Cartesian Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective. Inherent Limitations of Internal Controls While we believe we have a robust and efficient system of internal and disclosure controls and procedures, our management, including our Chief Executive Officer and Chief Financial Officer, recognize that it is impossible for our disclosure controls and procedures or our internal controls to prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption established for “smaller reporting companies.” Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 72 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance Incorporated by reference from the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates. Item 11. Executive Compensation Incorporated by reference from the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Incorporated by reference from the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates. Item 13. Certain Relationships and Related Transactions, and Director Independence Incorporated by reference from the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates. Item 14. Principal Accountant Fees and Services Incorporated by reference from the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates. 73 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules (a)(1) Financial Statements See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part of this report. (a)(2) Financial Statement Schedules All financial schedules have been omitted because the required information is either presented in the consolidated financial statements filed as part of this Annual Report on Form 10-K or the notes thereto or is not required. (a)(3) Exhibits The following is a list of exhibits filed as part of this Annual Report on Form 10-K. Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date 3.1(a) Restated Certificate of Incorporation of Selecta Biosciences, Inc. 8-K 001-37798 3.1 6/29/2016 3.1(b) Certificate of Amendment to the Restated Certificate of Incorporation of Selecta Biosciences, Inc., dated June 21, 2022 8-K 001-37798 3.1 6/21/2022 3.2 Amended and Restated By-laws of Selecta Biosciences, Inc. 8-K 001-37798 3.2 8/19/2022 4.1 Specimen Stock Certificate evidencing the shares of common stock S-1 333-211555 4.2 5/24/2016 4.2 Form of Warrant to Purchase Shares of Series D Preferred Stock, dated August 9, 2013 or July 25, 2014, issued by the Registrant to Oxford Finance LLC and Square One Bank, together with a schedule of warrant holders S-1 333-211555 4.5 5/24/2016 4.3 Form of Warrant to Purchase Shares of Series E Preferred Stock, dated December 31, 2015, issued by the Registrant to Oxford Finance LLC and Square One Bank, together with a schedule of warrant holders S-1 333-211555 4.6 5/24/2016 4.4 Common Stock Purchase Warrant, dated June 27, 2017, by and between the Registrant and Timothy Springer, Ph.D. 8-K 001-37798 4.1 6/28/2017 4.5 Registration Rights Agreement, dated December 23, 2019, by and among the Registrant and the Investors named therein 8-K 001-37798 10.2 12/26/2019 4.6 Registration Rights Agreement, dated as of June 11, 2020, by and between the Registrant and Swedish Orphan Biovitrum AB (Publ) 10-Q 001-37798 4.1 8/6/2020 4.7 Registration Rights Agreement, dated as of June 11, 2020, by and between the Registrant and Swedish Orphan Biovitrum AB (Publ), as amended on November 4, 2020 10-Q 001-37798 4.2 11/5/2020 4.8(a) Form of Common Stock Purchase Warrant, dated December 23, 2019 8-K 001-37798 4.1 12/26/2019 4.8(b) Form of Amendment No. 1 to Common Stock Purchase Warrant by and between Selecta Biosciences, Inc. and certain Directors, dated December 20, 2022 — — — Filed herewith 74 Table of Contents 4.9 Form of Warrant to Purchase Stock, dated August 31, 2020, issued by Selecta Biosciences, Inc. to Oxford Finance LLC and Silicon Valley Bank, together with a schedule of warrants. 8-K 001-37798 4.1 9/3/2020 4.1 0 Form of Common Stock Purchase Warrant, dated April 11, 2022 8-K 001-37798 4.1 4/6/2022 4.11 Description of Securities — — — Filed herewith 10.1# 2016 Incentive Award Plan and form of award agreements thereunder S-1/A 333-211555 10.2 6/8/2016 10.2# 2016 Employee Stock Purchase Plan S-1/A 333-211555 10.3 6/8/2016 10.3# 2018 Employment Inducement Incentive Award Plan, amended and restated, and forms agreement thereunder S-8 333-230501 10.1 3/25/2019 10.4# 2008 Stock Incentive Plan and form of award agreements thereunder S-1/A 333-211555 10.1 6/20/2016 10.5# Non-Employee Director Compensation Program — — — Filed herewith 10.6# Form of Indemnification Agreement for Directors and Officers S-1 333-211555 10.5 5/24/2016 10.7(a)† Exclusive Patent License Agreement, dated as of November 25, 2008, by and between the Registrant and the Massachusetts Institute of Technology S-1 333-211555 10.7(a) 5/24/2016 10.7(b)† First Amendment to Exclusive Patent License Agreement, dated as of January 12, 2010, by and between the Registrant and the Massachusetts Institute of Technology S-1 333-211555 10.7(b) 5/24/2016 10.7(c)† Letter Agreement, dated as of November 27, 2012, by and among the Registrant, Massachusetts Institute of Technology and Sanofi S-1 333-211555 10.7(c) 5/24/2016 10.7(d)† Letter Amendment, dated as of November 27, 2012, by and between the Registrant and the Massachusetts Institute of Technology S-1 333-211555 10.7(d) 5/24/2016 10.7(e)† Second Amendment to Exclusive Patent License Agreement, dated as of August 29, 2013, by and between the Registrant and the Massachusetts Institute of Technology S-1 333-211555 10.7(e) 5/24/2016 10.7(f)† Third Amendment to Exclusive Patent License Agreement, entered into on November 21, 2016 and effective as of November 18, 2016, by and between the Massachusetts Institute of Technology and the Registrant 8-K/A 001-37798 10.3(a) 12/14/2016 10.7(g)† Letter Agreement, dated as of December 2, 2016, by and between the Massachusetts Institute of Technology and the Registrant 8-K/A 001-37798 10.3(b) 12/14/2016 10.7(h)† Letter Agreement, dated as of December 2, 2016, by and among Spark Therapeutics, Inc., the Massachusetts Institute of Technology and the Registrant 8-K/A 001-37798 10.3(c) 12/14/2016 10.7(i)† Fourth Amendment to Exclusive Patent License Agreement, entered into on December 13, 2019, by and between the Massachusetts Institute of Technology and the Registrant 10-K 001-37798 10.7(i) 3/12/2020 10.7(j)† Fifth Amendment to Exclusive Patent License Agreement, dated as of May 15, 2020, by and between the Registrant and the Massachusetts Institute of Technology 10-Q 001-37798 10.1 8/6/2020 75 Table of Contents 10.8† Amended and Restated License Agreement, dated as of May 31, 2017, by and between the Registrant and Shenyang Sunshine Pharmaceutical Co., Ltd. 10-Q 001-37798 10.6 8/11/2017 10.9† Manufacturing Services Agreement, dated as of August 1, 2014, by and between the Registrant and Shenyang Sunshine Pharmaceutical Co., Ltd. S-1 333-211555 10.10 5/24/2016 10.10(a) Lease Agreement by and between BRE-BMR Grove LLC and Selecta Biosciences, Inc. dated July 23, 2019 10-Q 001-37798 10.3 11/8/2019 10.10(b) First Amendment to Lease by and between BRE-BMR Grove LLC and Selecta Biosciences, Inc. dated September 1, 2022 10-Q 001-37798 10.1 11/3/2022 10.11# Employment Agreement, dated as of September 25, 2018, by and between the Registrant and Carsten Brunn, Ph.D. 8-K 001-37798 10.2 9/27/2018 10.12# Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Takashi Kei Kishimoto S-1/A 333-211555 10.18 6/8/2016 10.13# Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Lloyd Johnston, Ph.D. S-1/A 333-211555 10.21 6/8/2016 10.14# Employment Agreement, dated as of July 31, 2020, by and between the Registrant and Peter G. Traber, M.D 10-Q 001-37798 10.1 11/5/2020 10.15# Employment Agreement, dated as of November 9, 2022, by and between the Registrant and Blaine Davis — — — Filed herewith 10.16# Separation and Release Agreement, dated November 2 3 , 2022, by and between the Registrant and Kevin Tan — — — Filed herewith 10.17† License and Development Agreement, dated as of June 11, 2020, by and between the Registrant and Swedish Orphan Biovitrum AB (Publ) 10-Q 001-37798 10.2 8/6/2020 10.18 Securities Purchase Agreement, dated June 26, 2017, by and between the Registrant and Timothy Springer, Ph.D. 8-K 001-37798 10.2 6/28/2017 10.19 Stock Purchase Agreement, dated August 19, 2019, by and among the Registrant and the Investors named therein 8-K 001-37798 10.1 8/20/2019 10.20(a) Loan and Security Agreement, dated August 31, 2020, between Selecta Biosciences, Inc., Oxford Finance LLC, as Collateral Agent and as a lender, and Silicon Valley Bank, as a lender. 8-K 001-37798 10.1.1 9/3/2020 10.20(b) First Amendment to Loan and Security Agreement, dated September 7, 2021, by and among Selecta Biosciences, Inc., Oxford Finance LLC, and Silicon Valley Bank 10-Q 001-37798 10.3 11/9/2021 10.20(c) Second Amendment to Loan and Security Agreement, dated March 21, 2022, between Selecta Biosciences, Inc., Oxford Finance LLC, as Collateral Agent and as a lender, and Silicon Valley Bank, as a lender 8-K 001-37798 10.1 3/21/2022 10.20(d) Third Amendment to Loan and Security Agreement, dated September 20, 2022, between Selecta Biosciences, Inc., Oxford Finance LLC, as Collateral Agent and as a Lender, and Silicon Valley Bank, as a Lender 10-Q 001-37798 10.2 11/3/2022 21.1 Subsidiaries of Selecta Biosciences, Inc. S-1 333-211555 21.1 5/24/2016 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm — — — Filed herewith 76 Table of Contents 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — — — Filed herewith 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — — — Filed herewith 32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — — — Furnished herewith 101.INS Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL Document — — — Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document — — — Filed herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document — — — Filed herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document — — — Filed herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document — — — Filed herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document — — — Filed herewith 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) — — — Filed herewith # Indicates management contract or compensatory plan. † Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24h-2 under the Securities Exchange Act of 1934. Item 16. Form 10-K Summary None. 77 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SELECTA BIOSCIENCES, INC. Date: March 2, 2023 By: /s/ Carsten Brunn, Ph.D. Carsten Brunn, Ph.D. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Carsten Brunn, Ph.D. President and Chief Executive Officer, and Director March 2, 2023 Carsten Brunn, Ph.D. (Principal Executive Officer) /s/ Blaine Davis Chief Financial Officer March 2, 2023 Blaine Davis (Principal Financial and Accounting Officer) /s/ Carrie S. Cox Director March 2, 2023 Carrie S. Cox /s/ Timothy C. Barabe Director March 2, 2023 Timothy C. Barabe /s/ Nishan de Silva, M.D. Director March 2, 2023 Nishan de Silva, M.D. /s/ Scott D. Myers Director March 2, 2023 Scott D. Myers /s/ Aymeric Sallin Director March 2, 2023 Aymeric Sallin /s/ Timothy Springer, Ph.D. Director March 2, 2023 Timothy Springer, Ph.D. /s/ Patrick Zenner Director March 2, 2023 Patrick Zenner 78 Table of Contents Selecta Biosciences, Inc. and Subsidiaries Index to Consolidated Financial Statements Pages Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F-2 Consolidated Balance Sheets at December 31, 2022 and 2021 F- 4 Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020 F- 5 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2022, 2021 and 2020 F- 6 Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 F- 7 Notes to Consolidated Financial Statements F- 8 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Selecta Biosciences, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Selecta Biosciences, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accrued and Prepaid Clinical Trial Expense Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company records research and development expenses, which include expenses related to clinical trials, as incurred. The Company’s determination of clinical trial costs incurred, as well as the related accrued and prepaid expenses at each reporting period, incorporates judgment and utilizes various assumptions. Such assumptions include progress of the studies, including the phase or completion of events, invoices received and contracted costs. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred. Auditing the Company’s accrued and prepaid research and development expenses was especially challenging due to the significant judgment required to estimate the expenses incurred but not yet invoiced. While the Company’s estimates of accrued and prepaid clinical trial expenses are primarily based on information received related to each study from its vendors, the Company makes an estimate for additional costs incurred based on management judgment. Additionally, due to the long duration of clinical trials and the timing of invoicing received from third parties, the actual amounts incurred are not always known at the time the financial statements are issued. F-2 Table of Contents How We Addressed the Matter in Our Audit To evaluate the accrued and prepaid clinical trial expenses, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the estimates and evaluating the significant assumptions that are used by management to estimate the recorded accruals and prepayments. We obtained third party confirmations from the clinical research organization to further test the underlying data used in management’s estimate. We corroborated the progress of research and development activities associated with clinical trials through discussion with the Company’s research and development personnel that oversee the research and development activities. We inspected the Company’s third-party contracts, amendments, and any pending change orders to assess the impact on amounts recorded. In addition, we performed analytics over fluctuations in accruals and prepaids by vendor throughout the period subject to audit and compared subsequent invoices received from third parties to amounts accrued. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2009. Boston, Massachusetts March 2, 2023 F-3 Table of Contents Selecta Biosciences, Inc. and Subsidiaries Consolidated Balance Sheets (Amounts in thousands, except share data and par value) December 31, December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 106,438 $ 114,057 Marketable securities 28,164 13,998 Accounts receivable 6,596 9,914 Unbilled receivables 3,162 — Prepaid expenses and other current assets 3,778 6,474 Total current assets 148,138 144,443 Non-current assets: Property and equipment, net 2,794 2,142 Right-of-use asset, net 11,617 9,829 Long-term restricted cash 1,311 1,379 Investments 2,000 2,000 Other assets 26 90 Total assets $ 165,886 $ 159,883 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 316 $ 224 Accrued expenses 14,084 10,533 Loan payable 8,476 5,961 Lease liability 1,608 1,049 Income taxes payable — 601 Deferred revenue 593 53,883 Total current liabilities 25,077 72,251 Non-current liabilities: Loan payable, net of current portion 17,786 19,673 Lease liability, net of current portion 10,055 8,598 Deferred revenue — 11,417 Warrant liabilities 19,140 25,423 Total liabilities 72,058 137,362 Commitments and contingencies (Note 17) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of December 31, 2022 and December 31, 2021 — — Common stock, $ 0.0001 par value; 350,000,000 and 200,000,000 shares authorized as of December 31, 2022 and December 31, 2021, respectively; 153,042,435 and 123,622,965 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 15 12 Additional paid-in capital 493,308 457,391 Accumulated deficit ( 394,937 ) ( 430,316 ) Accumulated other comprehensive loss ( 4,558 ) ( 4,566 ) Total stockholders’ equity 93,828 22,521 Total liabilities and stockholders’ equity $ 165,886 $ 159,883 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents Selecta Biosciences, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) (Amounts in thousands, except share and per share data) Year Ended December 31, 2022 2021 2020 Collaboration and license revenue $ 110,777 $ 85,077 $ 16,597 Operating expenses: Research and development 72,377 68,736 54,505 General and administrative 23,862 20,938 18,913 Total operating expenses 96,239 89,674 73,418 Operating income (loss) 14,538 ( 4,597 ) ( 56,821 ) Investment income 2,073 44 260 Loss on extinguishment of debt — — ( 461 ) Foreign currency transaction gain (loss), net ( 22 ) — 56 Interest expense ( 3,031 ) ( 2,844 ) ( 1,556 ) Change in fair value of warrant liabilities 20,882 ( 2,339 ) ( 10,443 ) Other income, net 330 15 89 Income (loss) before income taxes 34,770 ( 9,721 ) ( 68,876 ) Income tax (expense) benefit 609 ( 15,966 ) — Net income (loss) 35,379 ( 25,687 ) ( 68,876 ) Other comprehensive income (loss): Foreign currency translation adjustment 18 ( 2 ) ( 40 ) Unrealized loss on marketable securities ( 10 ) ( 1 ) — Total comprehensive income (loss) $ 35,387 $ ( 25,690 ) $ ( 68,916 ) Net income (loss) per share: Basic $ 0.24 $ ( 0.22 ) $ ( 0.68 ) Diluted $ 0.10 $ ( 0.22 ) $ ( 0.68 ) Weighted average common shares outstanding: Basic 144,758,555 114,328,798 101,202,176 Diluted 145,874,889 114,328,798 101,202,176 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents Selecta Biosciences, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Amounts in thousands, except share data) Accumulated Additional other Stockholders’ Common stock paid-in Accumulated comprehensive Equity Shares Amount capital deficit loss (Deficit) Balance at December 31, 2019 86,325,547 $ 9 $ 348,664 $ ( 335,753 ) $ ( 4,523 ) $ 8,397 Issuance of common stock under Employee Stock Purchase Plan 110,212 — 184 — — 184 Issuance of common stock upon exercise of options 76,128 — 193 — — 193 Issuance of vested restricted stock units 93,750 — — — — — Issuance of common stock through at-the-market offering, net 1,069,486 — 2,108 — — 2,108 Issuance of common stock through private placement 5,416,390 — 10,268 — — 10,268 Issuance of common stock upon exercise of pre-funded warrants 8,342,128 1 — — — 1 Issuance of common stock upon exercise of warrants 6,637,608 1 24,262 — — 24,263 Other financing fees — — ( 370 ) — — ( 370 ) Issuance of common warrants with long-term debt, net — — 444 — — 444 Stock-based compensation expense — — 5,422 — — 5,422 Currency translation adjustment — — — — ( 40 ) ( 40 ) Net loss — — — ( 68,876 ) — ( 68,876 ) Balance at December 31, 2020 108,071,249 $ 11 $ 391,175 $ ( 404,629 ) $ ( 4,563 ) $ ( 18,006 ) Issuance of common stock under Employee Stock Purchase Plan 58,794 — 161 — — 161 Issuance of common stock upon exercise of options 447,492 — 778 — — 778 Issuance of vested restricted stock units 201,250 — — — — — Issuance of common stock through at-the-market offering, net 13,767,511 1 51,933 — — 51,934 Issuance of common stock upon exercise of warrants 1,076,669 — 5,624 — — 5,624 Stock-based compensation expense — — 7,720 — — 7,720 Currency translation adjustment — — — — ( 2 ) ( 2 ) Unrealized loss on marketable securities — — — — ( 1 ) ( 1 ) Net loss — — — ( 25,687 ) — ( 25,687 ) Balance at December 31, 2021 123,622,965 $ 12 $ 457,391 $ ( 430,316 ) $ ( 4,566 ) $ 22,521 Issuance of common stock under Employee Stock Purchase Plan 120,877 — 189 — — 189 Issuance of common stock upon exercise of options 71,190 — 156 — — 156 Issuance of vested restricted stock units 131,430 — — — — — Issuance of common stock through at-the-market offering, net 774,544 — 2,121 — — 2,121 Issuance of common stock and common warrants 27,428,572 3 21,477 — — 21,480 Issuance of common stock, license agreement 892,857 — 1,000 — — 1,000 Reclassification of warrant liabilities — — 780 — — 780 Stock-based compensation expense — — 10,194 — — 10,194 Currency translation adjustment — — — — 18 18 Unrealized loss on marketable securities — — — — ( 10 ) ( 10 ) Net income — — — 35,379 — 35,379 Balance at December 31, 2022 153,042,435 $ 15 $ 493,308 $ ( 394,937 ) $ ( 4,558 ) $ 93,828 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents Selecta Biosciences, Inc. and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, 2022 2021 2020 Cash flows from operating activities (Amounts in thousands) Net income (loss) $ 35,379 $ ( 25,687 ) $ ( 68,876 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,287 1,252 734 Amortization of premiums and discounts on marketable securities ( 375 ) 57 — Non-cash lease expense 1,337 1,119 1,127 (Gain) on disposal of property and equipment ( 147 ) — ( 52 ) Stock-based compensation expense 11,194 7,720 5,422 Non-cash interest expense 953 1,012 620 Warrant liabilities revaluation ( 20,882 ) 2,339 10,443 Loss on extinguishment of debt — — 461 Changes in operating assets and liabilities: Accounts receivable 3,318 ( 2,690 ) ( 2,224 ) Unbilled receivable ( 3,162 ) — — Prepaid expenses, deposits and other assets 2,471 ( 1,451 ) ( 4,418 ) Accounts payable 92 ( 219 ) ( 57 ) Income taxes payable ( 601 ) 601 — Deferred revenue ( 64,707 ) ( 45,496 ) 94,462 Accrued expenses and other liabilities 2,212 1,061 ( 2,761 ) Net cash (used in) provided by operating activities ( 31,631 ) ( 60,382 ) 34,881 Cash flows from investing activities Proceeds from maturities of marketable securities 19,700 16,400 — Payment made for investments — ( 2,000 ) — Purchases of marketable securities ( 33,501 ) ( 30,455 ) — Purchases of property and equipment ( 1,201 ) ( 1,085 ) ( 815 ) Proceeds from the sale of property and equipment — — 74 Net cash used in investing activities ( 15,002 ) ( 17,140 ) ( 741 ) Cash flows from financing activities Proceeds from issuance of long-term debt, net of expenses — — 24,736 Repayments of principal on outstanding debt — — ( 19,313 ) Debt amendment fee included in debt discount ( 110 ) — — Net proceeds from issuance of common stock- at-the-market offering 2,121 51,958 2,108 Net proceeds from issuance of common stock and common warrants 36,859 — — Net proceeds from issuance of common stock- private placement — — 10,268 Issuance costs paid for December 2019 financing — — ( 4,381 ) Other financing fees — — ( 343 ) Proceeds from exercise of pre-funded and common warrants — — 979 Proceeds from exercise of stock options 156 778 193 Proceeds from issuance of common stock under Employee Stock Purchase Plan 189 161 184 Net cash provided by financing activities 39,215 52,897 14,431 Effect of exchange rate changes on cash 20 ( 3 ) ( 58 ) Net change in cash, cash equivalents, and restricted cash ( 7,398 ) ( 24,628 ) 48,513 Cash, cash equivalents, and restricted cash at beginning of period 115,436 140,064 91,551 Cash, cash equivalents, and restricted cash at end of period $ 108,038 $ 115,436 $ 140,064 Supplement cash flow information Cash paid for interest $ 2,248 $ 2,002 $ 1,018 Noncash investing and financing activities Issuance of common stock, license agreement in stock-based compensation expense $ 1,000 $ — $ — Cashless warrant exercise $ — $ 5,624 $ 21,790 Reclassification of warrant liability to equity $ 780 $ — $ 1,494 Fair value of warrants issued in connection with issuance of long-term debt $ — $ — $ 444 Purchase of property and equipment not yet paid $ 17 $ 224 $ 4 The accompanying notes are an integral part of these consolidated financial statements . F-7 Table of Contents Selecta Biosciences, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Description of the Business Selecta Biosciences, Inc., or the Company, was incorporated in Delaware on December 10, 2007, and is based in Watertown, Massachusetts. The Company is a clinical-stage biotechnology company leveraging the Company's ImmTOR® platform to develop toloreogenic therapies that selectively mitigate unwanted immune responses. With a proven ability to induce tolerance to highly immunogenic proteins, the Company believes 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. The Company has several proprietary and partnered programs in its pipeline focused on enzyme therapies, gene therapies, and autoimmune diseases. Since inception, the Company has devoted its efforts principally to research and development of its technology and product candidates, recruiting management and technical staff, acquiring operating assets, and raising capital. The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities. The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants. Liquidity and Management’s Plan The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain and sustain profitable operations. The Company is subject to a number of risks similar to other early-stage life science companies, including, but not limited to, successful development of its product candidates, raising additional capital with favorable terms, protection of proprietary technology and market acceptance of any approved future products. The successful development of product candidates requires substantial working capital, which may not be available to the Company on favorable terms or at all. To date, the Company has financed its operations primarily through public offerings and private placements of its securities, funding received from research grants, collaboration and license arrangements and its credit facility. The Company currently has no source of product revenue, and it does not expect to generate product revenue for the foreseeable future. To date, the Company’s revenue has primarily been from collaboration agreements. The Company has devoted substantially all of its financial resources and efforts to developing its ImmTOR platform, identifying potential product candidates and conducting preclinical studies and clinical trials. The Company is in the early stages of development of its product candidates, and it has not completed development of any ImmTOR-enabled therapies. As of December 31, 2022, the Company’s 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 its Russian subsidiary designated solely for use in its operations. The Company believes the cash, cash equivalents, restricted cash and marketable securities as of December 31, 2022 will enable it to fund its current planned operations for at least the next twelve months from the date of issuance of these financial statements, though it 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. Management’s expectations with respect to its ability to fund current and long term planned operations are based on estimates that are subject to risks and uncertainties. If actual results are different from management’s estimates, the Company may need to seek additional strategic or financing opportunities sooner than would otherwise be expected. 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 the Company is unable to obtain additional funding on a timely basis, it may be forced to significantly curtail, delay, or discontinue one or more of its planned research or development programs or be unable to expand its operations or otherwise capitalize on its commercialization of its product candidates. As of December 31, 2022, the Company had an accumulated deficit of $ 394.9 million. The Company anticipates operating losses to continue for the F-8 Table of Contents foreseeable future due to, among other things, costs related to research and development of its product candidates and its administrative organization. At this time, any impact of COVID-19 on the Company’s 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, 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. Guarantees and Indemnifications As permitted under Delaware law, the Company indemnifies its officers, directors, consultants and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company. Through December 31, 2022, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Selecta (RUS), LLC, or Selecta (RUS), a Russian limited liability corporation, and Selecta Biosciences Security Corporation, a Massachusetts securities corporation. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s management considers many factors in selecting appropriate financial accounting policies and controls, and bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. In preparing these consolidated financial statements, management used significant estimates in the following areas, among others: revenue recognition and estimating accrued research and development expenses. The Company assesses the above estimates on an ongoing basis; however, actual results could materially differ from those estimates. Segment Information The Company views its operations and manages its business in one operating segment, the research and development of nanoparticle immunomodulatory drugs for the treatment and prevention of human diseases. Cash Equivalents, Restricted Cash, Marketable Securities and Investments Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase. Marketable securities consist of securities with remaining maturities greater than 90 days when purchased. The Company classifies these marketable securities as available-for-sale and records them at fair value in the accompanying consolidated balance sheets. Marketable securities with less than one year until maturity are classified as short term, while marketable securities with maturities greater than one year are classified as long term. Unrealized gains or losses are included in accumulated other comprehensive income (loss). Premiums or discounts from par value are amortized to investment income over the life of the underlying investment. Although available to be sold to meet operating needs or otherwise, securities are generally held through maturity. The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. We also invest in equity securities of companies whose securities are not publicly traded and where fair value is not readily available. These investments are recorded using cost minus impairment adjusted for changes in observable prices, depending on our ownership percentage and other factors that suggest we have significant influence. We monitor these investments to evaluate whether any increase or decline in their value has occurred, based on the implied value of recent company financings, public market prices of comparable companies and general market conditions. These investments are included in investments in our consolidated balance sheets. Concentrations of Credit Risk and Off-Balance Sheet Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, short-term deposits and marketable securities, investments, and accounts receivable. Cash and cash equivalents are F-9 Table of Contents deposited with federally insured financial institutions in the United States and may, at times, exceed federally insured limits. Management believes that the financial institutions that hold the Company’s deposits are financially creditworthy and, accordingly, minimal risk exists with respect to those balances. The Company also maintains cash in Russian bank accounts in denominations of both Russian rubles and U.S. dollars. As of December 31, 2022, the Company maintained approximately $ 0.2 million in Russian bank accounts in denominations of both Russian rubles and U.S. dollars. Fair Value of Financial Instruments The Company’s financial instruments consist mainly of cash equivalents, restricted cash, accounts payable, loans payable, marketable securities, investments and common warrants. The carrying amounts of cash equivalents, restricted cash, accounts receivable, and accounts payable approximate their estimated fair value due to their short-term maturities. Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy is used to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 —Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 —Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 —Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value of warrant liabilities is determined using Level 3 inputs. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may change for many instruments. This condition could cause an instrument to be reclassified within levels in the fair value hierarchy. The carrying amounts reflected in our consolidated balance sheet for investments approximate fair value and are assessed for impairment quarterly. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, generally seven years for furniture and fixtures, five years for laboratory equipment, software and office equipment and three years for computer equipment. Leasehold improvements are amortized over their useful life or the life of the lease, whichever is shorter. Major additions and betterments are capitalized. Maintenance and repairs, which do not improve or extend the life of the respective assets, are charged to operations as incurred. Costs incurred for construction in progress are recorded as assets and are not amortized until the construction is substantially complete and the assets are ready for their intended use. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In order to determine if assets have been impaired, assets are tested at the lowest level for which identifiable independent cash flows are available, which is at the entity level (“asset group”). An impairment loss is recognized when the sum of projected undiscounted cash flows is less than the carrying value of the asset group. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the asset group. Based on management’s evaluation, the fair value of the asset group, measured as the market capitalization of the Company exceeds its carrying value. Debt Issuance Costs F-10 Table of Contents Debt issuance costs and fees paid to lenders are recorded as a direct deduction from the face amount of the related debt. Debt issuance costs are amortized over the term of the related debt using the effective interest method and recorded as interest expense. Accumulated Other Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in the equity of a business entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income (loss) consists of: (i) all components of net income (loss) and (ii) all components of comprehensive income (loss) other than net income (loss), referred to as other comprehensive income (loss). Other comprehensive income (loss) is comprised of unrealized gains and losses on debt securities and foreign currency translation adjustments. Revenue Recognition Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. Pursuant to ASC Topic 606, Revenue from Contracts with Customers (ASC 606) , a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a promised good or service is not distinct, it is combined with other promised goods or services into a performance obligation. The Company then recognizes 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, 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: The Company currently generates its revenue through collaboration and license agreements with strategic collaborators for the development and commercialization of product candidates. Collaboration and license agreements with customers are generally accounted for in accordance with ASC 606. The Company analyzes collaboration arrangements by first assessing whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808 ), and evaluates whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. Collaboration agreements with customers that are not within the scope of ASC 808 are accounted for in accordance with ASC 606. To the extent the collaboration agreement is within the scope of ASC 808, the Company also assesses whether any aspects of the agreement are within the scope of other accounting literature (specifically ASC 606). If the Company concludes that some or all aspects of the agreement are distinct and represent a transaction with a customer, the Company accounts for those aspects of the arrangement within the scope of ASC 606. The Company recognizes 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 records reimbursements from counterparties as an offset to the related research and development costs. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the agreements in accordance with ASC 606, the Company performs the five steps above. As part of the accounting for the arrangement, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company uses 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 terms of the Company’s arrangements typically include one or more of the following: (i) upfront fees; (ii) milestone payments related to the achievement of development, regulatory, or commercial goals; (iii) royalties on net sales of licensed products; (iv) reimbursements or cost-sharing of research and development (R&D) expenses; and (v) profit/loss sharing arising from co-promotion arrangements. Licenses of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other promised goods and services identified in the arrangement, the Company recognizes 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 goods and services in the contract. For licenses that are combined with other promised goods and services, the Company assesses the nature of the combined performance F-11 Table of Contents 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. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Optional licenses are evaluated to determine if they are issued at a discount, and therefore, represent material rights and accounted for as separate performance obligations. Milestone Payments: At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method. The Company also evaluates the milestone to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes. Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are evaluated to determine if they are distinct and optional. For optional services that are distinct, the Company assesses if they are priced at a discount, and therefore, provide a material right to the licensee to be accounted for as separate performance obligations. Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint. Research and Development Costs Costs incurred in the research and development of the Company’s products are expensed as incurred. Research and development expenses include costs incurred in performing research and development activities, including salaries and benefits, stock-based compensation expenses, facilities cost, overhead costs, contract services, supplies and other outside costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Clinical Trial Costs Clinical trial expenses are a significant component of research and development expenses, and the Company outsources a significant portion of these costs to third parties. Third party clinical trial expenses include patient costs, clinical research organization costs and costs for data management. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued clinical trial cost. These third party agreements are generally cancellable, and related costs are recorded as research and development expenses as incurred. Non-refundable advance clinical payments for goods or services that will be used or rendered for future R&D activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. The Company also records accruals for estimated ongoing clinical research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical clinical accrual estimates made by the Company have not been materially different from the actual costs. In June 2020, the Company and Sobi entered into a license and development agreement, or the Sobi License. Pursuant to the Sobi License, clinical trial costs incurred to complete development of SEL-212, including but not limited to costs incurred while conducting and completing the Phase 3 DISSOLVE trials, will be reimbursed by Sobi. These costs, when reimbursed, will be recognized as revenue consistent with the revenue recognition methodology disclosed in Note 12. The reimbursable costs exclude any costs of additional development activities required that are related to ImmTOR and that are unrelated to SEL-212. F-12 Table of Contents Income Taxes The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax assets to the amount that will more-likely-than-not be realized. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more-likely-than-not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. To date, the Company has not incurred interest and penalties related to uncertain tax positions. Warrants The Company determines the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity , and then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock . Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares. If warrants do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of operations as a gain or loss. Equity classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date. Stock-Based Compensation The Company accounts for all stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation is measured at the grant date fair value and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of estimated forfeitures. To the extent that actual forfeitures differ from the Company’s estimates, the differences are recorded as a cumulative adjustment in the period the estimates were adjusted. Stock-based compensation expense recognized in the consolidated financial statements is based on awards that ultimately vest. Net Income (Loss) Per Share The Company calculates basic net income (loss) per share by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common equivalent shares outstanding for the period, including any dilutive effect from outstanding stock options, restricted stock units, warrants to purchase common stock, and employee stock purchase plan stock using the treasury stock method. Contingent Liabilities The Company accounts for its contingent liabilities in accordance with ASC No. 450, Contingencies . A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Leases The Company accounts for its leases in accordance with ASC Topic 842, Leases (ASC 842) , and determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company elected not to recognize leases with an original term less than one year on its balance sheet. Operating lease right-of-use (ROU) assets and their corresponding lease liabilities are recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the F-13 Table of Contents Company utilizes its incremental borrowing rates, which are the rates incurred to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. In accordance with the guidance in ASC 842, the fixed and in-substance fixed contract consideration must be allocated to lease and non-lease components based on their relative fair values. Non-components of a contract (e.g., administrative tasks that do not transfer a good or service to the Company, reimbursement or payment of a lessor’s cost, etc.) do not receive an allocation of the consideration in the contract. Although allocation of consideration of lease and non-lease components is required, the Company elected the practical expedient to not separate lease components (e.g. land, building, etc.) and non-lease components (e.g., common area maintenance, consumables, etc.). The lease component results in an operating right-of-use asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense. Right-of-use assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of remaining lease payments and the estimated incremental borrowing rate upon lease modification. The Company enters into lease agreements with terms generally ranging from 2 - 8 years. Some of the Company’s lease agreements include Company options to either extend and/or early terminate the lease, the costs of which are included in its operating lease liabilities to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When determining the lease term, renewal options reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that the Company would exercise such option. Renewal and termination options were generally not included in the lease term for the Company’s existing operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Recent Accounting Pronouncements Recently Adopted In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options . ASU 2021-04 provides guidance as to how entities should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity-classified after modification or exchange as an exchange of the original instrument for a new instrument. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted the new standard effective January 1, 2022, and there was no impact on its consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) . ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The Company has adopted ASU 2020-06 as of October 1, 2022, with an effective date of January 1, 2022, using the modified retrospective method. The adoption of ASU 2020-06 had no impact on the Company's consolidated financial statements and disclosures. Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses . ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses. This ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of ASU 2016-13 is not expected to have an impact on the Company’s financial position or results of operations upon adoption. F-14 Table of Contents 3. Marketable Securities and Investments The following table summarizes the marketable securities held as of December 31, 2022 and 2021 (in thousands): Amortized cost Unrealized gains Unrealized losses Fair value December 31, 2022 U.S. government agency securities and treasuries $ 13,566 $ — $ ( 9 ) $ 13,557 Corporate bonds 1,953 — ( 2 ) 1,951 Commercial paper 12,656 — — 12,656 Total $ 28,175 $ — $ ( 11 ) $ 28,164 December 31, 2021 Corporate bonds $ 2,007 $ — $ ( 1 ) $ 2,006 Commercial paper 11,992 — — 11,992 Total $ 13,999 $ — $ ( 1 ) $ 13,998 All marketable securities held at December 31, 2022 and 2021 had maturities of less than 12 months when purchased and are classified as short-term marketable securities on the accompanying consolidated balance sheet. During the years ended December 31, 2022 and 2021, there were no marketable securities adjusted for other than temporary declines in fair value. The Company does not intend to sell its investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. As of December 31, 2022 and 2021, the Company has a $ 2.0 million investment in Cyrus pursuant to the Cyrus Agreement. The Company’s maximum exposure to loss related to this variable interest entity is limited to the carrying value of the investment. See Note 14 for details. 4. Net Loss Per Share The Company has reported net income for the year ended December 31, 2022 and a net loss for the years ended December 31, 2021 and 2020. The Company used the treasury stock method to determine the number of dilutive shares. The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except share and per-share data): Year Ended December 31, 2022 2021 2020 Numerator: Net income (loss) $ 35,379 $ ( 25,687 ) $ ( 68,876 ) Less: Change in fair value of warrants ( 20,882 ) — — Adjusted net income (loss) $ 14,497 $ ( 25,687 ) $ ( 68,876 ) Denominator: Weighted-average common shares outstanding - basic 144,758,555 114,328,798 101,202,176 Dilutive effect of employee equity incentive plans and outstanding warrants 1,116,334 — — Weighted-average common shares used in per share calculations - diluted 145,874,889 114,328,798 101,202,176 Net loss per share: Basic $ 0.24 $ ( 0.22 ) $ ( 0.68 ) Diluted $ 0.10 $ ( 0.22 ) $ ( 0.68 ) The following table represents the potential dilutive common shares excluded from the computation of the diluted net income (loss) per share for all periods presented, as the effect would have been anti-dilutive: Year Ended December 31, 2022 2021 2020 Options, RSUs and ESPP shares 17,800,034 11,492,002 7,909,583 Warrants to purchase common stock 213,339 10,735,980 12,378,016 Total 18,013,373 22,227,982 20,287,599 F-15 Table of Contents 5. Fair Value Measurements The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021 (in thousands): December 31, 2022 Total Level 1 Level 2 Level 3 Assets: Money market funds (included in cash equivalents) $ 53,552 $ 53,552 $ — $ — Marketable securities: U.S. government agency securities and treasuries 13,557 — 13,557 — Corporate bonds 1,951 — 1,951 — Commercial paper 12,656 — 12,656 — Total assets $ 81,716 $ 53,552 $ 28,164 $ — Liabilities: Warrant liabilities $ 19,140 $ — $ — $ 19,140 Total liabilities $ 19,140 $ — $ — $ 19,140 December 31, 2021 Total Level 1 Level 2 Level 3 Assets: Money market funds (included in cash equivalents) $ 66,563 $ 66,563 $ — $ — Marketable securities: Corporate bonds 2,006 — 2,006 — Commercial paper 11,992 — 11,992 — Total assets $ 80,561 $ 66,563 $ 13,998 $ — Liabilities: Warrant liabilities $ 25,423 $ — $ — $ 25,423 Total liabilities $ 25,423 $ — $ — $ 25,423 There were no transfers within the fair value hierarchy during the years ended December 31, 2022 or 2021. Cash, Cash Equivalents, and Restricted Cash As of December 31, 2022 and 2021, the money market funds were classified as cash and cash equivalents on the accompanying consolidated balance sheets as they mature within 90 days from the date of purchase. As of December 31, 2022, the Company had restricted cash balances relating to a secured letter of credit in connection with its lease for the Company’s headquarters (see Note 8 included elsewhere in this Annual Report). Short-term restricted cash is included within prepaid expenses and other current assets in the consolidated balance sheets. The Company’s consolidated statement of cash flows includes the following as of December 31, 2022, 2021 and 2020 (in thousands): Year Ended December 31, 2022 2021 2020 Cash and cash equivalents $ 106,438 $ 114,057 $ 138,685 Short-term restricted cash 289 — — Long-term restricted cash 1,311 1,379 1,379 Total cash, cash equivalents, and restricted cash $ 108,038 $ 115,436 $ 140,064 Marketable Securities As of December 31, 2022, marketable securities classified as Level 2 within the valuation hierarchy consist of U.S. government agency securities and treasuries, corporate bonds and commercial paper. Marketable securities represent holdings of available-for-sale marketable debt securities in accordance with the Company’s investment policy. The Company estimates the fair value of these marketable securities by taking into consideration valuations that include market pricing based on real-time trade data for the same or similar securities, and other observable inputs. The amortized cost of available-for-sale debt F-16 Table of Contents securities is adjusted for amortization of premiums and accretion of discounts to the earliest call date for premiums or to maturity for discounts. Loans Payable At December 31, 2022, in light of the recent issuance of the Term A Loan under the 2020 Term Loan, the Company believes the carrying value approximates the fair value of the loan. Common Warrants In December 2019, the Company issued common warrants in connection with a private placement of common shares, or the 2019 Warrants. Pursuant to the terms of the 2019 Warrants, the Company could be required to settle the common warrants in cash in the event of certain acquisitions of the Company and, as a result, the common warrants are required to be measured at fair value and reported as a liability on the balance sheet. Pursuant to the Stipulation and Agreement of Settlement discussed in Note 17, on December 20, 2022, the Company amended the terms of the outstanding 2019 Warrants held by certain members of the Company's 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. Refer to Note 10 for further discussion on the equity classified Amended 2019 Warrants. In April 2022, the Company 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. The Company recorded the fair value of the 2019 Warrants and the 2022 Warrants upon issuance using the Black-Scholes valuation model and is required to revalue the 2019 Warrants and the 2022 Warrants at each reporting date, with any changes in fair value recorded in the statement of operations and comprehensive income (loss). The valuations of the 2019 Warrants and the 2022 Warrants are classified as Level 3 of the fair value hierarchy due to the need to use assumptions in the valuations that are both significant to the fair value measurement and unobservable, including the stock price volatility and the expected life of the 2019 Warrants and the 2022 Warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. The changes in the fair values of the warrants are reflected in the statement of operations and comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020. The estimated fair values of the 2019 Warrants, the Amended 2019 Warrants on the modification date, and the 2022 Warrants were determined using the following inputs to the Black-Scholes simulation valuation: Estimated fair value of the underlying stock . The Company estimates the fair value of the common stock based on the closing stock price at the end of each reporting period. Risk-free interest rate . The risk-free interest rate is based on the U.S. Treasury at the valuation date commensurate with the expected remaining life assumption. Dividend rate . The dividend rate is based on the historical rate, which the Company anticipates will remain at zero. Expected life . The expected life of the 2019 Warrants and the 2022 Warrants is assumed to be equivalent to their remaining contractual terms which expire on December 23, 2024 and April 11, 2027, respectively. Volatility . The Company estimates stock price volatility based on the Company’s historical volatility and the historical volatility of peer companies for a period of time commensurate with the expected remaining life of the warrants. F-17 Table of Contents A summary of the Black-Scholes pricing model assumptions used to record the fair value of the 2019 Warrants liability is as follows: December 31, 2022 2021 Risk-free interest rate 4.74 % 0.97 % Dividend yield — — Expected life (in years) 1.98 2.98 Expected volatility 79.92 % 96.10 % A summary of the Black-Scholes pricing model assumptions used to record the fair value of the Amended 2019 Warrants liability on the modification date is as follows: At Modification December 20, 2022 Risk-free interest rate 4.64 % Dividend yield — Expected life (in years) 2.01 Expected volatility 79.77 % A summary of the Black-Scholes valuation model assumptions used to record the fair value of the 2022 Warrants liability is as follows: At Issuance December 31, April 11, 2022 2022 Risk-free interest rate 4.22 % 2.79 % Dividend yield — — Expected life (in years) 4.28 5.00 Expected volatility 98.05 % 96.00 % Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis The following table reflects a roll-forward of fair value for the Company’s Level 3 warrant liabilities (see Note 10), for the year ended December 31, 2022 (in thousands): Warrant liabilities Fair value as of December 31, 2021 $ 25,423 Issuances 15,379 Exercises — Reclassification of warrant liability to equity upon modification ( 780 ) Change in fair value ( 20,882 ) Fair value as of December 31, 2022 $ 19,140 6. Property and Equipment Property and equipment consists of the following (in thousands): December 31, 2022 2021 Laboratory equipment $ 6,001 $ 5,134 Computer equipment and software 697 731 Leasehold improvements 57 45 Furniture and fixtures 453 332 Office equipment 192 163 Construction in process 599 534 Total property and equipment 7,999 6,939 Less accumulated depreciation ( 5,205 ) ( 4,797 ) Property and equipment, net $ 2,794 $ 2,142 F-18 Table of Contents Depreciation expense was $ 0.7 million, $ 0.6 million and $ 0.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. 7. Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2022 2021 Payroll and employee related expenses $ 4,242 $ 3,179 Accrued patent fees 696 309 Accrued external research and development costs 7,274 4,339 Accrued professional and consulting services 985 815 Accrued interest 222 170 Other 665 1,721 Accrued expenses $ 14,084 $ 10,533 8. Leases 65 Grove Street Lease In July 2019, the Company entered into a lease for 25,078 square feet of laboratory and office space located at 65 Grove Street, Watertown, Massachusetts, or the Headquarters Lease. As part of the Headquarters Lease, the Company incurred $ 0.8 million in non-reimbursable construction costs. The lease began in March 2020, when the Company took control of the office space, and the lease term is 8 years. The discount rate of 8.9 % was determined based on the Company’s incremental borrowing rate adjusted for the lease term, including any reasonably certain renewal periods. In connection with the Headquarters Lease, the Company secured a letter of credit from Silicon Valley Bank, or SVB, for $ 1.4 million, recognized as long-term restricted cash, as of December 31, 2021. On September 1, 2022, the Company entered into an amendment, or the Lease Agreement Amendment, to its lease agreement with BRE-BMR Grove LLC, originally entered into on July 23, 2019, or the Lease Agreement, to expand the Company’s corporate headquarters located at 65 Grove Street, Watertown, Massachusetts by approximately 7,216 square feet. The lease term began on September 1, 2022, consistent with when the Company took control of the office space and the expected lease term is 5.7 years. The discount rate of 11.3 % was determined based on the Company’s incremental borrowing rate adjusted for the lease term including any reasonably certain renewal periods. Rent payments began in November 2022, and the base rent for the first year is $ 0.1 million per month. In connection with the Lease Agreement Amendment, the Company entered into an amendment to its Loan and Security Agreement with Oxford, as Collateral Agent and a Lender, and SVB, as a Lender, on September 20, 2022, or the Third Amendment, to provide for an increase of $ 0.2 million in the letter of credit for a total of $ 1.6 million as of December 31, 2022, which renews automatically each year. The Company recorded the right-of-use asset and operating lease liabilities of $ 3.2 million during the year ended December 31, 2022 as control of the premises was transferred to the Company. On October 6, 2022, the Company entered into a sublease agreement with Nexo Therapeutics, Inc., or the Tenant, to sublease approximately 7,216 square feet of space currently rented by the Company at the corporate headquarters located at 65 Grove Street, Watertown, Massachusetts. The sublease commenced on October 24, 2022, when the Company, the Tenant and BRE-BMR Grove LLC, executed the Consent to Sublease. The term of the sublease expires on March 31, 2024 with no option to extend the sublease term. Sublease income is included within other income, net in the consolidated statements of operations and comprehensive income (loss). As a result of the sublease agreement and Consent to Sublease, rent payments to BRE-BMR Grove LLC for the lease of the office space increased. The change of consideration in the contract was accounted for as a lease modification and the right-of-use asset and lease liability were remeasured at the modification date of October 24, 2022. The discount rate of 11.9 % was determined based on the Company’s incremental borrowing rate adjusted for the lease term including any reasonably certain renewal periods as of October 24, 2022, resulting in a decrease of less than $ 0.1 million to both the right-of-use asset and lease liabilities. Moscow, Russia Lease The Company has a month-to-month facility agreement for its Moscow, Russia office. Rent expense is recognized as incurred. Rent expense for the years ended December 31, 2022, 2021 and 2020 was $ 3.2 million, $ 2.9 million, and $ 2.7 million, respectively. F-19 Table of Contents For the years ended December 31, 2022, 2021 and 2020, the components of lease costs were as follows (in thousands): Year Ended December 31, 2022 2021 2020 Operating lease cost $ 2,276 $ 2,023 $ 2,096 Variable lease cost 910 834 624 Short-term lease cost 11 10 10 Less sublease income ( 176 ) — — Total lease cost $ 3,021 $ 2,867 $ 2,730 The maturity of the Company’s operating lease liabilities as of December 31, 2022 were as follows (in thousands): December 31, 2022 2023 $ 2,668 2024 2,740 2025 2,818 2026 2,902 2027 2,990 Thereafter 946 Total future minimum lease payments 15,064 Less imputed interest 3,401 Total operating lease liabilities $ 11,663 The supplemental disclosure for the statement of cash flows related to operating leases were as follows (in thousands): December 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: $ 2,048 $ 1,812 Other than the initial recording of the right-of-use asset and lease liability for the Headquarters Lease in 2020 and 2022, which were non-cash, the changes in the Company’s right-of-use asset and lease liability for the years ended December 31, 2022 and 2021 are reflected in the non-cash lease expense and accrued expenses and other liabilities, respectively, in the consolidated statements of cash flows. The following summarizes additional information related to operating leases: December 31, 2022 2021 Weighted-average remaining lease term 5.4 years 6.4 years Weighted-average discount rate 9.7 % 8.9 % 9. Debt 2020 Term Loan On August 31, 2020, the Company 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, or the Loan Agreement, between the Company and Oxford Finance LLC, or Oxford, as Collateral Agent and a Lender, and 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, the Company entered into a Second Amendment to its 2020 Term Loan. The Second Amendment extended 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. F-20 Table of Contents 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. The 2020 Term Loan will mature on August 1, 2025. Each advance under the Term Loan accrues interest at a floating per annum rate equal to the greater of (a) 7.90 %, and (b) the lesser of (x) the sum of (i) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, and (ii) 4.65 % and (y) 10.00 %. The Term Loan provides for interest-only payments on a monthly basis until April 1, 2023. Thereafter, amortization payments will be payable monthly in equal installments of principal and interest to fully amortize the outstanding principal over the remaining term of the loan, subject to recalculation upon a change in the prime rate. The Company may prepay the Term Loan in full but not in part provided that the Company (i) provides ten days’ prior written notice to Collateral Agent, (ii) pays on the date of such prepayment (A) all outstanding principal plus accrued and unpaid interest, and (B) a prepayment fee of between 3.0 % and 1.0 % of the aggregate original principal amount advanced by the lender depending on the timing of the prepayment. Amounts outstanding during an event of default are payable upon SVB’s demand and shall accrue interest at an additional rate of 5.0 % per annum of the past due amount outstanding. At the end of the loan term (whether at maturity, by prepayment in full or otherwise), the Company shall make a final payment to the lender in the amount of 9.0 % of the aggregate original principal amount advanced by the lender. The final payment fee totaling $ 2.3 million is recorded as a loan discount. The Term Loan is secured by a lien on substantially all of the assets of the Company, 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. The Company has also granted the Collateral Agent a negative pledge with respect to its intellectual property. The Loan Agreement contains customary covenants and representations, including but not limited to financial reporting obligations and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. The Loan Agreement also contains other customary provisions, such as expense reimbursement, non-disclosure obligations as well as indemnification rights for the benefit of the Collateral Agent. The events of default under the Loan Agreement include, but are not limited to, the Company’s failure to make any payments of principal or interest under the Loan Agreement or other transaction documents, the Company’s breach or default in the performance of any covenant under the Loan Agreement or other transaction documents, the occurrence of a material adverse change, the Company making a false or misleading representation or warranty in any material respect under the Loan Agreement, the Company’s insolvency or bankruptcy, any attachment or judgment on the Company’s assets of at least $ 0.5 million, or the occurrence of any default under any agreement or obligation of the Company involving indebtedness in excess of $ 0.5 million. If an event of default occurs, the Collateral Agent is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement. The Company assessed all terms and features of the 2020 Term Loan to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the 2020 Term Loan, including any put, call, and contingent features. The Company determined that the interest rate collar and prepayment call option did not require bifurcation; whereas the contingent put option and default (contingent) interest rate feature met bifurcation criteria resulting in immaterial amounts. Warrants On August 31, 2020, in connection with the 2020 Term A Loan, the Company issued warrants to the Lenders to purchase an aggregate of 196,850 shares of its common stock at an exercise price equal to $ 2.54 per share. In accordance with ASC 815-40, these warrants are classified as permanent equity in the accompanying consolidated balance sheets and will expire ten years from the date of issuance. The initial grant date fair value of the warrants was $ 0.4 million as determined by the Black-Scholes valuation model and recorded to stockholders' equity, with the SVB portion allocated to the reacquisition price of the 2017 Term Loan and the Oxford fair value portion as a loan discount to the Term A Loan. Payoff On the Funding Date, the Company entered into a payoff letter with SVB, pursuant to which the Company utilized $ 13.7 million of the 2020 Term Loan to pay off all outstanding obligations under the previous term loan, consisting of the principal payment, final prepayment and accrued interest. During the year ended December 31, 2020, the Company recognized a loss on extinguishment of debt in the amount of $ 0.5 million determined as the difference between the reacquisition price and carrying value at August 31, 2020. As of December 31, 2022 and 2021, the outstanding principal balance under the 2020 Term Loan was $ 25.0 million. F-21 Table of Contents Total 2020 Term Loan and unamortized debt discount balances as of December 31, 2022 are as follows (in thousands): Face value $ 25,000 Venture debt termination fee 2,250 Less: Debt discount ( 988 ) Less: Current portion of loan payable ( 8,476 ) Loan payable, net of current portion $ 17,786 Future minimum principal payments on the 2020 Term Loan as of December 31, 2022 are as follows (in thousands): Year ended: 2023 7,759 2024 10,345 2025 6,896 Total minimum principal payments $ 25,000 During the years ended December 31, 2022, 2021 and 2020, the Company recognized $ 3.0 million, $ 2.8 million and $ 1.6 million respectively of interest expense related to the 2020 Term Loan and the previous term loan. 10. Equity Equity Financings Underwritten Offering On April 6, 2022, the Company entered into an underwriting agreement with SVB Securities LLC, as representative of the several underwriters named therein, relating to an underwritten offering of 27,428,572 shares, or the Shares, of the Company’s common stock and warrants to purchase up to 20,571,429 shares of common stock, or the 2022 Warrants. The offering of the Shares and the 2022 Warrants is referred to as the 2022 Offering. Each Share and accompanying 2022 Warrant to purchase 0.75 shares of common stock was sold at a combined offering price of $ 1.41 . The exercise price for the 2022 Warrants is $ 1.55 per share. The Company received net proceeds from the 2022 Offering of approximately $ 36.9 million. The 2022 Warrants are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock and also upon any distributions for no consideration of assets to the Company’s stockholders. Each 2022 Warrant is exercisable at any time and from time to time after issuance. In the event of certain corporate transactions, the holders of the 2022 Warrants will be entitled to receive the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such transaction. Therefore, the Company is required to account for the 2022 Warrants as liabilities and record the 2022 Warrants at fair value. The 2022 Warrants do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which holders of Common Stock are entitled. “At-the-Market” Offerings 2020 Sales Agreement On August 6, 2020, the Company 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 of the shelf registration statement, the Company entered into a sales agreement, or the 2020 Sales Agreement with Jefferies LLC, as sales agent, pursuant to which the Company was 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, the Company delivered notice to Jefferies LLC that the Company was terminating the 2020 Sales Agreement, with effect as of October 19, 2021. 2021 Sales Agreement On October 25, 2021, the Company entered into a Sales Agreement, or the 2021 Sales Agreement, with SVB Leerink LLC to sell shares of the Company’s 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 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, the Company sold 774,544 shares of its common stock pursuant to the 2021 Sales Agreement for aggregate net proceeds of $ 2.1 million, after deducting commissions and other transaction costs. During F-22 Table of Contents the year ended December 31, 2021, the Company sold 13,767,511 shares of its common stock pursuant to the 2021 and 2020 Sales Agreements for aggregate net proceeds of $ 51.9 million, after deducting commissions and other transaction costs. June 2020 Sobi Stock Purchase On June 11, 2020, the Company entered into a stock purchase agreement with Sobi, pursuant to which the Company sold an aggregate of 5,416,390 shares of its common stock at a purchase price equal to $ 4.6156 per share, which represented 120 % of the 10-day volume-weighted average price of the Company’s common stock prior to signing, for aggregate gross proceeds of $ 25.0 million, or the Sobi Private Placement. The closing of the Sobi Private Placement occurred on July 31, 2020. In accordance with ASC 815, this forward sale treatment qualified as equity classification as the shares are not within the scope of ASC 480. The gross proceeds of $ 25.0 million were determined to include a premium to the fair value of the Company’s shares as of July 28, 2020 of approximately $ 14.5 million. As a result, such amount was included in the transaction price for revenue recognition of the Sobi License. See Note 12 for details. Also on June 11, 2020, the Company entered into a registration rights agreement (as amended by that certain letter agreement, dated as of November 4, 2020, the “Sobi Registration Rights Agreement”) with Sobi, pursuant to which the Company agreed to prepare and file a registration statement with respect to the resale of the shares of common stock acquired in the Sobi Private Placement. The Company will be required to file this resale registration statement within 30 days following receipt by the Company of a written request from Sobi to file such resale registration statement, and to have the registration statement declared effective within ten (10) Business Days after the SEC informs the Company that no review of such resale registration statement will be made or that the SEC has no further comments on such resale registration statement. December 2019 Financing On December 18, 2019, the Company entered into a securities purchase agreement, or the 2019 Purchase Agreement, with a group of institutional investors and certain members of the Board of Directors. Pursuant to the 2019 Purchase Agreement, the Company sold an aggregate of 37,634,883 shares of its common stock at a purchase price of $ 1.46 per share, warrants to purchase an aggregate of 22,988,501 shares of common stock at a purchase price of $ 0.125 per share underlying each common warrant, and pre-funded warrants to purchase an aggregate of 8,342,128 shares of common stock at a purchase price of $ 1.46 per share, all with five year terms, or the 2019 PIPE. The closing of the 2019 PIPE occurred on December 23, 2019. The exercise price of the pre-funded warrants is $ 0.0001 per share and the exercise price for the common warrants is $ 1.46 per share. In the event of a certain sale of the Company, the terms of the common warrants require us to make a payment to such common warrant holders based on a Black-Scholes valuation (using variables as specified in the warrants). This provision does not apply to the pre-funded warrants. Therefore, the Company is required to account for the common warrants as liabilities and record them at fair value, while the pre-funded warrants met the criteria to be classified as permanent equity. The Company recorded the fair value of the 2019 Warrants of $ 40.7 million upon issuance using the Black-Scholes valuation model. Issuance costs were allocated between the equity component with an offset to additional paid-in capital and the liability component recorded as expense on a relative fair value basis. Total net proceeds from the equity offering was $ 65.6 million, after deducting transaction costs and commissions of $ 4.4 million. As discussed in Note 5, the Company remeasured the Amended 2019 Warrants at the fair value of $ 0.8 million on December 20, 2022 and reclassified this amount to additional paid-in capital. The remaining 2019 Warrants liability and the 2022 Warrants liability were revalued as of December 31, 2022 at $ 19.1 million. During the years ended December 31, 2022, 2021 and 2020, the Company recorded a decrease of $ 20.9 million and an increase of $ 2.3 million and $ 10.4 million, respectively, in the fair value of the warrants in the consolidated statements of operations and comprehensive income (loss). June 2017 Financing In June 2017, the Company entered into a securities purchase agreement, or the Institutional Purchase Agreement, with a select group of institutional investors, or the Institutional Investors and a securities purchase agreement with Timothy A. Springer, Ph.D., a member of the board of directors, or the Springer Purchase Agreement, for a private placement of the Company’s securities, or the 2017 PIPE. Pursuant to the Institutional Purchase Agreement, the Company sold an aggregate of 2,750,000 shares of its common stock at a purchase price equal to $ 16.00 per share. Pursuant to the Springer Purchase Agreement, the Company sold to Dr. Springer an aggregate of 338,791 shares of common stock at a purchase price equal to $ 17.71 per share, which was equal to the most recent consolidated closing bid price on the Nasdaq Stock Market on June 23, 2017, and warrants to purchase up to 79,130 shares of common stock, or the Warrant Shares, exercisable at $ 17.71 per Warrant Share, and with a term of five years . The equity classified warrants expired in 2022. F-23 Table of Contents Warrants The following is a summary of warrant activity for the years ended December 31, 2022 and 2021: Number of Warrants Equity classified Liability classified Total Weighted average exercise price Outstanding at December 31, 2020 292,469 12,085,547 12,378,016 $ 1.60 Exercises — ( 1,642,036 ) ( 1,642,036 ) 1.46 Outstanding at December 31, 2021 292,469 10,443,511 10,735,980 $ 1.62 Issuance — 20,571,429 20,571,429 1.55 Canceled ( 79,130 ) — ( 79,130 ) 17.71 Reclassification of warrant liability to equity on modification 2,022,987 ( 2,022,987 ) — $ 1.46 Outstanding at December 31, 2022 2,236,326 28,991,953 31,228,279 $ 1.53 Common Stock On June 17, 2022, at the 2022 Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to the Company’s Restated Certificate of Incorporation, or the Charter, to increase the number of authorized shares of common stock, par value $ 0.0001 per share, from 200,000,000 to 350,000,000 shares. On June 21, 2022, the Company filed a Certificate of Amendment to the Charter with the Secretary of State of the State of Delaware, which became effective upon filing. As of December 31, 2022, the Company had 350,000,000 shares of common stock authorized for issuance, $ 0.0001 par value per share, with 153,042,435 shares issued and outstanding. The voting, dividend and liquidation rights of the common stockholders are subject to and qualified by the rights, powers and preferences of the preferred stock. The common stock has the following characteristics: Voting The common stockholders are entitled to one vote for each share of common stock held with respect to all matters voted on by the stockholders of the Company. Dividends The common stockholders are entitled to receive dividends, if and when declared by the Board of Directors. Through December 31, 2022, no dividends have been declared or paid on common stock. Liquidation Upon liquidation of the Company, the common stockholders are entitled to receive all assets of the Company available for distribution to such stockholders. Reserved Shares The Company has authorized shares of common stock for future issuance as follows: As of December 31, 2022 December 31, 2021 Exercise of warrants 31,228,279 10,735,980 Shares available for future stock incentive awards 5,782,591 6,039,564 Unvested restricted stock units 1,705,558 394,450 Outstanding common stock options 15,844,651 11,039,873 Total 54,561,079 28,209,867 11. Stock Incentive Plans The Company maintains the 2008 Stock Incentive Plan, or the 2008 Plan, for employees, consultants, advisors, and directors. The 2008 Plan provided for the granting of incentive and non-qualified stock option and restricted stock awards as determined by the Board. In June 2016, the Company’s stockholders approved the 2016 Incentive Award Plan, or the 2016 Plan, which authorized 1,210,256 shares of common stock for future issuance under the 2016 Plan and the Company ceased granting awards under the 2008 Plan. Upon the effective date of the 2016 Plan, awards issued under the 2008 Plan remain subject to the terms of the 2008 F-24 Table of Contents Plan. Awards granted under the 2008 Plan that expire, lapse or terminate become available under the 2016 Plan as shares available for future grants. Additionally, pursuant to the terms of the 2016 Plan, the Board is authorized to grant awards with respect to common stock, and may delegate to a committee of one or more members of the Board or executive officers of the Company the authority to grant options and restricted stock units. On December 9, 2020, the Board established a Stock Option Committee authorized to grant awards to certain employees and consultants subject to conditions and limitations within the 2016 Plan. In January 2022 and 2021, the number of shares of common stock that may be issued under the 2016 Plan was increased by 4,944,919 and 4,322,850 shares, respectively. As of December 31, 2022, 1,719,015 shares remain available for future issuance under the 2016 Plan. In September 2018, the Company’s 2018 Employment Inducement Incentive Award Plan, or the 2018 Inducement Incentive Award Plan was adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Stock Market LLC listing rules, which authorized 1,175,000 shares of its common stock for issuance. In March 2019, the Board approved the amendment and restatement of the 2018 Inducement Incentive Award Plan to reserve an additional 2,000,000 shares of the Company’s common stock for issuance thereunder. As of December 31, 2022, there are 425,858 shares available for future grant under the 2018 Inducement Incentive Award Plan. Stock-Based Compensation Expense Stock-based compensation expense by classification included within the consolidated statements of operations and comprehensive income (loss) was as follows (in thousands): Year Ended December 31, 2022 2021 2020 Research and development $ 5,061 $ 3,204 $ 2,271 General and administrative 6,133 4,516 3,151 Total stock-based compensation expense $ 11,194 $ 7,720 $ 5,422 Stock Options The estimated grant date fair values of employee stock option awards granted under the 2016 Plan and the 2018 Inducement Incentive Award Plan were calculated using the Black-Scholes option pricing model, based on the following weighted-average assumptions: Year Ended December 31, 2022 2021 2020 Risk-free interest rate 2.24 % 0.79 % 1.11 % Dividend yield — — — Expected term 6.02 6.03 6.04 Expected volatility 92.21 % 95.04 % 91.00 % Weighted-average fair value of common stock $ 2.63 $ 3.58 $ 2.49 The expected term of the Company's stock options granted to employees has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options. Under the simplified method, the expected term is presumed to be the midpoint between the vesting date and the end of the contractual term. The Company utilizes this method due to lack of historical exercise data and the plain nature of its stock-based awards. The weighted average grant date fair value of stock options granted to employees during the years ended December 31, 2022, 2021 and 2020 was $ 1.99 , $ 2.73 , and $ 1.86 respectively. As of December 31, 2022, total unrecognized compensation expense related to unvested employee stock options was $ 14.8 million, which is expected to be recognized over a weighted average period of 2.6 years. F-25 Table of Contents The following table summarizes the stock option activity under the 2008 Plan, the 2016 Plan, and the 2018 Inducement Incentive Award Plan: Weighted-average remaining Aggregate Number of Weighted-average contractual term intrinsic value options exercise price ($) (in years) (in thousands) Employees Outstanding at December 31, 2021 10,616,800 $ 3.99 8.19 $ 4,982 Granted 6,714,220 $ 2.63 Exercised ( 69,928 ) $ 2.23 Forfeited ( 1,682,680 ) $ 3.73 Outstanding at December 31, 2022 15,578,412 $ 3.44 7.57 $ 4 Vested at December 31, 2022 6,985,993 $ 4.18 6.50 $ — Vested and expected to vest at December 31, 2022 14,749,359 $ 3.49 7.64 $ 4 Non-employee consultants Outstanding at December 31, 2021 423,073 $ 6.34 3.85 $ 42 Forfeited ( 156,834 ) $ 3.44 Outstanding at December 31, 2022 266,239 $ 8.05 5.08 $ — Vested at December 31, 2022 266,239 $ 8.05 5.08 $ — Vested and expected to vest at December 31, 2022 266,239 $ 8.05 5.08 $ — Restricted Stock Units During the year ended December 31, 2022, the Company granted 813,200 restricted stock awards with a weighted average fair value of $ 3.31 per share based on the closing price of the Company’s common stock on the date of grant to employees under the 2016 Plan, which will vest over a four year term and 699,500 restricted stock awards with a weighted average fair value of $ 1.70 per share based on the closing price of the Company’s common stock on the date of grant to employees under the 2016 Plan, which will vest over a two year term. Forfeitures are estimated at the time of grant and are adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has estimated a forfeiture rate of 10 % for restricted stock awards to employees based on historical experience. Unrecognized compensation expense for all restricted stock units was $ 3.4 million as of December 31, 2022, which is expected to be recognized over a weighted average period of 2.4 years. The following table summarizes the Company’s restricted stock units under the 2016 Plan and 2018 Inducement Incentive Award Plan: Number of shares Weighted average grant date fair value ($) Unvested at December 31, 2021 394,450 $ 3.45 Granted 1,512,700 2.57 Vested ( 131,430 ) 4.10 Forfeited ( 70,162 ) 3.30 Unvested at December 31, 2022 1,705,558 $ 2.62 Employee Stock Purchase Plan In June 2016, the Company approved the 2016 Employee Stock Purchase Plan, or the ESPP, which authorized 173,076 shares of common stock for future issuance under the ESPP to participating employees. In January 2022 and 2021, the number of shares of common stock authorized for issuance under the ESPP was increased by 1,236,229 shares and 1,080,711 shares, F-26 Table of Contents respectively. During the year ended December 31, 2022, the Company issued 120,877 shares of common stock under the ESPP. As of December 31, 2022, 3,637,718 shares remain available for future issuance under the ESPP. For each of the years ended December 31, 2022 and 2021, the Company recognized $ 0.1 million of stock-based compensation expense under the ESPP, respectively. 12. Revenue Arrangements Takeda Pharmaceuticals USA, Inc. License and Development Agreement On October 1, 2021, the Company entered into a License Agreement, or the Takeda Agreement, with Takeda. Under the Takeda Agreement, the Company granted Takeda an exclusive license to the Company’s ImmTOR technology initially for two specified disease indications within the field of lysosomal storage disorders. Takeda paid a $ 3.0 million upfront payment to the Company upon signing of the Takeda Agreement, and the Company is entitled to receive up to $ 1.124 billion in future additional payments over the course of the partnership that are contingent on the achievement of development or commercial milestones or Takeda’s election to continue its activities at specified development stages. The Company is also eligible for tiered royalties on future commercial sales of any licensed products. Pursuant to the Takeda Agreement, the Company determined the Takeda Agreement represents a service arrangement under the scope of ASC 606, and given the reversion of the rights under the Takeda Agreement represents a penalty in substance for a termination by Takeda, the contract term would remain the stated term of the Takeda Agreement. The Company determined that the research license, the licensed know-how, and the manufactured supply and delivery of materials represent a single promise and performance obligation to be transferred to Takeda over time due to the nature of the promises in the contract. The delivery of the manufactured supply is the predominant promise within the arrangement, as it is essential to the utility of the licensed intellectual property. The material to be supplied by the Company to Takeda is unique to the Company and cannot be obtained by other vendors. As such, consideration in the initial transaction price will be allocated to the single performance obligation and the recognition period would not extend beyond the initial contractual period. The Company will recognize the revenue associated with the upfront payment and combined single performance obligation utilizing the output method over the term that manufactured supply is delivered to Takeda. In determining the transaction price, the Company concluded the payment associated with all the performance milestones will be fully constrained and only be included in the transaction price when the respective milestone is deemed probable of achievement. Each of these variable consideration items were evaluated under the most likely amount method to determine whether such amounts were probable of occurrence, or whether such amounts should be constrained until they become probable. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt and timing of such study milestones is outside the control of the Company and probability of success criteria is estimated. The Company will re-evaluate the transaction price in each reporting period, as uncertain events are resolved, or as other changes in circumstances occur. Takeda has the right to exercise covenant release rights on a field-by-field basis. If Takeda exercises its covenant release rights, we could receive exercise payments per indication and would be entitled to significant development and commercial milestone payments and tiered royalties on commercial sales. The Company determined that a significant financing component does not exist in its arrangement with Takeda. The Company also determined the options to negotiate additional fields, pursue other products, enter into a supply agreement explore additional fields, and pursue additional development under the initial fields do not represent material rights under the agreement. Takeda has the right to terminate the Takeda Agreement in its entirety or on a field-by-field basis, upon 90 days’ written notice to the Company. As of December 31, 2022, the Company recorded $ 0.1 million as a short-term contract liability and no long-term contract liability, representing deferred revenue associated with this agreement. As of December 31, 2021, the Company recorded $ 1.0 million as a short-term contract liability and $ 1.0 million as a long-term contract liability, respectively, representing deferred revenue associated with this agreement. Revenue of $ 1.8 million and $ 1.0 million related to the Takeda Agreement was recognized during the years ended December 31, 2022 and 2021, respectively. Swedish Orphan Biovitrum License and Development Agreement On June 11, 2020, the Company and Sobi entered into the Sobi License. Pursuant to the Sobi License, the Company has agreed to grant Sobi an exclusive, worldwide (except as to Greater China) license to develop, manufacture and commercialize the Company’s SEL-212 drug candidate, which is currently in development for the treatment of chronic refractory gout. The SEL-212 drug candidate is a pharmaceutical composition containing a combination of SEL-037, or the Compound, and ImmTOR. Pursuant to the Sobi License, in consideration of the license, Sobi agreed to pay the Company a one-time, upfront payment of $ 75.0 million. Sobi has also agreed to make milestone payments totaling up to $ 630.0 million to the Company upon the achievement of various development and regulatory milestones and, if commercialized, sales thresholds for annual net sales F-27 Table of Contents of SEL-212, and tiered royalty payments ranging from the low double digits on the lowest sales tier to the high teens on the highest sales tier. Pursuant to the Sobi License, the Company has agreed to supply (at cost) quantities of the Compound and ImmTOR as necessary for completion of the two Phase 3 clinical trials of SEL-212 (DISSOLVE I and DISSOLVE II) and a 6-month placebo extension. The Company is required to supply quantities of the Compound until all rights to the Compound and any materials needed to manufacture the Compound are transferred to Sobi. Sobi has agreed to reimburse the Company for all budgeted costs incurred to complete development of SEL-212, including but not limited to costs incurred while conducting and completing the Phase 3 DISSOLVE trials, except for any costs of additional development activities required that are related to ImmTOR and that are unrelated to SEL-212. Sobi will have control and responsibility over all regulatory filings, including any investigational drug applications (IND), biologics license applications (BLA), and marketing authorization applications (MAA) relating to the licensed product. The transactions contemplated by the Sobi License were consummated on July 28, 2020. Sobi may terminate the Sobi License for any reason upon 180 days’ written notice to the Company, whereby all rights granted under the Sobi License would revert back to the Company. In addition, if Sobi were to terminate the Sobi License, the Company has the option to obtain a license to all patents and know-how necessary to exploit SEL-212 in existence as of the termination date from Sobi in return for making an equitable royalty payment to Sobi. Additionally, on June 11, 2020, the Company entered into the Sobi Purchase Agreement in connection with the Sobi License. The closing of the Sobi Private Placement occurred on July 31, 2020, following the closing of the transactions contemplated under the Sobi License. See Note 10 for details. The Company determined that the Sobi License represents a service arrangement under the scope of ASC 606. In addition, given the Sobi License and Sobi Purchase Agreement were executed contemporaneously and negotiated as a package with a single commercial objective, the Company will account for the two agreements as a single contract. The term of the Sobi License commenced upon the effective date of July 28, 2020 and will continue on a product-by-product basis until the royalty terms for each country have expired. The royalty term for a given product begins upon the first commercial sale of the product in a country and ends at the later of ten years from the first commercial sale, expiration of the last valid patent claim covering the product and expiration of all regulatory exclusivity periods for the product in a country. Given the reversion of the rights under the Sobi License represents a penalty in substance for a termination by Sobi, the contract term would remain the stated term of the Sobi License. The Company determined that the Sobi License contains three distinct performance obligations due to the nature of the promises in the contract, which includes conducting the Phase 3 DISSOLVE trials, Sobi’s option to set-up a second source supplier, and a combined obligation comprised of the delivery of the license to SEL-212, transfer of the know-how and the manufacturing and delivery of SEL-212 supply for development, or the Combined License Obligation. As the set-up of a second source supplier is optional for Sobi and the Company will be reimbursed at cost for its efforts in the subsequent set-up and technology transfer, the option for this future service was determined to be at a significant and incremental discount to its standalone selling price and treated as a material right in the arrangement, namely a distinct performance obligation. In determining the transaction price, the Company concluded the upfront payment of $ 75.0 million and the $ 5.0 million development milestone associated with the dosing of the first patient in the Phase 3 DISSOLVE trials will be included in the transaction price. All other development milestones will be fully constrained and only be included in the transaction price when the respective milestone is deemed probable of achievement. Each of these variable consideration items was evaluated under the most likely amount method to determine whether such amounts were probable of occurrence, or whether such amounts should be constrained until they become probable. As part of the evaluation of the constraint, the Company considered numerous factors, including that receipt of such milestones is outside the control of the Company and probability of success criteria is estimated. The Company re-evaluates the transaction price in each reporting period, as uncertain events are resolved. In accordance with ASC 606, the Company will only recognize revenue associated with sales-based milestones and royalties when the subsequent sales thresholds are reached and underlying sales occur, respectively. In connection with the Sobi Purchase Agreement, the Company determined that the gross proceeds of $ 25.0 million from the Sobi Private Placement included a premium to the fair value of the Company’s shares as of July 28, 2020 equal to approximately $ 14.5 million. The premium amount is included in the transaction price for revenue recognition. The Company estimates and includes in the transaction price the total reimbursements to be received from Sobi for both the manufacturing and delivery of the Compound and ImmTOR as well as conducting the Phase 3 DISSOLVE trials. The Company determined that a significant financing component does not exist in its arrangement with Sobi. The Company allocated the transaction price based on the relative standalone selling prices of the three distinct performance obligations. The Company estimated the standalone selling price of conducting the Phase 3 DISSOLVE trials by forecasting its anticipated costs and applying a margin reflective of the industry. The Company must determine the standalone selling price of the second source supplier option by determining the discount given to Sobi multiplied by the likelihood that Sobi will exercise the option in the future. Similar to the Phase 3 program estimate, the Company estimated the discount of the F-28 Table of Contents option by forecasting the set-up costs and applying a margin that is reflective of the industry. As the Company will be providing the set-up and technology transfer services and the future supply at cost, the discount of the option is equal to the margin amount. The Company considered discussions with Sobi as well as probability of regulatory success of SEL-212 in determining the likelihood of exercise. The Company estimated the standalone selling price of the Combined License Obligation by utilizing a discounted cash flow model. The Company determined that the delivery of the supply to Sobi best represents the pattern of delivery of the Combined License Obligation as the supply is essential to the utility of the license and know-how. The Company will recognize the revenue allocated to the Combined License Obligation by utilizing the output method. The Company estimated the total supply of the Compound and ImmTOR to be required during the clinical trial period and will recognize revenue as this supply is shipped for use in the clinical trials. The Company will recognize the revenue allocated to the conducting of the Phase 3 DISSOLVE trials obligation by utilizing the input method. The Company estimated the total budgeted costs to be incurred over the Phase 3 DISSOLVE trials and will recognize revenue as these costs are incurred. The Company’s costs best represent the pattern of transfer as these will capture all performance of the trials completed to date and can be readily measured. The Company will recognize the revenue allocated to the second source supplier option when the future services and goods are transferred. On June 29, 2022, the Company completed enrollment of the DISSOLVE II trial. The completion of enrollment of the DISSOLVE II trial resulted in the achievement of a development milestone and a $ 10.0 million payment obligation from Sobi to the Company. This amount was added to the overall transaction price and payment was received during the year ended December 31, 2022. As of December 31, 2022, the Company recorded no short-term or long-term contract liability. As of December 31, 2021, the Company recorded $ 37.5 million, as a short-term contract liability and $ 5.1 million, as a long-term contract liability, representing deferred revenue associated with this agreement. In addition, as of December 31, 2022 the Company has recorded $ 0.1 million of contract assets related to incremental costs that would not have been incurred if the Sobi License had not been obtained, of which $ 0.1 million is presented in prepaid expenses and other current assets and less than $ 0.1 million is presented in other assets in the accompanying consolidated balance sheets. Amortization of contract assets was $ 0.6 million for the year ended December 31, 2022. As of December 31, 2022 and 2021, the Company recorded a total outstanding receivable of $ 5.0 million and $ 9.9 million, respectively, representing billings for the Phase 3 DISSOLVE program that are subject to reimbursement by Sobi. As of December 31, 2022, the Company recorded a total unbilled receivable of $ 3.2 million, representing revenue earned but not yet billed for the Phase 3 DISSOLVE program. Revenue of $ 82.6 million and $ 83.5 million related to the Sobi License was recognized during the years ended December 31, 2022 and 2021, respectively, inclusive of $ 13.4 million of revenue recognized from performance obligations related to prior periods as a result of the change in transaction price during the year ended December 31, 2022. Sarepta Therapeutics, Inc. Research License and Option Agreement In June 2020, the Company and Sarepta entered into a Research License and Option Agreement, or the Sarepta Agreement. Pursuant to the Sarepta Agreement, the Company agreed to grant Sarepta a license under the Company’s intellectual property rights covering the Company’s antigen-specific biodegradable nanoparticle encapsulating ImmTOR to research and evaluate ImmTOR in combination with Sarepta’s adeno-associated virus gene therapy technology, or gene editing technology, using viral or non-viral delivery, to treat Duchenne Muscular Dystrophy and certain Limb-Girdle Muscular Dystrophy subtypes, or the Indications. Sarepta initially had an option term of 24 months during which it could opt-in to obtain an exclusive license to further develop and commercialize the Product to treat at least one Indication, with a potential to extend the option term for an additional fee. The Company will supply ImmTOR to Sarepta for clinical supply on a cost-plus basis. Sarepta paid a $ 2.0 million upfront payment to the Company upon signing of the Sarepta Agreement, and the Company is eligible to receive additional preclinical payments during the option term. If Sarepta opts-in to an exclusive license agreement, the Company could receive option exercise payments per Indication upon execution of the exclusive license, and the Company would be entitled to significant development and commercial milestone payments and tiered royalties ranging from the mid-to-high single digits based on net sales. Pursuant to the Sarepta Agreement, the Company determined the Sarepta Agreement represents a service arrangement under the scope of ASC 606, with a 24 month contract duration. Given the reversion of the rights under the Sarepta Agreement represents a penalty in substance for a termination by Sarepta, the contract term would remain the stated term of the Sarepta Agreement. The Company determined that the Sarepta Agreement and supply obligation including the delivery of the research license, the licensed know-how, the manufactured supply and delivery of materials represent a single promise and performance obligation to be transferred to Sarepta over time due to the nature of the promises in the contract. The delivery of the F-29 Table of Contents manufactured supply is the predominant promise within the arrangement, as it is essential to the utility of the licensed intellectual property. As such, consideration in the initial transaction price will be allocated to the single performance obligation based on the contractual price. In determining the transaction price, the Company concluded the payment associated with all the performance milestones will be fully constrained and only be included in the transaction price when the respective milestone is deemed probable of achievement. Each of these variable consideration items was evaluated under the most likely amount method to determine whether such amounts were probable of occurrence, or whether such amounts should be constrained until they become probable. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of such study milestones is outside the control of the Company and probability of success criteria is estimated. The Company also determined the option to enter into a future commercial license agreement and extend the term of the option does not represent a material right since it was not priced at an incremental discount. Sarepta may terminate the Sarepta Agreement for any reason upon 30 days’ written notice to the Company. The Sarepta Agreement contains other customary terms and conditions, including representations and warranties, covenants, termination, and indemnification obligations in favor of each party. During the year ended December 31, 2020, the Company and Sarepta entered into two amendments relating to an additional feasibility study. During the year ended December 31, 2021, the Company and Sarepta entered into a third amendment relating to the additional feasibility study. During the year ended December 31, 2022, the Company and Sarepta entered into two amendments relating to the additional feasibility study. On April 13, 2021, the Company was notified by Sarepta of the achievement of the milestone event related to the completion of a non-clinical study for Duchenne muscular dystrophy and certain limb-girdle muscular dystrophies under the Sarepta Agreement. Accordingly, the Company received a milestone payment of $ 3.0 million during the three months ended June 30, 2021. On June 10, 2022, the Company was notified by Sarepta that Sarepta would be extending their options under the Sarepta Agreement. In exchange for a nine -month extension to Sarepta’s options to both Duchenne muscular dystrophy and certain limb-girdle muscular dystrophies, the Company received a milestone payment of $ 2.0 million during the three months ended September 30, 2022. On June 15, 2022, the Company was notified by Sarepta of the achievement of a milestone event related to certain preclinical study milestones under the Sarepta Agreement. Accordingly, the Company received a milestone payment of $ 4.0 million during the three months ended September 30, 2022. As of December 31, 2022, one milestone remained constrained. The Company will re-evaluate the transaction price in each reporting period, as uncertain events are resolved. The Company is recognizing the revenue associated with the transaction price and combined single performance obligation utilizing the output method, over the 33-month term as the manufactured supply is delivered to Sarepta. As of December 31, 2022 and 2021, the Company recorded $ 0.5 million and $ 4.6 million, respectively, as a short-term contract liability representing deferred revenue associated with this agreement. Revenue of $ 10.2 million and $ 0.4 million related to the Sarepta Agreement was recognized during the years ended December 31, 2022 and 2021, respectively, inclusive of $ 0.9 million of revenue recognized from performance obligations related to prior periods as a result of the change in transaction price during the year ended December 31, 2022. Asklepios Biopharmaceutical, Inc. License Agreement for Pompe Disease In December 2019, the Company and AskBio entered into a license agreement, or the AskBio License Agreement. Pursuant to the AskBio License Agreement, AskBio exercised its option to exclusively license the Company’s intellectual property rights covering the Company’s ImmTOR platform to research, develop, and commercialize certain AAV gene therapy products utilizing ImmTOR, and targeting the GAA gene, or derivatives thereof, to treat Pompe Disease. On November 18, 2022, both parties agreed to mutually terminate the AskBio License Agreement. Therefore, the remaining contract liability of $ 7.0 million was recognized as revenue during the period ended December 31, 2022. Spark Therapeutics, Inc. In December 2016, the Company entered into a license and option agreement, or the Spark License Agreement, with Spark pursuant to which the Company and Spark agreed to collaborate on the development of gene therapies for certain targets utilizing the ImmTOR platform. The Spark License Agreement provided Spark with certain exclusive, worldwide, royalty bearing licenses to the Company’s intellectual property, allowing Spark to develop and commercialize gene therapies in combination with ImmTOR for Factor VIII, an essential blood clotting protein relevant to the treatment of hemophilia A, the initial target. F-30 Table of Contents Additionally, in connection with the Spark License Agreement, the Company entered into a Stock Purchase Agreement with Spark, or the Spark Purchase Agreement. Pursuant to the Spark Purchase Agreement, Spark purchased a total of $ 15.0 million of the Company’s common stock including 197,238 shares for an aggregate purchase price of $ 5.0 million at the initial closing, 324,362 shares of common stock for an aggregate purchase price of $ 5.0 million on June 8, 2017, and 205,254 shares of common stock from the Company for an aggregate purchase price of $ 5.0 million on October 31, 2017. On January 18, 2022, both parties agreed to mutually terminate the Spark License Agreement. Therefore, the remaining contract liability of $ 9.2 million was recognized as revenue during the year ended December 31, 2022. Skolkovo Foundation During the year ended December 31, 2021, revenue of $ 0.1 million related to the remaining contract liability of the Russia-based Development Fund of New Technologies Development and Commercialization Center, or Skolkovo, grant funding was recognized at the expiration of the three-year audit period. Transaction Price Allocated to Future Performance Obligations Remaining performance obligations represent the transaction price of contracts for which work has not been performed (or has been partially performed). As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 0.6 million. Contract Balances from Contracts with Customers ( Takeda, Sobi, Sarepta, AskBio, and Spark ) The following table presents changes in the Company’s contract liabilities during the year ended December 31, 2022 (in thousands): Balance at Balance at beginning of period Additions Deductions end of period Contract liabilities: Deferred revenue $ 65,300 $ 16,000 $ ( 80,707 ) $ 593 Total contract liabilities $ 65,300 $ 16,000 $ ( 80,707 ) $ 593 13. Related-Party Transactions April 2022 Offering During the year ended December 31, 2022, the Company completed the 2022 Offering as described in Note 10. The following table sets forth the number of shares of Common Stock and 2022 Warrants purchased in the 2022 Offering by directors and executive officers, as of the time of the Offering, and related parties thereto: Name Shares of Common Stock purchased 2022 Warrants purchased Total aggregate purchase price TAS Partners, LLC (affiliate of Timothy A. Springer, Ph.D.) 6,681,600 5,011,200 $ 9,421,056 Warrant liability reclassification During the year ended December 31, 2022, the Company amended the terms of certain of the outstanding 2019 Warrants held by members of the Company's board of directors and remeasured the Amended 2019 Warrants as described in Notes 5 and 10. Consulting Services The Company entered into consulting agreements with its founders to serve on its Scientific Advisory Board, effective January 1, 2020 to December 31, 2021, under which they were paid quarterly for their services. The Company incurred expenses for consulting services provided by its founders totaling $ 0.1 million during each of the years ended December 31, 2021 and 2020. No expenses were incurred for the year ended December 31, 2022. 14. Collaboration and License Agreements Ginkgo Bioworks Holdings, Inc. Collaboration and License Agreements On October 25, 2021, the Company entered into a Collaboration and License Agreement, or the First Ginkgo Agreement, with Ginkgo Bioworks Holdings, Inc., or Ginkgo. Under the First Ginkgo Agreement, Ginkgo will design next generation IgA proteases with potentially transformative therapeutic potential. In return, Ginkgo is eligible to earn both upfront research and F-31 Table of Contents development fees and milestone payments, including certain milestone payments for fixed fair values in the form of Selecta common stock, clinical and commercial milestone payments of up to $ 85.0 million in cash. The Ginkgo Agreement was assessed for collaboration components and was determined not to be within the scope of ASC 808 as the risk and rewards are not shared by both parties. The Company will expense costs related to the Ginkgo Agreement as incurred until regulatory approval is received in accordance with ASC 730. The Company is accounting for the contingently issuable shares to be issued in exchange for the license obtained from Ginkgo as a liability classified stock-based compensation arrangement with a non-employee which will be recognized when achievement of the milestones is probable. The Company will assess the capitalization of costs incurred after the receipt of regulatory approval and, if applicable, will amortize these payments based on the expected useful life of each asset, typically based on the expected commercial exclusivity period. The Company is also obligated to pay Ginkgo tiered royalties ranging from low-single digit to high-single digit percentages of annual net sales of collaboration products which will be expensed as the commercial sales occur. On January 3, 2022, the Company entered into a Collaboration and License Agreement, or the Second Ginkgo Agreement, with Ginkgo. Under this agreement, the Company will engage with Ginkgo to develop AAV capsids designed to enhance transduction efficiency and transgene expression. In return, Ginkgo is eligible to earn both upfront research and development fees and milestone payments, including certain milestone payments in the form of shares of the Company’s common stock, clinical and commercial milestone payments of up to $ 207 million in cash. The Second Ginkgo Agreement was assessed for collaboration components and was determined not to be within the scope of ASC 808 as the risk and rewards are not shared by both parties. The Company will expense costs related to the Second Ginkgo Agreement as incurred until regulatory approval is received in accordance with ASC 730. The Company is accounting for the contingently issuable shares of common stock to be issued in exchange for the license obtained from Ginkgo as a liability-classified, stock-based compensation arrangement with a non-employee which will be recognized when achievement of the milestones is probable. The Company will assess the capitalization of costs incurred after the receipt of regulatory approval and, if applicable, will amortize these payments based on the expected useful life of each asset, typically based on the expected commercial exclusivity period. The Company is also obligated to pay Ginkgo tiered royalties ranging from low-single digit to high-single digit percentages of annual net sales of collaboration products which will be expensed as the commercial sales occur. On June 13, 2022, the Company was notified of the achievement of the midpoint of the technical development plan under the First Ginkgo Agreement by Ginkgo. This milestone resulted in the payment of $ 0.5 million and issuance of 892,857 shares of the Company’s common stock then-valued at $ 1.0 million to Ginkgo during the year ended December 31, 2022. Genovis AB (publ.) License Agreement On October 21, 2021, the Company entered into an Exclusive License Agreement, or the Genovis Agreement, with Genovis. Under the Genovis Agreement, the Company paid to Genovis an upfront payment in exchange for an exclusive license to Genovis’ IgG Protease, or Xork, enzyme technology across all therapeutic uses in humans, excluding research, preclinical, diagnostic and other potential non-therapeutic applications of the enzyme. Genovis is eligible to earn from the Company development and sales-based milestones and sublicensing fees. The Genovis Agreement was assessed for collaboration components and was determined not to be within the scope of ASC 808 as the risk and rewards are not shared by both parties. The Company will expense costs related to the Genovis Agreement as incurred until regulatory approval is received in accordance with ASC 730. The Company will assess the capitalization of costs incurred after the receipt of regulatory approval and, if applicable, will amortize these payments based on the expected useful life of each asset, typically based on the expected commercial exclusivity period. The Company is also obligated to pay Genovis tiered royalties of low double digit percentages of worldwide annual net sales of collaboration products which will be expensed as the commercial sales occur. Cyrus Biotechnology, Inc. Collaboration and License Agreement On September 7, 2021, the Company and Cyrus Biotechnology, Inc., or Cyrus, entered into a collaboration and license agreement, or the Cyrus Agreement. Pursuant to the Cyrus Agreement, Cyrus agreed to grant the Company an exclusive, worldwide license to certain intellectual property to form a protein engineering collaboration combining the Company’s ImmTOR platform with Cyrus’ ability to redesign protein therapeutics. The lead program is a proprietary interleukin-2, or IL-2, protein agonist designed to selectively promote expansion of regulatory T cells for treatment of patients with autoimmune diseases and other deleterious immune conditions. In return for the licensed intellectual property, the Company made an upfront payment and is obligated to pay certain discovery, development, and sales-based milestones which could potentially total up to approximately $ 1.5 billion across multiple programs. The Cyrus Agreement was assessed for collaboration components and was determined not to be within the scope of ASC 808 as the risk and rewards are not shared by both parties. The Company will expense costs related to the Cyrus Agreement as incurred until regulatory approval is received in accordance with ASC 730. The Company will assess the capitalization of costs incurred after the receipt of regulatory approval and, if applicable, will amortize these payments based on the expected useful life of each asset, typically based on the expected commercial exclusivity F-32 Table of Contents period. The Company is also obligated to pay Cyrus tiered royalties ranging from mid-single digit to low-double digit percentages of annual net sales of collaboration products which will be expensed as the commercial sales occur. Additionally, on September 7, 2021, the Company entered into a stock purchase agreement, or the Series B Preferred Stock Purchase Agreement, in connection with the Cyrus Agreement. Pursuant to the Series B Preferred Stock Purchase Agreement, the Company 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. In accordance with ASC 810, the Company has a variable interest in Cyrus resulting from its equity investment. The Company will share in Cyrus’ expected losses or receive a portion of its expected returns and absorb the variability associated with changes in the entity’s net assets. However, the Company is not the primary beneficiary as it does not have the power to direct the activities most significant to Cyrus, and therefore it is not required to consolidate Cyrus. The Company has recognized the $ 2.0 million investment of Cyrus’ Series B Preferred Stock at cost on the purchase date. On June 13, 2022, the Company and Cyrus mutually agreed that the preclinical key in-vitro success milestone had been achieved. As of December 31, 2022, no impairment indicators are present and therefore the carrying value of the investment in Cyrus is $ 2.0 million on the accompanying consolidated balance sheet. The Company’s maximum exposure to loss related to this variable interest entity is limited to the carrying value of the investment. The Company has not provided financing to Cyrus other than the amount contractually required by the Series B Preferred Stock Purchase Agreement. Asklepios Biopharmaceutical, Inc. Feasibility Study and License Agreement In August 2019, the Company entered into a feasibility study and license agreement with AskBio, or the AskBio Collaboration Agreement. Pursuant to the AskBio Collaboration Agreement, the Company and AskBio agreed to license intellectual property rights to each other as part of a collaboration to research, develop, and commercialize certain AAV gene therapy products utilizing the Company’s ImmTOR platform to enable re-dosing of such AAV gene therapy products to treat serious rare and orphan genetic diseases for which there is a significant unmet medical need. Pursuant to the AskBio Collaboration Agreement, the Company and AskBio agreed to conduct proof of concept studies to potentially validate the use of ImmTOR in conjunction with AskBio’s AAV gene therapy, or SEL-302, (previously disclosed as MMA-101, in combination with ImmTOR) for the treatment of MMA, to mitigate the formation of neutralizing anti-AAV capsid antibodies, or the POC Studies. On April 29, 2021, the Company was notified by AskBio that it intended to opt-out of development of the MMA indication. The feasibility study and license agreement with AskBio, or AskBio Collaboration Agreement, otherwise remains in effect. Consequently, the Company has assumed all rights to the MMA program and intends to continue to progress the SEL-302 program through clinical development. The Company filed an IND to conduct a Phase 1/2 clinical trial of its SEL-302 product candidate in pediatric patients with methylmalonic acidemia in the third quarter of 2021. In December 2022, we initiated ReiMMAgine, the Phase 1/2 clinical trial of SEL-302. The ReiMMAgine trial is now enrolling patients and aims to evaluate the safety, tolerability and efficacy of SEL-302. The SEL-399 program combined an empty AAV capsid (EMC-101), which is an AAV capsid containing no transgene, with ImmTOR and is being conducted in partnership with AskBio. Building on the preclinical data the Company has generated showing ImmTOR’s effect on mitigating or reducing the formation of neutralizing antibodies to AAV gene therapies, the Company completed a clinical trial of SEL-399 in healthy adult volunteers in Belgium. The goal of the SEL-399 clinical trial was to demonstrate the appropriate dose of ImmTOR in humans to mitigate the formation of antibodies to AAV capsids used in gene therapies. This promising study in healthy volunteers provides support for the potential use of ImmTOR for the inhibition of neutralizing antibodies to AAV8 in gene therapy clinical trials. The Company and AskBio will share responsibility for the research, development and commercialization of products developed under the SEL-399 program collaboration. The parties will also share research, development, and commercialization costs equally for all collaboration products, but with a right of either party to opt out of certain products, and thereby no longer be required to share costs for such products. Each party will receive a percentage of net profits under the collaboration equal to the percentage of shared costs borne by such party in the development of such product. Pursuant to the AskBio Collaboration Agreement, AskBio is responsible for manufacturing the AAV capsids and AAV vectors and the Company is responsible for manufacturing ImmTOR. The AskBio Collaboration Agreement is considered to be within the scope of ASC 808, as both parties are active participants and exposed to the risks and rewards of the collaborative activity. The Company evaluated the terms of the AskBio Collaboration Agreement and have identified the following promises in the arrangement (1) conducting research and development activities to develop and commercialize products under the collaboration, or the R&D Services, (2) granting a non-exclusive, non-transferable, royalty-free, fully paid up, worldwide license to certain intellectual property of the Company, or the IP Rights, for the purpose of performing the POC Studies, or the Research License, (3) granting an exclusive, F-33 Table of Contents nontransferable, worldwide license to the IP Rights for use in certain indications, or the Collaboration License, (4) providing manufactured supply of preclinical and clinical ImmTOR, or the Manufactured Supply, (5) participation on identified steering committees responsible for the oversight of the collaboration, or the JSC Participation, and (6) granting an exclusive option to obtain a license under the IP Rights to research, develop and commercialize Licensed Products. The Company determined that the R&D Services, Research License, Collaboration License, Manufactured Supply, and JSC Participation were not capable of being distinct, and therefore must be combined into a single performance obligation. Therefore, promises (1) through (5) identified above were combined into a single performance obligation. Furthermore, the Company evaluated the Option Agreement and determined that it does not provide AskBio with a material right under ASC 606 as the option was not priced at a discount (see discussion of the option exercise in Note 12). The Company noted that AskBio did not meet the definition of a customer within the scope of ASC 606 for any distinct performance obligations as the Company concluded that such items were not an output of the Company’s ordinary activities. As such, the Company determined that the entire arrangement would be accounted for within the scope of ASC 808. In accordance with ASC 808, collaboration expenses are recognized within R&D expense and selling, general and administrative expense on the Company’s condensed consolidated statements of operations. Under certain collaborative arrangements, the Company is entitled to reimbursement of certain R&D expense. Activities under collaborative arrangements for which the Company is entitled to reimbursement are considered to be collaborative activities under the scope of ASC 808. For these units of account, the Company does not analogize to ASC 606 or recognize revenue. Rather, the Company analogizes to the guidance in ASC 730, which requires that reimbursements from counterparties be recognized as an offset to the related costs. In accordance with ASC 730, the Company records reimbursement payments received from collaborators as reductions to R&D expense. For the years ended December 31, 2022 and 2021, the Company recognized $ 0.9 million and $ 2.7 million, respectively, of collaboration expense under the AskBio Collaboration Agreement in which actual costs incurred by both parties approximate a 50 % cost share. Massachusetts Institute of Technology In November 2008, the Company entered into an exclusive patent license agreement, or the MIT License, with the Massachusetts Institute of Technology, or MIT, under which the Company received an exclusive royalty-bearing license to utilize patents held by MIT in exchange for upfront consideration and annual license maintenance fees. Such fees are expensed as incurred and have not been material to any period presented. In June 2020, the Company entered into a Fifth Amendment, or the MIT Amendment, to the MIT License, which is effective as of May 15, 2020. Pursuant to the MIT Amendment, certain of the Company’s diligence obligations were extended. The extension included the obligation to commence a Phase 3 trial for a licensed product by the second quarter of 2021 or to file an IND (or equivalent) with the FDA or comparable European regulatory agency for a licensed product by the second quarter of 2023. Additionally, certain of the Company’s development and regulatory milestones and payments upon achievement of such milestones were adjusted. As of December 31, 2022, and in connection with the execution of the Spark License Agreement, the Company has made contractual payments pursuant to the MIT License totaling $ 2.2 million. In connection with the Spark Purchase Agreement and the calculated premium paid by Spark for the equity investments made as described in Note 12, the Company has made additional contractual payments pursuant to the MIT license totaling $ 0.4 million as of December 31, 2022. The Company made no additional payments during the year ended December 31, 2022. Shenyang Sunshine Pharmaceutical Co., Ltd In May 2014, the Company entered into a license agreement, or the 3SBio License, with Shenyang Sunshine Pharmaceutical Co., Ltd., or 3SBio. The Company has paid to 3SBio an aggregate of $ 7.0 million in upfront and milestone-based payments under the 3SBio License as of December 31, 2022. The Company is required to make future payments to 3SBio contingent upon the occurrence of events related to the achievement of clinical and regulatory approval milestones of up to an aggregate of $ 15.0 million for products containing the Company’s ImmTOR platform. 15. Income Taxes The Company provides for income taxes under ASC 740. Under ASC 740, the Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. On June 11, 2020, the Company entered into the Sobi License (see note 12). In September 2020, Sobi paid the Company a one-time upfront payment of $ 75.0 million. Sobi has also agreed to make milestone payments totaling up to $ 630.0 million to the Company upon achievement of various development and regulatory milestones and sales thresholds for annual net sales of F-34 Table of Contents SEL-212, and tiered royalty payments ranging from low double digits on the lowest sales tier to high teens on the highest sales tier. 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 ending 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. For the year ended December 31, 2022, the Company recognized a current tax benefit for penalty abatements received of $ 0.6 million. For the year ended December 31, 2021, the Company recognized tax expense of $ 16.0 million, inclusive of penalties and interest of $ 1.3 million assessed as of December 31, 2021. For the year ended December 31, 2020, the Company did not record a current or deferred income tax expense or benefit. The following table reconciles the federal statutory income tax rate to the Company’s effective income tax rate: Year Ended December 31, 2022 2021 2020 Statutory U.S. federal rate 21.0 % 21.0 % 21.0 % State income taxes - net of federal benefit 1.6 % ( 166.0 %) 5.8 % Permanent items ( 18.6 %) 8.3 % ( 2.9 %) Research tax credits ( 3.2 %) 55.0 % 1.0 % Deferred revenue — % 156.5 % — % Other — % ( 3.7 %) — % Valuation allowance, net ( 4.4 %) ( 230.1 %) ( 23.6 %) Stock-based compensation 1.8 % ( 5.2 %) ( 1.3 %) Effective income tax rate ( 1.8 %) ( 164.2 %) — % The tax effects of temporary differences that give rise to the Company’s net deferred tax assets are as follows (in thousands): Year Ended December 31, 2022 2021 Deferred Tax Assets Net operating loss carryforwards $ 17,015 $ 13,932 Research and development credits 2,806 1,426 Stock-based compensation expense 5,892 3,955 Other expenses 1,697 745 Deferred revenue 83,417 102,583 Operating lease liabilities 3,186 2,636 R&E capitalization 9,588 — Patent costs 7,472 6,843 Gross deferred tax assets 131,073 132,120 Deferred Tax Liabilities Depreciation $ ( 81 ) $ ( 90 ) Operating lease right-of-use assets ( 3,174 ) ( 2,685 ) Gross deferred tax liabilities ( 3,255 ) ( 2,775 ) Net deferred tax assets before valuation allowance 127,818 129,345 Valuation allowance ( 127,818 ) ( 129,345 ) Net deferred tax assets $ — $ — The Company has provided a full valuation allowance against its net deferred tax assets, as the Company believes that it is more likely than not that the deferred tax assets will not be realized. Realization of future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and concluded that it is more likely than not that the Company will not realize the F-35 Table of Contents benefit of its deferred tax assets. The valuation allowance decreased by $ 1.5 million for the year ended December 31, 2022, primarily as a result of pre-tax income and credits. The valuation allowance increased by $ 22.4 million for the year ended December 31, 2021, primarily as a result of an increase in deferred revenue. As of December 31, 2022, the Company is in the process of closing down operations in Russia and does not expect any tax liability. At December 31, 2022, the Company has federal net operating loss carryforward of $ 62.4 million, which can be carried forward indefinitely but will be subject to an 80% limitation and state net operating loss carryforward of $ 61.8 million, which will expire at various times through 2042. The Company has $ 2.3 million and $ 0.6 million, respectively, of federal and state research and development tax credit carryforwards, which will expire at various times through 2042. Utilization of the NOL carryforwards and research and orphan drug credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), and similar state law due to ownership changes that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. If the Company experiences a change of control, as defined by Section 382 of the Code and similar state law, utilization of the NOL carryforwards or research and orphan drug credit carryforwards may be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL carryforwards or research and orphan drug credit carryforwards before utilization. The Company performed an analysis of ownership changes through December 31, 2022. Based on this analysis, the Company does not believe that any of its tax attributes through December 31, 2022 will expire unutilized due to Section 382 limitations. The Company applies ASC 740, Income Taxes to uncertain tax positions. As of the adoption date on January 1, 2010 and through December 31, 2022, the Company had no unrecognized tax benefits or related interest and penalties accrued. During 2021, the Company completed a detailed study of its research and development and orphan drug credits through December 31, 2020. The Company generated research credits for the years ended December 31, 2022 and 2021, but has not conducted a formal study to document its qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against our research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance. The Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize and amortize, rather than deduct, research and experimental, or R&E, expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during the year and resulted in the capitalization of R&E costs of $ 38.1 million. The Company will amortize these costs for tax purposes over 5 years if the R&E was performed in the U.S. and over 15 years if the R&E was performed outside the U.S. Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statement of operations. As of December 31, 2022, the Company had no accrued interest related to uncertain tax positions. The statute of limitations for assessment by the Internal Revenue Service and Massachusetts tax authorities is open for tax years since inception as the Company claimed research tax credits on its 2020 tax return which remains open for examination for the 2020 year as well as for any year in which a credit has been claimed for. The Company files income tax returns in the United States and Massachusetts. There are currently no federal, state or foreign audits in progress. 16. Defined Contribution Plan The Company maintains a defined contribution plan, or the 401(k) Plan, under Section 401(k) of the Internal Revenue Code. The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. The 401(k) Plan provides for matching contributions on a portion of participant contributions pursuant to the 401(k) Plan’s matching formula. As of January 2022, all matching contributions vest ratably over two years and participant contributions vest immediately. Contributions by the Company totaled $ 0.3 million, $ 0.2 million, and $ 0.1 million during each of the years ended December 31, 2022, 2021 and 2020, respectively. 17. Commitments and Contingencies As of December 31, 2022, the Company was not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. F-36 Table of Contents On August 3, 2020, a stockholder of Selecta filed a stockholder derivative action, purportedly on behalf of Selecta and against certain current and former members of the Company’s Board of Directors, as well as one affiliated company owned by a current board member, in the Court of Chancery of the State of Delaware, namely Franchi v. Barabe, et al. The complaint alleges that the individual defendants breached their fiduciary duties and committed corporate waste when they authorized a private placement transaction, announced on December 19, 2019, at a price allegedly below fair value. The complaint further alleges that the four defendant directors who participated in the private placement were unjustly enriched in connection with the transaction. On September 25, 2020, the defendants filed a motion to dismiss the lawsuit. On November 6, 2020, the plaintiff filed an amended complaint, and the defendants filed a second motion to dismiss on January 8, 2021. On December 31, 2020, we received a litigation demand letter from two other putative stockholders relating to the same private placement transaction. On April 12, 2021, the Court of Chancery in the State of Delaware granted a motion to stay the litigation pending a review by a Special Committee appointed by the Company’s Board of Directors. While the litigation was stayed, the parties reached an agreement in principle to settle the matter, and on March 18, 2022, they submitted a Stipulation and Agreement of Settlement and other documentation to the Court for its approval of the settlement. On July 21, 2022, the Court held a settlement hearing, at which the settlement was approved. On August 1, 2022, the Court entered an Order and Final Judgment which dismissed the action, and all claims contained therein, with prejudice. Other As permitted under Delaware law, the Company indemnifies its directors for certain events or occurrences while the director is, or was, serving at the Company’s request in such capacity. The term of the indemnification is for the director’s lifetime. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ insurance coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company also has indemnification arrangements under certain of its facility leases that require it to indemnify the landlord against certain costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from certain breaches, violations, or non-performance of any covenant or condition of the Company’s lease. The term of the indemnification is for the term of the related lease agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. To date, the Company had not experienced any material losses related to any of its indemnification obligations, and no material claims with respect thereto were outstanding. The Company is a party in various other contractual disputes and potential claims arising in the ordinary course of business. The Company does not believe that the resolution of these matters will have a material adverse effect the Company’s business, financial position, results of operations or cash flows. 18. Subsequent Events Collaboration and License Agreements On January 8, 2023, the Company entered into a License and Development Agreement with Astellas Therapeutics, Inc., or the Astellas Agreement. Under the Astellas Agreement obtained the sole and exclusive right to commercialize Xork for use in Pompe disease with an Astellas gene therapy investigational or authorized product, with a current focus on AT845. The Company received a $ 10 million upfront payment in February 2023 and is eligible to receive $ 340.0 million for certain additional development and commercial milestones plus royalties on any potential commercial sales where Xork is used as a pre-treatment for AT845. As a result of the sublicense of Xork to Astellas, the Company made a $ 4.0 million payment to Genovis in February 2023. F-37