsp;&nbsp;Research and development | 221226 | 206922 | 111340 |
| &nbsp;&nbsp;&nbsp;Acquired in-process research and development | 12272 | 24208 | 42992 |
| &nbsp;&nbsp;&nbsp;Selling, general and administrative | 182337 | 196856 | 116179 |
| &nbsp;&nbsp;&nbsp;Intangible amortization | 4325 | 4140 | 4053 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Decrease) increase on contingent consideration | (75400) | 9198 |  |
| &nbsp;&nbsp;&nbsp;Loss on impairment of intangible assets | 124190 |  |  |
| &nbsp;&nbsp;&nbsp;Legal settlements, net | 64752 |  |  |
| Total operating costs and expenses | 567154 | 454355 | 284504 |
| Loss from operations | (504315) | (401451) | (244518) |
| Gain (loss) on derivative liabilities | 7316 | (300) | 6600 |
| Loss on marketable and equity investments | (83919) | (15013) |  |
| Gain (loss) on debt extinguishment | 27009 | (6695) | (51939) |
| Scilex Notes principal increase |  | (28000) |  |
| Interest expense, net | (8574) | (10224) | (20157) |
| Other income (loss) | 736 | (845) | (566) |
| Loss before income tax | (561747) | (462528) | (310580) |
| Income tax benefit | (2416) | (33516) | (2014) |
| Loss on equity method investments | (18426) | (126) | (5844) |
| Net loss | (577757) | (429138) | (314410) |
| Net loss attributable to noncontrolling interests | (4914) | (813) | (15949) |
| Net loss attributable to Sorrento | $(572843) | $(428325) | $(298461) |
| Net loss per share - basic per share attributable to Sorrento | $(1.37) | $(1.45) | $(1.30) |
| Net loss per share - diluted per share attributable to Sorrento | $(1.37) | $(1.45) | $(1.30) |
| Weighted-average shares outstanding during period - basic shares attributable to Sorrento | 419315 | 294774 | 229823 |
| Weighted-average shares outstanding during period - diluted shares attributable to Sorrento | 419315 | 294774 | 229823 |

---

See accompanying notes

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**SORRENTO THERAPEUTICS, INC.**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS**

**For the Years Ended December 31, 2022, 2021 and 2020**

(In thousands)

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Net loss | $(577757) | $(429138) | $(314410) |
| Other comprehensive income: |  |  |  |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | 475 | 506 | 790 |
| Total other comprehensive income | 475 | 506 | 790 |
| Comprehensive loss | (577282) | (428632) | (313620) |
| Comprehensive loss attributable to noncontrolling interests | (4914) | (813) | (15949) |
| Comprehensive loss attributable to Sorrento | $(572368) | $(427819) | $(297671) |

---

See accompanying notes

------

**SORRENTO THERAPEUTICS, INC.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**

**For the Years Ended December 31, 2022, 2021 and 2020**

(In thousands)

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Treasury Stock** | **Treasury Stock** | **Additional<br>Paid-in** | **Accumulated<br>Other<br>Comprehensive** | **Accumulated** | **Noncontrolling** |  |
|  | **Shares** | **Amount** | **Shares** | **Amount** | **Capital** | **Income (Loss)** | **Deficit** | **Interest** | **Total** |
| **Balance, December 31, 2019** | 167799 | 18 | 7568 | (49464) | 788122 | (270) | (659818) | (45832) | 32756 |
| Issuance of common stock upon exercise of stock options | 1339 |  |  |  | 5578 |  |  |  | 5578 |
| Issuance of common stock upon exercise of warrants | 33091 | 3 |  |  | 92770 |  |  |  | 92773 |
| Issuance of common stock for equity offerings | 69228 | 7 |  |  | 317858 |  |  |  | 317865 |
| Equity issued for SmartPharm acquisition | 1832 |  |  |  | 19421 |  |  |  | 19421 |
| Other acquisitions, license agreements and investments paid in equity | 1997 |  |  |  | 9544 |  |  |  | 9544 |
| Changes to noncontrolling interests |  |  |  |  | (92366) |  |  | 37361 | (55005) |
| Stock-based compensation |  |  |  |  | 31419 |  |  |  | 31419 |
| Foreign currency translation adjustment |  |  |  |  |  | 790 |  |  | 790 |
| Net loss |  |  |  |  |  |  | (298461) | (15949) | (314410) |
| **Balance, December 31, 2020** | 275286 | 28 | 7568 | $(49464) | $1172346 | $520 | $(958279) | $(24420) | $140731 |
| Issuance of common stock under equity compensation plans | 1603 |  |  |  | 10218 |  |  |  | 10218 |
| Issuance of common stock upon exercise of warrants | 2550 | 1 |  |  | 9049 |  |  |  | 9050 |
| Issuance of common stock for equity offerings | 25483 | 2 |  |  | 201824 |  |  |  | 201826 |
| Equity issued for the acquisition of ACEA Therapeutics, Inc. | 5519 |  |  |  | 42168 |  |  |  | 42168 |
| Other acquisitions, license agreements and investments paid in equity | 1565 | 1 |  |  | 13689 |  |  |  | 13690 |
| Changes to noncontrolling interests from increased ownership in Scilex | 2567 |  |  |  | (23963) |  |  | 23963 |  |
| Other changes to noncontrolling interests |  |  |  |  |  |  |  | 651 | 651 |
| Stock-based compensation |  |  |  |  | 88427 |  |  |  | 88427 |
| Foreign currency translation adjustment |  |  |  |  |  | 506 |  |  | 506 |
| Net loss |  |  |  |  |  |  | (428325) | (813) | (429138) |
| **Balance, December 31, 2021** | 314573 | 32 | 7568 | $(49464) | $1513758 | $1026 | $(1386604) | $(619) | $78129 |
| Issuance of common stock under equity compensation plans | 1589 |  |  |  | 1198 |  |  |  | 1198 |
| Issuance of common stock for equity offerings | 205375 | 20 |  |  | 402314 |  |  |  | 402334 |
| Acquisitions, license agreements and investments paid in equity | 1280 |  |  |  | 4434 |  |  |  | 4434 |
| Scilex shares issued as a result of Scilex Business Combination, net of transaction activities |  |  |  |  | (8773) |  |  | 1998 | (6775) |
| Scilex shares issued to Yorkville pursuant to Yorkville Purchase Agreement with Scilex |  |  |  |  | 1237 |  |  |  | 1237 |
| Purchase of public warrants of Scilex common stock |  |  |  |  | (439) |  |  |  | (439) |
| Changes to noncontrolling interests |  |  |  |  |  |  |  | 471 | 471 |
| Stock-based compensation |  |  |  |  | 75024 |  |  |  | 75024 |
| Foreign currency translation adjustment |  |  |  |  |  | 475 |  |  | 475 |
| Net loss |  |  |  |  |  |  | (572843) | (4914) | (577757) |
| **Balance, December 31, 2022** | 522817 | 52 | 7568 | $(49464) | $1988753 | $1501 | $(1959447) | $(3064) | $(21669) |

---

See accompanying notes

------

**SORRENTO THERAPEUTICS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For the Years Ended December 31, 2022, 2021 and 2020**

(In thousands, except for share amounts)

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| **Operating activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net loss | $(577757) | $(429138) | $(314410) |
| Adjustments to reconcile net loss to net cash used for operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 13245 | 12462 | 11007 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash operating lease cost | 4230 | 3855 | 3702 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash interest expense and amortization of debt issuance costs | 6792 | 9162 | 12897 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Scilex Notes principal increase |  | 28000 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments on notes attributed to accreted interest related to the debt discounts | (22973) | (13172) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation | 74847 | 90188 | 31419 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquired in-process research and development | 12272 | 24208 | 42992 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Gain) loss on debt extinguishment, net | (27009) | 6695 | 51939 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Gain) loss on derivative liability | (7316) | 300 | (6600) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on marketable and equity investments | 83919 | 15013 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on equity method investments | 18426 | 126 | 5844 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on impairment of intangible assets | 124190 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Gain) loss on contingent consideration | (75400) | 9198 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-cash inventory adjustments | 10962 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | (1836) | (35927) | (2125) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities, excluding effect of acquisitions: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | (5680) | (2957) | (1051) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory | (9510) | (6276) | 1532 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued payroll | (13442) | (111) | 4945 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses, deposits and other assets | 6803 | (5743) | 4913 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 9870 | (3878) | (3677) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued legal settlements | 174752 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses and other liabilities | 19980 | 20747 | (1188) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue | (112300) | (1024) | (362) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | (922) | (3549) | (1313) |
| **Net cash used for operating activities** | (293857) | (281821) | (159536) |
| **Investing activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sale of marketable investments |  | 124767 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment | (13657) | (8871) | (6528) |
| &nbsp;&nbsp;&nbsp;&nbsp;Virex Health acquisition consideration paid in cash, net of cash acquired | (6544) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;ACEA acquisition consideration paid in cash, net of cash acquired |  | (754) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Other acquisitions and investments considerations paid in cash, net of cash acquired | (8317) | (35295) | (33395) |
| **Net cash provided by (used for) investing activities** | (28518) | 79847 | (39923) |
| **Financing activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from equity offerings, net of issuance costs | 402334 | 201825 | 317865 |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from exercises of stock options and warrants | 1198 | 15420 | 98351 |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from short-term debt, net of issuance costs | 96071 | 49743 | 18587 |
| &nbsp;&nbsp;&nbsp;&nbsp;Repayments of debt and other obligations | (188311) | (85656) | (205564) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the Scilex Business Combination | 3375 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Transaction costs paid related to the Scilex Business Combination | (2949) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Payments related to Semnur Share Exchange |  |  | (55000) |
| **Net cash provided by financing activities** | 311718 | 181332 | 174239 |
| **Net change in cash, cash equivalents and restricted cash** | (10657) | (20642) | (25220) |
| **Net effect of exchange rate changes on cash** | (2374) | 843 | 915 |
| **Cash, cash equivalents and restricted cash at beginning of period** | 36665 | 56464 | 80769 |
| **Cash, cash equivalents and restricted cash at end of period** | $23634 | $36665 | $56464 |
| **Supplemental disclosures:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash paid during the period for: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes | 29 | 1200 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest | 1173 | 1060 | 3419 |
| **Supplemental disclosures of non-cash investing and financing activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes to noncontrolling interests related to the Scilex Business Combination | 1998 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Scilex shares issued to Yorkville pursuant to Yorkville Purchase Agreement | 1237 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Scilex Business Combination transaction costs incurred but not paid | 7001 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;SmartPharm acquisition consideration paid in equity |  |  | 19421 |
| &nbsp;&nbsp;&nbsp;&nbsp;Scilex Notes principal increase |  | 28000 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;ACEA acquisition consideration paid in equity |  | 42168 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Virex Health acquisition consideration paid in equity | 4434 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Right-of-use assets obtained in exchange for new and amended operating lease liabilities | 5592 | 49459 | 1878 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other acquisitions, license agreements and investments consideration paid in equity |  | 13689 | 9544 |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes to noncontrolling interests from increased ownership in Scilex Holding |  | 23963 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred consideration for intangible asset acquisition | 3650 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Short-term debt |  | 7304 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Property and equipment costs incurred but not paid | 6790 | 1253 | 600 |

---

See accompanying notes

------

**SORRENTO THERAPEUTICS, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1. Organization and Significant Accounting Policies**

Description of Business

Sorrento Therapeutics, Inc. (the "Company") is a clinical and commercial stage biopharmaceutical company developing a portfolio of next generation treatments for three major therapeutic areas: cancer, infectious disease and pain. The Company's multimodal, multipronged approach to fighting cancer is made possible by its immuno-oncology platforms, including its fully human antibodies ("G-MAB™ library"), ACEA small molecule library, immuno-cellular therapies ("DAR-T™"), antibody-drug conjugates ("ADCs") and oncolytic virus ("Seprehvec™"). The Company is also developing potential antiviral therapies against COVID-19, including FUJOVEE™ (Abivertinib) and its rapid diagnostic test, including COVIMARK™ (launched as COVISTIX™ in Mexico and Brazil). In November 2022, Scilex Holding Company ("Scilex"), a majority owned subsidiary of the Company, completed its business combination with Vickers Vantage Corp. I, a special purpose acquisition company (see Note 7). Scilex launched ZTlido® in 2018 as a prescription lidocaine topical product. Scilex is also developing pipeline product candidates, including SEMDEXA™.

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. The Company operates in two operating and reportable segments, Sorrento Therapeutics and Scilex. The Sorrento Therapeutics segment is organized around infectious disease and the Company's immuno-oncology therapeutic area, leveraging its proprietary G-MAB™ antibody library and targeted delivery modalities to generate the next generation of cancer therapeutics. The Scilex segment is largely organized around the Company's non-opioid pain management operations. See [<u>Note 14</u>](#n15_segment_information).

**Voluntary Filing Under Chapter 11**

As previously reported in the Company's Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission (the "SEC") on February 13, 2023, the Company and its wholly owned direct subsidiary, Scintilla Pharmaceuticals, Inc. (together with the Company, the "Debtors"), commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Chapter 11 proceedings are jointly administered under the caption In re Sorrento Therapeutics, Inc., et al. (the "Chapter 11 Cases"). The Debtors continue to operate their business in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. At hearings before the Bankruptcy Court on February 16, 2023 and February 21, 2023, the Debtors obtained approval from the Bankruptcy Court of certain "first day" motions containing customary relief intended to assure the Debtors' ability to continue their ordinary course operations during the Chapter 11 Cases.

**Use of Estimates**

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

**Cash and Cash Equivalents**

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of money market accounts and bank deposits, which are highly liquid and readily tradable.

**Fair Value of Financial Instruments**

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

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

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

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

**Accounts Receivable, Net**

Accounts receivable are presented net of allowances for expected credit losses and consist of trade receivables from sales and services provided to customers, which are generally unsecured. The Company reviews reserves and makes adjustments based on historical experience and known collectability issues and disputes. When internal collection efforts on accounts have been exhausted, the accounts are written off by reducing the allowance for doubtful accounts. The allowance for expected credit losses is not material.

**Inventory**

The Company determines inventory cost on a first-in, first-out basis. The Company reduces the carrying value of inventories to a lower of cost or net realizable value for those items that are potentially excess, obsolete or slow-moving. The Company considers the need for allowances for excess and obsolete inventory based upon historical experience, sales trends, and specific categories of inventory and expiration dates for inventory on hand. As of December 31, 2022, net inventory was $10.0 million, comprised of $3.4 million of finished goods and $6.6 million of raw materials and supplies. As of December 31, 2021, net inventory was $8.1 million, comprised of $4.7 million of finished goods and $3.3 million of raw materials and supplies.

**Property and Equipment**

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

**Acquisitions**

The Company first determines whether a set of assets acquired constitutes a business and should be accounted for as a business combination. The Company accounts for business combinations using the acquisition method of accounting, which requires that assets acquired, including in-process research and development ("IPR&D") projects and liabilities assumed be recorded at their fair values as of the acquisition date on the Company`s consolidated balance sheets. Any excess of purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of estimated fair value requires the Company to make significant estimates and assumptions. As a result, the Company may record adjustments to the fair values of assets acquired and liabilities assumed within the measurement period (up to one year from the acquisition date) with the corresponding offset to goodwill. Transaction costs associated with business combinations are expensed as they are incurred.

When the Company determines assets acquired do not meet the definition of a business combination, the transaction is accounted for as an acquisition of assets and, therefore, no goodwill is recorded and contingent consideration such as payments upon achievement of various developmental, regulatory and commercial milestones generally is not recognized at the acquisition date. In an asset acquisition, up-front payments allocated to IPR&D projects at the acquisition date and subsequent milestone payments are charged to expense in the Company`s consolidated statements of operations unless there is an alternative future use.

------

**Contingent Consideration**

The fair value of contingent consideration liabilities assumed in business combinations is recorded as part of the purchase price consideration of the acquisition, and is determined using a discounted cash flow model or Monte Carlo simulation model. The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility rates, projections associated with applicable milestones, discount rates and the related probabilities and payment structure in the contingent consideration arrangement. Fair value adjustments to contingent consideration liabilities are recorded through operating expenses in the consolidated statement of operations. Contingent consideration arrangements assumed in an asset acquisition will be measured and accrued when such contingency is resolved.

**Acquired In-Process Research and Development**

The Company has acquired, and may continue to acquire, the rights to develop and commercialize new drug candidates. The up-front payments to acquire new drug compounds or drug delivery devices, as well as future milestone payments associated with assets that do not meet the definition of a derivative and that are deemed probable to achieve, are immediately expensed as acquired IPR&D, provided that the drug candidates have not achieved regulatory approval for marketing and, absent obtaining such approval, have no alternative future use. Intangible assets acquired in a business combination that are used for IPR&D activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon commercialization of the relevant research and development project, the Company amortizes the acquired IPR&D over its estimated useful life. Capitalized IPR&D is reviewed annually for impairment or more frequently as changes in circumstance or the occurrence of events suggest that the remaining value may not be recoverable.

**Goodwill and Other Long-Lived Assets**

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed at the reporting unit level for impairment at least annually during the fourth quarter, or more frequently if events occur indicating the potential for impairment. During its goodwill impairment review, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company performs a quantitative goodwill impairment test. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative goodwill impairment test.

The Company evaluates its long-lived and intangible assets with definite lives, such as property and equipment, acquired technology, customer relationships, patent and license rights, for impairment by considering the expected use of the assets and the effects of obsolescence, demand, anticipated technological advances, market influences and other economic factors. The factors that drive the estimate of useful life are often uncertain and are reviewed on a periodic basis or when events occur that warrant review. Recoverability is measured by comparison of the assets' net book value to future net undiscounted cash flows that the assets are expected to generate.

