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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
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<font style="font-family:times new roman" size="2"><b></b></font>
<font style="font-family:times new roman" size="2">
<b></b></font>
<font style="font-family:times new roman" size="2">
<b></b></font>
<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>1. Nature of Operations, Summary of Significant Accounting Policies and Business Activities </b></font></p>
<p style="margin-top:6px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Nature of Operations and Basis of Presentation
</i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company is a biopharmaceutical company focused on the discovery, development and commercialization of novel and
proprietary biotherapeutics for the treatment of a variety of disease conditions, including cancer, inflammation, metabolic and infectious diseases. The Company’s objective is to either independently or through one or more partnerships with
pharmaceutical or biopharmaceutical organizations identify drug development candidates derived from the libraries. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">As of
March 31, 2013, the Company had devoted substantially all of its efforts to product development, raising capital and building infrastructure, and had not realized revenues from its planned principal operations. Accordingly, the Company is
considered to be in the development stage. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The accompanying interim consolidated financial statements have been prepared by
the Company, without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in
accordance with GAAP. The financial statements also include the accounts of the Company’s wholly-owned subsidiary, Sorrento Therapeutics, Inc. Hong Kong Limited, or Sorrento Hong Kong, which was registered effective December 4, 2012.
Sorrento Hong Kong had no operations through March 31, 2013. All inter-company balances and transactions have been eliminated in consolidation. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
The balance sheet at December 31, 2012 is derived from the audited consolidated balance sheet at that date which is not presented herein. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are
only normal and recurring, necessary for a fair statement of financial position, results of operations and cash flows. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Operating results for interim periods are not expected to be indicative of operating results for the Company’s 2013 fiscal year. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Business Activities </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">On September 21, 2009, QuikByte Software, Inc., a shell company, or QuikByte, acquired Sorrento Therapeutics, Inc., a privately held
Delaware corporation, or STI, in a reverse merger, or the Merger. Pursuant to the Merger, all of the issued and outstanding shares of STI common stock were exchanged into an aggregate of 169,375,807 shares of QuikByte common stock and STI became a
wholly owned subsidiary of QuikByte. The holders of QuikByte’s common stock as of immediately prior to the Merger held an aggregate of 55,708,320 shares of QuikByte’s common stock. STI and QuikByte reincorporated in Delaware in December
2009, and on December 4, 2009, STI merged with and into QuikByte, the separate corporate existence of STI ceased and QuikByte continued as the surviving corporation. Contemporaneously, QuikByte Software, Inc. changed its name to Sorrento
Therapeutics, Inc., or the Company. In connection with the Merger, the Company received cash of $104,860. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In January 2013,
the Company entered into an assignment agreement, or the assignment agreement with Tien-Li Lee, M.D. and Jane Wu Lee, M.D. as individuals (collectively, the Lees) pursuant to which the Lees agreed to assign to the Company their right, title and
interest throughout the world in and to certain inventions and patents that provide for the production of recombinant intravenous immunoglobulins. See Note 2. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%;padding-bottom:0px; "><font style="font-family:times new roman" size="2">On March 7, 2013, the Company entered into various agreements with IgDraSol, Inc. (IgDraSol) a private company
focused on the development of oncologic agents for the treatment of metastatic breast cancer, or MBC, non-small cell lung cancer, or NSCLC, and other cancers, as follows: (i) an exclusive option agreement, (ii) an asset purchase agreement
pursuant to which the Company agreed to purchase all documentation, equipment, information and other know-how related to micellar nanoparticle technology encompassing Tocosol<font style="font-family:times new roman" size="1"><sup>
®</sup></font> and related technologies, and (iii) an initial services agreement, pursuant to which, IgDraSol is to provide certain product development and technology services
related to the Company’s antibody platform. See Note 2. </font></p>
<p style="font-size:1px;margin-top:18px;margin-bottom:0px"> </p>
<p style="margin-top:0px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Liquidity and Going Concern </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The accompanying consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will
continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the
Company has incurred operating losses since its inception in 2006, and as of March 31, 2013, had an accumulated deficit of $13,472,638. At March 31, 2013, the Company had working capital of $9,195,713. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company anticipates that it will continue to incur net losses into the foreseeable future as it: (i) continues to identify and
advance a number of potential drug candidates into preclinical development activities, (ii) acquires IgDraSol and continues to fund its operations, and (iii) expands its corporate infrastructure, including the costs associated with being a
public company. Without additional funding, management believes that the Company will not have sufficient funds to meet its obligations beyond October 2013. These conditions give rise to substantial doubt as to the Company’s ability to continue
as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset
sales, government grants or other arrangements. However, the Company cannot be sure that such additional funds will be available on reasonable terms, or at all. If the Company is unable to secure adequate additional funding, the Company may be
forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. In addition, if the Company does not meet its payment obligations to third parties as they come
due, it may be subject to litigation claims. Even if the Company is successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. Any of these actions could materially harm the
Company’s business, results of operations, and future prospects. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Use of Estimates </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management believes that these
estimates are reasonable; however, actual results may differ from these estimates. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Cash and Cash Equivalents </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The
Company minimizes its credit risk associated with cash and cash equivalents by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. The Company has not experienced
any losses on such accounts. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Fair Value of Financial Instruments </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company’s financial instruments consist of cash and cash equivalents, grants receivable, prepaid expenses and other assets,
accounts payable and accrued expenses. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. As of March 31, 2013 and December 31, 2012, the carrying amount of cash and cash equivalents, grants receivable, prepaid expenses and other assets, accounts payable
and accrued liabilities are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Grants Receivable </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Grants receivable at March 31, 2013 and December 31, 2012 represent amounts due under several federal contracts with the
National Institute of Allergy and Infectious Diseases, or NIAID, a division of the National Institutes of Health, or NIH, collectively, the NIH Grants. The Company considers the grants receivable to be fully collectible; accordingly, no allowance
for doubtful amounts has been established. If amounts become uncollectible, they are charged to operations. </font></p>
<p style="font-size:1px;margin-top:18px;margin-bottom:0px"> </p>
<p style="margin-top:0px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Property and Equipment </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. Such
lives vary from three to five years. Leasehold improvements are amortized over the lesser of the life of the lease or the life of the asset. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Patent Rights </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Patent rights are stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets, determined to be
