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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-03-10 · 112 added, 95 removed, 241 unchanged (46% of the section changed)

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“Risk Factors.” A discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 10, 2022, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We are a clinical-stage biopharmaceutical company.

Our ImmTOR® platform encapsulates rapamycin, also known as sirolimus, an FDA approved immunomodulator, in biodegradable nanoparticles ImmTOR is designed to induce antigen-specific immune tolerance.

We continually seek to enhance ImmTOR.

In recent preclinical studies we have conducted, we have observed that ImmTOR may have synergistic activity with interleukin-2, or IL-2, molecules that have been engineered to be selective for regulatory T cells, or Tregs.

Treg-selective IL-2 mutant molecules, or IL-2 muteins, have been shown to transiently expand all pre-existing Tregs in preclinical studies conducted by others.

We have observed in preclinical studies that the combination of ImmTOR, a Treg-selective IL-2 mutein and an antigen elicited an approximately three-fold increase in antigen-specific Tregs beyond ImmTOR alone with evidence of enhanced durability of immune tolerance and the potential for ImmTOR dose sparing.

We are a clinical-stage biotechnology company leveraging our ImmTOR® platform to develop tolerogenic therapies designed to selectively mitigate unwanted immune responses.

With a proven ability to induce tolerance to highly immunogenic proteins, ImmTOR has the potential to amplify the efficacy of biologic therapies, including redosing of life-saving gene therapies, as well as restore the body's natural self-tolerance in autoimmune diseases.

We have several proprietary and partnered programs in our pipeline focused on enzyme therapies, gene therapies, and autoimmune diseases.

In preclinical studies, we have observed that ImmTOR may have synergistic activity with interleukin-2, or IL-2, molecules that have been engineered to be selective for regulatory T cells, or Tregs.

Treg-selective IL-2 molecules have been shown to transiently expand all pre-existing Tregs in preclinical and clinical studies conducted by others.

We have observed in preclinical studies that the combination of ImmTOR, a Treg-selective IL-2 molecule and an antigen exhibited substantial synergistic activity in inducing and expanding antigen-specific Tregs beyond ImmTOR alone with evidence of enhanced durability of immune tolerance and the potential for ImmTOR dose sparing.

This combination of ImmTOR with a Treg selective IL-2 molecule represents an evolution of the ImmTOR platform, which we call ImmTOR-IL ™ .

We believe this combination has the potential to be a best-in-class therapy in diseases where expansion of total Tregs may prove beneficial.

We believe ImmTOR and ImmTOR-IL have the potential to enhance both the efficacy and safety of biologic therapies (including gene therapies), improve product candidates under development, and enable novel therapeutic modalities in autoimmune disease.

We believe this combination has the potential to be a "first-in-class" antigen specific IL-2 therapy for autoimmune disease.

We believe ImmTOR and ImmTOR-IL have the potential to enable novel therapeutic modalities in autoimmune disease as well as enhance both the efficacy and safety of biologic therapies (including gene therapies) and improve product candidates under development.

In clinical trials, ImmTOR has been observed to inhibit the formation of neutralizing antibodies to adeno-associated virus (AAV) capsids, potentially enabling re-dosing of gene therapies.

Additionally, based on preclinical data in AAV gene therapies, we believe that ImmTOR has the potential to improve efficacy and safety by increasing transgene expression, reducing hepatic inflammation and inhibiting undesired immune responses to both the AAV capsid and the transgene product that can occur with the first dose of gene therapy.

In biologic therapies, clinical activity of ImmTOR in humans has been observed with pegadricase, a highly immunogenic pegylated uricase enzyme being developed for the treatment of patients with chronic refractory gout to conventional therapy.

The combination of ImmTOR and pegadricase is currently being evaluated in a Phase 3 clinical trial that we are conducting on behalf of our partner Swedish Orphan Biovitrum AB, or Sobi.

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We believe that ImmTOR and ImmTOR-IL have the potential to unlock antigen-specific therapies for autoimmune diseases and that ImmTOR-IL can further improve the efficacy and safety profile of biologic therapies beyond ImmTOR alone.

Impact of COVID-19

We are closely monitoring how the COVID-19 pandemic is affecting our employees, business, preclinical studies and clinical trials.

In response to the spread of COVID-19, we have continued to have our administrative employees work outside of our offices and limited the number of staff in any given research and development laboratory.

Disruptions caused by the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials, and the incurrence of unforeseen costs as a result of preclinical study or clinical trial delays.

While the COVID-19 pandemic has not had a material impact on our clinical programs as of the date of this Annual Report, it could have an impact on our ability to complete the Phase 3 DISSOLVE clinical program of SEL-212, as the pandemic presents the potential to experience delays in enrollment as well as the inability of certain patients to complete the trial due to suffering from COVID-19, our ability to commence preclinical studies and clinical trials of our IgA nephropathy, gene therapy, and autoimmune disease programs, and our ability to obtain supply of both active drug substances and finished drug product as well as efficient execution of the overall supply chain for SEL-212 and our other programs.

At this time, any impact of COVID-19 on our business, revenues, results of operations and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the emergence of new virus variants, travel restrictions and social distancing in the United States and other countries, business closures or disruptions, supply chain disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

Impact of Global Events

We continue to closely monitor how the COVID-19 pandemic is affecting our employees, business, preclinical studies and clinical trials.

While the COVID-19 pandemic has not had a material impact on our clinical programs as of the date of this Annual Report, it could have an impact on our ability to commence preclinical studies and clinical trials of our IgA nephropathy, gene therapy, and autoimmune disease programs, and our ability to obtain supply of both active drug substances and finished drug product as well as efficient execution of the overall supply chain for SEL-212 and our other programs.

pandemic, the emergence of new virus variants, travel restrictions and social distancing in the United States and other countries, business closures, disruptions, mandated stay at home orders or lockdowns, supply chain disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

Financial Operations

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We do not have any products approved for sale and have not generated any product sales.

Since inception, we have incurred significant operating losses.

We incurred net losses of $25.7 million and $68.9 million for the years ended December 31, 2021 and 2020, respectively.

Except for the year ended December 31, 2022, we have incurred significant operating losses since our inception.

We had net income of $35.4 million and incurred a net loss of $25.7 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had an accumulated deficit of $394.9 million.

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• add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our operations as a public company.

Until we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, and license and collaboration agreements.

Until we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, and license and collaboration agreements.

We may be unable to raise capital when needed or on reasonable terms, if at all, which would force us to delay, limit, reduce or terminate our product development or future commercialization efforts.

We will need to generate significant revenues to achieve profitability, and we may never do so.

We believe that our existing cash, cash equivalents, restricted cash, and marketable securities as of December 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2023.

We believe that our existing cash, cash equivalents, restricted cash, and marketable securities as of December 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements into mid-2024.

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

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If we or our collaborators fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval as needed, our ability to generate future revenue will be harmed, and will affect the results of our operations and financial position.

For a further description of the agreements underlying our collaboration and license revenue, see Notes 2 and 12 to our consolidated financial statements included elsewhere in this Annual Report.

For further description of the agreements underlying our collaboration and license revenue, see Notes 2 and 12 to our consolidated financial statements included elsewhere in this Annual Report.

Research and development

Our research and development expenses consist of external research and development costs, which we track on a program-by-program basis and primarily include CMO-related costs, fees paid to CROs and internal research and development costs, which are primarily compensation expenses for our research and development employees, lab supplies, analytical testing, allocated overhead costs and other related expenses.

Our research and development expenses consist of external research and development costs, which we track on a program-by-program basis and primarily include CMO-related costs and fees paid to CROs, and internal research and development costs, which are primarily compensation expenses for our research and development employees, lab supplies, analytical testing, allocated overhead costs and other related expenses.

Our internal research and development costs are often devoted to expanding our programs and are not necessarily allocable to a specific target.

We have incurred a total of $364.0 million in research and development expenses from inception through December 31, 2021, with a majority of the expenses being spent on the development of SEL-212 and the remainder being spent on our various discovery and preclinical stage product candidate programs and the general expansion of our technology.

We have incurred a total of $436.4 million in research and development expenses from inception through December 31, 2022, with a majority of the expenses being spent on the development of SEL-212 and the remainder being spent on our various discovery and preclinical stage product candidate programs and the general expansion of our technology platform.

We expense research and development costs as incurred.

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SEL-212 $ 26,801 $ 31,446 $ 32,288

AskBio collaboration 3,888 2,807 —

Preclinical stage product candidate programs 11,080 1,717 1,660

Other internal research and development expenses 22,322 17,693 15,594

Other research and development expenses 45,576 37,290 22,217

Total research and development expenses $ 72,377 $ 68,736 $ 54,505

Certain prior period expenses have been reclassified to conform to current year presentation.

In June 2020, we and Sobi entered into the Sobi License.

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Interest expense consists of interest expense on amounts borrowed under our credit facilities.

Other income (expense)

Other income was de minimis during the years ended December 31, 2021 and 2020, and for the year ended December 31, 2019 it consists primarily of issuance fees associated with warrant liabilities.

Other income, net

Other income, net consists primarily of sublease income during the year ended December 31, 2022 and was de minimis during the years ended December 31, 2021 and December 31, 2020.

Change in fair value of warrant liabilities

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dollars or other currencies.

As of December 31, 2021 and 2020, we maintained cash of $0.3 million in Russian banks, all of which was denominated in U.S.

As of December 31, 2022 and 2021, we maintained cash of $0.2 million and $0.3 million, respectively, in Russian bank accounts in denominations of both Russian rubles and U.S.

The amounts denominated in U.S.

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The following is a comparison of collaboration and license revenue for the years ended December 31, 2022 and 2021 (in thousands, except percentages):

December 31, Increase

Year Ended December 31, Increase

2022 2021 (decrease)

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During the years ended December 31, 2022 and 2021, we recognized $82.6 million and $83.5 million, respectively, under the license agreement with Sobi resulting from both the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program.

The significant revenue increase is the result of the continued enrollment of the Phase 3 DISSOLVE clinical program that was initiated in the third quarter of 2020.

Additionally, during the year ended December 31, 2021, we recognized $1.0 million under the license agreement with Takeda, $0.4 million for shipments under the license agreement with Sarepta, and $0.1 million resulting from the expiration of the contractual audit term under the Skolkovo Foundation grant.

Research and development

Additionally, during the year ended December 31, 2022, we recognized $10.2 million under the Sarepta agreement, $9.2 million upon the mutual termination of the Spark License Agreement (as defined below), $7.0 million upon the mutual termination of the AskBio License Agreement (as defined below), and $1.8 million under the Takeda Agreement.

Research and development expenses

The following is a comparison of research and development expenses for the years ended December 31, 2022 and 2021 (in thousands, except percentages):

December 31, Increase

Year ended December 31, Increase

2022 2021 (decrease)

SEL-212 $ 26,801 $ 31,446 $ (4,645) (15) %

AskBio collaboration 3,888 2,807 1,081 39 %

Preclinical stage product candidate programs 11,080 1,717 9,363 545 %

Other internal research and development expenses 22,322 17,693 4,629 26 %

Other research and development expenses 45,576 37,290 8,286 22 %

Total research and development expenses $ 72,377 $ 68,736 $ 3,641 5 %

Certain prior period expenses have been reclassified to conform to current year presentation.

During the year ended December 31, 2022 , our research and development expenses increased by $3.6 million, or 5%, as com pared to 2021.

The increase in cost was primarily the result of expenses incurred for the preclinical programs, salaries for increases in headcount and AskBio collaboration costs.

Additionally, we paid Genovis and Ginkgo, $4.0 million and $0.5 million, respectively, for in-license agreements.

General and administrative

The increase in cost was primarily the result of expenses incurred for the preclinical programs, increased personnel expenses and stock compensation expense.

General and administrative expenses

The following is a comparison of general and administrative expenses for the years ended December 31, 2022 and 2021 (in thousands, except percentages):

December 31, Increase

Year Ended December 31, Increase

2022 2021 (decrease)

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During the year ended December 31, 2022, our general and administrative expenses increased by $2.9 million, or 14%, as compared to 2021.

The increase in costs was primarily the result of stock compensation and consulting fees, offset primarily by reduction in professional fees.

The increase in costs was primarily the result of expenses incurred for stock compensation and personnel expenses.

Investment income

Investment income was de minimis for the years ended December 31, 2021 and 2020, respectively.

Loss on extinguishment of debt

For the year ended December 31, 2020, we recognized a $0.5 million loss on extinguishment of the 2017 Term Loan (see Note 9).

Investment income was $2.1 million and de minimis for the years ended December 31, 2022 and 2021, respectively.

The increase in investment income was due to increased investment balances and higher interest rates.

Foreign currency transaction gain (loss)

We recognized de minimis foreign currency gains during each of the years ended December 31, 2021 and 2020.

We recognized de minimis foreign currency translation adjustments during each of the years ended December 31, 2022 and 2021.

Interest expense

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Change in fair value of warrant liabilities

For the year ended December 31, 2021, we recognized $2.3 million of loss from the change in the fair value of warrant liabilities utilizing the Black-Scholes valuation methodology.

The increase in value was primarily driven by a slight increase in the Company’s share price, offset by the decrease of outstanding warrants.

For the year ended December 31, 2020, we recognized $10.4 million change for the increase in the fair value of warrant liabilities primarily driven by an increase in the share price and volatility.

Other income (expense)

Other income (expense) was de minimis for each of the years ended December 31, 2021 and 2020.

For the year ended December 31, 2022, we recognized $20.9 million of income from the decrease in the fair value of warrant liabilities utilizing the Black-Scholes valuation methodology.

The decrease in value was primarily driven by a decrease in the Company’s share price.

For the year ended December 31, 2021, we recognized $2.3 million of loss from the increase in the fair value of warrant liabilities primarily driven by a slight increase in the Company's share price, offset by the decrease in outstanding warrants due to exercise.

Other income, net

Other income, net was $0.3 million and de minimis for the years ended December 31, 2022 and 2021, respectively.

The increase was primarily driven by sublease income.

For the year ended December 31, 2022, we recognized $0.6 million benefit for penalty abatements received.

For the year ended December 31, 2021, we recognized $16.0 million of expense for the income taxes primarily related to the license agreement with Sobi upon the Company’s election to opt out of the installment sale method of taxation.

As a result of this election, the Company has prepaid all taxes related to future Sobi License revenue streams.

Net loss for the year ended December 31, 2021 decreased to $25.7 million as compared to a net loss of $68.9 million in 2020 primarily due to increased revenue of $66.9 million under the license agreement with Sobi resulting from both the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program, partially offset by increased research and development expenses on preclinical programs.

For income tax purposes, the transfer of trademark and product rights is treated as a sale and the net proceeds from the sale are taxed under the default installment method as cash is received by the Company.

During the year ended December 31, 2021, the Company completed an analysis of future tax obligations under the default installment sale method versus making a timely filed election on its 2020 tax return due October 15, 2021 to elect out of the installment sale method for income tax purposes.

As a result, the Company elected out of the default installment sale treatment with the filing of its 2020 tax return.

In the elect out method, the Company was initially taxed based upon the estimated fair value of all present and future proceeds from the sale and the Company utilized all of its available net operating losses and income tax credits, which served to reduce the federal and state tax liability.

As the Company recognizes future cash proceeds under the Sobi license, the Company will exclude such amounts from taxable income up to the originally estimated fair value that was previously taxed.

Net income (loss)

Net income for the year ended December 31, 2022 increased to $35.4 million as compared to a net loss of $25.7 million in 2021 primarily due to increased collaboration and license revenue, increase in the benefit from the change in fair value of warrant liabilities, and an increase in income tax benefit, partially offset by increased research and development expenses.

Liquidity and Capital Resources

Since our inception, we have incurred recurring net losses.

Except for net income of $35.4 million for the year ended December 31, 2022, we have incurred recurring net losses since our inception.

We expect that we will continue to incur losses and that such losses will increase for the foreseeable future.

We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, third-party funding and other collaborations and strategic alliances.

From our inception through December 31, 2022, we have raised an aggregate of $723.3 million to fund our operations, which includes $118.5 million from the sale of preferred stock, $11.1 million in government grant funding, $36.7 million from borrowings under our credit facilities past and present, $250.2 million from our collaborations and license agreements, $64.5 million in combined net proceeds from our initial public offering, $185.2 million in combined net proceeds from private placements and follow-on offerings of our common stock, and, through December 31, 2022, $57.1 million in aggregate net proceeds from “at-the-market” offerings of our common stock.

As of December 31, 2022, our cash, cash equivalents, restricted cash, and marketable securities were $136.2 million, of which $1.6 million was restricted cash related to lease commitments and $0.2 million was held by our Russian subsidiary designated solely for use in its operations.

Our Russian subsidiary cash is consolidated for financial reporting purposes.

In addition to our existing cash equivalents, we receive research and development funding pursuant to our collaboration and license agreements.

Currently, funding from payments under our collaboration and license agreements represent our only source of committed external funds.

Currently, funding from payments under our collaboration agreements represent our only source of committed external funds.

Collaboration and License Agreements

In October 2021, we entered into the Ginkgo Agreement, and paid Ginkgo a $0.5 million one-time upfront payment and we entered into the Genovis Agreement, and paid Genovis a $4.0 million one-time upfront payment.

In October 2021, we entered into the First Ginkgo Agreement and paid Ginkgo a $0.5 million one-time upfront payment.

In June 2022, we paid $0.5 million and issued 892,857 shares of our common stock then-valued at $1.0 million to Ginkgo for the achievement of certain preclinical milestones under the First Ginkgo Agreement.

In January 2022, we entered into the Second Ginkgo Agreement and paid Ginkgo a $1.5 million one-time upfront payment.

Additionally, in October 2021, we entered into the Genovis Agreement, and paid Genovis a $4.0 million one-time upfront payment.

In February 2023, as a result of the sublicense of Xork to Astellas, we made a $4.0 million payment to Genovis.

On September 7, 2021, we entered into the Cyrus Agreement, and purchased 2,326,934 shares of Cyrus’ Series B Preferred Stock, par value $0.0001 per share at a purchase price of $0.8595 per share for $2.0 million.

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Sobi has agreed to fund the Phase 3 clinical program of SEL-212, which commenced in September 2020.

We expect this to substantially reduce our annual operating expenses.

In July 2022, we received $10.0 million for the completion of the enrollment of the DISSOLVE II trial.

Additionally, in June 2020, we entered into the Sarepta Agreement.

Sarepta paid us a $2.0 million upfront payment upon closing and a $3.0 million for the achievement of certain pre-clinical milestones in June 2021.

In December 2019, we entered into the AskBio License Agreement.

In August 2022, we received a payment of $2.0 million in exchange for a nine-month extension to Sarepta's options to both Duchenne muscular dystrophy and certain limb-girdle muscular dystrophies and a payment of $4.0 million for the achievement of certain non-clinical milestones.

In December 2019, we entered into a license agreement with AskBio, or the AskBio License Agreement.

Pursuant to the AskBio License Agreement, AskBio has exercised its option to exclusively license intellectual property rights covering ImmTOR to research, develop, and commercialize certain AAV gene therapy products utilizing ImmTOR, and targeting the GAA gene, or derivatives thereof, to treat Pompe Disease.

We received $7.0 million of upfront fees pursuant to the AskBio License Agreement and are eligible to receive $237 million in milestone payments, and royalties on net sales ranging from the mid-to-high single digits.

In August 2017, we entered into a sales agreement, or the 2017 Sales Agreement, with Jefferies LLC, as sales agent, to sell shares of our common stock with an aggregate value of up to $50.0 million in an “at-the-market” offering.

In August 2020, concurrent with the filing of a new shelf registration statement, we entered into a new sales agreement, or the 2020 Sales Agreement, with Jefferies LLC, as sales agent, pursuant to which we may, from time to time, issue and sell common stock with an aggregate value of up to $50.0 million in an “at-the-market” offering.

The 2017 Sales Agreement terminated pursuant to its terms in August 2020.

We received $7.0 million of upfront fees pursuant to the AskBio License Agreement.

In November 2022, the AskBio License Agreement was mutually terminated.

On August 6, 2020, we filed a universal shelf registration statement on Form S-3 (File No.

333-241692) with the Securities and Exchange Commission, or the SEC, to sell an aggregate amount of up to $200.0 million of certain of its securities.

The shelf registration statement was declared effective by the SEC on August 14, 2020.

Concurrent with the filing, we entered into a sales agreement, or the 2020 Sales Agreement, with Jefferies LLC, as sales agent, pursuant to which we were permitted, from time to time, to issue and sell common stock with an aggregate value of up to $50.0 million in an “at-the-market” offering.

On October 8, 2021, we delivered notice to Jefferies LLC that we were terminating the 2020 Sales Agreement, with effect as of October 19, 2021.

On October 25, 2021, we entered into a Sales Agreement, or the 2021 Sales Agreement, with SVB Leerink LLC to sell shares of our common stock, from time to time, through an “at the market” equity offering program under which SVB Leerink will act as sales agent.

The shares of common stock sold pursuant to the 2021 Sales Agreement will be issued pursuant to our shelf registration statement on Form S-3 (File No.

333-241692), filed on August 6, 2020 with the Securities and Exchange Commission and related prospectus supplement, filed on October 25, 2021 with the Securities and Exchange Commission, for aggregate gross sales proceeds of up to $75.0 million.

During the year ended December 31, 2021, we sold 13,767,511 shares of our common stock pursuant to the 2021 and 2020 Sales Agreements, as applicable, for aggregate net proceeds of $51.9 million, after deducting commissions and other transaction costs.

The shares of common stock sold pursuant to the 2021 Sales Agreement will be issued pursuant to such shelf registration statement on Form S-3 and related prospectus supplement, filed on October 25, 2021 with the SEC, for aggregate gross sales proceeds of up to $75.0 million.

During the year ended December 31, 2022, we sold 774,544 shares of our common stock pursuant to the 2021 Sales Agreement for aggregate net proceeds of $2.1 million, after deducting commissions and other transaction costs.

On August 31, 2020, we entered into a term loan of up to $35.0 million, consisting of term loans in an aggregate amount of $25.0 million, or the Term A Loan, and term loans in an aggregate amount of $10.0 million, or the Term B Loan, governed by a loan and security agreement among us and Oxford Finance LLC, or Oxford, as collateral agent and a lender, and Silicon Valley Bank, or SVB, as a lender.

The Term A Loan was funded in full on August 31, 2020, the proceeds of which were used to repay our previously existing 2017 Term Loan and for general corporate and working capital purposes.

The second draw period expired on September 30, 2021 and the Term B Loan is no longer available to be drawn in the future.

On April 11, 2022, we sold an aggregate of 27,428,572 shares of our common stock at a purchase price of $1.41 per share and warrants to purchase an aggregate of 20,571,429 shares of common stock at a purchase price of $1.55 per share underlying each common warrant for net proceeds of $36.9 million, after deducting commissions and other transaction costs.

On August 31, 2020, we entered into a term loan of up to $35.0 million, or the 2020 Term Loan, consisting of term loans in an aggregate amount of $25.0 million, or the Term A Loan, and term loans in an aggregate amount of $10.0 million, or the Term B Loan, governed by a loan and security agreement among us and Oxford Finance LLC, or Oxford, as collateral agent and a lender, and Silicon Valley Bank, or SVB, as a lender.

The Term A Loan was funded in full on August 31, 2020, or the Funding Date.

The second draw period expired on September 30, 2021 and the Term B Loan is no longer available to be drawn by the Company.

On March 21, 2022, we entered into a Second Amendment to Loan and Security Agreement, or the Second Amendment, which amended the Loan and Security Agreement.

The Second Amendment extends the date on which amortization payments in respect of the 2020 Term Loan will commence to April 1, 2023.

Thereafter, amortization payments will be paid monthly in equal installments of principal and interest to fully amortize the outstanding principal over the remaining term of the 2020 Term

Loan, subject to recalculation upon a change in the prime rate.

The Second Amendment was determined to be a loan modification, and the $0.1 million fee was recorded as an addition to the debt discount on the effective date.

On September 20, 2022, we entered into a Third Amendment to the Loan and Security Agreement, or the Third Amendment, which amended the Loan and Security Agreement.

The Third Amendment was entered into in connection with the expansion of our corporate headquarters to provide for an increase of $0.2 million in the letter of credit for a total of $1.6 million which renews automatically each year.

The 2020 Term Loan is secured by a lien on substantially all of our assets, other than intellectual property, provided that such lien on substantially all assets includes any rights to payments and proceeds from the sale, licensing or disposition of intellectual property.

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The 2020 Term Loan also contains other customary provisions, such as expense reimbursement, non-disclosure obligations as well as indemnification rights.

The events of default under the 2020 Term Loan include, but are not limited to, our failure to make any payments of principal or interest under the 2020 Term Loan or other transaction documents, our breach or default in the performance of any covenant under the 2020 Term Loan or other transaction documents, the occurrence of a material adverse event, making a false or misleading representation or warranty in any material respect under the 2020 Term Loan, our insolvency or bankruptcy, any attachment or judgment on our assets of at least approximately $0.5 million, or the occurrence of any default under any of our

agreements or obligations involving indebtedness in excess of approximately $0.5 million.

If an event of default occurs, Oxford and SVB are entitled to take enforcement action, including acceleration of amounts due under the 2020 Term Loan.

If an event of default occurs, Oxford is entitled to take enforcement action, including acceleration of amounts due under the 2020 Term Loan.

If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.

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We will not generate significant revenue from product sales unless and until we obtain regulatory approval and commercialize one of our current or future product candidates.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, and general overhead costs.

We expect that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products.

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We will require substantial additional financing to fund our operations and to continue to execute our strategy, and we will pursue a range of options to secure additional capital.

We are continually evaluating various potential sources of additional funding such as strategic collaborations, license agreements and the issuance of equity to fund our operations.

We are continually evaluating various potential sources of additional funding such as strategic collaborations, license agreements, debt issuance, potential royalty and/or milestone monetization transactions and the issuance of equity instruments to fund our operations.

If we raise additional funds through strategic collaborations and alliances, which may include existing collaboration partners, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

To the extent that we raise additional capital through the sale of equity, the ownership interest of our existing shareholders will be diluted, and other preferences may be necessary that adversely affect the rights of existing shareholders.

We believe that our existing cash, cash equivalents, restricted cash, and marketable securities as of December 31, 2021 will enable us to fund our current planned operations into the third quarter of 2023, though we may realize additional cash resources upon the achievement of certain contingent collaboration milestones or it may pursue additional cash resources through public or private equity or debt financings or by establishing collaborations with other companies.

To the extent that we raise additional capital through the sale of equity instruments, the ownership interest of our existing shareholders will be diluted, and other preferences may be necessary that adversely affect the rights of existing shareholders.

We believe that our existing cash, cash equivalents, restricted cash, and marketable securities as of December 31, 2022 will enable us to fund our current planned operations into mid-2024, though we may realize additional cash resources upon the achievement of certain contingent collaboration milestones and we may pursue additional cash resources through public or private equity or debt financings, by establishing collaborations with other companies or through the monetization of potential royalty and/or milestone payments pursuant to our existing collaboration and license arrangements.

Management’s expectations with respect to our ability to fund current and long-term planned operations are based on estimates that are subject to risks and uncertainties.

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However, there is no guarantee that any collaboration milestones will be achieved or that any of these strategic or financing opportunities will be executed on favorable terms, and some could be dilutive to existing stockholders.

If we are unable to obtain additional funding on a timely basis, we may be forced to significantly curtail, delay, or discontinue one or more of its planned research or development programs or be unable to expand our operations, meet long-term obligations or otherwise capitalize on our commercialization of our product candidates.

Additionally, while the potential economic impact brought by and the duration of the COVID-19 pandemic may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital as and when needed.

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

If we are unable to obtain additional funding on a timely basis, we may be forced to

significantly curtail, delay, or discontinue one or more of our planned research or development programs or be unable to expand our operations, meet long-term obligations or otherwise capitalize on our commercialization of our product candidates.

Our future capital requirements will depend on many factors, including:

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Operating activities

Net cash used in operating activities for the year ended December 31, 2021 was $60.4 million compared to $34.9 million provided in the same period in 2020.

The decrease in net cash used in operating activities was primarily due to $12.2 million of net losses, adjusted for non-cash items, and uses of cash of approximately $48.2 million for changes in operating assets and liabilities.

Net cash used in operating activities for the year ended December 31, 2022 was $31.6 million compared to $60.4 million in the same period in 2021.

The decrease in net cash used in operating activities was primarily due to $28.8 million of net income, adjusted for non-cash items, and uses of cash of approximately $60.4 million for changes in operating assets and liabilities.

Investing activities

Net cash used in investing activities for the year ended December 31, 2022 was $15.0 million compared to net cash used in investing activities of $17.1 million in the same period in 2021.

The net cash used in investing activities in 2022 was to purchase marketable securities and property and equipment, offset by proceeds from the maturities of marketable securities.

The net cash used in investing activities in 2021 was primarily to purchase marketable securities and to invest in Cyrus Biotechnology, offset by proceeds from the maturities of marketable securities.

The net cash used in investing activities in 2020 was to purchase property and equipment.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2022 was $39.2 million compared to net cash provided by financing activities of $52.9 million in the same period in 2021.

The net cash provided by financing activities in 2022 was primarily the result of net proceeds from issuance of common stock and common warrants and “ at-the-market ” offerings.

The net cash provided by financing activities in 2021 was primarily the result of net proceeds from “ at-the-market ” offerings and from the exercise of stock options.

The net cash provided by financing activities in 2020 was the result of $10.3 million from the Sobi Private Placement, $24.7 million from the Term A Loan, $2.1 million net proceeds from sales of common stock in “at-the-market” offerings, and $1.0 million proceeds from warrant exercises, offset by $4.4 million of issuance costs paid for December 2019 financing and $19.3 million principal payment on outstanding debt.

Research and development contract obligations

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At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct.

If a promised good or service is not distinct, it is combined with other performance obligations.

If a promised good or service is not distinct, it is combined with other promised goods or services into a performance obligation.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

For example, certain performance obligations associated with Swedish Orphan Biovitrum, or Sobi, Asklepios Biopharmaceutical, Inc., or AskBio, Sarepta Therapeutics, Inc., or Sarepta, and Takeda Pharmaceuticals USA, Inc., or Takeda, (see Note 12) will be satisfied over time, and revenue will be recognized using the output method, based on the proportion of actual deliveries to the total expected deliveries over the initial term.

For example, certain performance obligations associated with Swedish Orphan Biovitrum, or Sobi, Sarepta Therapeutics, Inc., or Sarepta, and Takeda Pharmaceuticals USA, Inc., or Takeda, (see Note 12) will be satisfied over time, and revenue will be recognized using the output method, based on the proportion of actual deliveries to the total expected deliveries over the initial term.

Collaboration and License Revenue:

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If we conclude that some or all aspects of the agreement are distinct and represent a transaction with a customer, we account for those aspects of the arrangement within the scope of ASC 606.

We recognize the shared costs incurred that are not within the scope of other accounting literature as a component of the related expense in the period incurred by analogy to ASC Topic 730, Research and Development (ASC 730) , and record reimbursements from counterparties as an offset to the related costs.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the agreements in accordance with ASC 606, we perform the five steps above.

As part of the accounting for the arrangement, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

We use key assumptions to determine the stand-alone selling price, which may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success.

We use key assumptions to determine the stand-alone selling price, which may include market conditions, reimbursement rates for

personnel costs, development timelines and probabilities of regulatory success.

The assumptions used to determine the stand-alone selling price and our satisfaction of performance obligations have a material effect on our collaboration and license revenue and may prove to be wrong.

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Licenses of Intellectual Property:

If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

If not distinct, the license is combined with other performance obligations in the contract.

For licenses that are combined with other performance obligations, we assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring

progress for purposes of recognizing revenue.

If the license to our intellectual property is determined to be distinct from the other promised goods and services identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

If not distinct, the license is combined with other promised good and services in the contract.

For licenses that are combined with other promised good and services, we assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

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Warrant Liabilities

In December 2019, we issued common warrants in connection with a securities purchase agreement between us and a group of institutional investors and certain members of our board of directors.

Pursuant to the terms of these common warrants, we could be required to settle the common warrants in cash in the event of certain acquisitions of us and, as a result, the common warrants are required to be measured at fair value and reported as a liability on the balance sheet.

We recorded the fair value of the common warrants of $40.7 million upon issuance using the Black-Scholes valuation model, and are required to revalue the common warrants at each reporting date with any changes in fair value recorded on our statement of operations.

In December 2019, we issued common warrants in connection with a securities purchase agreement between us and a group of institutional investors and certain members of our board of directors, or the 2019 Warrants.

Pursuant to the terms of these common warrants, we could be required to settle the common warrants in cash in the event of certain acquisitions of us and, as a result, the 2019 Warrants are required to be measured at fair value and reported as a liability on the balance sheet.

In April 2022, we issued warrants in connection with an underwritten offering of shares of common stock and warrants to purchase shares of common stock, or the 2022 Warrants.

Pursuant to the terms of the 2022 Warrants, the Company could be required to settle the 2022 Warrants in cash in the event of an acquisition of the Company under certain circumstances and, as a result, the 2022 Warrants are required to be measured at fair value and reported as a liability on the balance sheet.

We recorded the fair value of the 2019 Warrants and 2022 Warrants upon issuance using the Black-Scholes valuation model, and are required to revalue the common warrants at each reporting date with any changes in fair value recorded on our statement of operations.

In December 2022, we amended the terms of the outstanding 2019 Warrants held by certain members of our board of directors to remove the cash settlement provision (the Amended 2019 Warrants).

As a result, the Amended 2019 Warrants were remeasured at fair value on December 20, 2022 and reclassified from a liability to equity on the balance sheet.

Inputs used to determine estimated fair value of the common warrant liabilities include the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends and the expected volatility of the underlying stock.

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As a result, we may choose to take advantage of certain scaled disclosure requirements available specifically to smaller reporting companies.

We will remain a smaller reporting company until the last day of the fiscal year in which the aggregate market value of our common stock held by non-affiliated persons and entities, or our public float, is more than $700 million as of the last business day of our most recently completed second fiscal quarter, or the last day of the fiscal year in which we have at least $100 million in revenue and at least $250 million in public float as of the last business day of our most recently completed second fiscal quarter.

We will remain a smaller reporting company until the last day of the fiscal year in which the aggregate market value of our common stock held by non-affiliated persons and entities, or our public float, is more than $700 million as of the last business day of our most recently completed second fiscal quarter, or until the fiscal year following the year in which we have at least $100 million in revenue and at least $250 million in public float as of the last business day of our most recently completed second fiscal quarter.

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