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Item 7. Management’s Discussion and Analysis

2025-03-13 compared with 2024-03-07 · 189 added, 139 removed, 228 unchanged (59% 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.

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.

Important factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A.

“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 developing mRNA cell therapies for the treatment of autoimmune diseases.

In addition to historical information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

You should review the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We are a clinical-stage biotechnology company pioneering mRNA cell therapy 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.

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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.

In a placebo-controlled Phase 2b clinical trial in patients with myasthenia gravis, or 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 where we observed an average MG-ADL reduction of 5.5 points at Month 4 with a third of patients achieving minimal symptom expression at Month 6 and 80% of participants reaching Month 12 maintained a clinically meaningful response.

Durability of response in MG is commonly measured over a period of 26 to 52 weeks, and maintenance of response over that period is considered durable.

On November 13, 2023, the Company (formerly known as Selecta) merged with the private Delaware corporation which, immediately prior to the Merger, was known as Cartesian Therapeutics, Inc., in accordance with the terms of the Merger Agreement, by and among Selecta, First Merger Sub, Second Merger Sub, and Old Cartesian.

Pursuant to the Merger Agreement, First Merger Sub merged with and into Old Cartesian, pursuant to which Old Cartesian was the surviving corporation and became a wholly owned subsidiary of Selecta.

Immediately following the First Merger, Old Cartesian merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity.

In connection with the Second Merger, Old Cartesian changed its name to Cartesian Bio, LLC.

In connection with the Merger and pursuant to the Merger Agreement, the Company changed its corporate name to Cartesian Therapeutics, Inc.

See Note 4 of the accompanying notes to the consolidated financial statements appearing elsewhere in this Annual Report.

Financial Operations

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

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.

We incurred a net loss of $77.4 million and $219.7 million for the years ended December 31, 2024 and 2023, respectively.

As of December 31, 2024, we had an accumulated deficit of $692.1 million.

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

• hire additional staff, including clinical, scientific and management personnel;

• incur additional costs associated with continuing to operate as a public company.

The following table presents our research and development expenses for the years ended December 31, 2024 and 2023 (in thousands):

Year Ended December 31,

Legacy Selecta programs $ 6,150 $ 31,826

Descartes-08 for MG 12,142 343

Early stage programs 1,028 595

Research and development employee expenses 11,952 18,363

Research and development stock-based compensation expense 3,217 12,985

Research and development facilities and other expenses 10,616 7,148

Total research and development expenses $ 45,105 $ 71,260

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.

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.

Concurrently with the closing of the Merger, we entered into a securities purchase agreement, or the 2023 Securities Purchase Agreement, pursuant to 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 2023 Private Placement.

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

On July 2, 2024, we entered into a securities purchase agreement, or the 2024 Securities Purchase Agreement, for a private investment in public equity financing, or the 2024 Private Placement, which provided for the issuance of 3,563,247 shares of common stock and 2,937,903 shares of Series B Preferred Stock, each at a purchase price of $20.00 per share.

The 2024 Private Placement resulted in gross proceeds of approximately $130.0 million before deducting placement agent fees and other offering expenses.

We granted customary registration rights to investors in connection with the 2024 Private Placement.

We believe that our existing cash, cash equivalents, and restricted cash as of December 31, 2024 will enable us to fund our operating expenses and capital expenditure requirements into mid-2027.

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

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.

and our wholly owned subsidiaries, Selecta (RUS) LLC, a Russian limited liability company, or Selecta (RUS), Selecta Biosciences Security Corporation, a Massachusetts securities corporation which was dissolved in December 2024, 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.

Components of our Results of Operations

Collaboration and license revenue

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

For further description of the agreements underlying our collaboration and license revenue, see Notes 2 and 14 to our consolidated financial statements included elsewhere in this Annual Report.

For further descriptions of the agreements underlying our collaboration and license revenue, see Notes 3 and 14 to our consolidated financial statements included elsewhere in this Annual Report.

Grant revenue

Additionally, we generate grant revenue which consists of funding received to perform specific research and development services under grant arrangements.

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 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.

Our research and development expenses consist of internal and external research and development costs, which primarily include fees paid to contract research organizations, internal manufacturing- and quality-related expenses, process development costs, internal research and development expenses, as well as fees paid to contract manufacturing organizations.

These costs are primarily associated with compensation expenses for our research and development employees, capital equipment and supplies for our process development and manufacturing process, and other related expenses.

Our internal research and development employees as well as our indirect costs are shared across multiple development programs and are not solely dedicated to individual programs.

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.

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.

General and administrative

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Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax and corporate legal services, including intellectual property-related legal services.

Investment income

Investment income consists primarily of interest income earned on our cash, cash equivalents and marketable securities.

Impairment of long-lived assets

Impairment of long-lived assets consists of impairment charges on our long-lived assets.

Interest income

Interest income consists primarily of income earned on our cash, cash equivalents and marketable securities.

Interest expense

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Other income, net

Other income, net consists primarily of sublease income.

Other income, net consists of non-operating income and non-operating expenses.

Change in fair value of warrant liabilities

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.

Common warrants classified as liabilities are remeasured quarterly at fair value 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 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.

dollars to facilitate payments to be settled in U.S.

dollars or other currencies.

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.

dollars and used in transacting the day-to-day operations of our Russian subsidiary are subject to transaction gains and losses, which are reported as incurred.

The contingent value right liability is remeasured quarterly at fair value with the change in fair value recognized as a component of earnings.

Change in fair value of forward contract liabilities

The forward contract liabilities associated with the delayed issuance of the Series A Preferred Stock related to the Merger and 2023 Private Placement are remeasured quarterly and upon settlement at fair value with the change in fair value recognized as a component of earnings.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

Year Ended December 31, Increase (Decrease)

(in thousands, except percentages)

Collaboration and license revenue $ 38,275 $ 26,004 $ 12,271 47 %

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.

Grant revenue 638 — 638 100 %

Total revenue 38,913 26,004 12,909 50 %

Operating expenses:

Research and development 45,105 71,260 (26,155) (37) %

General and administrative 30,126 40,450 (10,324) (26) %

Impairment of long-lived assets 7,579 710 6,869 967 %

Total operating expenses 82,810 112,420 (29,610) (26) %

Operating loss (43,897) (86,416) 42,519 (49) %

Interest income 7,386 4,964 2,422 49 %

Foreign currency transaction, net — 38 (38) (100) %

Interest expense — (2,833) 2,833 (100) %

Change in fair value of warrant liabilities 2,558 12,746 (10,188) (80) %

Change in fair value of contingent value right liability (36,900) (18,300) (18,600) 102 %

Change in fair value of forward contract liabilities (6,890) (149,600) 142,710 (95) %

Other income, net 606 691 (85) (12) %

Loss before income taxes (77,137) (238,710) 161,573 (68) %

Income tax (expense) benefit (287) 19,000 (19,287) (102) %

Net loss $ (77,424) $ (219,710) $ 142,286 (65) %

Collaboration and license revenue

During the year ended December 31, 2024, we recognized $38.3 million of collaboration and license revenue, compared to $26.0 million for the year ended December 31, 2023, an increase of $12.3 million.

The increase was primarily due to an increase in revenue recognized under the Sobi License resulting from the $30.0 million unconstrained development milestone recognized during the year ended December 31, 2024 and recognition of the remaining deferred revenue under the License and Development Agreement, or the Astellas Agreement, with Audentes Therapeutics, Inc., or Astellas, upon notice of termination during the year ended December 31, 2024.

Grant revenue

During the year ended December 31, 2024, we recognized $0.6 million of grant revenue.

We received funding approval from the National Institute of Neurological Disorders and Stroke of the National Institutes of Health, or NINDS, during the year ended December 31, 2024, and there was no grant revenue during the year ended December 31, 2023.

Research and development expenses

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.

The following is a comparison of research and development expenses for the years ended December 31, 2024 and 2023 (in thousands, except percentages):

Year Ended December 31, Increase (Decrease)

Legacy Selecta programs $ 6,150 $ 31,826 $ (25,676) (81) %

Descartes-08 for MG 12,142 343 11,799 3440 %

Early stage programs 1,028 595 433 73 %

Research and development employee expenses 11,952 18,363 (6,411) (35) %

Research and development stock-based compensation expense 3,217 12,985 (9,768) (75) %

Research and development facilities and other expenses 10,616 7,148 3,468 49 %

Total research and development expenses $ 45,105 $ 71,260 $ (26,155) (37) %

For the year ended December 31, 2024, our research and development expenses were $45.1 million, compared to $71.3 million for the year ended December 31, 2023, a decrease of $26.2 million.

The expenses associated with legacy Selecta programs decreased $25.7 million due to the wind down of the legacy Selecta programs as part of our strategic reprioritization.

The increase in expenses for Descartes-08 for MG was primarily related to the expenses for the ongoing Phase 2b trial and the preparations for the Phase 3 AURORA trial that were incurred following the Merger.

Our research and development employee expenses decreased $6.4 million due to a one-time cash charge to salaries and benefits as a result of our restructuring in 2023.

The decrease in our research and development stock-based compensation expense was primarily the result of the settlement of equity compensation awards in connection with the Merger.

The increase in our research and development facilities and other expenses was primarily the result of our lease of integrated manufacturing and office space in Frederick, Maryland that commenced May 2024.

General and administrative 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 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.

Foreign currency transaction gain (loss)

We recognized de minimis foreign currency translation adjustments during each of the years ended December 31, 2023 and 2022.

For the year ended December 31, 2024, our general and administrative expenses were $30.1 million, compared to $40.5 million for the year ended December 31, 2023, a decrease of $10.4 million.

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

Impairment of long-lived assets

During the year ended December 31, 2024, our impairment of long-lived assets was $7.6 million, compared to $0.7 million for the year ended December 31, 2023, an increase of $6.9 million.

During the year ended December 31, 2024, we recorded a full impairment charge of $7.6 million after evaluating the right-of-use assets and related furniture and fixtures upon our decision to cease use of our office and laboratory space at 65 Grove Street, Watertown, Massachusetts.

During the year ended December 31, 2023, we recorded an impairment charge of $0.7 million related to the partial impairment of a right-of-use asset at 65 Grove Street, Watertown, Massachusetts.

Interest income

Interest income for the year ended December 31, 2024 was $7.4 million, compared to $5.0 million for the year ended December 31, 2023, an increase of $2.4 million.

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

Interest expense

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%.

During the year ended December 31, 2024, we recognized no interest expense.

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, 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%.

For the year ended December 31, 2024, we recognized $2.6 million of income from the decrease in the fair value of warrant liabilities, compared to $12.7 million for the year ended December 31, 2023, a decrease of $10.1 million.

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.

The decrease in warrant value was primarily driven by a decrease in the per-share price of our common stock and the expiration of the warrants we issued in 2019, or the 2019 Warrants, during the year ended December 31, 2024.

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.

For the year ended December 31, 2024, we recognized $36.9 million of expense associated with the increase in the fair value of contingent value right liability, compared to $18.3 million of expense for the year ended December 31, 2023, an increase of $18.6 million.

The fair value of the contingent value right liability as of December 31, 2024 was determined

utilizing a Monte Carlo simulation model and as of December 31, 2023 was determined utilizing a discounted cash flow valuation methodology.

The increase in the fair value of CVR liability was primarily due to changes in the amount and timing of anticipated payments and the passage of time.

Change in fair value of forward contract liabilities

For the year ended December 31, 2024, we recognized $6.9 million of expense associated with the increase in the fair value of Series A Preferred Stock forward contract liabilities, compared to $149.6 million of expense for the year ended December 31, 2023, a decrease of $142.7 million.

The increase in the fair value of the Series A Preferred Stock forward contract liabilities during the year ended December 31, 2023 was primarily driven by an increase in the per-share price of our common stock since the date of the Merger and 2023 Private Placement.

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

The increase in the fair value of the Series A Preferred Stock forward contract liabilities during the year ended December 31, 2024 was primarily driven by an increase in the per-share price of our common stock since December 31, 2023 through settlement.

The remaining Series A Preferred Stock forward contract liability was settled during the year ended December 31, 2024.

Other income, net

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.

During the year ended December 31, 2024, we recognized other income, net of $0.6 million, compared to $0.7 million for the year ended December 31, 2023, a decrease of $0.1 million.

The decrease was primarily driven by a decrease in sublease income.

The terms of our subleases expired during the year ended December 31, 2024.

During the year ended December 31, 2024, we recognized a deferred tax expense of $0.3 million relating to a change in state tax rate applied to the indefinite deferred tax liability.

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

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

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

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

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

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.

Our cash, cash equivalents, and restricted cash were $214.3 million as of December 31, 2024, of which $1.7 million was restricted cash related to lease commitments.

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.

The 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.

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Collaboration and License Agreements

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.

In September 2023, we entered into the Biogen 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.

Effective September 2019, we entered into the NCI 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.

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.

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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.

Additionally, in October 2021, we entered into an Exclusive License Agreement with Genovis AB (publ.), or 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, a bacterial IgG protease, to Astellas, we made a $4.0 million payment to Genovis.

The Genovis Agreement was terminated effective September 13, 2024.

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

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

The Astellas Agreement was terminated effective June 6, 2024.

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.

Amounts paid and remaining obligations with regard to the Xork product candidate not reimbursed by Astellas through the Astellas Agreement were subject to potential reimbursement through deductions to CVR distributions as described in Note 6 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, or Takeda.

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.

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

In July 2024, we received $30.0 million for the milestone associated with the initiation of a rolling biologics license application to the FDA for SEL-212 for the potential treatment of chronic refractory gout by Sobi.

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.

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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.

Sarepta paid us a $2.0 million upfront payment upon closing and $3.0 million for the achievement of certain preclinical 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 March 2023, we were notified by Sarepta that Sarepta would not be exercising its exclusive option under the Sarepta Agreement.

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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.

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 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.

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

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

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 aggregate gross sales proceeds of up to $75.0 million.

During the years ended December 31, 2024 and 2023, we sold no shares of our common stock pursuant to the 2021 Sales Agreement.

On December 13, 2024, we and Leerink Partners entered into a Sales Agreement, or the 2024 Sales Agreement.

The 2024 Sales Agreement supersedes the 2021 Sales Agreement, which is no longer in effect.

Under the 2024 Sales Agreement, we may issue and sell shares of our common stock, from time to time, through Leerink Partners for aggregate gross sales proceeds of up to $100.0 million.

On November 13, 2023, we entered into the 2023 Securities Purchase Agreement with (i) Dr.

Springer, a member of our Board of Directors;

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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.

In the 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 during the year ended December 31, 2024 for gross proceeds of $40.0 million.

On July 2, 2024, we entered into the 2024 Securities Purchase Agreement for the 2024 Private Placement with certain institutional and accredited investors, or the Purchasers.

In the 2024 Private Placement, we issued and sold an aggregate of 3,563,247 shares of common stock and 2,937,903 shares of Series B Preferred Stock for which we generated gross proceeds of approximately $130.0 million.

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

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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, 2024, we had an accumulated deficit of $692.1 million.

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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 believe that our existing cash, cash equivalents, and restricted cash as of December 31, 2024 will enable us to fund our operating expenses and capital expenditure requirements into mid-2027.

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.

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

• 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;

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• the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates.

Cash Requirements due to Contractual Obligations and Other Commitments

We are under agreement to lease approximately 32,294 square feet of laboratory and office space in Watertown, Massachusetts through May 2028.

Remaining lease payments from December 31, 2024 through the end of the lease term total approximately $9.7 million.

Payments made and remaining obligations on this lease liability are subject to potential reimbursement through deductions to CVR distributions as described in Note 6 to our consolidated financial statements included elsewhere in this Annual Report.

In November 2023, in connection with the Merger, we acquired two leases for office and laboratory space in Gaithersburg, Maryland, which expire in January 2027.

Annualized rent is approximately $0.3 million and remaining lease payments from December 31, 2024 through the end of the lease term total approximately $0.7 million.

In February 2024, we entered into an agreement to lease approximately 19,199 square feet of integrated manufacturing and office space in Fredericksburg, Maryland.

In May 2024, we entered into an amendment to lease an additional approximately 7,842 square feet at the same site.

In August 2024, we entered into a second amendment to lease an additional approximately 2,009 square feet at the same site.

The lease, as amended, expires in June 2031.

Annualized base rent under the leases is approximately $1.2 million and is subject to annual increases in accordance with the terms of the lease agreement.

The leases provide for a tenant improvement allowance of $0.8 million.

Remaining lease payments from December 31, 2024 through the end of the lease term total approximately $8.1 million.

We are also party to certain license and collaboration agreements with Biogen, NCI, and Shenyang Sunshine Pharmaceutical Co., Ltd., or 3SBio.

We may be obligated to make certain future payments which are contingent upon future events such as our achievement of specified regulatory and commercial milestones, or royalties on net product sales under these agreements.

As of December 31, 2024, we were unable to estimate the timing or likelihood of achieving these milestones or

generating future product sales.

Payments made and remaining obligations on the license agreement with 3SBio are subject to potential reimbursement through deductions to CVR distributions as described in Note 6 to our consolidated financial statements included elsewhere in this Annual Report.

Summary of Cash Flows

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(In thousands) 2024 2023

Cash (used in) and provided by:

Cash provided by and (used in):

Operating activities $ (23,674) $ (51,161)

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Net cash used in operating activities for the year ended December 31, 2024 was $23.7 million compared to $51.2 million in the same period in 2023.

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.

The decrease in net cash used in operating activities of $27.5 million was primarily due to $17.9 million of net loss, adjusted for non-cash items, and $5.8 million of cash used in changes in operating assets and liabilities, in each case during the year ended December 31, 2024 compared to $56.1 million of net loss, adjusted for non-cash items, and $4.9 million of cash provided by changes in operating assets and liabilities during the year ended December 31, 2023.

Investing activities

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.

Net cash used in investing activities for the year ended December 31, 2024 was $8.7 million compared to net cash provided by investing activities of $34.6 million in the same period in 2023, a decrease of $43.3 million.

The net cash used in investing activities for the year ended December 31, 2024 consisted primarily of purchases of property and equipment.

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 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.

Net cash provided by financing activities for the year ended December 31, 2024 was $168.4 million compared to net cash used in financing activities of $13.1 million in the same period in 2023, an increase of $181.5 million.

The net cash provided by financing activities for the year ended December 31, 2024 was primarily the result of proceeds of the 2024 Private Placement and the 2023 Private Placement.

Recent Accounting Pronouncements

For a discussion of recently adopted or issued accounting pronouncements please see Note 2 to our consolidated financial statements included elsewhere in this Annual Report.

For a discussion of recently adopted or issued accounting pronouncements refer to Note 3 to our consolidated financial statements included elsewhere in this Annual Report.

Off-Balance Sheet Arrangements

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Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S.

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S.

The preparation of these consolidated financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements.

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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

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 Topic 825, Financial Instruments (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 a discounted cash flow methodology as of December 31, 2023 and a Monte Carlo simulation model as of December 31, 2024 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 CVR liability are presented in the consolidated statements of operations and comprehensive loss.

The liability value is based on significant inputs not observable in the market such as estimated cash flows, estimated probabilities of success, expected volatility of future revenues (Monte Carlo simulation model) and risk-adjustment discount rates (discounted cash flow methodology), which represent a Level 3 measurement within the fair value hierarchy.

Collaboration and License 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.

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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 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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We evaluate the measure of progress each reporting period and, if necessary, adjust 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 should be accounted for as separate performance obligations.

Optional licenses are evaluated to determine if

they are issued at a discount, and therefore, represent material rights and should be accounted for as separate performance obligations.

Milestone Payments:

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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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Warrant Liabilities

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

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

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

The outstanding 2019 Warrants expired on December 23, 2024 in accordance with their terms.

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, 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 (as so amended, the Amended 2019 Warrants).

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

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company under the rules of the Securities Act and the Exchange Act and are not required to provide this information required under this item.

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