approximately nineteen years from the date of transfer of the rights to the Company in April 2013. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Impairment of Long-Lived Assets </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company evaluates its long-lived assets with definite lives, such as property and equipment and patent rights, for impairment. The
Company records impairment losses on long-lived assets used for operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of the assets. There have
not been any impairment losses of long-lived assets through March 31, 2013. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Income Taxes </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The provisions of the Financial Accounting Standards Board, or FASB Accounting Standards Codification, or ASC 740-10, Uncertainty in
Income Taxes, address 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 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 no uncertain tax positions. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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. The Company evaluates the recoverability of the
deferred tax assets annually. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Revenue Recognition </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company’s revenues are generated from the NIH and U.S. Treasury grant awards and a feasibility study agreement, or the
Collaboration Agreement, that the Company entered into with a third party in July 2010. The revenue from the NIH and U.S. Treasury grant awards are based upon subcontractor and internal costs incurred that are specifically covered by the grant, and
where applicable, a facilities and administrative rate that provides funding for overhead expenses. These revenues are recognized when expenses have been incurred by subcontractors or when the Company incurs internal expenses that are related to the
grant. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The revenue from the Collaboration Agreement is derived from the completion of certain development services and the
reimbursement of certain development costs incurred to provide such development services. Revenue from upfront, nonrefundable service fees are recognized when earned, as evidenced by written acknowledgement from the collaborator, or other persuasive
evidence that all service deliverables have been achieved, provided that the service deliverables are substantive and their achievability was not reasonably assured at the inception of the Collaboration Agreement. Any amounts received prior to
satisfying the Company’s revenue recognition criteria are recorded as deferred revenue. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Research and Development Costs and Collaborations </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Research and development costs are charged to expense as incurred. Such costs primarily consist of discovery research, pre-clinical
activities, manufacture of drug supply, lab supplies, contract and acquired services, stock-based compensation expense, salaries and related benefits, depreciation and allocated and direct facility expenses. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">We evaluate our collaborative agreements for proper income statement classification based on the nature of the underlying activity. If
payments to our collaborative partners are not within the scope of other authoritative accounting literature, the income statement classification for these payments is based on a reasonable, rational analogy to authoritative accounting literature
that is applied in a consistent manner. Amounts due to our collaborative partners related to development activities are reflected as a research and development expense. </font></p>
<p style="font-size:1px;margin-top:18px;margin-bottom:0px"> </p>
<p style="margin-top:0px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Stock-based Compensation </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, which establishes accounting for equity
instruments exchanged for employee services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over
the employee’s requisite service period (generally the vesting period of the equity grant). </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company accounts for
equity instruments, including restricted stock or stock options, issued to non-employees in accordance with authoritative guidance for equity-based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated
fair value determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related
services are rendered. Restricted stock issued to non-employees is accounted for at estimated fair value as they vest. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Net Loss per Share </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Net loss per share is presented as both basic and diluted net loss per share. Basic net loss per share excludes any dilutive effects of
options, shares subject to repurchase and warrants. Diluted net loss per share includes the impact of potentially dilutive securities. No dilutive effect was calculated for the three months ended March 31, 2012 and 2011 as the Company reported
a net loss for each respective period and the effect would have been anti-dilutive. The Company had outstanding common share equivalents of 10,595,000 and 6,504,686 at March 31, 2013 and 2012, respectively. The Company excludes the contingent
issuance of common shares issuable to the Lee’s and IgDraSol as there is no guarantee that such shares will be issued in the future. See Note 2. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>New Accounting Standards </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In July 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for
Impairment (the revised standard). The objective of this ASU is to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment. The amendments in the ASU provide the option to first assess qualitative factors to
determine whether, as a result of its qualitative assessment, that it is more-likely-than-not (a likelihood of more than 50%) the asset is impaired and it is necessary to calculate the fair value of the asset in order to compare that amount to the
carrying value to determine the amount of the impairment, if any. If an entity believes, as a result of its qualitative assessment, that it is not more-likely-than-not (a likelihood of more than 50%) that the fair value of an asset is less than its
carrying amount, no further testing is required. The revised standard includes examples of events and circumstances that might indicate that the indefinite-lived intangible asset is impaired. The approach in the ASU is similar to the guidance for
testing goodwill for impairment contained in ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The revised standard, which may be adopted early, is effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012 and does not change existing guidance on when to test indefinite-lived intangible assets for impairment. The adoption of the provisions of this guidance is not expected to have a
material impact on our consolidated results of operations, cash flows, and financial position. </font></p>
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<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>2. Significant Agreements and Contracts </b></font></p>
<p style="margin-top:6px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b><i>License Agreement with OPKO Health, Inc. </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
In June 2009, the Company entered into a limited license agreement, or the OPKO License, with OPKO Health, Inc., or OPKO, pursuant to which the Company granted OPKO an exclusive, royalty-free, worldwide
license under all U.S. and foreign patents and patent applications owned or controlled by the Company or any of its affiliates, or the STI Patents, to: (i) develop, manufacture, use, market, sell, offer to sell, import and export certain
products related to the development, manufacture, marketing and sale of drugs for ophthalmological indications, or the OPKO Field, and (ii) use and screen any population of distinct molecules covered by any claim of the STI Patents or which is
derived by use of any process or method covered by any claim of the STI Patents to identify, select and commercialize certain products within the OPKO Field. Subject to certain limitations, OPKO will have the right to sublicense the foregoing rights
granted under the OPKO License. Additionally, pursuant to the OPKO License, OPKO has granted the Company an exclusive, royalty-free, worldwide license to any patent or patent application owned or controlled by OPKO or any of its affiliates to
develop, use, make, market, sell and distribute certain products in any field of use, other than the OPKO Field, or the OPKO Patents. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
The Company has retained all rights to the STI Patents outside of the OPKO Field and has agreed not to practice the OPKO Patents or the STI Patents outside the STI current field of use. Unless otherwise
