What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 61 added, 67 removed, 213 unchanged (38% of the section changed)

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We may encounter unexpected difficulties in manufacturing our Nautilus platform, instruments, and related consumables.

Among other factors, we will need to develop reliable supply chains for the various components in the Nautilus platform, instruments, and consumables to support large-scale commercial production.

Among other factors, we will need to develop reliable supply chains for the various components in our Nautilus platform, instruments, and consumables to support large-scale commercial production.

In connection with our Nautilus platform, we intend to utilize over 300 complex reagents and various antibodies in order to generate deep proteomic information at the speed and scale which we expect our Nautilus platform to perform.

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Finally, the third phase is anticipated to include a broader commercial launch.

We are currently in the collaboration phase during which we have entered into collaborations with a small number of research customers, including with biopharmaceutical companies and key opinion leaders in proteomics whose assessment and validation of our products can significantly influence other researchers in their respective markets and/or fields.

We are currently in the collaboration phase during which we have entered into and are seeking to enter into collaborations with a small number of research customers, including with biopharmaceutical companies and key opinion leaders in proteomics whose assessment and validation of our products can significantly influence other researchers in their respective markets and/or fields.

During the early access limited release phase, we plan to leverage our publications to drive awareness and customer demand to pre-sell instruments and reagents to select customers performing large-scale proteomics research.

During this phase, we plan to provide early access program partners with broad-scale analysis and profiling of samples analyzed in its facility and shared via a cloud platform.

We do not anticipate that these activities will result in any material revenue.

During this phase, we expect to work closely with early access customers to demonstrate a unique value proposition for our Nautilus platform .

We expect this second phase to lead into the third phase of broad commercialization by the end of 2023.

We do not expect to realize any material revenue prior to the second half of 2023.

During the second phase, we expect to work closely with early access customers to demonstrate a unique value proposition for our Nautilus platform .

During this phase, we plan to provide early access program partners with broad-scale analysis and profiling of samples analyzed in our facility and shared via a cloud platform.

We anticipate meaningful early access engagements and associated revenue to begin at the start of 2024.

We expect this second phase to lead into the third phase of broad commercialization and launch of the proteome analysis platform in mid-2024.

We intend to commercialize our Nautilus platform through a direct sales channel in the United States, and through both direct and distributor sales channels in regions outside the United States.

Given our stage of development, we currently have no marketing, sales, commercial product distribution or service and support capabilities.

Given our stage of development, we currently have limited marketing, sales, commercial product distribution or service and support capabilities.

We intend to build the necessary infrastructure for these activities in the United States, European Union, the United Kingdom, and potentially other countries and regions, including Asia-Pacific, as we execute on our three phase commercial launch strategy for our Nautilus platform.

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• undertake activities to establish sales, marketing and distribution capabilities for our Nautilus platform;

• setup costs related to production tooling and required testing;

• incur setup costs related to production tooling and required testing;

• maintain, protect and expand our intellectual property portfolio, including patents, trade secrets and know how;

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• attract, hire and retain additional management, scientific and administrative personnel;

• operate as a public company.

• continue to operate as a public company.

As a result, we will require substantial additional funding to develop our products and support our continuing operations.

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We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID‑19 pandemic, the conflicts in Eastern Europe, and otherwise.

Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, and could force us to delay, reduce or eliminate our product development or future commercialization efforts.

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We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

Impact of COVID-19 Pandemic

The global COVID-19 pandemic continues to rapidly evolve.

The extent of the impact of the COVID-19 pandemic on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel.

As the COVID-19 pandemic has developed, we have taken numerous steps to help ensure the health and safety of our employees.

We are maintaining hygiene and respiratory protocols;

Impact of Negative Global or National Events

Businesses have been and will continue to be impacted by a number of challenging global and national events and circumstances that continue to evolve, including the COVID-19 pandemic, extreme weather conditions, increased economic uncertainty, inflation, rising interest rates, and conflicts in Eastern Europe and in other countries.

The extent of the impact of these events and circumstances on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and scope of the events and their impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel.

