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Item 7. Management’s Discussion and Analysis

2024-03-11 compared with 2023-03-09 · 141 added, 171 removed, 272 unchanged (53% of the section changed)

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Forward-looking statements are based upon current beliefs, plans and expectations related to future events and our future financial performance and are subject to risks, uncertainties and assumptions.

Our actual results and the timing of certain events could differ materially from those described in or implied by these forward-looking statements as a result of various factors, including those set forth in the “Risk Factors” section of this Annual Report on Form 10-K.

Our actual results and the timing of certain events could differ materially from those described in or implied by these forward-looking statements as a result of various factors, including those set forth the “Risk Factors” section in Part I, Item 1A of this Annual Report on Form 10-K.

See also the Special Note Regarding Forward-Looking Statements section of this Annual Report on Form 10-K.

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.

Our genome-editing platform, including our novel chRDNA ( C RISPR h ybrid R NA- DNA , or “chRDNA,” pronounced “chardonnay”) technology, enables more precise genome editing to develop cell therapies that are armored to improve activity against diseases.

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’ antitumor activity by using multiple genome-editing strategies, such as checkpoint disruption, immune cloaking, or a combination of these two strategies.

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 ANTLER phase 1 clinical trial in patients with relapsed or refractory B cell non-Hodgkin lymphoma (“r/r B-NHL”).

Our CB-011 product candidate is an allogeneic CAR-T cell product candidate that targets B cell maturation antigen (“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.

We are initially focused on advancing our allogeneic cell therapies for the treatment of hematologic malignancies.

Our therapies are directed at established 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 through multiple genome-editing strategies, such as checkpoint disruption, immune cloaking, or a combination of these two strategies, to enhance activity against devastating diseases.

Our lead product candidate, CB-010, is an allogeneic CAR-T cell therapy that is, to our knowledge, the first anti-CD19 allogeneic, or off-the-shelf, CAR-T cell therapy to be evaluated in patients with second-line relapsed or refractory large B cell lymphoma (“r/r LBCL”).

To our knowledge, CB-010 is also 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.

CB-010 is being evaluated in our ongoing ANTLER phase 1 clinical trial in adult patients with r/r B-NHL.

In the dose escalation portion of our ANTLER clinical trial, 16 patients, the majority of whom were third-line or later, were enrolled and treated with a single dose of CB-010.

Three dose levels of CB-010 were evaluated:

dose level 1 (40x10 6 viable CAR-T cells, n=8), dose level 2 (80x10 6 viable CAR-T cells, n=5), and dose level 3 (120x10 6 viable CAR-T cells, n=3).

CB-010 was generally well-tolerated with adverse events as expected for anti-CD19 CAR-T cell therapies.

Based on these encouraging dose escalation data, we are evaluating CB-010 in second-line LBCL patients in the dose expansion portion of the ongoing ANTLER trial to determine the recommended phase 2 dose (“RP2D”).

CB-010 has received regenerative medicine advanced therapy (“RMAT”) designation for r/r LBCL, fast track designation for relapsed or refractory B cell non-Hodgkin lymphoma (“r/r B-NHL”), and orphan drug designation for follicular lymphoma (“FL”), from the U.S.

Food and Drug Administration (“FDA”).

Our second product candidate, CB-011, is an allogeneic CAR-T cell therapy that is, to our knowledge, 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 and insertion of a beta-2-microglobulin–human-leukocyte-antigen-E–peptide transgene (“B2M–HLA-E”).

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 CaMMouflage phase 1 clinical trial in patients with relapsed or refractory multiple myeloma (“r/r MM”).

CB-012 is our allogeneic CAR-T cell product candidate 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 relapsed or refractory AML (“r/r AML”) in the second half of 2023.

We are also 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, heterogeneity, and the immunosuppressive tumor microenvironment.

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Since our founding in 2011, we have devoted substantially all of our resources to organizing and staffing, business planning, raising capital, developing 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 and testing of our product candidates.

CB-011 is being evaluated in our CaMMouflage phase 1 clinical trial in adult patients with relapsed or refractory multiple myeloma (“r/r MM”).