terminated in accordance with its terms, the License Agreement will expire upon the expiration of the last to expire patent within the STI Patents and OPKO Patents on a country-by-country basis. </font></p>
<p style="font-size:1px;margin-top:18px;margin-bottom:0px"> </p>
<p style="margin-top:0px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b><i>License Agreement with The
Scripps Research Institute </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In January 2010, the Company entered into a license agreement, or the TSRI License, with
The Scripps Research Institute, or TSRI. Under the TSRI License, TSRI granted the Company an exclusive, worldwide license to certain TSRI patent rights and materials based on quorum sensing for the prevention and treatment of Staphylococcus aureus,
or Staph, infections, including Methicillin-resistant Staph. In consideration for the license, the Company: (i) issued TSRI a warrant for the purchase of common stock, (ii) agreed to pay TSRI a certain annual royalty commencing in the
first year after certain patent filing milestones are achieved, (iii) agreed to pay a royalty on any sales of licensed products by the Company or its affiliates and a royalty for any revenues generated by the Company through its sublicense of
patent rights and materials licensed from TSRI under the TSRI License. The TSRI License requires the Company to indemnify TSRI for certain breaches of the agreement and other matters customary for license agreements. The parties may terminate the
TSRI License at any time by mutual agreement. In addition, the Company may terminate the TSRI License by giving 60 days notice to TSRI and TSRI may terminate the TSRI License immediately in the event of certain breaches of the agreement by the
Company or upon the Company’s failure to undertake certain activities in furtherance of commercial development goals. Unless terminated earlier by either or both parties, the term of the TSRI License will continue until the final expiration of
all claims covered by the patent rights licensed under the agreement. For the three months ended March 31, 2013 and 2012 and for the period from inception (January 25, 2006), or inception, through March 31, 2013, the Company recorded
$2,501, $2,221 and $129,846 in patent prosecution and maintenance costs associated with the TSRI License, respectively, which have been included in general and administrative expenses. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The fair value of the warrants to purchase Company common stock, issued in connection with the TSRI License, of $17,989 was determined
using the Black-Scholes valuation model with the following weighted-average assumptions: risk-free interest rate of 2.48%, no dividend yield, expected term of 10 years, and volatility of 102%. Such fair value has been included in general and
administrative expenses for the period from inception through March 31, 2013. </font></p>
<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b><i>NIH Grants </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In May 2010, the NIAID awarded the Company an Advanced Technology Small Business Technology Transfer Research grant to support the
Company’s program to generate and develop novel antibody therapeutics and vaccines to combat Staph infections, including Methicillin-resistant Staph, or the Staph Grant award. The project period for the Staph Grant award covered a two-year
period which commenced in June 2010 and ended in May 2012. As of March 31, 2012, the entire Phase 1 grant of $600,000 had been awarded. The Company records revenue associated with the grant as the related costs and expenses are incurred. During
the three months ended March 31, 2013 and 2012 and for the period from inception through March 31, 2013, the Company recorded $0, $56,516 and $600,000 of revenue associated with the Staph Grant award, respectively. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In July 2011, the NIAID awarded the Company a second Advanced Technology Small Business Technology Transfer Research grant to support the
Company’s program to generate and develop antibody therapeutics and vaccines to combat C. difficile infections, or the C. difficile Grant award. The project period for the C. difficile Grant award covers a two-year period which commenced in
June 2011, and as of September 30, 2012, the entire Phase 1 grant of $600,000 had been awarded. During the three months ended March 31, 2013 and 2012 and for the period from inception through March 31, 2013, the Company recorded
$77,405, $53,633 and $526,182 of revenue associated with the C. difficile Grant award, respectively. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In June 2012, the NIAID
awarded the Company a third Advanced Technology Small Business Technology Transfer Research grant, with an initial award of $300,000, to support the Company’s program to generate and develop novel human antibody therapeutics to combat Staph
infections, including Methicillin-resistant Staph, or the Staph Grant II award. The project period for the phase I grant covers a two-year period which commenced in June 2012, with a potential annual award of $300,000 per year. During the three
months ended March 31, 2013 and for the period from inception through March 31, 2013, the Company recorded $56,658 and $185,474 of revenue associated with the Staph Grant II award, respectively. </font></p>
<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b><i>Collaboration Agreement </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
In July 2010, the Company entered into the Collaboration Agreement, with a third party. Under the terms of the Collaboration Agreement, the Company provided certain antibody screening services for an
upfront cash fee of $200,000 and was reimbursed for certain costs and expenses associated with providing the services, or the Development Costs. The upfront fee and reimbursable Development Costs were accounted for as separate units of accounting.
The Company recorded the gross amount of the reimbursable Development Costs as revenue and the costs associated with these reimbursements are reflected as a component of research and development expense. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Any amounts received by the Company pursuant to the Collaboration Agreement prior to satisfying the Company’s revenue recognition
criteria are recorded as deferred revenue. All agreed upon services under the Collaboration Agreement were delivered in March 2011. For the period from inception through March 31, 2013, the Company recognized $223,453 in revenue. </font></p>
<p style="font-size:1px;margin-top:18px;margin-bottom:0px"> </p>
<p style="margin-top:0px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b><i>U.S. Treasury Grants </i></b>
</font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">During 2010, the U.S. Treasury awarded the Company grants totaling $394,480 for investments in qualifying therapeutic
discovery projects under section 48D of the Internal Revenue Code. The proceeds from this grant are classified in “Revenues – Grant” for the period from inception through March 31, 2013. </font></p>
<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b><i>Assignment Agreement </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
In January 2013, the Company entered into the assignment agreement with the Lees, pursuant to which the Lees agreed to assign to the Company their right, title and interest throughout the world in and to
certain inventions and patents that provide for the production of recombinant intravenous immunoglobulin. As consideration for the assignment by the Lees under the assignment agreement, the Company: (i) issued the Lee’s 250,000 shares of
the Company’s common stock upon execution of the Agreement, (ii) agreed to pay the Lees a total of $50,000 in five monthly installments of $10,000 beginning on February 1, 2013, and (iii) agreed to issue the Lees up to 2,000,000
shares of the Company’s common stock based upon the achievement of certain milestone events described in the assignment agreement. As of March 31, 2013, no such milestones had been achieved. Unless otherwise terminated in accordance with its
terms, the assignment agreement will expire upon the expiration of the last to expire patent within the assigned patent rights. </font></p>
<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b><i>IgDraSol Transactions </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
On March 7, 2013, the Company entered into an exclusive option agreement with IgDraSol, a private company focused on the development of oncologic agents for the treatment of metastatic breast cancer,
or MBC, non-small cell lung cancer, or NSCLC, and other cancers. Pursuant to the option agreement, IgDraSol granted the Company an irrevocable option to acquire IgDraSol by means of an agreement and plan of merger. In consideration for entering into
the option agreement, IgDraSol is to receive a non-refundable lump sum payment of $200,000 within 51 days of the signing of the option agreement. If the Company exercises
its option to acquire IgDraSol, the Company will, pursuant to the merger agreement, issue 76,199,198 shares of common stock to IgDraSol stockholders and, upon the later achievement of a specified regulatory milestone, the Company will issue an
