Caribou Biosciences, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1, of this Quarterly Report on Form 10-Q (“Form 10-Q”) and with the audited consolidated financial statements and the related notes for the fiscal year ended December 31, 2022 included in our Annual Report on Form 10-K (“Form 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”) on March 9, 2023. Special Note Regarding Forward-Looking Statements This Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Form 10-Q are forward-looking statements, including statements regarding our business strategy, plans, and objectives; expectations regarding our clinical and preclinical development programs, including our timing expectations with respect to such programs and the expected timing of disclosure of clinical data from such programs and safety, efficacy, and potential advantages of our product candidates; future regulatory filings and interactions with regulatory authorities; our results of operations and financial position; plans and objectives of management for future operations; and the like. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. As a result of many factors, including but not limited to risks related to our limited operating history, history of net operating losses, financial position and our ability to raise additional capital as needed to fund our operations and product candidate development; risks inherent in the development of cell therapy products; risks associated with the initiation, cost, timing, progress, and results of current and future research and development programs, preclinical studies, and clinical trials; the risk that initial, preliminary, or interim clinical trial data will not ultimately be predictive of the safety and efficacy of our product candidates or that clinical outcomes may differ as patient enrollment continues and as more clinical data becomes available or different conclusions or considerations are reached once additional data have been received and fully evaluated; the risk that preclinical study results will not be borne out in human patients; risks related to our ability to obtain and maintain regulatory approval for our product candidates; risks that our product candidates, if approved, may not gain market acceptance due to negative public opinion and increased regulatory scrutiny of cell therapies involving genome editing; risks related to our ability to meet future regulatory standards with respect to our products; risks related to our ability to establish and/or maintain intellectual property rights covering our product candidates and genome-editing technology; risks of third parties asserting that our product candidates infringe their patents; risks related to developments of our competitors and our industry; risks related to our reliance on third parties to conduct our clinical trials and manufacture our product candidates; risks caused by public health crises such as the COVID-19 pandemic or geopolitical events on our business and operations; and other risks described in greater detail in the section of our Form 10-K titled “Risk Factors,” and in other filings we make with the SEC, the events and circumstances reflected in our forward-looking statements may not be achieved or may not occur, and actual results could differ materially from those described in or implied by the forward-looking statements. As a result of these risks, you should not place undue reliance on these forward-looking statements. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law. Overview We are a clinical-stage C lustered R egularly I nterspaced S hort P alindromic R epeats (“CRISPR”) genome-editing biopharmaceutical company dedicated to developing transformative therapies for patients with devastating diseases. Our genome-editing platform, including our novel chRDNA ( C RISPR h ybrid R NA- DNA , or “chRDNA,” pronounced “chardonnay”) technologies, enables superior editing precision to develop cell therapies that are armored to improve antitumor activity. We are advancing a pipeline of allogeneic, or off-the-shelf, cell therapies from our chimeric antigen receptor (“CAR”) T (“CAR-T”) cell and CAR-natural killer (“CAR-NK”) cell platforms as readily available therapeutic treatments for patients. We are initially focused on advancing multiple allogeneic cell therapies for the treatment of hematologic malignancies and solid tumors. Our therapies are directed at established tumor cell surface targets for which autologous CAR-T cell therapeutics have already demonstrated clinical proof of concept, including CD19 and B cell maturation antigen (“BCMA”), as well as targets such as C-type lectin-like molecule-1 (“CLL-1,” also known as CD371). We use our chRDNA technologies to armor our cell therapies by using multiple genome-editing strategies, such as checkpoint disruption, immune cloaking, or a combination of these two strategies to enhance their antitumor activity. 21 Table of Contents Our lead product candidate, CB-010, to our knowledge, is the first clinical-stage allogeneic anti-CD19 CAR-T cell therapy with programmed cell death protein 1 (“PD-1”) removed from the CAR-T cell surface by a genome-edited knockout of the PDCD1 gene. We have demonstrated in preclinical models that the PD-1 knockout improved the durability of antitumor activity by disrupting a pathway that leads to rapid T cell exhaustion. CB-010 is being evaluated in our ongoing ANTLER phase 1 clinical trial in patients with relapsed or refractory B cell non-Hodgkin lymphoma (“r/r B-NHL”). We completed the dose escalation portion of the ANTLER trial and advanced into the dose expansion portion, and we are enrolling second-line large B cell lymphoma (“LBCL”) patients to determine the recommended phase 2 dose. CB-010 has received Regenerative Medicine Advanced Therapy (“RMAT”) designation for r/r LBCL and fast track designation for r/r B-NHL from the U.S. Food and Drug Administration (“FDA”). On July 13, 2023, we announced results of the long-term follow-up from the dose escalation portion of the ongoing ANTLER