PRECIGEN, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K for the year ended December 31, 2023, or Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates, expectations, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements and you are cautioned not to place undue reliance on forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report, particularly in "Special Note Regarding Forward-Looking Statements" and "Risk Factors." The forward-looking statements included in this Quarterly Report are made only as of the date hereof. Overview We are a dedicated discovery and clinical-stage biopharmaceutical company advancing the next generation of gene and cell therapies with the overall goal of improving outcomes for patients with significant unmet medical needs. We are leveraging our proprietary technology platforms to develop product candidates designed to target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases. We have developed an extensive pipeline of therapies across multiple indications. We believe that our array of technology platforms uniquely positions us among other biotechnology companies to advance precision medicine. Precision medicine is the practice of therapeutic product development that takes into account specific genetic variations within populations impacted by a disease to design targeted therapies to improve outcomes for a disease or patient population. Our proprietary and complementary technology platforms provide a strong foundation to realize the core promise of precision medicine by supporting our efforts to construct powerful gene programs to drive efficacy, deliver these programs through viral, non-viral, and microbe-based approaches to drive lower costs, and control gene expression to drive safety. Our therapeutic platforms, including UltraCAR-T, AdenoVerse immunotherapy, and ActoBiotics, are designed to allow us to precisely control the level and physiological location of gene expression and modify biological molecules to control the function and output of living cells to treat underlying disease conditions. We are actively advancing our lead clinical programs, including: PRGN-3005, PRGN-3006 and PRGN-3007, which are built on our UltraCAR-T platform; PRGN-2009 and PRGN-2012, which are based on our AdenoVerse immunotherapy platform. In addition, we have completed a Phase 1b/2a study of AG019, which is built on our ActoBiotics platform. We also have a robust pipeline of preclinical programs that we are pursuing in order to drive long-term value creation. We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. UltraPorator has received U.S. Food and Drug Administration, or FDA, clearance for manufacturing UltraCAR-T cells in clinical trials, and we have been dosing patients with UltraCAR-T cells manufactured with UltraPorator in our clinical trials. We exercise discipline in our portfolio management by systematically evaluating data from our preclinical programs in order to make rapid "go" and "no go" decisions. Through this process, we believe we can more effectively allocate resources to programs that we believe show the most promise and advance such programs to clinical trials. Our Biopharmaceuticals reportable segment is primarily comprised of the Company's legal entities of Precigen and ActoBio. Our Exemplar reportable segment is comprised of Exemplar Genetics LLC, doing business as Precigen Exemplar, or Exemplar, our wholly owned subsidiary focused on developing research models and services for healthcare research applications. Biopharmaceuticals Precigen We are developing therapies built on our UltraCAR-T therapeutics platform and our "off-the-shelf" AdenoVerse immunotherapy platform. Our AdenoVerse immunotherapy platform utilizes a library of proprietary adenovectors for the efficient gene delivery of therapeutic effectors, immunomodulators, and vaccine antigens. We have established proprietary manufacturing cell lines and production methodologies from our AdenoVerse immunotherapy platform, which we believe are scalable for commercial supply. We believe that our proprietary gorilla adenovectors, part of the AdenoVerse technology, have superior performance characteristics as compared to current competition, including standard human adenovirus serotype 5, rare human adenovirus types and other non-human primate adenovirus types. Through our UltraCAR-T therapeutics platform, we are able to precision-engineer UltraCAR-T cells to produce a homogeneous cell product that simultaneously expresses antigen-specific chimeric antigen receptor, or CAR, kill switch, and our proprietary 25 Table of Contents membrane-bound interleukin-15, or mbIL15, genes in any genetically modified UltraCAR-T cell. Our decentralized and rapid proprietary manufacturing process allows us to manufacture UltraCAR-T cells overnight at a medical center's current good manufacturing practices facility, or cGMP, and reinfuse the patient the following day after gene transfer. This process improves upon current approaches to CAR-T manufacturing, which require extensive ex vivo expansion following viral vector transduction to