**Commitments and Contingencie**s

The Company accrues for commitments and contingencies when, after considering the facts and circumstances of each matter as then known, has determined it is probable a liability will be found to have been incurred and the amount of the loss can be reasonably estimated. When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, the low end of the range is recorded. Legal fees are generally expensed as incurred. The consideration related to a gain contingency is recorded in the consolidated financial statements during the period in which all underlying events or contingencies are resolved and the gain is realized.

**Debt, Including Debt With Detachable Warrants**

------

Company considers whether there are any embedded features in debt instruments that require bifurcation and separate accounting as derivative financial instruments pursuant to Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging.

If the amount allocated to the convertible debt results in an effective per share conversion price less than the fair value of the Company's common stock on the commitment date, the intrinsic value of this beneficial conversion feature is recorded as a discount to the convertible debt with a corresponding increase to additional paid in capital. The beneficial conversion feature discount is equal to the difference between the effective conversion price and the fair value of the Company's common stock at the commitment date, unless limited by the remaining proceeds allocated to the debt.

The Company may enter financing arrangements, the terms of which involve significant assumptions and estimates, including future net product sales, in determining interest expense, amortization period of the debt discount, as well as the classification between current and long-term portions. In estimating future net product sales, the Company assesses prevailing market conditions using various external market data against the Company's anticipated sales and planned commercial activities. Consequently, the Company imputes interest on the carrying value of the debt and records interest expense using an imputed effective interest rate. The Company reassesses the expected payments each reporting period and accounts for any changes through an adjustment to the effective interest rate on a prospective basis, with a corresponding impact to the classification of the Company's current and long-term portions.

**Derivative Liabilities**

Derivative liabilities are recorded on the Company`s consolidated balance sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are settled or expire, with changes in the fair value between reporting periods recorded as other income or expense.

**Investments in Other Entities**

The Company holds a portfolio of investments in equity securities. Investments in entities over which the Company has significant influence, but not a controlling interest, are accounted for using the equity method, with the Company's share of earnings or losses reported in loss on equity method investments. The Company's investments in non-marketable securities are carried at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. The Company's investments in marketable equity securities are measured at fair value.

**Research and Development Costs**

The Company expenses the cost of research and development as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and preclinical materials as well as other contracted services, license fees and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with FASB ASC Topic 730, Research and Development.

**Income Taxes**

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

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

The Company has deferred tax assets, which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. As of December 31, 2022, the Company maintained a full valuation allowance against its deferred tax assets, with the exception of an amount equal to its deferred tax liabilities that are scheduled to reverse against the Company's deferred tax assets.

------

**Leases**

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use ("ROU") assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company`s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company calculates the associated lease liability and corresponding ROU asset upon lease commencement using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The operating lease ROU asset also includes any lease payments made and is reduced by lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

**Revenue Recognition**

The Company`s revenues are generated from product sales, the sale of customized reagents and other materials, contract manufacturing services, and other service revenues.

The following table shows revenue disaggregated by product and service type for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Scilex Pharmaceuticals Inc. product sales, net | $38033 | $28546 | $26331 |
| Sorrento Therapeutics, Inc. product revenues, net | 6963 | 189 | 297 |
| Net total product revenues | $44996 | $28735 | $26628 |
| Concortis Biosystems Corporation service revenues | 8719 | 15599 | 7730 |
| Bioserv Corporation service revenues | 2971 | 4672 | 4976 |
| Other service revenues | 6153 | 3898 | 652 |
| Total service revenues | $17843 | $24169 | $13358 |

---

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

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.

**Scilex Product Sales**

Revenues from Scilex product sales is fully comprised of sales of ZTlido. The Company's performance obligation with respect to sales of ZTlido is satisfied at a point in time, which transfers control upon delivery of product to the customer. The Company considers control to have transferred upon delivery because the customer has legal title to the asset, physical possession of the asset has been transferred to the customer, the customer has significant risks and rewards of ownership of the asset, and the Company has a present right to payment at that time. The Company identified a single performance obligation. Invoicing typically occurs upon shipment and the length of time between invoicing and when payment is due is not significant. The aggregate dollar value of unfulfilled orders as of December 31, 2022 was not material. Sales of ZTlido are generated within the United States.

Prior to April 2, 2022, sales to Scilex's sole distributor represented 100% of Scilex's net revenue. On April 2, 2022, Scilex announced the expansion of its direct distribution network to national and regional wholesalers and pharmacies. The distributor continued to provide traditional third-party logistics functions for Scilex. The Company had four customers during the year ended December 31, 2022, which individually generated 10% or more of the Company's total revenue. These customers accounted for 78% of the Company's revenue for the year ended December 31, 2022, individually ranging between 19% to 24%. As of December 31, 2022, these customers represented 82% of the Company's outstanding accounts receivable, individually ranging between 24% to 36%. The Company monitors the financial condition of its customers, limits its credit exposure by setting credit limits, and has not experienced any credit losses for the years ended December 31, 2022, 2021, and 2020.

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For product sales, Scilex records gross-to-net sales adjustments for government and managed care rebates, chargebacks, wholesaler and distributor fees, sales returns and prompt payment discounts. Such variable consideration is estimated in the period of the sale and is estimated using a most likely amount approach based primarily upon provisions included in the Company's customer contract, customary industry practices and current government regulations.

Rebates are discounts that the Company pays under either government or private health care programs. Government rebate programs include state Medicaid drug rebate programs, the Medicare coverage gap discount programs and the Tricare programs. Commercial rebate and fee programs relate to contractual agreements with commercial healthcare providers, under which the Company pays rebates and fees for access to and position on that provider's patient drug formulary. Rebates and chargebacks paid under government programs are generally mandated under law, whereas private rebates and fees are generally contractually negotiated with commercial healthcare providers. Both types of rebates vary over time. The Company records a reduction to gross product sales at the time the customer takes title to the product based on estimates of expected rebate claims. The Company monitors the sales trends and adjust for these rebates on a regular basis to reflect the most recent rebate experience and contractual obligations. Reserves for rebates and chargebacks are recorded as accrued rebates and fees under current liabilities within the Company's consolidated balance sheet.

The Company had $30.9 million and $7.4 million of accrued rebates and fees included in accrued expenses and liabilities on its consolidated balance sheets as of December 31, 2022 and 2021, respectively.

**Sorrento Product Revenues** 

Most of Sorrento product revenues are comprised of sales of COVISTIX™, the Company's lateral flow rapid diagnostic test for detection of the SARS-CoV-2 virus. The Company considers control to have transferred upon delivery where the customer has legal title to the asset, physical possession of the asset has been transferred to the customer, the customer has significant risks and rewards of ownership of the asset, and the Company has a present right to payment at that time. The Company identified a single performance obligation. During the year ended December 31, 2022, nearly all COVISTIX™ sales were generated in Mexico and sales returns were immaterial.

**Concortis Biosystems Corporation ("Concortis")**

Contract manufacturing revenue associated with sales of customized reagents related to delivering proprietary cytotoxins, linkers and linker-toxins is recognized at a point in time upon the transfer of control, which is generally upon shipment given the short contract terms of two months or less generally. Revenue associated with contract development and manufacturing of highly customized ADC services related to providing synthetic expertise to antibodies provided by customers is recognized over time as the service and related deliverables are highly customized and unique to each customer's needs, which does not have alternative use to the Company. The Company also has an enforceable right to the payment for the ADC services completed to date. In recognizing the revenue over time, the Company measures its progress using an input method based on the effort it expends toward the satisfaction of its performance obligations. The Company estimates the amount of effort it expends including the time it will take the Company to complete the activities relative to the estimated total effort to satisfy each performance obligation. This approach requires the Company to make estimates and use judgement. If the Company's estimates or judgements change over the course of the contract, they may affect the timing and amount of revenue that the Company recognizes in the current and future periods.

The estimated revenue expected to be recognized for future performance obligations associated with contract development and manufacturing services was approximately $0.7 million and $0.2 million as of December 2022 and 2021, respectively.

**Bioserv Corporation ("Bioserv")**

Contract manufacturing services associated with the Company's Bioserv operations related to finish and fill activities for drug products and reagents are recognized ratably over the contract term, which reflects the transfer of services to the customer because the manufactured products are highly customized and do not have an alternative use to the Company.

As of December 31, 2022, the estimated revenue expected to be recognized for future performance obligations associated with contract manufacturing services was immaterial compared to approximately $0.1 million as of December 31, 2021.

**Other Service Revenues**

If the license to the Company's intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If the license to the Company's

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intellectual property is bundled with other promises that are not distinct, the Company assesses the nature of the combined performance obligation to determine whether it is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company records a non-refundable, up-front license fee under current license agreements as deferred revenue upon receipt of the payment if it is determined not to be distinct from the ongoing performance obligation. License revenue is recognized over the term when the ongoing performance obligation is satisfied (see [<u>Note 7</u>](#n8_significant_agreements_contracts)).

As of December 31, 2022, future performance obligations for license revenues relate to the ImmuneOncia Therapeutics, Inc. ("ImmuneOncia") license agreement.

The total consideration for the ImmuneOncia license performance obligation, effective September 1, 2016, represented $9.6 million. The estimated revenue expected to be recognized for future performance obligations, as of December 31, 2022, was approximately $6.6 million. The Company expects to recognize license revenue of approximately $0.5 million of the remaining performance obligation annually through the remaining term. The Company applied judgment in estimating the 20-year contract term, analogous to the expected life of the patent, over which revenue is recognized over time given the ongoing performance obligation related to the Company's participation on a steering committee for the technologies under the agreement.

In November 2020, the Company was awarded a contract with the Defense Advanced Research Projects Agency ("DARPA Contract") and co-funded by the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense, to develop a rapid countermeasure to COVID-19 using gene-encoded neutralizing antibodies. The contract provided funding of up to $34.0 million for the development through Phase II clinical studies of a gene-encoded antibody that could enable rapid protection from and/or treatment of SARS-CoV-2 infection and COVID-19. The DARPA Contract was concluded and the cumulative funding received was $3.1 million as of December 31, 2022. The Company recognized $0.1 million, $2.8 million and $0.2 million in grant revenue associated with the DARPA Contract during the years ended December 31, 2022, 2021 and 2020, respectively, which is included within other service revenue. The SARS-CoV-2 antibody project remains a component of the Company's pipeline.

The Company recorded $1.8 million in other service revenues associated with Celularity Inc. ("Celularity") for the year ended December 31, 2022. The Company held an ownership interest of approximately 13.71% of Celularity on a non-diluted basis at December 31, 2022.

The Company recorded $3.0 million in other service revenues associated with ImmuneOncia for the year ended December 31, 2022. The Company held an ownership interest of approximately 32.0% of ImmuneOncia on a non-diluted basis at December 31, 2022.

**Stock-Based Compensation**

The Company estimates the fair value of stock option awards and its Employee Stock Purchase Plan ("ESPP") on the grant or offering date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. Stock-based compensation expense is recognized on a straight-line basis, net of actual forfeitures in the period. The Company estimated the CEO Performance Award (as defined in [<u>Note 10</u>](#n11_stock_incentive_plans)) on the grant date using Monte Carlo simulations. Key assumptions for estimating the performance-based awards fair value at the date of grant included, volatility of the Company's common stock price, post-vesting exercise behavior, and the derived service period. Recognition of stock-based compensation expense of all the tranches commenced on the date of grant, as the probability of meeting the ten market capitalization milestones is not considered in determining the timing of expense recognition. The expense will be recognized ratably over the expected vesting period of each respective tranche.

**Comprehensive Loss**

Comprehensive loss is primarily comprised of net income (loss) and foreign currency translation adjustments. The Company displays comprehensive loss and its components in its consolidated statements of comprehensive loss.

**Net Loss per Share**

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

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**Recent Accounting Pronouncements** 

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company is evaluating the impact the standard will have on its consolidated financial statements.

**2. Liquidity an** **d Going Concern**

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has negative working capital and recurring losses from operations, recurring negative cash flows from operations and substantial cumulative net losses to date. In addition, associated with the voluntary filing of Chapter 11 in February 2023 (see [<u>Note 1</u>](#n1_organization_significant_accounting_p) and [<u>Note 16</u>](#subsequent_events) for details), the Company plans to lower its operating budget and further reduce the scale of its operations. The Company expects to incur significant professional fees and other costs in connection with and throughout the Chapter 11 Cases. The Company expects to continue operations in the normal course for the duration of the Chapter 11 Cases. To ensure ordinary course operations, the Company obtained approval from the Bankruptcy Court for certain "first day" motions to continue its ordinary course operations after the filing date. The Company also received interim approval from the Bankruptcy Court for $75.0 million of financing from JMB Capital Partners Lending, LLC, which will provide it with immediate liquidity so that the Company can continue operating its business as usual during the Chapter 11 Cases and pay the costs and professional fees associated therewith. However, for the duration of the Chapter 11 Cases, the Company's operations and ability to develop and execute its business plan, its financial condition, liquidity and its continuation as a going concern are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is dependent upon factors that are outside of the Company's control, including actions of the Bankruptcy Court. The Company can give no assurances that it will be able to secure additional sources of funds to support its operations, or, if such funds are available to the Company, that such additional financing will be sufficient to meet its needs.

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. 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.

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**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):

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fair Value Measurements at December 31, 2022** | **Fair Value Measurements at December 31, 2022** | **Fair Value Measurements at December 31, 2022** | **Fair Value Measurements at December 31, 2022** |
|  | **Balance** | **Quoted<br>Prices in<br>Active<br>Markets<br>(Level 1)** | **Significant<br>Other<br>Observable<br>Inputs<br>(Level 2)** | **Significant<br>Unobservable<br>Inputs<br>(Level 3)** |
| Assets: |  |  |  |  |
| Marketable investments | $26344 | $26344 | $— | $— |
| Total assets | $26344 | $26344 | $— | $— |
| Liabilities: |  |  |  |  |
| Derivative liabilities - non-current | $300 | $— | $— | $300 |
| Current portion of contingent consideration | 397 |  |  | 397 |
| Contingent consideration - non-current | 48949 |  |  | 48949 |
| Total liabilities | $49646 | $— | $— | $49646 |

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fair Value Measurements at December 31, 2021** | **Fair Value Measurements at December 31, 2021** | **Fair Value Measurements at December 31, 2021** | **Fair Value Measurements at December 31, 2021** |
|  | **Balance** | **Quoted<br>Prices in<br>Active<br>Markets<br>(Level 1)** | **Significant<br>Other<br>Observable<br>Inputs<br>(Level 2)** | **Significant<br>Unobservable<br>Inputs<br>(Level 3)** |
| Assets: |  |  |  |  |
| Marketable investments | $90217 | $2560 | $— | $87657 |
| Total assets | $90217 | $2560 | $— | $87657 |
| Liabilities: |  |  |  |  |
| Derivative liabilities - non-current | $35700 | $— | $— | $35700 |
| Current portion of contingent consideration | 397 |  |  | 397 |
| Contingent consideration, non-current | 124349 |  |  | 124349 |
| Total liabilities | $160446 | $— | $— | $160446 |

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**Marketable Investment**s

As disclosed in [<u>Note 5</u>](#n6_investments), the Company holds 20,422,124 shares of Class A Common Stock of Celularity, of which 19,922,124 shares were subject to certain transfer restrictions as of December 31, 2021. The transfer restrictions lapsed on July 16, 2022. The shares held by the Company are measured at fair value at each reporting period based on the closing price of Celularity's common stock on the last trading day of each reporting period. Prior to July 16, 2022, the shares subject to transfer restrictions were adjusted for a discount for lack of marketability. As of July 16, 2022, the shares previously subject to transfer restrictions were transferred to Level 1 due to the use of the quoted market price to measure fair value.

Changes in fair value of the Company's investment in Celularity since December 31, 2021 are as follows (Level 3):

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| | |
|:---|:---|
| **(in thousands)** | **Fair Value** |
| Beginning Balance at December 31, 2021 | $87657 |
| Change in fair value measurement of Restricted Shares | (26098) |
| Transfer from Level 3 to Level 1 | (61559) |
| Ending Balance at December 31, 2022 | $— |

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**Contingent Consideration**

The Company recorded a gain of $75.4 million and a loss of $9.2 million during the years ended December 31, 2022 and 2021 respectively, which related to the change in fair value of the contingent consideration associated with its acquisition of ACEA

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Therapeutics, Inc. ("ACEA") (see [<u>Note 7</u>](#n8_significant_agreements_contracts) for details). The Company assesses the fair value of contingent consideration using a discounted cash flow method combined with a Monte Carlo simulation model. Significant Level 3 assumptions used in the measurement included revenue projections, estimated probabilities of successful commercialization and discount rates of 21.9% and 15.0% as of December 31, 2022 and 2021, respectively. There were no changes to the fair value of contingent consideration during the year ended December 31, 2020. As discussed in [<u>Note 16</u>](#subsequent_events), the Company commenced voluntary Chapter 11 proceedings on February 13, 2023, which will require reorganization. The Company does not believe it is a recognized subsequent event that impacts the assessment of the contingent consideration associated with ACEA acquisition as of December 31, 2022. The Company will assess its impact as of March 31, 2023.

