Sana Biotechnology, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. SANA BIOTECHNOLOGY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 163 Consolidated Balance Sheets 164 Consolidated Statements of Operations 165 Consolidated Statements of Comprehensive Loss 166 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit 167 Consolidated Statements of Cash Flows 168 Notes to Consolidated Financial Statements 169 162 Table of Contents Index to Financial Statements Report of Independent Registered Public Accounting Firm To the Shareholders 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, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ deficit and cash flows for the years ended December 31, 2020 and 2019 and for the period from July 13, 2018 (inception) to December 31, 2018, 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, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019 and for the period from July 13, 2018 (inception) to December 31, 2018, 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 March 24, 2021 163 Table of Contents Index to Financial Statements Sana Biotechnology, Inc. Consolidated Balance Sheets (in thousands, except per share amounts) December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 124,806 $ 80,030 Marketable securities 253,458 58,952 Prepaid expenses and other current assets 6,203 5,281 Total current assets 384,467 144,263 Property and equipment, net 46,775 27,911 Operating lease right-of-use assets, net 63,168 40,897 Restricted cash 2,143 1,777 Long-term marketable securities 33,731 - Intangible asset 59,195 59,195 Goodwill 140,627 140,627 Other non-current assets 190 522 TOTAL ASSETS $ 730,296 $ 415,192 LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 2,253 $ - Accrued compensation 16,020 8,094 Accrued expenses and other current liabilities 9,466 9,887 Operating lease liabilities 3,712 1,342 Total current liabilities 31,451 19,323 Operating lease liabilities, net of current portion 68,197 46,359 Contingent consideration 121,901 69,108 Success payment liabilities 76,494 4,352 Other non-current liabilities 540 1,233 Total liabilities 298,583 140,375 Commitments and contingencies (Note 10) Convertible preferred stock, $0.0001 par value; 537,786 shares authorized as of December 31, 2020 and 2019; 134,113 and 106,890 shares issued and outstanding as of December 31, 2020 and 2019, respectively; aggregate liquidation preference of $926,666 and $450,837 as of December 31, 2020 and 2019, respectively 852,897 417,359 Stockholders’ deficit: Common stock, $0.0001 par value; 707,000 and 700,000 shares authorized as of December 31, 2020 and 2019, respectively; 16,170 and 10,003 shares issued and outstanding as of December 31, 2020 and 2019, respectively 2 1 Additional paid-in capital 8,216 1,558 Accumulated other comprehensive income 30 26 Accumulated deficit (429,432) (144,127) Total stockholders’ deficit (421,184) (142,542) TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS DEFICIT $ 730,296 $ 415,192 The accompanying notes are an integral part of these consolidated financial statements. 164 Table of Contents Index to Financial Statements Sana Biotechnology, Inc. Consolidated Statements of Operations (in thousands, except per share amounts) Year Ended December 31, Period from July 13, 2018 (Inception) to December 31, 2018 2020 2019 Operating expenses: Research and development $ 257,879 $ 119,375 $ 9,040 General and administrative 28,270 21,777 4,206 Total operating expenses 286,149 141,152 13,246 Loss from operations (286,149) (141,152) (13,246) Interest income, net 747 2,856 - Other income (expense), net 97 (29) (1) Loss before income taxes (285,305) (138,325) (13,247) Benefit from income taxes - 7,547 - Net loss $ (285,305) $ (130,778) $ (13,247) Net loss per share, basic and diluted $ (21.92) $ (26.68) $ (13.91) Weighted-average shares outstanding, basic and diluted 13,014 4,903 952 The accompanying notes are an integral part of these consolidated financial statements. 165 Table of Contents Index to Financial Statements Sana Biotechnology, Inc. Consolidated Statements of Comprehensive Loss (in thousands) Year Ended December 31, Period from July 13, 2018 (Inception) to December 31, 2018 2020 2019 Net loss $ (285,305) $ (130,778) $ (13,247) Other comprehensive income, net of tax: Unrealized gain on marketable securities, net 4 26 - Total comprehensive loss $ (285,301) $ (130,752) $ (13,247) The accompanying notes are an integral part of these consolidated financial statements. 166 Table of Contents Index to Financial Statements Sana Biotechnology, Inc. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit (in thousands) Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Balance as of July 13, 2018 (Inception) - $ - - $ - $ - $ - $ - $ - Issuance of common stock - - 351 - - - - - Issuance of Series A-1 convertible preferred stock, net of issuance costs of $100 11,463 45,721 - - - - - - Stock-based compensation expense - - 1,226 - 59 - - 59 Net loss - - - - - - (13,247) (13,247) Balance as of December 31, 2018 11,463 $ 45,721 1,577 $ - $ 59 $ - $ (13,247) $ (13,188) Adjustment to beginning accumulated deficit from adoption of ASC 842 - - - - - - (102) (102) Issuance of Series A-2 convertible preferred stock, net of issuance costs of $300 56,003 223,739 - - - - - - Issuance of Series A-2 convertible preferred stock for acquisition, non-cash 36,442 135,971 - - - - - - Issuance of Series A-2 convertible preferred stock in connection with license agreements 2,982 11,928 - - - - - - Stock-based compensation expense - - 8,425 1 1,498 - - 1,499 Exercise of stock options - - 1 - 1 - - 1 Unrealized gain on marketable securities, net - - - - - 26 - 26 Net loss - - - - - - (130,778) (130,778) Balance as of December 31, 2019 106,890 $ 417,359 10,003 $ 1 $ 1,558 $ 26 $ (144,127) $ (142,542) Issuance of Series B convertible preferred stock, net of issuance costs of $33 27,223 435,538 - - - - - - Issuance of common stock in connection with license agreements - - 100 - 680 - - 680 Stock-based compensation expense - - 5,964 1 5,829 - - 5,830 Exercise of stock options - - 103 - 149 - - 149 Unrealized gain on marketable securities, net - - - - - 4 - 4 Net loss - - - - - - (285,305) (285,305) Balance as of December 31, 2020 134,113 $ 852,897 16,170 $ 2 $ 8,216 $ 30 $ (429,432) $ (421,184) The accompanying notes are an integral part of these consolidated financial statements. 167 Table of Contents Index to Financial Statements Sana Biotechnology, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, Period from July 13, 2018 (Inception) to 2020 2019 December 31, 2018 OPERATING ACTIVITIES: Net loss $ (285,305 ) $ (130,778 ) $ (13,247) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 5,921 1,826 1 Deferred income tax - (7,547 ) - Stock-based compensation expense 5,828 1,497 59 Change in fair value of contingent consideration 52,793 17,860 - Change in fair value of success payment liabilities 72,142 1,924 - Non-cash expense for equity issuance in connection with license agreements 680 11,928 - Non-cash expense in connection with license agreement - 4,557 - Non-cash expense in connection with asset acquisition 850 1,200 - Non-cash expense for operating lease right-of-use assets 4,250 2,095 - Other non-cash items, net (1,297 ) (592 ) - Changes in operating assets and liabilities: Prepaid expenses and other assets (1,436 ) (4,300 ) (1,982) Operating lease right-of-use assets and liabilities 91 5,697 - Accounts payable 1,982 (421 ) 289 Accrued expenses and other liabilities 5,519 9,550 1,385 Net cash used in operating activities (137,982 ) (85,504 ) (13,495) INVESTING ACTIVITIES: Purchases of marketable securities (387,432 ) (141,519 ) - Proceeds from sales and maturities of marketable securities 158,741 82,977 - Purchases of property and equipment (23,872 ) (26,183 ) (460) Acquisitions, net of cash acquired - (3,195 ) - Proceeds from disposal of assets - 59 - Issuance of promissory note - - (320) Net cash used in investing activities (252,563 ) (87,861 ) (780) FINANCING ACTIVITIES: Proceeds from issuance of convertible preferred stock, net of issuance costs 435,538 223,739 45,721 Proceeds from issuance of common stock 149 1 - Payment of contingent consideration - (14 ) - Net cash provided by financing activities 435,687 223,726 45,721 Net increase in cash, cash equivalents, and restricted cash 45,142 50,361 31,446 Cash, cash equivalents, and restricted cash at beginning of period 81,807 31,446 - Cash, cash equivalents, and restricted cash at end of period $ 126,949 $ 81,807 $ 31,446 SUPPLEMENTAL CASH FLOW DISCLOSURES: Right-of-use assets obtained in exchange for operating lease liabilities $ 26,521 $ 48,863 $ - Tenant improvement allowance included in contra-lease liability $ 8,515 $ 2,575 $ - Purchases of property and equipment included in accounts payable and accrued liabilities $ 3,140 $ 2,495 $ 126 Cash received from lessor for tenant improvement allowance $ 91 $ 5,697 $ - Issuance of convertible preferred stock for acquisition $ - $ 135,971 $ - The accompanying notes are an integral part of these consolidated financial statements. 168 Table of Contents Index to Financial Statements Sana Biotechnology, Inc. Notes to Consolidated Financial Statements 1. Organization Sana Biotechnology, Inc. (the Company or Sana) was incorporated in Delaware on July 13, 2018 (inception) as FD Therapeutics, Inc., and changed its name to Sana Biotechnology, Inc. on September 17, 2018. 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, acquiring technology, organizing and staffing the Company, business planning, establishing the Company’s intellectual property portfolio, raising capital, and providing general and administrative support for these operations. In September 2020, the Company acquired 100% of the outstanding shares of common stock of Oscine Corp. (Oscine), a privately-held early-stage biotechnology company developing ex vivo glial progenitor cell programs focused on brain disorders. The acquisition of Oscine complements the Company’s ex vivo cell engineering portfolio. See Note 3, Acquisitions. In November 2019, the Company acquired Cytocardia, Inc. (Cytocardia), a privately-held early-stage biotechnology company whose primary asset was in-process research and development related to its ex vivo cell engineering programs focused on replacement of damaged heart cells. See Note 3, Acquisitions. In February 2019, the Company acquired 100% of the outstanding equity in Cobalt Biomedicine, Inc. (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 adds in-vivo cell engineering technology to complement the Company’s existing ex-vivo cell engineering technology. See Note 3, Acquisitions. Reverse stock split On January 26, 2021, the Company’s board of directors approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-4 reverse stock split of shares of the Company’s common and convertible preferred stock, which was effected on January 27, 2021. The par value per share and authorized shares of common and convertible preferred stock were not adjusted as a result of the reverse stock split. All share and per share information included in the accompanying consolidated financial statements have been adjusted to reflect the reverse stock split. Initial public offering In February 2021, the Company completed its initial public offering (IPO) of its common stock. In connection with its IPO, the Company 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, at a price of $25.00 per share, and received $626.6 million in net proceeds, after deducting underwriting discounts and commissions of $45.2 million and offering expenses of $3.8 million. At the closing of the IPO, 134.1 million shares of convertible preferred stock then outstanding were automatically converted into shares of common stock. The related carrying value of the converted preferred stock of $852.9 million was reclassified to common stock and additional paid in-capital. Additionally, the Company amended and restated its certificate of incorporation, effective February 2021, increasing the number of shares of all classes of stock the Company has authority to issue to 800.0 million shares, of which 750.0 million shares shall be common stock, and 50.0 million shares shall be convertible preferred stock. Need for additional capital 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, 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, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the 169 Table of Contents Index to Financial Statements Company’s products, protect the Company’s intellectual property and proprietary technology, 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 from the sale of additional equity or debt financings, or other capital which come in the form of strategic collaborations, 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. The Company has incurred operating losses each year since inception and expects such losses to continue for the foreseeable future. As of December 31, 2020, the Company had an accumulated deficit of $429.4 million and cash, cash equivalents, and marketable securities of $412.0 million. 2. Summary of significant accounting policies Basis of presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The Company’s consolidated financial statements 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 consolidated 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, the valuation of convertible preferred stock, common stock, and stock options. 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. Unrealized gains and losses are reported as a component of accumulated comprehensive income (loss). Amortization, accretion, interest, dividends, realized gains and losses, and declines in value judged to be other than-temporary are included in other income (expense). The cost of securities sold is based on the specific-identification method. Investments in securities with maturities of less than one year, or those which management intends to use to fund current operations, are included in current assets. The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment. 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 170 Table of Contents Index to Financial Statements 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, marketable securities, note receivable, accounts payable, contingent consideration, success payment liabilities, contingent license liability, 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 7, Fair value measurements. 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 and amortization are removed from the balance sheet and the resulting gain or loss is recorded in other income (expense), net in the period realized. Maintenance and repairs 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 has not recognized any impairment losses since inception. Deferred offering costs Deferred offering costs, consisting of legal, accounting, and other third-party fees directly association with the IPO, are capitalized. Upon completion of the IPO in February 2021, these costs will be recorded in stockholders’ equity as a reduction of the additional paid-in-capital generated as a result of the offering. As of December 31, 2020, the Company had incurred $2.0 million in deferred offering costs related to the IPO which were included in other current assets in the consolidated balance sheet. Acquisitions 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 171 Table of Contents Index to Financial Statements 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. 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 has been estimated using the replacement cost method. Under this method, the Company estimated the cost to recreate the technology and derived 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. 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 expense. 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. Success payments The Company granted rights to a success payment to Cobalt pursuant to the terms of its acquisition agreement and to the President and Fellows of Harvard College (Harvard) pursuant to the terms of its exclusive license agreement. See Note 3, Acquisitions and Note 5, 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 success payment related to the acquisition of Cobalt (Cobalt Success Payment) was recorded as a liability on the consolidated balance sheets 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 expense. For the success payments to Harvard (Harvard Success Payments), both the initial value and subsequent changes in fair value are recorded in research and development expense. 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 172 Table of Contents Index to Financial Statements commensurate with the remaining terms of the success payments. Additionally, prior to the IPO, the Cobalt Success Payment liability incorporated the estimated future value of the Company implied by the estimated per share value of the Company’s Series B convertible preferred stock at issuance, and the Harvard Success Payment liability incorporated the estimated per share value of the Company’s Series A convertible preferred stock. Concurrent with the closing of the Company’s IPO in February 2021, the Company’s Series A and Series B convertible preferred stock converted into common stock. Subsequent to the IPO, the computation of the estimated fair value of the Cobalt Success Payment liability will incorporate the market capitalization of the Company and the computation of the estimated fair value of the Harvard Success Payments will incorporate the per share fair market value of the Company’s common stock at the end of each reporting period. Leases In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (ASC 842). The new guidance requires lessees to recognize assets and liabilities arising from leases with a term of greater than 12 months on the balance sheet and certain qualitative and quantitative disclosures are required. The Company adopted this standard on January 1, 2019 and elected to apply the package of practical expedients as permitted under the transition guidance. As a result, the Company did not reassess the classification of existing leases, whether any expired or existing contracts contain leases, the initial direct costs for any existing leases, or separate lease and non-lease components. The adoption of ASC 842 resulted in the recognition of an operating lease right-of-use (ROU) asset and operating lease liability of $8.9 million on the Company’s consolidated balance sheet on January 1, 2019. At the inception of the arrangement, 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 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 non-good manufacturing process (GMP) pilot plant 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 under ASC 842 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 from 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. Convertible preferred stock The carrying value of the Company’s Series A-1, Series A-2, and Series B convertible preferred stock is adjusted to reflect dividends if and when declared by the Company’s board of directors. No dividends have been declared by the board of directors since inception. The Company classifies its convertible preferred stock outside of permanent equity, as the redemption of such stock is not solely under the control of the Company. The Company recorded its convertible preferred stock at the issuance price on the dates of issuance, net of issuance costs. Concurrent with the closing of the Company’s IPO in February 2021, all of the Company’s convertible preferred stock converted into common stock. 173 Table of Contents Index to Financial Statements Stock-based compensation The Company grants stock-based awards to employees, directors, and non-employees, in the form of incentive stock options, non-qualified stock options, restricted stock awards (RSAs), and restricted stock units (RSUs). The Company utilizes significant estimates and assumptions in determining the fair value of its common stock. The Company records stock-based compensation expense at prices not less than the fair value of its common stock as determined by management with consideration of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, (AICPA Guide) . The estimated fair value of the Company’s common stock is based on a number of objective and subjective factors, including the most recently available valuations of the Company’s common stock performed by an independent third-party valuation firm, the prices of shares of convertible preferred stock sold to investors in arm’s length transactions, the superior rights and preferences of securities senior to the Company’s common stock at the time, the Company’s stage of development, results of operation and financial position, material risks to the Company’s business, the lack of marketability of the common stock, and external market conditions affecting the biotechnology industry sector. Following the closing of the IPO, the fair value of the common stock will be based on its closing price as reported on the Nasdaq Global Select Market on the date of grant. The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation by measuring the fair value of the award on the date of grant. Stock-based compensation expense is recognized 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. The Company accounts for stock-based awards issued to non-employees under ASU 2018-07, Compensation—Stock Compensation, by measuring the fair value of the award on the date of grant and recognizing stock-based compensation expense over the requisite service period, which is generally the vesting period of the award. The majority of the Company’s stock-based awards vest over four years. The fair value of stock options is estimated at 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 Company’s board of directors, with the assistance and upon the recommendation of management, has for financial reporting purposes periodically determined the estimated per share fair value of the Company’s common stock on the grant date in part using contemporaneous independent third-party valuations consistent with the AICPA Guide. • Expected Term —The expected term represents the period that the stock-based awards are 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 options. • Expected Volatility —Due to the lack of a public market for the Company’s common stock, 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. 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 consist of costs incurred by the Company for the 174 Table of Contents Index to Financial Statements discovery and development of the Company’s platform technology and product candidates, and contain personnel costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, laboratory supplies, costs to acquire and license technologies aligned with the Company’s goal of translating engineered cells to medicine, changes in the estimated fair value of the success payment liabilities and contingent consideration, and other expenses, which include facility and other allocated expenses, including rent, depreciation, and allocated overhead costs, and other research and development costs. General and administrative expenses General and administrative expenses consist of personnel costs, including salaries, benefits, and non-cash stock-based compensation, for our employees in finance, human resources, legal, information technology, executive, 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. Income taxes 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. Segments 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”, as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Under the JOBS Act, emerging growth companies 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. 175 Table of Contents Index to Financial Statements Recent accounting pronouncements Recently adopted Accounting Standards Update (ASU) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, (ASU 2018-13). The new standard removes certain disclosures, modifies certain disclosures, and adds additional disclosures related to fair value measurement. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption resulted in additional disclosures related to the Company’s Level 3 financial instruments. See Note 7, Fair value measurements. Not yet adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 362): Measurement of Credit Losses on Financial Statements, ASU No. 2019-05 Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief, ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 362): Measurement of Credit Losses on Financial Statements (ASU 2016-13). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The targeted transition relief standard allows companies an option to irrevocably elect the fair value option of ASC 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments. As an emerging growth company, Topic 326 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company plans to adopt ASU 2016-13 effective January 1, 2021 and does not expect the adoption to have a material impact on the consolidated financial statements and disclosures. ASU No. 2017-04 , Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this ASU remove the second step of the test. An entity will instead apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The new standard will be effective beginning January 1, 2023. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements. 3. Acquisitions Oscine Corp. In September 2020, the Company entered into a stock purchase agreement to acquire 100% of the outstanding equity in Oscine for a purchase price of $8.5 million, of which $7.6 million was an upfront cash payment, and $0.9 million was set aside to satisfy certain general representations and warranties as set forth in the stock purchase agreement (Oscine Holdback Amount). The primary asset acquired in the acquisition was IPR&D technology related to Oscine’s glial progenitor ex vivo cell engineering programs focused on brain disorders. The Company evaluated the acquisition and determined the screen test, as permitted under ASC 805, Business Combinations , was met as the $8.5 million purchase price represented consideration for a single identifiable asset related to the technology. The Company concluded the asset acquired did not meet the definition of a business, and the asset had no alternative future use. The transaction was accounted for as an asset acquisition and the purchase price of $8.5 million was recorded in research and development expense for the year ended December 31, 2020. 176 Table of Contents Index to Financial Statements The Oscine Holdback Amount will be held for 15 months, until December 2021, at which time the remainder of the balance, after payment of any claims, will be released. In addition, the Company is required to make up to an aggregate of $225.8 million in future milestone payments upon the achievement of certain development and commercial milestones. Prior to the acquisition in November 2018, the Company entered into a collaboration, license, and option to purchase agreement with Oscine and paid a $5.0 million non-refundable upfront fee, which was recognized in research and development expense for the period from July 13, 2018 (inception) to December 31, 2018. In connection with the Oscine agreement, the Company recognized $3.4 million, $4.2 million, and $0.2 million in research and development expenses for the years ended December 31, 2020 and 2019, and the period from July 13, 2018 (inception) to December 31, 2018, respectively. Cytocardia, Inc. In November 2019, the Company acquired 100% of the outstanding equity in Cytocardia for a purchase price of $8.0 million, of which $6.8 million was an upfront cash payment, and $1.2 million was set aside to satisfy certain general representations and warranties as set forth in the stock purchase agreement (Cytocardia Holdback Amount). The primary asset acquired in the acquisition was IPR&D technology related to Cytocardia’s ex vivo cell engineering programs focused on replacement of damaged heart cells. The Company evaluated the acquisition and determined the screen test, as permitted under ASC 805, Business Combinations , was met as the $8.0 million purchase price represented consideration for a single identifiable asset related to the technology. The Company concluded the asset acquired did not meet the accounting definition of a business as inputs were acquired, but no processes or outputs were acquired, and the asset had no alternative future use. The transaction was accounted for as an asset acquisition and the purchase price was recorded in research and development expense for the year ended December 31, 2019. The Cytocardia Holdback Amount was held for 15 months, until February 2021, at which time the remainder of the balance, after payment of any claims, was released to the co-founders. In addition, the Company is required to make future milestone payments of up to an aggregate of $140.0 million upon the achievement of certain pre-specified development and commercial milestones. Cobalt Biomedicine, Inc. In February 2019, the Company acquired 100% of the outstanding equity in 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 Company issued 36.4 million shares of its Series A-2 convertible preferred stock in consideration for this transaction, valued at $136.0 million. Of the 36.4 million shares of Series A-2 convertible preferred stock issued, 12.1 million shares were restricted based on the achievement of a pre-specified development milestone, which was achieved in July 2019. Additionally, 0.7 million RSAs and 0.3 million RSUs were granted to former employees of Cobalt. The Company accounted for the Cobalt acquisition as a business combination using the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed are measured at their fair values as of the acquisition date. The elements of the purchase consideration are as follows (in thousands): Series A-2 convertible preferred stock issued (1) $ 97,178 First milestone - restricted Series A-2 convertible preferred stock (2) 38,769 Success payment (3) 2,428 Fair value of contingent consideration (4) 51,248 Other 66 Total consideration $ 189,689 (1) The purchase consideration included 24.3 million shares of the Company’s Series A-2 convertible preferred stock. The value of the stock issued was $4.00 per share, equivalent to the purchase price per share of the Series A-2 convertible preferred stock financing that occurred in February 2019. (2) The Company concluded the value of the first milestone, to be paid in restricted shares of Series A-2 convertible preferred stock, met the definition of being indexed to common stock. The restricted Series A-2 convertible preferred shares were recorded in convertible preferred stock valued at 177 Table of Contents Index to Financial Statements $38.8 million based on the estimated probability and timing of the milestone achievement on the date of acquisition and are not subject to remeasurement upon achievement. In July 2019, the first milestone was achieved, and the Company issued a total of 12.1 million shares of its Series A-2 convertible preferred stock. (3) The fair value of the success payment was determined using a Monte Carlo simulation methodology which models the estimated fair value of the liability based on several key assumptions including the term of the success payment, expected volatility, risk-free interest rate, estimated number and timing of valuation measurement dates on the basis of which payment may be triggered, and the estimated future value of the Company implied by the estimated future per share value of the Company’s Series B convertible preferred stock at issuance. (4) The fair value of the contingent consideration was determined by calculating the probability-weighted value of the milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved and using estimated discount rates ranging from 15.3% to 17.6%. The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. The allocation of the purchase price is based on the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition. The components of the purchase price allocation are as follows (in thousands): Net working capital $ (3,275) Property and equipment 689 Net liabilities assumed (2,586) Deferred tax liability (7,547) Acquired in-process research and development 59,195 Goodwill 140,627 Total consideration $ 189,689 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 is obtained in a major market, typically either the United States (U.S.) or the European Union, subject to management judgment. 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 its ex-vivo portfolio with in-vivo cell engineering technology and furthers the continued research in using engineered cells as medicines. The goodwill is not deductible for income tax purposes. The Company also agreed to pay contingent consideration of up to an aggregate of $500.0 million upon the achievement of certain pre-specified development milestones (Cobalt Contingent Consideration), and a Cobalt Success Payment of up to $500.0 million, payable in cash or stock, at the Company’s discretion, pursuant to the terms and conditions in the Cobalt acquisition agreement. Prior to the IPO, the Cobalt Success Payment was payable, if, at pre-determined valuation measurement dates, the value of the Company was equal to or exceeded three times the value of the Company implied by the per share value of the Company’s Series B convertible preferred stock at issuance, or any security into which such stock had been converted or exchanged, and the Company had an active program based on the fusogen technology in a clinical trial pursuant to an investigational new drug (IND), or have filed for, or received approval for, a biologics license application (BLA) or new drug application (NDA). Subsequent to the IPO, the threshold to determine if a payment is due will be based on whether the Company’s market capitalization equals or exceeds $8.1 billion at pre-determined valuation measurement dates, and the Company has an active program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a BLA or NDA. The Cobalt Success Payment can be achieved over a maximum of 20 years but could be shorter upon the occurrence of certain events. The valuation measurement dates for the Cobalt Success Payment are triggered by an IPO, and periodically thereafter. The IPO in February 2021 did not trigger a success payment to Cobalt. In addition to an IPO, a valuation measurement date is triggered upon a change of control when at least one company product utilizing technology acquired from Cobalt is the subject of an active research program. If there is a change of control and Company’s market capitalization falls below certain thresholds on the change of control date, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase. 178 Table of Contents Index to Financial Statements The following table sets forth the different market capitalizations and resulting potential Cobalt Success Payment and additional potential Cobalt Contingent Consideration if there is a change of control subsequent to the IPO: Sana Market Capitalization Upon a Change of Control and Resulting Impact to Cobalt Success Payment and Additional Potential Cobalt Consideration Cobalt Success Payment Additional Potential Cobalt Contingent Consideration (in millions) Equal to or exceeds $8.1 billion $ 500 $ - Equal to or exceeds $7.4 billion, but less than $8.1 billion 150 350 Equal to or exceeds $6.8 billion, but less than $7.4 billion 100 400 Less than $6.8 billion - 500 The Cobalt Success Payment and Cobalt Contingent Consideration liabilities are carried at fair value with changes in fair value recognized in research and development expense. As of December 31, 2020 and 2019, the estimated fair value of the Cobalt Success Payment liability was $64.7 million and $2.4 million, respectively, and the estimated fair value of the Cobalt Contingent Consideration was $121.9 million and $69.1 million, respectively. For the years ended December 31, 2020 and 2019 the Company recognized $62.3 million and an immaterial amount in research and development expense in connection with the change in fair value of the Cobalt Success Payment, respectively, and $52.8 million and $17.9 million in connection with the change in fair value of the Cobalt Contingent Consideration, respectively. 4. Intangible asset and goodwill As of December 31, 2020, the Company had an intangible asset of $59.2 million, which consists of IPR&D acquired from the Cobalt acquisition which occurred in 2019 and 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 that will be amortized over its estimated useful life. As of December 31, 2020, there was no amortization of the intangible asset. As of December 31, 2020, the Company had goodwill of $140.6 million, which represents the excess of the purchase price over the estimated fair value of the net assets acquired from the Cobalt acquisition which occurred in 2019. There were no impairments of the intangible asset or goodwill since the acquisition. 5. License and collaboration agreements 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 hypo-immune cells (the Harvard Agreement). Under this agreement, the Company paid $3.0 million in cash and issued 2.2 million shares of its Series A-2 convertible preferred stock, valued at $4.00 per share, for total consideration of $12.0 million. The Company determined the licensed technology had no alternative future use and therefore the $12.0 million was recorded in research and development expense for the year ended December 31, 2019. In connection with this agreement, the Company agreed to pay Harvard a license payment of $6.0 million in cash contingent upon the closing of the Company’s Series B convertible preferred stock financing. This contingent license payment was accounted for as a derivative under ASC 815, Derivatives and Hedging, carried at fair value, and was revalued each reporting period with changes recognized in research and development expense. As of December 31, 2019, the estimated fair value of the contingent license payment to Harvard was $4.6 million and the Company recorded research and development expense of $4.6 million for the year ended December 31, 2019. The Series B convertible preferred stock financing closed in June 2020, and the Company paid Harvard $6.0 million in cash, and recorded $1.4 million in research and development expense for the year ended December 31, 2020. The Company may also be required to pay certain pre-specified development and regulatory milestone payments up to an aggregate of $76.0 million, which would double upon a change of control. Further, under the terms of the agreement, the Company may be required to make success payments to Harvard (Harvard Success Payments) up to an aggregate of $175.0 million, payable in cash, based on increases in the fair value of the Company’s Series A convertible preferred stock, or any security into which such stock has been converted or exchanged. Concurrent with the closing of the Company’s IPO in February 2021, the Series A convertible preferred stock 179 Table of Contents Index to Financial Statements was converted into common stock and as a result, going forward the per share fair market value of the Company’s common stock will determine whether a success payment is owed to Harvard. The potential 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 pre-determined valuation measurement dates. The aggregate amount of the Harvard Success Payments does not exceed an aggregate of $175.0 million which would only occur upon a 40x increase in value. 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 are 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. The valuation measurement dates are triggered by events which include: the one year anniversary of an IPO and periodically thereafter, a merger, an asset sale, the sale of the majority of the shares held by the Company’s Series A convertible preferred stockholders, and the last day of the term of the success payments. The first Harvard valuation measurement date is expected to occur in February 2022, one year from the IPO. The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement. The following table summarizes the potential success payments and common stock price required for payment: Multiple of Equity Value at Issuance 5x 10x 20x 30x 40x Per share common stock price required for payment $ 20.00 $ 40.00 $ 80.00 $ 120.00 $ 160.00 Success payment(s) (in millions) $ 5.0 $ 15.0 $ 30.0 $ 50.0 $ 75.0 To determine the estimated fair value of the Harvard Success Payment liability the Company uses a Monte Carlo simulation methodology which models the future movement of its common stock price based on several key assumptions. See Note 7, Fair value measurements. As of December 31, 2020 and 2019, the estimated fair value of the Harvard Success Payment liability was $11.8 million and $1.9 million, respectively, and the Company recorded research and development expense of $9.9 million and $1.9 million for the years ended December 31, 2020 and 2019, respectively. 6. Restricted cash As of December 31, 2020 and 2019, the Company maintained standby letters of credit of $2.1 million and $1.8 million, respectively, which are collateralized with a bank account at a financial institution in accordance with the lease agreements as follows: December 31, 2020 2019 (in thousands) South San Francisco, CA $ 816 $ 816 Cambridge, MA 961 961 Seattle, WA 366 - Total restricted cash $ 2,143 $ 1,777 180 Table of Contents Index to Financial Statements 7. 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, 2020 Valuation Hierarchy Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value (in thousands) Financial assets: Cash equivalents: Money market funds Level 1 $ 48,359 $ - $ - $ 48,359 U.S. government and agency securities Level 2 40,727 1 (1) 40,727 Corporate debt securities Level 2 1,138 - - 1,138 Total cash equivalents 90,224 1 (1) 90,224 Short-term marketable securities: U.S. government and agency securities Level 2 244,637 30 (5) 244,662 Corporate debt securities Level 2 8,798 - (2) 8,796 Total marketable securities 253,435 30 (7) 253,458 Long-term marketable securities: U.S. government and agency securities Level 2 33,724 7 - 33,731 Total long-term marketable securities 33,724 7 - 33,731 Total financial assets $ 377,383 $ 38 $ (8) $ 377,413 Financial liabilities: Contingent consideration Level 3 $ 121,901 $ - $ - $ 121,901 Success payment liabilities Level 3 76,494 - - 76,494 Total financial liabilities $ 198,395 $ - $ - $ 198,395 December 31, 2019 Valuation Hierarchy Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value (in thousands) Financial assets: Cash equivalents: Money market funds Level 1 $ 49,420 $ - $ - $ 49,420 U.S. government and agency securities Level 2 18,682 1 - 18,683 Corporate debt securities Level 2 8,433 1 (1) 8,433 Total cash equivalents 76,535 2 (1) 76,536 Short-term marketable securities: U.S. government and agency securities Level 2 42,450 17 (1) 42,466 Corporate debt securities Level 2 16,477 10 (1) 16,486 Total marketable securities 58,927 27 (2) 58,952 Total financial assets $ 135,462 $ 29 $ (3) $ 135,488 Financial liabilities: Contingent license payment Level 3 $ 4,557 $ - $ - $ 4,557 Contingent consideration Level 3 69,108 - - 69,108 Success payment liabilities Level 3 4,352 - - 4,352 Total financial liabilities $ 78,017 $ - $ - $ 78,017 181 Table of Contents Index to Financial Statements The Company evaluated its securities for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. Securities in an unrealized loss position have been in an unrealized loss position for less than one year. For the debt securities, it is not more-likely-than-not that the Company will be required to sell the securities, and the Company does not intend to do so prior to the recovery of the amortized cost basis. As of December 31, 2020, 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, 2020, the balance in accumulated other comprehensive income included the net unrealized gains related to the Company’s available-for-sale debt securities. There were no material realized gains or losses recognized on the sale or maturity of available-for-sale securities during the years ended December 31, 2020 or 2019. 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, agency securities and corporate debt securities and are valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities: Contingent License Payment Contingent Consideration Success Payment Liabilities (in thousands) Balance as of December 31, 2019 $ 4,557 $ 69,108 $ 4,352 Payments (6,000 ) - - Changes in fair value 1,443 52,793 72,142 Balance as of December 31, 2020 $ - $ 121,901 $ 76,494 Contingent license payment The Company utilized estimates and assumptions in determining the estimated Harvard contingent license payment liability and associated expense at each balance sheet date. The assumptions used to calculate the fair value of the contingent license payment were subject to a significant amount of judgment including the expected probability of the Company’s Series B convertible preferred stock financing occurring and estimated timing of achievement. The Series B convertible preferred stock financing closed in June 2020, and the Company paid Harvard $6.0 million in cash, and recognized an additional $1.4 million in research and development expense for the year ended December 31, 2020. Contingent consideration In connection with the acquisition of Cobalt, the Company may be required to pay future consideration that is contingent upon the achievement of certain pre-specified development milestones. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. 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 certain 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 on-going basis as additional data impacting the assumptions is obtained. The fair value of the Cobalt Contingent Consideration was calculated using the following unobservable inputs: December 31, 2020 2019 Unobservable Input Range Weighted-Average Range Weighted-Average Discount rates 10.5% - 10.8% 10.6 % 14.6% - 15.6% 15.2 % Probability of milestone achievement 2.5% - 65.0% 27.6 % 1.9% - 47.5% 19.1 % 182 Table of Contents Index to Financial Statements The weighted-average unobservable inputs were calculated based on the relative value of the Cobalt Contingent Consideration. 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 and/or different valuation techniques could result in materially different fair value estimates. Significant increases or decreases in any of the inputs would result in a significantly higher or lower fair value measurement. Success payments The estimated fair value of the Cobalt and Harvard Success Payments was determined using a Monte Carlo simulation model in which the Company utilizes significant estimates and assumptions in determining the estimated success payment liabilities and associated expense or gain at each balance sheet date. The assumptions used to calculate the fair value of the success payment liabilities include expected volatility, remaining terms of the success payments, and estimated number and timing of valuation measurement dates. In addition, prior to the IPO, the calculation of the fair value of the success payment liabilities incorporated the estimated future per share value of the Company’s Series A convertible preferred stock and the estimated future value of the Company implied by the estimated future per share value of the Company’s Series B convertible preferred stock at issuance. Concurrent with the closing of the Company’s IPO in February 2021, the Company’s Series A and Series B convertible preferred stock converted into common stock. Subsequent to the IPO, the computation of the estimated fair value of the Harvard Success Payment liabilities will incorporate the per share fair market value of the Company’s common stock, and the estimated fair value of the Cobalt Success Payment liability will incorporate the market capitalization of the Company. The fair values of the Cobalt and Harvard Success Payments were calculated using the following unobservable inputs: December 31, 2020 2019 Unobservable Input Cobalt Harvard Cobalt Harvard Expected stock price volatility 70% 70% 70% 70% Expected term (years) 18 10 19 11 8. Property and equipment, net Property and equipment, net consists of the following: December 31, 2020 2019 (in thousands) Laboratory equipment $ 26,958 $ 15,046 Leasehold improvements 15,598 10,624 Construction in progress 11,180 3,421 Computer equipment, software and other 776 636 Total property and equipment, at cost 54,512 29,727 Less: Accumulated depreciation (7,737 ) (1,816) Property and equipment, net $ 46,775 $ 27,911 Depreciation expense was $5.9 million and $1.8 million for the year ended December 31, 2020 and 2019, respectively. Depreciation expense was immaterial for the period from July 13, 2018 (inception) to December 31, 2018. 183 Table of Contents Index to Financial Statements 9. Accrued liabilities Accrued compensation and accrued expenses and other current liabilities consist of the following: December 31, 2020 2019 (in thousands) Accrued compensation: Accrued bonuses $ 11,582 $ 6,035 Other accrued compensation 4,438 2,059 Total accrued compensation $ 16,020 $ 8,094 Accrued expenses and other current liabilities: Accrued property and equipment $ 2,892 $ 2,257 Accrued professional fees 1,717 1,131 Accrued research and development 1,197 309 Accrued contingent license payment - 4,557 Other 3,660 1,633 Total accrued expenses and other current liabilities $ 9,466 $ 9,887 10. Commitments and contingencies Lease commitments The Company’s lease portfolio is primarily comprised of operating leases for office, laboratory, and non-GMP pilot plant manufacturing space located in Seattle, WA, Cambridge, MA, and South San Francisco, CA. Operating leases have contractual periods expiring between April 2024 and April 2030. 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. The Seattle and South San Francisco lease agreements provide the Company with the option to renew for an additional period of five years. The Company is not reasonably certain it will renew these leases, and therefore the renewal options are not considered in the remaining lease term. Certain leases provide the Company the right to make tenant improvements, including the addition of laboratory space, and include a lease incentive allowance. The following table contains additional information related to our operating leases: Location Approximate Square Footage Commencement Dates Expiration Dates Seattle, WA 48,086 March 2019 to September 2020 December 2026 to April 2028 Cambridge, MA 56,859 March 2019 to May 2020 November 2025 to February 2028 South San Francisco, CA 66,075 December 2019 to October 2020 April 2024 to April 2030 Throughout the term of the lease agreements, the Company is responsible for paying certain operating costs, in addition to rent, 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: Period from July 13, 2018 (Inception) to December 31, 2018 (1) Year Ended December 31, 2020 2019 (in thousands) Operating lease cost $ 10,757 $ 4,898 $ 353 Shot-term lease cost 1,886 3,710 732 Variable lease cost 3,081 1,494 101 Total lease cost $ 15,724 $ 10,102 $ 1,186 (1) The Company adopted ASC 842 effective January 1, 2019 using the prospective transition method and utilizing the effective date as its date of initial application. Lease costs for the period from July 13, 2018 (inception) to December 31, 2018 is presented under previous guidance and is not comparable to the amounts recorded under ASC 842. 184 Table of Contents Index to Financial Statements As of December 31, 2020, the weighted-average remaining lease term was 7.34 years and the weighted-average IBR was 10.62%. The following table presents the scheduled maturities of the Company’s operating lease liabilities by fiscal year and the present value of those lease liabilities as of December 31, 2020 (in thousands): 2021 $ 14,071 2022 15,535 2023 15,989 2024 15,663 2025 15,621 2026 and thereafter 42,615 Total lease payments 119,494 Less: imputed interest (39,070) Less: tenant improvement allowances (8,515) Present value of lease liabilities $ 71,909 11. Convertible preferred stock Series A-1 convertible preferred stock financing In October 2018, the Company executed an agreement to sell up to 11.5 million shares of its Series A-1 convertible preferred stock at a price of $4.00 per share. The Company issued 11.5 million shares in October 2018 for gross proceeds of $45.9 million. Upon certain change in control events that are outside of the Company’s control, holders of the convertible preferred stock can cause its redemption. This requires the Company’s convertible preferred stock to be classified outside of stockholders’ deficit on the accompanying consolidated balance sheets. Series A-2 and Series B convertible preferred stock financing In February 2019, the Company executed an agreement for 54.0 million shares of its Series A-2 convertible preferred stock at a price of $4.00 per share, for gross proceeds of $216.1 million. In October 2019, an additional 2.0 million shares the Company’s Series A-2 convertible preferred stock were issued at a price of $4.00 per share, for gross proceeds of $7.9 million. The Series A-2 convertible preferred agreement also committed these investors to a Series B convertible preferred stock financing for up to 27.6 million shares of the Company’s Series B convertible preferred stock at a price of $16.00 per share contingent upon the occurrence of certain clinical milestones or the unanimous approval of the Company’s board of directors. Additionally, in the event the clinical milestones were not achieved, the agreement stated at least two large Series B convertible preferred stock investors, defined as investors with at least a $29.0 million Series B convertible preferred stock investment, had the right to object to the board of directors’ decision to call the Series B convertible preferred stock closing within seven days. In June 2020, the Company completed the Series B convertible preferred stock and issued 27.2 million shares of Series B convertible preferred stock at $16.00 per share for gross proceeds of $435.6 million. In December 2020, the Company amended and restated its certificate of incorporation and amended the investors’ rights agreement and voting agreement with its stockholders. Under the amended and restated certificate of incorporation, the authorized capital stock of the Company increased to 707.0 million shares, each with a par value of $0.0001 per share. The authorized shares consisted of 169.2 million shares designated as common stock and 537.8 million shares designated as convertible preferred stock. Rights issued with Series A-1, Series A-2, and Series B convertible preferred stock The Company assessed the Series A-1, Series A-2, and Series B convertible preferred stock for any beneficial conversion features or embedded derivatives, including the conversion option, that would require bifurcation from the 185 Table of Contents Index to Financial Statements convertible preferred stock and receive separate accounting treatment. On the dates of the issuances, the fair value of the common stock into which the convertible preferred stock was convertible was less than the effective conversion price of the Series A-1, Series A-2, and Series B convertible preferred stock; as such, there was no intrinsic value of the conversion option on the commitment date. Conversion Prior to the IPO in February 2021, shares of the Company’s Series A-1, Series A-2, and Series B convertible preferred stock were convertible at any time at the option of the holder into shares of the Company’s common stock based on a defined conversion ratio, set at one-for-one, adjustable for certain dilutive events. The conversion ratio for the convertible preferred stock was subject to change in accordance with anti-dilution provisions contained in the Company’s certificate of incorporation. In addition, the convertible preferred stock would have automatically converted into shares of common stock upon the vote or written consent of the holders of at least 61% of the outstanding convertible preferred stock, voting together as a single class on an as-converted basis, and which must have included a majority of the Series B preferred stock then held by the Series B investors that purchased at least $29.0 million in the Series B convertible preferred stock financing (Series B Large Investors). Concurrent with closing of the Company’s IPO in February 2021, all outstanding shares of convertible preferred stock converted into 134.1 million shares of common stock. Dividends Prior to the IPO in February 2021, each holder of the Company’s Series A-1, Series A-2, and Series B convertible preferred stock was entitled to receive non-cumulative dividends, when and if declared by the Company’s board of directors, at an annual rate of 6% of the original issue price prior to and in preference to the payment of a dividend on common stock. Any additional dividends would have been distributed among the holders of common stock pro rata based on the number of shares of common stock (on an as-converted basis). No dividends have been declared to date. Liquidation preference Prior to the IPO in February 2021, the Company could have been liquidated voluntarily by the Company’s board of directors with consent of the holders of at least 61% of the outstanding convertible preferred stock, voting together as a single class on an as-converted basis, and which must have included the holders of at least a majority of the Series B preferred stock then held by the Series B Large Investors. In the event that the Company was liquidated either voluntarily or involuntarily, or if any event had occurred that was deemed a liquidation under the Company’s certificate of incorporation, each holder of the Company’s Series A-1, Series A-2, and Series B convertible preferred stock would have been entitled to receive a liquidation preference out of any proceeds from the liquidation before any distributions were made to the holders of common stock. The liquidation preference for each share of the Series A-1, Series A-2, and Series B convertible preferred stock was equal to the greater of a) the original issue price (plus any declared but unpaid dividends), or b) such amount per share as would have been payable had all the Series A-1, Series A-2, and Series B convertible preferred stock been converted into common stock immediately prior to a liquidation event. Voting rights Prior to the IPO in February 2021, each of the Company’s Series A-1, Series A-2, and Series B convertible preferred stock voted (on an as-converted to common stock basis) with the other voting stock of the Company. The consent of the holders of at least 61% of the Company’s outstanding convertible preferred stock, voting together as a single class on an as-converted basis, and which must have included the holders of at least a majority of the Series B preferred stock then held by the Series B Large Investors, was required for any of the following actions: the amendment or waiver of any provision of the certificate of incorporation or bylaws of the Company in a manner that adversely affects the rights, preferences or privileges of the Series A-1, Series A-2, and Series B convertible preferred stock; any change in the authorized number of Series A-1, Series A-2, and Series B convertible preferred stock, or any other class of stock of the 186 Table of Contents Index to Financial Statements Company; the creation of any new class or series of shares having rights, preferences or privileges senior to or on a parity with the Series A-1, Series A-2, and Series B convertible preferred stock; the approval of any change in control event; the redemption of any securities of the Company, other than repurchases of common stock upon termination of a consultant, director or employee approved by the Company’s board of directors; any increase or decrease in the authorized size of the Company’s board of directors; the declaration or payment of any dividend or distribution on the Series A-1, Series A-2, and Series B convertible preferred stock (except as provided in the certificate of incorporation) or common stock; or the liquidation or dissolution of the Company. In addition, the stockholders of the Company entered into a voting agreement pursuant to which the Company’s Series A-1, Series A-2, and Series B convertible preferred stock and common stockholders elected five members to its board of directors. Reorganization Prior to the IPO in February 2021, any change in control event, including any change in the holders of a majority of the equity of the Company by merger, consolidation, reorganization or otherwise, or any sale or exclusive license of substantially all the assets of the Company, would have been deemed a liquidation under the Company’s certificate of incorporation unless waived by the holders of at least 61% of the Company’s outstanding convertible preferred stock, voting together as a single class on an as-converted basis, and which must have included the holders of at least a majority of the Series B preferred stock then held by the Series B Large Investors. After liquidation preferences for the Company’s Series A-1, Series A-2, and Series B convertible preferred stock described above had been satisfied, any additional proceeds from any deemed liquidation would have been distributed among the holders of common stock pro rata based on the number of shares of common stock (on an as-converted basis). 12. Common stock As of December 31, 2020, there were 16.2 million shares of the Company’s common stock outstanding, excluding 10.1 million shares of restricted common stock outstanding that are subject to vesting requirements. As of December 31, 2020, the Company had reserved 134.1 million shares of its common stock for future issuance upon the conversion of its Series A-1, Series A-2, and Series B convertible preferred stock outstanding, which occurred in February 2021 concurrent with the closing of the IPO. 13. Stock-based compensation 2018 Equity Incentive Plan In October 2018, the Company adopted the 2018 Equity Incentive Plan (2018 Plan) under which it may grant incentive stock options, non-statutory stock options, RSAs, RSUs, and other stock-based awards to any person, including officers, directors, and consultants. Terms of stock agreements, including vesting requirements, are determined by the Company’s board of directors, or by a committee appointed by the board of directors, subject to the provisions of the 2018 Plan. Generally, awards granted by the Company vest over four years and have an exercise price equal to the estimated fair value of the common stock as determined by the board of directors with consideration given to contemporaneous valuations of the Company’s common stock prepared by an independent third party valuation firm in accordance with the guidance provided by the AICPA Guide. As of December 31, 2020, there were 0.1 million shares available for future issuance under the 2018 Plan. RSU Plan In March 2019, pursuant to the terms of the Cobalt merger agreement, the Company adopted a restricted stock unit plan (RSU Plan) under which it may grant RSUs to certain employees and consultants. The RSU Plan provides for up to 0.3 million shares of common stock to be awarded. 187 Table of Contents Index to Financial Statements Stock-based compensation expense Stock-based compensation expense is recognized in the consolidated statements of operations as follows: Year Ended December 31, Period from July 13, 2018 (Inception) to December 31, 2018 2020 2019 (in thousands) Research and development $ 4,888 $ 1,246 $ 36 General and administrative 940 251 22 Total stock-based compensation expense $ 5,828 $ 1,497 $ 58 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, 2020 are as follows: Stock Options RSAs Unrecognized stock-based compensation expense (in thousands) $ 43,184 $ 3,233 Expected weighted-average period compensation costs to be recognized (years) 3.9 1.8 As of December 31, 2020, the Company had $0.5 million of unrecognized stock-based compensation costs related to 0.3 million RSUs originating from the Cobalt acquisition that are subject to (i) service-based vesting over four years, (ii) achievement of the first milestone which occurred in July 2019, and (iii) a liquidity event. As of December 31, 2020, 0.1 million shares had satisfied the vesting conditions and will vest and become outstanding six months after the completion of the IPO. The estimated compensation expense will be recognized ratably over the service period, or remaining service period, if and when it becomes probable that the vesting conditions will be satisfied. No stock-based compensation expense has been recognized related to RSUs as of December 31, 2020. Stock options A summary of the Company’s stock option activity is as follows: Stock Options (in thousands) Weighted-Average Exercise Price per Share Weighted-Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2018 - $ - Granted 3,639 1.44 Exercised (1 ) 1.44 Forfeited/Cancelled (89 ) 1.44 Outstanding as of December 31, 2019 3,549 $ 1.44 9.6 $ 141,960 Granted 12,458 5.31 Exercised (103 ) 1.44 Forfeited/Cancelled (227 ) 1.55 Outstanding as of December 31, 2020 15,677 $ 4.52 9.3 $ 158,066 Exercisable as of December 31, 2020 1,223 $ 1.44 8.3 $ 16,094 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, Assumptions 2020 2019 Risk free interest rate 0.36% - 1.51% 1.53% - 2.62% Expected volatility 70% 70% Expected term (years) 6.25 - 6.75 6.02 - 6.25 Expected dividend 0% 0% 188 Table of Contents Index to Financial Statements The following table summarizes additional information related to stock option activity: Year Ended December 31, 2020 2019 Weighted average grant date fair value per share for options granted $ 3.52 $ 0.92 Aggregate intrinsic value of stock options exercised (in thousands) $ 605 $ 25 Restricted stock awards A summary of the Company’s RSA activity is as follows: RSAs (in thousands) Weighted-Average Grant Date Fair Value per Share Unvested shares as of July 13, 2018 (inception) - $ - Granted 27,076 0.08 Vested (1,226 ) - Forfeited (4 ) - Unvested shares as of December 31, 2018 25,846 0.08 Granted 2,492 1.44 Vested (8,425 ) 0.12 Forfeited (2,773 ) 0.04 Unvested shares as of December 31, 2019 17,140 0.28 Vested (5,964 ) 0.25 Forfeited (1,097 ) 0.12 Unvested shares as of December 31, 2020 10,079 $ 0.33 The fair value of vested RSAs was $1.5 million and $1.0 million for the year ended December 31, 2020 and 2019, respectively. 14. Income taxes As of December 31, 2020, the Company had U.S. federal and state tax-effected net operating loss (NOL) carryforwards of $51.3 million and $7.2 million, respectively, which are available to reduce future taxable income. As of December 31, 2020, the Company also had federal and state research tax credits of $8.3 million and $3.6 million, respectively, which may be used to offset future liabilities. The federal NOL carries forward indefinitely, and the state NOL will begin to expire in 2038. The federal tax credit carryforward will begin to expire in 2038, 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. In connection with the 2019 Cobalt acquisition, the Company recorded a deferred tax liability of $7.5 million associated with the acquired intangible asset, and for the year ended December 31, 2019 the Company recorded a tax benefit of $7.5 million related to the release of valuation allowance on U.S. deferred tax assets as a result of this deferred tax liabilities. 189 Table of Contents Index to Financial Statements A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows: Year Ended December 31, Period from July 13, 2018 (Inception) to December 31, 2018 2020 2019 Federal statutory tax 21.00 % 21.00 % 21.00% State income tax, net of federal benefit 2.09 3.06 1.67 Valuation allowance (15.18) (16.32) (23.60) Success payment liabilities (4.58) - - Contingent consideration (3.89) (2.71) - In-process research & development (0.63) (1.21) - Tax credits 1.88 1.93 1.01 Other (0.69) (0.29) (0.08) Effective income tax rate 0.00 % 5.46 % 0.00% The principal components of the Company’s net deferred tax assets are as follows: Year Ended December 31, 2020 2019 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 58,527 $ 26,116 Lease liabilities 16,971 11,271 Tax credit carryforwards 11,908 4,527 Accrued liabilities and allowances 3,643 1,620 Success payment liabilities 2,785 - Business transactions - 1,204 Other 25 453 Gross deferred tax assets 93,859 45,191 Valuation allowance (70,989 ) (25,791) Deferred tax assets, net of valuation allowance 22,870 19,400 Deferred tax liabilities: Right-of-use assets (14,577 ) (9,544) Intangibles (6,870 ) (8,340) Fixed assets (935 ) (371) Stock-based compensation (488 ) (1,145) Deferred tax liabilities (22,870 ) (19,400) Net deferred taxes assets $ - $ - The valuation allowance relates primarily to net U.S. deferred tax assets from operating losses, research tax credit carryforwards, 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 loss in the first year of operation 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 will 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. 190 Table of Contents Index to Financial Statements The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company 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 the 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, 2020 and 2019, the Company had no uncertain tax positions. 15. Net loss per share Basic and diluted net loss per common share is 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, therefore basic net loss per share and diluted net loss per share are the same for all periods as the inclusion of all potential common securities outstanding would have been anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share of common stock: Year Ended December 31, Period from July 13, 2018 (Inception) to December 31, 2018 2020 2019 (in thousands, except per share amounts) Net loss $ (285,305 ) $ (130,778 ) $ (13,247 ) Weighted-average common shares used in net loss per share, basic and diluted 13,014 4,903 952 Net loss per share, basic and diluted $ (21.92 ) $ (26.68 ) $ (13.91 ) The amounts in the table below were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect: Year Ended December 31, Period from July 13, 2018 (Inception) to December 31, 2018 2020 2019 (in thousands) Series A-1 convertible preferred stock 11,463 11,463 11,463 Series A-2 convertible preferred stock 95,427 95,427 - Series B convertible preferred stock 27,223 - - Unvested restricted common stock 10,079 17,140 25,846 Options to purchase common stock 1,223 3,549 - Unvested RSUs 326 345 - Total 145,741 127,924 37,309 16. 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. As of December 31, 2020, the Company has not made any matching contributions to the 401(k) Plan on behalf of participants. 17. Subsequent events 2021 Incentive award plan In February 2021, the Company adopted the 2021 Incentive Award Plan. The 2021 Incentive Award Plan provides for a variety of stock-based compensation awards, including stock options, RSAs, and RSUs. In conjunction with adopting the 2021 Incentive Award Plan, the Company discontinued the 2018 Equity Plan with respect to new equity awards, and the 0.2 million available shares under the 2018 Equity Plan became available under the 2021 Incentive Award Plan. The Company has initially reserved for issuance 16.4 million shares of common stock pursuant to the 2021 Incentive Award Plan. The number of shares of the Company’s common stock reserved for issuance is subject to automatically increase by 5% of all shares outstanding at the beginning of each calendar year. 191 Table of Contents Index to Financial Statements 2021 Employee stock purchase plan In February 2021, the Company adopted the 2021 Employee Stock Purchase Plan (2021 ESPP). The 2021 ESPP became effective on the completion of the Company’s IPO and authorized the issuance of 2.0 million shares of the Company’s common stock under purchase rights granted to its employees or to employees of any of the Company’s designated affiliates. The number of shares of the Company’s common stock reserved for issuance is subject to automatically increase by 1% of all shares outstanding at the beginning of each calendar year. Under the 2021 ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. 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 are able to 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 or on the purchase date. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.