additional 32,656,799 shares of common stock to former IgDraSol stockholders. If the Company does not exercise its option to acquire IgDraSol, the Company will be required to invest $500,000 in IgDraSol pari passu with other new investors of
IgDraSol. See Note 6. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%;padding-bottom:0px; "><font style="font-family:times new roman" size="2">IgDraSol’s lead compound, Cynviloq™, is a micellar diblock copolymeric
paclitaxel formulation drug product. Cynviloq™ is currently approved and marketed in several countries, including South Korea for MBC and NSCLC under the trade name Genexol-PM<font style="font-family:times new roman" size="1"><sup>
®</sup></font>, and has completed Phase 2 testing for potential advancement into registration trials in the U.S. IgDraSol has the exclusive U.S. distribution rights to
Cynviloq™ from Samyang Biopharmaceuticals Corporation, a South Korean corporation. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%;padding-bottom:0px; "><font style="font-family:times new roman" size="2">Contemporaneously with the execution of the option agreement, on March 7, 2013, the Company and IgDraSol
entered into an asset purchase agreement pursuant to which the Company agreed to purchase all documentation, equipment, information and other know-how related to micellar nanoparticle technology encompassing Tocosol<font style="font-family:times new roman" size="1">
<sup>®</sup></font> and related technologies for a purchase price of $1,210,000. The payment is due within 45 days of
the signing of the asset purchase agreement. Upon payment of such purchase price, IgDraSol and the Company intend to enter into a development services agreement pursuant to which approximately $3,000,000 in development services may be provided by
IgDraSol for the development of Tocosol<font style="font-family:times new roman" size="1"><sup>®</sup></font> and related technologies. See Note 6. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">IgDraSol and the Company also entered into an initial services agreement dated March 7, 2013, or the initial services agreement,
pursuant to which, IgDraSol is to provide certain product development and technology services related to the Company’s antibody platform in exchange for a payment of $1,000,000, which was paid to IgDraSol upon signing. During the three months
ended March 31, 2013, IgDraSol provided services with an aggregate cost of $404,084 which has been allocated between research and development as well as general and administrative expenses. The remaining balance of $595,916 is included in
prepaid expenses and other. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company has determined that IgDraSol is a variable interest entity (VIE), however because the
Company does not have the power to direct the activities of IgDraSol that most significantly impact its economic performance the Company is not the primary beneficiary of this VIE at this time. Further, the Company has no oversight of the day-to-day
operations of IgDraSol, nor sufficient rights or any voting representation to influence the operating or financial decisions of IgDraSol, or participate on any steering or oversight committees. Therefore, the Company is not required to consolidate
IgDraSol into the Company’s consolidated financial statements. This consolidation status could change in the future if the option agreement is exercised, or if other changes occur in the relationship between IgDraSol and the Company.
</font></p>
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<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>3. Loan and Security Agreement </b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In February 2013, the Company entered into a loan and security agreement with a bank pursuant to which the lender
provided the Company loans to finance certain equipment, in an aggregate principal amount of up to $1,000,000. Under the loan agreement, the lender funded the initial equipment advance in the principal amount of $875,888 in February 2013 and agreed
to fund, subject to customary conditions, an additional equipment advance in the principal amount of $124,112 on or prior to August 21, 2013. The loans under the loan agreement bear interest at a rate equal to the three-year U.S. Treasury note
yield plus 4.65%, which is fixed on the date of each funding. Interest accrues on the initial outstanding advance at the fixed rate of 5.15%. </font></p>
<p style="font-size:1px;margin-top:12px;margin-bottom:0px"> </p>
<p style="margin-top:0px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company is
obligated to pay interest-only on any loans funded under the loan agreement prior to April 30, 2013 until May 1, 2013, and thereafter to pay 36 consecutive equal monthly installments of principal and interest through April 1, 2016.
The Company is obligated to pay equal monthly installments of principal and interest through April 1, 2016 on any loans funded under the loan agreement after April 30, 2013. All loans funded under the loan agreement mature on April 1,
2016. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">At the Company’s option, it may prepay all of the outstanding principal balance, subject to certain pre-payment
fees ranging from 1% to 3% of the prepayment amount. In the event of a final payment of the loans under the loan agreement, either in the event of repayment of the loan at maturity or upon any prepayment, the Company is obligated to pay a final fee
of $55,000. Such fee is being accrued over the term of the loan using the effective interest method. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company granted the
lender a security interest in any equipment that is financed under the loan agreement. The Company is also subject to certain affirmative and negative covenants under the loan agreement, including limitations on its ability to: undergo certain
change of control events; convey, sell, lease, license, transfer or otherwise dispose of any equipment financed by loans under the loan agreement; create, incur, assume, guarantee or be liable with respect to indebtedness, subject to certain
exceptions; grant liens on any equipment financed under the loan agreement; and make or permit any payment on specified subordinated debt. In addition, under the loan agreement, subject to certain exceptions, the Company is required to maintain with
the lender its primary operating, other deposit and securities accounts. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Future annual principal payments under the loan agreement, as of
December 31, 2012, are as follows: </font></p>
<p style="font-size:12px;margin-top:0px;margin-bottom:0px"> </p>
<table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">
<!-- Begin Table Head -->
<tr>
<td width="87%"> </td>
<td valign="bottom" width="5%"> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2013</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2">$</font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">194,642</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2014</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">291,963</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2015</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">291,963</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2016</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">97,320</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr style="font-size:1px">
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="border-top:1px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Total payments</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2">$</font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">875,888</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr style="font-size:1px">
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="border-top:3px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3px double #000000"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
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<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>4. Stockholders’ Equity </b></font></p>
<p style="margin-top:6px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>Common Stock and Related Party Transaction </b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
In December 2011, the Company entered into a Stock Purchase Agreement, or the Stock Purchase Agreement, and issued 12,500,000 shares of common stock in a private placement transaction at $0.16 per share,
for aggregate gross proceeds of $2,000,000. In May 2012, the Company entered into an Amended and Restated Stock Purchase Agreement, and issued 37,500,000 shares of common stock in a private placement transaction at $0.16 per share, for
aggregate gross proceeds of $6,000,000. 6,250,000 of the shares were purchased by an investor, Hongye SD Group, LLC, of which Dr. Henry Ji, our Chief Executive Officer and President, is a managing director. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In January 2013, the Company entered into the assignment agreement and issued 250,000 shares of common stock valued at $40,000.