Dose level 1 (50x10 6 viable CAR-T cells, n=3) and dose level 2 (150x10 6 viable CAR-T cells, n=3) have been cleared in our CaMMouflage trial without any observed dose-limiting toxicities (“DLTs”), and we are currently enrolling patients at dose level 3 (450x10 6 viable CAR-T cells).

CB-011 was granted fast track and orphan drug designations for r/r MM from the FDA.

The third product candidate from our CAR-T cell platform is CB-012, an allogeneic CAR-T cell therapy targeting CLL-1 (also known as CD371).

CB-012 is, to our knowledge, the first allogeneic CAR-T cell therapy with both checkpoint disruption and immune cloaking strategies, and its manufacture requires a total of five genome edits.

our AMpLify phase 1 clinical trial, which is evaluating CB-012 in adult patients with relapsed or refractory AML (“r/r AML”) at dose level 1 (25x10 6 viable CAR-T cells).

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 revenue from our license agreements, license and collaboration agreements, and a service agreement;

the sale of shares of Intellia Therapeutics, Inc.

(“Intellia”) common stock that we received as consideration for a License Agreement (as amended, the “Intellia License Agreement”) with Intellia, LLC, to which Intellia is a successor in interest;

the sale of our convertible preferred stock in private placements before our initial public offering (“IPO”) in 2021;

and proceeds from our IPO.

We have incurred operating 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 years ended December 31, 2023 and 2022 were $102.1 million and $99.4 million, respectively.

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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.

In addition, we are incurring increased costs associated with operating as a public company, including legal, audit, and accounting fees;

maintaining compliance with the rules and regulations of the SEC and Nasdaq;

director and officer insurance premiums;

costs for investor and public relations activities;

and other accompanying compliance and governance requirements.

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;

• continue our current research programs and our preclinical and clinical development of our other current product candidates, including CB-012 and CB-020, and any other product candidates we identify and choose to develop;

• hire additional clinical, quality control, regulatory, and scientific personnel;

We anticipate that our expenses will increase substantially as we:

• advance the ANTLER phase 1 clinical trial and initiate the planned pivotal phase 3 clinical trial for our CB-010 product candidate, the CaMMouflage phase 1 clinical trial for our CB-011 product candidate, and the AMpLify phase 1 clinical trial for our CB-012 product candidate;

• continue our current research programs and our preclinical and clinical development of our other current product candidates 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;

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• 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;

• experience any delays, challenges, or other issues associated with any of the above, including the failure of clinical trials meeting endpoints, 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, agreements with third parties;

• establish a sales, marketing, and distribution infrastructure to commercialize any product candidates for which we obtain marketing approval;

• continue to operate as a public company.

We do not own or operate any manufacturing facilities and we outsource a substantial portion of our clinical trial studies to third parties.

We use multiple contract manufacturing organizations (“CMOs”) to individually manufacture,

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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 rely on our CMOs for the manufacturing of our product candidates to expedite readiness for future clinical trials, 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.

We do not own or operate any manufacturing facilities.

We use multiple contract manufacturing organizations (“CMOs”) to individually manufacture, under current good manufacturing processes, our chRDNA guides, Cas9 and Cas12a proteins, plasmids, and adeno-associated virus serotype 6 (“AAV6”) vectors used in the manufacture of our cell therapy product candidates as well as the CAR-T and CAR-NK cell therapy product candidates themselves.

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 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.

Until 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.

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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.

Impact of the COVID-19 Pandemic and Geopolitical Events

Although the COVID-19 pandemic has not had a significant adverse impact on our operations to date, we are unable to predict the effect that the ongoing COVID-19 pandemic or other public health crises may have on our company in the future.

Furthermore, we cannot predict the impact that national or international geopolitical events, such as the ongoing war in Ukraine, may have on our operations.

To the extent the COVID-19 pandemic or other public health crises or geopolitical events adversely affect our business prospects, financial condition, and results of operation, they may also have the effect of exacerbating many of the other risks described or referenced in the Risk Factors section in Item 1A of this Annual Report on Form 10-K, such as those relating to the supply of materials for our product candidates, and the timing and possible disruptions to our ongoing and future preclinical studies and clinical trials and our access to the financial markets.

