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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-23 · 49 added, 67 removed, 207 unchanged (36% of the section changed)

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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 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.

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.

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.

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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 anticipate early access engagements and associated revenue in 2025.

We expect this second phase to lead into the third phase of broad commercialization and launch of our proteome analysis platform in 2025.

Voice of customer studies have suggested that there is market demand for a proteomics platform with specifications that are initially lower than what we have previously disclosed, for example, around characteristics such as sample input and proteome coverage.

Consequently, as we balance our time to market goals with our evolving view of customer requirements, we are refining our initial launch specifications.

We believe that subsequent consumable releases will enable our platform to meet or exceed our previously announced product specifications.

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.

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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.

On June 9, 2021, Nautilus Biotechnology, Inc., a Delaware corporation (f/k/a ARYA Sciences Acquisition Corp.

III, a Cayman Islands exempted company and the Company’s predecessor company (“ARYA”)), consummated the business combination (the “Business Combination”) pursuant to the terms of that certain Business Combination Agreement, dated as of February 7, 2021 (the “BCA”), 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”).

As a result of the Business Combination, ARYA changed its name to “Nautilus Biotechnology, Inc.” and Mako Merger Sub merged with and into Legacy Nautilus with Legacy Nautilus surviving as the surviving company and becoming a wholly-owned subsidiary of ARYA (the “Merger” and, collectively with the other transactions described in the BCA, the “Reverse Recapitalization”).

In addition, in conjunction with the completion of the Business Combination, certain investors (“PIPE Investors”) subscribed for the purchase of an aggregate of 20,000,000 shares of common stock of the Company (“New Nautilus Common Stock”) at a price of $10.00 per share for aggregate gross proceeds of $200.0 million (“PIPE Financing”).

Prior to the Business Combination, we financed our operations primarily through private placements of convertible preferred stock and had raised aggregate net proceeds of $108.4 million from these private placements.

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

• continue to operate as a public company.

• 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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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.

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, recent and any potential future financial institution failures, and conflicts in Eastern Europe, the Middle East 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.

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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.

While we have 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;

We have, in the past, 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;

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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.

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

In April 2023, President Biden signed legislation that ended the COVID-19 national emergency on May 11, 2023.

The full impact of this termination of the national emergency and the wind-down of the public health emergency on FDA and other regulatory policies and operations are unclear.

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.

For example, 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 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.

In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the effective time of the Merger (the “Effective Time”), (i) each share of Legacy Nautilus outstanding as of immediately prior to the Effective Time was exchanged for shares of common stock of New Nautilus, par value $0.0001 per share (“Common Stock”), and (ii) all vested and unvested options to purchase shares of Legacy Nautilus were exchanged for comparable options to purchase shares of Common Stock, in each case, based on an implied Legacy Nautilus equity value of $900,000,000.

As of the open of trading on June 10, 2021, the Common Stock of the Company, formerly those of ARYA, began trading on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “NAUT.”

In conjunction with the consummation of the Business Combination with ARYA, we received 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.

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.

Components of Our Results of Operations

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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, 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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General and Administrative Expenses

General and administrative expenses consist of salaries and benefits, and stock-based compensation expense for personnel in executive, operations, legal, human resources, finance, marketing, commercial, IT personnel and administrative functions, professional fees for legal, patent, consulting, accounting and audit services, and allocated expenses for technology and facilities.

General and administrative expenses consist of salaries, related benefits, and stock-based compensation expense for personnel in executive, operations, legal, human resources, finance, marketing, commercial, IT personnel and administrative functions, professional fees for legal, patent, consulting, accounting and audit services, directors and officers insurance, and allocated expenses for technology and facilities.

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 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.

We also anticipate that we will incur higher expenses as a result of 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, investor and public relations, and other administrative and professional services.

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.

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 non-recurring expenses such as gains or losses on disposal of property and equipment.

Results of Operations

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Research and development expenses were $47.3 million for the year ended December 31, 2023, compared to $37.7 million for the year ended December 31, 2022, an increase of $9.6 million, or 25%.

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.

The increase was primarily due to a $5.6 million increase in salaries, related benefits, and stock-based compensation, a $3.2 million increase in facilities cost, a $2.8 million increase in laboratory supplies and equipment expense, and a $0.5 million increase in depreciation expense.

These increases were primarily caused by increased hiring and new leases commencing during the period.

These increases were partially offset by a $2.7 million decrease in costs for external development services as more development efforts were performed by the Company.

General and Administrative Expenses

General and administrative expenses were $28.9 million for the year ended December 31, 2023, compared to $25.9 million for the year ended December 31, 2022, an increase of $3.0 million, or 11%.

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.

The increase was primarily due to a $4.1 million increase in salaries, related benefits, and stock-based compensation due to an increase in headcount to support general and administrative activities and supply chain and manufacturing readiness, and a $0.2 million increase in facilities costs driven by new leases commencing during the period.

These increases were partially offset by a $1.1 million decrease in insurance costs, and a $0.7 million decrease in professional services, including accounting and recruiting services, as more of these activities were completed by the Company.

Other Income (Expense)

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We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we:

• continue our research and development activities, including with respect to our proteomics platform;

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

• continue our research and development activities, including with respect to our Nautilus platform;

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

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

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• operate as a public company.

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.

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.

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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our need to implement additional infrastructure and internal systems;

the impact of the COVID-19 pandemic;

the impact of the COVID-19 pandemic, the conflicts in Eastern Europe the Middle East and in other countries;

and other items affecting our forecasted level of expenditures and use of cash resources including potential acquisitions.

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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, 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.

During the year ended December 31, 2023, net cash used in operating activities was $51.7 million, primarily resulting from our net loss of $63.7 million, a decrease in the net changes in assets and liabilities aggregating $3.2 million.

The net loss and decrease in net changes in assets and liabilities was partially offset by $15.2 million of non-cash expenses.

The non-cash expenses included $12.1 million of stock-based compensation, $3.9 million amortization of operating lease right-of-use assets, $1.8 million in depreciation, partially offset by $2.7 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.

During the year ended December 31, 2022, net cash used in operating activities was $45.8 million, primarily resulting from our net loss of $57.9 million and a decrease in the 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 of amortization of operating lease right-of-use assets, $1.2 million of depreciation, partially offset by $0.9 million of accretion of discounts of investments.

Investing Activities

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.

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 the sale and maturities of securities.

During the year ended December 31, 2023, net cash used in investing activities was $43.7 million, resulting from $112.9 million in purchases of securities and $2.4 million in purchases of property and equipment, partially offset by $71.6 million in proceeds from the 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 in purchases of securities and $2.3 million in purchases of property and equipment, partially offset by $163.2 million in proceeds from the maturities of securities.

Financing Activities

During the year ended December 31, 2023, net cash provided by financing activities was $0.4 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.

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.

Contractual Obligations and Commitments

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Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition results of operations are based upon our financial statements included elsewhere in this prospectus.

Our discussion and analysis of financial condition results of operations are based upon our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses.

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Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management.

A thorough understanding of these critical accounting policies is essential when reviewing our financial statements.

A thorough understanding of these critical accounting policies is essential when reviewing

our financial statements.

We believe that the critical accounting policies listed below are the most difficult management decisions as they involve the use of significant estimates and assumptions as described above.

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Costs for research and development activities are expensed in the period in which they are incurred.

Research and development expenses consist of costs incurred in performing research and development activities, including salaries and bonuses, stock-based compensation, employee benefits, facilities costs, laboratory supplies, depreciation and amortization, external costs of vendors engaged to conduct research and development activities.

Research and development expenses consist of costs incurred in performing research and development activities, including salaries, related bonuses, stock-based compensation, employee benefits, 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.

As part of the process of preparing our financial statements, we estimate our accrued expenses.

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These assumptions include:

• Fair Value of Common Stock.

See the subsection titled “Common Stock Valuations” below.

• Risk-Free Interest Rate.

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• Expected Term.

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

The expected term of stock options represents the weighted-average period that the stock options 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 a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Common Stock Valuations

Prior to the closing of the Business Combination, there had been no public market for our common stock, and, as a result, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors.

To determine the fair value of our common stock underlying option grants at each grant date, our board of directors considered, among other things, input from management, valuations of our common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant.

These factors included, but were not limited to:

• our results of operations and financial position, including our levels of available capital resources;

• our stage of development and material risks related to our business;

• progress of our research and development activities;

• our business conditions and projections;

• the market value of stock or equity interests in similar corporations and other entities engaged in trades or businesses substantially similar to ours, the value of which could be readily determined through nondiscretionary, objective means (such as through trading prices on an established securities market or an amount paid in an arm’s length transaction), as well as recently completed mergers and acquisitions of peer companies;

• the lack of marketability of our common stock as a private company;

• the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions and the terms and prices of other arm’s length transactions involving the sale or transfer of our securities;

• the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

• the likelihood of achieving a liquidity event for our securityholders, such as an initial public offering or a sale of our company, given prevailing market conditions;

• the hiring of key personnel and the experience of management;

• trends and developments in our industry;

• external market conditions affecting the life sciences and biotechnology industry sectors;

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

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

Our board of directors made a determination of the fair market value of our common stock which contemplated the implied equity value of the Legacy Nautilus per the Business Combination agreement that was executed on February 7, 2021.

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.

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.

Following the closing of the Business Combination, our board of directors determine the fair market value of our common stock based on its closing price as reported on the date of grant on Nasdaq.

Recent Accounting Pronouncements

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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