We have been and continue to actively monitor the potential impacts that these various events and circumstances may have on our business and we take steps, where warranted, to minimize any potential negative impacts on our business resulting from these events and circumstances.

For example, as the COVID-19 pandemic has developed, we have taken numerous steps to help ensure the health and safety of our employees.

We continue to employ hygiene protocols;

controls for social distancing;

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health policies;

and usage of personal protective equipment, where appropriate.

During March and April of 2020 in which stay at home orders were in place in the state of California and Washington, the volume of ongoing lab work was reduced, and only critical program work in the lab continued with staggered lab employee work shifts to minimize risk of exposure to COVID-19, which disrupted and delayed our ability to conduct development activities.

While we were broadly able to resume normal operations in August 2021, if any resurgence or worsening of the COVID-19 pandemic causes us to reinstitute these measures we may experience additional disruption and/or delays in our ability to conduct development activities.

We have been and continue to actively monitor our supply chain during the COVID-19 pandemic, including third-party materials and suppliers.

To date, we have experienced some supply disruptions due to the pandemic, including closures at certain chip manufacturers, which led to extended lead times for certain chips;

and usage of personal protective equipment, in all cases where appropriate.

While we have largely resumed normal operations, any resurgence or worsening of the COVID-19 pandemic may cause us to reinstitute certain measures to protect employee safety, including staggered work hours or reduced in-person staffing, that could result in additional disruption and/or delays in our ability to conduct development activities.

We have been and continue to actively monitor our supply chain in light of these challenging global and national events and circumstances, including our third-party materials suppliers.

To date, we have experienced some supply disruptions due to the COVID-19 pandemic, including closures at certain chip manufacturers, which led to extended lead times for certain chips;

diversion of certain lab materials needed to support COVID-19 relief efforts;

and lower availability of certain reagents.

While certain of these disruptions have resolved since the start of the COVID-19 pandemic, we are continuing to monitor our supply chain and contingency planning is ongoing with our partners to reduce the possibility of an interruption to our development activities or the availability of necessary materials.

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with our employees working remotely fully or intermittently as able from March 2020 until August 2021.

We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.

At this point, the extent to which the COVID-19 pandemic may affect our future business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.

While certain of these disruptions have been resolved since the start of the COVID-19 pandemic, we are continuing to monitor our supply chain and contingency planning is ongoing with our partners to reduce the possibility of an interruption to our development activities or the availability of necessary materials.

The ultimate impact of the these global and national events and circumstances, either individually or in aggregate, is highly uncertain and subject to change.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to mitigate potentially negative impacts to our business.

during the COVID-19 pandemic, we made certain modifications to employee travel, with masking and vaccination requirements in our offices, and with our employees working remotely fully or intermittently as able from March 2020 until August 2022.

We will continue to actively monitor the rapidly evolving situation related to these global and national events, and may take further actions to mitigate potential negative impacts to our business, and that may alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.

At this point, the extent to which these global or national events and circumstances may affect our future business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.

Reverse Recapitalization Transaction

On June 9, 2021 (the “Closing Date”), Nautilus Biotechnology, Inc., a Delaware corporation (f/k/a ARYA Sciences Acquisition Corp III, a Cayman Islands exempted company and our predecessor company (“ARYA”)) (the “Company”), consummated its previously announced business combination (the “Business Combination”) pursuant to the terms of that certain Business Combination Agreement, dated as of February 7, 2021 (the “Business Combination Agreement”), by and among ARYA, Mako Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of ARYA (“Mako Merger Sub”), and Nautilus Subsidiary, Inc., a Delaware corporation (f/k/a Nautilus Biotechnology, Inc.) (“Legacy Nautilus”).

On June 9, 2021 (the “Closing Date”), Nautilus Biotechnology, Inc., a Delaware corporation (f/k/a ARYA Sciences Acquisition Corp III, a Cayman Islands exempted company and our predecessor company (“ARYA”)) (the “Company”), consummated the previously announced business combination (the “Business Combination”) pursuant to the terms of that certain Business Combination Agreement, dated as of February 7, 2021 (the “Business Combination Agreement”), by and among ARYA, Mako Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of ARYA (“Mako Merger Sub”), and Nautilus Subsidiary, Inc., a Delaware corporation (f/k/a Nautilus Biotechnology, Inc.) (“Legacy Nautilus”).

Pursuant to the terms of the Business Combination Agreement, on the Closing Date, (i) ARYA changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the “Domestication”), upon which ARYA changed its name to “Nautilus Biotechnology, Inc.” (together with its consolidated subsidiary, “New Nautilus” or “Nautilus”) and (ii) Mako Merger Sub merged with and into Legacy Nautilus (the “Merger”), with Legacy Nautilus as the surviving company in the Merger and, after giving effect to such Merger, Legacy Nautilus becoming a wholly-owned subsidiary of New Nautilus.

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Research and Development Expense

Research and development expenses account for a significant portion of our operating expenses and consist primarily of salaries, related benefits and stock-based compensation expense of product development personnel, facilities costs, laboratory supplies and equipment, depreciation and amortization, external costs of vendors engaged to conduct research and development activities, and allocated expenses for technology and facilities.

Research and development expenses account for a significant portion of our operating expenses and consist primarily of salaries, related benefits and stock-based compensation expense of product development personnel, laboratory supplies and equipment, depreciation and amortization, external costs of vendors engaged to conduct

research and development activities, and allocated expenses for technology and facilities.

We expense research and development expenses in the periods in which they are incurred.

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We expense general and administrative expenses in the periods in which they are incurred.

We expect that our general and administrative expenses will increase substantially over the next several years as we hire additional personnel to support the continued research and development of our products and growth of our business.

We expect that our general and administrative expenses will increase substantially over the next several years as we hire additional personnel to support the growth in research and development activities for our products and commercial activities supporting the growth of our business.

We also anticipate that we will incur substantially higher expenses as a result of operating as a public company, including expenses related to accounting, audit, legal, regulatory, insurance, compliance with the rules and regulations of the SEC, Sarbanes-Oxley Act and those of any national securities exchange on which our securities are traded, director and officer insurance, investor and public relations, and other administrative and professional services.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income on our cash, cash equivalents and investments and other miscellaneous nonrecurring expenses such as loss on disposal of property and equipment.

Other Income (Expense)

Other income (expense) consists primarily of interest income on our cash, cash equivalents and investments (including accretion and amortization of discounts and premiums on marketable debt securities), gains and losses on foreign currency transactions, and other miscellaneous nonrecurring expenses such as gains or losses on disposal of property and equipment.

Results of Operations

Comparison of Fiscal Year Ended December 31, 2021 to Fiscal Year Ended December 31, 2020

Comparison of Fiscal Years Ended December 31, 2022 to December 31, 2021

The following table shows our consolidated statements of operations for the periods indicated:

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Total operating expenses 63,618 50,498 13,120 26 %

Other income (expense), net 183 125 58 46 %

Other income (expense):

Interest income 5,816 329 5,487 1668 %

Other expense (122) (146) 24 (16) %

Total other income (expense) $ 5,694 $ 183 $ 5,511 3011 %

Net loss $ 57,924 $ 50,315 $ 7,609 15 %

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Research and development expenses were $37.7 million for the year ended December 31, 2022, compared to $29.4 million for the year ended December 31, 2021, an increase of $8.3 million, or 28%.

The increase was primarily due to a $8.4 million increase in salaries, related benefits, and stock-based compensation due to an increase in headcount to support on-going development of our products, a $4.2 million increase in laboratory supplies and equipment expense, a $2.2 million increase in costs for development services and a $1.4 million increase in facilities cost.

The increase was primarily due to a $5.9 million increase in salaries, related benefits, and stock-based compensation due to an increase in headcount to support on-going development of our products, a $1.6 million increase in facilities cost, and a $1.4 million increase in costs for development services.

These increases were partially offset by a $0.7 million decrease in laboratory supplies and equipment expense.

General and Administrative Expenses

General and administrative expenses were $25.9 million for the year ended December 31, 2022, compared to $21.1 million for the year ended December 31, 2021, an increase of $4.8 million, or 23%.

The increase was primarily due to a $9.1 million increase in salaries, related benefits, and stock-based compensation, a $4.1 million increase in professional services, primarily related to audit, legal, and accounting service expenses, a $1.8 million increase in insurance costs and a $0.8 million increase in facilities costs.

Other Income (Expense), Net

Other income (expense), net for the year ended December 31, 2021 as compared to the year ended December 31, 2020 changed primarily due to net investment accretion offset by loss on disposal of assets incurred in the year ended December 31, 2021.

The increase was primarily due to a $3.8 million increase in salaries, related benefits, and stock-based compensation due to an increase in headcount to support general and administrative activities required to operate as a public company and supply chain and manufacturing readiness, a $0.8 million increase in facilities costs and a $0.4 million increase in insurance costs.

These increases were partially offset by a $0.8 million decrease in professional services including audit, accounting, and legal services.

Other Income (Expense)

Other income (expense) for the year ended December 31, 2022 as compared to the year ended December 31, 2021 changed primarily due to higher interest income from marketable debt securities driven by higher interest rates.

Liquidity and Capital Resources

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In June 2021, in conjunction with the consummation of the Business Combination with ARYA, we received additional gross proceeds of approximately $345.5 million from PIPE Investors and the Business Combination, offset by approximately $18.2 million of transaction costs and underwriters’ fees relating to the closing of the Business Combination.

As of December 31, 2021, we had cash, cash equivalents and short-term investments of $345.7 million.

As of December 31, 2022, we had cash, cash equivalents, and investments of $313.6 million.

Our primary uses of cash to date have been to fund our research and development activities, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

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• operate as a public company.

Based on our planned operations, we expect our current cash, cash equivalents, and short-term investments will be sufficient to fund our operating expenses and capital expenditures for at least the next 12 months.

Based on our planned operations, we expect our current cash, cash equivalents, and investments will be sufficient to fund our operating expenses and capital expenditures for at least the next 12 months.

We continue to face challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to:

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We may be unable to raise additional funds on favorable terms or at all.

Our failure to raise additional capital, if needed, would have a negative impact on our financial condition and our ability to execute our business plan.

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Operating Activities

During the year ended December 31, 2021, net cash used in operating activities was $39.2 million, primarily resulting from our operating loss of $50.3 million and a $2.8 million increase in prepaid expenses and other assets, partially offset by a $7.9 million of stock-based compensation, a $2.3 million increase in accrued expenses and other liabilities, $1.8 million amortization of operating lease right-of-use assets, a $1.3 million increase in accounts payable and a $1.0 million in depreciation.

During the year ended December 31, 2020, net cash used in operating activities was $14.0 million, primarily resulting from our operating loss of $15.6 million, $1.6 million decrease in operating lease liability, $0.6 million increase in prepaid expenses and other assets, partially offset by $1.6 million amortization of operating lease right-of-use assets, $0.7 million in depreciation, $0.7 million increase in accrued expenses and other liabilities, $0.3 million amortization of premiums on securities and $0.4 million of stock-based compensation.

During the year ended December 31, 2022, net cash used in operating activities was $45.8 million, primarily resulting from our operating loss of $57.9 million, a decrease in the net changes in assets and liabilities aggregating $0.8 million.

The net loss and decrease in net changes in assets and liabilities was partially offset by $12.9 million of

non-cash expenses.

The non-cash expenses included $10.4 million of stock-based compensation, $2.2 million amortization of operating lease right-of-use assets, $1.2 million in depreciation, partially offset by $0.9 million in accretion of discounts of investments.

During the year ended December 31, 2021, net cash used in operating activities was $39.2 million, primarily resulting from our operating loss of $50.3 million and a $2.8 million increase in prepaid expenses and other assets, partially offset by $7.9 million of stock-based compensation, a $2.3 million increase in accrued expenses and other liabilities, $1.8 million amortization of operating lease right-of-use assets, a $1.3 million increase in accounts payable and $1.0 million in depreciation.

Investing Activities

During the year ended December 31, 2021, net cash used in investing activities was $139.0 million, resulting from $221.8 million in purchases of securities and $2.3 million in purchases of property and equipment, partially offset by $85.1 million in proceeds from sale and maturities of securities.

During the year ended December 31, 2020, net cash used in investing activities was $25.3 million, primarily resulting from $68.4 million in purchases of securities and $0.9 million in purchases of property and equipment, offset by $44.0 million in proceeds from maturities of securities.

During the year ended December 31, 2022, net cash used in investing activities was $25.7 million, resulting from $186.6 million million in purchases of securities and $2.3 million in purchases of property and equipment, partially offset by $163.2 million in proceeds from sale and maturities of securities.

Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities was $327.4, primarily from $335.4 million in proceeds from reverse recapitalization and PIPE financing, partially offset by $8.1 million in payments of offering costs.

During the year ended December 31, 2020, net cash provided by financing activities was $75.9 million, primarily from proceeds from issuance of convertible preferred stock.

During the year ended December 31, 2022, net cash provided by financing activities was $0.6 million, primarily from proceeds from the exercise of stock options and issuance of common stock under the employee stock purchase plan.

During the year ended December 31, 2021, net cash provided by financing activities was $327.4 million, primarily from $335.4 million in proceeds from the reverse recapitalization and PIPE financing, partially offset by $8.1 million in payments of offering costs.

Contractual Obligations and Commitments

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Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.

To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when

the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.

To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.

The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment.

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The risk-free interest rate is based on the U.S.

Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

Treasury yield curve in effect at the time of grant for zero-coupon U.S.

Treasury notes with maturities corresponding to the expected term of the awards.

• Expected Volatility.

Historically, we have been a private company and lacked company-specific historical and implied volatility information for our common stock.

Therefore, the expected volatility of our common stock was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to our business corresponding to the expected term of the equity awards and we expect to continue to do so until such time we have adequate historical data regarding the volatility of our traded common stock price.

Therefore, the expected volatility of our common stock was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to our business corresponding to the expected term of the awards and we expect to continue to do so until such time we have adequate historical data regarding the volatility of our traded common stock price.

• Expected Term.

The expected term of stock options represents the weighted-average period that the stock-based awards are expected to be outstanding.

The expected term of stock options represents the weighted-average period that the stock-based awards are expected to remain outstanding.

We do not have sufficient historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term of options and have opted to use the “simplified method,” whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

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• as applicable, the implied equity value of Legacy Nautilus as contemplated by the Business Combination Agreement.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date.

In accordance with the Practice Aid, we considered the following methods:

Option Pricing Method.

Under the option pricing method (“OPM”), shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class.

The estimated fair values of the preferred and common stock are inferred by analyzing these options.

Probability-Weighted Expected Return Method.

The probability-weighted expected return method (“PWERM”) is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

For our valuation performed in May 2020, we utilized the OPM Backsolve approach to estimate the total equity value based on the recently completed Series B redeemable convertible preferred round of financing.

Under this method the OPM allocation model is constructed based on our capital structure and reasonable option model inputs (term, volatility, etc.) are assumed.

The total equity value in the model is then iterated until the model output for the Series B redeemable convertible preferred stock is equal to its original issue price.

We utilized the Hybrid Methodology as the primary allocation method.

For the valuations performed in December 2020, we used a hybrid method utilizing a combination of the OPM and the PWERM.

We utilized two different scenarios:

(a) a transaction with a SPAC and (b) an acquisition by another company.

Under the hybrid method, we used the OPM to allocate the equity value of the business among the various classes of stock.

The if-converted method presumes that all shares of our redeemable convertible preferred stock convert into Common Stock based upon their conversion terms and differences in the rights and preferences of the shares of our redeemable convertible preferred stock are ignored.

The liquidation method presumes payment of proceeds in accordance with the liquidation terms of each class of stock.

For awards granted in late January 2021, these were granted at the grant date fair value on the date of grant.

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In determining the estimated fair value of our common stock at each grant date, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the public markets.

Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-

average expected time to liquidity.

Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity.

The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

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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