Components of Results of Operations

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Research and Development Expenses

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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;

• costs associated with acquiring technology and intellectual property licenses that have no alternative future uses, sublicensing revenues, and milestones;

• costs incurred in connection with the preclinical and clinical development and manufacturing of our product candidates, including under agreements CMOs, suppliers, clinical research organizations (“CROs”), and clinical sites;

• other research and development costs, including laboratory materials and supplies, and consulting services.

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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 consolidated balance sheets.

The capitalized amounts are recognized as expense as the goods are delivered or as related services are performed.

Historically, we have not tracked external costs by clinical program.

We intend to separately track certain external costs for each clinical program.

However, we do not currently track, and do not intend to track, costs that are deployed across multiple programs.

The capitalized amounts are recognized as expenses 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.

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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;

advance our product candidates through clinical trials and later stages of development;

conduct preclinical studies and clinical trials for our other product candidates;

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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.

The successful development of our CAR-T 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.

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• our ability to not infringe, misappropriate, or otherwise violate third-party intellectual property rights;

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• clearance of IND applications to initiate clinical trials on product candidates;

• clearance of IND applications to initiate clinical trials on new product candidates;

• successful enrollment in, and completion of, our clinical trials on our product candidates;

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• 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;

• establishment of agreements with CMOs and suppliers 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;

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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

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parties of a portion of the costs for filing, prosecuting, and maintaining certain patents and patent applications.

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 the years ended December 31, 2023 and 2022, we recorded $1.5 million and $3.5 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.

We expect that our general and administrative expenses will 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, change in fair value of the Memorial Sloan Kettering Cancer Center (“MSKCC”) success payments liability under the Exclusive License Agreement with MSKCC (the “MSKCC Agreement”).

Other income (expense) consists primarily of interest income earned on cash and marketable securities and the change in fair value of the Memorial Sloan Kettering Cancer Center (“MSKCC”) success payments liability under our Exclusive License Agreement, dated November 13, 2020 with MSKCC (“MSKCC Agreement”).

Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:

The following table summarizes our results of operations for the periods indicated:

Years Ended December 31, Change

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Change in fair value of the MSKCC success payments liability (1,288) 2,429 (3,717)

Gain on extinguishment of PPP Loan — 1,584 (1,584)

Other income, net 15,476 4,752 10,724

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Licensing and collaboration revenue increased by $20.6 million to $34.5 million for the year ended December 31, 2023 from $13.9 million for the year ended December 31, 2022.

This increase primary relates to a $4.0 million increase in revenue recognized under the Collaboration and License Agreement (as amended, the “AbbVie Agreement”) with AbbVie Manufacturing Management Unlimited Company (“AbbVie”).

The remaining increase of $0.3 million relates to other license agreements with various licensees.

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This increase primarily relates to a $16.8 million increase in revenue recognized under the now-terminated Collaboration and License Agreement (as amended, “AbbVie Agreement”) with AbbVie Manufacturing Management Unlimited Company (“AbbVie”).

In connection with the termination of the AbbVie Agreement, we recognized the remaining deferred revenue of $20.8 million during the year ended December 31, 2023.

The following table summarizes our revenue by licensee for the years ended December 31, 2023 and 2022:

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AbbVie $ 24,802 $ 7,956 $ 16,846

Edge Animal Health, related party

1,150 — 1,150

Pfizer, related party 1,243 — 1,243

Other licensees 7,282 5,895 1,387

Total licensing revenue $ 13,851 $ 9,598 $ 4,253

Total licensing and collaboration revenue

$ 34,477 $ 13,851 $ 20,626

Research and Development Expenses

Research and development expenses increased by $29.8 million to $112.1 million for the year ended December 31, 2023 from $82.2 million for the year ended December 31, 2022.

This increase was primarily related to increases of $10.8 million in personnel-related expenses (which include an increase in stock-based compensation expense of $3.0 million) due to incremental hiring;

$10.3 million in external CMO manufacturing and CRO clinical activities, driven by increases of $3.7 million due to timing of CMO manufacturing activities for our product candidates, and $6.6 million in CRO clinical activities primarily to advance our ANTLER phase 1 trial for CB-010;

$7.3 million in other research and development expenses to advance IND-enabling studies for CB-011 and preclinical research for additional programs, as well as other consulting services related to research and development;

and $2.4 million in other facilities and allocated expenses.