achieve clinically relevant cell numbers that we believe can result in the exhaustion of CAR-T cells prior to their administration, limiting their potential for persistence in patients. We have developed a proprietary electroporation device, UltraPorator, designed to further streamline and ensure the rapid and cost-effective manufacturing of UltraCAR-T therapies. The UltraPorator system includes proprietary hardware and software solutions and potentially represents major advancements over current electroporation devices by significantly reducing the processing time and contamination risk. UltraPorator is intended to be a viable scale-up and commercialization solution for decentralized UltraCAR-T manufacturing. Our most advanced programs are as follows: PRGN-2012 is a first-in-class, investigational "off-the-shelf" AdenoVerse immunotherapy for the treatment of recurrent respiratory papillomatosis, or RRP. PRGN-2012 is an innovative therapeutic vaccine with optimized antigen design that uses our gorilla adenovector technology, part of our proprietary AdenoVerse platform, to elicit immune responses directed against cells infected with HPV6 and HPV11. PRGN-2012 is in a Phase 1/2 clinical trial for adult patients with RRP. We have completed the Phase 1 portion of the clinical trial. The Phase 2 portion of the clinical trial is ongoing. We have announced that the FDA has agreed that the ongoing Phase 1/2 clinical trial of PRGN-2012 will serve as pivotal for the purpose of filing an accelerated approval request for licensure. PRGN-2012 has been granted Breakthrough Therapy Designation and Orphan Drug designation for the treatment of RRP by the FDA. PRGN-2012 has received Orphan Drug Designation for the Treatment of RRP from the European Commission as well. PRGN-2012 Phase 2 pivotal trial data are anticipated in the second quarter of 2024. We plan to submit a BLA under an accelerated approval pathway in the second half of 2024. We are preparing for commercial readiness for a potential launch, if approved, of PRGN-2012 in 2025. PRGN-2009 is a first-in-class, "off-the-shelf" investigational immunotherapy designed to activate the immune system to recognize and target human papillomavirus-positive, or HPV+, solid tumors. PRGN-2009 leverages our UltraVector and AdenoVerse platforms to optimize HPV type 16 and HPV type 18, antigen designed for delivery via a proprietary gorilla adenovector with a large genetic payload capacity and the ability for repeat administrations. We have completed a Phase 1 clinical trial of PRGN-2009 as a monotherapy or in combination with bintrafusp alfa, or M7824, an investigational bifunctional fusion protein, for patients with HPV-associated cancers in collaboration with the National Cancer Institute, or NCI, pursuant to a cooperative research and development arrangement, or CRADA. A Phase 2 clinical trial of PRGN-2009 in combination with pembrolizumab in newly diagnosed oropharyngeal squamous cell carcinoma patients is ongoing in collaboration with the NCI pursuant to a CRADA. In addition, Phase 2 clinical trial of PRGN-2009 in combination with pembrolizumab to treat patients with recurrent or metastatic cervical cancer is ongoing. PRGN-3005 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to simultaneously express a CAR targeting the unshed portion of the Mucin 16 antigen, mbIL15, and kill switch genes. PRGN-3005 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of advanced, recurrent platinum-resistant ovarian, fallopian tube, or primary peritoneal cancer. We have completed enrollment in the Phase 1 dose escalation cohorts of the intraperitoneal (IP) and intravenous (IV) arms without lymphodepletion as well as in the lymphodepletion cohort in the IV arm. The Phase 1b dose expansion trial is ongoing. PRGN-3006 is a first-in-class, investigational autologous CAR-T therapy that utilizes our UltraCAR-T platform to express a CAR to target CD33 (Siglec-3), mbIL15 and a kill switch gene. PRGN-3006 is currently being evaluated in a Phase 1/1b clinical trial for the treatment of relapsed or refractory, or r/r, acute myeloid leukemia, or AML, and high-risk myelodysplastic syndromes, or MDS. PRGN-3006 has been granted Fast Track designation in patients with r/r AML by the FDA. Previously PRGN-3006 was granted Orphan Drug Designation in patients with AML by the FDA. We have completed the Phase 1 dose escalation trial. The Phase 1b dose expansion trial is ongoing. PRGN-3007 is a first-in-class, investigational autologous CAR-T therapy that utilizes the next generation UltraCAR-T platform to express a CAR which targets ROR1, mbIL15, a kill switch, and a novel mechanism for the intrinsic blockade of the programmed death 1, or PD-1, gene expression. PRGN-3007 is being evaluated in a Phase 1/1b clinical trial for patients with advanced receptor tyrosine kinase-like orphan receptor 1-positive, or ROR1 + , hematological (Arm 1) and solid tumors (Arm 2). The target patient population for Arm 1 includes relapsed or refractory CLL, relapsed or refractory MCL, relapsed or refractory B-ALL, and relapsed or refractory DLBCL. The target patient population for Arm 2 includes locally advanced unresectable or metastatic histologically confirmed TNBC Arm 1 and Arm 2 will enroll in parallel. The study is designed to enroll in two parts: 26 Table of Contents an initial 3+3 dose escalation in each arm followed by a dose expansion at the maximum tolerated dose. The Phase 1 dose escalation portion of the Phase 1/1b study is ongoing. In addition to our clinical programs, we have a robust pipeline of preclinical programs in order to drive long-term value creation. Our pipeline includes product candidates based on UltraCAR-T and "off-the-shelf" AdenoVerse immunotherapy therapeutic platforms. We expect to continue development of a number of potential product candidates in our preclinical pipeline to identify product candidates for evaluation in clinical trials. Precigen ActoBio, Inc. ActoBio is pioneering a proprietary class of microbe-based biopharmaceuticals, referred to as ActoBiotics, that enable expression and local delivery of disease-modifying therapeutics. Our ActoBiotics platform is a unique delivery platform precisely tailored for specific disease modification with the potential for superior efficacy and safety. ActoBiotics combine the advantages of highly selective protein-based therapeutic agents with local delivery by the well-characterized, food-grade bacterium Lactococcus lactis , or L. lactis . ActoBiotics can be delivered orally in a capsule, through an oral rinse, or in a topical solution. ActoBiotics work via genetically modified bacteria which deliver proteins and peptides at mucosal sites, rather than the insertion of one or more genes into a human cell by means of a virus or other delivery mechanism. By foregoing this insertion, ActoBiotics enable "gene therapy" without the need for cell transformation. AG019, is a first-in-class disease modifying antigen-specific, investigational immunotherapy for the prevention, delay, or reversal of type 1 diabetes mellitus, or T1D. AG019 is an easy-to-take capsule formulation of ActoBiotics engineered to deliver autoantigen human proinsulin, or hPINS, and the tolerance-enhancing cytokine human interleukin-10 to the mucosal lining of gastro-intestinal tissues in patients with T1D. We have completed a Phase 1b/2a clinical trial of AG019 for the treatment of early-onset T1D. The Phase 1b portion of the study evaluated the safety and tolerability of AG019 monotherapy administered both as a single dose and as repeated daily doses in adult and adolescent patients. The Phase 2a double-blind portion of the study investigated the safety and tolerability of AG019 in combination with teplizumab, or PRV-031. The primary endpoint of assessing safety and tolerability in both the Phase 1b AG019 monotherapy and the Phase 2a AG019 combination therapy has been met. AG019 was well-tolerated when administered to adults and adolescents either as monotherapy or in combination with teplizumab. A single 8-week treatment cycle of oral AG019 as a monotherapy and in combination with teplizumab showed stabilization or increase of C-peptide levels during the first 6 months post treatment initiation in recent-onset T1D. Precigen Exemplar Exemplar is committed to enabling the study of life-threatening human diseases through the development of Yucatan MiniSwine miniature preclinical research models and services, as well as enabling the production of cells and organs in its genetically engineered MiniSwine for regenerative medicine applications. Historically, researchers have lacked animal models that faithfully represent human diseases. As a result, a sizeable barrier has blocked progress in the discovery of human disease mechanisms; novel diagnostics, procedures, devices, prevention strategies and therapeutics; as well as the ability to predict in humans the efficacy of next-generation procedures, devices, and therapeutics. Exemplar's MiniSwine models are genetically engineered to exhibit a wide variety of human disease states, which provides a more accurate platform to test the efficacy of new medications and devices. Segments As of March 31, 2024, our reportable segments were (i) Biopharmaceuticals and (ii) Exemplar. These identified reportable segments met the quantitative thresholds to be reported separately for the three months ended March 31, 2024. Financial overview We have incurred significant losses since our inception. We anticipate that we may continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability. Our historical collaboration and licensing revenues were generated under a business model from which we have gradually transitioned, and we do not expect to expend significant resources servicing our historical collaborations in the future. We may enter into strategic transactions for individual platforms or programs in the future from which we may generate new collaboration and licensing revenues. We continue to generate product and service revenues through our Exemplar subsidiary. Products currently in our clinical pipeline will require regulatory approval and/or commercial scale-up before they may commence significant product sales and operating profits. 27 Table of Contents As we continue our efforts to focus our business and generate additional capital, we may be willing to enter into transactions involving one or more of our operating segments and reporting units for which we have goodwill and intangible assets. These efforts could result in us identifying impairment indicators or recording impairment charges in future periods. In addition, market changes and changes in judgements, assumptions, and estimates that we have made in assessing the fair value of goodwill could cause us to consider some portion or all of certain assets to become impaired. See further discussion regarding our ability to continue as a going concern below under the future capital requirements section on Item 2. Sources of revenue Our primary current revenues arise from Exemplar, which generates product and service revenues through the development and sale of genetically engineered miniature swine models. We recognize revenue when control of the promised product or service is transferred to the customer. As we have shifted our focus to our healthcare business, we have and may continue to mutually terminate historical collaboration agreements or repurchase rights to the exclusive fields from collaborators, relieving us of any further performance obligations under the agreement. Upon such circumstances or when we determine no further performance obligations are required of us under an agreement, we may recognize any remaining deferred revenue as either collaboration revenue or as a reduction of operating expense, depending on the circumstances. See "Notes to the Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report for a discussion of changes to our significant collaborations. In future periods, in connection with our focus on healthcare, our revenues will primarily depend on our ability to advance and create our own programs and the extent to which we bring products enabled by our technologies to market. Other than for collaboration revenues recognized upon cancellation or modification of an existing collaboration or for revenues generated pursuant to future strategic transactions for any of our existing platforms or programs, we expect our collaboration revenues will continue to decrease in the near term, although if any new collaboration agreements or strategic transactions are entered into, revenue could be positively impacted. Our revenues will also depend upon our ability to maintain or improve the volume and pricing of Exemplar's current product and service offerings and to develop and scale up production of new offerings from the various technologies of Exemplar. As we focus on our healthcare business, we anticipate that our expenses will increase substantially if, and as, we continue to advance the preclinical and clinical development of our existing product candidates and our research programs. We expect a significant period of time could pass before commercialization of our various product candidates or before the achievement of contractual milestones and the realization of royalties on product candidates commercialized under our collaborations. Accordingly, there can be no assurance as to the timing, magnitude, and predictability of revenues, if any, to which we might be entitled. Cost of products and services Cost of products and services, all which are related to our Exemplar reporting segment, includes primarily labor and related costs, drugs and supplies, feed used in production, and facility charges, including rent and depreciation. Fluctuations in the price of livestock and feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk. Research and development expenses We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of: • salaries and benefits, including stock-based compensation expense, for personnel in research and development functions; • fees paid to consultants and contract research organizations who perform research on our behalf and under our direction; • costs related to laboratory supplies used in our research and development efforts and acquiring, developing, and manufacturing preclinical study and clinical trial materials; • costs related to certain in-licensed technology rights or in-process research and development; 28 Table of Contents • amortization of patents and related technologies acquired in mergers and acquisitions; and • facility-related expenses, which include direct depreciation costs and unallocated expenses for rent and maintenance of facilities and other operating costs. Our research and development expenses are generally incurred by our reportable segments and primarily relate to either costs incurred to expand or otherwise improve our technologies or the costs incurred to develop our own products and services. Our Biopharmaceuticals segment is progressing preclinical and clinical programs that target urgent and intractable diseases in our core therapeutic areas of immuno-oncology, autoimmune disorders, and infectious diseases, including PRGN-3005, PRGN-3006, PRGN-3007, PRGN-2009, and PRGN-2012 and AG019. Our Exemplar segment's research and development activities relate to new and improved pig research models. The following table summarizes our research and development expenses incurred by reportable segment and reconciles those expenses to research and development expenses on the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, 2024 2023 Biopharmaceuticals $ 14,226 $ 12,097 Exemplar 23 66 Total consolidated research and development expenses $ 14,249 $ 12,163 The amount of research and development expenses may be impacted by, among other things, the number and nature of our own proprietary programs, and the number and size of programs we may support on behalf of collaboration agreements. We expect that our research and development expenses will increase as we continue to develop our own proprietary programs, including progression of these programs into preclinical and clinical stages. We believe these increases will likely include increased costs paid to consultants and contract research organizations and increased costs related to laboratory supplies. Research and development expenses may also increase as a result of in-licensing of technologies or ongoing research and development operations that we might assume through mergers and acquisitions. Selling, general and administrative expenses Selling, general and administrative, or SG&A, expenses consist primarily of salaries and related costs, including stock-based compensation expense, for employees in executive, operational (including commercialization), finance, information technology, legal, and corporate communications functions. Other significant SG&A expenses include rent and utilities, insurance, accounting, and legal services (including the cost of settling any claims and lawsuits), and expenses associated with obtaining and maintaining our intellectual property. SG&A expenses may fluctuate in the future depending on the scaling of our corporate functions required to support our corporate initiatives, the build-up of our commercialization efforts and the outcomes of legal claims and assessments against us. Other income (expense), net Other income consists of gain on convertible debt retirement (for 2023) and interest earned on our cash and cash equivalents and short-term and long-term investments, and may fluctuate based on amounts invested and current interest rates. Other expense consisted primarily of interest on our Convertible Notes, which decreased in 2023 due to the retirement of our Convertible Notes. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 8" appearing elsewhere in this Quarterly Report for further discussion. Segment performance We use Segment Adjusted EBITDA as our primary measure of segment performance. We define Segment Adjusted EBITDA as net income (loss) before (i) interest expense and interest income, (ii) income tax expense or benefit, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) loss on settlement agreements where noncash consideration is paid, (vi) adjustments for accrued bonuses paid in equity awards, (vii) gain or loss on disposals of assets, (viii) loss on impairment of goodwill and other noncurrent assets, (ix) equity in net income (loss) of affiliates, and (x) recognition of previously deferred 29 Table of Contents revenue associated with upfront and milestone payments as well as cash outflows from capital expenditures and investments in affiliates, but includes proceeds from the sale of assets in the period sold. See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 14" appearing elsewhere in this Quarterly Report for further discussion of Segment Adjusted EBITDA. Results of operations Comparison of the three months ended March 31, 2024 and the three months ended March 31, 2023 The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023, together with the changes in those items in dollars and as a percentage: Three Months Ended March 31, Dollar Change Percent Change 2024 2023 (In thousands) Product revenues 138 324 (186) (57.4) % Service revenues 919 1,527 (608) (39.8) % Other revenues 8 — 8 N/A Total revenues 1,065 1,851 (786) (42.5) % Operating expenses Cost of product and services 1,075 1,527 (452) (29.6) % Research and development 14,249 12,163 2,086 17.2 % Selling, general and administrative 10,151 11,639 (1,488) (12.8) % Total operating expenses 25,475 25,329 146 0.6 % Operating loss (24,410) (23,478) (932) 4.0 % Total other income (expense), net 643 689 (46) (6.7) % Loss before income taxes (23,767) (22,789) (978) 4.3 % Income tax benefit 29 55 (26) (47.3) % Net loss $ (23,738) $ (22,734) $ (1,004) 4.4 % (1) See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 3" appearing elsewhere in this Quarterly Report. Product and service revenues and gross margin Product and service revenues decreased $0.8 million, or 43%, compared to the three months ended March 31, 2023. This decrease is related to reductions in services performed at Exemplar. Gross margin on product and services declined in the current period primarily as a result of the decreased revenues at Exemplar. Research and development expenses Research and development expenses increased $2.1 million, or 17%, compared to the three months ended March 31, 2023. Salaries, benefits, and other personnel costs increased $1.5 million due to an increase in the hiring of employees throughout 2023 to support the growth in the Company's clinical development activities as well as increased fees paid to consultants and contract research organizations during the period compared to the prior year period. Selling, general and administrative expenses SG&A expenses decreased $1.5 million, or 13%, compared to the three months ended March 31, 2023. This decrease was primarily driven by a reduction in stock compensation and insurance expenses in 2024 versus the same period in 2023. Segment performance 30 Table of Contents The following table summarizes Segment Adjusted EBITDA, which is our primary measure of segment performance, for the three months ended March 31, 2024 and 2023, for each of our reportable segments. Three Months Ended March 31, Dollar Change Percent Change 2024 2023 (In thousands) Segment Adjusted EBITDA: Biopharmaceuticals $ (23,820) $ (21,343) $ (2,477) (11.6) % Exemplar (200) 121 (321) <(200)% For a reconciliation of Segment Adjusted EBITDA to net loss from continuing operations before income taxes, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 14" appearing elsewhere in this Quarterly Report. The following table summarizes revenues from external customers for the three months ended March 31, 2024 and 2023, for each of our reportable segments. Three Months Ended March 31, Dollar Change Percent Change 2024 2023 (In thousands) Exemplar 1,065 1,851 (786) (42.5) % Biopharmaceuticals Segment Adjusted EBITDA loss increased primarily due to our increase in Research and Development expenses within the reportable segment. Exemplar Revenues for Exemplar decreased due to a decrease in services performed resulting from a lower demand from existing customers. The decline in Segment Adjusted EBITDA was primarily due to the decreased revenues. Liquidity and capital resources Sources of liquidity We have incurred losses from operations since our inception, and as of March 31, 2024, we had an accumulated deficit of $2.0 billion. From our inception through March 31, 2024, we have funded our operations principally with proceeds received from private and public equity and debt offerings, cash received from our collaborators, and through product and service sales made directly to customers. As of March 31, 2024, we had cash and cash equivalents of $17.5 million and short-term investments of $27.3 million. Cash in excess of immediate requirements is typically invested primarily in money market funds, certificate of deposits and U.S. government debt securities in order to maintain liquidity and preserve capital. In January 2023, we closed a public offering of 43,962,640 shares of our common stock, resulting in net proceeds to us of $72.8 million, after deducting underwriting discounts, fees, and other offering expenses. 31 Table of Contents Cash flows The following table sets forth the significant sources and uses of cash for the periods set forth below: Three Months Ended March 31, 2024 2023 (In thousands) Net cash (used in) provided by: Operating activities $ (14,090) $ (18,388) Investing activities 24,045 (50,408) Financing activities — 44,174 Effect of exchange rate changes on cash, cash equivalents, and restricted cash (60) (28) Net decrease in cash, cash equivalents, and restricted cash $ 9,895 $ (24,650) Cash flows from operating activities: During the three months ended March 31, 2024, our net loss was $23.7 million, which includes the following significant noncash expenses totaling $4.3 million: (i) $2.6 million of stock-based compensation expense, (ii) $1.6 million of depreciation and amortization expense, (iii) $0.5 million of shares issued as payment for services, and (iv) $0.4 million due to amortization of discounts on investments. During the three months ended March 31, 2023, our net loss was $22.7 million, which includes the following significant noncash expenses totaling $5.1 million: (i) $3.1 million of stock-based compensation expense, (ii) $1.7 million of depreciation and amortization expense, and (iii) $0.5 million of shares issued as payment for services. Cash flows from investing activities: During the three months ended March 31, 2024, we received $28.4 million of investments, from sales and maturities, net of purchases, and purchased $4.4 million of property, plant and equipment. During the three months ended March 31, 2023, we purchased $50.3 million of investments, net of sales and maturities, primarily using the proceeds received from the underwritten public offering discussed below under cash flows from financing activities. Cash flows from financing activities: During the three months ended March 31, 2024, we did not have any cash provided or used in financing activities. During the three months ended March 31, 2023, we received $73.5 million proceeds from the sale of our common stock in an underwritten public offering and retired $29.3 million of our Convertible Notes using