</font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In March 2013, the Company entered into a Stock Purchase Agreement and issued 33,658,305 shares of common stock, in a private
placement transaction, at $0.18 per share for aggregate gross proceeds of $6,418,495. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Stock Incentive Plans
</i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><i>2009 Equity Incentive Plan </i></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
In February 2009, prior to the Merger, the Company’s Board of Directors approved the 2009 Equity Incentive Plan, or the EIP, under which 10,000,000 shares of common stock were reserved for issuance
to employees, non-employee directors and consultants of the Company. The EIP provided for the grant of incentive stock options, non-incentive stock options, restricted stock awards and stock bonus awards to eligible recipients. In March 2009, the
Company issued 7,403,861 restricted common stock awards to certain consultants for aggregate gross proceeds of $291, of which the Company repurchased 1,104,135 unvested shares of restricted common stock for $43 in January 2011. The restricted shares
vested monthly over four years and all remaining shares were fully vested as of March 31, 2013. No further shares are available for grant under the EIP. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2">
<i>2009 Non-Employee Director Grants </i></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In September 2009, prior to the adoption
of the 2009 Stock Incentive Plan, the Company’s Board of Directors approved the reservation and issuance of 200,000 nonstatutory stock options to the Company’s non-employee directors. The outstanding options vested on the one year
anniversary of the vesting commencement date in October 2010. Such options are exercisable on the two year anniversary of the grant date and are generally exercisable for up to 10 years from the grant date. No further shares may be granted under
this plan and, as of March 31, 2013, 80,000 options were outstanding. </font></p>
<p style="font-size:1px;margin-top:18px;margin-bottom:0px"> </p>
<p style="margin-top:0px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><i>2009 Stock
Incentive Plan </i></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In October 2009, the Company’s stockholders approved the 2009 Stock Incentive Plan, or the Stock Plan,
which became effective in December 2009 and under which 15,600,000 shares of the Company’s common stock are reserved for issuance to employees, non-employee directors and consultants of the Company. In addition, this amount will be
automatically increased annually on the first day of each fiscal year by the lesser of: (i) 1% of the aggregate number of shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year,
(ii) 1,200,000 shares, or (iii) an amount approved by the administrator of the Stock Plan. The Stock 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 will generally vest 25% on each anniversary of the original vesting date over four years.
The vesting schedules for grants to non-employee directors and consultants will be determined by the Company’s Compensation Committee. Stock options are generally not exercisable prior to the applicable vesting date, unless otherwise
accelerated under the terms of the applicable stock plan agreement. Unvested shares of the Company’s common stock issued in connection with an early exercise however, may be repurchased by the Company upon termination of the optionee’s
service with the Company. See Note 6. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">During the three months ended March 31, 2013 and 2012, the Company’s Board of
Directors awarded 50,000 and 2,055,000 options to certain employees and consultants and 12,492,500 and 10,372,500 shares were available for grant under the Stock Plan, respectively. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. Stock based compensation expense is
recognized over the vesting period using the straight-line method.
The fair value of employee stock options was estimated at the grant date using the following assumptions: </font></p>
<p style="font-size:12px;margin-top:0px;margin-bottom:0px"> </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">
<!-- Begin Table Head -->
<tr>
<td width="78%"> </td>
<td valign="bottom" width="4%"> </td>
<td> </td>
<td> </td>
<td> </td>
<td valign="bottom" width="4%"> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000"><font style="font-family:times new roman" size="1"><b>Three months ended March 31,</b></font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000"><font style="font-family:times new roman" size="1"><b>2013</b></font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000"><font style="font-family:times new roman" size="1"><b>2012</b></font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Dividend yield</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">—  </font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">—  </font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Volatility</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">109</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">102</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
</tr>
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Risk-free interest rate</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">1.07</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">1.02</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Expected life of options</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">6.1 years</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">5.7 years</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<!-- End Table Body -->
</table>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The weighted average grant date fair value per share of employee stock options granted during the three months ended
March 31, 2013 and 2012 was $0.20 and $0.13, respectively. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The assumed dividend yield was based on the Company’s
expectation of not paying dividends in the foreseeable future. Due to the Company’s limited historical data, the estimated volatility incorporates the historical and implied volatility of comparable companies whose share prices are publicly
available. The risk-free interest rate assumption was based on the United States Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. 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. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The total employee stock-based compensation recorded as operating expenses was $143,469, $26,728 and $562,285 for the three months ended
March 31, 2013 and 2012 and for the period from inception through March 31, 2013, respectively. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">As of
March 31, 2013, unrecognized compensation cost related to the options was $1,629,269 which will be recognized over 3.2 years. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
The Company records equity instruments issued to non-employees as expense at their fair value over the related service period as determined in accordance with the applicable authoritative guidance and
periodically revalues the equity instruments as they vest. Stock-based compensation expense related to non-employee consultants recorded as operating expenses was $104,292, $74,440 and $1,152,115 for the three months ended March 31, 2013 and
2012 and for the period from inception through March 31, 2013, respectively. </font></p>
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<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>5. Income Taxes </b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company maintains deferred tax assets that reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These deferred tax assets include net operating loss carryforwards, research credits and capitalized research and development.