This increase was primarily related to an increase of $15.4 million of external CMO and CRO activities for our clinical CAR-T cell therapy product candidates, including an increase of $5.1 million due to timing of CMO activities, and $10.3 million in CRO activities for clinical

$11.3 million in personnel-related expenses, including stock-based compensation, due to headcount increases;

and $3.3 million in facilities and other allocated expenses.

These increases were partially offset by a $0.4 million decrease in expenses related to licenses, sublicensing revenue, and milestones.

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General and administrative expenses increased by $0.4 million to $38.5 million for the year ended December 31, 2023 from $38.0 million for the year ended December 31, 2022.

This increase was primarily related to increases of $9.2 million in personnel-related expenses (which include an increase in stock-based compensation expense of $5.3 million) due to incremental hiring;

$2.6 million in legal, accounting, insurance, and other expenses necessary to support the growth and operations of a clinical-stage public company;

and $1.9 million in other facilities and allocated expenses.

These increases were partially offset by a $1.4 million net decrease in patent prosecution and maintenance costs.

This increase was primarily related to increases of $3.1 million in personnel-related expenses, including stock-based compensation, due to headcount increases;

and $0.9 million in facilities and other allocated expenses.

These increases were partially offset by decreases of $2.4 million in legal and director and officer insurance expenses, and other service related expenses;

and a $1.0 million in patent prosecution and maintenance costs.

Total Other Income

Total other income increased by $7.1 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

We recognized a gain related to the change in the fair value of the MSKCC success payments liability in the amount of $2.4 million for the year ended December 31, 2022.

We recognized a loss related to the change in the fair value of the MSKCC success payments liability in the amount of $1.3 million for the year ended December 31, 2023.

Our promissory note with WebBank (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP Loan”) was forgiven in May 2021, and we recognized a gain on the loan extinguishment of $1.6 million during the year ended December 31, 2021.

No such gain was recognized for the year ended December 31, 2022.

We recognized a gain related to the change in the fair value of the MSKCC success payments liability in the amount of $2.4 million for the year ended December 31, 2022.

We recognized a $10.7 million increase in other income during the year ended December 31, 2023 compared to December 31, 2022.

The change primarily relates to a $4.5 million increase in interest income earned from marketable securities.

An income tax expense of $0.1 million was recognized for the year ended December 31, 2022, which was primarily related to current federal taxes and deferred state taxes.

An income tax expense of $0.3 million was recognized for the year ended December 31, 2021, which was primarily related to state minimum taxes and an increase in the valuation allowance.

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The increase primarily relates to an increase of $10.7 million in interest income earned from marketable securities in 2023.

An income tax expense of $0.2 million was recognized for the year ended December 31, 2023, which was primarily related to deferred state taxes.

An income tax expense of $0.1 million was recognized for the year ended December 31, 2022, which was primarily related to current federal taxes of $0.2 million, partially offset by a state deferred tax benefit of $0.1 million.

Liquidity, Capital Resources, and Capital Requirements

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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 convertible preferred stock, which generated approximately $150.1 million in aggregate net proceeds, and from our IPO, 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 that we received under the Intellia Agreement.

Additionally, through December 31, 2022, we received approximately $84.2 million from licensing agreements, licensing and collaboration agreements, a service agreement, patent assignments, and government grants, including $33.8 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 Securities and Exchange Commission (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).

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 through 2021, from our initial public offering (“IPO”) in 2021, which generated approximately $321.0 million in net proceeds, and from an underwritten follow-on public offering in 2023 which generated approximately $134.4 million in net proceeds.

We have also received approximately $88.4 million in net proceeds from the sale of Intellia common stock through 2020.

Additionally, we received a $25.0 million equity investment from Pfizer, Inc.

(“Pfizer”) through a private placement transaction in June 2023.

Through December 31, 2023, we received approximately $95.1 million from licensing agreements, licensing and collaboration agreements, a service agreement, patent assignments, and government grants, including $36.7 million that was received from AbbVie under the now-terminated AbbVie Agreement.

On August 9, 2022, we filed a universal shelf registration statement on Form S-3 (“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 will use 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).

As of December 31, 2023, we had sold securities in an aggregate amount of $144.9 million under the Shelf Registration Statement.

market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (“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 will 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.

