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Item 7. Management’s Discussion and Analysis

2025-03-17 compared with 2024-03-22 · 65 added, 64 removed, 136 unchanged (49% of the section changed)

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Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

We are a clinical-stage biotechnology business with a transformative proprietary cell therapy platform capable of treating multiple chronic kidney diseases using a patient’s own cells isolated from the patient intended for treatment.

Our approach seeks to redefine the treatment of chronic kidney disease (“CKD”), shifting the emphasis away from management of kidney failure to the restoration, preservation or improvement of kidney function to stop or delay progression of CKD.

Our lead product candidate, which we refer to as REACT (rilparencel), is designed to preserve kidney function in a CKD patient’s diseased kidneys.

REACT is a product that includes Selected Renal Cells (“SRC”) prepared from a patient’s own, autologous, renal cells.

SRC are formulated into a product for reinjection into the patient’s kidneys using a minimally invasive outpatient procedure that can be repeated if necessary.

Because REACT is a personalized treatment composed of cells prepared from a patient’s own kidney, there is no need for treatment with immunosuppressive therapies, which are required during a patient’s lifetime when a patient receives a kidney transplant from another, allogeneic donor.

We are currently conducting a Phase 3 development program and multiple Phase 2 clinical trials for REACT in subjects with moderate to severe diabetic kidney disease (“DKD”).

REACT has received regenerative medicine advanced therapy (“RMAT”) designation from the United States Food and Drug Administration (the “FDA”).

REACT has been generally well tolerated by subjects with moderate to severe DKD in Phase 1 and 2 clinical testing to date.

We also recently completed a Phase 1 clinical trial for REACT in subjects with congenital anomalies of the kidney and urinary tract (“CAKUT”).

Since our inception, we have devoted substantially all of our resources to raising capital, organizing and staffing our Company, business and scientific planning, conducting discovery and research activities, acquiring or discovering product candidates,

establishing and protecting our intellectual property portfolio, developing and progressing REACT and preparing for clinical trials, establishing arrangements with third parties for the manufacture of component materials, and providing general and administrative support for these operations.

We are a clinical-stage biotechnology company with a transformative proprietary cell therapy platform that has the potential to treat multiple chronic kidney diseases using a patient’s own cells isolated from the patient intended for treatment.

Our approach seeks to redefine the treatment of CKD, shifting the emphasis away from management of kidney failure to the preservation of kidney function.

Our lead product candidate, rilparencel, is designed to preserve kidney function in a CKD patient’s diseased kidneys.

Rilparencel is a product that includes autologous SRC prepared from a patient’s own kidney cells.

SRC are formulated into a product for reinjection into the patient’s kidneys using a minimally invasive outpatient procedure that is repeatable, if necessary.

Because rilparencel is a personalized treatment composed of cells prepared from a patient’s own kidney, there is no need for treatment with immunosuppressive therapies that are required during a patient’s lifetime when a patient receives a kidney transplant from another, allogeneic donor.

We are currently conducting a Phase 3 development program and an ongoing Phase 2 clinical trial for rilparencel in subjects with moderate to severe CKD and diabetes.

Rilparencel has received RMAT designation from the FDA.

We also completed a Phase 1 clinical trial for rilparencel in subjects with CKD due to congenital anomalies of the kidney and urinary tract (“CAKUT”) for which

the last subject visit occurred in January 2023 and the clinical study report was submitted to the FDA in December 2023.

Rilparencel has, to date, been generally well tolerated by subjects with moderate to severe CKD in Phase 1 and 2 clinical testing.

Since our inception, we have devoted substantially all of our resources to organizing and staffing our Company, business and scientific planning, conducting discovery and research activities, acquiring or discovering product candidates, establishing and protecting our intellectual property portfolio, developing and progressing rilparencel, raising capital and preparing for clinical trials, establishing arrangements with third parties for the manufacture of component materials, and providing general and administrative support for these operations.

We do not have any product candidates approved for sale and have not generated any revenue from product sales.

Other Trends and Uncertainties

In 2022, various central banks around the world (including the Federal Reserve in the United States) raised interest rates.

While these rate increases have not had a significant adverse impact on the Company to date, the impact of such rate increases on the overall financial markets and the economy may adversely impact the Company in the future, including by making capital more difficult and costly to obtain on reasonable terms and when needed.

In addition, the global economy has experienced and is continuing to experience high levels of inflation and global supply chain disruptions.

We continue to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.