The following table includes a summary of the changes to contingent consideration liabilities, during the years ended December 31, 2022 and 2021:

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| | |
|:---|:---|
| **(in thousands)** | **Fair Value** |
| Balance at December 31, 2020 | $947 |
| Change in fair value measurement | 9198 |
| Contingent consideration related to the acquisition of ACEA Therapeutics, Inc. | 114601 |
| Balance at December 31, 2021 | 124746 |
| Change in fair value measurement | (75400) |
| Balance at December 31, 2022 | $49346 |

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**Derivative Liabilities**

The Company recorded a gain on derivative liabilities of $7.3 million, a loss on derivative liabilities of $0.3 million and a gain on derivative liabilities of $6.6 million during the years ended December 31, 2022, 2021 and 2020, respectively, which primarily related to the derivative liability associated with the Scilex Notes (as defined in [<u>Note 8</u>](#n8_debt)). The fair value of the derivative liability was estimated using the discounted cash flow method combined with a Monte Carlo simulation model including consideration of the terms of the Indenture Amendment (as defined in [<u>Note 8</u>](#n8_debt)) and included a 6.1% risk adjusted net sales forecast and an effective debt yield of 21.5%. The Scilex Notes were fully extinguished in September 2022 (see [<u>Note 8</u>](#n8_debt) for additional details) and, as such, there were no remaining derivative liabilities associated with the Scilex Notes as of December 31, 2022.

The gain on derivative liabilities recorded in 2020 further related to the compound derivative liabilities associated with the Term Loans (as defined in [<u>Note 8</u>](#n8_debt)). The Term Loans were paid in full as of December 31, 2020 and the associated derivative liabilities were relieved. Significant Level 3 inputs and assumptions for derivative liabilities associated with the Term Loans included the estimated probabilities of satisfying certain commercial and financial milestones using a with and without discounted cash flow approach.

In connection with the Business Combination (as defined in [<u>Note 14</u>](#n15_segment_information)) in November 2022, Scilex assumed private placement warrants ("Private Warrants"), which are revalued at each subsequent balance sheet date, with fair value changes recognized in the consolidated statement of operations. The Company estimates the value of these warrants using a Black-Scholes option pricing formula. The Company recognized a gain on derivative liabilities related to Private Warrants of $2.0 million during the year ended December 31, 2022.

The following table includes a summary of the derivative liabilities measured at fair value using significant unobservable inputs (Level 3) during the years ended December 31, 2022 and 2021:

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| | |
|:---|:---|
| **(in thousands)** | **Fair Value** |
| Balance at December 31, 2020 | $35400 |
| Change in fair value measurement | 300 |
| Balance at December 31, 2021 | 35700 |
| Private Warrants | 620 |
| Change in fair value measurement | (36020) |
| Balance at December 31, 2022 | $300 |

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**4. Property and Equipment**

Property and equipment consisted of the following as of December 31, 2022 and 2021 (in thousands):

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| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| Furniture and fixtures | $1813 | $1709 |
| Office equipment | 3497 | 3525 |
| Capitalized software | 98 | 98 |
| Machinery and lab equipment | 63595 | 56076 |
| Leasehold improvements | 16158 | 15529 |
| Construction in progress | 18230 | 7878 |
|  | 103391 | 84815 |
| Less accumulated depreciation | (51420) | (43490) |
|  | $51971 | $41325 |

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Depreciation expense for the years ended December 31, 2022, 2021 and 2020 was $8.9 million, $8.3 million and $7.0 million, respectively.

**5. Investments**

The Company's investments include investments accounted for as equity method investments, equity investments without readily determinable fair value and equity investments with readily determinable fair value. As of December 31, 2022, the Company's equity method investments include an ownership interest in Immunotherapy NANTibody, LLC ("NANTibody"), NantCancerStemCell, LLC ("NantStem"), Zhengzhou Fortune Bioscience Co. ("ZFB"), Deverra Therapeutics, Inc. ("Deverra") and ImmuneOncia, among others. The Company's equity investments without readily determinable fair value include an ownership interest in NantBioScience, Inc. ("NantBioScience"), Aardvark Therapeutics, Inc. ("Aardvark") and Elsie Biotechnologies, Inc. ("Elsie"), among others. The Company's equity investments with readily determinable fair value include an ownership interest in Celularity.

The Company recorded impairment losses totaling $39.0 million associated with its investments during the year ended December 31, 2022, as further described below. The Company recorded no impairment losses associated with its investments during the year ended December 31, 2021. The Company recorded an impairment loss of approximately $3.8 million related to an equity method investment during the year ended December 31, 2020.

**Celularity** 

In July 2021, Celularity, a company of which the Company held an equity interest, commenced trading on the Nasdaq Capital Market under the ticker "CELU". As of December 31, 2022, the Company owned 20,422,124 shares of Class A common stock of Celularity. During the years ended December 31, 2022 and 2021, the Company did not sell any shares of its investment and recorded unrealized losses on marketable investments of $63.9 million and $39.8 million, respectively, in connection with the changes in fair value of its Celularity investment. The Company's investment in Celularity is included within marketable investments within its consolidated balance sheets.

Dr. Henry Ji, the Company's Chief Executive Officer and Chairperson, and Jaisim Shah, a member of the Company's Board of Directors, each served on the board of directors of Celularity from June 2017 until the closing of the merger of Celularity with GX Acquisition Corp. (the "Celularity Merger") in July 2021. Dr. Robin L. Smith, who served as a member of the Company's Board of Directors from December 2019 through November 15, 2021, served on the board of directors of Celularity from August 2019 until the closing of the Celularity Merger in July 2021 and has served on the board of directors of Celularity since the closing of the Celularity Merger in July 2021.

**ImmunityBio** 

In March 2021, NantKwest, Inc. and ImmunityBio completed a 100% stock-for-stock merger (the "ImmunityBio Merger"). The combined company operates under the name ImmunityBio, Inc. and its shares of common stock commenced trading on the Nasdaq Global Select Market under the ticker, "IBRX". Prior to the closing of the ImmunityBio Merger, the Company owned 10,000,000 shares of common stock of ImmunityBio, and received 8,190,000 shares of ImmunityBio common stock (Nasdaq: IBRX) post-merger. The Company sold 8,190,000 shares of ImmunityBio common stock during the year ended December 31, 2021 for net proceeds to the

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Company of $124.0 million. In connection with the disposal of its investment in ImmunityBio, the Company recorded a realized gain on marketable investments of $24.1 million during the year ended December 31, 2021. The Company had no remaining shares of ImmunityBio common stock as of December 31, 2021.

**Aardvark**

During the year ended December 31, 2021, the Company paid $10.0 million in cash for an aggregate of 7,777,864 shares of Series B Preferred Stock of Aardvark. The Company accounts for its investment in Aardvark as an equity investment without a readily determinable fair value and carries its investment in Aardvark at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. Tien Lee, MD, a member of the board of directors of Scilex, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of the Board of Directors of the Company, is a member of the advisory board of Aardvark. There were no observable price changes, and the Company recorded no impairment for its investment in Aardvark during the year ended December 31, 2022.

**Deverra**

During the year ended December 31, 2021, the Company paid approximately $10.2 million in consideration for an aggregate of 5,622,703 shares of common stock of Deverra, a development-stage, biotechnology company focused on developing cellular immunotherapy programs. The Company's payment consisted of (i) the cancellation of certain promissory notes issued by Deverra to the Company with an aggregate principal amount of $6.0 million and unpaid accrued interest of approximately $0.1 million and (ii) a cash payment of $4.1 million. The Company initially agreed to make additional investments in Deverra, but the Company and Deverra subsequently terminated the Company's obligation to make such additional investments. The Company determined that its investment in Deverra's common stock represented an equity method investment and that substantially all of the fair value of the underlying assets of Deverra related to a single IPR&D asset. The Company immediately expensed all costs associated with the investment and the total consideration paid was expensed as acquired in-process research and development during the year ended December 31, 2021. The Company has a variable interest in Deverra and Deverra is deemed to be a variable interest entity ("VIE"). In connection with the Company's purchase of Deverra common stock, Dr. Henry Ji, Ph.D., the Company's Chief Executive Officer and Chairperson, and Jaisim Shah, a member of the Company's Board of Directors, were appointed to the board of directors of Deverra. Despite their participation in the Board, the Company is not, however, the primary beneficiary of the VIE as it does not have the power to direct the activities of Deverra, although management determined it does have significant influence.

**Elsie**

During the year ended December 31, 2021, the Company paid $10.0 million in cash for 10,000,000 shares of Series A Preferred Stock of Elsie. The Company accounts for its investment in Elsie as an equity investment without a readily determinable fair value and carries its investment in Elsie at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. In connection with the Company's purchase of Elsie Series A Preferred Stock, Dr. Henry Ji was appointed to the board of directors of Elsie. During the year ended December 31, 2022, the Company recorded an impairment charge of $10.0 million related to its investment in Elsie.

**NANTibody**

The Company's investment in NANTibody was reported in equity method investments on its consolidated balance sheets and its share of NANTibody's income or loss was recorded in loss on equity method investments on its consolidated statement of operations. The Company's investment in NANTibody had a carrying value of zero as of each of December 31, 2022 and 2021 due to the Company's share of cumulative losses. The Company continues to hold 40% of the outstanding equity of NANTibody and NantCell holds the remaining 60%.

NANTibody recorded a net loss of $1.3 million, $0.7 million and $0.1 million for the twelve months ended September 30, 2022, 2021 and 2020, respectively. As of September 30, 2022, NANTibody had $2.4 million in current assets, $11.4 million in current liabilities, $0.1 million in noncurrent assets and no noncurrent liabilities. As of September 30, 2021, NANTibody had $2.4 million in current assets, $9.6 million in current liabilities, $0.1 million in noncurrent assets and no noncurrent liabilities.

The financial statements of NANTibody are not received sufficiently timely for the Company to record its portion of earnings or loss in the current financial statements and therefore the Company reports its portion of earnings or loss on a one quarter lag.

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**NantCancerStemCell ("NantStem")** 

The Company's investment in NantStem is reported in equity method investments on its consolidated balance sheets and its share of NantStem's net income or loss was recorded in loss on equity method investments on its consolidated statement of operations. The Company continues to hold 20% of the outstanding equity of NantStem and NantBio holds the remaining 80% as of December 31, 2022. During the fourth quarter of 2022, the Company determined that the carrying value of its investment in NantStem was negatively impacted by the arbitration decisions and subsequent litigation actions associated with NantCell, NANtibody and NantPharma, LLC (see [<u>Note 11</u>](#n12_commitments_contingencies) for details), and that it had incurred an impairment. As such, the Company recorded a loss of $19.0 million for impairment of the total carrying value of the investment in NantStem at December 31, 2022. The carrying value of the Company's investment in NantStem was approximately $18.5 million as of December 31, 2021.

NantStem recorded net income of $1.9 million and $0.1 million for the twelve months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, NantStem had $85.3 million in current assets, of which $71.2 million was a note receivable with related party Nant entities, no current liabilities, $0.1 million in noncurrent assets and no noncurrent liabilities. As of September 30, 2021, NantStem had $83.1 million in current assets, no current liabilities, $0.5 million in noncurrent assets and no noncurrent liabilities.

The financial statements of NantStem were 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.

**NantBio** 

The Company's investment in NantBio was reported in equity investments on its consolidated balance sheets. In April 2015, the Company purchased 1.0 million shares of NantBio common stock for $10.0 million. The Company continues to hold approximately 0.5% of the outstanding equity of NantBio as of December 31, 2022. During the fourth quarter of 2022, the Company determined that the carrying value of its investment in NantBio was negatively impacted by the arbitration decisions and subsequent litigation actions associated with NantCell, NANtibody and NantPharma, LLC (see [<u>Note 11</u>](#n12_commitments_contingencies) for details), and that it had incurred an impairment. As such, the Company recorded a loss of $10.0 million for its total carrying value of the investment in NantBio at December 31, 2022. The carrying value of the Company's investment in NantBio was approximately $10 million as of December 31, 2021.

**6. Goodwill and Intangible Assets**

Goodwill totaled $80.3 million as of December 31, 2022. Goodwill for the Sorrento Therapeutics segment and Scilex segment was $73.6 million and $6.7 million, respectively, as of December 31, 2022. The Sorrento Therapeutics segment had a negative carrying value as of December 31, 2022.

Goodwill and intangible assets are assessed annually for impairment on October 1 and more frequently whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that the full carrying amount of an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset exceeds its fair value. In June 2022, the Company decided to pause for future evaluation the development of Abivertinib, which was acquired from ACEA in 2021 (see <u>Note 7</u> for details), for the treatment of hospitalized COVID-19 patients. This event led to an assessment to determine if an impairment occurred for the associated IPR&D assets in the second quarter of 2022. Based on a quantitative analysis for impairment performed at June 30, 2022, the Company determined that approximately $90.8 million associated with the IPR&D assets, which are in the Sorrento Therapeutics segment, had been impaired and recorded an impairment charge within the loss on impairment of intangible assets in the consolidated statement of operations during the second quarter of 2022. The quantitative analysis is considered a Level 3 non-recurring fair value measurement and was based on the discounted cash flow method that estimates the present value of risk adjusted projected cash flow derived from the IPR&D assets using a discount rate of 16% at June 30, 2022.

During the fourth quarter of 2022, the Company discontinued the development of Abivertinib for the treatment of COVID-19, which resulted in additional impairment of $32.0 million associated with the remaining IPR&D asset balance at December 31, 2022. Additionally, the Company recorded an impairment loss of $1.4 million associated with other IPR&D intangible assets at December 31, 2022, as a result of revised timelines for commercialization.

The Company performed an evaluation of goodwill, including a qualitative analysis of the Company's reporting units at December 31, 2022, and it determined that it was not more likely than not that an impairment of goodwill existed at either of the reporting units at December 31, 2022.

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Amortization for the intangible assets that have finite useful lives is generally recorded on a straight-line basis over their useful lives. Intangible assets with indefinite useful lives totaling $94.2 million are included in acquired in-process research and development in the table below. A summary of the Company's identifiable intangible assets as of December 31, 2022 and 2021 is as follows (in thousands):

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| | | | | |
|:---|:---|:---|:---|:---|
|  |  | **December 31, 2022** | **December 31, 2022** | **December 31, 2022** |
|  | **Weighted<br>Average<br>Amortization<br>Period<br>(Years)** | **Gross<br>Carrying<br>Amount** | **Accumulated<br>Amortization** | **Intangibles,<br>net** |
| Customer relationships | 2 | $1585 | $1479 | $106 |
| Acquired technology | 19 | 3410 | 1588 | 1822 |
| Acquired in-process research and development |  | 94240 |  | 94240 |
| Technology placed in service | 15 | 21940 | 6216 | 15724 |
| Patent rights | 15 | 32720 | 13463 | 19257 |
| Assembled workforce | 5 | 605 | 465 | 140 |
| Internally developed software | 2 | 520 | 434 | 86 |
| Acquired licenses | 15 | 5711 | 184 | 5527 |
| &nbsp;&nbsp;&nbsp;Total intangible assets |  | $160731 | $23829 | $136902 |

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| | | | | |
|:---|:---|:---|:---|:---|
|  |  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Weighted<br>Average<br>Amortization<br>Period<br>(Years)** | **Gross<br>Carrying<br>Amount** | **Accumulated<br>Amortization** | **Intangibles,<br>net** |
| Customer relationships | 2 | $1585 | $1453 | $132 |
| Acquired technology | 19 | 3410 | 1412 | 1998 |
| Acquired in-process research and development |  | 218430 |  | 218430 |
| Technology placed in service | 15 | 21940 | 4754 | 17186 |
| Patent rights | 15 | 32720 | 11283 | 21437 |
| Assembled workforce | 5 | 605 | 343 | 262 |
| Internally developed software | 2 | 520 | 260 | 260 |
| &nbsp;&nbsp;&nbsp;Total intangible assets |  | $279210 | $19505 | $259705 |

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As of December 31, 2022, the remaining weighted average life for identifiable intangible assets subject to amortization is 13.7 years. Aggregate amortization expense for years ended December 31, 2022 and 2021 was $4.3 million and $4.1 million, respectively.

Estimated future amortization expense related to intangible assets, excluding indefinite-lived intangible assets, at December 31, 2022 is as follows (in thousands):

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| | |
|:---|:---|
| **Years Ending December 31,** | **Amount** |
| 2023 | $4416 |
| 2024 | 4239 |
| 2025 | 4214 |
| 2026 | 4214 |
| 2027 | 4187 |
| Thereafter | 21393 |
| &nbsp;&nbsp;&nbsp;Total | $42663 |

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**7. Significant Agreements and Contracts**

**Romeg License Agreement**

On June 14, 2022, the Company's majority-owned subsidiary, Scilex, entered into a license agreement (the "Romeg License Agreement") with RxOmeg Therapeutics, LLC (a/k/a Romeg Therapeutics, Inc.) ("Romeg"). Pursuant to the Romeg License Agreement, among other things, Romeg granted Scilex (a) a transferable license, with the right to sublicense, under the patents and know-how specified therein (with such license to know-how being exclusive for the limited purposes specified therein) to (i) commercialize the pharmaceutical product comprising liquid formulations of colchicine for the prophylactic treatment of gout in adult humans (the "Initial Licensed Product") in the United States of America (including its territories) (the "Territory"), (ii) develop other products comprising the Initial Licensed Product as an active pharmaceutical ingredient (the "Licensed Products") and commercialize any such products and (iii) manufacture Licensed Products anywhere in the world, solely for commercialization in the Territory; and (b) an exclusive, transferable license, with right to sublicense, to use the trademark GLOPERBA and logos, designs, translations, and modifications thereof in connection with the commercialization of the Initial Licensed Product solely in the Territory.

As consideration for the license under the Romeg License Agreement, Scilex paid Romeg an up-front license fee of $2.0 million, and has agreed to pay Romeg (a) upon Scilex's achievement of certain net sales milestones, certain milestone payments in the aggregate amount of up to $13.0 million, (b) certain royalties in the mid-single digit to low-double digit percentages based on annual net sales of the Licensed Product by Scilex during the applicable royalty term under the Romeg License Agreement, and (c) a minimum quarterly royalty payment commencing on the first year anniversary of the effective date of the Romeg License Agreement and ending on the later of (i) expiration of the last to expire of the licensed patents covering the Romeg Licensed Products in the Territory or (ii) the tenth anniversary of the effective date of the License Agreement.