We are not obligated to sell any shares under the ATM Sales Agreement.

As of December 31, 2022, there have been no sales under the ATM Sales Agreement and the full capacity remained available for issuance.

For the year ended December 31, 2023, we sold 168,635 shares of our 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 February 2024, we sold 1,594,171 shares of our common stock under the ATM Sales Agreement, at an average price per share of $7.33 for aggregate gross proceeds of $11.7 million ($11.3 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 follow-on public offering at a price to the public of $6.50 per share, which included the full exercise of the underwriters’ right to purchase 2,884,615 additional shares of our common stock.

The total net proceeds from the offering were approximately $134.4 million, after deducting underwriting discounts and commissions and offering expenses.

The shares were sold under the Shelf Registration Statement.

As of December 31, 2023, we had cash, cash equivalents, and marketable securities of $372.4 million.

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 9, and payments under certain of our license agreements as described in Note 4, in each case to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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, and payments under certain of our license agreements as described in Note 4 and Note 9, respectively, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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 Annual Report on Form 10-K.

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Contractual Obligations and Commitments

We enter into contracts in the normal course of business with suppliers, CMOs, CROs, clinical trial sites, and the like.

We enter into contracts in the normal course of business with suppliers, CMOs, CROs, clinical trial sites, licensors, assignors, and the like.

These agreements provide for termination at the request of either party generally with less than one-year notice and, therefore, we believe that our non-cancelable obligations under these agreements are not material.

Some of these agreements include contingent payments that will become payable if and when we achieve certain development, regulatory, clinical, and/or commercial milestones.

As of December 31, 2023, the satisfaction and timing of such contingent payments is uncertain and is not reasonably estimable.

We have milestones, royalties, and/or other payments due to third parties under our existing license and assignment agreements.

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We cannot estimate when such payments will be due and none of these events is probable to occur as of December 31, 2023.

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MSKCC Agreement Success Payments

Under the MSKCC Agreement, we are obligated to make success payments to MSKCC of up to $35.0 million if our stock price increases by certain multiples of increasing value based on a comparison of the fair market value of our common stock with $5.1914 per share, adjusted for future stock splits, during a specified time period.

The relevant time period commences when the first patient is dosed with our first CLL-1 product candidate (CB-012) in the first phase 1 clinical trial and ends upon the earlier of the third anniversary of approval of our biologics license application (“BLA”) by the FDA or 10 years from the date the first patient was dosed with our first CLL-1 product candidate in the first phase 1 clinical trial.

As of December 31, 2023 the timing and likelihood of triggering the MSKCC success payments are uncertain.

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As of December 31, 2023, we had lease payment obligations totaling $41.7 million, of which $3.5 million is due within 12 months.

Strategic Investment

On June 29, 2023, we entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with Pfizer, Inc.

(“Pfizer”) pursuant to which we, in a private placement transaction, 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 (“Pfizer Investment”).

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 covering 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 our 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, having a 36-month term.

Under the Information Rights Agreement, we granted Pfizer a 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.

If 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 will be reinstated.

Under the Information Rights Agreement, we also granted Pfizer the right to designate one representative to serve on our scientific advisory board (“SAB”).

Through an information sharing committee, we 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 (“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, 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

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• 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;

• increases 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;

• whether we enter into any 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;

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• 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;

• the achievement of milestones or occurrence of other developments that trigger payments by or to third parties;

• our implementation of various computerized informational systems and efforts to enhance operational systems;

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• the impact of the COVID-19 pandemic or other public health crises or geopolitical events on our clinical development or operations;

• the impact of public health crises or geopolitical events on our clinical development or operations;

• the impact of inflationary pressures on the cost of our operations;

• the costs associated with being a public company.

Furthermore, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.

If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all.

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 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 public or private equity offerings, debt financings, collaborations, and licensing arrangements.

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, 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.

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.