Phase 1 trial evaluating our CB-010 product candidate. We plan to meet with the FDA in the second half of 2023 to discuss a potential pivotal clinical trial in second-line LBCL patients, and we plan to share FDA feedback by year-end 2023. We also plan to report initial dose expansion data in second-line LBCL patients from the ongoing ANTLER trial in the first half of 2024. Our second product candidate, CB-011, is an allogeneic CAR-T cell therapy that targets BCMA. To our knowledge, it is the first anti-BCMA CAR-T cell therapy incorporating an immune cloaking approach that includes both the removal of the endogenous beta-2 microglobulin (“B2M”) protein by a genome-edited knockout of the B2M gene and insertion of a B2M–human-leukocyte-antigen-E–peptide transgene (“B2M–HLA-E”), enabling expression of HLA-E on the CAR-T cell surface. This strategy is designed to reduce CAR-T cell rejection by both patient T cells and natural killer (“NK”) cells to potentially enable more durable antitumor activity. CB-011 is being evaluated in our ongoing CaMMouflage phase 1 clinical trial in patients with relapsed or refractory multiple myeloma (“r/r MM”). CB-011 has received fast track designation for r/r MM from the FDA. We plan to provide updates on dose escalation as the CaMMouflage Phase 1 trial advances. Our third product candidate, CB-012, is an allogeneic CAR-T cell therapy targeting CLL-1, currently in preclinical development for the treatment of relapsed or refractory acute myeloid leukemia (“r/r AML”). CB-012 is, to our knowledge, the first allogeneic CAR-T cell therapy with both checkpoint disruption and immune cloaking strategies. We believe that CLL-1 is an attractive target for acute myeloid leukemia (“AML”) due to its expression on myeloid cancer cells, its enrichment in leukemic stem cells, and its absence on hematopoietic stem cells (“HSCs”). CB-012 is being evaluated in investigational new drug (“IND”)-enabling studies to support a planned IND application submission for r/r AML in the second half of 2023. We are developing allogeneic CAR-NK cell therapies derived from genome-edited induced pluripotent stem cells (“iPSCs”) for the treatment of solid tumors. CB-020 is our first CAR-NK product candidate from our CAR-NK platform and we have selected receptor tyrosine kinase like orphan receptor 1 (“ROR1”) as the tumor cell-surface target for CB-020. CB-020 and potential future CAR-NK cell therapy product candidates will contain genome edits designed to overcome some of the challenges of targeting solid tumors, such as trafficking, tumor infiltration, tumor heterogeneity, and the immunosuppressive tumor microenvironment. Since our founding in 2011, we have devoted substantially all of our resources to organizing and staffing, business planning, raising capital, expanding our genome-editing platform technologies, developing our product candidates and building our pipeline, creating and maintaining our intellectual property portfolio, and establishing arrangements with third parties for the manufacture, testing, and clinical trial evaluations of our product candidates. We do not have any products approved for commercial sale and have not generated any revenue from product sales. We have incurred net losses since commencement of our operations. To date, we have primarily funded our operations through proceeds from the sales of our capital stock, revenue from our license and collaboration agreements, and proceeds from the sale of shares of Intellia Therapeutics, Inc. (“Intellia”) common stock. Our net losses for the three months ended June 30, 2023, and 2022 were $29.5 million and $26.7 million, respectively. Our net losses for the six months ended June 30, 2023, and 2022 were $57.6 million and $45.8 million, respectively. We had an accumulated deficit of $254.8 million as of June 30, 2023. Our net losses and operating losses may fluctuate from quarter to quarter and year to year depending primarily on the timing of expenses associated with our clinical trials and nonclinical studies and our other research and development expenses. We anticipate that our expenses will increase substantially if and as we: • progress our ANTLER phase 1 clinical trial for our CB-010 product candidate and our CaMMouflage phase 1 clinical trial for our CB-011 product candidate; 22 Table of Contents • continue our current research programs and our preclinical and clinical development of our other current product candidates, including CB-012, CB-020, and any other product candidates we identify and choose to develop; • hire additional clinical, quality control, regulatory, technical operations, and scientific personnel; • seek to identify additional research programs and additional product candidates; • further develop our genome-editing technologies; • acquire or in-license technologies; • expand, maintain, enforce, and defend our intellectual property portfolio; • seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical trials, if any; • establish and expand manufacturing capabilities and supply chain capacity for our product candidates; • add operational, legal, financial, and management information systems and personnel; • experience any delays, challenges, or other issues associated with any of the above, including the failure of clinical trials meeting endpoints, the generation of unanticipated preclinical results or clinical trial data subject to differing interpretations, or the occurrence of potential safety issues or other development or regulatory challenges; • make royalty, milestone, or other payments under current, and any future, in-license or assignment agreements; • establish a sales, marketing, and distribution infrastructure to commercialize any product candidates for which we obtain marketing approval; and • continue to operate as a public company. We do not own or operate any manufacturing facilities. We use multiple contract manufacturing organizations (“CMOs”) to individually manufacture, under current good manufacturing processes, chRDNA guides, Cas9 and Cas12a proteins, plasmids, and adeno-associated virus serotype 6 vectors used in the manufacture of our CAR-T cells as well as our CAR-NK cell therapy product candidates. We expect to continue to rely on our CMOs for the manufacturing of our preclinical study and clinical trial materials, and most of these CMOs have capabilities for commercial manufacturing. Additionally, we may decide to build our own manufacturing facility in the future to provide us greater flexibility and control over our clinical or commercial manufacturing needs. Because of the numerous risks and uncertainties associated with therapeutic product development, we may never achieve profitability and, unless and until we are able to develop and commercialize our product candidates, we will need to continue to raise additional capital. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity offerings (including our at-the-market facility), debt financings, collaborations and strategic alliances, licensing arrangements, or other sources. There are no assurances that we will be successful in obtaining an adequate level of financing to support our business plans as needed on acceptable terms, or at all. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise capital as and when needed or on attractive terms, we may have to significantly delay, reduce, or discontinue the development and commercialization of our product candidates or scale back or terminate our pursuit of new in-licenses and acquisitions. Components of Results of Operations Licensing and Collaboration Revenue We have not generated any revenue from product sales to date and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval and commercialization, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates if we succeed in obtaining regulatory approval for these product candidates. 23 Table of Contents To date, all of our revenue consists of licensing and collaboration revenue earned from collaboration and/or licensing agreements entered into with third parties, including related parties. Under these agreements, we license rights to certain intellectual property controlled by us. The terms of these arrangements typically include payments to us of one or more of the following: nonrefundable, upfront license fees or exclusivity fees; annual maintenance fees; regulatory and/or commercial milestone payments; research and development payments; and royalties on the net sales of products and/or services. Each of these payments results in licensing and collaboration revenue. Revenue under such licensing and collaboration agreements was $3.8 million and $4.2 million for the three months ended June 30, 2023, and 2022, respectively, and $7.3 million and $6.9 million for the six months ended June 30, 2023, and 2022, respectively. See Notes 4 and 5 to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. For additional information about our revenue recognition policy related to our licensing and collaboration agreements, see Note 2 to the consolidated financial statements included in our Form 10-K. For the foreseeable future we expect substantially all of our revenue will be generated from licensing and collaboration agreements. Operating Expenses Research and Development Expenses Our research and development expenses consist of internal and external expenses incurred in connection with the development of our product candidates and our platform technologies, and our in-licensing and assignment agreements. External costs include: • costs associated with acquiring technology and intellectual property licenses that have no alternative future uses, sublicensing revenue, and milestones under our licensing agreements; • costs incurred in connection with the preclinical and clinical development and manufacturing of our product candidates, including under agreements with contract research organizations (“CROs”), CMOs, and clinical sites; and • other research and development costs, including laboratory materials and supplies, and consulting services. Internal costs include: • personnel-related costs, including salaries, benefits, and share-based compensation expense, for our research and development personnel; and • allocated facilities and other overhead expenses, including expenses for rent, facilities maintenance, and depreciation. We expense research and development costs as incurred. Costs of certain activities are recognized based on an evaluation of the progress to completion of specific tasks. However, payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our condensed consolidated balance sheets. The capitalized amounts are recognized as expense as the goods are delivered or as related services are performed. We separately track certain external costs on a program-by-program basis; however, we do not track costs that are deployed across multiple programs. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue to implement our business strategy; advance our CB-010 and CB-011 product candidates through clinical trials and later stages of development; conduct preclinical studies and clinical trials for our other product candidates; seek regulatory approvals for any product candidates that successfully complete clinical trials; expand our research and development efforts and incur expenses associated with hiring additional personnel to support our research and development efforts; and seek to identify, in-license, acquire, and/or develop additional product candidates. The successful development of our CB-010, CB-011, CB-012, and CB-020 product candidates, as well as other potential future product candidates, is highly uncertain. Accordingly, at this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, we will generate revenue and material net cash inflows from the 24 Table of Contents commercialization and sale of any of our product candidates for which we may obtain marketing approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and timing of preclinical studies, clinical trials, and development of our product candidates will depend on a variety of factors, including: • sufficiency of our financial and other resources; • acceptance of our CRISPR chRDNA genome-editing technology; • ability to develop differentiating features so that our products have a competitive edge; • completion of preclinical studies; • establishment, maintenance, enforcement, and defense of our patents and other intellectual property rights; • our ability to not infringe, misappropriate, or otherwise violate third-party intellectual property rights; • clearance of IND applications to initiate clinical trials on product candidates; • successful enrollment in, and completion of, our clinical trials on our product candidates; • data from our clinical trials that support an acceptable risk-benefit profile of our product candidates for the intended patient populations and that demonstrate safety and efficacy; • entry into collaborations to further the development of our product candidates or for the development of new product candidates; • successful development of our internal process development and transfer to larger-scale facilities; • establishment of agreements with CMOs for clinical and commercial supplies and scaling up manufacturing processes and capabilities to support our clinical trials; • receipt of marketing approvals from applicable regulatory authorities; • grant of regulatory exclusivity for our product candidates; • establishment of sales, marketing, and distribution capabilities necessary for commercialization of our product candidates if and when approved, whether by us or in collaboration with third parties; • maintenance of a continued acceptable safety profile of our products post-approval; • acceptance of our product candidates, if and when approved by the applicable regulatory authorities, by patients, the medical community, and third-party payors; • ability of our products to compete with other therapies and treatment options; • establishment and maintenance of healthcare coverage and adequate reimbursement; and • expanded indications and patient populations for our products. 25 Table of Contents The following table summarizes our research and development expenses for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (in thousands) (in thousands) External costs: Expenses related to licensing, sublicensing revenue, and milestones $ 743 $ 554 $ 1,173 $ 862 Services provided by CROs, CMOs, clinical sites, and other third parties that conduct preclinical studies and clinical trials on our behalf 10,138 9,661 20,417 13,633 Other research and development expenses 4,110 4,994 8,829 7,330 Total external costs 14,991 15,209 30,419 21,825 Internal costs: Personnel-related expenses 8,930 5,294 16,866 10,891 Facilities and other allocated expenses 2,582 2,076 4,927 3,787 Total internal costs 11,512 7,370 21,793 14,678 Total research and development expenses $ 26,503 $ 22,579 $ 52,212 $ 36,503 General and Administrative Expenses Our general and administrative expenses consist primarily of personnel-related costs, intellectual property costs, consulting costs, and allocated overhead, including rent, equipment depreciation, and utilities. Personnel-related costs consist of salaries, benefits, and stock-based compensation for our general and administrative personnel. Intellectual property costs include expenses for filing, prosecuting, and maintaining patents and patent applications, including certain patents and patent applications that we license from third parties. We are entitled to receive reimbursement from third parties of a portion of the costs for filing, prosecuting, and maintaining certain patents and patent applications. We accrue for these reimbursements as the respective expenses are incurred and classify such reimbursements as a reduction of general and administrative expenses. During each of the three months ended June 30, 2023, and 2022, we recorded $0.7 million of patent cost reimbursements as a reduction to general and administrative expense. During the six months ended June 30, 2023, and 2022, we recorded $1.1 million and $2.1 million, respectively, of patent cost reimbursements as a reduction to general and administrative expense. We expect that our general and administrative expenses may increase in the future as a result of expanding our operations, including hiring personnel, preparing for potential commercialization of our product candidates, and additional facility occupancy costs, as well as other expenses necessary to support the growth and operations of a clinical-stage public company. Other Income (Expense) Other income (expense) consists primarily of interest income earned on cash and marketable securities, change in the fair value of our equity investments, and change in the fair value of the Memorial Sloan Kettering Cancer Center (“MSKCC”) success payments liability under the Exclusive License Agreement, dated November 13, 2020, with MSKCC (the “MSKCC Agreement”). 26 Table of Contents Results of Operations Comparison of the Three Months Ended June 30, 2023, and 2022 The following table summarizes our results of operations for the periods indicated: Three Months Ended June 30, 2023 2022 Change (in thousands) Licensing and collaboration revenue $ 3,755 $ 4,192 $ (437) Operating expenses: Research and development 26,503 22,579 3,924 General and administrative 10,120 10,044 76 Total operating expenses 36,623 32,623 4,000 Loss from operations (32,868) (28,431) (4,437) Other income (expense): Change in fair value of equity securities 22 (16) 38 Change in fair value of the MSKCC success payments liability 279 1,052 (773) Other income, net 3,048 698 2,350 Total other income 3,349 1,734 1,615 Net loss $ (29,519) $ (26,697) $ (2,822) Licensing and Collaboration Revenue Licensing and collaboration revenue decreased by $0.4 million to $3.8 million for the three months ended June 30, 2023, from $4.2 million for the three months ended June 30, 2022. This decrease was primarily related to decrease of $1.5 million related to recognition of revenue under the Collaboration and License Agreement (as amended, the “AbbVie Agreement”) with AbbVie Manufacturing Management Unlimited Company (“AbbVie”), partially offset by an increase of $1.2 million related to the Exclusive License Agreement for Veterinary Therapeutics (CRISPR-Cas9) (the “Edge Cas9 License Agreement”) with Edge Animal Health. The following table summarizes our revenue by licensee for the periods indicated: Three Months Ended June 30, 2023 2022 Change (in thousands) AbbVie $ 1,374 $ 2,864 $ (1,490) Edge Animal Health, related party 1,150 — 1,150 Other licensees 1,231 1,328 (97) Total licensing revenue $ 3,755 $ 4,192 $ (437) Research and Development Expenses Research and development expenses increased by $3.9 million to $26.5 million for the three months ended June 30, 2023, from $22.6 million for the three months ended June 30, 2022. This increase was primarily related to increases of $3.6 million in personnel-related expenses, including stock-based compensation, due to headcount increases; $0.5 million of net increase in external CMO and CRO activities for our CAR-T cell therapy product candidates, driven by an increase of $3.1 million in CRO activities for clinical trials, partially offset by a decrease of $2.6 million due to timing of CMO activities; and $0.5 million in other facilities and allocated expenses; partially offset by a decrease of $0.9 million in other research and development expenses, as well as other outside services related to research and development. General and Administrative Expenses General and administrative expenses increased by $0.1 million to $10.1 million for the three months ended June 30, 2023, from $10.0 million for the three months ended June 30, 2022. This increase was primarily related to 27 Table of Contents increases of $0.5 million in other facilities and allocated expenses; $0.5 million in patent prosecution and maintenance costs; and $0.4 million in personnel-related expenses, including stock-based compensation, due to headcount increases; partially offset by a decrease of $1.3 million in director and officer insurance and legal expenses. Total Other Income Total other income increased by $1.6 million for three months ended June 30, 2023, as compared to the three months ended June 30, 2022. We recognized a gain related to the change in the fair value of the MSKCC success payments liability in the amount of $0.3 million and $1.1 million, for the three months ended June 30, 2023, and 2022, respectively. Other income, net increased by $2.4 million during the three months ended June 30, 2023, compared to June 30, 2022. The increase primarily relates to a $2.4 million increase in interest income earned from marketable securities. Comparison of the Six Months Ended June 30, 2023, and 2022 The following table summarizes our results of operations for the periods indicated: Six Months Ended June 30, 2023 2022 Change (in thousands) Licensing and collaboration revenue $ 7,257 $ 6,856 $ 401 Operating expenses: Research and development 52,212 36,503 15,709 General and administrative 19,029 19,637 (608) Total operating expenses 71,241 56,140 15,101 Loss from operations (63,984) (49,284) (14,700) Other income (expense): Change in fair value of equity securities 7 (104) 111 Change in fair value of the MSKCC success payments liability 534 2,648 (2,114) Other income, net 5,880 955 4,925 Total other income 6,421 3,499 2,922 Net loss $ (57,563) $ (45,785) $ (11,778) Licensing and Collaboration Revenue Licensing and collaboration revenue increased by $0.4 million to $7.3 million for the six months ended June 30, 2023, from $6.9 million for the six months ended June 30, 2022. This increase was primarily related to an increase of $1.2 million related to the Edge Cas9 License Agreement, partially offset by a decrease of $0.8 million related to recognition of revenue under the AbbVie Agreement. The following table summarizes our revenue by licensee for the periods indicated: Six Months Ended June 30, 2023 2022 Change (in thousands) AbbVie $ 2,983 $ 3,797 $ (814) Edge Animal Health, related party 1,150 — 1,150 Other licensees 3,124 3,059 65 Total licensing revenue $ 7,257 $ 6,856 $ 401 28 Table of Contents Research and Development Expenses Research and development expenses increased by $15.7 million to $52.2 million for the six months ended June 30, 2023, from $36.5 million for the six months ended June 30, 2022. This increase was primarily related to increases of $6.8 million in external CMO and CRO activities for our CAR-T cell therapy product candidates, driven by increases of $4.6 million in CRO activities for clinical trials and $2.2 million due to timing of CMO activities; $6.0 million in personnel-related expenses, including stock-based compensation, due to headcount increases; $1.5 million in other research and development expenses, as well as other consulting services related to research and development; $1.1 million in other facilities and allocated expenses; and $0.3 million in expenses related to licenses, sublicensing revenue, and milestones. General and Administrative Expenses General and administrative expenses decreased by $0.6 million to $19.0 million for the six months ended June 30, 2023, from $19.6 million for the six months ended June 30, 2022. This decrease was primarily related to a decrease of $2.1 million in director and officer insurance and legal, accounting, and recruiting expenses; partially offset by increases of $0.9 million in personnel-related expenses, including stock-based compensation, due to headcount increases; and $0.5 million in other facilities and allocated expenses. Total Other Income Total other income increased by $2.9 million for six months ended June 30, 2023, as compared to the six months ended June 30, 2022. We recognized a gain related to the change in the fair value of the MSKCC success payments liability in the amount of $0.5 million and $2.6 million, respectively, for the six months ended June 30, 2023, and 2022, respectively. Other income, net increased by $4.9 million during the six months ended June 30, 2023, compared to June 30, 2022. The increase primarily relates to