The transaction was accounted for as an asset acquisition since the Initial Licensed Product was approved and made available in the United States in 2020 and substantially all the value of the gross assets was concentrated in a single asset, which is the Initial Licensed Product. In connection with the Romeg License Agreement, Scilex recorded an intangible asset for the acquired license of $5.7 million, which is comprised of the upfront license fee of $2.0 million and a deferred consideration of $3.7 million that is the present value of the future minimum royalty payments and immaterial transaction costs. The contingent sales milestones and sale volume-based future royalties were determined to meet a scope exception for derivatives under ASC Topic 815, Derivatives and Hedging, and not to be probable at either June 30 or December 31, 2022; therefore, they were not recognized as a liability or included in the fair value of the asset as of each of June 30 and December 31, 2022. The Company determined the useful life of the intangible asset to be 15 years, which approximates the life of the licensed patents covering the Initial Licensed Product.

**Zhengzhou Fortune Bioscience Co., Ltd.**

In May 2022, the Company completed an acquisition of 51% of the equity interests of Zhengzhou Fortune Bioscience Co., Ltd ("ZFB") for $5.0 million in cash under a joint venture agreement and equity subscription agreement, as amended (collectively, the "ZFB Agreements"). ZFB is a manufacturer in China of lateral flow diagnostic tests, including COVISTIX, the Company's COVID-19 virus rapid antigen detection test kit currently being sold in Mexico. Under the ZFB Agreements, the Company has the option to acquire from the minority equity holder the remaining 49% of the aggregate equity interests of ZFB for $50.0 million before December 31, 2022 (the "Subsequent Transaction"), which was extended to June 30, 2023 in the fourth quarter of 2022. If the Subsequent Transaction does not occur, the Company or ZFB may terminate the ZFB Agreements, and the Company's 51% of equity interest in ZFB will be redeemed by ZFB for $5.0 million. In September 2022, the Company entered an amendment (the "Amendment") to the ZFB Agreements, pursuant to which, among other things, the Company's equity interest in ZFB was reduced from 51% to 49% through a transfer of 2% of the Company's equity interest in ZFB to the other shareholder of ZFB for a payment of $0.2 million and the Company's representation on ZFB's board of directors was reduced from three out of five total directors to two out of five total directors. The transfer of the 2% of the equity interest of ZFB was completed, and the Company received $0.2 million from the other shareholder of ZFB in September 2022.

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In May 2022, the Company determined that it held a variable interest in ZFB at completion of the acquisition of 51% of the equity interest in ZFB, which is determined to be a variable interest entity ("VIE"). The Company further determined that it was the primary beneficiary of the VIE because the Company had control over ZFB through its control over ZFB's board of directors, had ownership of a majority of voting equity interests and had other sole decision-making rights under the ZFB Agreements to direct the most important activities of ZFB. The Company accounted for the transaction as a business combination and applied the acquisition method of accounting in May 2022. Upon execution of the Amendment and completion of the 2% equity interest transfer in September 2022, the Company determined that it is no longer the primary beneficiary of ZFB as a VIE because it lost control over ZFB. As a result of this assessment, the Company derecognized all of ZFB's assets and liabilities from the Company's consolidated financial statements in September 2022, recorded the Company's 49% retained equity interest at its fair value of $4.8 million, which approximates the net consideration paid to ZFB, at September 30, 2022 and recorded a gain from the deconsolidation of $0.3 million. Subsequent to the deconsolidation, the Company determined it has significant influence over ZFB's operating and financial policies and recorded its 49% equity interest as an equity method investment. At December 31, 2022, the Company recorded $3.0 million account payables to ZFB.

In February 2023, the Company entered into a repurchase agreement with ZFB, for the buyback of the Company's remaining 49% equity interest in ZFB for net proceeds of $1.8 million, consisting of $4.8 million offset by $3.0 million in accounts payable.

**Acquisition of Virex**

On February 1, 2022, the Company completed the acquisition of Virex Health, Inc. ("Virex"), a developer of at-home diagnostic platforms based in Boston, Massachusetts. In accordance with ASC Topic 805, the Company recorded consideration transferred totaling $11.4 million, including $6.8 million in cash, $0.1 million in transaction costs paid in cash and 1,281,662 shares of the Company's common stock, or $4.5 million of consideration based on the Company's closing share price on February 1, 2022. In connection with the acquisition of Virex, the Company may pay up to $10.0 million in contingent consideration in a combination of cash and stock subject to the achievement of certain regulatory milestones.

The transaction was accounted for as an asset acquisition since substantially all the value of the gross assets was concentrated in a single asset. No contingent consideration was recorded as of December 31, 2022. The Company fully expensed an amount of $11.7 million, representing the consideration transferred, net of short-term liabilities assumed, to acquired IPR&D.

**Acquisition of ACEA Therapeutics, Inc.**

On June 1, 2021 (the "Closing Date"), the Company completed the acquisition of ACEA pursuant to the terms of the Agreement and Plan of Merger (the "ACEA Merger Agreement"), dated as of April 2, 2021, whereby ACEA became a wholly owned subsidiary of the Company. With operations in both China and the United States, ACEA is developing multiple clinical and preclinical-stage new chemical entity compounds, including the late clinical drug candidate, Abivertinib.

The final purchase price allocation was calculated based on an upfront consideration of $44.1 million, which was based on the Company's closing share price on June 1, 2021, and resulted in separate and distinct intangible assets comprised of acquired IPR&D of $190.8 million, of which $122.8 million associated with Abivertinib for the treatment of COVID-19 was deemed impaired and written off during the year ended December 31, 2022 (see [<u>Note 6</u>](#n6_investments)for details), goodwill of $36.0 million, fair value of debt assumed of approximately $32.1 million, deferred tax liabilities of $31.4 million and other net assets of approximately $2.9 million.

Goodwill largely reflects the broad-spectrum and synergistic infrastructures and expertise in pharmaceutical and biological drug discovery, development and manufacturing, and expanded geographic coverage in China and North America and is not deductible for tax purposes. Acquisition costs related to the acquisition of ACEA were not material.

Pursuant to the terms of the ACEA Merger Agreement, a portion of the closing consideration equal to (i) $38,059,326 was used to repay certain existing indebtedness of ACEA, which amount was paid to the holders thereof in the form of shares of common stock of the Company and an aggregate of 5,519,469 shares ("Indebtedness Shares") of the Company's common stock were issued in respect thereof based on a price per share equal to $6.8955 (representing the volume weighted average closing price per share of the Company's common stock, as reported on The Nasdaq Stock Market LLC, for the 10 consecutive trading days ending on the date that was three trading days prior to the Closing Date) and (ii) $100,000 was set aside for expenses incurred by the shareholders' representative thereunder. The Indebtedness Shares were subject to a true-up, as set forth in the ACEA Merger Agreement, if the price at which such shares were issued is greater than the closing price of the Company's common stock on the date that is six months after June 1, 2021. The Company recorded $7.5 million associated with the true-up as a current liability within acquisition consideration at December 31, 2022.

In addition to the Closing Consideration, the Company will pay the ACEA equityholders (i) up to $450.0 million in additional payments, subject to the receipt of certain regulatory approvals and achievement of certain net sales targets with respect to the assets

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acquired from ACEA and (ii) five to ten percent of the annual net sales on specified royalty-bearing products (the "Earn-Out Consideration"). The fair value of the Earn-Out Consideration, excluding any acquisition consideration associated with the Indebtedness Shares, was $48.4 million and $123.8 million as of December 31, 2022 and 2021, respectively (see [<u>Note 3</u>](#n4_fair_value_measurements) for details). The amount referenced in clause (i) of the preceding sentence includes the amounts that would have otherwise been due to ACEA under that certain License Agreement, dated July 13, 2020, between the Company and ACEA, which agreement was terminated in its entirety upon completion of the acquisition of ACEA.

**Asset Purchase Agreement with Aardvark Therapeutics, Inc.** 

In April 2021, the Company entered into an asset purchase agreement (the "Aardvark Asset Purchase Agreement") with Aardvark to acquire Aardvark's Delayed Burst Release Low Dose Naltrexone (DBR-LDN), or ARD-301, asset and intellectual property rights, for the treatment of chronic pain, fibromyalgia and chronic post-COVID syndrome. As consideration for the purchase of the assets, the Company paid Aardvark an upfront license fee of $5.0 million comprised of 616,655 shares of the Company's common stock, and which was expensed as acquired in-process research and development during the year ended December 31, 2021. The Company also agreed to pay Aardvark (i) milestone payments upon the receipt of certain regulatory approvals and (ii) milestone payments upon the Company's achievement of certain commercial sales milestones. The Company will also pay certain royalties in the mid-single digit to low-double digit percentages of annual net sales by the Company. Tien Lee, MD, a member of the board of directors of Scilex, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of the board of directors of the Company, is a member of the advisory board of Aardvark. As discussed in [<u>Note 5</u>](#n6_investments), the Company holds an investment interest in Aardvark.

**Acquisition of SmartPharm Therapeutics, Inc.** 

On September 1, 2020, the Company completed the acquisition of 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 $19.5 million, which was comprised of approximately 1.8 million shares of the Company's common stock.

The purchase price allocation resulted in net identifiable assets of $19.5 million, which included separate and distinct indefinite lived intangible assets comprised of acquired in-process research and development of $13.9 million, goodwill of $5.3 million and other net assets of $0.3 million. Goodwill largely reflects the synergies expected to be achieved with SmartPharm's gene delivery platforms and the assembled workforce. Goodwill is not deductible for tax purposes.

**License Agreements**

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 certain related technical information ("Licensed Products") to develop, manufacture, commercialize, and exploit related products and services 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 an upfront license fee of $7.5 million, comprised of 851,305 shares of the Company's common stock, which was expensed as acquired in-process research and development during the year ended December 31, 2021. The Company also agreed to pay Mount Sinai (i) certain milestone payments upon the achievement of certain clinical trial and regulatory milestones, and (ii) certain royalties in the low-single digit to mid-single digit percentages of annual net sales of Licensed Products by the Company and a share of any sublicense revenue received by the Company from sublicensees.

License Agreement with ACEA Therapeutics, Inc.

In July 2020, the Company entered into a License Agreement (the "ACEA License Agreement") with ACEA Therapeutics, Inc. ("ACEA"). Pursuant to the ACEA License Agreement, ACEA granted the Company an exclusive license and right under certain patents and certain know-how and other intellectual property ("Licensed Know-How") to fully utilize, exploit and commercialize (i) the Licensed Know-How, (ii) Abivertinib (AC0010), a selective, orally available irreversible small molecule tyrosine kinase inhibitor to Bruton's tyrosine kinase and mutant epidermal growth factor receptor, including any improvements thereto, and (iii) (a) any composition, product or component part thereof, and (b) any and all services offered in connection or associated therewith, in all fields of use, including the diagnosis, treatment and/or cure of any human disease or disorder worldwide, other than the People's Republic of China.

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As consideration for the license under the ACEA License Agreement, the Company paid ACEA an up-front license fee of $15.0 million in cash, which was expensed as acquired in-process research and development during the year ended December 31, 2020.The Company also agreed to pay ACEA certain milestone payments under the ACEA License Agreement; however, upon completion of the acquisition of ACEA, the ACEA License Agreement was terminated in its entirety and no further payments will be due under the ACEA License Agreement.

License Agreement with The Trustees of Columbia University in the City of New York

In July 2020, the Company entered into an Exclusive License Agreement (the "Columbia License Agreement") with The Trustees of Columbia University in the City of New York ("Columbia"). Pursuant to the Columbia License Agreement, Columbia granted the Company (i) an exclusive license under certain patents, other intellectual property and materials to discover, develop, commercialize and exploit certain products and services ("Products") in all diagnostic applications of high-performance loop-mediated isothermal amplification ("HP-LAMP") for coronaviruses and influenza viruses (the "Field") worldwide, subject to certain limitations. Pursuant to the Columbia License Agreement, Columbia also granted to the Company an option, exercisable for twelve months from the effective date of the Columbia License Agreement and subject to the satisfaction of certain conditions, to acquire an exclusive worldwide license to such patents, other intellectual property and materials for additional diagnostic application(s) of HP-LAMP (other than for coronaviruses and influenza viruses), subject to certain limitations.

As consideration for the license under the Columbia License Agreement, the Company paid Columbia an up-front license fee of $5.0 million in cash, which was expensed as acquired in-process research and development during the year ended December 31, 2020. The Company also agreed to pay Columbia (i) an earned royalty on the net sales of Products in the Field worldwide, and (ii) minimum annual royalty payments of $1.0 million no later than ten days following the first bona fide commercial sale of a Product to a third-party customer and on an annual basis thereafter. In addition, the Company agreed to pay Columbia a percentage of certain non-royalty sublicense revenue and other payments received by the Company from its sublicensees as consideration for the grant of any sublicense, option or similar rights. Pursuant to the Columbia License Agreement, the Company also agreed to pay certain one-time, development milestone payments to Columbia upon the receipt of certain regulatory approvals or the first commercial sale of certain Products for diagnostic applications within the Field.

License Agreement with Mayo Foundation

In September 2020, the Company entered into a patent and know-how license agreement (the "Mayo License Agreement") with Mayo Foundation for Medical Education and Research ("Mayo"). Pursuant to the Mayo License Agreement, Mayo granted the Company a sublicensable license under certain of Mayo's patents, know-how, and materials relating to targeted nanoparticle therapies ("Patent Rights", "Know-How", and "Materials", respectively) to reproduce, use, commercialize, and exploit related products, processes and services ("Licensed Products") for the prevention, diagnosis and/or treatment of human diseases and conditions worldwide.

As consideration for the license under the Mayo License Agreement, the Company paid Mayo an upfront license fee of $9.3 million comprised of approximately $2.3 million in cash and 996,803 shares of the Company's common stock, which was expensed as acquired in-process research and development during the year ended December 31, 2020. The Company also agreed to (i) reimburse Mayo up to $3.4 million for preclinical and clinical research expenses associated with the Know-How, Patent Rights and Materials arising prior to the entry into the Mayo License Agreement, and (ii) reimburse Mayo approximately $2.0 million for expenses related to the development and manufacturing of the Materials arising prior to the entry into the Mayo License Agreement. Such reimbursements were paid and expensed as acquired in-process research and development during the year ended December 31, 2020.

The Company also agreed to pay Mayo (i) certain milestone payments upon the initiation of certain clinical trials, (ii) certain milestone payments upon the receipt of certain regulatory approvals, and (iii) certain milestone payments upon the achievement of certain commercial sales milestones. The Company will also pay certain royalties in the low-single digit to mid-single digit percentages of annual net sales of Licensed Products by the Company and a share of any sublicense revenue received by the Company from sublicensees.

License Agreement with Personalized Stem Cells, Inc.

In October 2020, the Company entered into a license agreement (the "PSC License Agreement") with Personalized Stem Cells, Inc. ("PSC"). Pursuant to the PSC License Agreement, PSC granted the Company an exclusive license and right under certain patents, certain know-how and other intellectual property to fully utilize, exploit and commercialize certain products and services using allogeneic adipose-derived stem cells for or in respect of human health, including the diagnosis and treatment and/or cure of any human disease or disorder (excluding commercial sales for the diagnosis, treatment and/or cure of SARS-CoV-2 or other respiratory diseases in the People's Republic of China) worldwide (excluding the People's Republic of China for products directed at COVID-19 or other respiratory diseases). PSC also agreed to transfer certain cell lines composed of stromal vascular cells, master cell banks and

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finished final drug lots (the "Product Materials") to the Company. The Company agreed to grant PSC rights to use data derived by the Company from a certain Phase I COVID-19 study for PSC's own programs that are not competitive with the businesses or activities of the Company, and for PSC to sublicense such data to third parties for research, development and regulatory purposes.

As consideration for the license under the PSC License Agreement, the Company paid PSC an upfront license fee of $3.5 million in cash, which was expensed as acquired in-process research and development during the year ended December 31, 2020. The Company also agreed to pay PSC (i) a milestone payment upon the issuance of a regulatory approval, and (ii) certain milestone payments upon PSC's manufacture and delivery of the Product Materials to the Company. The Company will also pay royalties in the low-single digit percentages of annual net sales of licensed products and services by the Company and a share of any sublicense revenue received by the Company from sublicensees.

License Agreement with NantCell

In April 2015, the Company and NantCell entered into a license agreement. Under the terms of the agreement, the Company granted an exclusive license to NantCell covering patent rights, know-how and materials related to certain antibodies, ADCs and two CAR-TNK products. NantCell agreed to pay a royalty not to exceed five percent (5%) to the Company on any net sales of products from the assets licensed by the Company to NantCell. In addition to the future royalties payable under this agreement, NantCell paid an upfront payment of $10.0 million to the Company and issued 10 million shares of NantCell common stock to the Company valued at $100.0 million based on an equity sale of NantCell common stock to a third party. The Company terminated the agreement, effective January 29, 2020. The termination and remedies related to such termination were litigated in an arbitration before the American Arbitration Association. The result of the arbitration held, among other things, that the Company has no further obligations under the license agreement with NantCell (see the information under the heading "Litigation" in [<u>Note 11</u>](#n12_commitments_contingencies) for additional information). The Company has no deferred revenue balance associated with this license agreement as of December 31, 2022. The upfront payment and the value of the equity interest received was recorded as deferred revenue at the time the agreement was entered into and continued to be recorded as deferred revenue as of December 31, 2021. On March 9, 2021, NantKwest, Inc. and ImmunityBio (formerly known as NantCell, Inc.) completed their previously announced 100% stock-for-stock merger (see [<u>Note 5</u>](#n6_investments)).

**8. Debt**

**Sorrento Therapeutics**

**2018 Purchase Agreements and Indenture for Scilex Pharma** 

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

Actual cumulative net sales of ZTlido from the issue date of the Scilex Notes through December 31, 2021 did not equal or exceed 95% of a predetermined target sales threshold for such period, which resulted in a $28.0 million increase in the principal amount of the Scilex Notes, effective February 15, 2022. As a result, the Company recorded the increase of $28.0 million in principal and non-operating expense at December 31, 2021.

Effective February 14, 2022, Scilex Pharma issued to the Company a draw notice under the irrevocable standby letter of credit issued by the Company to Scilex Pharma as required under the terms of the Indenture because actual cumulative net sales of ZTlido from the issue date of the Scilex Notes through December 31, 2021, were less than a specified sales threshold for such period. As a result of the draw notice being issued, the Company paid to Scilex Pharma $35.0 million in a single lump-sum amount as a subordinated loan. Per the terms of the Amendment, in February 2022, Scilex Pharma repurchased Scilex Notes from the holders thereof on a pro rata basis in an aggregate amount equal to $20.0 million at a purchase price in cash equal to 100% of the principal amount thereof.

On June 2, 2022, the Company and Scilex Pharma entered into a Consent Under and Amendment No. 4 to Indenture (the "Indenture Amendment") with U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association) and the Scilex Note Purchasers. Pursuant to the Indenture Amendment, (1) on June 3, 2022, Scilex Pharma repurchased approximately $41.4 million of the aggregate principal amount of the outstanding Scilex Notes at 100% of the principal amount thereof, (2) the Scilex Note Purchasers agreed that Scilex Pharma can repurchase the remaining principal amount of the Scilex Notes

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at any time on or before September 30, 2022 for $41.4 million (subject to reduction for any quarterly royalty payments) and upon such repurchase the Scilex Note Purchasers will forgive and discharge $28.0 million of the aggregate principal amount of the Scilex Notes (the "Early Paydown Provision"), (3) the minimum cash requirement under the Indenture was reduced to $5.0 million in aggregate unrestricted cash equivalents at the end of each calendar month, and (4) the maximum aggregate principal amount of that certain Intercompany Promissory Note issued by Scilex Pharma to the Company on October 5, 2018 was increased from up to $25.0 million to up to $50.0 million. The Company concluded that the Indenture Amendment was a troubled debt restructuring for accounting purposes. The future undiscounted cash flows of the Scilex Notes were higher than the carrying value of the Scilex Notes at the time of the entry into the Indenture Amendment, and accordingly, no gain was recognized in the quarter ended June 30, 2022. Due to a decrease of $30.4 million in the fair value of the Scilex Notes Derivative caused by the Indenture Amendment, the carrying value of the Scilex Notes was increased by $30.4 million, totaling $74.9 million at June 30, 2022.

In September 2022, Scilex Pharma exercised the Early Paydown Provision to fully extinguish the Scilex Notes. In August and September 2022, the Company made principal payments towards the outstanding Scilex Notes totaling $1.7 million and $39.7 million, respectively. Pursuant to the Indenture Amendment, $28.0 million of principal amount on the Scilex Notes was forgiven by the Scilex Note Purchasers and the Scilex Notes were fully extinguished in September 2022. The Company recorded a gain on debt extinguishment of $33.4 million during the three months ended September 30, 2022. There are no derivative liabilities associated with the Scilex Notes, as of December 31, 2022.

To estimate the fair value of the Scilex Notes, the Company used the discounted cash flow method under the income approach, which involved significant Level 3 inputs and assumptions, combined with a Monte Carlo simulation as appropriate. The value of the debt instrument was 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):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| Principal | $— | $133998 |
| Unamortized debt discount |  | (30601) |
| Unamortized debt issuance costs |  | (2235) |
| Carrying value | $— | $101162 |
| Estimated fair value | $— | $115400 |

---

The Company made principal payments of $106.0 million, $45.9 million and $69.8 million during the fiscal years ended December 31, 2022, 2021 and 2020, respectively. Debt discount and debt issuance costs, which are presented as a direct reduction of the Scilex Notes in the consolidated balance sheets, were amortized as interest expense using the effective interest method. The amount of debt discount and debt issuance costs included in interest expense for the fiscal years ended December 31, 2022, 2021 and 2020 was approximately $3.1 million, $7.9 million and $10.6 million, respectively. The Company recorded a gain on debt extinguishment of $28.6 million and a loss on debt extinguishment of $14.0 million in connection with its repayments of principal made during the years ended December 31, 2022 and 2021, respectively.

The Company identified a number of embedded derivatives that required bifurcation from the Scilex Notes and that were separately accounted for in the consolidated financial statements as derivative liabilities prior to the extinguishment. Certain of these embedded features included 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 involved 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 that satisfied certain valuation thresholds and timing considerations.

**Bridge Loan Agreements**

On September 30, 2022, the Company entered into a Bridge Loan Agreement (the "September Bridge Loan Agreement") pursuant to which the Company borrowed $41.6 million in the form of a bridge loan (the "September Bridge Loan"), which bore interest at 6% per annum and matured on January 31, 2023. The Company received proceeds of $41.2 million net of transaction fees of $0.4 million and paid approximately $1.3 million in advisory fees, which were recorded as a debt discount. As of December 31, 2022, $0.1 million unamortized debt discount remained. The amount of debt discount and debt issuance costs included in interest expense for the year ended December 31, 2022 was $0.9 million. The Company repaid $36.0 million of the September Bridge Loan during the fourth quarter of 2022 and repaid the remaining principal in January 2023. The Company recorded a loss on debt

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extinguishment of $0.7 million in connection with its repayments of principal made on the September Bridge Loan during the year ended December 31, 2022.

On February 16, 2022, the Company entered into a Bridge Loan Agreement pursuant to which the Company borrowed $45.0 million in the form of a bridge loan (the "February Bridge Loan"), which bore no interest and matured on June 16, 2022. The amount of debt discount and debt issuance costs included in interest expense for the year ended December 31, 2022 was $0.9 million. The Company fully repaid the February Bridge Loan in June 2022. The Company recorded a loss on debt extinguishment of $0.9 million in connection with its repayments of principal made on the February Bridge Loan during the year ended December 31, 2022.

**ACEA Significant Debt Arrangements**

At the closing of the transactions contemplated by the ACEA Merger Agreement and as a result thereof, on June 1, 2021, the Company, as the indirect parent to Hangzhou ACEA Pharmaceutical Research Co., Ltd. ("ACEA Hangzhou") and Zhejiang ACEA Pharmaceutical Co., Ltd. ("ACEA Zhejiang"), each of which are indirect subsidiaries of ACEA, succeeded to the financial obligations of ACEA Hangzhou and ACEA Zhejiang, each of whom are parties to agreements with ACEA Bio (Hangzhou) Co., Ltd. ("ACEA Bio") (an entity unrelated to ACEA, ACEA Hangzhou and ACEA Zhejiang), as set forth below.

Pursuant to that certain contract, dated as of August 15, 2018, between ACEA Hangzhou and ACEA Bio, ACEA Hangzhou borrowed an aggregate of approximately $29.1 million (184,600,000 RMB) from ACEA Bio in a series of loans thereunder (the "Contract"). Each loan under the Contract is for a period of 10 years and the maturity dates thereof range from December 31, 2024 to December 31, 2028. Each loan is interest free for the first five years, after which time the interest rate is 5.39% per annum. As part of the final purchase price allocation, the Company estimated the fair value of the Contract to be approximately $17.1 million.

Borrowings under significant debt arrangements assumed in connection with the Company's acquisition of ACEA consisted of the following (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,<br>2022** | **December 31,<br>2021** |
| Principal | $26718 | $29048 |
| Unamortized debt discount | (7878) | (10642) |
| Carrying value | $18840 | $18406 |
| Estimated fair value | $15000 | $17100 |

---

The following table provides a schedule of future repayments under the Contract (in thousands):

---

| | |
|:---|:---|
| 2023 | $— |
| 2024 | 984 |
| 2025 | 3257 |
| 2026 | 5630 |
| 2027 | 10566 |
| 2028 | 6281 |
| &nbsp;&nbsp;&nbsp;Total | $26718 |

---

**2018 Oaktree Term Loan Agreement**

In November 2018, the Company entered into a Term Loan Agreement (the "Loan Agreement") with certain funds and accounts managed by Oaktree Capital Management, L.P. (collectively, the "Lenders") and Oaktree Fund Administration, LLC, as administrative and collateral agent, for an initial term loan of $100.0 million (the "Initial Loan"). In May 2019, the Company entered into an amendment to the Loan Agreement, under which terms the Lenders agreed to make available to the Company $20.0 million (the "Early Conditional Loan", and collectively, with the Initial Loan, the "Term Loans"). In connection with the Loan Agreement, in November 2018, the Company issued to the Lenders warrants to purchase 6,288,985 shares of the Company's common stock (the "Initial Warrants"). The Initial Warrants have an exercise price per share of $3.28 and are exercisable through May 7, 2029.

During the year ended December 31, 2020, the Company repaid $120.0 million of outstanding principal under the Term Loans plus approximately $9.4 million of related prepayment premium, exit fees and accrued interest thereon. In connection with the repayment of outstanding principal, the Company recorded a loss on debt settlement of $51.9 million.

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Interest expense recognized for stated interest on the Term Loans totaled $3.0 million for the year ended December 31, 2020. Debt discount and debt issuance costs were amortized as interest expense using the effective interest method. The amount of debt discount and debt issuance costs included in interest expense on the Term Loans for the year ended December 31, 2020 was approximately $2.2 million.

**2020 Revolving Credit Facility**

On December 14, 2020, Scilex Pharma entered into the Credit and Security Agreement (the "Credit Agreement") with CNH Finance Fund I, L.P. ("CNH") which provided Scilex Pharma with the ability to incur indebtedness under an accounts receivable revolving loan facility in an aggregate amount of up to $10.0 million and the incurrence of liens and the pledge of collateral to CNH in connection with the revolving loan facility. As of December 31, 2021, the outstanding balance was $8.8 million. On February 16, 2022, the Company notified CNH that it was terminating the Credit Agreement, effective March 18, 2022. The balance of the indebtedness, including principal, interest, fees and charges, was settled by the Company on the termination date.

**9. Stockholders' Equity**

**Sorrento Therapeutics**

At-the-Market Sales Agreement

On April 27, 2020, the Company entered into a Sales Agreement (the "Sales Agreement") with A.G.P./Alliance Global Partners, as sales agent (the "Agent"), pursuant to which the Company could offer and sell through or to the Agent up to $250.0 million in shares of its common stock (the "Shares"). On December 4, 2020, the Company entered into Amendment No. 1 (the "December 2020 Amendment") to the Sales Agreement, which amended the Sales Agreement to provide that the Company could offer and sell, from time to time, through or to the Agent, up to an additional $450.0 million in shares of the Company's common stock, such that the Company could offer and sell up to an aggregate of $700.0 million in shares of its common stock pursuant to the Sales Agreement, as amended by the December 2020 Amendment (the "Original Amended Sales Agreement").

On December 3, 2021, the Company amended and restated the Original Amended Sales Agreement to include Cantor Fitzgerald & Co., B. Riley Securities, Inc. and H.C. Wainwright & Co., LLC as additional sales agents for the Company's "at the market offering" program (the "Amended and Restated Sales Agreement").

On December 23, 2021, the Company entered into Amendment No. 1 (the "December 2021 Amendment") to the Amended and Restated Sales Agreement with Cantor Fitzgerald & Co., B. Riley Securities, Inc. and H.C. Wainwright & Co., LLC (the "Sales Agents"). The December 2021 Amendment amended the Amended and Restated Sales Agreement to provide that the Company may offer and sell, from time to time, through or to the Sales Agents, as sales agents and/or principals, up to an additional $5,000,000,000 in shares of the Company's common stock (the "Additional Shares"), such that the Company may offer and sell up to an aggregate of $5,442,943,290 in shares of its common stock (the "Offering") pursuant to the Amended and Restated Sales Agreement, as amended by the December 2021 Amendment (the "Amended Sales Agreement"), but not above 3.0% inclusive of $442,943,290 in shares sold pursuant to the Original Amended Sales Agreement and the Amended and Restated Sales Agreement through December 22, 2021.

Subject to the terms and conditions of the Amended Sales Agreement, each Sales Agent will use its commercially reasonable efforts to sell the shares of the Company's common stock from time to time, based upon the Company's instructions. Under the Amended Sales Agreement, the Sales Agents may sell the shares of the Company's common stock by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the "Securities Act").

The Company has no obligation to sell any shares of its common stock pursuant to the Amended Sales Agreement, and may at any time suspend offers under it. The Offering will terminate upon (i) the election of the Sales Agents upon the occurrence of certain adverse events, (ii) three business days' advance notice from the Company to the Sales Agents or a Sales Agent (with respect to itself) to the Company, or (iii) the sale of all $5,442,943,290 of shares of the Company's common stock pursuant thereto.

Under the terms of the Amended Sales Agreement, the Sales Agents will be entitled to a commission at an initial fixed rate of 3.0% of the gross proceeds from each sale of shares of the Company's common stock under the Amended Sales Agreement, which percentage may be adjusted (but not above 3.0%) based on the aggregate amount of securities sold by the Sales Agents pursuant to the Amended Sales Agreement. As discussed in [<u>Note 16</u>](#subsequent_events), on February 13, 2023, the Debtors commenced voluntary proceedings under Chapter 11. Sales of shares of the Company's common stock under the Amended Sales Agreement are subject to the pre-approval by the Bankruptcy Court during the pendency of the Chapter 11 Cases.

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During the years ended December 31, 2022, 2021 and 2020, the Company sold an aggregate of 205,374,865, 21,085,014 and 30,991,918 shares of its common stock, respectively, pursuant to the Original Amended Sales Agreement and the Amended and Restated Sales Agreement for aggregate net proceeds to the Company of approximately $402.3 million, $175.6 million and $227.7 million, respectively.

Common Stock Purchase Agreement

In April 2020, the Company entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with Arnaki Ltd. (the "Purchaser"), pursuant to which the Purchaser was committed to purchase up to an aggregate of $250.0 million of shares of the Company's common stock over the 36-month term of the Purchase Agreement. During the year ended December 31, 2020, the Company sold an aggregate of 1,423,077 shares of its common stock pursuant to the Purchase Agreement for aggregate net proceeds of $8.0 million. Effective October 27, 2020, the Company voluntarily terminated the Purchase Agreement. The Purchase Agreement was terminable at will by the Company with no penalty.

Aspire Transaction

In February 2020, the Company entered into a Common Stock Purchase Agreement (the "Aspire Purchase Agreement") with Aspire Capital Fund, LLC ("Aspire Capital"), pursuant to which Aspire Capital was committed to purchase up to an aggregate of $75.0 million of shares of the Company's common stock over a 24-month term. Upon execution of the Aspire Purchase Agreement, the Company issued to Aspire Capital 897,308 shares of the Company's common stock as a commitment fee. The Company used and is using proceeds it received under the Aspire Purchase Agreement for working capital and general corporate purposes and for the repayment of the Term Loans. On April 24, 2020, the Aspire Purchase Agreement terminated effective immediately in accordance with its terms as the Company issued and sold, as of such date, an aggregate of 33,825,010 shares of the Company's common stock for the full $75.0 million of shares available for issuance thereunder.

Equity Distribution Agreement

In April 2020, the Company voluntarily terminated the Equity Distribution Agreement, dated October 1, 2019 (the "Distribution Agreement"), that the Company entered into with JMP Securities LLC ("JMP Sales Agent"), effective immediately. Pursuant to the Distribution Agreement, the Company could offer and sell, from time to time, through the JMP Sales Agent, shares of the Company's common stock having an aggregate offering price of up to $75,000,000. During the term of the Distribution Agreement, the Company sold an aggregate of 2,120,149 shares of its common stock thereunder for aggregate gross proceeds to the Company of approximately $7.4 million. The Distribution Agreement was terminable at will by the Company with no penalty.

**Scilex Holding Company**

Dividend

On December 30, 2022, the Company's Board of Directors (the "Board") declared a stock dividend (the "Dividend") consisting of an aggregate of 76,000,000 shares (the "Dividend Stock") of common stock, par value $0.0001 per share, of Scilex ("Scilex Common Stock") held by the Company to record holders of (i) the Company's common stock (such stock, the "Company Common Stock" and such record holders, the "Record Common Holders") as of the close of business on January 9, 2023 (the "Record Date") and (ii) certain warrants to purchase Company Common Stock that, among other things, had not been exercised prior to the ex-dividend date under the rules of The Nasdaq Stock Market LLC (and which had or may have the right to participate in the Dividend pursuant to the terms of their respective warrants).

On January 5, 2023, the Board fixed the date on which the Dividend would be paid to be January 19, 2023 (the "Payment Date"), such Payment Date being within 60 days following the Record Date.

On January 19, 2023, the Dividend was paid. No fractional shares were issued in connection with the Dividend and the equityholders of the Company who otherwise were entitled to receive fractional shares of the Dividend Stock received cash (without interest or deduction) in lieu of such fractional shares in an amount equal to the product obtained by multiplying (a) $5.87, the closing price of the Scilex Common Stock on the Nasdaq Capital Market on the Record Date, by (b) the fraction of one share of Scilex Common Stock that such equityholder would have otherwise been entitled to receive as a Dividend in respect of shares of Company Common Stock held by such equityholder (after aggregating all such fractional shares otherwise issuable to such equityholder in connection with the Dividend). The Dividend Stock is subject to certain transfer restrictions through May 11, 2023. Following the payment of the Dividend, as of March 6, 2023 the Company's ownership interest in Scilex is 42.5%.

Yorkville Standby Equity Purchase Agreement

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On November 17, 2022, Scilex entered into a Standby Equity Purchase Agreement (the "Yorkville Purchase Agreement") with YA II PN, Ltd. ("Yorkville"), whereby Scilex has the right, but not the obligation, to sell to Yorkville up to $500.0 million of shares of its common stock from time to time at Scilex's sole and absolute discretion any time during the 36 months following the execution of the Yorkville Purchase Agreement, subject to certain conditions. As consideration for Yorkville's commitment to purchase shares of Common Stock at Scilex's direction upon the terms and subject to the conditions set forth in the Yorkville Purchase Agreement, upon execution of the Yorkville Purchase Agreement, Scilex issued 250,000 shares of its common stock to Yorkville and paid a $10,000 structuring fee. On February 8, 2023, Scilex entered into an Amended and Restated Standby Equity Purchase Agreement with Yorkville (the "A&R Yorkville Purchase Agreement"), amending, restating and superseding the Yorkville Purchase Agreement dated November 17, 2022. Pursuant to the A&R Yorkville Purchase Agreement, the shares of common stock, if any, that Scilex elects to sell to Yorkville pursuant to a Yorkville Advance will be purchased at a price equal to 98% of the lowest daily volume weighted average price of the Scilex common stock for any trading day on the date of delivery of a written purchase notice to Yorkville.

B. Riley Standby Equity Purchase Agreement

On January 8, 2023, Scilex entered into a Standby Equity Purchase Agreement (the "B. Riley Purchase Agreement") with B. Riley Principal Capital II, LLC ("B. Riley"), whereby Scilex shall have the right, but not the obligation, to sell to B. Riley up to $500.0 million of its shares of Scilex's common stock from time to time at Scilex's sole and absolute discretion any time during the 36 months following the execution of the B. Riley Purchase Agreement, subject to certain conditions.

As consideration for B. Riley's commitment to purchase shares of common stock at Scilex's direction upon the terms and subject to the conditions set forth in the B. Riley Purchase Agreement, upon execution of the B. Riley Purchase Agreement, Scilex issued 250,000 shares of its common stock to B. Riley and paid a $10,000 structuring fee.

**10. Stock Incentive and Employee Benefit Plans**

**2019 Stock Incentive Plan**

In September 2019, the Company's stockholders approved the Sorrento Therapeutics, Inc. 2019 Stock Incentive Plan (the "2019 Plan"). The 2019 Plan replaced and superseded the Company's Amended and Restated 2009 Stock Incentive Plan (the "2009 Plan") and no further awards will be granted under the 2009 Plan. The 2019 Plan provides for the grant of incentive stock options, non-incentive stock options, stock appreciation rights, restricted stock awards, unrestricted stock awards, restricted stock unit awards and performance awards to eligible recipients. Recipients of stock options shall be eligible to purchase shares of the Company's common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the Stock Plan is ten years. Employee option grants generally vest 25% on the first anniversary of the original vesting commencement date, with the balance vesting monthly over the remaining three years.

The following table summarizes stock option activity as of December 31, 2022 under the 2019 Plan and the 2009 Plan, and the changes for the period then ended (dollar values in thousands, other than weighted-average exercise price):

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| | | | |
|:---|:---|:---|:---|
|  | **Options Outstanding** | **Weighted-<br>Average<br>Exercise Price** | **Aggregate<br>Intrinsic Value** |
| Outstanding at December 31, 2021 | 22515513 | $6.19 |  |
| &nbsp;&nbsp;&nbsp;Options Granted | 550000 | 1.61 |  |
| &nbsp;&nbsp;&nbsp;Options Canceled | (2179421) | 6.41 |  |
| &nbsp;&nbsp;&nbsp;Options Exercised | (24332) | 2.32 |  |
| Outstanding at December 31, 2022 | 20861760 | $6.05 | $— |
| Vested and Expected to Vest at December 31, 2022 | 20861760 | $6.05 | $— |

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The aggregate intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $0.0 million, $5.2 million and $4.1 million, respectively. The fair value of employee stock options was estimated at the grant date using the following assumptions:

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---

| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Weighted-average grant date fair value | $1.33 | $7.49 | $4.54 |
| Dividend yield |  |  |  |
| Volatility | 110% | 110% | 105% |
| Risk-free interest rate | 2.90% | 0.96% | 0.46% |
| Expected life of options (years) | 5.7 | 5.7 | 5.7 |

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The assumed dividend yield was based on the Company's expectation of not paying dividends on its common stock in the foreseeable future. The expected volatility is based on the historical volatility of the Company's stock. The risk-free interest rate is based on the U.S. Treasury yield curve over the expected term of the option. The weighted average expected life of options was estimated using the average of the contractual term and the weighted average vesting term of the options.

Under the 2019 Plan and the Company's prior equity award and option plans, total stock-based compensation recorded as operating expense was $27.9 million, $29.7 million and $15.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. The total unrecognized compensation cost related to unvested employee and director stock option grants and restricted stock units ("RSUs") as of December 31, 2022 was $61.0 million and the weighted average period over which these grants are expected to vest is 2.1 years.

The following table summarizes RSU activity as of December 31, 2022 under the 2019 Plan and the changes for the period then ended:

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| | | |
|:---|:---|:---|
|  | **Number of Shares** | **Weighted-<br>Average<br>Grant Date Fair Value Per Share** |
| Outstanding at December 31, 2021 | 3433896 | $9.50 |
| &nbsp;&nbsp;&nbsp;RSUs Granted | 6355500 | 1.79 |
| &nbsp;&nbsp;&nbsp;RSUs Released | (768531) | 9.53 |
| &nbsp;&nbsp;&nbsp;RSUs Cancelled | (736367) | 7.82 |
| Outstanding at December 31, 2022 | 8284498 | $3.73 |

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**Scilex Plan**

The Board of Directors of Scilex adopted the Scilex Holding Company 2022 Equity Incentive Plan (the "Scilex Plan") on October 17, 2022. The Scilex Plan was approved by Scilex's stockholders and became effective on November 9, 2022. Upon the consummation of the Business Combination, the Scilex Holding Company 2019 Stock Option Plan (the "Prior Plan") was terminated and no further awards were granted under the Prior Plan thereafter. However, the Prior Plan will continue to govern outstanding awards granted under the terms of the Scilex Plan.

For Scilex, total stock-based compensation recorded as operating expenses was $5.3 million, $5.8 million and $5.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. The total unrecognized compensation cost related to unvested employee and director stock option grants as of December 31, 2022, was $2.7 million and the weighted average period over which these grants are expected to vest is 1.4 years.

As of December 31, 2022, options to purchase 25,151,428 shares of the common stock of Scilex were outstanding and 16,939,436 shares were reserved for awards available for future issuance under the Scilex Plan.

**Employee Stock Purchase Plan** 

On October 16, 2020 at the Company's 2020 Annual Meeting of Stockholders (the "Annual Meeting"), the Company's stockholders approved the Company's 2020 Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP, the Company's employees can elect to have up to 15% of their annual compensation, up to a maximum of $25,000 per year, withheld to purchase shares of the Company's common stock for a purchase price equal to 85% of the lesser of the fair market value per share (at closing) of the Company's common stock on (i) the commencement date of the six-month offering period, or (ii) the respective purchase date. The initial offering period commenced on November 6, 2020 and ended on May 5, 2021, with subsequent offering periods commencing on May 6<sup>th</sup> of each year and ending on November 5<sup>th</sup> of the following year. Total stock-based compensation recorded as operating expense for the ESPP was $0.2 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively.

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**CEO Performance Award**

On August 7, 2020, the Compensation Committee of the Company`s Board of Directors (the "Compensation Committee") approved a grant to Henry Ji, Ph.D., the Company's Chairman of the Board, Chief Executive Officer and President, of a 10-year CEO performance award tied solely to achieving market capitalization milestones (the "CEO Performance Award"), subject to the approval of the Company's stockholders at the Annual Meeting. The CEO Performance Award consists of a 10-year option to purchase an aggregate of 24,935,882 shares of the Company's common stock, which was equal to 10% of the Company's outstanding shares of common stock on the day prior to the date of grant, and vests in ten tranches. Each of the ten tranches vests only if a market capitalization milestone is achieved, which requires two market capitalization prongs to be met to achieve each milestone: (1) a six calendar month trailing average (based on trading days); and (2) a 30 calendar day trailing average (based on trading days). To meet the first market capitalization milestone, the Company's current market capitalization must increase to $5.0 billion. For the next two milestones, the Company's market capitalization must continue to increase in additional $2.0 billion increments. For the three milestones thereafter, the Company's market capitalization must increase in additional $3.0 billion increments. For the next three milestones thereafter, the Company's market capitalization must increase in additional $4.0 billion increments. For the final milestone, the Company's market capitalization must increase by an additional $5.0 billion. Thus, for Dr. Ji to fully vest in the award, the Company's market capitalization must increase to $35.0 billion. The exercise price per share subject to the CEO Performance Award is $17.30, which is a 20% premium to the closing sales price of the Company's common stock on August 7, 2020, the date the CEO Performance Award was approved by the Compensation Committee. The CEO Performance Award was approved by the Company`s stockholders at the Annual Meeting held on October 16, 2020, which represents the date of grant for accounting purposes.

Recognition of stock-based compensation expense of all the tranches commenced on the date of grant, as the probability of meeting the ten market capitalization milestones is not considered in determining the timing of expense recognition. The expense will be recognized ratably over the expected vesting period of each respective tranche. If the related market capitalization milestone is achieved earlier than its expected achievement period, then the stock-based compensation expense for that vesting tranche will be accelerated and recorded in the period in which the associated milestone is achieved. The market capitalization requirement is considered a market condition under FASB ASC Topic 718 Compensation – Stock Compensation and is estimated on the grant date using Monte Carlo simulations. Key assumptions for estimating the performance-based awards fair value at the date of grant included, volatility of the Company's common stock price, post-vesting exercise behavior, and the derived service period.

Total stock-based compensation recorded as operating expense for the CEO Performance Award was $41.6 million and $51.8 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, the Company had approximately $46.1 million of total unrecognized stock-based compensation expense remaining under the CEO Performance Award if all market capitalization milestones are achieved. The assumptions used in determining this valuation included an expected volatility of 91.0%, a dividend yield of zero, a risk-free interest rate of 0.75%, and an expected remaining term of 9.8 years. As of December 31, 2022, the expected remaining term is 7.8 years.

**Common Stock Reserved for Future Issuance** 

As of December 31, 2022, approximately 74.8 million shares of common stock were reserved for future issuance, comprised of 16.0 million shares for common stock warrants, 24.9 million for the CEO Performance Award, 6.4 million reserved for future issuance under the ESPP plan and approximately 8.3 million shares under stock incentive plans. As of December 31, 2022, approximately 39.2 million shares of common stock remained available for grant under the 2019 Plan.

**Employee Benefit Plan**

The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company made matching contributions to the 401(k) plan totaling $2.2 million, $1.7 million and $1.4 million, for the years ended December 31, 2022, 2021 and 2020, respectively.

**11. Commitments a** **nd 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.

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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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•An arbitration demand with the American Arbitration Association in Los Angeles, California, against NantPharma, LLC ("NantPharma"), and Chief Executive Officer Patrick Soon-Shiong, related to alleged fraud and breaches of the Stock Sale and Purchase Agreement, dated May 14, 2015, entered into between NantPharma and the Company, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 7, 2015. On May 24, 2019, NantCell, Inc., Dr. Soon-Shiong and Immunotherapy NANTibody LLC ("NANTibody") General Counsel Charles Kim filed a motion in the Los Angeles Superior Court (the "Court") to stay or dismiss the Company's arbitration demand. On October 9, 2019, the Court denied the motion to stay or dismiss the arbitration demand, and the arbitration continued against NantPharma (the "NantPharma Arbitration"). On March 5, 2020, the Company filed a legal action against Dr. Soon-Shiong in the Court, asserting claims for fraudulent inducement and common law fraud, arising out of Dr. Soon-Shiong's purchase of the drug Cynviloq™ from the Company in May 2015. The action alleges that, among other things, Dr. Soon-Shiong acquired the drug Cynviloq™ for the purpose of halting its progression to the market. In connection with filing this civil action in the Court, where the Company will have the right to a jury trial against Dr. Soon-Shiong, the Company dismissed Dr. Soon-Shiong from the NantPharma Arbitration; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•An action in the 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 and NANTibody is void and an equitable unwinding of the Assignment Agreement. The suit calls for the restoration of $90.05 million to the NANTibody capital account, thereby restoring the Company's equity method investment in NANTibody to its invested amount as of June 30, 2017 of $40.0 million. On May 24, 2019, NantCell, Inc. and Dr. Soon-Shiong filed a cross-complaint against the Company and Dr. Henry Ji, seeking unspecified damages, as well as additional punitive damages and specific performance, related to alleged fraud, alleged breaches of the Exclusive License Agreement for certain antibodies (dated June 11, 2015 and entered into between NANTibody, LLC and the Company), and alleged tortious interference with contract. On May 24, 2019, NANTibody and NantPharma filed a new complaint in the action against the Company and Dr. Henry Ji, seeking unspecified damages, as well as additional punitive damages and specific performance, related to alleged fraud, alleged breaches of the Stock Sale and Purchase Agreement, alleged breaches of the Exclusive License Agreement for certain antibodies (dated April 21, 2015 and entered into between NantCell, Inc. and the Company), and alleged tortious interference with contract. On July 8, 2019, the Company and Dr. Henry Ji filed motions to compel the cross-complaint and new action to arbitration. On October 9, 2019, the Court granted the motions to compel to arbitration all of the claims brought by NANTibody, NantCell, Inc. and NantPharma, and denied the motions to compel as to the claims brought by Dr. Soon-Shiong. Subsequently, NANTibody, NantCell, Inc., and NantPharma have re-filed their claims in arbitration with the American Arbitration Association (the "NantCell/NANTibody Arbitration"). On May 4, 2020, the Company filed counterclaims against NANTibody and NantCell related to breaches of the April 21, 2015 and June 11, 2015 Exclusive License Agreements. The claims against Dr. Soon-Shiong have been stayed pending resolution of the claims filed in arbitration. The original derivative action is no longer stayed, and the parties are currently engaged in discovery in the suit.

On December 20, 2022, the arbitrator in the NantPharma Arbitration issued an award (the "Cynviloq Award") granting contractual damages of $125.0 million to the Company, reflecting the value of lost milestone payments for the approval of Cynviloq for the treatment of breast and lung cancers. The Company will pursue confirmation and enforcement of this award in the Court. The Company filed a petition to confirm the award with the Los Angeles Superior Court on February 2, 2023. NantPharma filed an opposition motion to vacate the award on February 13, 2023. The Court will hold a hearing on the petition to confirm and opposition to vacate on March 16, 2023. These contractual damages represent a gain contingency as of December 31, 2022, and, therefore, were not recorded by the Company in the consolidated statement of operations for the year ended December 31, 2022.

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On December 2, 2022, the arbitrator in the NantCell/NANTibody Arbitration issued an award (the "Antibody Award") granting contractual damages and pre-award interest in the amounts of $156,829,562 to NantCell and $16,681,521 to NANTibody, exclusive of post-award, prejudgment interest, which will accrue at 9% per annum. The award also held that Sorrento has no further obligations under the Exclusive License Agreement with NANTibody. The Exclusive License Agreement with NantCell remains in effect only with respect to one anti-PD-L1 antibody that previously was delivered by Sorrento to NantCell. Sorrento has no further obligation to contribute any materials or know-how to NantCell with respect to that antibody but will receive potential future royalties on future net sales. The Company continues to hold 40% of the outstanding equity of NANTibody. The award does not resolve the additional, legal proceedings brought by Sorrento against Patrick Soon-Shiong and entities controlled by him, which remain pending. On December 21, 2022, NantCell and NANTibody filed in the Los Angeles Superior Court a petition to confirm the NantCell/NANTibody Arbitration award. On January 16, 2023, the Company filed in the Court a petition to vacate the award. On February 7, 2023, the Court granted the Nant Entities' petition, entered judgement upon the Antibody Award and ordered the Company to pay to the Nant entities the previously disclosed amounts awarded in the Antibody Award.

On February 6, 2023, the Company applied ex parte to the Court for a stay of enforcement of the judgment entered upon the Antibody Award until the Company is procedurally able to seek an offset of the judgment entered upon the Antibody Award by the amount of the Cynviloq Award that the Company has petitioned the Court to confirm and enter judgment upon. The Nant Entities opposed the Company's ex parte application.

On February 7, 2023, the Court granted the Company's ex parte application in part. The Court stayed enforcement of the Antibody Award judgment for seventy days only to the extent the Antibody Award judgment exceeds the approximately $50.0 million offset that the Company intends to seek based on the difference of the amounts of the Antibody Award and the Cynviloq Award. Until April 18, 2023, the Nant Entities are therefore empowered to enforce the judgment entered on the Antibody Award only up to the amount of $50.0 million.

The Company has recorded an accrued legal settlement in the consolidated balance sheet of $174.8 million, including post-award interest, as of December 31, 2022, related to the NantCell/NANTibody Arbitration award. As the award held that Sorrento has no further obligations under the Exclusive License Agreement, the deferred revenue balance of $110.0 million was extinguished as of December 31, 2022. This resulted in a net loss of $64.8 million during the year ended December 31, 2022, and is recorded in legal settlements expense in the consolidated statement of operations.

For a discussion of the Company's ongoing bankruptcy proceedings, see [<u>Note 16</u>](#subsequent_events).

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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, the defendants filed a motion to dismiss on May 20, 2021 and Plaintiff filed his opposition to the motion on July 2, 2021. The defendants' reply was filed on August 4, 2021. On or about November 18, 2021, the U.S. District Court for the Southern District of California issued an order granting the motion to dismiss with leave to amend. On November 30, 2021, Plaintiff filed a first amended consolidated complaint. On December 30, 2021, the defendants filed a motion to dismiss the first amended consolidated complaint. Pursuant to a stipulated scheduling order, the Plaintiff filed his opposition to the motion on February 7, 2022, and the defendants filed their reply on February 28, 2022. On April 11, 2022, the U.S. District Court for the Southern District of California issued an order granting the motion to dismiss with leave to file an amended complaint by April 22, 2022. Plaintiff did not file an amended complaint by April 22, 2022. On June 2, 2022, the U.S. District Court for the Southern District of California directed the clerk of the court to enter judgment in favor of defendants and close the case. On June 3, 2022, judgment was entered in favor of defendants, and the case was closed. On June 30, 2022, Plaintiff filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit (Case No. 22-55641). On October 3, 2022, Plaintiff/Appellant filed an opening brief. On December 2, 2022, the defendants/appellees' filed their answering brief. On January 23, 2023, Plaintiff/Appellant filed his reply brief. The Company is defending these matters vigorously.

On July 26, 2021, Sachin Chaudhari filed a verified stockholder derivative complaint in the U.S. District Court for the Southern District of California, Case No. 0723211, against Dr. Ji, Dr. Brunswick and the Company's Board of Directors as defendants and against the Company, as a nominal defendant. The action alleges, among other things, that defendants breached their fiduciary duties, violated Section 20(a) of the Securities Exchange Act of 1934, as amended, engaged in waste and were unjustly enriched in connection with the alleged false and misleading statements 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. The suit seeks to recover on behalf of the Company those damages caused by the alleged breaches of duty and related claims, along with the plaintiffs' reasonable costs and expenses incurred in the lawsuit, including counsel fees and expert fees. On July 27, 2021, Michael Sabatina filed a verified stockholder derivative complaint in the Delaware Chancery Court, Case No. 2021-0654 against Dr. Ji and Dr. Brunswick, as defendants, and against the Company as a nominal defendant, alleging the same general claims and seeking the same general relief. Both of these derivative cases have been stayed by their respective courts pending resolution of the motion to dismiss the federal securities class action described above. The Company is defending these matters vigorously.

**Operating Leases**

The Company leases administrative, research and development, sales and marketing and manufacturing facilities under various non-cancelable lease agreements. Facility leases generally provide for periodic rent increases, and many contain escalation clauses and renewal options. As of December 31, 2022, the Company's leases have remaining lease terms of approximately 0.6 to 15.8 years, some of which include options to extend the lease terms for up to five years, and some of which allow for early termination. Many of the Company's leases are subject to variable lease payments. Variable lease payments are recognized in the period in which the obligation for those payments are incurred, are not included in the measurement of the ROU assets or lease liabilities and are immaterial. As of December 31, 2022, the Company has no finance leases.

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Operating lease costs were approximately $16.6 million, $12.5 million and $10.1 million for the years ended December 31, 2022, 2021 and 2020, respectively, and were primarily comprised of long-term operating lease costs. Short-term operating lease costs were immaterial. Supplemental quantitative information related to leases includes the following (in thousands):

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| | | |
|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** |
|  | **2022** | **2021** |
| Cash paid for amounts included in the measurement of lease liabilities: |  |  |
| Operating cash outflows from operating leases | $13638 | $11225 |
| ROU assets obtained in exchange for new and amended operating lease liabilities | $5592 | $49459 |
| Weighted average remaining lease term in years | 13.9 | 15.1 |
| Weighted average discount rate | 12.8% | 12.4% |

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Maturities of lease liabilities are as follows (in thousands):

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| | |
|:---|:---|
| **Years ending December 31,** | **Operating<br>leases** |
| 2023 | $15484 |
| 2024 | 15397 |
| 2025 | 14373 |
| 2026 | 14064 |
| 2027 | 14285 |
| Thereafter | 155323 |
| Total lease payments | 228926 |
| Less imputed interest | (129838) |
| Total lease liabilities as of December 31, 2022 | $99088 |

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**12. Income Taxes** 

Total loss before income taxes summarized by region for the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands):

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| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| United States | $(570609) | $(466562) | $(315516) |
| Foreign | (9564) | 3908 | (908) |
| Total | $(580173) | $(462654) | $(316424) |

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The components of the provision expense (benefit) were as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Current income tax expense (benefit): |  |  |  |
| &nbsp;&nbsp;&nbsp;Federal | $— | $— | $(19) |
| &nbsp;&nbsp;&nbsp;State | 40 | 38 | 72 |
| &nbsp;&nbsp;&nbsp;Foreign | (620) | 2375 | 58 |
| Total current | (580) | 2413 | 111 |
| Deferred income tax expense (benefit): |  |  |  |
| &nbsp;&nbsp;&nbsp;Federal | (127565) | (80858) | (55321) |
| &nbsp;&nbsp;&nbsp;State | (28570) | (11999) | (2730) |
| &nbsp;&nbsp;&nbsp;Foreign | (69) | 178 | (288) |
| Total deferred | (156204) | (92679) | (58339) |
| Changes in tax rate | (910) | (223) | 507 |
| Changes in valuation allowance | 155278 | 56973 | 55707 |
| Total income tax benefit from continuing operations | $(2416) | $(33516) | $(2014) |

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Deferred income taxes 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.

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The components of the Company's net deferred tax liabilities and related valuation allowance are as follows as of December 31, 2022 and 2021 (in thousands):

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| | | |
|:---|:---|:---|
|  | **2022** | **2021** |
| Deferred tax assets: |  |  |
| &nbsp;&nbsp;&nbsp;Net operating loss carryforwards | $201349 | $181428 |
| &nbsp;&nbsp;&nbsp;Deferred revenue | 1685 | 25626 |
| &nbsp;&nbsp;&nbsp;Tax credit carryforwards | 52851 | 33126 |
| &nbsp;&nbsp;&nbsp;Intangible assets | 47115 | 37627 |
| &nbsp;&nbsp;&nbsp;Capitalized research and development | 50118 |  |
| &nbsp;&nbsp;&nbsp;Accrued expense and reserves | 42190 | 4582 |
| &nbsp;&nbsp;&nbsp;Operating lease liabilities | 23295 | 19734 |
| &nbsp;&nbsp;&nbsp;Debt related interest | 29292 | 26002 |
| &nbsp;&nbsp;&nbsp;Stock based compensation | 9957 | 10516 |
| &nbsp;&nbsp;&nbsp;Other | 441 | 677 |
| Total deferred tax assets | 458293 | 339318 |
| Less valuation allowance | (416642) | (261238) |
| Total deferred tax assets | 41651 | 78080 |
| Deferred tax liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Investment in common stock | (2646) | (16372) |
| &nbsp;&nbsp;&nbsp;Operating lease right-of-use assets | (20328) | (17592) |
| &nbsp;&nbsp;&nbsp;Intangible assets | (18989) | (44640) |
| &nbsp;&nbsp;&nbsp;Other | (279) | (1902) |
| Total deferred tax liabilities | (42242) | (80506) |
| Net deferred tax liabilities | $(591) | $(2426) |

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The reconciliation between U.S. federal income taxes at the statutory rate and the Company's provision for income taxes are as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Income tax benefit at federal statutory rate | $(121836) | $(97157) | $(66449) |
| Valuation allowance | 155278 | 56973 | 55707 |
| State, net of federal tax benefit | (14371) | (5826) | (3339) |
| Debt discount and interest limitation | (9293) | 8954 | 896 |
| Income tax credits and incentives | (14684) | (9549) | (3685) |
| Compensation expense | 18022 | 14472 | 4446 |
| Acquisition related charges | (13314) | 2711 | 583 |
| Prior year true-up and carryback | (6269) | (3209) | 7790 |
| Other | 4051 | (885) | 2037 |
| Income tax benefit | $(2416) | $(33516) | $(2014) |

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The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the domestic deferred tax assets, the Company maintains a valuation allowance of $416.6 million against its deferred tax assets as of December 31, 2022. Realization of the deferred tax assets will be primarily dependent upon the Company's ability to generate sufficient taxable income prior to the expiration of its net operating losses. The change in valuation allowance also included approximately $0.1 million in 2022 and $41.6 million in 2021 attributable to the Virex and ACEA acquisitions, respectively.

As of December 31, 2022, the Company had $875.5 million, $304.3 million and $4.0 million of federal, state and foreign net operating loss carryforwards, respectively. $3.3 million, $0.1 million and $0.1 million of the net operating loss carryforwards begin to expire in 2035, 2029 and 2024 for federal, state and foreign, respectively.

The Company also had research and development and orphan drug income tax credits of $43.6 million and $28.5 million for federal and state, respectively. $0.1 million of the federal income tax credits begin to expire in 2034, while the state income tax credits carryforward indefinitely.

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Internal Revenue Code Section 382 rules apply to limit a corporation's ability to utilize existing net operating loss and tax credit carryforwards once the corporation experiences an ownership change as defined in Section 382. The Company has undergone ownership changes for purposes of Section 382 in the current and prior years. For the year ended December 31, 2022, the ownership change may result in limitations on the utilization of certain deferred tax assets in future periods of which the Company is carrying a full valuation allowance against. If any deferred tax assets were to expire unused because of Section 382 limitations, there would be a corresponding adjustment to the related valuation allowance.

The Company is subject to taxation in the U.S., various state tax jurisdictions and various foreign tax jurisdictions. The Company's tax years starting on January 1, 2007 through December 31, 2022 are open and subject to examination by the U.S. and state taxing authorities due to the carryforward of net operating losses and research and development credits. There are no active audits as of December 31, 2022.

The Company made the accounting policy election to treat taxes due on U.S. inclusions in taxable income related to Global Intangible Low-Taxed Income as a current period expense when incurred (the "period cost method").

As of December 31, 2022, the Company has accumulated undistributed earnings generated by foreign subsidiaries previously subject to U.S. taxation on foreign earnings as required by the Tax Cuts and Jobs Act of 2017. Any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of its foreign investments would generally be limited to foreign and state taxes. The Company intends, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.

A reconciliation of the beginning and ending amount of unrecognized tax expense (benefits) is as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Beginning balance | $9133 | $6397 | $5336 |
| &nbsp;&nbsp;&nbsp;Increase related to prior year tax positions | 1323 | 258 | 133 |
| &nbsp;&nbsp;&nbsp;Increase related to current year tax positions | 5722 | 2442 | 928 |
| &nbsp;&nbsp;&nbsp;Increase related to acquisitions | 3 | 36 |  |
| Ending balance | $16181 | $9133 | $6397 |

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At December 31, 2022, 2021 and 2020, $13.2 million, $8.3 million and $5.6 million, respectively, of the Company's total unrecognized tax benefits, if recognized, would impact the effective tax rate. However, given the full valuation allowance in the jurisdiction in which the unrecognized tax benefits relate to, the impact on the effective tax rate would be nil.

The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. No interest or penalties have been recognized as of and for the periods ended December 31, 2022, 2021 or 2020.

The Company believes that no material amount of the liabilities for uncertain tax positions are expected to reverse within 12 months of December 31, 2022.

**13. Related Party Agreements and Other**

During the year ended December 31, 2022, the Company completed an acquisition of 49% of the equity interests of Zhengzhou Fortune Bioscience Co., Ltd ("ZFB") for $4.8 million in cash under a joint venture agreement and equity subscription agreement, as amended (collectively, the "ZFB Agreements"). ZFB is a manufacturer in China of lateral flow diagnostic tests, including COVISTIX, the Company's COVID-19 virus rapid antigen detection test kit currently being sold in Mexico. Under the ZFB Agreements, the Company has the option to acquire from the minority equity holder the remaining 51% of the aggregate equity interests of ZFB for $50.0 million before June 30, 2023 (the "Subsequent Transaction"). If the Subsequent Transaction does not occur, the Company or

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ZFB may terminate the ZFB Agreements, and the Company's 49% of equity interest in ZFB will be redeemed by ZFB for $4.8 million. The Company has the right to appoint two out of five total directors of ZFB.

Jaisim Shah, a member of the Company's Board of Directors, was Semnur's Chief Executive Officer, a member of its Board of Directors and a stockholder of Semnur prior to the acquisition transaction.

Semnur is party to an Assignment Agreement with Shah Investor LP, pursuant to which Shah Investor LP assigned certain intellectual property to Semnur and Semnur agreed to pay Shah Investor LP a contingent quarterly royalty in the low-single digits based on quarterly net sales of any pharmaceutical formulations for local delivery of steroids by injection developed using such intellectual property, which would include SEMDEXA. Mahendra Shah, Ph.D., who served on the board of directors of Scilex from March 2019 to October 2020, is the managing partner of Shah Investor LP.

As of December 31, 2020, approximately 14.7% of the outstanding capital stock of Scilex represented a noncontrolling interest and was held by ITOCHU CHEMICAL FRONTIER Corporation. Scilex Pharma has entered into a product development agreement (the "Product Development Agreement") with ITOCHU CHEMICAL FRONTIER Corporation and another party (together, the "Developers"), which together serve as the sole manufacturer and supplier to Scilex Pharma for lidocaine tape products, including ZTlido and SP-103 (each, a "Product"). Effective January 19, 2021, ITOCHU CHEMICAL FRONTIER Corporation no longer held any shares of outstanding capital stock of Scilex. During the years ended December 31, 2022, 2021 and 2020, Scilex Pharma purchased approximately $6.7 million, $5.7 million and $1.0 million of inventory from the Developers pursuant to the Product Development Agreement, respectively. Pursuant to the Product Development Agreement, Scilex Pharma is required to make aggregate royalty payments between 25% and 35% to the Developers based on net profits. Net profits are defined as net sales, less cost of goods and marketing expenses. Net sales are defined as total gross sales of any Product, less all applicable deductions, to the extent accrued, paid or allowed in the ordinary course of business with respect to the sale of such Product, and to the extent that they are in accordance with U.S. GAAP. If Scilex Pharma were to sublicense the licensed technologies, the Developers will receive the same proportion of any sub-licensing fees received therefrom. The Product Development Agreement will continue in full force and effect until October 2, 2028, the date that is ten years from the date of the first commercial sale of ZTlido. The Product Development Agreement will renew automatically for subsequent successive one-year renewal periods unless Scilex Pharma or the Developers terminate it upon 6-month written notice.

On July 15, 2020, the Company entered into a consulting agreement with Kim Janda, Ph.D., a member of the Company's Board of Directors, pursuant to which Dr. Janda will provide consulting and advisory services in exchange for (i) a one-time fee of $250,000, which is payable at a rate of 1/12th per month over twelve months, and (ii) an option to purchase up to 150,000 shares of the Company's common stock, which was granted on August 7, 2020 and vests at a rate of 1/48th per month commencing on July 15, 2020. On October 8, 2021, the Company entered into an amendment to the consulting agreement with Dr. Janda whereby the one-time fee was increased to $301,091, payable through September 30, 2022.

On May 13, 2020, the Company entered into a license agreement with Pulsar Therapeutics, Inc. ("Pulsar"), pursuant to which it licensed Pulsar's nanoparticle technology for vaccine and antibody uses in exchange for a cash payment, certain royalties of net sales, a sublicense fee and an investment by the Company in Pulsar through the transfer of 1.0 million shares of the Company's common stock in exchange for a 5.0% equity interest in Pulsar. As of the date of the investment, Henry Ji, Ph.D., a member of the Company's Board of Directors and the Company's Chief Executive Officer and President, was a director and chairperson of the board of directors of Pulsar and owned approximately 45.0% of Pulsar's outstanding shares, and Jaisim Shah, a member the Company's Board of Directors, owned approximately 5.0% of Pulsar's outstanding shares.

On May 15, 2020, the Company acquired a 50% equity interest in Cytimm Therapeutics, Inc. ("Cytimm") in exchange for an investment of $2.5 million by the Company. As of the date of the acquisition, Henry Ji, Ph.D., a member of the Company's Board of Directors and the Company's Chief Executive Officer and President, was a director, the chairperson of the board of directors and a stockholder of Cytimm.

In April 2021, the Company entered into the Aardvark Asset Purchase Agreement with Aardvark, as further described in [<u>Note 7</u>](#n8_significant_agreements_contracts). As discussed in [<u>Note 5</u>](#n6_investments), the Company holds an investment interest in Aardvark. In May 2021, the Company paid $5.0 million in cash for 3,888,932 shares of Series B Preferred Stock of Aardvark. In July 2021, the Company paid consideration of $5.0 million in cash for an additional 3,888,932 shares of Series B Preferred Stock of Aardvark, resulting in an increase in the Company's ownership interest in Aardvark to approximately 8%. Tien Lee, MD, a member of the board of directors of Scilex, is the founder and chief executive officer of Aardvark. Kim D. Janda, Ph.D., a member of the board of directors of the Company, is a member of the advisory board of Aardvark.

During the year December 31, 2021, the Company paid approximately $10.2 million in consideration for 5,622,703 shares of common stock of Deverra, as further described in [<u>Note 5.</u>](#n6_investments)In connection with the Company's purchase of Deverra common stock, Dr.

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Henry Ji, Ph.D., a member of the Company's Board of Directors and the Company's Chief Executive Officer and Chairperson, and Jaisim Shah, a member of the Company's Board of Directors, were appointed to the board of directors of Deverra. In addition, on December 7, 2021, the Company loaned Deverra an aggregate of $1.0 million in consideration of a promissory note, which the Company wrote off during the year ended December 21, 2022 as such amount was deemed uncollectible.

During the year ended December 31, 2021, the Company paid $10.0 million in cash for 10,000,000 shares of Series A Preferred Stock of Elsie, as further described in [<u>Note 5</u>](#n6_investments). In connection with the Company's purchase of Elsie Series A Preferred Stock, Dr. Henry Ji, Ph.D., a member of the Company's Board of Directors and the Company's Chief Executive Officer and President, was appointed to the board of directors of Elsie.

During the year ended December 31, 2022, the Company purchased 1.4 million Scilex warrants for a total of $0.4 million, all of which were outstanding at December 31, 2022.

**14. Segment Information** 

The Company reports segment information based on the management approach. The management approach designates the internal reporting used by the Chief Operating Decision Maker ("CODM"), which is the Company's Chief Executive Officer, for making decisions and assessing performance as the source of the Company's reportable segments. The CODM allocates resources and assesses the performance of each operating segment based on licensing, product sales and services revenue, operating expenses, and operating income (loss) before interest and taxes. The Company has determined its reportable segments to be Sorrento Therapeutics and Scilex based on the information used by the CODM.

**Sorrento Therapeutics**. The Sorrento Therapeutics segment is developing a portfolio of next generation treatments for three major therapeutic areas: cancer, infectious disease and pain.

**Scilex**. The Scilex segment is largely organized around the Company's non-opioid pain management operations. Revenues from the Scilex segment are exclusively derived from the sale of ZTlido.

On November 10, 2022, Scilex consummated the previously-announced business combination (the "Business Combination") pursuant to that certain Agreement and Plan of Merger, dated as of March 17, 2022 (as amended, restated or supplemented from time to time, including by Amendment No. 1 to Agreement and Plan of Merger, dated as of September 12, 2022) (the "Merger Agreement"), by and among Scilex, Vantage Merger Sub Inc., Scilex's then-wholly owned subsidiary (the "Merger Sub"), and the pre-Business Combination Scilex Holding Company ("Legacy Scilex"). Pursuant to the terms of the Merger Agreement, Scilex effected a deregistration under the Cayman Islands Companies Act (as revised) and a domestication under Section 388 of the Delaware General Corporation Law, as amended (the "DGCL"), pursuant to which Scilex's jurisdiction of incorporation was changed from the Cayman Islands to the State of Delaware, and, on the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the DGCL, Merger Sub merged with and into Legacy Scilex (the "Merger" or the "Business Combination"), with Legacy Scilex surviving as Scilex's wholly owned subsidiary. In connection with the Business Combination, Scilex changed its name from Vickers Vantage Corp. I to Scilex Holding Company. On November 11, 2022, shares of Scilex Holding Company began trading on the Nasdaq Capital Market under the ticker symbol "SCLX", after the completion of its business combination with Vickers Vantage Corp. I, a special purpose acquisition company. As a result of the Business Combination, Scilex received net proceeds of approximately $3.4 million. The associated transaction cost of $9.1 million was offset against equity proceeds of $0.4 million from the Business Combination. Additionally, the Company's ownership interest in Scilex decreased to 96.0% while maintaining its controlling financial interest, therefore the Company recorded a $2.0 million increase in noncontrolling interest as of December 31, 2022.

With the exception of unrestricted cash balances, the Company's CODM does not regularly review asset information by reportable segment. The majority of long-lived assets for both segments are located in the United States.

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The following table presents information about the Company's reportable segments for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2022** | **2022** | **2021** | **2021** | **2021** | **2020** | **2020** | **2020** |
| **(in thousands)** | **Sorrento<br>Therapeutics** | **Scilex** | **Total** | **Sorrento<br>Therapeutics** | **Scilex** | **Total** | **Sorrento<br>Therapeutics** | **Scilex** | **Total** |
| External revenues | $24805 | $38034 | $62839 | $24358 | $28546 | $52904 | $13655 | $26331 | $39986 |
| Operating expenses | 479571 | 87583 | 567154 | 387200 | 67155 | 454355 | 225687 | 58817 | 284504 |
| Operating (loss) income | (454766) | (49549) | (504315) | (362842) | (38609) | (401451) | (212032) | (32486) | (244518) |
| Unrestricted cash | 21400 | 2234 | 23634 | 32178 | 4487 | 36665 | 51475 | 4989 | 56464 |

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**15. Loss Per Share**

For the years ended December 31, 2022, 2021 and 2020, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock is calculated to give effect to all dilutive securities, using the treasury stock method and the if-converted method for potentially dilutive shares of common stock issuable upon the Semnur Share Exchange, which is described in [<u>Note 7</u>](#n8_significant_agreements_contracts).

The following table sets forth the reconciliation of basic and diluted earnings per share for the years ended December 31, 2022, 2021 and 2020 (in thousands, except per share data):

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| | | | |
|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Numerator |  |  |  |
| Net loss attributable to Sorrento | $(572843) | $(428325) | $(298461) |
| Net loss attributable to Semnur holders of Scilex |  |  |  |
| Net loss used for basic and diluted earnings per share | (572843) | (428325) | (298461) |
| Denominator for basic loss per share | 419315 | 294774 | 229823 |
| Potentially dilutive shares of Sorrento common stock issuable upon Semnur Share Exchange |  |  |  |
| Denominator for loss earnings per share | 419315 | 294774 | 229823 |
| Basic loss per share | $(1.37) | $(1.45) | $(1.30) |
| Diluted loss per share | $(1.37) | $(1.45) | $(1.30) |

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The potentially dilutive stock options and warrants that have been excluded because the effect would have been anti-dilutive consisted of the following (in thousands):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| Outstanding options |  | 20,862 |  | 22,516 |  | 18,763 |
| Outstanding RSUs |  | 8,284 |  | 3,434 |  |  |
| Outstanding warrants |  | 16,020 |  | 16,020 |  | 18,605 |

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**16. Subsequent Events**

Voluntary Filing Under Chapter 11

As previously reported in the Company's Current Report on Form 8-K filed with the SEC on February 13, 2023, the Company and its wholly owned direct subsidiary, Scintilla Pharmaceuticals, Inc. (together with the Company, the "Debtors"), commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court"). The Chapter 11 proceedings are jointly administered under the caption In re Sorrento Therapeutics, Inc., et al. (the "Chapter 11 Cases"). The Debtors continue to operate their business in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. At hearings before the Bankruptcy Court on February 16, 2023 and February 21, 2023, the Debtors obtained approval from the Bankruptcy Court of certain "first day" motions containing customary relief intended to assure the Debtors' ability to continue their ordinary course operations during the Chapter 11 Cases.

DIP Term Sheet

As previously reported in the Company's Current Report on Form 8-K filed with the SEC on February 22, 2023, the Debtors executed that certain Debtor-In-Possession Term Loan Facility Summary of Terms and Conditions (the "DIP Term Sheet") with JMB Capital Partners Lending, LLC ("JMB Capital" or the "DIP Lender"), pursuant to which JMB Capital (or its designees or its assignees) are providing the Debtors with a non-amortizing super-priority senior secured term loan facility in an aggregate principal amount not to exceed $75,000,000 in term loan commitments (the "DIP Facility"), subject to the terms and conditions set forth in the DIP Term Sheet. On February 20, 2023, the Debtors filed the Debtors' Emergency Motion For Entry of Interim and Final Orders (I) Authorizing The Debtors to (A) Obtain Senior Secured Superpriority Postpetition Financing and (B) Use Cash Collateral, (II) Granting Liens and Providing Claims With Superpriority Administrative Expense Status, (III) Modifying The Automatic Stay, (IV) Scheduling A Final Hearing, and (V) Granting Related Relief (the "DIP Motion") seeking the Bankruptcy Court's approval of the DIP Facility and certain related relief. A copy of the DIP Term Sheet was attached to the Motion.

At a hearing before the Bankruptcy Court on February 21, 2023, the Bankruptcy Court granted the DIP Motion and entered an interim order (the "Interim DIP Order") approving the DIP Facility on an interim basis and providing the Debtors with the necessary liquidity to continue to operate in Chapter 11. Upon entry of the Interim DIP Order and satisfaction of all applicable conditions

------

precedent, as set forth in the DIP Term Sheet, the Debtors were authorized to make a single, initial draw of $30,000,000 on the DIP Facility (the "Initial Draw"). Definitive financing documentation, including a credit agreement and other documents evidencing the DIP Facility (collectively, the "DIP Documents"), will be negotiated and executed as soon as possible following the Initial Draw on the DIP Facility. The remaining amount of the DIP Facility will be available to the Debtors, subject to entry of an order granting the DIP Motion on a final basis (the "Final Order") and compliance with the terms, conditions, and covenants to be set forth in the definitive DIP Documents, through additional draws of no less than $5,000,000 each upon five business days' written notice to the DIP Lender. The DIP Facility contains economic and other terms that are the most favorable to the Debtors compared to the other proposals received by the Debtors, including, among others: (i) immediate access to interim financing of up to $30,000,000 (with up to $75,000,000 to be available in the aggregate), (ii) minimum draws of $5,000,000, (iii) interest at a per annum rate equal to 14% payable in cash on the first day of each month in arrears (and a default interest rate that shall accrue at an additional per annum rate of 3% plus the non-default interest, payable in cash on the first day of each month), and (iv) other fees and charges as described in the DIP Term Sheet. The DIP Facility is secured by first-priority liens on substantially all of the Debtors' unencumbered assets, subject to certain enumerated exceptions, and second-priority liens on those assets of the Debtors that are encumbered by certain permitted liens (as set forth in the Interim DIP Order).

The DIP Facility matures on the earliest of: (i) July 31, 2023; (ii) the effective date of any Chapter 11 plan of reorganization with respect to the Debtors; (iii) the consummation of any sale or other disposition of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code; (iv) the date of the acceleration of the DIP Loans and the termination of the DIP Commitments in accordance with the DIP Documents (each as defined in the DIP Term Sheet); (v) dismissal of the Chapter 11 Cases or conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code; and (vi) forty-five (45) days after the filing of the DIP Motion (or such later date as agreed to by the DIP Lender), unless the Final Order has been entered by the Bankruptcy Court on or prior to such date. The DIP Facility does not contain a roll-up or cross-collateralization of prepetition debt or otherwise dictate how prepetition claims will be addressed in a Chapter 11 plan.

The Debtors anticipate seeking final approval of the DIP Facility at a final hearing on the DIP Motion on or around March 29, 2023, or any such other date that is no later than forty-five (45) days following the date of filing of the DIP Motion, as required under the DIP Term Sheet.

Listing

On February 13, 2023, the Company received written notice (the "Delisting Notice") from the staff of The Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that, as a result of the Chapter 11 Cases and in accordance with Nasdaq Listing Rules 5101, 5110(b) and IM-5101-1, the staff of Nasdaq had determined that the Company's common stock will be delisted from Nasdaq. In the Delisting Notice, the staff of Nasdaq referenced the Chapter 11 Cases and associated public concerns raised by them, concerns regarding the residual equity interest of the existing listed securities holders and concerns about the Company's ability to sustain compliance with all requirements for continued listing on Nasdaq. The Delisting Notice also indicated that the Company may appeal Nasdaq's determination pursuant to procedures set forth in Nasdaq Listing Rule 5800 Series. On February 21, 2023, the Company requested an appeal of Nasdaq's determination and a hearing before a Nasdaq hearings panel. The Company subsequently determined not to continue with the appeal process. In accordance with the Delisting Notice, trading of the Company's common stock on Nasdaq was suspended at the opening of business on February 23, 2023, and at such time, the Company's common stock commenced trading on the Pink Open Market under the symbol "SRNEQ".

Elyxyb License

On February 12, 2023, Scilex acquired from BioDelivery Sciences International, Inc. ("BSDI") and Collegium Pharmaceutical, Inc. ("Collegium", and together with BDSI, the "Collegium Sellers") the rights to certain patents, trademarks, regulatory approvals, data, contracts, and other rights related to ELYXYB (celecoxib oral solution) (the "Product") and its commercialization in the United States and Canada (the "Territory").

As consideration for the acquisition, Scilex assumed various rights and obligations under that certain asset purchase agreement, dated August 3, 2021 (the "DRL APA"), between BDSI and Dr. Reddy's Laboratories Limited, a company incorporated under the laws of India ("DRL"), including a license from DRL including an irrevocable, royalty-free, exclusive license to know-how and patents of DRL related to the Product and necessary or used to exploit the Product in the Territory. Additionally, under the DRL APA, Collegium Sellers granted Scilex an irrevocable, royalty-free, exclusive license to know-how related to the Product and necessary or used to exploit the Product in the Territory. No cash consideration was or will be payable to Collegium Sellers for such acquisition; however, the obligations under the DRL APA that were assumed by Scilex include obligations to pay royalties for sales of the Product in the Territory for all indications and additional amounts if certain milestones are achieved.

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The Failure of Silicon Valley Bank

On March 10, 2023, the Company became aware that the Federal Deposit Insurance Corporation ("FDIC") issued a press release (the "FDIC press release") stating that Silicon Valley Bank, Santa Clara, California ("SVB") was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the Treasury Department announced that depositors of SVB will have access to all of their money starting March 13, 2023. The Company had approximately $2.8 million cash deposited with SVB as of each of December 31, 2022, February 13, 2023 when the Debtors commenced the Chapter 11 Cases in the Bankruptcy Court, and March 10, 2023. On March 14, 2023, the Company regained access to the full amount of its cash that was deposited with SVB.

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## Ex-21

**Exhibit 21.1**

**Subsidiaries of Sorrento Therapeutics, Inc.** 

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| | |
|:---|:---|
| Name | State or<br>Jurisdiction<br>of Incorporation or<br>Organization |
| Concortis Biosystems, Corp. | Delaware |
| Ark Animal Health, Inc. | Delaware |
| TNK Therapeutics, Inc. | Delaware |
| BioServ Corporation | Delaware |
| Adnab, Inc. | Delaware |
| ACEA Therapeutics, Inc. | Cayman Islands |
| Scilex Holding Company | Delaware |
| Semnur Pharmaceuticals, Inc. | Delaware |
| Scilex Pharmaceuticals Inc. | Delaware |
| Levena Biopharma US, Inc. | Delaware |
| Levena Suzhou Biopharma Co., Ltd. | People's Republic of China |
| Sorrento Therapeutics (Shanghai) Co., Ltd. | People's Republic of China |
| Nanjing Levena Biopharma Co. Ltd. | People's Republic of China |
| Sorrento Therapeutics, S. de R.L. de C.V. | Mexico |
| SmartPharm Therapeutics, Inc. | Delaware |
| Virex Health, LLC | Delaware |

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## Ex-23

**<br>Exhibit 23.1**

**Consent of Independent Registered Public Accounting Firm**

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statements (Form S-3 Nos. 333-223856, 333-223857, 333-228770, 333-229609, 333-232163, 333-234869, 333-235970, 333-237142, 333-249178, 333-249386, 333-253646, 333-255165, 333-256304, 333-257412 and 333-261888) of Sorrento Therapeutics, Inc.,

(2) Registration Statement (Form S-8 No. 333-163670) pertaining to Sorrento Therapeutics, Inc. 2009 Stock Incentive Plan,

(3) Registration Statements (Form S-8 Nos. 333-198307 and 333-213130) pertaining to Amended and Restated 2009 Stock Incentive Plan of Sorrento Therapeutics, Inc.,

(4) Registration Statement (Form S-8 No. 333-227305) pertaining to Amended and Restated 2009 Stock Incentive Plan, as amended of Sorrento Therapeutics, Inc.,

(5) Registration Statements (Form S-8 Nos. 333-234622 and 333-268861) pertaining to Sorrento Therapeutics, Inc. 2019 Stock Incentive Plan, as amended,

(6) Registration Statement (Form S-8 No. 333-249616) pertaining to Sorrento Therapeutics, Inc. 2019 Stock Incentive Plan, as amended and Sorrento Therapeutics, Inc. 2020 Employee Stock Purchase Plan, and

(7) Registration Statement (Form S-8 No. 333-249617) pertaining to Sorrento Therapeutics, Inc. Performance Stock Option Award Agreement;

of our reports dated March 15, 2023, with respect to the consolidated financial statements of Sorrento Therapeutics, Inc. and the effectiveness of internal control over financial reporting of Sorrento Therapeutics, Inc. included in this Annual Report (Form 10-K) of Sorrento Therapeutics, Inc. for the year ended December 31, 2022.

/s/ Ernst & Young LLP

San Diego, California

March 15, 2023

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## Ex-31

**Exhibit 31.1**

**CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER**

**Pursuant to Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**

I, Henry Ji, Ph.D., certify that:

1. I have reviewed this Annual Report on Form 10-K of Sorrento Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;<br>

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:<br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;<br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;<br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and<br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and<br>

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):<br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and<br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.<br>

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---

| |
|:---|
| /s**/** Henry Ji, Ph.D. |
| Henry Ji, Ph.D.<br>Chairman of the Board of Directors, Chief Executive Officer and President<br>(Principal Executive Officer) |

---

Dated: March 15, 2023

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## Ex-31

**Exhibit 31.2**

**CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER**

**Pursuant to Rule 13a-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**

I, Elizabeth Czerepak, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sorrento Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

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| |
|:---|
| /s/ Elizabeth Czerepak |
| Elizabeth Czerepak<br>Executive Vice President and Chief Financial Officer<br>|

---

Dated: March 15, 2023

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## Ex-32

**Exhibit 32.1**

**CERTIFICATIONS**

Each of the undersigned, in his or her capacity as the principal executive officer and principal financial officer of Sorrento Therapeutics, Inc. (the "Company"), as the case may be, hereby certifies, pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), that, to the best of their knowledge:

1. This Annual Report on Form 10-K for the period ended December 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2. The information contained in this Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by this Annual Report.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission ("SEC") or its staff upon request.

This certification accompanies the Form 10-K to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of this Annual Report), irrespective of any general incorporation language contained in such filing.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 15<sup>th</sup> day of March 2023.

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| |
|:---|
| /s**/** Henry Ji, Ph.D. |
| Henry Ji, Ph.D.<br>Chairman of the Board of Directors, Chief Executive Officer and President<br>(Principal Executive Officer) |

---

---

| |
|:---|
| /s/ Elizabeth Czerepak |
| Elizabeth Czerepak<br>Executive Vice President and Chief Executive Officer<br>(Principal Financial Officer) |

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