Comparison of the Years Ended December 31, 2023 and 2022

The following summarizes our cash flows for the periods indicated:

The following table summarizes our cash flows for the periods indicated:

Years Ended December 31,

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Cash provided by financing activities 154,298 2,133 152,165

Net (decrease) increase in cash and cash equivalents $ (182,082) $ 224,513 $ (406,595)

Net decrease in cash and cash equivalents

$ (7,176) $ (182,082) $ 174,906

Cash Used in Operating Activities

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Cash used in operating activities in the year ended December 31, 2023 was primarily due to our net loss of $102.1 million, adjusted by non-cash charges of $16.1 million and net changes in our net operating assets and liabilities of $7.3 million.

Our 2022 non-cash charges were primarily comprised of $11.7 million of stock-based compensation, $2.0 million of non-cash lease expense, $1.6 million of depreciation and amortization expense, and $0.6 million of acquired in-process research and development, which were partially offset by the change in the fair value of the MSKCC success payments liability of $2.4 million, and amortization of premiums on marketable securities of $0.8 million.

The changes in our net operating assets and liabilities were due to decreases of $4.8 million in deferred revenue, $2.7 million in accounts payable, $0.4 million in operating lease liabilities, and increases of $1.0 million in prepaid expenses and other current assets, $0.8 million in contract assets, and $0.6 million in other assets, partially offset by increases of $2.0 million in accrued expenses and other current liabilities, and decreases of $3.3 million in other receivables, and $1.0 million in accounts receivable.

Our 2023 non-cash charges were primarily comprised of $13.8 million of stock-based compensation, $3.5 million of depreciation and amortization expense, $2.0 million of non-cash lease expense, and change in the fair value of the MSKCC success payments liability of $1.3 million, which were partially offset by the accretion of discounts on marketable securities of $4.4 million.

The changes in our net operating assets and liabilities were due to decreases of $16.9 million in deferred revenue and $0.6 million in operating lease liabilities, partially offset by increases of $5.7 million in accrued expenses and other current liabilities, $1.8 million in accounts payable, and decreases of $1.8 million in prepaid expenses and other current assets and $0.8 million in contract assets.

Cash used in operating activities in the year ended December 31, 2022 was primarily due to our net loss of $99.4 million, adjusted by non-cash charges of $12.7 million and net changes in our net operating assets and liabilities of $4.2 million.

Our 2021 non-cash charges were primarily comprised of $3.4 million of stock-based compensation, $1.4 million related to the change in the fair value of the MSKCC success payments liability, and $1.0 million of depreciation and amortization expense, which were offset by a gain of $1.6 million from the PPP Loan extinguishment upon the loan

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Acquired in-process research and development of $1.0 million consists of cash consideration reported in our investing activities.

The changes in our net operating assets and liabilities were due to increases of $29.6 million in deferred revenue primarily from the upfront payment received from AbbVie, $4.3 million in accrued expenses and other current liabilities, $1.2 million in deferred rent and lease incentive liability, $1.1 million in accounts payable, $0.3 million in deferred tax liabilities, offset by increases of $4.0 million in prepaid expenses and other current assets, $1.8 million in other receivables, $1.0 million in accounts receivable, and $0.2 million in contract assets.

Our 2022 non-cash charges were primarily comprised of $11.7 million of stock-based compensation, $2.0 million of non-cash lease expense, $1.6 million of depreciation and amortization expense, and $0.6 million of acquired in-process research and development, which were partially offset by the change in the fair value of the MSKCC success payments liability of $2.4 million, and accretion of discounts on marketable securities of $0.8 million.

Cash Used in Investing Activities

During the year ended December 31, 2023 and 2022, cash used in investing activities was $68.2 million and $93.2 million, respectively.

Cash used in investing activities for the year ended December 31, 2022 was primarily due to purchases of marketable securities of $339.1 million, property and equipment of $6.5 million, and in-process research and development of $0.6 million, partially offset by the proceeds from maturities of marketable securities of $252.9 million.

Cash used in investing activities for the year ended December 31, 2021 was primarily due to our purchases of marketable securities of $173.3 million, purchases of property and equipment of $2.1 million, and payments to acquire in-process research and development of $1.0 million.

Cash used in investing activities for the year ended December 31, 2023 was primarily due to purchases of marketable securities of $394.8 million and purchases of property and equipment of $11.6 million, partially offset by the proceeds from sales and maturities of marketable securities of $338.2 million.

Cash used in investing activities for the year ended December 31, 2022 was primarily due to our purchases of marketable securities of $339.1 million, purchases of property and equipment of $6.5 million, and in-process research and development of $0.6 million, partially offset by the proceeds of maturities of marketable securities of $252.9 million.

Cash Provided by Financing Activities

During the years ended December 31, 2023 and 2022, cash provided by financing activities was $154.3 million and $2.1 million, respectively.

Cash provided by financing activities for the year ended December 31, 2023 was due to proceeds from a follow-on public offering, net of offering expenses, of $134.4 million, proceeds from issuance of common stock in a private placement with Pfizer of $17.3 million, the exercise of stock options and purchases of common stock under the 2021 Employee Stock Purchase Plan (“ESPP”) of $1.6 million, and proceeds from issuance of common stock related to an at-the-market offering, net of offering expenses, of $1.0 million.

Cash provided by financing activities for the year ended December 31, 2022 was due to the exercise of stock options and purchases of common stock under the 2021 Employee Stock Purchase Plan of $2.1 million.

Cash provided by financing activities for the year ended December 31, 2021 was primarily due to the receipt of net proceeds from our IPO in the amount of $321.0 million, net proceeds from the issuance of Series C convertible preferred stock in the amount of $108.8 million, proceeds from the exercise of stock options of $2.6 million, and repayment of the promissory note issued to our president and chief executive officer in the amount of $1.2 million, partially offset by principal payments for a capital lease of $0.1 million.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“U.S.

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods.

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We recognize revenue when a licensee or assignee, or a customer, obtains control of the promised goods or services (e.g., an intellectual property license), in an amount that reflects the consideration that we have received or expect to receive in exchange for those goods or services.

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We apply judgment to determine whether agreements are within the scope of revenue for customers or other accounting guidance at an agreement’s effective date.

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Research and development expenses are charged to expense as incurred.

Research and development expenses include certain payroll and personnel expenses;

Research and development expenses include those for certain payroll and personnel;

laboratory supplies;

consulting costs;

external clinical research and development expenses;

manufacturing;

external clinical;

and allocated overhead, including rent, equipment depreciation, and utilities.

We record accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, CROs, and CMOs.

We record accrued liabilities for estimated costs of research and development activities conducted by third-party CMOs, CROs, and other third-party service providers.

We accrue for these costs based on factors such as estimates of the work completed and in accordance with service agreements established with these third-party service providers.

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Our accrual is dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs, and other third-party vendors.

Variations in the assumptions used to estimate accruals including, but not limited to, the number of

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patients enrolled, the rate of patient enrollment and the actual services performed, may vary from our estimates, resulting in adjustments to clinical trial expenses in future periods.

Variations in the assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from our estimates, resulting in adjustments to clinical trial and manufacturing expenses in future periods.

Changes in these estimates that result in material changes to our accruals could materially affect our financial condition and results of operations.

If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly.

Stock-Based Compensation Expense

Stock-based compensation expense related to awards to employees is measured at the grant date based on the fair value of the award.

We determine the grant-date fair value of the options using the Black-Scholes option-pricing model.

The fair value of restricted stock units (“RSUs”) and performance-based RSUs (“PSUs”) awards is determined based on the number of units granted and the closing price of our common stock as of the grant-date.

The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period, and is adjusted for pre-vesting forfeitures in the period in which the forfeitures occur.

We use the Black-Scholes valuation model as the method for determining the estimated fair market value of stock options and stock purchases under our 2021 Employee Stock Purchase Plan (“2021 ESPP”) with the following assumptions:

We use the Black-Scholes valuation model as the method for determining the estimated fair market value of stock options and stock purchases under our ESPP with the following assumptions:

Fair Market Value of Common Stock — Prior to our IPO, the fair market value of our common stock was determined by our board of directors with assistance from management and external valuation experts.

Our approach to estimating the fair market value of our common stock was consistent with the methods outlined in the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Compensation.

Following our IPO, the fair market value of our common stock is based on its closing price on Nasdaq as reported on the date of the stock option grant.

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Treasury zero-coupon issued in effect at the time of grant for periods corresponding with the expected term of the award.

Stock-based compensation expense related to awards to non-employees, such as consultants, is recognized based on the then-current fair value at each grant date over the associated service period of the award, which is generally the vesting term, using the straight-line method.