a $4.9 million increase in interest income earned from marketable securities. Liquidity, Capital Resources, and Capital Requirements Sources of Liquidity Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We have funded our operations through sales of our capital stock, including sales of our convertible preferred stock, which generated approximately $150.1 million in aggregate net proceeds, and from our initial public offering (“IPO”) in 2021, which generated approximately $321.0 million in net proceeds. We have also received approximately $88.4 million in net proceeds from the sale of Intellia common stock. Additionally, we received $25.0 million equity investment from Pfizer Inc. (“Pfizer”) through a private placement transaction in June 2023. Further, through June 30, 2023, we received approximately $89.4 million from licensing agreements, licensing and collaboration agreements, a service agreement, patent assignments, and government grants, including $34.6 million that was received from AbbVie under the AbbVie Agreement. In order to assist in funding our future operations, including our planned clinical trials, on August 9, 2022, we filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”) with the SEC, which allows us to, from time to time, sell up to $400.0 million of common stock, preferred stock, debt securities, warrants, rights, or units comprised of any combination thereof (including the $100.0 million of common stock reserved for our at-the-market equity offering program described below). The Shelf Registration Statement was declared effective by the SEC on August 16, 2022. On August 9, 2022, we entered into an Open Market Sale Agreement SM (the “ ATM Sales Agreement”) with Jefferies LLC (“Jefferies”), pursuant to which, upon the terms and subject to the conditions and limitations set forth in the ATM Sales Agreement, we may, from time to time, in our sole discretion, issue and sell, through Jefferies, acting as sales agent, up to $100.0 million of our shares of common stock, by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the “Securities Act”). Jefferies uses commercially reasonable efforts consistent with its normal sales and trading practices to sell shares from time to time, based upon our instructions (including any price or size limits or other customary parameters or conditions we may impose). We pay Jefferies a commission equal to 3.0% of the aggregate gross proceeds of any shares sold through Jefferies pursuant to the ATM Sales Agreement. During the six months ended June 30, 2023, we sold 168,635 shares of our 29 Table of Contents common stock under the ATM Sales Agreement at an average price per share of $7.32 for aggregate gross proceeds of $1.2 million ($1.0 million net of offering expenses). In July and August 2023, we issued and sold a total of 22,115,384 shares of our common stock in an underwritten public offering at a price to the public of $6.50 per share, which included the full exercise of the underwriters’ over-allotment option. The total net proceeds from the offering were approximately $134.6 million, after deducting underwriting discounts and commissions and estimated offering expenses. The shares were issued pursuant to the Shelf Registration Statement. As of June 30, 2023, we had cash, cash equivalents, and marketable securities of $292.5 million, which does not include the net proceeds from our July and August 2023 underwritten public offering under the Shelf Registration Statement. We will continue to be dependent upon equity financing, debt financing, collaboration and licensing arrangements, and/or other forms of capital raises at least until we are able to generate significant positive cash flows from our operations. We have no current ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, except for our lease commitments as described in Note 8 to our condensed consolidated financial statements included elsewhere in this Form 10-Q, and payments under certain of our license agreements as described in Note 4 to our condensed consolidated financial statements included elsewhere in this Form 10-Q. Based on our current operating plan, we expect that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our current operating plan for at least the next 12 months from the date of this Form 10-Q. We have based these estimates on our current assumptions, which may require future adjustments based on our ongoing business decisions. Strategic Investment On June 29, 2023, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Pfizer, pursuant to which we, in a private placement transaction (the “Pfizer Investment”), agreed to issue and sell to Pfizer 4,690,431 shares of our common stock, par value $0.0001 per share, at a purchase price of $5.33 per share, for aggregate gross proceeds of approximately $25.0 million. The issuance and sale of the shares to Pfizer closed on June 30, 2023. We granted certain registration rights to Pfizer under the Securities Purchase Agreement with regard to the resale of the shares. Unless otherwise agreed by Pfizer, we have agreed to use the proceeds from the Pfizer Investment solely in connection with (i) the development program for our allogeneic anti-BCMA CAR-T cell therapy known as CB-011 product candidate that is being evaluated in the CaMMouflage clinical trial and/or (ii) any other single-targeted anti-BCMA CAR-T cell therapy using an anti-BCMA single-chain variable fragment owned or controlled by us (collectively, cell therapies described in clauses (i) and (ii) are referred to as a “BCMA Product Candidate”), for 36 months beginning on June 29, 2023. On June 29, 2023, in connection with the Pfizer Investment, we and Pfizer also entered into an Information Rights Agreement (the “Information Rights Agreement ”), having a thirty-six (36)-month term. Under the Information Rights Agreement, we granted Pfizer a thirty (30)-calendar day right of first negotiation (“ROFN”) if we commence or engage with any third party with respect to a potential grant of rights to develop and/or commercialize a BCMA