The net deferred tax asset has been fully offset by a valuation allowance because of the Company’s history of losses. Utilization of operating losses and credits may be subject to substantial annual limitation due to
ownership change provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. </font></p>
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<p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>6. Subsequent Events </b></font></p>
<p style="margin-top:6px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Payments Made Under Option and Asset Purchase Agreements </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%;padding-bottom:0px; "><font style="font-family:times new roman" size="2">In April 2013, the Company paid IgDraSol $200,000 and $1,210,000 as due under the option agreement and asset
purchase agreement, respectively. The payment under the asset purchase agreement also triggered the execution of the development services agreement, pursuant to which IgDraSol is to provide approximately $3,000,000 in development services related to the development of
Tocosol<font style="font-family:times new roman" size="1"><sup>®</sup></font> and related technologies. See Note 2. </font></p>
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Amended and Restated Stock Plan and Amendments to Articles of Incorporation </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">On April 26, 2013, the Company’s stockholders approved: (a) the amendment and restatement of the Stock Plan, among other
items, to increase the number of common stock authorized to be issued pursuant to the Stock Plan from 15,600,000 to 34,000,000, and (b) three amendments to the Company’s Certificate of Incorporation, as follows: (i) increased the
number of shares of common stock authorized to be issued by the Company from 500,000,000 to 750,000,000, (ii) authorized the Company’s Board of Directors, or the Board, to effect a reverse stock split of the Company’s common stock by
a ratio of not less than 1-for-2 and not more than 1-for-150, with the Board having the discretion as to whether or not the reverse split is to be effected at any time prior to April 26, 2014, and (iii) authorized the Board, in the event a
reverse stock split is approved, in its discretion, to reduce the number of shares of common stock authorized to be issued by the Company in proportion to the percentage decrease in the number of outstanding shares of common stock resulting from
the reverse split (or a lesser decrease in authorized shares of common stock as determined by the Board in its discretion). </font></p>
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<p style="margin-top:6px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Nature of Operations and Basis of Presentation
</i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company is a biopharmaceutical company focused on the discovery, development and commercialization of novel and
proprietary biotherapeutics for the treatment of a variety of disease conditions, including cancer, inflammation, metabolic and infectious diseases. The Company’s objective is to either independently or through one or more partnerships with
pharmaceutical or biopharmaceutical organizations identify drug development candidates derived from the libraries. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">As of
March 31, 2013, the Company had devoted substantially all of its efforts to product development, raising capital and building infrastructure, and had not realized revenues from its planned principal operations. Accordingly, the Company is
considered to be in the development stage. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The accompanying interim consolidated financial statements have been prepared by
the Company, without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in
accordance with GAAP. The financial statements also include the accounts of the Company’s wholly-owned subsidiary, Sorrento Therapeutics, Inc. Hong Kong Limited, or Sorrento Hong Kong, which was registered effective December 4, 2012.
Sorrento Hong Kong had no operations through March 31, 2013. All inter-company balances and transactions have been eliminated in consolidation. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
The balance sheet at December 31, 2012 is derived from the audited consolidated balance sheet at that date which is not presented herein. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are
only normal and recurring, necessary for a fair statement of financial position, results of operations and cash flows. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Operating results for interim periods are not expected to be indicative of operating results for the Company’s 2013 fiscal year. </font></p>
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<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Business Activities </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">On September 21, 2009, QuikByte Software, Inc., a shell company, or QuikByte, acquired Sorrento Therapeutics, Inc., a privately held
Delaware corporation, or STI, in a reverse merger, or the Merger. Pursuant to the Merger, all of the issued and outstanding shares of STI common stock were exchanged into an aggregate of 169,375,807 shares of QuikByte common stock and STI became a
wholly owned subsidiary of QuikByte. The holders of QuikByte’s common stock as of immediately prior to the Merger held an aggregate of 55,708,320 shares of QuikByte’s common stock. STI and QuikByte reincorporated in Delaware in December
2009, and on December 4, 2009, STI merged with and into QuikByte, the separate corporate existence of STI ceased and QuikByte continued as the surviving corporation. Contemporaneously, QuikByte Software, Inc. changed its name to Sorrento
Therapeutics, Inc., or the Company. In connection with the Merger, the Company received cash of $104,860. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In January 2013,
the Company entered into an assignment agreement, or the assignment agreement with Tien-Li Lee, M.D. and Jane Wu Lee, M.D. as individuals (collectively, the Lees) pursuant to which the Lees agreed to assign to the Company their right, title and
interest throughout the world in and to certain inventions and patents that provide for the production of recombinant intravenous immunoglobulins. See Note 2. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%;padding-bottom:0px; "><font style="font-family:times new roman" size="2">On March 7, 2013, the Company entered into various agreements with IgDraSol, Inc. (IgDraSol) a private company
focused on the development of oncologic agents for the treatment of metastatic breast cancer, or MBC, non-small cell lung cancer, or NSCLC, and other cancers, as follows: (i) an exclusive option agreement, (ii) an asset purchase agreement
pursuant to which the Company agreed to purchase all documentation, equipment, information and other know-how related to micellar nanoparticle technology encompassing Tocosol<font style="font-family:times new roman" size="1"><sup>
®</sup></font> and related technologies, and (iii) an initial services agreement, pursuant to which, IgDraSol is to provide certain product development and technology services
related to the Company’s antibody platform. See Note 2. </font></p>
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<p style="margin-top:0px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Liquidity and Going Concern </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The accompanying consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will
continue to operate as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the
Company has incurred operating losses since its inception in 2006, and as of March 31, 2013, had an accumulated deficit of $13,472,638. At March 31, 2013, the Company had working capital of $9,195,713. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company anticipates that it will continue to incur net losses into the foreseeable future as it: (i) continues to identify and
advance a number of potential drug candidates into preclinical development activities, (ii) acquires IgDraSol and continues to fund its operations, and (iii) expands its corporate infrastructure, including the costs associated with being a
public company. Without additional funding, management believes that the Company will not have sufficient funds to meet its obligations beyond October 2013. These conditions give rise to substantial doubt as to the Company’s ability to continue
as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">
The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset
sales, government grants or other arrangements. However, the Company cannot be sure that such additional funds will be available on reasonable terms, or at all. If the Company is unable to secure adequate additional funding, the Company may be
forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. In addition, if the Company does not meet its payment obligations to third parties as they come
due, it may be subject to litigation claims. Even if the Company is successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. Any of these actions could materially harm the
Company’s business, results of operations, and future prospects. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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. </font></p>
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<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Use of Estimates </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management believes that these
estimates are reasonable; however, actual results may differ from these estimates. </font></p>
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<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Cash and Cash Equivalents </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The
Company minimizes its credit risk associated with cash and cash equivalents by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. The Company has not experienced
any losses on such accounts. </font></p>
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<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Fair Value of Financial Instruments </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company’s financial instruments consist of cash and cash equivalents, grants receivable, prepaid expenses and other assets,
accounts payable and accrued expenses. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. As of March 31, 2013 and December 31, 2012, the carrying amount of cash and cash equivalents, grants receivable, prepaid expenses and other assets, accounts payable
and accrued liabilities are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. </font></p>
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<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Grants Receivable </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Grants receivable at March 31, 2013 and December 31, 2012 represent amounts due under several federal contracts with the
National Institute of Allergy and Infectious Diseases, or NIAID, a division of the National Institutes of Health, or NIH, collectively, the NIH Grants. The Company considers the grants receivable to be fully collectible; accordingly, no allowance
for doubtful amounts has been established. If amounts become uncollectible, they are charged to operations. </font></p>
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<p style="margin-top:0px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Property and Equipment </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. Such
lives vary from three to five years. Leasehold improvements are amortized over the lesser of the life of the lease or the life of the asset. </font></p>
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<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table9 - us-gaap:IntangibleAssetsFiniteLivedPolicy-->
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Patent Rights </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Patent rights are stated at cost and amortized on a straight-line basis over the estimated useful lives of the assets, determined to be
approximately nineteen years from the date of transfer of the rights to the Company in April 2013. </font></p>
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<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table10 - us-gaap:ImpairmentOrDisposalOfLongLivedAssetsPolicyTextBlock-->
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Impairment of Long-Lived Assets </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company evaluates its long-lived assets with definite lives, such as property and equipment and patent rights, for impairment. The
Company records impairment losses on long-lived assets used for operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of the assets. There have
not been any impairment losses of long-lived assets through March 31, 2013. </font></p>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table11 - us-gaap:IncomeTaxPolicyTextBlock-->
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Income Taxes </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The provisions of the Financial Accounting Standards Board, or FASB Accounting Standards Codification, or ASC 740-10, Uncertainty in
Income Taxes, address 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 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 no uncertain tax positions. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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. The Company evaluates the recoverability of the
deferred tax assets annually. </font></p>
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<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table12 - us-gaap:RevenueRecognitionPolicyTextBlock-->
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Revenue Recognition </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company’s revenues are generated from the NIH and U.S. Treasury grant awards and a feasibility study agreement, or the
Collaboration Agreement, that the Company entered into with a third party in July 2010. The revenue from the NIH and U.S. Treasury grant awards are based upon subcontractor and internal costs incurred that are specifically covered by the grant, and
where applicable, a facilities and administrative rate that provides funding for overhead expenses. These revenues are recognized when expenses have been incurred by subcontractors or when the Company incurs internal expenses that are related to the
grant. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The revenue from the Collaboration Agreement is derived from the completion of certain development services and the
reimbursement of certain development costs incurred to provide such development services. Revenue from upfront, nonrefundable service fees are recognized when earned, as evidenced by written acknowledgement from the collaborator, or other persuasive
evidence that all service deliverables have been achieved, provided that the service deliverables are substantive and their achievability was not reasonably assured at the inception of the Collaboration Agreement. Any amounts received prior to
satisfying the Company’s revenue recognition criteria are recorded as deferred revenue. </font></p>
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<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table13 - us-gaap:ResearchAndDevelopmentExpensePolicy-->
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Research and Development Costs and Collaborations </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Research and development costs are charged to expense as incurred. Such costs primarily consist of discovery research, pre-clinical
activities, manufacture of drug supply, lab supplies, contract and acquired services, stock-based compensation expense, salaries and related benefits, depreciation and allocated and direct facility expenses. </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">We evaluate our collaborative agreements for proper income statement classification based on the nature of the underlying activity. If
payments to our collaborative partners are not within the scope of other authoritative accounting literature, the income statement classification for these payments is based on a reasonable, rational analogy to authoritative accounting literature
that is applied in a consistent manner. Amounts due to our collaborative partners related to development activities are reflected as a research and development expense. </font></p>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table14 - us-gaap:ShareBasedCompensationOptionAndIncentivePlansPolicy-->
<p style="margin-top:0px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Stock-based Compensation </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, which establishes accounting for equity
instruments exchanged for employee services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over
the employee’s requisite service period (generally the vesting period of the equity grant). </font></p>
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The Company accounts for
equity instruments, including restricted stock or stock options, issued to non-employees in accordance with authoritative guidance for equity-based payments to non-employees. Stock options issued to non-employees are accounted for at their estimated
fair value determined using the Black-Scholes option-pricing model. The fair value of options granted to non-employees is re-measured as they vest, and the resulting increase in value, if any, is recognized as expense during the period the related
services are rendered. Restricted stock issued to non-employees is accounted for at estimated fair value as they vest. </font></p>
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<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table15 - us-gaap:EarningsPerSharePolicyTextBlock-->
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>Net Loss per Share </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Net loss per share is presented as both basic and diluted net loss per share. Basic net loss per share excludes any dilutive effects of
options, shares subject to repurchase and warrants. Diluted net loss per share includes the impact of potentially dilutive securities. No dilutive effect was calculated for the three months ended March 31, 2012 and 2011 as the Company reported
a net loss for each respective period and the effect would have been anti-dilutive. The Company had outstanding common share equivalents of 10,595,000 and 6,504,686 at March 31, 2013 and 2012, respectively. The Company excludes the contingent
issuance of common shares issuable to the Lee’s and IgDraSol as there is no guarantee that such shares will be issued in the future. See Note 2. </font></p>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Accounting Policy: note1_accounting_policy_table16 - us-gaap:NewAccountingPronouncementsPolicyPolicyTextBlock-->
<p style="margin-top:18px;margin-bottom:0px; margin-left:2%"><font style="font-family:times new roman" size="2"><b><i>New Accounting Standards </i></b></font></p>
<p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">In July 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for
Impairment (the revised standard). The objective of this ASU is to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment. The amendments in the ASU provide the option to first assess qualitative factors to
determine whether, as a result of its qualitative assessment, that it is more-likely-than-not (a likelihood of more than 50%) the asset is impaired and it is necessary to calculate the fair value of the asset in order to compare that amount to the
carrying value to determine the amount of the impairment, if any. If an entity believes, as a result of its qualitative assessment, that it is not more-likely-than-not (a likelihood of more than 50%) that the fair value of an asset is less than its
carrying amount, no further testing is required. The revised standard includes examples of events and circumstances that might indicate that the indefinite-lived intangible asset is impaired. The approach in the ASU is similar to the guidance for
testing goodwill for impairment contained in ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The revised standard, which may be adopted early, is effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012 and does not change existing guidance on when to test indefinite-lived intangible assets for impairment. The adoption of the provisions of this guidance is not expected to have a
material impact on our consolidated results of operations, cash flows, and financial position. </font></p>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note Table: note3_table1 - us-gaap:ScheduleOfMaturitiesOfLongTermDebtTableTextBlock-->
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Future annual principal payments under the loan agreement, as of
December 31, 2012, are as follows: </font></p>
<p style="font-size:12px;margin-top:0px;margin-bottom:0px"> </p>
<table cellspacing="0" cellpadding="0" width="68%" border="0" style="border-collapse:collapse; text-align: left" align="center">
<!-- Begin Table Head -->
<tr>
<td width="87%"> </td>
<td valign="bottom" width="5%"> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2013</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2">$</font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">194,642</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2014</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">291,963</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2015</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">291,963</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">2016</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">97,320</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr style="font-size:1px">
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="border-top:1px solid #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:1px solid #000000"> </p>
</td>
<td> </td>
</tr>
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Total payments</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2">$</font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">875,888</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr style="font-size:1px">
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td valign="bottom">
<p style="border-top:3px double #000000"> </p>
</td>
<td valign="bottom">
<p style="border-top:3px double #000000"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note Table: note4_table1 - us-gaap:ScheduleOfShareBasedPaymentAwardStockOptionsValuationAssumptionsTableTextBlock-->
<p style="margin-top:12px;margin-bottom:0px; text-indent:4%">
<font style="font-family:times new roman" size="2">
The fair value of employee stock options was estimated at the grant date using the following assumptions: </font></p>
<p style="font-size:12px;margin-top:0px;margin-bottom:0px"> </p>
<table cellspacing="0" cellpadding="0" width="76%" border="0" style="border-collapse:collapse; text-align: left" align="center">
<!-- Begin Table Head -->
<tr>
<td width="78%"> </td>
<td valign="bottom" width="4%"> </td>
<td> </td>
<td> </td>
<td> </td>
<td valign="bottom" width="4%"> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" colspan="6" align="center" style="border-bottom:1px solid #000000"><font style="font-family:times new roman" size="1"><b>Three months ended March 31,</b></font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000"><font style="font-family:times new roman" size="1"><b>2013</b></font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" colspan="2" align="center" style="border-bottom:1px solid #000000"><font style="font-family:times new roman" size="1"><b>2012</b></font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Dividend yield</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">—  </font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">—  </font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Volatility</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">109</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">102</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
</tr>
<tr bgcolor="#cceeff">
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Risk-free interest rate</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">1.07</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">1.02</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2">% </font></td>
</tr>
<tr>
<td valign="top">
<p style="margin-left:1.00em; text-indent:-1.00em"><font style="font-family:times new roman" size="2">Expected life of options</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">6.1 years</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
<td valign="bottom" align="right"><font style="font-family:times new roman" size="2">5.7 years</font></td>
<td nowrap="nowrap" valign="bottom"><font style="font-family:times new roman" size="2"> </font></td>
</tr>
<!-- End Table Body -->
</table>
false
--12-31
Q1
2013
2013-03-31
10-Q
0000850261
336075440
Smaller Reporting Company
Sorrento Therapeutics, Inc.
2000000
1210000
50000
32656799
3000000
3000000
500000
In addition, this amount will be automatically increased annually on the first day of each fiscal year by the lesser of: (i) 1% of the aggregate number of shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year, (ii) 1,200,000 shares, or (iii) an amount approved by the administrator of the Stock Plan.
750000000
34000000
200000
36
6504686
10595000
1000000
P51D
P45D
300000
1000000
55000
0.03
P2Y
0.01
10000
3
0
5
1200000
129846
2221
2501
0.01
P3Y
P2Y
P2Y
P2Y
300000
600000
P10Y
P10Y
P1Y
0.25
1152115
74440
104292
43
P60D
200000
9195713
439533
707148
77744
180000
66896
111029
17117718
23763290
562285
26728
143469
0
6781604
12198325
5251990
10461522
200000
169375807
76199198
104860
104860
3466549
2443477
5091312
9638768
9638768
-1023072
4547456
0.0001
0.0001
500000000
500000000
500000000
15600000
300117135
336075440
300117135
336075440
55708320
30012
33608
0.0465
875888
0.0515
2016-04-01
124112
581803
62496
103114
10950299
13472638
0.00
-0.01
P3Y2M12D
1629269
0
P10Y
1.02
0.0248
14363
90000
P19Y
5821074
218675
1249681
600000
79760
134063
0
5600
800
430199
-36807
253253
367712
-14121
143033
134063
11449
54303
767472
-7258
658079
9928
9928
879
879
30778
1472
1884
6781604
12198325
584173
1265809
0
875888
267632
194642
97320
291963
291963
608256
22737965
7237297
-1824303
-225491
-207446
-11274894
-797581
-2482395
-13472638
-906126
-2522339
15423077
1017747
2648358
-13493488
-907598
-2514295
48625
97119
5166
5166
50000
50000
1879163
225491
157446
0.0001
0.0001
100000000
100000000
0
0
0
0
80918
688691
21805860
6354409
875888
875888
291
2000000
6000000
6418495
56217
7000
1480989
1549684
P5Y
P3Y
223453
404084
595916
9602003
799072
1398677
13472638
526182
1706136
600000
185474
394480
110149
53633
56516
134063
77405
223453
0
56658
1929589
110149
134063
1210000
1714399
101168
247760
P4Y
P4Y
Employee option grants will generally vest 25% on each anniversary of the original vesting date over four years
7403861
P5Y8M12D
P6Y1M6D
1.02
1.09
0.0102
0.0107
10000000
200000
15600000
10372500
0
0
12492500
2055000
50000
0.13
0.20
80000
0.16
0.16
0.18
6197431
10324260
not more than 1-for-150
ratio of not less than 1-for-2
12500000
37500000
6250000
250000
33658305
250000
250000
40000
40000
1104135
17989
260893200
307808569