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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-16 · 872 added, 121 removed, 273 unchanged (78% of the section changed)

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The burden of diseases that can be addressed at their root cause through engineered cells is significant .

We view engineered cells as having the potential to be as therapeutically disruptive as biologics to clinical practice.

Our long-term aspirations are to be able to control or modify any gene in the body, to replace any cell that is damaged or missing, and to markedly improve access to cellular and gene-based medicines.

We have brought together an experienced group of scientists, engineers, and company builders and combined them with the necessary technologies to move this vision forward.

We are developing ex vivo and in vivo cell engineering platforms to revolutionize treatment across a broad array of therapeutic areas with unmet treatment needs, including oncology, diabetes, central nervous system disorders, cardiovascular diseases, and genetic disorders, among others.

Our platform progress, broad capabilities, and strong balance sheet enable us to execute on a broad vision.

We expect clinical data from our first program, our CD19-targeted allogenic chimeric antigen receptor (CAR) T (SC291) program, in 2023.

We also continue to make progress on developing our cell engineering platforms and advancing our product candidates through preclinical development, with the goal of multiple investigational new drug (IND) submissions in 2023 and beyond.

Frequently in disease, cells are damaged or missing entirely, and an effective therapy needs to replace the entire cell, an approach referred to as cell therapy or ex vivo cell engineering.

A successful therapeutic requires an ability to manufacture cells at scale that engraft, function, and have the necessary persistence in the body.

Of these requirements, long-term persistence related to overcoming immunologic rejection of another person’s cells has been the most challenging, which has led many to focus on autologous, or a patient’s own, cells as the therapeutic source.

However, autologous therapies require a complex process of harvesting cells from the patients, manipulating them outside the body, and returning them to the patient.

Products using this approach have had to manage significant challenges such as scalability, product variability, product quality, cost, patient accessibility, and limits on number of cell types that are amenable to this approach.

Given these limitations, rather than using autologous cells to overcome immune rejection, we have invested in creating hypoimmune cells that can “hide” from the patient’s immune system.

We are striving to make therapies that use pluripotent stem cells with our hypoimmune genetic modifications as the starting material, which we then differentiate into a specific cell type, such as a pancreatic islet cell, before treating the patient.

Additionally, there are cell types for which effective differentiation protocols from a stem cell have not yet been developed, such as T cells.

For these cell types, instead of starting from a pluripotent stem cell, we can use allogeneic, fully-differentiated cells sourced from a donor as the starting material to which we then apply our hypoimmune genetic modifications.

The process of repairing and controlling genes in the body, referred to as gene therapy or in vivo cell engineering, requires in vivo delivery of a therapeutic payload and modification of the genome.

There are multiple methods available to modify the genome, but limited ability to deliver therapeutic payloads in vivo .

Thus, delivery of a therapeutic payload is at the core of our strategic focus, with our ultimate goal being the delivery of any payload to any cell in a specific and repeatable way.

Our initial effort is on cell-specific delivery and increasing the diversity and size of payloads.

Using our fusogen technology, we have shown in preclinical studies that we can specifically target numerous cell surface receptors that, when combined with delivery vehicles to form fusosomes, allow cell-specific delivery across multiple different cell types.

We have initially chosen to focus this technology on delivering payloads to T cells, hepatocytes, and hematopoietic stem cells.

We view engineered cells as having the potential to be as therapeutically disruptive as biologic drugs to clinical practice.

The key to making this vision a reality will be finding consistent and scalable means of manufacturing cell-based medicines, and we have invested significantly in our hypoimmune platform (HIP) technology with the twin goals of using allogeneic cells that evade immune detection in patients and that we can manufacture at scale.

We are developing cell engineering programs to revolutionize treatment across a broad array of therapeutic areas with unmet treatment needs, including oncology, diabetes, B-cell-mediated autoimmune, and central nervous system disorders, among others.

We currently have four clinical trials that are ongoing, or that we expect to commence in the near-term, evaluating our product candidates, or product candidates developed using our technologies, across seven diseases in multiple therapeutic areas, including B-cell malignancies, B-cell-mediated autoimmune disease, and type 1 diabetes, as described below.

• ARDENT is an ongoing Phase 1 clinical trial evaluating SC291, our HIP-modified CD19 targeted allogeneic chimeric antigen receptor (CAR) T program, in B-cell malignancies, including non-Hodgkin’s lymphoma and chronic lymphoblastic leukemia;

• GLEAM is a Phase 1 clinical trial evaluating SC291 in patients with lupus nephritis, extrarenal lupus, and antineutrophil cytoplasmic antibody (ANCA)-associated vasculitis;

• VIVID is a Phase 1 clinical trial evaluating SC262, our HIP-modified CD22 CAR T program, in patients with relapsed or refractory B-cell malignancies who have received prior CD19 CAR T therapy;

• Investigator-sponsored first-in-human study (IST) evaluating UP421 an allogeneic, primary islet cell therapy engineered with our HIP technology, in patients with type 1 diabetes mellitus.

We seek to overcome several existing limitations of gene and cell therapy through our ex vivo and in vivo cell engineering platforms, both of which may facilitate the development of therapies that can transform the lives of patients by repairing cells in the body when possible and replacing them when needed.

For ex vivo therapies, when diseased cells are damaged or missing entirely and an effective therapy needs to replace the entire cell, a successful therapeutic requires large-scale manufacturing of cells that engraft, function, and persist in the body.

Of these, we view cell persistence as the greatest current limitation to dramatically expanding the impact of this class of therapeutics, and in particular, overcoming the barrier of immune rejection of transplanted allogeneic cells.

We believe that product candidates developed with our ex vivo cell engineering platform, which uses HIP-modified allogeneic cells that can “hide” from the patient’s immune system, can address this fundamental limitation and unlock a wave of disruptive therapeutics.

We refer to this technology as our hypoimmune platform.

For in vivo therapies that aim to repair and control genes in the body, a successful product candidate requires both gene modification and in vivo delivery of the therapeutic payload.

Of these, we view effective in vivo delivery as the greatest current limitation to dramatically expanding the impact of this class of therapeutics.

To this end, our initial focus is on cell-specific delivery of genetic payloads.

Based upon early clinical as well as extensive preclinical data from our HIP platform, we decided in October 2023 to focus a meaningful portion of our research and development resources for at least the next several years ion HIP-modified ex vivo manufactured cells as therapeutics.

We believe the time is right to develop engineered cell therapies across a broad range of therapeutic areas.

Substantial progress in the understanding of genetics, gene editing, gene control, protein engineering, stem cell biology, immunology, process analytics, and computational biology have converged to create an opportunity to markedly increase the breadth and depth of the potential impact of genetic and cellular medicines.

We are focused on creating transformative ex vivo and in vivo engineered cell therapies across a range of therapeutic areas.

Substantial progress in the understanding of genetics, gene editing, protein engineering, stem cell biology, immunology, process analytics, and computational biology have converged to create an opportunity to markedly increase the breadth and depth of the potential impact of cellular medicines.

We continue to make progress developing our ex vivo cell engineering platforms – our hypoimmune allogeneic CAR T cell platform and our stem-cell derived platform that also leverages our HIP technology.

We are in the early stages of development across a broad pipeline of product candidates, which are summarized below:

We continue to make progress developing our cell engineering platforms – our hypoimmune allogeneic CAR T platform, our stem-cell derived platform that also leverages our hypoimmune technology, and our in vivo fusogen platform.

In early 2023, the FDA cleared our first IND submission for our SC291 program and we continue advancing our other product candidates through preclinical development toward potential IND submissions in 2023 and beyond.

We expect initial clinical data for our SC291 program in 2023.

We also expect clinical data in 2023 from an Investigator Sponsored Trial (IST) leveraging our hypoimmune technology.

The IST aims to treat type 1 diabetes using hypoimmune-modified cadaveric primary islet cells.

The clinical data from SC291 and the primary islet IST each offer the potential of human proof of concept for our hypoimmune platform and may unlock learnings for our allogeneic CAR T and stem-cell derived programs approaching IND filings in the coming years.

We continue to advance our hypoimmune allogeneic CAR T platform with a planned IND in 2023 for our hypoimmune-modified CD22-targeted allogeneic CAR T (SC262) with the potential to treat blood cancer patients with previous CD19 treatment failures, followed by a potential IND in 2024 for a hypoimmune-modified BCMA-targeted allogeneic CAR T (SC255) for treatment of multiple myeloma.

These programs both use clinically validated CAR constructs and use the same hypoimmune technology as our SC291 program.

From our stem-cell derived platform, we expect to file an IND as early as 2024 for our stem-cell derived beta islet program (SC451) with the potential to treat type 1 diabetes.

The SC451 program also leverages our hypoimmune platform.

The goal of SC451 is to transplant hypoimmune-modified islet cells with no immunosuppression into patients with type 1 diabetes so that these cells produce insulin in a physiologic manner in response to glucose.

Our in vivo CAR T with CD8-targeted fusogen delivery of a CD19-targeted CAR (SG299) has the potential to generate CAR T cells in vivo , which would potentially reduce or eliminate the need for conditioning chemotherapy and complex CAR T cell manufacturing.

We have demonstrated the ability to safely and selectively deliver the CAR gene to T cells in vivo and to generate

active CAR T cells in multiple preclinical models.

Recently, our scientists have made progress in a second-generation manufacturing process that results in at least a 50X improvement in product potency, which we believe has the potential to translate into better efficacy, safety, and long-term manufacturability.

In the fourth quarter of 2022, we decided to bring this second-generation process forward for our first-in-human studies in patients with B cell malignancies.

W e plan to file an IND in 2023 for SG299.

We continue to make progress on developing our cell engineering platforms and advancing our product candidates through preclinical development and towards potential IND submissions in 2023 and beyond.

Based on our current timelines for our lead programs, we believe our cash runway will enable multiple data readouts across our platforms.

Each of our initial programs provides the potential for meaningful standalone value while also supporting our potential ability to further exploit our platforms in a manner that leads to the development of broadly applicable medicines.

Based on our current timelines for our lead programs, we believe our cash runway will enable multiple data readouts across our programs.

In 2023 and 2024, the FDA cleared our Investigational New Drug (IND) applications for each of the ARDENT, GLEAM, and VIVID trials, and we supported the submission of a clinical trial application for an IST, which was authorized by the Swedish Medical Products Agency.

These four trials will evaluate our product candidates across seven diseases in multiple therapeutic areas, including B-cell malignancies, B cell-mediated autoimmune diseases, and type 1 diabetes.

We expect to share data from each of these trials in 2024.

Additionally, we continue to make progress on advancing our research- and preclinical-stage product candidates into and through preclinical development and toward potential IND submissions in 2024 and beyond.

As certain of our product candidates advance toward potential IND submissions, we are conducting good laboratory practices toxicity studies and establishing necessary scale-up for our manufacturing processes.

Given the depth and breadth of our portfolio, we expect to assess and prioritize our programs on an ongoing basis based on various factors, including internal and external opportunities and constraints, which may result in our decision to advance certain programs ahead or instead of others.

As certain of our product candidates advance towards potential IND submissions, we are conducting GLP toxicity studies and establishing necessary scale-up for our manufacturing processes.

For details regarding our product candidates, see the section titled “Business— Overview” in Part I, Item 1 included elsewhere in this Annual Report.

For details regarding our product candidates and programs, see the section titled “Business— Overview” in Part I, Item 1 included elsewhere in this Annual Report.

Our ex vivo and in vivo technologies represent an aggregation of years of innovation and technology from multiple academic institutions and companies, including hypoimmune technology licensed from the President and Fellows of Harvard College (Harvard) and The Regents of the University of California, our ex vivo cell engineering program focused on certain brain disorders acquired from Oscine Corp., fusogen technology acquired from Cobalt Biomedicines Inc.

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For details regarding these acquisitions and license and collaboration agreements, see Note 3, Acquisitions and Note 4, License and collaboration agreements, to our consolidated financial statements included in this Annual Report, as well as the section titled “Business— Key Intellectual Property Agreements” in Part I, Item 1 included elsewhere in this Annual Report.

Our operations to date have included developing our ex vivo and in vivo cell engineering platforms, identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, preparing for clinical trials of our product candidates, acquiring technology, organizing and staffing the company, business planning, establishing and maintaining our intellectual property portfolio, raising capital, and providing general and administrative support for these operations.

Our operations to date have included developing our ex vivo and in vivo cell engineering platforms, identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, conducting clinical trials of our product candidates, supporting clinical trials of product candidates developed using our technologies, acquiring technology, organizing and staffing the company, business planning, establishing and maintaining our intellectual property portfolio, raising capital, and providing general and administrative support for these operations.

All of our programs are currently in the development stage, and we do not have any products approved for sale.

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Our net losses for the years ended December 31, 2023, 2022, and 2021 were $283.3 million, $269.5 million, and $355.9 million, respectively.

As of December 31, 2022, we had an accumulated deficit of $1.1 billion.

As of December 31, 2023, we had an accumulated deficit of $1.3 billion, which includes cumulative non-cash charges of $10.3 million and $58.3 million related to the revaluation of the success payment and contingent consideration liabilities, respectively.

Our net losses resulted primarily from our research and development programs, and, to a lesser extent, general and administrative costs associated with our operations.

In addition, as of December 31, 2022, the accumulated deficit of $1.1 billion includes non-cash charges of $18.6 million and $99.1 million related to the revaluation of the success payment liabilities and contingent consideration, respectively.

In February 2021, we completed our initial public offering (IPO) and issued 27.0 million shares of our common stock, including 3.5 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $25.00 per share and received net proceeds of $626.4 million.

Prior to the IPO, we funded our operations from the issuance and sale of our convertible preferred stock, raising an aggregate of $705.5 million in gross proceeds.

In February 2024, we completed an underwritten public offering pursuant to which we sold 21.8 million shares of our common stock, including 4.5 million shares pursuant to the full exercise of the underwriters' option to purchase additional shares, and pre-funded warrants to purchase 12.7 million shares of our common stock for net proceeds of approximately $179.9 million, after deducting underwriting discounts and commissions and estimated offering expenses.

In August 2022, we entered into a sales agreement with Cowen and Company, LLC (Cowen), acting as sales agent, pursuant to which we may offer and sell through Cowen up to $150.0 million in shares of our common stock from time to time in a series of one or more at the market equity offerings (collectively, the ATM facility).

To date we sold an aggregate of 4.9 million shares of our common stock under the ATM facility for net proceeds of $28.7 million after deducting commissions and expenses.

In February 2021, we completed our initial public offering (IPO) and issued 27.0 million shares of our common stock, including 3.5 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, for net proceeds of $626.4 million after deducting underwriting discounts and commissions and estimated offering expenses.

Prior to the IPO, we funded our operations from the issuance and sale of our convertible preferred stock, raising an aggregate of $705.0 million in net proceeds.

As of December 31, 2023, we had cash, cash equivalents, and marketable securities of $205.2 million.

Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.

We expect our operating losses and expenses to remain relatively flat over the next few years.

If our clinical trials are successful, our operating losses and expenses will likely increase over the longer term as we expand our research and development efforts.

If we expand our research and development efforts, cost increases would be driven in large part by advancing our current and future product candidates through clinical trials;

We expect our operating losses and expenses to decrease in 2024, excluding potential one-time items, as a result of our strategic repositioning in October 2023, and likely increase over the longer term from the 2024 level if our clinical trials are successful, and if we expand our research and development efforts.

Cost increases would be driven in large part by advancing our current and future product candidates into and through clinical trials;

identifying additional product candidates;

establishing our manufacturing capabilities, including through third-party contract development and manufacturing organizations and building our internal manufacturing capabilities;

establishing our manufacturing capabilities, including through third-party contract development and manufacturing organizations (CDMOs) and building our internal manufacturing capabilities;

advancing preclinical development of our current and future product candidates;

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and continuing to incur legal, accounting, or other expenses to operate our business, including the costs associated with being a public company.

We continue to invest in building world class capabilities in key areas of manufacturing sciences and operations, including development of our ex vivo and in vivo cell engineering platforms, product characterization, and process analytics.

We continue to invest in building world class capabilities in key areas of manufacturing sciences and operations, including development of our cell engineering platforms, product characterization, and process analytics.

Our investments also include scaled research solutions, scaled infrastructure, and novel technologies to improve efficiency, characterization, and scalability of manufacturing, including establishing our internal manufacturing capabilities.

In November 2022, we underwent a portfolio prioritization and corporate restructuring designed to optimize development of our programs at or nearing clinical development, to continue investments in our core research platforms and innovation, and to maintain a strong balance sheet.

That process was substantially completed in 2022 and resulted in a reduction of our workforce by approximately

During the year ended December 31, 2022, we recognized one-time charges of $6.8 million related to employee severance, benefits and related costs, and a non-cash stock-based compensation charge of $1.9 million related to equity awards for employees impacted by the r estructuring in general and administrative expense.

In October 2023, we announced a strategic repositioning to increase our focus on our ex vivo cell therapy product candidates.

As a result, we reduced our near-term investment in our fusogen platform for in vivo gene delivery, including by delaying the IND submission for our SG299 program.

The strategic repositioning resulted in a workforce reduction of approximately 29%.

We incurred approximately $5.2 million of cash-based expenses related to employee severance, benefits, and related costs.

The strategic repositioning and associated workforce reduction is substantially complete, and is expected to result in 2024 operating cash burn of less than $200.0 million.

We anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates.

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Macroeconomic Considerations

Our business and operations may be negatively affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as rising inflation, rising interest rates, declines in consumer confidence, declines in economic growth, uncertainty in the markets, the ongoing Russia-Ukraine war, tensions in U.S.-China relations, and the COVID-19 pandemic along with its aftermath.

Our business and operations may be negatively affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as the timing of changes to inflation and interest rates, declines in consumer confidence, declines in economic growth, uncertainty in the markets, geo-political and economic stability resulting from the ongoing Russia-Ukraine war, conflict in the Middle East, tensions in U.S.-China relations, and the aftermath of the COVID-19 pandemic.

The severity and duration of the impact of these events and conditions on our business cannot be predicted and may not be fully reflected in our results of operations until future periods.

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Cobalt success payment and contingent consideration

Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are obligated to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $500.0 million upon our achievement of certain pre-specified development milestones and a success payment (Cobalt Success Payment) of up to $500.0 million, each of which is payable in cash or stock.

Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are obligated to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $500.0 million upon our achievement of certain specified development milestones and a success payment (Cobalt Success Payment) of up to $500.0 million, each of which is payable in cash or stock.

The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, our market capitalization equals or exceeds $8.1 billion, and we are advancing a program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a biologics license application or new drug application for a product based on the fusogen technology.

The Cobalt Success Payment can be achieved over a maximum of 20 years from the date of the acquisition, but this period could be shorter upon the occurrence of certain events.

A valuation measurement date would also be triggered upon a change of control if at least one of our programs based on the fusogen technology is the subject of an active research program at the time of such change of control.

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The potential Harvard Success Payments are based on multiples of increasing value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of $4.00 per share at ongoing pre-determined valuation measurement dates.

The Harvard Success Payments can be achieved over a maximum of 12 years from the

effective date of the agreement.

The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement.

If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed.

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Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, including CDMO manufacturing costs (including pass-through costs) and clinical trial costs, costs for laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, and facility expenses, including rent, depreciation, and allocated overhead costs.

The timing and amount of costs to acquire and license technologies in the future cannot be reliably estimated and may fluctuate from quarter to quarter and year to year.

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Research and development activities account for a significant portion of our operating expenses.

We anticipate that our research and development expenses will remain relatively flat over the next few years.

If our clinical trials are successful, our research and development expenses will likely increase over the longer term.

If we expand our research and development capabilities, cost increases would be driven in large part by advancing our current and future product candidates through clinical trials;

As a result of our strategic repositioning in October 2023, we anticipate that our research and development expenses will decrease in 2024, excluding potential one-time items, and likely increase over the longer term from the 2024 level if our clinical trials are successful and if we expand our research and development efforts.

Cost increases would be driven in large part by advancing our current and future product candidates into and through clinical trials;

identifying additional product candidates;

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Research and development related success payments and contingent consideration

Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities and our Cobalt Contingent Consideration liability.

Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt and Harvard Success Payment liabilities and Cobalt Contingent Consideration liability.

The expense or gain associated with our research and development related success payments and contingent consideration is unpredictable, in part, because our success payments are impacted by changes in our common stock price and market capitalization at the end of each reporting period, and may continue to vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations.

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Legal fees include those related to corporate and patent matters.

Included in general and administrative expenses for the twelve months ended December 31, 2022, are costs related to the November 2022 restructuring and construction in progress costs incurred in connection with the write-off of our previously planned manufacturing facility in Fremont, California (the Fremont facility).

We anticipate that our general and administrative expenses will remain relatively flat over the next few years.

Included in general and administrative expenses for the year ended December 31, 2023, are costs related to our strategic repositioning and associated workforce reduction in October 2023 and costs incurred for the early termination of the lease (Fremont lease) for our previously planned manufacturing facility in Fremont, California (Fremont facility).

Included in general and administrative expenses for the year ended December 31, 2022, are costs related to our portfolio prioritization and corporate restructuring in November 2022 and the write-off of construction in progress costs incurred in connection with the Fremont facility.

As a result of our strategic repositioning and associated workforce reduction in October 2023, we anticipate that our general and administrative expenses will decrease in 2024, excluding potential one-time items, and likely increase over the longer term from the 2024 level to support potential expanded research and development activities.

Results of operations

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Interest income, net

Other income, net

Other expense, net

Research and development expenses

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Research, development, and laboratory

Facility and other allocated expenses

Third-party manufacturing

Licensing of technology

Impairment of lab equipment and leasehold improvements

Facility and other allocated costs

Total research and development expense

Research and development expense was $268.8 million and $285.9 million for the years ended December 31, 2023 and 2022, respectively.

The increase of $37.3 million was primarily due to:

increased personnel-related expenses of $32.2 million, including an increase in non-cash stock-based compensation of $11.3 million, which was primarily attributable to an increase in headcount to expand our research and development capabilities;

an increase of $16.6 million in research, development, and laboratory costs;

an increase of $16.5 million primarily related to allocated personnel costs, depreciation expense, and facility and software costs;

an increase of $16.2 million in third-party manufacturing costs for CDMOs, including pass-through costs for materials.

These increases were offset by a decrease of $45.6 million in costs to license technology.

Licensing costs included an upfront payment of $6.0 million in 2022 related to licensing technology for our CD22 and BCMA programs compared to an upfront payment of $50.0 million in 2021 related to licensing Beam’s gene editing technology.

The decrease of $17.1 million was primarily due to:

• a decrease of $10.3 million in research and laboratory costs, primarily due to our strategic repositioning in 2022 and 2023, partially offset by an increase in clinical development costs as more programs move into the clinic;

• a decrease of $7.1 million in third-party manufacturing costs for CDMOs, including pass-through costs for materials;

• a decrease of $5.8 million in costs to license technology for our CD22 and BCMA programs;

• a decrease of $4.3 million in personnel-related costs, including $3.3 million in non-cash stock-based compensation expense.

These decreases were partially offset by $7.0 million for the impairment of certain lab equipment and leasehold improvements, primarily related to the strategic repositioning in October 2023.

Research and development related success payments and contingent consideration

The following table summarizes the expenses (gains) associated with research and development related success payments and contingent consideration for the periods presented:

The following table summarizes the gains associated with research and development related success payments and contingent consideration for the periods presented:

Year Ended December 31,

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Total research and development related success payments and contingent consideration

The gain related to the change in the estimated fair value of our Cobalt Success Payment was $69.3 million for the year ended December 31, 2022, compared to an expense of $23.6 million for the same period in 2021.

The change in value was due to the reduction in our market capitalization offset by progress toward filing an IND for SG299 during the relevant period.

The gain related to the change in the estimated fair value of our Harvard Success Payments was $12.2 million for the year ended December 31, 2022, compared to an expense of $2.4 million for the same period in 2021.

The change in value was due to changes in our common stock price during the relevant period.

The gain related to the change in the estimated fair value of our Cobalt Contingent Consideration was $3.4 million for the year ended December 31, 2022, compared to an expense of $31.8 million for the same period in 2021.

The change in value was primarily due to variability of the discount rates used in the calculation offset by scientific progress toward the achievement of milestones during the relevant period.

The gains related to the change in the estimated fair value of our Cobalt Success Payment were $7.9 million and $69.3 million for the years ended December 31, 2023 and 2022, respectively.

The changes in value were primarily due to changes in our market capitalization during the relevant periods, and for 2023, the reduction of our near-term investment in our fusogen program in connection with our strategic repositioning.

The gains related to the change in the estimated fair value of our Harvard Success Payments were $0.3 million and $12.2 million for the years ended December 31, 2023 and 2022, respectively.

The change in value were primarily due to changes in our common stock price during the relevant periods.

The gains related to the change in the estimated fair value of our Cobalt Contingent Consideration were $40.8 million and $3.4 million for the years ended December 31, 2023 and 2022, respectively.

The changes in value were due to the reduction of our near-term investment in our fusogen programs, including delaying the IND for SG299, which impacted the timing and probability of the achievement of milestones.

General and administrative expenses

General and administrative expenses were $71.6 million and $50.4 million, respectively, for the years ended December 31, 2022 and 2021.The increase of $21.2 million was primarily due to costs related to the November 2022 restructuring of $8.7 million, including non-cash stock-based compensation of $1.9 million, the write-off of $4.5 million of construction in progress costs incurred in connection with the Fremont facility, an increase in personnel-related costs of $4.0 million primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, operating costs related to the Fremont facility of $1.9 million, and increased facility costs of $1.0 million.

General and administrative expenses were $73.3 million and $71.6 million for the years ended December 31, 2023 and 2022, respectively.

The increase of $1.7 million was primarily due to an increase in patent and other legal fees of $4.3 million, a loss on lease termination of $2.7 million associated with the Fremont facility, and increased facility costs of $1.0 million.

These increases were partially offset by the write-off of $4.5 million of construction in progress costs in 2022 for the Fremont facility and a decrease of $2.1 million in insurance costs.

Interest income, net

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Interest income, net

Other income, net

Other income (expense)

Research and development expenses

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(in thousands)

Acquisition and licensing of technology

Research and laboratory

Facility and other allocated costs

Third-party manufacturing

Licensing of technology

Total research and development expense

Research and development expenses were $248.6 million and $132.9 million, respectively, for the years ended December 31, 2021 and 2020.

Research and development expenses were $285.9 million and $248.6 million for the years ended December 31, 2022 and 2021, respectively.

The increase of $37.3 million was primarily due to:

an increase in upfront license fees of $40.4 million due to the upfront expense of $50.0 million recorded in 2021 to license Beam’s gene editing technology, partially offset by the upfront expense of $8.5 million recorded in 2020 related to the acquisition of Oscine;

• increased personnel-related expenses of $32.2 million, including an increase in non-cash stock-based compensation of $11.3 million, which was primarily attributable to an increase in headcount to expand our research and development capabilities;

an increase of $28.0 million in research and laboratory costs, including preclinical study, laboratory supply, third-party manufacturing, and other external research expenses;

an increase of $17.5 million of facility and other allocated costs, including rent, depreciation, and overhead.

• an increase of $16.6 million in research, development, and laboratory costs;

• an increase of $16.5 million primarily related to allocated personnel costs, depreciation expense, and facility and software costs;

• an increase of $16.2 million in third-party manufacturing costs for CDMOs, including pass-through costs for materials.

These increases were offset by a decrease of $45.6 million in costs to license technology.

Licensing costs in 2022 include an upfront payment of $6.0 million related to licensing technology for our CD22 and BCMA programs, and licensing costs in 2021 include an upfront payment of $50.0 million in 2021 related to licensing Beam’s gene editing technology.

Research and development related success payments and contingent consideration

The following table summarizes the expenses associated with research and development related success payments and contingent consideration for the periods presented:

The following table summarizes the expenses (gains) associated with research and development related success payments and contingent consideration for the periods presented:

Year Ended December 31,

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Total research and development related success payments and contingent consideration

The expense related to the change in the estimated fair value of our Cobalt Success Payment was $23.6 million and $62.3 million, respectively, for the years ended December 31, 2021 and 2020.

The changes in value were due to changes in our market capitalization and scientific progress toward filing an IND for SG299 during the relevant periods.

The expense related to the change in the estimated fair value of our Harvard Success Payment liabilities was $2.4 million and $9.9 million, respectively, for the years ended December 31, 2021 and 2020.

The changes in value were due to changes in our common and preferred stock during the relevant periods.

The expense related to the change in the estimated fair value of our Cobalt Contingent Consideration was $31.8 million and $52.8 million, respectively, for the years ended December 31, 2021 and 2020.

The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to scientific progress toward the achievement of milestones during the relative periods.

The change in value was due to the reduction in our market capitalization offset by progress toward filing an IND for SG299 during the relevant period.

The changes in value were due to changes in our common stock price during the relevant period.

The change in value was primarily due to variability of the discount rates used in the calculation offset by scientific progress toward the achievement of milestones during the relevant period.

General and administrative expenses

General and administrative expenses were $50.4 million and $28.3 million, respectively, for the years ended December 31, 2021 and 2020.

The increase of $22.1 million was primarily due to increased personnel-related expenses of $10.8 million, including non-cash stock-based compensation of $6.2 million, primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, increased legal fees of $3.9 million to support our patent portfolio and licensing arrangements, increased insurance costs of $3.9 million associated with being a public company, increased consulting fees of $1.4 million, and increased facility costs, including rent, of $0.8 million.

General and administrative expenses were $71.6 million and $50.4 million for the years ended December 31, 2022 and 2021, respectively.

The increase of $21.2 million was primarily due to costs related to the November 2022 restructuring of $8.7 million, including non-cash stock-based compensation of $1.9 million, the write-off of $4.5 million of construction in progress costs incurred in connection with the Fremont facility, an increase in personnel-related costs of $4.0 million primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, operating costs related to the Fremont facility of $1.9 million, and increased facility costs of $1.0 million.

Interest income, net

Interest income, net, was $0.7 million for each of the years ended December 31, 2021 and 2020 and consisted primarily of interest earned on our cash and marketable securities balances for each year.

Interest income, net, was $3.8 million and $0.7 million for the years ended December 31, 2022 and 2021, respectively, and consisted primarily of interest earned on our cash and marketable securities balances.

Liquidity, capital resources, and capital requirements

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To date we have raised an aggregate of approximately $1.5 billion in net proceeds from sales of common stock and private placements of our convertible preferred stock.

In August 2022, we entered into a sales agreement with Cowen and Company, LLC, acting as sales agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $150.0 million from time to time in a series of one or more at the market equity offerings (collectively, the ATM facility) .

As of December 31, 2022, we had raised approximately $0.6 million in net proceeds under the ATM facility.

In August 2022, we entered into a sales agreement with Cowen, acting as sales agent, pursuant to which we may offer and sell through Cowen, up to $150.0 million in shares of our common stock under the ATM facility.

To date, we have sold an aggregate of 4.9 million shares of our common stock under the ATM facility for net proceeds of $28.7 million, after deducting commissions and expenses.

Since our inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses.

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In the event that additional financing is required, we may not be able to raise it on terms that are acceptable to us or at all.

Our ability to raise additional financing may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from public health crises, conflicts in Ukraine, the Middle East, or other regions, changes in inflation, interest rate uncertainty, and other factors creating market risk.

Recent bank failures have also caused increased concerns about liquidity in the broader financial services industry, and our business, business partners, or industry as a whole may be adversely impacted in ways that we cannot predict at this time.

If we raise additional funds through the issuance of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders.

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Financing activities

Net increase in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

Operating activities

During the year ended December 31, 2023, net cash used in operating activities was $253.6 million, consisting primarily of net loss of $283.3 million, the change in net operating assets and liabilities of $18.6 million, and non-cash charges of $11.1 million.

The non-cash charges of $11.1 million consisted of gains of $40.8 million and $8.2 million for revaluation of our success payment liabilities and contingent consideration, respectively, non-cash stock-based compensation expense of $35.5 million, and depreciation expense of $24.6 million, which includes $7.0 million for the impairment of certain lab equipment and leasehold improvements which were primarily related to the strategic repositioning in October 2023.

During the year ended December 31, 2022, net cash used in operating activities was $290.1 million, consisting primarily of our net loss of $269.5 million, the change in net operating assets and liabilities of $7.5 million, and non-cash charges of $28.1 million.

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The non-cash charges of $95.1 million consisted of $31.8 million for revaluation of contingent consideration, $26.0 million for revaluation of our success payment liabilities, non-cash stock-based compensation expense of $22.4 million, depreciation expense of $11.1 million, and other non-cash charges of $3.8 million.

During the year ended December 31, 2020, net cash used in operating activities was $138.0 million, consisting primarily of our net loss of $285.3 million partially offset by non-cash charges of $141.2 million and an increase in our net operating assets of $6.2 million.

The non-cash charges of $141.2 million consisted of $72.1 million for revaluation of our success payment liabilities, $52.8 million for revaluation of contingent consideration, depreciation expense of $5.9 million, non-cash stock-based compensation expense of $5.8 million, and other non-cash charges of $4.6 million.

Investing activities

Cash provided by investing activities was $172.0 million during the year ended December 31, 2023, and cash used in investing activities was $210.6 million and $245.8 million during the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022 this consisted of net maturities of marketable securities of $231.5 million offset by the purchase of property and equipment of $20.9 million.

For the years ended December 31, 2021 and 2020 this consisted of net purchases of marketable securities of $211.3 million and $228.7 million, respectively, and purchases of property and equipment of $29.9 million and $23.9 million, respectively.

For the year ended December 31, 2023, this consisted of net purchases and maturities of marketable securities of $192.0 million offset by the purchase of property and equipment of $20.0 million.

For the years ended December 31, 2022 and 2021, this consisted of net purchases and maturities of marketable securities of $231.5 million and $211.3 million, respectively, and purchases of property and equipment of $20.9 million and $29.9 million, respectively.

Financing activities

During the year ended December 31, 2023, cash provided by financing activities was $31.6 million, consisting primarily of net proceeds from issuance of common stock under the ATM facility of $27.0 million and $4.6 million in proceeds from our employee stock purchase program and the exercise of stock options.

During the year ended December 31, 2022, cash provided by financing activities was $4.9 million, consisting primarily of proceeds from our employee stock purchase program and the exercise of stock options.

During the year ended December 31, 2021, cash provided by financing activities was $631.7 million, consisting primarily of net proceeds from our IPO of $626.4 million and $5.3 million in proceeds from our employee stock purchase plan and the exercise of stock options.

During the year ended December 31, 2020, cash provided by financing activities was $435.7 million consisting primarily of net proceeds from the sale of our convertible preferred stock.

Contractual obligations and commitments

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Operating lease obligations

As part of our decision to move the site of our manufacturing facility to Bothell, Washington from Fremont, California, we intend to sublease or terminate the lease for the Fremont facility.

Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as of December 31, 2023 are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones or royalties on net product sales.

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As of December 31, 2023, the timing and likelihood of achieving the milestones and success payments and generating future product sales are uncertain, and therefore any related payments are not included in the table above.

We also enter into agreements in the normal course of business for sponsored research, preclinical studies, contract manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice.

We also enter into agreements in the normal course of business for clinical trials, sponsored research, preclinical studies, contract manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice.

These obligations and commitments are not included in the table above.

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We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act).

We will remain an emerging growth company until the earliest to occur of (1) December 31, 2026, (2) the last day of the fiscal year in which

we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We will remain an emerging growth company until the earliest to occur of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our independent registered public accounting firm provide an attestation report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.

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We record research and development expenses in the periods in which they are incurred.

We accrue for research and development expenses based on the estimated services performed, but not yet invoiced, pursuant to contracts with research institutions or other service providers that conduct and manage preclinical studies and other research services on our behalf and record these costs in accrued and other current liabilities.

We accrue for research and development expenses based on the estimated services performed, but not yet invoiced, pursuant to contracts with clinical research organizations, CDMOs, research institutions, or other service providers that conduct and manage clinical trials and preclinical studies, manufacture our product candidates, and perform other research services on our behalf and record these costs in accrued and other current liabilities.

We make judgments and estimates in determining the accrued liabilities balance at each reporting period.

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Accounting for business combinations requires us to make significant estimates and assumptions with respect to tangible and intangible assets acquired and liabilities assumed.

We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired

intangible assets.

Intangible assets are reviewed for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment.

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These assumptions include:

Fair Value of Common Stock— T he fair value of our common stock is based on the closing price as reported on the Nasdaq Global Select Market on the date of grant.

• Fair Value of Common Stock—The fair value of our common stock is based on the closing price as reported on the Nasdaq Global Select Market on the date of grant.

• Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding.

We use the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the options.

Expected Volatility—Due to our limited operating history and lack of company-specific historical and implied volatility data, the expected volatility is estimated based on the average historical volatilities of common stock of comparable

publicly traded entities over a period of time commensurate with the expected term of the stock option grants.

• Expected Volatility—Due to our limited operating history, the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded companies and our historical common stock volatility over a period of time commensurate with the expected term of the stock option grants.

The comparable companies are chosen based on their size, stage in the product development cycle, or area of specialty.

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See Note 2, Summary of significant accounting policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition or results of operations.

Quantitative and Qualitati ve Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business primarily related to interest rate sensitivities and the volatility of our common stock price.

Interest rate risk

As of December 31, 2023, we had cash, cash equivalents, and restricted cash of $137.3 million, which consisted of bank deposits and money market funds, and also had marketable securities of $71.7 million.

The primary objective of our investment activities is to preserve capital to fund our operations while earning a low-risk return.

Because our marketable securities are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant, and a hypothetical 10% change in market interest rates during any of the periods presented would not have had a significant impact on the total value of our portfolio.

We had no debt outstanding as of December 31, 2023.

Market capitalization and common stock price sensitivity

We agreed to make a success payment to Cobalt based on our market capitalization payable in cash or stock, and success payments to Harvard based on increases in the per share fair market value of our common stock, payable in cash.

As of December 31, 2023, the estimated aggregate fair value of the success payment liabilities was $12.8 million.

For the twelve months ended December 31, 2023, we recorded a gain of $8.2 million related to the aggregate change in the estimated fair value of our success payment liabilities.

Changes in our market capitalization and the fair value of our common stock as of each balance date may have a relatively large change in the estimated valuation of the success payment liabilities and resulting expense or gain.

For example, for the Cobalt Success Payment, keeping all other variables constant, a hypothetical 20% increase in our market capitalization as of December 31, 2023 from $0.8 billion to $1.0 billion would have decreased the gain recorded in the year ended December 31, 2023 by $2.9 million to $5.0 million.

A hypothetical 20% decrease in our market capitalization from $0.8 billion to $0.6 billion would have increased the gain recorded in the year ended December 31, 2023 by $2.6 million to $10.5 million.

For the Harvard Success Payments, keeping all other variables constant, a hypothetical 20% increase in our common stock price as of December 31, 2023 from $4.08 per share to $4.90 per share would have decreased the gain recorded in the year ended December 31, 2023 by $0.6 million, resulting in a $0.2 million expense.

A hypothetical 20% decrease in the common stock price from $4.08 per share to $3.26 per share would have increased the gain recorded in the year ended December 31, 2023 by $0.5 million to $0.9 million.

Foreign currency sensitivity

We are not currently exposed to significant market risk related to changes in foreign currency exchange rates;

however, we do contract with vendors that are located outside of the United States and may be subject to fluctuations in foreign currency rates.

We do not believe we will experience material impacts from such foreign currency sensitivity.

We may enter into additional contracts with vendors located outside of the United States in the future, which may increase our foreign currency exchange risk.

Effects of inflation

Inflation generally affects us by increasing our cost of labor and laboratory consumables.

We believe that inflation has not had a material effect on our financial statements.

Financial Statemen ts and Supplementary Data.

SANA BIOTECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit )

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Regis tered Public Accounting Firm

To the Stockholders and the Board of Directors of Sana Biotechnology, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sana Biotechnology Inc.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2018.

Seattle, Washington

February 29, 2024

Sana Biotechnology, Inc.

Consolidated Ba lance Sheets

(in thousands, except per share amounts)

December 31, 2023

December 31, 2022

Current assets:

Cash and cash equivalents

Marketable securities

Restricted cash

Prepaid expenses and other current assets

Total current assets

Long-term marketable securities

Property and equipment, net

Operating lease right-of-use assets

Long-term restricted cash

Intangible asset

Other non-current assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

Accrued compensation

Accrued expenses and other current liabilities

Operating lease liabilities

Contingent consideration

Total current liabilities

Operating lease liabilities, net of current portion

Contingent consideration, net of current portion

Success payment liabilities

Total liabilities

Commitments and contingencies (Note 9)

Stockholders' equity:

Preferred stock, $ 0.0001 par value;

50,000 shares authorized;

zero shares issued and outstanding as of December 31, 2023 and December 31, 2022

Common stock, $ 0.0001 par value;

750,000 shares authorized;

197,857 and 191,022 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders' equity

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

See accompanying notes.

Sana Biotechnology, Inc.

Consolidated Statem ents of Operations

(in thousands, except per share amounts)

Year Ended December 31,

Operating expenses:

Research and development

Research and development related success payments and contingent consideration

General and administrative

Total operating expenses

Loss from operations

Interest income, net

Other income (expense), net

Net loss per common share – basic and diluted

Weighted-average number of common shares – basic and diluted

See accompanying notes.

Sana Biotechnology, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

Year Ended December 31,

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on marketable securities, net

Total comprehensive loss

See accompanying notes.

Sana Biotech nology, Inc.

Consolidated Statements of Convertible Pr eferred Stock and Stockholders’ Equity (Deficit)

(in thousands)

Convertible Preferred

Comprehensive

Stockholders'

Income (Loss)

Balance as of December 31, 2020

Conversion of convertible preferred stock into common stock upon initial public offering

Issuance of common stock in initial public offering, net of $ 49,220 in offering costs

Vesting of restricted stock

Exercise of stock options

Issuance of common stock related to employee stock purchase plan

Stock-based compensation

Unrealized loss on marketable securities, net

Balance as of December 31, 2021

Issuance of common stock from at the market offering, net of issuance costs of $ 625

Vesting of restricted stock

Exercise of stock options

Issuance of common stock related to employee stock purchase plan

Stock-based compensation

Unrealized loss on marketable securities, net

Balance as of December 31, 2022

Issuance of common stock from at the market offering, net of issuance costs of $ 1,213

Vesting of restricted stock

Exercise of stock options

Issuance of common stock related to employee stock purchase plan

Stock-based compensation

Unrealized gain on marketable securities, net

Balance as of December 31, 2023

See accompanying notes.

Sana Biotechnology, Inc.

Consolidated Stateme nts of Cash Flows

(in thousands)

Year Ended December 31,

OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and impairment of long-lived assets

Stock-based compensation expense

Change in the estimated fair value of contingent consideration

Change in the estimated fair value of success payment liabilities

Non-cash expense for operating lease right-of-use assets

Other non-cash items, net

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Operating lease right-of-use assets and liabilities

Accounts payable

Accrued expenses and other liabilities

Net cash used in operating activities

INVESTING ACTIVITIES:

Purchases of marketable securities

Proceeds from maturities of marketable securities

Purchases of property and equipment

Other investing activities

Net cash provided by (used in) investing activities

FINANCING ACTIVITIES:

Proceeds from initial public offering, net of issuance costs

Proceeds from issuance of common stock, net

Proceeds from issuance of common stock under at the market offering

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Cash and cash equivalents

Restricted cash

Long-term restricted cash

Total cash, cash equivalents, and restricted cash

SUPPLEMENTAL CASH FLOW INFORMATION:

Operating lease right-of-use assets obtained in exchange for lease obligations

Purchases of property and equipment included in accounts payable and accrued liabilities

Cash received for tenant improvement allowances

Remeasurement of operating lease right-of-use asset for lease modification

Derecognition of operating lease right-of-use asset for lease termination

See accompanying notes.

Sana Biotechnology, Inc.

Notes to Consolidated Financial Statements

Sana Biotechnology, Inc.

(the Company or Sana) is a biotechnology company focusing on utilizing engineered cells as medicines.

The Company’s operations to date have included identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, preparing for and executing clinical trials of its product candidates and supporting clinical trials of product candidates developed using its technologies, acquiring technology, organizing and staffing the Company, business planning, establishing and maintaining the Company’s intellectual property portfolio, raising capital, and providing general and administrative support for these operations.

Liquidity and capital resources

The Company is subject to a number of risks and uncertainties similar to other biotechnology companies in the development stage, including, but not limited to, those related to the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, building out internal and external manufacturing capabilities, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products, the need to protect the Company’s intellectual property and proprietary technologies, and the need to attract and retain key scientific and management personnel.

If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations with the proceeds from additional equity or debt financings or capital obtained in connection with strategic collaborations or licensing or other arrangements.

In the event that additional financing is required, the Company may not be able to raise it on terms acceptable to it or at all.

In February 2024, the Company completed an underwritten public offering pursuant to which it sold 21.8 million shares of its common stock, including 4.5 million shares pursuant to the full exercise of the underwriters' option to purchase additional shares, and pre-funded warrants to purchase 12.7 million shares of its common stock for net proceeds of approximately $ 179.9 million, after deducting underwriting discounts and commissions and estimated offering expenses.

In August 2022, the Company entered into a sales agreement with Cowen and Company, LLC (Cowen), acting as sales agent, pursuant to which it may offer and sell through Cowen up to $ 150.0 million in shares of the Company’s common stock from time to time in a series of one or more at the market equity offerings (collectively, the ATM facility).

As of December 31, 2023, the Company sold an aggregate of 4.7 million shares of the Company's common stock under the ATM facility for net proceeds of $ 27.6 million in net proceeds, after deducting commissions and expenses.

In February 2021, the Company completed its initial public offering (IPO) and issued 27.0 million shares of its common stock, including 3.5 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, and received $ 626.4 million in net proceeds, after deducting underwriting discounts and commissions and offering expenses.

In October 2023, the Company announced a strategic repositioning and associated workforce reduction to increase its focus on its ex vivo cell therapy product candidates.

In addition to an increased focus on its ex vivo programs, the Company reduced its near-term investment in its fusogen platform for in vivo gene delivery, including the delay of the investigational new drug application (IND) submission for its SG299 program, and reduced its workforce by approximately 29 %.

The strategic repositioning and associated workforce reduction was substantially completed in 2023.

During the year ended December 31, 2023, the Company recognized $ 5.2 million of cash-based expenses in general and administrative expense related to employee severance, benefits, and related costs for employees impacted by the reduction in force.

The Company has incurred operating losses each year since inception and expects such losses to continue for the foreseeable future.

As of December 31, 2023, the Company had cash, cash equivalents, and marketable securities of $ 205.2 million, and an accumulated deficit of $ 1.3 billion, which includes non-cash charges related to the revaluation of the success payment liabilities and contingent consideration of $ 10.3 million and $ 58.3 million, respectively.

Summary of significant accounting policies

Basis of presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP).

Certain prior period amounts have been reclassified to conform to current period presentation.

Use of estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.

Actual results could materially differ from those estimates.

The most significant estimates in the Company’s consolidated financial statements relate to success payment liabilities, contingent consideration, business combinations, accrued expenses, and operating lease right-of-use (ROU) assets and liabilities.

Cash and cash equivalents

Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less at acquisition.

Cash equivalents include investments in money market funds with commercial banks and financial institutions and are stated at fair value.

Marketable securities

Marketable securities are classified as available-for-sale debt securities and are carried at fair value, which is derived from independent pricing sources based on quoted prices in active markets for similar securities.

Investments in securities with maturities of less than one year, or those for which management intends to use to fund current operations, are included in current assets.

Unrealized gains and losses that are deemed to be temporary in nature are reported as a component of accumulated comprehensive income (loss).

Amortization, accretion, and dividends are included in interest income, net on the consolidated statement of operations.

The cost of securities sold is based on the specific-identification method.

Each reporting period, the Company evaluates whether declines in fair value below carrying value are due to expected credit losses, as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs.

Expected credit losses are recorded as an allowance through other income (expense), net.

Concentrations of credit risk and off-balance sheet risk

The Company maintains its cash, cash equivalents, and marketable securities with high quality, accredited financial institutions.

These amounts, at times, may exceed federally insured limits.

The Company has not experienced any credit losses in such accounts and does not believe it is exposed to significant risk on these funds.

The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements.

Fair value measurement

The Company accounts for certain assets and liabilities at fair value and is required to disclose information that enables an assessment of the inputs used in determining the reported fair values.

The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs.

The hierarchy applies only to the valuation inputs used to determine the reported fair value of the investments and is not a measure of the investment credit quality.

The hierarchy defines three levels of valuation inputs:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

The Company’s financial instruments include cash and cash equivalents, short- and long-term marketable securities, accounts payable, contingent consideration, success payment liabilities, and other accrued liabilities.

The carrying amounts of cash, cash equivalents, accounts payable, and accrued liabilities approximate fair value due to the short-term nature of these instruments.

To the extent the valuation of financial instruments is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

See Note 6, Fair value measurements for more information on how the Company determines fair value.

Property and equipment, net

Property and equipment are stated at cost, net of accumulated depreciation.

Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to five years .

Leasehold improvements are depreciated over the lesser of their useful lives or the remaining life of the lease.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is recorded in research and development expenses in the period realized.

The Company recognized $ 7.0 million in research and development expenses for the impairment of certain lab equipment and leasehold improvement as a result of the strategic repositioning in October 2023.

Repairs and maintenance are expensed as incurred.

Impairment of long-lived assets

The Company reviews the carrying value and estimated lives of its long-lived assets whenever events or circumstances indicate the carrying values may not be recoverable.

Should an impairment exist, the impairment loss would be measured based on the excess of the asset’s carrying amount over its fair value.

The Company accounts for business combinations using the acquisition method of accounting, which requires the assets acquired, including in-process research and development (IPR&D), and liabilities assumed be recorded at fair value as of the acquisition date.

Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill.

The determination of the estimated fair value of these items requires significant estimates and assumptions.

Transaction costs associated with business combinations are recorded in general and administrative expense as they are incurred.

If the Company determines the acquisition does not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition.

In an asset acquisition, up-front payments allocated to IPR&D are recorded in research and development expense if it is determined that there is no alternative future use, and subsequent milestone payments are recorded in research and development expense when achieved.

Goodwill and intangible assets

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination.

The Company evaluates goodwill for impairment annually or when a triggering event occurs that could indicate a potential impairment.

The evaluation for impairment includes assessing qualitative factors or performing a quantitative analysis to determine whether it is more-likely-than-not that the fair value of net assets is below the carrying amount.

As of December 31, 2023, the Company had goodwill of $ 140.6 million related to its acquisition of Cobalt Biomedicine, Inc.

(Cobalt) in 2019 (the Cobalt acquisition), which represents the excess of the purchase price over the estimated fair value of the net assets acquired.

There have been no impairments of goodwill since the acquisition.

Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at fair value at the acquisition date.

The fair value of the IPR&D is estimated using the replacement cost method.

Under this method, the Company estimates the cost to recreate the technology and derive an estimated value to develop the technology.

IPR&D assets are required to be classified as indefinite-lived assets and are not amortized until they become finite-lived assets upon the successful completion of the associated research and development technology.

At that time, the useful life of the asset will be determined, and amortization will begin.

If the associated research and development technology is abandoned, the related IPR&D asset will be written off and an impairment charge recorded.

Intangible assets are reviewed for impairment at least annually or when a triggering event occurs that could indicate a potential impairment.

There has been no amortization or impairment of the intangible asset since the Cobalt acquisition.

Contingent consideration from business combinations

Contingent consideration from a business combination is recorded at fair value on the acquisition date and remeasured at each subsequent reporting period with changes in fair value recognized in research and development related success payments and contingent consideration.

Changes in fair values reflect changes to the Company’s assumptions regarding probabilities of successful achievement of related milestones, the timing in which the milestones are expected to be achieved, and the discount rate used to estimate the fair value of the obligation.

Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are obligated to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration).

See Note 3, Acquisitions for more details on the Cobalt Consideration.

Success payments

The Company agreed to pay success payments to Cobalt (Cobalt Success Payment) pursuant to the terms of its acquisition agreement with Cobalt and to the President and Fellows of Harvard College (Harvard) (Harvard Success Payments) pursuant to the terms of its exclusive license agreement with Harvard.

See Note 3, Acquisitions and Note 4, License and collaboration agreements for more details on the success payments.

The success payments are accounted for under Accounting Standards Codification (ASC) 815, Derivatives and Hedging .

The Cobalt Success Payment was recorded as a liability on the consolidated balance sheet at fair value on the acquisition date and is remeasured at each subsequent reporting period, with changes in fair value recognized in research and development related success payments and contingent consideration.

For the Harvard Success Payments, both the initial value and subsequent changes in fair value are recorded in research and development related success payments and contingent consideration.

To determine the estimated fair value of the success payment liabilities, the Company uses a Monte Carlo simulation methodology, which models the value of the liabilities based on several key assumptions, including the remaining terms of the success payments, risk-free interest rate, estimated number and timing of valuation measurement dates on the basis of which payments may be triggered, and expected volatility of the Company’s common stock.

Expected volatility is estimated using the volatility of peer companies for a period of time commensurate with the remaining terms of the success payments.

Additionally, the computation of the estimated fair value of the Cobalt Success Payment liability incorporates the market capitalization of the Company at the end of each reporting period, and the computation of the estimated fair value of the Harvard Success Payments incorporates the per share fair market value of the Company’s common stock at the end of each reporting period.

At the inception of an arrangement with a third party, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.

Lease liabilities represent an obligation to make payments arising from a lease and are measured at the present value of the remaining future lease payments over the term of the lease.

The present value of the lease payments is determined using an incremental borrowing rate (IBR), which reflects the fixed rate at which the Company could borrow the amount of the lease payments, on a collateralized basis, for a similar term and economic environment.

The lease terms may include the impact of options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option.

Assumptions made by the Company at the lease commencement date are re-evaluated upon the occurrence of certain events, including a lease modification.

When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

ROU assets represent the right to use the underlying asset identified in the lease for the term of the agreement.

The calculation of the ROU asset incorporates the value of the lease liability and excludes any lease incentives received and initial direct costs incurred.

The Company’s lease portfolio consists of operating leases related to its facilities for office, laboratory, and manufacturing space.

The Company does not have any financing leases.

Leases with a term of 12 months or less are considered short-term and do not require recognition on the balance sheet, and payments associated with short-term leases are expensed as incurred.

Rent expense for operating leases is recognized on a straight-line basis over the lease term.

Claims and contingencies

From time to time, the Company may become involved in litigation and proceedings relating to claims arising in the ordinary course of business.

The Company accrues a liability if the likelihood of an adverse outcome is probable, and the amount can be reasonably estimated.

If the likelihood of an adverse outcome is only reasonably possible, or if an adverse outcome is probable, but an estimate is not determinable, the Company provides disclosure of the material claim or contingency.

Stock-based compensation

The Company recognizes compensation costs related to restricted stock awards (RSAs), restricted stock units (RSUs), and stock options granted to employees and nonemployees based on the estimated fair value of the awards on the date of grant and recognizes expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award.

Forfeitures are recognized as they occur.

For RSAs and RSUs, the fair value of the Company’s common stock is used to determine the resulting stock-based compensation expense.

The fair value of stock options is estimated on the date of grant using a Black-Scholes option pricing model which requires management to apply judgment and make estimates, including:

• Fair Value of Common Stock —The fair value of common stock is based on the closing price as reported on The Nasdaq Global Select Market on the date of grant.

• Expected Term —The expected term represents the period that a stock-based award is expected to be outstanding.

The Company uses the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the option.

• Expected Volatility —Due to the Company's limited operating history, the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded companies and the Company's historical common stock volatility over a period of time commensurate with the expected term of the stock option grants.

The comparable companies are chosen based on their size, stage in the product development cycle, or area of specialty.

The Company will continue to apply this process until sufficient historical information regarding the volatility of its own stock price becomes available.

• Risk-Free Interest Rate— The risk-free interest rate is based on the U.S.

Treasury yield in effect at the time of grant for zero-coupon U.S.

Treasury notes with maturities approximately equal to the expected term of the awards.

• Expected Dividend— The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock.

Therefore, the Company used an expected dividend yield of zero .

Research and development expense

The Company records expense for research and development costs as incurred.

Nonrefundable, advance payments for goods or contracts for services are deferred, and expense is recognized in the period in which the goods are received or the services are rendered.

Research and development expense consists of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, including CDMO manufacturing costs (including pass-through costs), clinical trial costs, costs for laboratory supplies, costs to acquire and license technologies aligned with the Company’s goal of translating engineered cells to medicines, facility expenses, including rent and depreciation, and other allocated expenses.

Research and development related success payments and contingent consideration

Research and development related success payments and contingent consideration include the change in the estimated fair value of the Cobalt Success Payment and Harvard Success Payment liabilities and Cobalt Contingent Consideration.

Research and development expense related to the success payment liabilities and contingent consideration is unpredictable and may vary significantly from quarter-to-quarter and year-to-year due to changes in the assumptions used in the calculations.

General and administrative expenses

General and administrative expenses consist of personnel costs, including salaries, benefits, and non-cash stock-based compensation, for employees in finance, legal, executive, human resources, information technology, and other administrative functions, legal and consulting fees, recruiting costs, and facility costs not otherwise included in research and development expenses.

Legal fees include those related to corporate and patent matters.

Included in general and administrative expenses for the year ended December 31, 2023, are costs related to the October 2023 strategic repositioning and costs incurred for the early termination of the Company's lease (Fremont lease) for its previously planned manufacturing facility in Fremont, California (Fremont facility).

Included in general and administrative expenses for the year ended December 31, 2022 were costs related to the November 2022 restructuring and the write-off of construction in progress costs incurred in connection with the Fremont facility.

The Company determines its deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be recovered.

The Company applies judgment in the determination of the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

The Company recognizes any material interest and penalties related to unrecognized tax benefits in income tax expense.

The Company is required to file income tax returns in the United States (U.S.) federal jurisdiction, and other state and local jurisdictions.

The Company is generally subject to examination by U.S.

federal and local income tax authorities for all tax years in which the loss carryforward is available.

The Company is currently not under examination by the Internal Revenue Service or other jurisdictions for any tax years.

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.

The Company views its operations and manages its business in one operating segment.

JOBS Act accounting election

The Company is an emerging growth company (EGC), as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act).

Under the JOBS Act, an EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies;

however, the Company may adopt new or revised accounting standards early if the standard allows for early adoption.

In addition, the Company will utilize other exemptions and reduced reporting requirements provided to EGCs by the JOBS Act.

Subject to certain conditions set forth in the JOBS Act, an EGC is not required to, among other things, (i) provide an auditor’s attestation report on the company’s system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-EGC public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), or (iv) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard-setting bodies that the Company adopts as of the specified effective date.

Unless otherwise discussed, the Company does not believe that the adoption of any recently issued standards has had or may have a material impact on its condensed consolidated financial statements or disclosures.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) Improvements to Income Tax Disclosures that requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures.

This ASU is effective for the Company's fiscal year 2025.

Early adoption is permitted.

The Company is currently evaluating income tax disclosures related to its annual report for fiscal year 2025.

Cobalt Biomedicine, Inc.

In February 2019, the Company acquired 100 % of the outstanding equity of Cobalt, a privately-held early-stage biotechnology company developing a platform technology using its fusogen technology to specifically and consistently deliver various biological payloads to cells (the Cobalt acquisition).

As part of the Cobalt acquisition, the Company recorded an intangible asset of $ 59.2 million, which consists of IPR&D that is classified as indefinite-lived until the successful completion of the associated research and development technology, at which point it becomes a finite-lived asset and will be amortized over its estimated useful life.

If the research and development technology is abandoned, an impairment charge will be recorded.

The Company is actively developing the fusogen technology and, accordingly, the intangible asset is not complete.

Amortization will begin when regulatory approval of a product candidate developed using the fusogen technology is obtained in a major market, typically either the United States or the European Union.

The Company recognized $ 140.6 million of goodwill as a result of the Cobalt acquisition, which is primarily attributable to the value the acquisition provides the Company by complementing the Company’s ex vivo portfolio with in vivo fusogen cell engineering technology and furthering the Company’s research in using engineered cells as medicines.

The goodwill is not deductible for income tax purposes.

There were no impairments of the intangible asset or goodwill since the acquisition.

Pursuant to the terms and conditions in the Cobalt acquisition agreement, the Company has an obligation to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $ 500.0 million upon the achievement of certain specified development milestones and a success payment (Cobalt Success Payment) of up to $ 500.0 million, each of which is payable in cash or stock.

The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, the Company’s market capitalization equals or exceeds $ 8.1 billion, and the Company is advancing a program based on the fusogen technology in a clinical trial pursuant to an investigational new drug application, or has filed, or received approval for, a biologics license application or new drug application for a product developed using the fusogen technology.

The Cobalt Success Payment can be achieved over a maximum of 20 years from the date of the acquisition, but this period could be shorter upon the occurrence of certain events.

A valuation measurement date would also be triggered upon a change of control of the Company if at least one of the Company’s programs based on the fusogen technology is an active research program at the time of such change of control.

If the Company’s market capitalization is below $ 8.1 billion as of the date of a change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase.

As of December 31, 2023, a Cobalt Success Payment had not been triggered.

The following table sets forth various thresholds for the Company’s market capitalizations as of the date of a change of control and the resulting potential Cobalt Success Payment and additional potential Cobalt Contingent Consideration:

Sana market capitalization upon a change of control and resulting impact to Cobalt Success

Payment and additional potential Cobalt Contingent Consideration

Cobalt Success

potential Cobalt

Consideration

(in millions)

Equal to or exceeds $ 8.1 billion

Equal to or exceeds $ 7.4 billion, but less than $8.1 billion

Equal to or exceeds $ 6.8 billion, but less than $7.4 billion

Less than $ 6.8 billion

The Cobalt Success Payment and Cobalt Contingent Consideration liabilities are carried at fair value with changes in fair value recognized in research and development related success payments and contingent consideration.

As of December 31, 2023 and 2022, the estimated fair value of the Cobalt Success Payment liability was $ 11.2 million and $ 19.0 million, respectively, and was recorded in long-term liabilities.

In connection with the change in estimated fair value of the Cobalt Success Payment, the Company recognized gains of $ 7.9 million and $ 69.3 million, and an expense of $ 23.6 million for the years ended December 31, 2023, 2022, and 2021, respectively .

As of December 31, 2023, the estimated fair value of the Cobalt Contingent Consideration was $ 109.6 million, and was recorded in long-term liabilities.

As of December 31, 2022, the estimated fair value of the Cobalt Contingent Consideration was $ 150.4 million of which $ 55.4 million was recorded in short-term liabilities and $ 95.0 million was recorded in long-term liabilities.

In connection with the change in estimated fair value of the Cobalt Contingent Consideration, the Company recognized gains of $ 40.8 million and $ 3.4 million, and an expense of $ 31.8 million, for the years ended December 31, 2023, 2022, and 2021, respectively.

License and collaboration agreements

Beam Therapeutics Inc.

In October 2021, the Company entered into an option and license agreement with Beam Therapeutics Inc.

(Beam), pursuant to which the Company was granted a non-exclusive license to use Beam’s proprietary CRISPR Cas12b nuclease editing technology to research, develop, and commercialize engineered cell therapy products that (i) are directed to certain antigen targets, with respect to the Company’s allogeneic T cell programs, or (ii) comprise certain human cell types, with respect to the Company’s stem cell-derived programs.

The Company made an upfront payment of $ 50.0 million to Beam, which was recorded in research and development expense for the year ended December 31, 2021.

Additionally, under the terms of the agreement, the Company may be obligated to pay up to $ 65.0 million for each licensed product in specified developmental and commercial milestone payments and royalties on licensed products.

At the time of the entry into the option and license agreement, a member of the Company’s board of directors was a beneficial owner of greater than 10 % of the outstanding shares of Beam.

This director is also affiliated with a member of the board of directors of Beam.

President and Fellows of Harvard College

In March 2019, the Company entered into an exclusive license agreement with Harvard to access certain intellectual property for the development of hypoimmune-modified cells.

The Company paid to Harvard aggregate consideration of $ 12.0 million, comprising $ 9.0 million in common stock and $ 3.0 million in cash.

Under the terms of the agreement, the Company may be required to pay to Harvard up to an aggregate of $ 175.0 million in success payments, payable in cash, based on increases in the fair value of the Company’s common stock.

The potential Harvard Success Payments are based on multiples of increased value ranging from 5x to 40x, based on a comparison of the fair market value of the Company’s common stock relative to the original issuance price of $ 4.00 per share at ongoing pre-determined valuation measurement dates.

The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement.

If a higher success payment tier is first met at the same time a lower tier is first met, both tiers will be owed.

Any previous success payments made to Harvard would be credited against the success payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold.

As of December 31, 2023, a Harvard Success Payment had not been triggered.

The following table summarizes the potential success payments and common stock price required for payment:

Multiple of Equity Value at Issuance

Per share common stock price required for payment

Success payment(s) (in millions)

The Harvard Success Payment liabilities are carried at fair value, with the initial value and changes in fair value recognized in research and development related success payments and contingent consideration.

As of December 31, 2023 and December 31, 2022, the estimated fair value of the Harvard Success Payment liability was $ 1.6 million and $ 2.0 , respectively, and was recorded in long-term liabilities.

In connection with the change in the estimated fair value of the Harvard Success Payment liability, the Company recognized gains of $ 0.3 million and $ 12.2 million, and an expense of $ 2.4 million, for the years ended December 31, 2023, 2022, and 2021, respectively.

Restricted cash

The Company maintains standby letters of credit that are collateralized with a bank account at a financial institution in accordance with certain lease agreements.

The aggregate amount of such standby letters of credit was $ 3.8 million and $ 10.5 million as of December 31, 2023 and 2022, respectively.

The Company terminated the Fremont lease in the third quarter of 2023, and as a result, the Company’s letter of credit of $ 6.7 million related to the Fremont lease was returned to the Company and included in cash and cash equivalents.

Fair value measurements

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy:

December 31, 2023

Amortized Cost

Holding Gains

Holding Losses

(in thousands)

Financial assets:

Cash equivalents:

Money market funds

government and agency securities

Corporate debt securities

Total cash equivalents

Short-term marketable securities:

government and agency securities

Corporate debt securities

Total short-term marketable securities

Total financial assets

Financial liabilities:

Long-term financial liabilities:

Contingent consideration

Success payment liabilities

Total long-term financial liabilities

Total financial liabilities

December 31, 2022

Amortized Cost

Holding Gains

Holding Losses

(in thousands)

Financial assets:

Cash equivalents:

Money market funds

government and agency securities

Corporate debt securities

Total cash equivalents

Short-term marketable securities:

government and agency securities

Corporate debt securities

Total short-term marketable securities

Long-term marketable securities:

government and agency securities

Total long-term marketable securities

Total financial assets

Financial liabilities:

Short-term financial liabilities:

Contingent consideration

Total short-term financial liabilities

Long-term financial liabilities:

Contingent consideration

Success payment liabilities

Total long-term financial liabilities

Total financial liabilities

The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities.

The Level 2 marketable securities include U.S.

government and agency securities and corporate debt securities and are valued based on either recent trades of securities in inactive markets or quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

The following table summarizes available-for-sale debt securities in a continuous unrealized loss position for less than and greater than twelve months, for the periods presented:

Less than 12 months

12 months or greater

Unrealized losses

(in thousands)

December 31, 2023

government and agency securities

Corporate debt securities

December 31, 2022

government and agency securities

Corporate debt securities

The Company determined that there was no material change in the credit risk of the above investments during the year ended December 31, 2023.

As such, an allowance for credit losses has not been recognized.

As of December 31, 2023, the Company does not intend to sell such securities, and it is not more-likely-than-not that the Company will be required to sell the securities prior to the recovery of the amortized cost basis.

As of December 31, 2023, all marketable securities had an effective maturity date of two years or less.

Investments in securities with maturities of less than one year , or those for which management intends to use to fund current operations, are included in current assets and classified as available-for-sale.

As of December 31, 2023 and 2022, the balance in accumulated other comprehensive loss included net unrealized gains (losses) related to the Company’s available-for-sale debt securities.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities:

Consideration

Success Payment

(in thousands)

Balance as of December 31, 2022

Changes in fair value – expense (gain)

Balance as of March 31, 2023

Changes in fair value – expense

Balance as of June 30, 2023

Changes in fair value - gain

Balance as of September 30, 2023

Changes in fair value - expense (gain)

Balance as of December 31, 2023

Contingent consideration

The Company utilizes significant estimates and assumptions it believes would be made by a market participant in determining the estimated fair value of the Cobalt Contingent Consideration at each balance sheet date.

The fair value of the Cobalt Contingent Consideration was determined by calculating the probability-weighted estimated value of the pre-specified development milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and the applicable discount rates.

The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due.

The Company assesses these estimates on an ongoing basis as additional data impacting the assumptions are obtained.

The fair value of the Cobalt Contingent Consideration was calculated using the following unobservable inputs:

December 31, 2023

December 31, 2022

Unobservable Input

Weighted-Average

Discount rates

11.7 % – 12.4 %

13.4 % – 15.1 %

Probability of milestone achievement

5.0 % – 55.0 %

5.0 % – 85.0 %

The weighted-average unobservable inputs were calculated based on the relative value of the pre-specified development milestones.

The estimated fair value of the Cobalt Contingent Consideration may change significantly as development progresses and additional data are obtained, impacting the assumptions regarding probabilities of successful achievement of the milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved.

In evaluating the fair value assumptions, judgment is required to interpret the market data used to develop the estimates.

The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange.

Accordingly, the use of different market assumptions, inputs and/or different valuation techniques could result in materially different fair value estimates.

Success payments

The Company utilizes significant estimates and assumptions in determining the estimated fair value of the success payment liabilities and the associated expense or gain at each balance sheet date.

The estimated fair value of the Cobalt Success Payment and Harvard Success Payment liabilities was determined using a Monte Carlo simulation methodology, which models the estimated fair value of the liability based on several key assumptions, including the expected volatility, remaining term, risk-free interest rate, estimated number and timing of valuation measurement dates on the basis of which payment may be triggered, and, for the Cobalt Success Payment, the Company’s market capitalization, and for the Harvard Success Payments, the per share fair value of the Company’s common stock.

The fair values of the Cobalt Success Payments and Harvard Success Payments were calculated using the following unobservable inputs:

December 31, 2023

December 31, 2022

Unobservable Input

Expected stock price volatility

Expected term (years)

Property and equipment, net

Property and equipment, net consists of the following:

December 31, 2023

December 31, 2022

(in thousands)

Laboratory equipment

Leasehold improvements

Construction in progress

Computer equipment, software, and other

Total property and equipment, at cost

Accumulated depreciation

Property and equipment, net

Depreciation expense was $ 24.6 million, $ 15.6 million, and $ 11.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Depreciation expense for the y ear ended December 31, 2023 includes $ 7.0 million for the impairment of certain lab equipment and leasehold improvements which were primarily related to the strategic repositioning undertaken in October 2023.

Accrued liabilities

Accrued compensation and accrued expenses and other current liabilities consist of the following:

December 31, 2023

December 31, 2022

(in thousands)

Accrued compensation:

Accrued bonuses

Accrued paid time off

Accrued payroll

Other accrued compensation

Total accrued compensation

Accrued expenses and other current liabilities:

Accrued research and development services

Accrued professional fees

Accrued property and equipment

Other accrued current liabilities

Total accrued expenses and other current liabilities

Commitments and contingencies

Lease commitments

The Company’s lease portfolio primarily comprises operating leases for office, laboratory, and manufacturing space.

These leases contain various rent abatement periods, after which they require monthly lease payments that may be subject to annual increases throughout the lease term.

Certain leases include options to extend the term.

The renewal option is considered in the remaining lease term for the lease only when the Company is reasonably certain it will renew the lease.

Certain leases provide the Company with the right to make tenant improvements, including the addition of laboratory space or build-out of manufacturing capabilities, and include a lease incentive allowance.

In June 2022, the Company entered into a lease agreement for 79,565 square feet of office, laboratory, and manufacturing space located in Bothell, Washington (the Bothell facility).

The initial term of the lease expires in February 2039, with the option to extend the lease for up to three additional five-year terms.

The lease agreement also provides for up to $ 19.9 million for reimbursement of tenant improvements, as well as an additional $ 8.0 million for tenant improvements, available at the Company’s election, which the Company would be obligated to repay to the landlord monthly over the initial term of the lease with interest at a rate of 6.5 % per year.

The Company is obligated to pay base rent of approximately $ 68.8 million over the initial term of the lease.

In accordance with the lease agreement, the Company has obtained a letter of credit in the amount of $ 1.6 million.

The Company recognized the ROU asset and lease liability in the three months ended March 31, 2023 when the lease commenced.

In July 2021, the Company entered into a lease for the Fremont facility with the intent to establish and develop its manufacturing operations at such facility.

The Company decided in June 2022 to establish and develop its manufacturing operations at the Bothell facility rather than the Fremont facility.

In the third quarter of 2023, the Company entered into a lease termination agreement for the early termination of the Fremont lease.

On the lease termination date, the Company derecognized the remaining balances related to the ROU asset and lease liability of $ 14.2 million and $ 15.9 million, respectively, and incurred fees of $ 4.4 million, resulting in a loss on lease termination of $ 2.7 million, which is included in general and administrative expense for the twelve months ended December 31, 2023.

The following table contains additional information related to the Company’s operating leases:

Square Footage

Commencement Dates

Expiration Dates

Office/Laboratory

March 2019 to September 2020

December 2026 to April 2028

Cambridge, MA

Office/Laboratory

March 2019 to January 2022

November 2025 to February 2028

South San Francisco, CA

Office/Laboratory

December 2019 to April 2022

April 2024 to April 2030

Rochester, NY

Office/Laboratory

Office/Laboratory/Manufacturing

Throughout the term of the lease agreements, the Company is responsible for paying, in addition to base rent, certain operating costs, such as common area maintenance, taxes, utilities, and insurance.

These additional charges are considered variable lease costs and are recognized in the period in which the costs are incurred.

The following table summarizes the Company’s lease costs:

Year Ended December 31,

(in thousands)

Operating lease cost

Short-term lease cost

Variable lease cost

Total lease cost

As of December 31, 2023, the weighted-average remaining lease term was 8.7 years and the weighted-average IBR was 11.1 %.

The following table reconciles the Company’s undiscounted operating lease cash flows by fiscal year to the present value of the operating lease liabilities as of December 31, 2023 (in thousands):

2029 and thereafter

Total undiscounted lease payments

imputed interest

tenant improvement allowances

Present value of operating lease liabilities

current portion of operating lease liabilities

Operating lease liabilities, net of current portion

Stockholders’ equity

In August 2022, the Company entered into a sales agreement with Cowen, acting as sales agent, pursuant to which it may offer and sell through Cowen up to $ 150.0 million in shares of the Company's common stock from time to time in a series of one or more at the market equity offerings.

As of December 31, 2023, the Company sold an aggregate of 4.7 million shares of the Company's common stock under the ATM facility, and received $ 27.6 million in net proceeds after deducting commissions and expenses.

Stock-based compensation

Equity incentive plans

In February 2021, the Company adopted the 2021 Incentive Award Plan (2021 Plan) and the 2021 Employee Stock Purchase Plan (2021 ESPP), both of which became effective on the completion of the Company’s initial public offering.

The 2021 Plan provides for a variety of stock-based compensation awards, including stock options, restricted stock awards (RSAs), and restricted stock units (RSUs).

The 2021 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 % of their earnings, subject to plan limitations.

Unless otherwise determined by the Company’s board of directors, employees may purchase shares at 85 % of the lower of the fair market value of the Company’s common stock on the first date of an offering period or on the purchase date.

As of December 31, 2023, 17.8 million shares and 4.6 million shares were available for future issuance under the 2021 Plan and the 2021 ESPP, respectively.

Stock-based compensation expense

Stock-based compensation expense is recognized in the consolidated statements of operations as follows:

Year Ended December 31,

(in thousands)

Research and development

General and administrative

Total stock-based compensation expense

Unrecognized stock-based compensation costs related to unvested awards and the weighted-average period over which the costs are expected to be recognized as of December 31, 2023 are as follows:

Stock Options

Unrecognized stock-based compensation expense (in thousands)

Weighted-average period costs expected to be recognized (in years)

Stock options

A summary of the Company’s stock option activity is as follows:

Stock Options

(in thousands)

Weighted-Average

Exercise Price per

Weighted-Average

Contractual Life

Aggregate Intrinsic

(in thousands)

Outstanding as of December 31, 2022

Forfeited/Cancelled

Outstanding as of December 31, 2023

Exercisable as of December 31, 2023

The fair value of stock options granted to employees, directors, and consultants was estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions:

Year Ended December 31,

Risk free interest rate

3.36 % – 4.98 %

1.56 % – 4.31 %

0.46 % – 1.38 %

Expected volatility

70.0 % – 72.5 %

Expected term (years)

Expected dividend

The following table summarizes additional information related to stock option activity:

Year Ended December 31,

Weighted average grant date fair value per share for options granted

Aggregate intrinsic value of stock options exercised (in thousands)

Restricted stock

A summary of the Company’s RSU activity is as follows:

(in thousands)

Weighted-Average

Grant Date Fair

Value per Share

Unvested shares as of December 31, 2022

Unvested shares as of December 31, 2023

The fair value of vested RSAs was immaterial , $ 1.8 million, and $ 1.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The fair value of vested RSUs was $ 1.9 million, $ 0.5 million, and $ 4.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, the Company had U.S.

federal and state tax-effected net operating loss (NOL) carryforwards of $ 146.9 million and $ 45.3 million, respectively, which are available to reduce future taxable income.

As of December 31, 2023, the Company also had federal and state research tax credits of $ 49.4 million and $ 19.6 million, respectively, which may be used to offset future liabilities.

The Tax Cuts and Jobs Act enacted on December 22, 2017, altered the carryforward period for federal net operating losses and as a result, all net operating losses generated in 2018 and forward have an indefinite life.

Of the federal net operating losses reported, we have accumulated $ 145.2 million with an indefinite life as of December 31, 2023.

The state NOL will begin to expire in 2036 .

The federal tax credit carryforward will begin to expire in 2037 , and the state tax credit will carry forward indefinitely.

The NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest.

This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

Subsequent ownership changes may further affect the limitation in future years.

A reconciliation of income taxes computed using the U.S.

federal statutory rate to that reflected in operations follows:

Year Ended December 31,

Federal statutory tax

State income tax, net of federal benefit

Valuation allowance

Success payment liabilities

Contingent consideration

Effective income tax rate

The principal components of the Company’s net deferred tax assets are as follows:

(in thousands)

Deferred tax assets:

Net operating loss carryforwards

Capitalized research and development

Tax credit carryforwards

Lease liabilities

Stock-based compensation

Accrued liabilities and allowances

Success payment liabilities

Gross deferred tax assets

Valuation allowance

Deferred tax assets, net of valuation allowance

Deferred tax liabilities:

Right-of-use assets

Net deferred taxes assets

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022.

Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique.

This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized over five years for domestic research and development and fifteen years for foreign research and development.

We have included the impact of this provision, which results in a deferred tax asset of approximately $ 101.1 million as of December 31, 2023.

The valuation allowance relates primarily to net U.S.

deferred tax assets from operating losses, research tax credit carryforwards, capitalized research and development, and amounts paid and accrued to enter into various agreements for which the tax treatment requires capitalization and amortization.

The Company maintains a full valuation allowance on its net U.S.

deferred tax assets.

The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable.

In making this assessment, significant weight is given to evidence that can be objectively verified.

In its evaluation, the Company considered its cumulative losses and its forecasted losses in the near term as significant negative evidence.

Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes , the Company determined that the negative evidence outweighed the positive evidence, and a full valuation allowance on its net deferred tax assets should be maintained.

The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed.

The Company determines its uncertain tax positions based on a determination of whether and how much of the tax benefit the Company takes in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities.

The Company is generally subject to examination by U.S.

federal and local income tax authorities for all tax years in which the loss carryforward is available.

The Company applies judgment in its determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

As of December 31, 2023 and 2022, the Company’s uncertain tax positions were immaterial.

Net loss per share

Basic and diluted net loss per common share are calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.

The Company was in a loss position for all periods presented, and basic net loss per share and diluted net loss per share are therefore the same for all periods, as the inclusion of all potential common securities outstanding would have been anti-dilutive.

The following securities were excluded from the computation of net loss per diluted share of common stock for periods presented as their effect would have been anti-dilutive:

Year Ended December 31,

(in thousands)

Options to purchase common stock

Unvested restricted common stock

Unvested RSUs

Employee benefit plan

In January 2019, the Company adopted a 401(k) retirement and savings plan (the 401(k) Plan) covering all employees.

The 401(k) Plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the IRS.

The Company matches each participant’s 401(k) contributions, up to $ 4,000 per year per participant.

Subsequent event

In February 2024, the Company completed an underwritten public offering pursuant to which it sold 21.8 million shares of its common stock, including 4.5 million shares pursuant to the full exercise of the underwriters' option to purchase additional shares, and pre-funded warrants to purchase 12.7 million shares of its common stock, for net proceeds of approximately $ 179.9 million, after deducting underwriting discounts and commissions and estimated offering expenses.

Changes in and Disagreements with Accoun tants on Accounting and Financial Disclosure.

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