Product Candidate, including, without limitation, a license agreement, a co-promotion/co-commercialization agreement, a profit share agreement, a joint venture agreement, or an asset sale agreement (a “Grant of Program Rights”). If we and Pfizer do not reach an agreement with respect to a Grant of Program Rights within the 30-day period, then we may pursue negotiations and enter into an agreement with any third party. In the event that we and such third party do not reach agreement on the Grant of Program Rights within a specified time period, Pfizer’s right of first negotiation would be reinstated. Under the Information Rights Agreement, we also agreed to grant Pfizer the right to designate one representative to serve on our scientific advisory board. Through an information sharing committee, we will provide calendar quarter updates to Pfizer regarding the development program for a BCMA Product Candidate. Additionally, we agreed to provide Pfizer access to any preclinical or interim or final clinical data (including raw data) and results generated as part of the development program for a BCMA Product Candidate at the same time that we provide such data to a third party (other than to our service providers or the FDA or other regulatory authorities), subject to certain confidentiality exceptions. On June 29, 2023, we and Pfizer also entered into a Voting Agreement, pursuant to which, for a period of 12 months, Pfizer agreed to cause our voting securities that Pfizer beneficially owns (within the meaning of Rules 13d-3 or 13d-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) in excess of 4.99% of our then issued and outstanding voting securities to be voted (i) with respect to any matter directly relating to remuneration of directors, 30 Table of Contents directors’ insurance, or indemnification or release from liability of directors, in a manner proportionally consistent with the votes properly cast for and against by holders of voting securities not beneficially owned by Pfizer, and (ii) with respect to any other matter in which Pfizer shall have the right to vote such voting securities, in accordance with the recommendation of our board of directors or any applicable committee thereof. Funding Requirements Our primary use of cash is to fund operating expenses and research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses, and prepaid expenses. Our future funding requirements will depend on many factors, including the following: • the initiation, progress, timing, costs, and results of preclinical studies and clinical trials for our product candidates; • the clinical development plans we establish for these product candidates; • the number and characteristics of the product candidates that we develop; • the increase in the number of our employees and expansion of our physical facilities to support growth initiatives; • the outcome, timing, and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities; • whether we enter into any additional collaboration agreements and the terms of any such agreements; • the cost of filing and prosecuting our patent applications, and maintaining and enforcing our patents and other intellectual property rights; • the extent to which we acquire or in-license other product candidates and technologies; • the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against our products after we receive regulatory approval; • the effect of competing technological and market developments; • the cost and timing of completion of commercial-scale outsourced manufacturing activities or the cost and timing of completion of clinical-scale and commercial-scale internal manufacturing activities; • the cost of establishing sales, marketing, and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products without a partner; • the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; • the achievement of milestones or occurrence of other developments that trigger payments by or to third parties under any collaboration or licensing agreements; • our implementation of various computerized informational systems and efforts to enhance operational systems; • the impact of the COVID-19 pandemic or other public health crises or geopolitical events on our clinical development or operations; • the impact of inflationary pressures on the cost of our operations; and • the costs associated with being a public company. Furthermore, our operating plans may change, and we expect to need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures. Because of the numerous risks and uncertainties associated with the development of human therapeutics, we may never achieve profitability and, unless and until we are able to develop and commercialize our product candidates, we will 31 Table of Contents need to continue to raise additional capital; however, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or suspend one or more of our preclinical studies, clinical trials, research and development programs, and/or commercialization efforts. We may seek to raise any necessary additional capital through a combination of equity offerings (including our at-the-market equity offering program), debt financings, collaborations and strategic alliances, licensing arrangements, or other sources. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in dilution to our stockholders. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances, or licensing arrangements with third parties or other sources, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams, or research programs or grant licenses on terms that may not be favorable to us. Cash Flows Comparison of the Six Months Ended June 30, 2023, and 2022 The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2023 2022 Change (in thousands) Cash used in operating activities $ (43,124) $ (43,546) $ 422 Cash provided by (used in) investing activities 31,767 (86,080) 117,847 Cash provided by financing activities 19,213 1,352 17,861 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 7,856 $ (128,274) $ 136,130 Cash Used in Operating Activities Net cash used in operating activities was $43.1 million and $43.5 million for the six months ended June 30, 2023, and 2022, respectively. Cash used in operating activities for the six months ended June 30, 2023, was primarily due to our net loss of $57.6 million, adjusted by non-cash charges of $4.7 million and net changes in our operating assets and liabilities of $9.7 million. Our non-cash charges were primarily comprised of $6.7 million of stock-based compensation, $1.2 million of depreciation and amortization expense, and non-cash lease expense of $1.0 million, which were partially offset by amortization of investment premiums of $3.6 million, and change in the fair value of the MSKCC success payments liability of $0.5 million. The changes in our operating assets and liabilities were due to decreases in prepaid expenses and other current assets of $2.4 million, contract assets of $0.8 million, and other receivables of $0.7 million, and an increase of $5.2 million in deferred revenue (including $7.5 million related to the Pfizer transaction), and $2.0 million in accounts payable, partially offset by increases of $0.6 million in accounts receivable, and decreases of $0.5 million in operating lease liabilities, and $0.4 million in accrued expenses and other current liabilities. Cash used in operating activities in the six months ended June 30, 2022, was primarily due to our net loss of $45.8 million, adjusted by non-cash charges of $5.6 million and net changes in our operating assets and liabilities of $3.4 million. Our non-cash charges were primarily comprised of $5.9 million of stock-based compensation, non-cash lease expense of $1.0 million, $0.7 million of depreciation and amortization expense, amortization of investment premiums of $0.4 million, and acquired in-process research and development of $0.3 million, which were partially offset by the change in the fair value of the MSKCC success payments liability of $2.6 million. The changes in our operating assets and liabilities were due to decreases of $0.6 million in accounts receivable and $2.4 million in other receivables, and an increase of $1.1 million in accrued expenses and other current liabilities, offset by increases in contract assets of $0.6 million, prepaid expenses and other current assets of $0.3 million, other assets of $0.3 million, and decreases of $3.6 million in accounts payable, $2.5 million in deferred revenue, and $0.2 million in operating lease liabilities.. Cash Provided by (Used in) Investing Activities During the six months ended June 30, 2023, cash provided by investing activities was $31.8 million, and during the six months ended June 30, 2022, cash used in investing activities was $86.1 million. 32 Table of Contents Cash provided by investing activities for the six months ended June 30, 2023, was primarily due to proceeds from the sales and maturities of marketable securities of $171.0 million, partially offset by purchases of marketable securities of $134.7 million and property and equipment of $4.6 million. Cash used in investing activities for the six months ended June 30, 2022, was primarily due to purchases of marketable securities of $181.8 million and property and equipment of $3.3 million, partially offset by the proceeds from maturities of marketable securities of $99.0 million. Cash Provided by Financing Activities During the six months ended June 30, 2023, and 2022, cash provided by financing activities was $19.2 million and $1.4 million, respectively. Cash provided by financing activities for the six months ended June 30, 2023, was primarily due to $17.5 million of gross proceeds allocated to the issuance of common stock in a private placement transaction with Pfizer, net proceeds from our at-the-market equity offering program of $1.0 million, and the exercise of stock options and purchases of common stock under the 2021 Employee Stock Purchase Plan (“2021 ESPP”) of $0.8 million. Cash provided by financing activities for the six months ended June 30, 2022, was due to the exercise of stock options and purchases of common stock under the 2021 ESPP plan of $1.4 million. Critical Accounting Policies and Significant Judgments and Estimates Our critical accounting policies are disclosed in our audited consolidated financial statements for the year ended December 31, 2022, and the related notes included in our Form 10-K. Since the date of such financial statements, there have been no material changes to our significant accounting policies. There have been no material changes to our critical accounting estimates as compared to those disclosed in our Form 10-K. Recently Issued Accounting Pronouncements See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for more information regarding recently issued accounting pronouncements. Indemnification Agreements As permitted under Delaware General Corporation Law and in accordance with our amended and restated bylaws, we indemnify our executive officers and directors for certain events or occurrences while such officer or director is or was serving in such capacity. We are also party to indemnification agreements with our executive officers, directors, and controller. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of June 30, 2023. Emerging Growth Company and Smaller Reporting Company Status We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may not be comparable to those of companies that comply with the new or revised accounting pronouncements as of public company effective dates. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company. We are also a “smaller reporting company.” If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited consolidated financial statements in our Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. 33 Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk. There have been no material changes to our market risk during the six months ended June 30, 2023. For a discussion of our exposure to market risk, refer to the section titled “Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K.