In addition, although we have no operations in or direct exposure to Russia, Belarus, Ukraine, Israel and Palestine, we have experienced limited constraints in availability and increasing costs required to obtain some materials and supplies due, in part, to the negative impact of the Russia-Ukraine military conflict on the global economy, which contributed to global supply chain disruptions.

To date, our business has not been materially impacted by the conflict;

however, as the conflict continues or worsens, it may adversely impact our business, financial condition or results of operations.

We continue to monitor the impacts of ongoing macroeconomic conditions and geopolitical events.

An escalation of geopolitical tensions or the implementation of global trade restrictions could adversely impact our business, financial condition or results of operations.

Global conflicts, tariffs, labor disruptions, and regulations continue to create volatility in global markets and contribute to supply chain shortages and pricing volatility.

We continue to actively collaborate with our suppliers to minimize shortages and reduce supply and price volatility.

Financial Operations Overview

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all.

If our development efforts for REACT or any other product candidates are successful and result in marketing approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such agreements.

We have not generated any revenue from the sale of products since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all.

If our development efforts for rilparencel or any other product candidates are successful and result in marketing approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such agreements.

Beginning in the year ended December 31, 2024, we recognized revenue related to leasing activities associated with existing lease agreements assumed through the acquisition of two buildings in Winston-Salem, North Carolina where we also conduct our manufacturing operations.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with our research and development activities, including the development of REACT.

Research and development expenses consist primarily of costs incurred in connection with our research and development activities, including the development of rilparencel.

Research and development costs include:

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Research and development activities are central to our business model.

We expect that our research and development expenses will increase significantly for the foreseeable future as REACT moves into later stages of clinical development.

The successful development of REACT and any product candidates we may develop in the future is highly uncertain.

We expect that our research and development expenses will increase significantly for the foreseeable future as we continue to develop rilparencel and prepare for potential commercialization.

The successful development of rilparencel and any product candidates we may develop in the future is highly uncertain.

Therefore, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of any of our product candidates.

We are also unable to predict when, if ever, material net cash inflows will commence from the sale of REACT or potential future product candidates, if approved.

We are also unable to predict when, if ever, material net cash inflows will commence from the sale of rilparencel or potential future product candidates, if approved.

This is due to the numerous risks and uncertainties associated with developing product candidates, many of which are outside of our control, including the uncertainty of:

• the timing and progress of non-clinical and clinical development activities;

• the number and scope of non-clinical and clinical programs we decide to pursue;

• the timing and progress of nonclinical and clinical development activities;

• the number and scope of nonclinical and clinical programs we decide to pursue;

• our ability to maintain our current research and development programs and to establish new ones;

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• obtaining, maintaining, defending and enforcing patient claims or other intellectual property rights;

• the potential benefits of REACT over other therapies;

• launching commercial sales of REACT, if approved, whether alone or in collaboration with others;

• maintaining a continued acceptable safety profile of REACT following approval.

• the potential benefits of rilparencel over other therapies;

• launching commercial sales of rilparencel, if approved, whether alone or in collaboration with others;

• maintaining a continued acceptable safety profile of rilparencel following approval.

Any changes in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our product candidates.

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General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits and equity-based compensation expenses for individuals involved in our executive, finance, corporate and administrative functions, as well as expenses for outside professional services, including legal, audit, accounting and tax-related services and other consulting fees, facility-related expenses, which include depreciation costs and other allocated expenses for rent and maintenance of facilities, insurance costs, recruiting costs, travel expenses and other general administrative expenses.

We expect that our general and administrative expenses will increase significantly for the foreseeable future as our business expands and we hire additional personnel to support our operations.

We also anticipate increased expenses associated with being a public company, including costs for legal, audit, accounting, investor and public relations, tax-related services, director and officer insurance, and regulatory costs related to compliance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) as well as listing standards applicable to companies listed on a national securities exchange.

We expect that our general and administrative expenses will increase for the foreseeable future as our business expands and we hire additional personnel to support our operations.

Other Income (Expense)

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Net loss before taxes

Income tax expense

Income tax (benefit) expense

Net loss before noncontrolling interest

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The increase in research and development expenses of approximately $21.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily driven by the following:

• increases in cost of clinical trials of $16.6 million related primarily to the progress of our Phase 3 program as PROACT 1 continued to enroll additional subjects and as PROACT 2 continued to incur costs related to start-up activities;

• increases in cash-based compensation and recruitment costs of approximately $12.2 million related to the hiring of additional employees in 2024;

• increases in equity-based compensation costs of approximately $6.2 million due to additional awards granted to employees during 2023;

• increases in other research and development costs related to professional fees of approximately $1.6 million;

• increases in facilities cost of $1.9 million driven by expansion of facilities for manufacturing and research work;

• increases in materials cost of $1.2 million driven by higher enrollment in our clinical trials;

• decreases in costs of $14.1 million related to equity-based payments for services rendered by a third-party in prior periods, as the cost of those payments was adjusted to the fair value of the awards issued upon their grant date in 2022.

• increases in cost of clinical study conduct and clinical product manufacturing materials of $7.7 million related primarily to the progress of our Phase 3 study as we resumed enrollment in PROACT 1;

• increases in operational costs of $4.5 million as we continue to expand operations to support our Phase 3 clinical reflecting costs related to the remediation of quality management systems and processes in the first half of 2024;

partially offset by

• decreases in equity-based compensation costs of approximately $3.4 million driven by awards forfeited by terminated employees as well as lower valuations for awards granted in 2024.

General and administrative expenses

The decrease in general and administrative expenses of approximately $26.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by the following:

• decreases in equity-based compensation of approximately $33.0 million related to the recognition of compensation cost in 2022 for Class B-1 Units sold at less than their fair value to employees, board members and other service providers of the Company;

• decreases in costs associated with the Business Combination, including certain insurance costs of approximately $4.4 million;

• decreases in equity-based compensation expense of approximately $2.7 million which was driven by the reversal of equity-based compensation expense for unvested awards granted to terminated employees;

• increases in legal and professional fees of approximately $7.3 million attributable, in part, to operating as a public company and marketing strategy;

The increase in general and administrative expenses of approximately $11.3 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily driven by the following:

• increases in cash-based compensation and recruitment costs of approximately $5.4 million due to the hiring of additional personnel and severance costs incurred for terminated employees;

• increases in other general and administrative costs to support expanded operations of approximately $2.0 million.

• the recognition of an impairment charge of $5.3 million related to our Greensboro facility;

• increases in equity-based compensation costs of $1.9 million related to additional awards granted to employees during 2024;

partially offset by

• decreases in operating costs of $2.1 million related to decreased legal costs, professional fees and other operating costs.

Interest income

The increase in interest income of approximately $16.0 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022, was driven by interest received on higher average cash and investments in marketable debt securities balances coupled with higher interest rates.

The decrease in interest income of approximately $2.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023, was driven by interest received on lower average cash and investments in marketable debt securities balances as a result of ongoing research and development and general and administrative expenses, offset by $136.6 million of proceeds from a public offering in June 2024.

Income tax expense

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We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all.

From our inception through December 31, 2023, we funded our operations primarily through capital contributions from the holders of PKLP and the proceeds obtained through the Business Combination and related private placement financing.

From our inception through December 31, 2024, we funded our operations primarily through capital contributions from the holders of PKLP, the proceeds obtained through the Business Combination and related private placement financing and public equity offerings.

In January 2024, the Company entered into an Open Market Sale Agreement SM (“Sales Agreement”) with Jefferies LLC as the sales agent, pursuant to which the Company may offer and sell, from time to time, through Jefferies, shares of its Class A ordinary shares, par value $0.0001 per share, having an aggregate offering price of up to $100.0 million by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act (the “ATM Offering”).

The shares are offered and sold pursuant to the Company’s shelf registration statement on Form S-3.

We expect that our existing cash, cash equivalents and marketable securities held at December 31, 2023, will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2025.

As of December 31, 2024, we have sold $7.9 million worth of Class A ordinary shares under the Sales Agreement for net proceeds of $7.7 million, leaving $92.1 million available to be sold.

In June 2024, the Company sold 46,886,452 of its Class A ordinary shares in an underwritten public offering at a price of $2.42 per share.

Additionally, in June 2024, the Company sold 11,030,574 of its Class A ordinary shares to certain investment entities at a price of $2.42 per share in a concurrent registered direct offering pursuant to share purchase agreements.

The net proceeds to the Company from the offerings were approximately $136.7 million, after deducting the underwriting discounts and commissions and offering expenses payable by the Company.

The shares were offered and sold pursuant to the Company’s shelf registration statement on Form S-3.

We expect that our existing cash, cash equivalents and marketable securities held at December 31, 2024, will enable us to fund our operating expenses and capital expenditure requirements into mid-2027.

We have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.

We expect our expenses to increase substantially if, and as, we:

• initiate and continue research and clinical development of our product candidates, including in particular our clinical trials for REACT;

• incur third-party manufacturing costs to support our non-clinical studies and clinical trials of our product candidate and, if approved, its commercialization;

• initiate and continue research and clinical development of our product candidates, including in particular our clinical trials for rilparencel;

• incur third-party manufacturing costs to support our nonclinical studies and clinical trials of our product candidate and, if approved, its commercialization;

• seek to identify and develop additional product candidates;

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• seek regulatory and marketing approvals for our product candidates.

In addition, since the closing of the Business Combination we have begun incurring additional costs associated with operating as a public company, including significant legal, audit, accounting, investor and public relations, regulatory, tax-related, director and officer insurance premiums and other expenses.

Developing pharmaceutical products, including conducting clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any product candidate for which we may obtain marketing approval.

In addition, since the closing of the Business Combination we have been incurring additional costs associated with operating as a public company, including significant legal, audit, accounting, investor and public relations, regulatory, tax-related, director and officer insurance premiums and other expenses.

we may obtain marketing approval.

In addition, our product candidates, if approved, may not achieve commercial success.

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Net cash flows used in operating activities

Net cash flows used in investing activities

Net cash flows (used in) provided by financing activities

Net cash flows provided by (used in) investing activities

Net cash flows provided by (used in) financing activities

Net change in cash and cash equivalents

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Such uses were offset by changes in working capital of approximately $4.0 million and non-cash charges and gains on investments of $33.0 million.

The non-cash charges primarily consisted of equity-based compensation expense of $30.8 million and depreciation and amortization expense of $3.9 million.

The non-cash charges primarily consisted of equity-based compensation expense of $29.4 million, depreciation and amortization expense of $5.4 million, an impairment charge of $5.3 million and gains on investments in marketable securities of $7.0 million.

The changes in working capital primarily relate to the timing of payments made to our vendors for services performed.

Net cash used in operating activities was approximately $77.1 million for the year ended December 31, 2022, reflecting a net loss before noncontrolling interest of $148.1 million primarily driven by changes in working capital of approximately $6.5 million.

Such uses were partially offset by non-cash charges of $77.5 million.

The non-cash charges primarily consisted of equity-based compensation expense of $74.5 million and depreciation and amortization expense of $3.0 million.

Net cash used in operating activities was approximately $90.1 million for the year ended December 31, 2023, reflecting a net loss before noncontrolling interest of approximately $135.4 million.

Such uses were offset by changes in working capital of approximately $16.7 million and non-cash charges and gains on investments of $28.7 million.

The non-cash charges primarily consisted of equity-based compensation expense of $30.8 million, depreciation and amortization expense of $3.9 million and gains on investments in marketable securities of $6.0 million.

The changes in working capital primarily relate to the timing of payments made to our vendors for services performed.

The approximate $13.0 million increase in cash used in operating activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by an increase in net loss before noncontrolling interest after adjusting for the non-cash charges and gains on investments of approximately $36.1 million offset by the impact of changes in working capital driven by the timing of payments to our vendors.

The approximate $36.3 million increase in cash used in operating activities for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily driven by an increase in net loss before noncontrolling interest after adjusting for the non-cash charges and gains on investments of approximately $24.3 million coupled with the impact of changes in working capital driven by the timing of payments to our vendors.

Investing Activities

Net cash used in investing activities were approximately $330.0 million and $1.7 million for the years ended December 31, 2023 and 2022, respectively.

Net cash provided by (used in) investing activities were approximately $20.4 million and $(330.0 million) for the years ended December 31, 2024 and 2023, respectively.

The cash provided by investment activities during the year ended December 31, 2024 was primarily related to net investment activity of $49.9 million partially offset by the purchase of two facilities in Winston-Salem, North

Carolina that we occupied subject to real estate leases for $22.5 million.

The cash used in investing activities during the year ended December 31, 2023 was primarily related to the investment of a portion of the proceeds raised through the Business Combination in marketable securities coupled with the purchase of land and a building in Greensboro, North Carolina for $25.5 million.

Financing Activities

Net cash (used in) and provided by financing activities was $(9.6 million) and $548.5 million for the years ended December 31, 2023 and 2022, respectively.

The primary driver of the financing activities for the year ended December 31, 2023 was the repurchase

of Class A ordinary shares while the financing activities for the year ended December 31, 2022 reflect the proceeds received from the Business Combination.

Net cash provided by (used in) financing activities was $144.4 million and $(9.6 million) for the years ended December 31, 2024 and 2023, respectively.

The cash provided by financing activities for the year ended December 31, 2024 was related to the sale of our Class A ordinary shares while cash used in financing activities for the year ended December 31, 2023 was primarily related to the repurchase of our Class A ordinary shares.

Critical Accounting Policies and Significant Judgments and Estimates

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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