The fair value of non-employee stock options is estimated using the Black-Scholes valuation model with assumptions generally consistent with those used for employee stock options, with the exception of the expected term, which is the remaining contractual life at each measurement date.

See Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information on assumptions used in estimated stock-based compensation expense.

We recorded stock-based compensation expense of $13.8 million and $11.7 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2022, there was $26.5 million of unrecognized stock-based compensation expense related to employee and non-employee stock options that is expected to be recognized over a weighted-average period of 2.7 years.

As of December 31, 2023, there was $25.8 million of unrecognized stock-based compensation expense related to employee stock options that is expected to be recognized over a weighted-average period of 2.5 years.

As of December 31, 2023, the total unrecognized stock-based compensation expense related to unvested RSUs was $0.8 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.0 years.

We expect to continue to grant equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

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We adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) on January 1, 2022, using the modified retrospective transition approach.

There was no cumulative-effect adjustment recorded to retained earnings upon adoption.

Under ASC 842, we assess all arrangements that convey the right to control the use of property, plant and equipment, at inception, to determine if it is, or contains, a lease based on the unique facts and circumstances present in the arrangements.

In addition, we determine whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering:

(1) whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, (2) whether the lease contains a bargain purchase option, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

As of December 31, 2022, our lease population consisted only of operating real estate leases.

Once a lease is identified and its classification determined, we recognize a right-of-use asset and a corresponding lease liability.

Lease liabilities are recorded based on the present value of lease payments over the expected least term.

The corresponding right-of-use asset is measured from the initial lease liability, adjusted by (i) accrued or prepaid rents, (ii) remaining unamortized initial direct costs and lease incentives, and (iii) any impairments of the right-of-use asset.

Significant assumptions utilized in recognizing the right-of-use assets and corresponding lease liabilities included the expected lease term and the incremental borrowing rate.

The expected lease term includes both contractual lease periods and, as applicable, extensions of the lease term when we have determined the exercise of the option to extend is reasonably certain to occur.

The incremental borrowing rate was utilized to discount lease payments over the expected term given our operating leases do not provide an implicit rate.

We estimated the incremental borrowing rate based on an analysis of corporate bond yields with a credit rating similar to us.

The determination of our incremental borrowing rate requires management judgment, including development of a synthetic credit rating and cost of debt, as we currently do not carry any debt.

We believe that the estimates used in determining the incremental borrowing rate are reasonable based upon facts and circumstances.

For additional details regarding the impact of adoption and disclosure, see Note 2 and Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

MSKCC Success Payments Liability

Under the MSKCC Agreement, we are obligated to make success payments and a change of control payment to MSKCC of up to $35.0 million, as discussed above.

The liability associated with these potential success payments is accounted for at fair value as a long-term liability.

The MSKCC success payments liability is estimated at fair value at inception and at each subsequent balance sheet date, and changes in the fair value of the liability are recognized as expense or income as part of “other income (expense)” in our consolidated statements of operations and comprehensive loss until the success payments liability is paid or expires.

We estimated the fair value of the success payments liability to be equal to $1.7 million and $4.1 million as of December 31, 2022 and 2021, respectively.

Change in the fair value of the MSKCC success payments liability of $2.4 million and ($1.4 million) was recognized in other income (expense) for the year ended December 31, 2022 and 2021, respectively.

To determine the estimated fair value of the MSKCC success payments liability, we use a Monte Carlo simulation methodology, which models the future movement of our stock price based on several key variables.

The following variables were incorporated in the estimated fair value of the success payments liability:

estimated term of the success payments, fair value of common stock, expected volatility, risk-free interest rate, and estimated number and timing of valuation measurement dates on the basis of which payments may be triggered.

The computation of expected volatility was estimated using a combination of available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption and its historical and projected volatility.

There are several valuation measurement dates that will occur subsequent to the filing of this Annual Report on Form 10-K, on the basis of which payments may be triggered.

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We account for income taxes using the asset and liability method.

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See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K 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 December 31, 2022.

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.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 Act (“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.

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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.

As described in Recent Accounting Pronouncements in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we have early adopted certain accounting standards, because the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies, to the extent early adoption is allowed by the accounting standard.

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.

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 Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis