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Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-03-02 · 175 added, 161 removed, 192 unchanged (64% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections.

This discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections.

Our actual results could differ materially from those discussed in these forward-looking statements.

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“Risk Factors.” A discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

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

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

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

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

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

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

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

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

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

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

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

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

We intend to pursue development of therapies for autoimmune diseases where expansion of either all Tregs or antigen-specific Tregs has been shown to, or we believe is, likely to have a beneficial effect.

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

Impact of Global Events

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

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

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

At this time, any impact of COVID-19 on our business, revenues, results of operations and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the

pandemic, the emergence of new virus variants, travel restrictions and social distancing in the United States and other countries, business closures, 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.

We are a clinical-stage biotechnology company developing mRNA cell therapies for the treatment of autoimmune diseases.

We leverage our proprietary technology and manufacturing platform to introduce one or more mRNA molecules into cells to enhance their function.

Unlike DNA, mRNA degrades naturally over time without integrating into the cell’s genetic material.

Therefore, our mRNA cell therapies are distinguished by their capacity to be dosed repeatedly like conventional drugs, administered in an outpatient setting, and given without pre-treatment chemotherapy required with many conventional cell therapies.

In an open-label Phase 2 clinical trial in patients with MG, a chronic autoimmune disease that causes disabling muscle weakness and fatigue, we observed that our lead product candidate, Descartes-08, generated a deep and durable clinical benefit.

We are leveraging our proprietary technology and manufacturing platform, RNA Armory ® , to develop mRNA cell therapies for autoimmune diseases across three modalities.

Our mRNA CAR-T modality is a personalized approach that collects a patient’s T-cells and uses mRNA to introduce a CAR into the cell.

The CAR redirects the T-cells to target and destroy pathogenic self-reactive cells.

Our mRNA MSC modality is an allogeneic approach that introduces one or more mRNAs into donor-sourced MSCs, enabling them to produce proteins that target key pathways involved in autoimmunity.

These cells are banked and are designed to be administered off-the-shelf to any patient.

Our mRNA in situ modality is designed to deliver mRNA into a patient’s lymph node to generate CAR-T cells and other proteins that target autoimmunity .

On November 13, 2023, the Company and Old Cartesian entered into the Merger Agreement.

In connection with the Merger and pursuant to the Merger Agreement, the Company changed its corporate name to Cartesian Therapeutics, Inc., with Old Cartesian surviving as a wholly owned subsidiary of the Company, as summarized in Note 3 of the accompanying notes to the consolidated financial statements appearing elsewhere in this Annual Report.

Financial Operations

To date, we have financed our operations primarily through public offerings and private placements of our securities, funding received from research grants, collaboration and license arrangements and our credit facility.

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

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

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

We incurred a net loss of $219.7 million and had net income of $35.4 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we had an accumulated deficit of $614.6 million.

We expect to continue to incur significant expenses and operating losses for at least the next several years as we:

• continue the research and development of our other product candidates as well as product candidates that we may be developing jointly with collaboration partners;

• seek to enhance our ImmTOR platform and discover and develop additional product candidates;

• seek to enter into collaboration, licensing and other agreements, including, but not limited to research and development, and/or commercialization agreements;

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we:

• advance Descartes-08 for MG into Phase 3 development;

• continue to develop our preclinical and clinical-stage product candidates;

• seek regulatory approvals for any product candidates that successfully complete clinical trials;

• potentially establish a sales, marketing and distribution infrastructure and scales-up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval;

• maintain, expand and protect our intellectual property portfolio, including through licensing arrangements.

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

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

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

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

Concurrently with the closing of the Merger, we entered into a securities purchase agreement in which we agreed to issue 149,330.115 shares of Series A Preferred Stock, in exchange for aggregate gross proceeds of $60.25 million, or the November 2023 Private Placement.

We granted customary registration rights to investors in connection with the November 2023 Private Placement.

We believe that our existing cash, cash equivalents, and restricted cash as of December 31, 2023, combined with net proceeds from the November 2023 Private Placement received subsequent to December 31, 2023 will enable us to fund our operating expenses and capital expenditure requirements into mid-2026.

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

The consolidated financial information presented below includes the accounts of Selecta Biosciences, Inc.

and our wholly owned subsidiaries, Selecta (RUS) LLC, a Russian limited liability company, or Selecta (RUS), and Selecta Biosciences Security Corporation, a Massachusetts securities corporation.

We intend to seek collaboration partners for the assets in the development programs that we are no longer actively advancing.

The consolidated financial information presented below includes the accounts of Cartesian Therapeutics, Inc.

and our wholly owned subsidiaries, Selecta (RUS) LLC, a Russian limited liability company, or Selecta (RUS), and Selecta Biosciences Security Corporation, a Massachusetts securities corporation, and Cartesian Bio, LLC, a Delaware limited liability company, which is a variable interest entity for which we are the primary beneficiary.

All intercompany accounts and transactions have been eliminated.

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Research and development

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

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

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

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

We expense research and development costs as incurred.

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For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those which we currently expect will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time to complete any clinical development.

The following table sets forth the components of our research and development expenses during the periods indicated (in thousands):

Year Ended December 31,

2022 2021 2020

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

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

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

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

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

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.

In June 2020, we and Swedish Orphan Biovitrum AB, or Sobi, entered into a License and Development Agreement, which was amended in October 2023, or, as so amended, the Sobi License.

Pursuant to the Sobi License, clinical trial costs incurred to complete development of the product candidate SEL-212, including but not limited to costs incurred while conducting and completing the Phase 3 DISSOLVE trials for SEL-212, were reimbursed by Sobi.

These costs, when reimbursed, were

recognized as revenue consistent with the revenue recognition methodology disclosed in Note 14 to our consolidated financial statements included elsewhere in this Annual Report.

The reimbursable costs exclude any costs of additional development activities required that were related to the ImmTOR platform and were unrelated to SEL-212.

In January 2023, we and Audentes Therapeutics, Inc., or Astellas, entered into a License and Development Agreement, or the Astellas Agreement.

Pursuant to the Astellas Agreement, Astellas agreed to reimburse us for 25% of all budgeted costs incurred to complete the development of Xork, a bacterial IgG protease licensed from Genovis AB (publ.), or Genovis, for use in Pompe disease with an Astellas gene therapy investigational or authorized product.

These costs, when reimbursed, will be recognized as revenue consistent with the revenue recognition methodology disclosed in Note 14 to our consolidated financial statements included elsewhere in this Annual Report.

The reimbursable costs exclude any costs of additional development activities required that are related to ImmTOR and that are unrelated to SEL-212.

General and administrative

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Interest expense

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

Interest expense consists of interest expense on amounts borrowed under our credit facilities and loss on extinguishment of debt.

Other income, net

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

Other income, net consists primarily of sublease income.

Change in fair value of warrant liabilities

Common warrants classified as liabilities are remeasured at fair value, utilizing a Black-Scholes valuation methodology, quarterly with the change in fair value recognized as a component of earnings.

Common warrants classified as liabilities are remeasured quarterly at fair value, utilizing a Black-Scholes valuation methodology, with the change in fair value recognized as a component of earnings.

Change in fair value of contingent value right liability

The CVR liability is remeasured quarterly at fair value, utilizing a discounted cash flow valuation methodology, with the change in fair value recognized as a component of earnings.

Change in fair value of Series A Preferred Stock forward contract liabilities

The forward contract liability associated with the delayed issuance of the Series A Preferred Stock related to the Merger and November 2023 Private Placement is remeasured quarterly at fair value, utilizing the market price of our common stock, with the change in fair value recognized as a component of earnings.

Foreign currency transaction gain (loss)

The functional currency of our Russian subsidiary is the Russian ruble.

The functional currency of Selecta (RUS) is the Russian ruble.

In addition to holding cash denominated in Russian rubles, our Russian bank accounts also hold cash balances denominated in U.S.

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dollars or other currencies.

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

As of each of December 31, 2023 and 2022, we maintained cash of $0.2 million in Russian bank accounts in denominations of both Russian rubles and U.S.

The amounts denominated in U.S.

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Collaboration and license revenue

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

Year Ended December 31, Increase

2022 2021 (decrease)

Collaboration and license revenue $ 110,777 $ 85,077 $ 25,700 30 %

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

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

During the year ended December 31, 2023, we recognized $26.0 million of collaboration and license revenue, compared to $110.8 million for the year ended December 31, 2022, a decrease of $84.8 million, or 77%.

The decrease was primarily due to a

decrease of revenue recognized under the Sobi License resulting from both the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program partially offset by an increase for revenue recognized under the Astellas Agreement.

Research and development expenses

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

Year ended December 31, Increase

2022 2021 (decrease)

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

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

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

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

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

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

For the year ended December 31, 2023 , our research and development expenses were $71.8 million, compared to $72.4 million for the year ended December 31, 2022, a decrease of $0.6 million, or 1%.

The decrease in cost was primarily the result of reductions in expenses incurred for preclinical and clinical programs due to the strategic reprioritization partially offset by expenses incurred for stock compensation and personnel expenses.

General and administrative expenses

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

Year Ended December 31, Increase

2022 2021 (decrease)

General and administrative $ 23,862 $ 20,938 $ 2,924 14 %

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

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

During the year ended December 31, 2023, our general and administrative expenses were $40.6 million, compared to $23.9 million for the year ended December 31, 2022, an increase of $16.7 million, or 70%.

The increase in costs was primarily the result of expenses incurred for stock compensation, personnel expenses, and professional fees incurred in connection with the Merger.

Investment income

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

Investment income for the year ended December 31, 2023 was $5.0 million, compared to $2.1 million for the year ended December 31, 2022, an increase of $2.9 million, or 138%.

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

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Interest expense

Interest expense was $3.0 million and $2.8 million for the years ended December 31, 2022 and 2021, respectively, representing interest expense and amortization of the carrying costs of our credit facilities.

Interest expense for the year ended December 31, 2023 was $2.8 million compared to $3.0 million for the year ended December 31, 2022, a decrease of $0.2 million, or 7%.

Interest expense for the year ended December 31, 2023 comprised interest expense and amortization of the carrying costs of our credit facilities and loss on extinguishment of debt.

Change in fair value of warrant liabilities

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

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

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

For the year ended December 31, 2023, we recognized $12.7 million of income from the decrease in the fair value of warrant liabilities, compared to $20.9 million for the year ended December 31, 2022, a decrease of $8.2 million or 39.2%.

Fair value of warrant liabilities was determined utilizing the Black-Scholes valuation methodology.

The decrease in warrant value was primarily driven by a decrease in the per-share price of our common stock.

Change in fair value of contingent value right liability

For the year ended December 31, 2023 we recognized $18.3 million of expense associated with the increase in the fair value of CVR liability.

The fair value of the CVR liability was determined utilizing a discounted cash flow valuation methodology.

The increase in CVR value was primarily driven by the decrease in interest rates from the Merger to December 31, 2023 and the corresponding impact on the discount rate used in our discounted cash flow valuation.

There was no CVR liability prior to the Merger and as such no CVR liability is reflected in our consolidated financial statements as of or for any period prior to the year ended December 31, 2023.

Change in fair value of Series A Preferred Stock forward contract liabilities

For the year ended December 31, 2023 we recognized $149.6 million of expense associated with the increase in the fair value of Series A Preferred Stock forward contract liabilities.

The increase in Series A Preferred Stock value was primarily driven by an increase in the per-share price of our common stock since the date of the Merger and November 2023 Private Placement.

A portion of the Series A Preferred Stock forward contract liability was settled during the year ended December 31, 2023 and there was no such forward contract liability prior to the Merger.

There was no Series A Preferred Stock forward contract liability prior to the Merger and as such no Series A Preferred Stock forward contract liability is reflected in our consolidated financial statements as of or for any period prior to the year ended December 31, 2023.

Other income, net

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

During the year ended December 31, 2023, we recognized other income, net of $0.7 million, compared to $0.3 million for the year ended December 31, 2022, an increase of $0.4 million, or 133%.

The increase was primarily driven by sublease income.

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

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

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

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

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

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

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

Net income (loss)

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

During the year ended December 31, 2023, we recognized a current tax benefit of $19.0 million relating to the benefit of legacy Selecta tax attributes that reduced deferred tax liabilities during the year.

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

Net (loss) income

Net loss for the year ended December 31, 2023 was $219.7 million as compared to net income of $35.4 million for the year ended December 31, 2022, a decrease of $255.1 million, or 721%.

The change was primarily due to decreased collaboration and license revenue and expenses associated with the change in fair value of the CVR liability and Series A Preferred Stock forward contract liability, and increased general and administrative expenses, partially offset by an increase in income tax benefit.

Liquidity and Capital Resources

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

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

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

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

On a pro forma basis, giving effect to the receipt of $40.0 million of net proceeds from our November 2023 Private Placement received subsequent to December 31, 2023, our cash, cash equivalents, and restricted cash were $118.3 million as of December 31, 2023, of which $1.4 million was restricted cash related to lease commitments and $0.2 million was held by our Russian subsidiary designated solely for use in its operations.

In addition to our existing cash equivalents, we from time to time have received and may receive in the future research and development funding pursuant to our collaboration and license agreements.

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

Liability associated with the contingent value rights agreement, or CVR Agreement, entered into on December 6, 2023, will be settled solely through cash flow received under the Sobi License and any other Gross Proceeds (as such term is defined in the CVR Agreement) net of certain agreed deductions.

Under the CVR Agreement, 100% of all milestone payments, royalties, and other amounts paid to us or our controlled entities under the Sobi License, and any other Gross Proceeds, in each case net of certain agreed deductions, will be distributed to holders of the CVRs.

There is no contractual obligation for us to fund any amount related to the CVR liability.

Collaboration and License Agreements

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

In September 2023, we entered into the Biogen Agreement, a non-exclusive, sublicensable, worldwide, perpetual patent license agreement with Biogen, to research, develop, make, use, offer, sell and import products or processes containing or using an engineering T-cell modified with an mRNA comprising, or encoding a protein comprising, certain sequences licensed under the Biogen Agreement for the prevention, treatment, palliation and management of autoimmune diseases and disorders, excluding cancers, neoplastic disorders, and paraneoplastic disorders.

We are not obligated to pay Biogen any expenses, fees, or royalties.

For further description of the Biogen Agreement, see Note 16 to our consolidated financial statements included elsewhere in this Annual Report.

Effective September 2019, we entered into the NCI Agreement, a nonexclusive, worldwide license agreement with NCI.

Under the NCI Agreement, we were granted a license under certain NCI patents and patent applications designated in the agreement, to make, use, sell, offer and import products and processes within the scope of the patents and applications licensed under the NCI Agreement when developing and manufacturing anti-BCMA CAR-T cell products for the treatment of MG, pemphigus vulgaris, and immune thrombocytopenic purpura according to methods designated in the NCI Agreement.

In connection with our entry into the NCI Agreement, we paid to NCI a one-time $0.1 million license royalty payment.

Under the NCI Agreement, we are further required to pay NCI a low five-digit annual royalty.

We must also pay earned royalties on net sales in a low single-digit percentage and pay up to $0.8 million in benchmark royalties upon our achievement of designated benchmarks that are based on the commercial development plan agreed between the parties.

For further description of the NCI Agreement, see Note 16 to our consolidated financial statements included elsewhere in this Annual Report.

In October 2021, we and Ginkgo Bioworks Holdings, Inc., or Ginkgo, entered into a Collaboration and License Agreement, or the First Ginkgo Agreement, and paid Ginkgo a $0.5 million one-time upfront payment.

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

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

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

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

In July 2023, we paid $1.0 million and issued 1,339,285 shares of our common stock then-valued at $1.5 million to Ginkgo for the achievement of certain preclinical milestones under the Second Ginkgo Agreement.

For further description of the First Ginkgo Agreement and the Second Ginkgo Agreement, see Note 16 to our consolidated financial statements included elsewhere in this Annual Report.

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

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

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

On October 1, 2021, we entered into the Takeda Agreement.

We received a $3.0 million upfront payment and are 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.

For further description of the Genovis Agreement, see Note 16 to our consolidated financial statements included elsewhere in this Annual Report.

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

In October 2023, we notified Cyrus of our termination of the Cyrus Agreement, effective December 29, 2023.

For further description of the Cyrus Agreement, see Note 16 to our consolidated financial statements included elsewhere in this Annual Report.

In January 2023, we entered into the Astellas Agreement with Astellas.

Under this agreement, Astellas obtained the sole and exclusive right to commercialize Xork for use in Pompe disease in combination with an Astellas gene therapy investigational or authorized product, with a current focus on AT845.

In connection with entry into this agreement, we received a $10 million upfront payment and are 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, we made a $4.0 million payment to Genovis in February 2023.

For further description of the Astellas Agreement, see Note 14 to our consolidated financial statements included elsewhere in this Annual Report.

On October 1, 2021, we entered into a License Agreement, or the Takeda Agreement, with Takeda Pharmaceuticals USA, Inc.

We received a $3.0 million upfront payment and were entitled to receive up to $1.124 billion in future additional payments over the course of the partnership that were contingent on the achievement of development or commercial milestones or Takeda’s election to continue its activities at specified development stages.

The Takeda Agreement was terminated effective July 25, 2023.

For further description of the Takeda Agreement, see Note 14 to our consolidated financial statements included elsewhere in this Annual Report.

In June 2020, we entered into the Sobi License.

Sobi paid us a one-time, upfront payment of $75 million, and upon the closing of the Sobi Private Placement, we received an additional $25 million from Sobi in consideration for Sobi’s purchase of our common stock at $4.6156 per share.

Sobi paid us a one-time, upfront payment of $75 million, and upon the closing of a private placement of our common stock to Sobi at a price of $4.6156 per share, we received an additional $25 million from Sobi.

We are eligible to receive $630 million in milestone payments upon the achievement of various development and regulatory milestones and sales thresholds for annual net sales 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.

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

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

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

Proceeds from milestone payments and royalties on sales of SEL-212, if any, are required to be distributed, net of certain agreed deductions, to holders of the CVRs.

For further description of the Sobi License, see Note 14 to our consolidated financial statements included elsewhere in this Annual Report.

Additionally, in June 2020, we and Sarepta Therapeutics, Inc., or Sarepta, entered into a Research License and Option Agreement, or the Sarepta Agreement.

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

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

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

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

In March 2023, we were notified by Sarepta that Sarepta would not be exercising its exclusive option under the Sarepta Agreement.

The Sarepta Agreement terminated upon the expiration of the option in March 2023.

For further description of the Sarepta Agreement, see Note 14 to our consolidated financial statements included elsewhere in this Annual Report.

In December 2019, we and Asklepios BioPharmaceutical, Inc., or AskBio, entered into a license agreement, or the AskBio License Agreement.

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

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

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

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

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

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

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

For further description of the AskBio License Agreement, see Note 14 to our consolidated financial statements included elsewhere in this Annual Report.

On August 6, 2020, we entered into a sales agreement, or the 2020 Sales Agreement, with Jefferies LLC, as sales agent, pursuant to which we were permitted, from time to time, to issue and sell common stock with an aggregate value of up to $50.0 million in an “at-the-market” offering.

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

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

The shares of common stock sold pursuant to the 2021 Sales Agreement will be issued pursuant to 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.

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

The shares of common stock sold pursuant to the 2021 Sales Agreement, if any, would be issued and sold pursuant to a registration statement filed with the Securities and Exchange Commission, or SEC, for remaining aggregate gross sales proceeds of up to $51.0 million.

During the year ended December 31, 2023, we sold no shares of our common stock pursuant to the 2021 Sales Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

We also granted Oxford a negative pledge with respect to our intellectual property.

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

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

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

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

For a further description of the 2020 Term Loan, see Note 9 to our consolidated financial statements included elsewhere in this Annual Report.

On November 13, 2023, we entered into a securities purchase agreement with (i) Dr.

Springer, a member of our Board of Directors;

(ii) TAS Partners LLC, an affiliate of Dr.

Springer, and (iii) Seven One Eight Three Four Irrevocable Trust, a trust associated with Dr.

Murat Kalayoglu, a co-founder and the former chief executive officer of Old Cartesian, who joined our Board of Directors effective immediately after the effective time of the Merger, providing for the November 2023 Private Placement.

In the November 2023 Private Placement, we issued and sold an aggregate of 149,330.115 shares of Series A Preferred Stock for an aggregate purchase price of $60.25 million, of which 50,189.789 shares of Series A Preferred Stock were issued and sold in the year ended December 31, 2023 for gross proceeds of $20.25 million, and 99,140.326 shares of Series A Preferred Stock were issued and sold subsequent to December 31, 2023 for gross proceeds of $40.0 million.

We previously maintained a term loan of up to $35.0 million, of which $25.0 million was funded in August 2020.

In September 2023, we entered into a payoff letter with Oxford Finance LLC and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for SVBB (as successor to Silicon Valley Bank)), the lenders under the term loan, pursuant to which we paid all outstanding amounts under such term loan, together with accrued interest and a prepayment penalty, resulting in the full extinguishment of such term loan.

The total payoff amount was $22.3 million, consisting of the remaining principal amount due of $19.8 million, the final payment fee of $2.3 million, the prepayment penalty of $0.2 million, and less than $0.1 million of accrued interest.

If in the future we seek debt financing, the terms of such debt could restrict our operating and financial flexibility by imposing liens on our assets and covenants on the operation of our business.

Future funding requirements

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We expect that we will need substantial additional funding to support our continuing operations.

The Certificate of Designation contains a provision granting each holder of the Series A Preferred Stock the option to require us to redeem any or all of such holder’s then-outstanding shares of Series A Preferred Stock beginning on the date that is 18 months following the Closing;

provided, however, that no holder will have the right to seek redemption of any shares of Series A Preferred Stock to the extent that such holder would otherwise be unable to convert such shares of Series A Preferred Stock due to the common stock beneficial ownership limitation applicable to such holder.

The per-share redemption price would be the average closing trading price of the common stock for the ten preceding trading days ending on, and including, the trading day immediately prior to the date a notice of conversion is delivered to us.

We could be required to use a significant

amount of our cash resources on hand to satisfy this redemption obligation, particularly if our stockholders do not ever approve the Conversion Proposal and no shares of Series A Preferred Stock are automatically converted into common stock, or generally if holders of Series A Preferred Stock exercise their redemption right with respect to a significant number of shares of Series A Preferred Stock or at a time when the trading price of our common stock is elevated.

Further, in the event that we do not have sufficient cash on hand to satisfy our redemption obligations, we may need to raise additional capital to satisfy these potential obligations.

Any redemption payments could materially limit the amount of cash we have available to fund our operations and the potential need to redeem shares of Series A Preferred Stock may limit the flexibility with which we seek to operate our business.

As of December 31, 2023, we had an accumulated deficit of $614.6 million.

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

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

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

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

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

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

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

We believe that our existing cash, cash equivalents, and restricted cash as of December 31, 2023 combined with net proceeds from the November 2023 Private Placement received subsequent to December 31, 2023 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months.

We may pursue additional cash resources through public or private equity or debt financings, by establishing collaborations with other companies or through the monetization of potential royalty and/or milestone payments pursuant to our existing collaboration and license arrangements.

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

If actual results are different from management’s estimates, we 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 we are unable to obtain additional funding on a timely basis, we may be forced to

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

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

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

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

• the number of product candidates that we pursue;

• our collaboration agreements remaining in effect, our entering into additional collaboration agreements and our ability to achieve milestones under these agreements;

• the cost of manufacturing clinical supplies of our product candidates;

• the timing for stockholder approval of the conversion of our Series A Preferred Stock into shares of our common stock and any redemptions of Series A Preferred Stock for cash;

• the scope, progress, results and costs of our clinical trials, preclinical development, manufacturing, laboratory testing and logistics;

• the number of product candidates that we pursue and the speed with which we pursue development;

• our headcount growth and associated costs;

• the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates;

• the costs, timing and outcome of regulatory review of our product candidates;

• the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

• the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

• the revenue, if any, from commercial sales of our product candidates for which we receive marketing approval;

• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

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Net cash used in operating activities for the year ended December 31, 2023 was $51.2 million compared to $31.6 million in the same period in 2022.

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

The increase in net cash used in operating activities of $19.6 million was primarily due to $56.2 million of net loss, adjusted for non-cash items, and $5.0 million of cash provided by changes in operating assets and liabilities, in each case during the year ended December 31, 2023.

Investing activities

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

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

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

Net cash provided by investing activities for the year ended December 31, 2023 was $34.6 million compared to net cash used in investing activities of $15.0 million in the same period in 2022, an increase of $49.6 million.

The net cash provided by investing activities for the year ended December 31, 2023 was primarily proceeds from the maturities of marketable securities and cash assumed in the Merger offset by purchases of property and equipment.

The net cash used in investing activities for the year ended December 31, 2022 was to purchase marketable securities and property and equipment, offset by proceeds from the maturities of marketable securities.

Financing activities

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

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

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

Research and development contract obligations

Under our license agreement with MIT, milestone payments are due upon the occurrence of certain events and royalty payments commence upon our commercialization of a product.

As of December 31, 2022, contractual obligations were $0.4 million.

We have assumed license payments are fully offset by royalty payments in 2028.

Net cash used in financing activities for the year ended December 31, 2023 was $13.1 million compared to net cash provided by financing activities of $39.2 million in the same period in 2022, a decrease of $52.3 million.

The net cash used in financing activities for the year ended December 31, 2023 was primarily the result of repayments of principal on outstanding debt and settlement of equity awards in the Merger partially offset by proceeds from the November 2023 Private Placement.

The net cash provided by financing activities for the year ended December 31, 2022 was primarily the result of net proceeds from issuance of common stock and warrants to purchase common stock and the issuance of common stock in the "at-the-market" offering contemplated by the 2021 Sales Agreement.

Recent Accounting Pronouncements

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Off-Balance Sheet Arrangements

As of December 31, 2022, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the Securities and Exchange Commission.

As of December 31, 2023, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Use of Estimates

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Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results.

While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:

While our significant accounting policies are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:

Revenue Recognition

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To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps:

(i) identify the contract(s) with a customer;

(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;

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

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

For example, certain performance obligations associated with the Astellas Agreement, (see Note 14) will be satisfied over time, and revenue will be recognized utilizing the input method.

Collaboration and License Revenue:

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

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

personnel costs, development timelines and probabilities of regulatory success.

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

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

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(iii) royalties on net sales of licensed products;

(iv) reimbursements or cost-sharing of research and development (R&D) expenses;

(iv) reimbursements or cost-sharing of research and development expenses;

and (v) profit/loss sharing arising from co-promotion arrangements.

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

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

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

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, we assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

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

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At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our 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.

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.

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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.

Non-refundable advance clinical payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed.

We also record accruals for estimated ongoing clinical research and development costs.

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

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

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

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

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

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

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

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

In December 2022, we amended the terms of the outstanding 2019 Warrants held by certain members of our Board of Directors to remove the cash settlement provision (as so amended, 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.

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Therefore, the change in fair value of warrant liabilities could be materially different in the future.

Contingent Value Right Liability

The CVRs distributed pursuant to the terms of the CVR Agreement represent financial instruments that are accounted for under the fair value option election in ASC 825, Financial Instruments, or ASC 825.

Under the fair value option election, the CVRs are initially measured at the aggregate estimated fair value of the CVRs and will be subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

The estimated fair value of the CVR liability was determined using the discounted cash flow method to estimate future cash flows associated with the legacy assets, including the expected milestone and royalty payments under the Sobi License, net of deductions.

Changes in fair value of the liability are presented within change in fair value of CVRs in the consolidated statements of operations and comprehensive income (loss).

The liability value is based on significant inputs not observable in the market such as estimated cash flows, estimated

probabilities of success, and risk-adjustment discount rates, which represent a Level 3 measurement within the fair value hierarchy.

Stock-Based Compensation

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis