Related-Party Agreements

6 Months Ended

Jun. 30, 2022

Our related-party promissory notes consist of the following (in thousands):


					Total Notes and Interest Payable
Related-Party Promissory Notes	Maturity Year	Outstanding Advances		Interest Rate	June 30, 2022			December 31, 2021
					(Unaudited)

Nant Capital, LLC (1)	2022	$	300,000	Term SOFR + 5.4%	$	300,084	(1)	$	299,236	(1)
Nant Capital, LLC (2)	2025	55,226		5.0%	62,864		(3)	61,367		(3)
Nant Capital, LLC (2)	2025	50,000		6.0%	55,387		(4)	53,810		(4)
Nant Capital, LLC (5)	2025	40,000		6.0%	40,000		(5)	40,000		(5)
NantMobile, LLC (2)	2025	55,000		3.0%	59,227		(6)	58,359		(6)
NantWorks, LLC (2)	2025	43,418		5.0%	55,374		(7)	54,067		(7)
NantCancerStemCell, LLC (2)	2025	33,000		5.0%	39,689		(8)	38,746		(8)
Total related-party promissory notes		$	576,644		$	612,625		$	605,585

_______________


(1)			The outstanding advance is due and payable on December 17, 2022. This loan bears interest at Term SOFR + 5.4%, which is compounded annually and payable quarterly commencing on March 17, 2022. As of June 30, 2022, the interest rate on this loan was 7.29%. We paid $9.9 million in interest on this loan during the six months ended June 30, 2022. Accrued and unpaid interest on this note totaled $0.8 million as of June 30, 2022. In the event of a default on the loan (as defined in the promissory note), including if we do not repay the loan at maturity, the company has the right, at its sole option, to convert the outstanding principal amount and accrued and unpaid interest due under this note into fully paid and non-assessable shares of the company’s common stock at a price per share equal to $5.67. Total amortization on the debt issuance cost of $1.5 million paid to the lender was $0.8 million as of June 30, 2022 and was recorded as a reduction of the principal amount of the note.

(2)			All outstanding advances and accrued and unpaid interest is due and payable on September 30, 2025. Interest on related-party promissory notes is compounded annually. We may prepay the outstanding principal at any time without premium, penalty or the prior consent of the issuer. All outstanding amounts under the notes become due and payable upon certain bankruptcy and insolvency-related events. There are no equity or equity-linked convertible rights related to these promissory notes.

(3)			Accrued and unpaid interest on this note totaled $7.6 million and $6.1 million as of June 30, 2022 and December 31, 2021, respectively.

(4)			Accrued and unpaid interest on this note totaled $5.4 million and $3.8 million as of June 30, 2022 and December 31, 2021, respectively.

(5)			The outstanding principal is due and payable on September 30, 2025. Interest on this related-party promissory note is compounded annually and payable quarterly commencing on June 30, 2021. We paid $1.2 million in interest on this loan during the six months ended June 30, 2022. All outstanding amounts under the note become due and payable upon certain bankruptcy and insolvency-related events. There are no equity or equity-linked convertible rights related to this promissory note.

(6)			Accrued and unpaid interest on this note totaled $4.2 million and $3.4 million as of June 30, 2022 and December 31, 2021, respectively.

(7)			Accrued and unpaid interest on this note totaled $12.0 million and $10.6 million as of June 30, 2022 and December 31, 2021, respectively.

(8)			Accrued and unpaid interest on this note totaled $6.7 million and $5.7 million as of June 30, 2022 and December 31, 2021, respectively.

The following table summarizes our estimated future contractual obligations for related-party promissory notes as of June 30, 2022 (unaudited; in thousands):


	Principal Payments		Interest Payments (1)		Total

2022 (excluding the six months ended June 30, 2022)	$	300,000	$	12,169	$	312,169
2023	—		2,400		2,400
2024	—		2,407		2,407
2025	276,644		85,823		362,467
Total principal and estimated interest due on related-party promissory notes	$	576,644	$	102,799	$	679,443

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(1)			Interest payments on our fixed-rate promissory notes are calculated based on contractual interest rates and scheduled maturity dates. Interest payments on our variable-rate promissory note are calculated based on schedule maturity dates and the Term SOFR rate plus the contractual spread per the loan agreement. The rate on our variable-rate promissory note as of June 30, 2022 was 7.29%.

We conduct business with several affiliates under written agreements and informal arrangements. Below is a summary of outstanding balances and a description of significant relationships (in thousands):


	June 30, 2022		December 31, 2021
	(Unaudited)


Due from related party–NantBio, Inc.	$	1,294	$	1,294

Due from related parties–Various	157		39
Total due from related parties	$	1,451	$	1,333

Due to related party–Duley Road, LLC	$	1,807	$	1,380
Due to related party–NantWorks, LLC	1,179		1,113
Due to related party–NantBio, Inc.	943		943

Due to related party–Immuno-Oncology Clinic, Inc.	—		507
Due to related party–Various	229		—
Total due to related parties	$	4,158	$	3,943

Our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space. As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer.

NantWorks, LLC

Shared Services Agreement

Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks, a related party, provides corporate, general and administrative, certain research and development, and other support services. We are charged for the services at cost plus reasonable allocations of employee benefits, facilities and other direct or fairly allocated indirect costs that relate to the employees providing the services. For the six months ended June 30, 2022 and 2021, we recorded $2.3 million and $3.0 million, respectively, in selling, general and administrative expense, and $0.3 million and $0.4 million, respectively, of expense reimbursements under this arrangement in research and development expense, on the condensed consolidated statements of operations. These amounts exclude certain general and administrative expenses provided by third-party vendors directly for our benefit, which were reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks.

As of June 30, 2022 and December 31, 2021, we owed NantWorks a net amount of $1.2 million and $1.1 million, respectively, for all agreements between the two affiliates, which is included in due to related parties, on the condensed consolidated balance sheets. We also recorded $2.8 million and $2.2 million of prepaid expenses for services that have been passed through to the company from NantWorks as of June 30, 2022 and December 31, 2021, respectively, which are included in prepaid expenses and other current assets, on the condensed consolidated balance sheets.

Facility License Agreement

In 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility. In 2020, we amended this agreement to extend the term of this license agreement through December 31, 2021. Commencing on January 1, 2022, the license fee increased by 3% to approximately $56,120 per month.

On May 6, 2022, we amended our facility license agreement with NantWorks to expand the licensed premises by 36,830 rentable square feet to an aggregate total of 46,330 rentable square feet. Effective May 1, 2022, the license fee is approximately $273,700 per month, which is subject to a 3% increase commencing on January 1 of each year. The space continues to be rented on a month-to-month basis, which can be terminated by either party with at least 30 days’ prior written notice to the other party. We recorded license fee expense for this facility totaling $0.8 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

Immuno-Oncology Clinic, Inc.

We entered into multiple agreements with Immuno-Oncology Clinic, Inc. (the Clinic) to conduct clinical trials related to certain of our product candidates. The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic. Pursuant to the terms of the Clinic agreement (as amended), we made payments totaling $5.6 million in consideration of future services to be performed by the Clinic.

In 2021, we completed a review of alternative structures that could support our more complex clinical trial requirements and made a decision to explore a potential transition of clinical trials at the Clinic to a new structure (including contracting with a new, non-affiliated professional corporation) to be determined and agreed upon by all parties. Based on this decision to explore a potential transition, we determined that it was more likely than not that the previously recorded prepaid asset would not result in the collection of fees for services performed by the Clinic as contemplated in the original agreements. As a result, we wrote down the remaining value of our prepaid asset and recorded approximately $4.4 million in research and development expense, on the condensed consolidated statement of operations for the year ended December 31, 2021.

We recorded $1.3 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic. As of June 30, 2022, we have no balances due from or to the Clinic.

NantBio, Inc.

In August 2018, we entered into a supply agreement with NantCancerStemCell, LLC (NCSC), a 60% owned subsidiary of NantBio (with the other 40% owned by Sorrento). Under this agreement, we agreed to supply VivaBioCell’s proprietary GMP-in-a-Box bioreactors and related consumables, made according to specifications mutually agreed to with both companies. The agreement has an initial term of five years and renews automatically for successive one-year terms unless terminated by either party in the event of material default upon prior written notice of such default and the failure of the defaulting party to remedy the default within 30 days of the delivery of such notice, or upon 90 days’ prior written notice by NCSC. We recognized no revenue for the six months ended June 30, 2022 and $0.3 million of revenue for the six months ended June 30, 2021. We recorded $0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities, on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021. As of June 30, 2022 and December 31, 2021, we recorded $0.9 million in due to related parties, on the condensed consolidated balance sheets related to this agreement.

In 2018, we entered into a shared service agreement pursuant to which we are charged for services at cost, without mark-up or profit by NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services. In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects, comprising the majority of NantBio’s business, to the company. As of June 30, 2022 and December 31, 2021, we recorded a net receivable from NantBio of $1.3 million for amounts we paid on behalf of NantBio during the year ended December 31, 2019.

605 Doug St, LLC

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 24,250 rentable square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility. The lease runs from July 2016 through July 2023. We have the option to extend the lease for one additional three-year term through July 2026. The base rent is approximately $72,385 per month, with annual increases of 3% that began in July 2017. We recorded lease expense for this facility of $0.4 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

Duley Road, LLC

In February 2017, Altor BioScience Corporation (succeeded by our wholly-owned subsidiary Altor BioScience, LLC), through its wholly-owned subsidiary, entered into a lease agreement with Duley Road, a related party that is indirectly controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 12,000 rentable square feet of office and cGMP manufacturing facility space in El Segundo, California. The lease term is from February 2017 through October 2024. We have the option to extend the initial term for two consecutive five-year periods through October 2034. The base rent is approximately $40,700 per month, with annual increases of 3% that began in November 2018. As of June 30, 2022 and December 31, 2021, we recorded rent payable to Duley Road of $0.3 million and $0.2 million, respectively. We recorded rent expense for this lease of $0.2 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California. The first lease is for the first floor of the building with approximately 5,650 rentable square feet. The lease has a seven-year term commencing in September 2019. The second lease is for the second floor of the building with approximately 6,488 rentable square feet. The lease has a seven-year term commencing in July 2019. Both floors of the building are used for research and development and office space. We have options to extend the initial terms of both leases for two consecutive five-year periods through 2036. The base rent for the two leases is approximately $35,800 per month that increases at a rate of 3% per year.

As of June 30, 2022 and December 31, 2021, we recorded $0.9 million and $0.9 million of leasehold improvement payables, respectively, and $0.6 million and $0.3 million of lease-related payables to Duley Road, which were included in due to related parties, on the condensed consolidated balance sheets. We recorded rent expense for this lease of $0.2 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

605 Nash, LLC

In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 square feet (the Initial Premises) in a two story mixed use building containing approximately 64,643 rentable square feet on 605-607 Nash Street in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease term commenced in January 2021 and expires in December 2027, and includes an option to extend the lease for one three-year term through December 2030. The base rent is approximately $20,300 per month with an annual increase of 3% on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. We received a rent abatement for the first seven months, and a tenant improvement incentive of $0.3 million from the landlord for costs and expenses associated with the construction of tenant improvements for the Initial Premises. We recorded rent expense for this lease of $0.1 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations.

In May 2021, but effective on April 1, 2021, we entered into an amendment to our Initial Premises lease with 605 Nash. The amendment expanded the leased square feet by approximately 57,760 rentable square feet (the Expansion Premises). The lease term of the Expansion Premises commenced in April 2021 and expires in March 2028, whereby the company has the option to extend the initial term for three years. Per the terms of the amendment, the term of the Initial Premises lease was extended for an additional three months and now expires on March 31, 2028. Base rent for the Expansion Premises is approximately $170,400 per month with annual increases of 3% on April 1 of each year. We are responsible for the build out of the facility space and associated costs. The amended lease provides for a rent abatement for the first seven months, and for a tenant improvement allowance of approximately $2.6 million for costs and expenses related to improvements made by us to the Expansion Premises. We recorded rent expense related to the Expansion Premises lease agreement of $1.0 million and $0.5 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense, on the condensed consolidated statements of operations

557 Doug St, LLC

Effective September 27, 2021, we entered into a lease agreement with Nant Capital under which we leased 557 South Douglas Street in El Segundo, California. Effective May 31, 2022, we executed a lease termination agreement with Nant Capital under which we will receive a full refund of the first month’s rent and security deposit totaling $0.2 million that we paid upon execution of the lease. We recorded rent expense related to this lease of $0.4 million for the six months ended June 30, 2022 in research and development expense, on the condensed consolidated statement of operations. We recognized a gain of $0.6 million on the disposal of this lease for the three months ended June 30, 2022 in other income, net, on the condensed consolidated statement of operations.

420 Nash, LLC

On September 27, 2021, we entered into a lease agreement with 420 Nash, LLC, a related party, whereby we leased an approximately 19,125 rentable square foot property located at 420 Nash Street, El Segundo, California, to be used primarily for the warehousing and storage of drug manufacturing supplies, products and equipment and ancillary office space.

Under the terms of the lease agreement, the lease term began on October 1, 2021 and expires on September 30, 2026. The base rent is approximately $38,250 per month with an annual increase of 3% on October 1 of each year beginning in 2022 during the initial term. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance and operating expenses during the term of the lease. We received a rent abatement for the first month of the lease, and a one-time improvement allowance of $15,000 from the landlord that was credited against base rent obligations for the second month of the lease.

The company has options to extend the lease term for two additional consecutive periods of five years each. At the beginning of each option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3% during the option term. We have included the first option to extend the lease term for five years as part of the initial term of the lease as it is reasonably certain that we will exercise the option, which implies lease expiration in September 2031. We recorded $0.3 million of rent expense related to this lease for the six months ended June 30, 2022 in research and development expense, on the condensed consolidated statement of operations.

23 Alaska, LLC

On May 6, 2022, we entered into a lease agreement with 23 Alaska, LLC, a related party, for a 47,265 rentable square foot facility located at 2335 Alaska Ave., El Segundo, California, to be used primarily for pharmaceutical development and manufacturing, research and development, and office space.

Under the terms of the agreement, the lease term begins on May 1, 2022 and expires on April 30, 2027. The base rent is approximately $139,400 per month with an annual increase of 3% on May 1 of each year beginning in 2023 during the initial term. We will receive a rent abatement for the second through sixth month of the lease. We are also required to pay $7,600 per month for parking during the initial term and extension term, if exercised. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance, and operating expenses during the term of the lease.

The company is responsible for the costs associated with the build-out of the premises and will received a one-time tenant improvement allowance of $945,300 from the landlord.

The company has an option to extend the lease term for one additional consecutive five-year period. At the beginning of the option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3% during the option term. We recorded $0.3 million of rent expense for this lease for the six months ended June 30, 2022 in research and development expense, on the condensed consolidated statement of operations.