restricted cash. Future capital requirements Our future capital requirements will depend on many factors, including: • progress in our research and development programs, as well as the magnitude and speed of development of these programs; • capital expenditures to building out our manufacturing capabilities and preparing for commercial readiness; • the timing of regulatory approval of our product candidates and those of our collaborations; • the timing, receipt, and amount of any payments received in connection with strategic transactions; • the timing, receipt, and amount of upfront, milestone, and other payments, if any, from present and future collaborators, if any; 32 Table of Contents • the timing, receipt, and amount of sales and royalties, if any, from our product candidates; • the timing and capital requirements to scale up our various product candidates and service offerings and customer acceptance thereof; • our ability to maintain and establish additional collaborative arrangements and/or new strategic initiatives; • the resources, time, and cost required for the preparation, filing, prosecution, maintenance, and enforcement of our intellectual property portfolio; • strategic mergers and acquisitions, if any, including both the upfront acquisition cost as well as the cost to integrate, maintain, and expand the strategic target; and • the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes. Until such time, if ever, as we can regularly generate positive operating cash flows, we plan to finance our cash needs through a combination of equity offerings, debt financings, government, or other third-party funding, strategic alliances, sales of assets, and licensing arrangements. We may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Our current stock price may make it more difficult to pursue equity financings and lead to substantial dilution if the price of our common stock does not increase. Debt financing, if available, may involve agreements that include 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 funds through strategic transactions, collaborations, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, or to grant licenses on terms that may not be favorable to us. We are subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependence on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development, and clinical manufacturing of its product candidates. Our success is dependent upon our ability to continue to raise additional capital in order to fund ongoing research and development, adequately satisfy or renegotiate long-term debt obligations, obtain regulatory approval of our products, successfully commercialize our products, generate revenue, meet our obligations, and, ultimately, attain profitable operations. Our consolidated financial statements as of March 31, 2024 have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Based on our balance of cash, cash equivalents and short-term investments of $44.8 million at March 31, 2024 and forecasted negative cash flows from operating activities for the foreseeable future, there is substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements are issued. See the section entitled "Risk Factors" in our Annual Report for additional risks associated with our substantial capital requirements. 33 Table of Contents Contractual obligations and commitments The following table summarizes our significant contractual obligations and commitments from continuing operations as of March 31, 2024 and the effects such obligations are expected to have on our liquidity and cash flows in future periods: Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years (In thousands) Operating leases $ 9,133 $ 2,017 $ 3,076 $ 2,509 $ 1,532 Total $ 9,133 $ 2,017 $ 3,076 $ 2,509 $ 1,532 (1) See "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Notes 8" appearing elsewhere in this Quarterly Report for further discussion of our convertible debt. In addition to the obligations in the table above, as of March 31, 2024, we are party to license agreements with various third parties that contain future milestones and royalty payment obligations related to development milestones and/or commercial sales of products that incorporate or use their technologies. Because these agreements are generally subject to termination by us or are dependent on certain condition precedents within our control, no amounts are included in the tables above. As of March 31, 2024, we also had research and development commitments with third parties totaling $19.2 million that had not yet been incurred. Off-balance sheet arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules. Critical accounting policies and estimates Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed 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 financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report. Recent accounting pronouncements For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see "Notes to the Condensed Consolidated Financial Statements (Unaudited) - Note 2" appearing elsewhere in this Quarterly Report.