Item 1. Financial Statements
Item 1. Financial Statements
Sana Biotechnology, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
September 30, 2022
December 31, 2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
163,343
$
253,029
Marketable securities
322,407
297,967
Restricted cash
6,100
-
Prepaid expenses and other current assets
8,400
7,105
Total current assets
500,250
558,101
Long-term marketable securities
25,823
195,881
Property and equipment, net
67,349
65,464
Operating lease right-of-use assets
95,733
96,320
Long-term restricted cash
4,408
8,819
Intangible asset
59,195
59,195
Goodwill
140,627
140,627
Other non-current assets
4,717
5,000
TOTAL ASSETS
$
898,102
$
1,129,407
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
3,993
$
2,219
Accrued compensation
24,500
21,131
Accrued expenses and other current liabilities
14,970
10,344
Operating lease liabilities
11,921
9,159
Contingent consideration
59,429
51,382
Success payment liabilities
-
5,000
Total current liabilities
114,813
99,235
Operating lease liabilities, net of current portion
99,859
101,784
Contingent consideration, net of current portion
81,701
102,361
Success payment liabilities, net of current portion
35,710
97,525
Total liabilities
332,083
400,905
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $ 0.0001 par value; 50,000 shares authorized; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
-
-
Common stock, $ 0.0001 par value; 750,000 shares authorized; 189,885 and 184,929 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
19
18
Additional paid-in capital
1,546,807
1,515,210
Accumulated other comprehensive loss
( 6,414
)
( 1,366
)
Accumulated deficit
( 974,393
)
( 785,360
)
Total stockholders' equity
566,019
728,502
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
898,102
$
1,129,407
See accompanying notes.
5
Sana Biotechnology, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Operating expenses:
Research and development
$
76,735
$
53,245
$
221,964
$
140,121
Research and development related success payments and contingent consideration
( 6,062
)
16,753
( 79,428
)
67,778
General and administrative
15,514
13,433
48,240
37,731
Total operating expenses
86,187
83,431
190,776
245,630
Loss from operations
( 86,187
)
( 83,431
)
( 190,776
)
( 245,630
)
Interest income, net
1,173
158
2,149
409
Other income (expense), net
( 106
)
10
( 406
)
24
Net loss
$
( 85,120
)
$
( 83,263
)
$
( 189,033
)
$
( 245,197
)
Net loss per common share - basic and diluted
$
( 0.45
)
$
( 0.46
)
$
( 1.01
)
$
( 1.53
)
Weighted-average number of common shares - basic and diluted
189,303
181,827
187,645
160,515
See accompanying notes.
6
Sana Biotechnology, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited)
(in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Net loss
$
( 85,120
)
$
( 83,263
)
$
( 189,033
)
$
( 245,197
)
Other comprehensive loss, net of tax:
Unrealized loss on marketable securities, net
( 67
)
( 95
)
( 5,048
)
( 112
)
Total comprehensive loss
$
( 85,187
)
$
( 83,358
)
$
( 194,081
)
$
( 245,309
)
See accompanying notes.
7
Sana Biotechnology, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity
(unaudited)
(in thousands)
Convertible Preferred
Stock
Common Stock
Additional
Paid-In
Accumulated
Other
Comprehensive
Accumulated
Total
Stockholders'
Shares
Amount
Shares
Amount
Capital
Loss
Deficit
Equity
Balance as of December 31, 2021
-
$
-
184,929
$
18
$
1,515,210
$
( 1,366
)
$
( 785,360
)
$
728,502
Vesting of restricted stock
-
-
1,419
1
( 1
)
-
-
-
Exercise of stock options
-
-
284
-
652
-
-
652
Stock-based compensation expense
-
-
-
-
7,755
-
-
7,755
Unrealized loss on marketable
securities, net
-
-
-
-
-
( 3,806
)
-
( 3,806
)
Net loss
-
-
-
-
-
-
( 31,448
)
( 31,448
)
Balance as of March 31, 2022
-
$
-
186,632
$
19
$
1,523,616
$
( 5,172
)
$
( 816,808
)
$
701,655
Vesting of restricted stock
-
-
1,243
-
-
-
-
-
Exercise of stock options
-
-
320
-
571
-
-
571
Issuance of common stock related to employee stock purchase plan
-
-
235
-
1,008
-
-
1,008
Stock-based compensation expense
-
-
-
-
9,911
-
-
9,911
Unrealized loss on marketable
securities, net
-
-
-
-
-
( 1,175
)
-
( 1,175
)
Net loss
-
-
-
-
-
-
( 72,465
)
( 72,465
)
Balance as of June 30, 2022
-
$
-
188,430
$
19
$
1,535,106
$
( 6,347
)
$
( 889,273
)
$
639,505
Issuance of common stock from at the market offering, net of issuance costs of $ 540
-
-
149
-
724
-
-
724
Vesting of restricted stock
-
-
927
-
-
-
-
-
Exercise of stock options
-
-
379
-
897
-
-
897
Stock-based compensation expense
-
-
-
-
10,080
-
-
10,080
Unrealized loss on marketable
securities, net
-
-
-
-
-
( 67
)
-
( 67
)
Net loss
-
-
-
-
-
-
( 85,120
)
( 85,120
)
Balance as of September 30, 2022
-
$
-
189,885
$
19
$
1,546,807
$
( 6,414
)
$
( 974,393
)
$
566,019
Convertible Preferred
Stock
Common Stock
Additional
Paid-In
Accumulated
Other
Comprehensive
Accumulated
Total Stockholders'
Shares
Amount
Shares
Amount
Capital
Income (Loss)
Deficit
Equity
Balance as of December 31, 2020
134,113
$
852,897
16,170
$
2
$
8,216
$
30
$
( 429,432
)
$
( 421,184
)
Conversion of convertible preferred stock into common stock upon initial public offering
( 134,113
)
( 852,897
)
134,113
13
852,884
-
-
852,897
Issuance of common stock in initial
public offering, net of $ 49,220 in
offering costs
-
-
27,025
3
626,402
-
-
626,405
Vesting of restricted stock
-
-
1,428
-
-
-
-
Exercise of stock options
-
-
205
-
298
-
-
298
Stock-based compensation expense
-
-
-
-
4,158
-
-
4,158
Unrealized gain on marketable
securities, net
-
-
-
-
-
26
-
26
Net loss
-
-
-
-
-
-
( 180,617
)
( 180,617
)
Balance as of March 31, 2021
-
$
-
178,941
$
18
$
1,491,958
$
56
$
( 610,049
)
$
881,983
Vesting of restricted stock
-
-
1,423
-
-
-
-
-
Exercise of stock options
-
-
212
-
333
-
-
333
Stock-based compensation expense
-
-
-
-
4,941
-
-
4,941
Unrealized loss on marketable
securities, net
-
-
-
-
-
( 43
)
-
( 43
)
Net income
-
-
-
-
-
-
18,683
18,683
Balance as of June 30, 2021
-
$
-
180,576
$
18
$
1,497,232
$
13
$
( 591,366
)
$
905,897
Vesting of restricted stock
-
-
1,628
-
-
-
-
-
Exercise of stock options
-
-
704
-
1,596
-
-
1,596
Stock-based compensation expense
-
-
-
-
5,950
-
-
5,950
Unrealized loss on marketable
securities, net
-
-
-
-
-
( 95
)
-
( 95
)
Net loss
-
-
-
-
-
-
( 83,263
)
( 83,263
)
Balance as of September 30, 2021
-
$
-
182,908
$
18
$
1,504,778
$
( 82
)
$
( 674,629
)
$
830,085
See accompanying notes.
8
Sana Biotechnology, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended September 30,
2022
2021
OPERATING ACTIVITIES:
Net loss
$
( 189,033
)
$
( 245,197
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
11,430
7,735
Stock-based compensation expense
27,746
15,049
Change in the estimated fair value of contingent consideration
( 12,613
)
10,080
Change in the estimated fair value of success payment liabilities
( 66,815
)
57,698
Non-cash expense for operating lease right-of-use assets
8,859
4,597
Other non-cash items, net
( 6,687
)
( 2,255
)
Changes in operating assets and liabilities:
Prepaid expenses and other assets
569
( 2,985
)
Operating lease right-of-use assets and liabilities
1,584
5,028
Accounts payable
2,144
1,397
Accrued expenses and other liabilities
8,833
7,898
Net cash used in operating activities
( 213,983
)
( 140,955
)
INVESTING ACTIVITIES:
Purchases of marketable securities
( 63,583
)
( 414,437
)
Proceeds from maturities of marketable securities
201,991
266,960
Purchases of property and equipment
( 16,274
)
( 24,660
)
Net cash provided by (used in) investing activities
122,134
( 172,137
)
FINANCING ACTIVITIES:
Proceeds from initial public offering, net of issuance costs
-
626,405
Proceeds from employee stock purchase plan and exercise of stock options, net
3,128
2,227
Proceeds from at the market offering of common stock, net of issuance costs
724
-
Net cash provided by financing activities
3,852
628,632
Net (decrease) increase in cash, cash equivalents, and restricted cash
( 87,997
)
315,540
Cash, cash equivalents, and restricted cash at beginning of period
261,848
126,949
Cash, cash equivalents, and restricted cash at end of period
$
173,851
$
442,489
SUPPLEMENTAL CASH FLOW INFORMATION:
Operating lease right-of-use assets obtained in exchange for lease obligations
$
21,073
$
26,257
Purchases of property and equipment included in accounts payable and accrued liabilities
$
2,409
$
3,231
Cash received for amounts related to tenant improvement allowances
$
2,014
$
5,160
Remeasurement of operating lease right-of-use asset for lease modification
$
( 12,801
)
$
-
See accompanying notes.
9
Sana Biotechnology, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization
Sana Biotechnology, Inc. (the Company or Sana) is a biotechnology company focusing on utilizing engineered cells as medicines. The Company’s operations to date have included identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, acquiring technology, organizing and staffing the Company, developing and executing the Company’s business plan, establishing the Company’s intellectual property portfolio, raising capital, and providing general and administrative support for these operations.
Liquidity and capital resources
The Company is subject to a number of risks and uncertainties similar to other biotechnology companies in the development stage, including, but not limited to, those related to the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, building out internal and external manufacturing capabilities, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products, the need to protect the Company’s intellectual property and proprietary technologies, and the need to attract and retain key scientific and management personnel. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations with the proceeds from additional equity or debt financings or capital obtained in connection with strategic collaborations or licensing or other arrangements. In the event that additional financing is required, the Company may not be able to raise it on terms acceptable to it or at all.
In August 2022, the Company entered a sales agreement with Cowen and Company, LLC (Cowen), acting as sales agent, pursuant to which it may offer and sell through Cowen shares of the Company’s common stock having an aggregate offering price of up to $ 150.0 million from time to time in a series of one or more at the market equity offerings (collectively, the ATM facility). As of September 30, 2022, the Company had raised approximately $ 0.7 million in net proceeds under the ATM facility.
In February 2021, the Company successfully completed the initial public offering (IPO) of its common stock. In connection with the 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 $ 626.4 million in net proceeds, after deducting underwriting discounts and commissions of $ 45.2 million and offering expenses of $ 4.0 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.
The Company has incurred operating losses each year since inception and expects such losses to continue for the foreseeable future. As of September 30, 2022, the Company had cash, cash equivalents, and marketable securities of $ 511.6 million, and an accumulated deficit of $ 974.4 million, which includes cumulative non-cash charges related to the revaluation of the success payment liabilities and contingent consideration of $ 33.3 million and $ 89.9 million, respectively.
2. Basis of presentation and significant accounting policies
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. Certain prior period amounts have been reclassified to conform to current period presentation.
The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (SEC) on March 16, 2022 (2021 Annual Report).
Significant accounting policies
The significant accounting policies used in the preparation of these condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 are consistent with those discussed in Note 2 in the 2021 Annual Report.
10
Use of estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates. The most significant estimates in the Company’s condensed consolidated financial statements relate to success payment liabilities, contingent consideration, business combinations, accrued expenses, operating lease right-of-use assets and liabilities, and the valuation of stock options.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the adoption of recently issued standards has had or may have a material impact on its condensed consolidated financial statements or disclosures.
3. Acquisitions
Cobalt Biomedicine, Inc.
In February 2019, the Company acquired 100 % of the outstanding equity in Cobalt Biomedicine, Inc. (Cobalt), a privately-held early-stage biotechnology company that was developing a platform technology using its fusogen technology to specifically and consistently deliver various biological payloads to cells.
As part of the Cobalt acquisition, the Company recorded an intangible asset of $ 59.2 million, which consists of in-process research and development that is classified as indefinite-lived until the successful development 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, development of the intangible asset is not complete. Amortization will begin when regulatory approval of a product based on the fusogen technology is obtained in a major market, typically either the United States or the European Union.
The Company recognized $ 140.6 million of goodwill as a result of the Cobalt acquisition, which is primarily attributable to the value the acquisition provides the Company by complementing the Company’s ex vivo portfolio with the in vivo fusogen cell engineering technology and furthering the Company’s research in using engineered cells as medicines. The goodwill is not deductible for income tax purposes. There were no impairments of the intangible asset or goodwill since the acquisition.
Pursuant to the terms and conditions in the Cobalt acquisition agreement, the Company has an obligation to pay certain former Cobalt stockholders up to an aggregate of $ 500.0 million in contingent consideration (Cobalt Contingent Consideration) upon the achievement of certain pre-specified development milestones, and a success payment (Cobalt Success Payment) of up to $ 500.0 million, payable in cash or stock. The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, which include the closing of the Company’s IPO and periodically thereafter, the Company’s market capitalization equals or exceeds $ 8.1 billion, and the Company is advancing a program based on the fusogen technology in a clinical trial pursuant to an investigational new drug application, or has filed for, or received approval for, a biologics license application or new drug application. The Cobalt Success Payment can be achieved over a maximum of 20 years from the date of the acquisition, but this period could be shorter upon the occurrence of certain events. As of September 30, 2022, a Cobalt Success Payment had not been triggered.
A valuation measurement date would also be triggered upon a change of control of the Company if at least one Company product based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and the Company’s market capitalization is below $ 8.1 billion as of the date of the change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase.
11
The following table sets forth various thresholds for the Company’s market capitalizations as of the date of a change of control and the resulting potential Cobalt Success Payment and additional potential Cobalt Contingent Consideration:
Sana market capitalization upon a change of control and resulting impact to Cobalt Success
payment and additional potential Cobalt Contingent Consideration
Cobalt Success
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 the statements of operations in research and development related success payments and contingent consideration. As of September 30, 2022 and December 31, 2021, the estimated fair value of the Cobalt Success Payment liability was $ 31.9 million and $ 88.3 million, respectively, and was recorded in long-term liabilities in the balance sheets. In connection with the change in the estimated fair value of the Cobalt Success Payment, the Company recognized expenses of $ 2.4 million and $ 21.8 million for the three months ended September 30, 2022 and 2021, respectively, and a gain of $ 56.5 million and expense of $ 46.9 million, for the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, the estimated fair value of the Cobalt Contingent Consideration was $ 141.1 million, of which $ 59.4 million was recorded in short-term liabilities and $ 81.7 million was recorded in long-term liabilities in the balance sheet. As of December 31, 2021, the estimated fair value of the Cobalt Contingent Consideration was $ 153.7 million, of which $ 51.4 million was recorded in short-term liabilities and $ 102.3 million was recorded in long-term liabilities in the balance sheet. In connection with the change in the estimated fair value of the Cobalt Contingent Consideration, the Company recognized gains of $ 8.3 million and $ 8.5 million for the three months ended September 30, 2022 and 2021, respectively, and a gain of $ 12.6 million and an expense of $ 10.1 million for the nine months ended September 30, 2022 and 2021, respectively.
4. License and collaboration agreements
Beam Therapeutics Inc.
In October 2021, the Company entered into an option and license agreement (Beam Agreement) with Beam Therapeutics Inc. (Beam), pursuant to which the Company was granted a non-exclusive license to use Beam’s proprietary CRISPR Cas12b nuclease editing technology to research, develop, and commercialize engineered cell therapy products that (i) are directed to certain antigen targets, with respect to the Company’s allogeneic T cell programs, or (ii) comprise certain human cell types, with respect to the Company’s stem cell-derived programs. The Company made an upfront cash payment of $ 50.0 million to Beam, which was recorded in research and development expense for the year ended December 31, 2021. Additionally, under the terms of the agreement, the Company may be obligated to pay up to $ 65.0 million for each licensed product in specified developmental and commercial milestone payments and royalties on licensed products. A member of the Company’s board of directors was, at the time of entry into the Beam Agreement, a beneficial owner of Beam, and is affiliated with a member of the board of directors of Beam.
President and Fellows of Harvard College
In March 2019, the Company entered into an exclusive license agreement with the President and Fellows of Harvard College (Harvard) to access certain intellectual property for the development of hypoimmune cells.
Under the terms of the agreement, the Company may be required to pay to Harvard up to an aggregate of $ 175.0 million in success payments, payable in cash, based on increases in the fair value of the Company’s common stock (Harvard Success Payments). The potential Harvard Success Payments are based on multiples of increased value ranging from 5x to 40x, based on a comparison of the fair market value of the Company’s common stock relative to the original issuance price of $ 4.00 per share at pre-determined valuation measurement dates, which include the one-year anniversary of our IPO, and periodically thereafter, the date of the consummation of a merger, an asset sale, or 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 Harvard Success Payments. As of September 30, 2022, a Harvard Success Payment had not been triggered.
12
The aggregate amount of the Harvard Success Payments will not exceed an aggregate of $ 175.0 million , which payment amount would only occur upon a 40x increase in the fair value of the Company’s common stock 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 . If a higher success payment tier is first met at the same time a lower tier is first met, both tiers will be owed.
Any previous success payments made to Harvard would be credited against the success payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold. 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
The Harvard Success Payment liabilities are carried at fair value, with changes in fair value recognized in the statements of operations in research and development related success payments and contingent consideration. As of September 30, 2022, the estimated fair value of the Harvard Success Payment liability was $ 3.8 million, which was recorded in long-term liabilities in the balance sheet. As of December 31, 2021, the estimated fair value of the Harvard Success Payment liability was $ 14.2 million, of which $ 5.0 million was recorded in short-term liabilities and $ 9.2 million was recorded in long-term liabilities in the balance sheet. In connection with the change in the estimated fair value of the Harvard Success Payment liability, the Company recognized a gain of $ 0.2 million and an expense of $ 3.4 million, respectively, for the three months ended September 30, 2022 and 2021, and a gain of $ 10.3 million and an expense of $ 10.8 million, respectively, for the nine months ended September 30, 2022 and 2021.
5. Restricted cash
As of September 30, 2022 and December 31, 2021, the Company maintained standby letters of credit of $ 10.5 million and $ 8.8 million, respectively, which are collateralized with a bank account at a financial institution in accordance with the applicable lease agreements. The Company’s letter of credit related to its lease for industrial space located in Fremont, California will reduce from $ 6.7 million to $ 0.6 million in July 2023, and as such, $ 6.1 million in restricted cash is included in current assets on the balance sheet as of September 30, 2022.
13
6. 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:
September 30, 2022
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
$
74,981
$
-
$
-
$
74,981
U.S. government and agency securities
Level 2
54,644
7
( 2
)
54,649
Corporate debt securities
Level 2
200
-
-
200
Total cash equivalents
129,825
7
( 2
)
129,830
Short-term marketable securities:
U.S. government and agency securities
Level 2
278,844
5
( 4,859
)
273,990
Corporate debt securities
Level 2
49,096
-
( 679
)
48,417
Total short-term marketable securities
327,940
5
( 5,538
)
322,407
Long-term marketable securities:
U.S. government and agency securities
Level 2
26,709
-
( 886
)
25,823
Total long-term marketable securities
26,709
-
( 886
)
25,823
Other assets
Level 3
370
-
-
370
Total financial assets
$
484,844
$
12
$
( 6,426
)
$
478,430
Financial liabilities:
Short-term financial liabilities:
Contingent consideration
Level 3
$
59,429
$
-
$
-
$
59,429
Total short-term financial liabilities
59,429
-
-
59,429
Long-term financial liabilities:
Contingent consideration
Level 3
81,701
-
-
81,701
Success payment liabilities
Level 3
35,710
-
-
35,710
Total long-term financial liabilities
117,411
-
-
117,411
Total financial liabilities
$
176,840
$
-
$
-
$
176,840
14
December 31, 2021
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
$
224,671
$
-
$
-
$
224,671
Corporate debt securities
Level 2
2,345
-
-
2,345
Total cash equivalents
227,016
-
-
227,016
Short-term marketable securities:
U.S. government and agency securities
Level 2
162,854
1
( 195
)
162,660
Corporate debt securities
Level 2
135,441
-
( 134
)
135,307
Total short-term marketable securities
298,295
1
( 329
)
297,967
Long-term marketable securities:
U.S. government and agency securities
Level 2
176,492
-
( 925
)
175,567
Corporate debt securities
Level 2
20,427
-
( 113
)
20,314
Total long-term marketable securities
196,919
-
( 1,038
)
195,881
Other assets
Level 3
426
-
-
426
Total financial assets
$
722,656
$
1
$
( 1,367
)
$
721,290
Financial liabilities:
Short-term financial liabilities:
Contingent consideration
Level 3
$
51,382
$
-
$
-
$
51,382
Success payment liabilities
Level 3
5,000
-
-
5,000
Total short-term financial liabilities
56,382
-
-
56,382
Long-term financial liabilities:
Contingent consideration
Level 3
102,361
-
-
102,361
Success payment liabilities
Level 3
97,525
-
-
97,525
Total long-term financial liabilities
199,886
-
-
199,886
Total financial liabilities
$
256,268
$
-
$
-
$
256,268
The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities. The Level 2 marketable securities include U.S. government and agency securities and corporate debt securities and are valued based on either recent trades of securities in inactive markets or quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
The following table summarizes available-for-sale debt securities in a continuous unrealized loss position for less than and greater than twelve months, for the periods presented:
Less than 12 months
12 months or greater
Total
Fair value
Unrealized losses
Fair value
Unrealized losses
Fair value
Unrealized losses
(in thousands)
September 30, 2022
U.S. government and agency securities
$
110,150
$
( 1,425
)
$
193,970
$
( 4,322
)
$
304,120
$
( 5,747
)
Corporate debt securities
14,000
( 272
)
34,617
( 407
)
48,617
( 679
)
Total
$
124,150
$
( 1,697
)
$
228,587
$
( 4,729
)
$
352,737
$
( 6,426
)
December 31, 2021
U.S. government and agency securities
$
329,883
$
( 1,120
)
$
-
$
-
$
329,883
$
( 1,120
)
Corporate debt securities
156,662
( 247
)
-
-
156,662
( 247
)
Total
$
486,545
$
( 1,367
)
$
-
$
-
$
486,545
$
( 1,367
)
As of September 30, 2022 and December 31, 2021, the fair value of securities held by the Company in an unrealized loss position were $ 352.7 million and $ 486.5 million, respectively. As of September 30, 2022, there were 34 securities held by the
15
Company in an unrealized loss position that ha d been in an unrealized loss position over 12 months , and no securities in an unrealized loss position over 12 months as of December 31, 2021 . The Company determined that there was no material change in the credit risk of the investments described above during the three and nine months ended September 30 , 2022 . As such, an allowance for credit losses has no t be en recognized. As of September 30 , 2022 , the Company does not intend to sell such securities, and it is not more-likely-than-not that the Company will be required to sell the securities prior to the recovery of the amortized cost basis.
As of September 30, 2022, 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 September 30, 2022, the balance in accumulated other comprehensive loss included the net unrealized losses related to the Company’s available-for-sale debt securities. There were no material realized gains or losses recognized on the maturity of available-for-sale securities during the three and nine months ended September 30, 2022 or 2021.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities:
Contingent
Consideration
Cobalt
Success Payment
Liability
Harvard
Success Payment
Liability
(in thousands)
Balance as of December 31, 2021
$
153,743
$
88,353
$
14,172
Changes in fair value - gain
( 528
)
( 46,823
)
( 8,087
)
Balance as of March 31, 2022
153,215
41,530
6,085
Changes in fair value - gain
( 3,830
)
( 12,073
)
( 2,025
)
Balance as of June 30, 2022
149,385
29,457
4,060
Changes in fair value - expense (gain)
( 8,255
)
2,439
( 246
)
Balance as of September 30, 2022
$
141,130
$
31,896
$
3,814
Contingent consideration
The Company utilizes significant estimates and assumptions it believes would be made by a market participant in determining the estimated fair value of the Cobalt Contingent Consideration at each balance sheet date. The fair value of the Cobalt Contingent Consideration was determined by calculating the probability-weighted estimated value of the pre-specified development milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and the applicable discount rates. The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. The Company assesses these estimates on an ongoing basis as additional data impacting the assumptions are obtained.
The fair value of the Cobalt Contingent Consideration was calculated using the following unobservable inputs:
September 30, 2022
December 31, 2021
Unobservable Input
Range
Weighted-Average
Range
Weighted-Average
Discount rates
18.0% - 20.7%
19.2 %
10.9% - 11.6%
11.2 %
Probability of milestone achievement
3.3% - 85.0%
34.5 %
5.0% - 75.0%
33.8 %
The weighted-average unobservable inputs were calculated based on the relative value of the pre-specified development milestones. The estimated fair value of the Cobalt Contingent Consideration may change significantly as development progresses and additional data are obtained, impacting the assumptions regarding probabilities of successful achievement of the milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value assumptions, judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions, inputs and/or different valuation techniques could result in materially different fair value estimates.
Success payments
The Company utilizes significant estimates and assumptions in determining the estimated fair value of the success payment liabilities and the associated expense or gain at each balance sheet date. The estimated fair value of each of the Cobalt and Harvard success payment liabilities was determined using a Monte Carlo simulation methodology, which models the estimated fair value of the liability based on several key assumptions, including: expected volatility, remaining term, risk-free interest rate, estimated number and timing of valuation measurement dates on the basis of which payment may be triggered, and, for the Cobalt Success Payment, the Company’s market capitalization, and, for the Harvard Success Payments, the per share fair value of the Company’s common stock.
16
The fair values of the Cobalt and Harvard success payment liabilities were calculated using the following unobservable inputs:
September 30, 2022
December 31, 2021
Unobservable Input
Cobalt
Harvard
Cobalt
Harvard
Expected stock price volatility
70 %
70 %
70 %
70 %
Expected term (years)
16.4
8.5
17.1
9.2
7. Property and equipment, net
Property and equipment, net consists of the following:
September 30, 2022
December 31, 2021
(in thousands)
Laboratory equipment
$
59,511
$
47,684
Leasehold improvements
34,427
33,848
Construction in progress
835
1,388
Computer equipment, software, and other
2,772
1,318
Total property and equipment, at cost
97,545
84,238
Less: Accumulated depreciation
( 30,196
)
( 18,774
)
Property and equipment, net
$
67,349
$
65,464
Depreciation expense was $ 4.0 million and $ 2.8 million for the three months ended September 30, 2022 and 2021, respectively, and $ 11.4 million and $ 7.7 million for the nine months ended September 30, 2022 and 2021, respectively.
8. Accrued liabilities
Accrued compensation and accrued expenses and other current liabilities consist of the following:
September 30, 2022
December 31, 2021
(in thousands)
Accrued compensation:
Accrued bonuses
$
13,575
$
13,814
Accrued paid time off
5,550
4,429
Accrued payroll
5,375
2,888
Total accrued compensation
$
24,500
$
21,131
Accrued expenses and other current liabilities:
Accrued research and development services
$
8,610
$
3,419
Accrued professional fees
2,317
1,971
Accrued property and equipment
1,795
2,566
Other accrued current liabilities
2,248
2,388
Total accrued expenses and other current liabilities
$
14,970
$
10,344
9. Commitments and contingencies
Lease commitments
The Company’s lease portfolio primarily comprises operating leases for office, laboratory, non-good manufacturing practices (GMP) pilot plant manufacturing, and industrial space. These leases contain various rent abatement periods, after which they require monthly lease payments that may be subject to annual increases throughout the lease term. Certain leases include options to extend the term. The renewal option is considered in the remaining lease term for the lease only when the Company is reasonably certain it will renew the lease. Certain leases provide the Company with the right to make tenant improvements, including the addition of laboratory space or build-out of manufacturing capabilities, and include a lease incentive allowance.
In June 2022, the Company entered into a lease agreement for 79,565 square feet of office, laboratory, and industrial space located in Bothell, Washington (the Bothell facility). The initial term of the lease is 16 years from the date the premises are delivered to the Company for construction of certain tenant improvements and includes the option to extend the lease for up to three additional five-year terms. The lease agreement also provides for up to $ 19.9 million for reimbursement of tenant improvements, as well as an
17
additional $ 8.0 million for tenant improvements , available at the Company’s election , which the Company would be obligated to repay to the landlord monthly over the initial term of the lease with interest at a rate of 6.5 % per annum. The Company will be obligated to pay base rent of approximately $ 68.8 million over the initial term of the lease. In accordance with the lease agreement, the Company has obtained a letter of credit in the amount of $ 1.6 million. The Company plans to recognize t he right-of-use asset and lease liability when the lease commences.
In July 2021, the Company entered into a lease for industrial space located in Fremont, California (the Fremont facility), with the intent to establish and develop its manufacturing operations at the Fremont facility. However, the Company determined in June 2022 to establish and develop its manufacturing operations at the Bothell facility rather than the Fremont facility. The original right-of-use asset and lease liability for the Fremont facility was calculated assuming the Company would exercise its option to renew the lease for two additional five-year terms . The Company remeasured the lease for the Fremont facility due to the shorter expected lease term, which resulted in a $ 12.8 million reduction in the related right-of-use asset and lease liability. Additionally, for the nine months ended September 30, 2022, the Company wrote-off $ 4.5 million of construction in progress costs incurred in connection with the Fremont facility in general and administrative expense in the statement of operations.
The following table contains additional information related to the Company’s operating leases:
Location
Use
Approximate
Square Footage
Commencement Dates
Expiration Dates
Seattle, WA
Office/Laboratory
48,000
March 2019 to September 2020
December 2026 to April 2028
Cambridge, MA
Office/Laboratory
60,000
March 2019 to May 2020
November 2025 to February 2028
South San Francisco, CA
Office/Laboratory
100,000
December 2019 to April 2022
April 2024 to April 2030
Fremont, CA
Industrial
163,000
July 2021
November 2031
Rochester, NY
Office/Laboratory
3,000
January 2022
January 2025
Bothell, WA
Office/Laboratory/Industrial
80,000
January 2023
December 2038
Throughout the term of each of the lease agreements, the Company is responsible for paying certain operating costs, such as common area maintenance, taxes, utilities, and insurance, in addition to base rent. 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:
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
(in thousands)
Operating lease cost
$
6,146
$
4,303
$
17,692
$
11,368
Short-term lease cost
-
-
-
512
Variable lease cost
1,831
1,286
5,223
4,015
Total lease cost
$
7,977
$
5,589
$
22,915
$
15,895
As of September 30, 2022, the weighted-average remaining lease term was 6.4 years, and the weighted-average incremental borrowing rate was 9.65 %.
The following table reconciles the Company’s undiscounted operating lease cash flows by fiscal year, as of September 30, 2022 (in thousands):
2022 (remaining 3 months)
$
4,733
2023
25,113
2024
24,326
2025
24,302
2026
21,183
2027 and thereafter
55,103
Total undiscounted lease payments
154,760
Less: imputed interest
( 41,663
)
Less: tenant improvement allowances
( 1,317
)
Present value of operating lease liabilities
111,780
Less: current portion of operating lease liabilities
( 11,921
)
Operating lease liabilities, net of current portion
$
99,859
18
10. Stockholders’ equity
The Company amended and restated its certificate of incorporation, effective February 2021, which increased 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 are common stock and 50.0 million shares are preferred stock.
As of September 30, 2022, there were 189.9 million shares of the Company’s common stock outstanding, excluding 0.8 million shares of restricted common stock outstanding that were subject to vesting requirements.
In August 2022, the Company put in place the ATM facility, under which the Company entered a sales agreement with Cowen, acting as sales agent, pursuant to which the Company may offer and sell through Cowen shares of the Company’s common stock having an aggregate offering price of up to $ 150.0 million from time to time in a series of one or more at the market equity offerings. As of September 30, 2022, the Company had raised approximately $ 0.7 million in net proceeds under the ATM facility.
11. Stock-based compensation
Equity incentive plans
In February 2021, the Company adopted the 2021 Incentive Award Plan (2021 Plan) and the 2021 Employee Stock Purchase Plan (2021 ESPP), both of which became effective on the completion of the Company’s IPO. The 2021 Plan provides for a variety of stock-based compensation awards, including stock options, restricted stock awards (RSAs), and restricted stock units (RSUs). The 2021 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 % of their earnings, subject to plan limitations. Unless otherwise determined by the Company’s board of directors, employees may purchase shares at 85 % of the lower of the fair market value of the Company’s common stock on the first date of an offering period or on the purchase date. As of September 30, 2022, 12.6 million shares and 3.6 million shares were available for future issuance under the 2021 Plan and the 2021 ESPP, respectively.
Stock-based compensation expense
Stock-based compensation expense is recognized in the statements of operations as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
(in thousands)
Research and development
$
7,437
$
4,072
$
20,557
$
9,888
General and administrative
2,643
1,878
7,189
5,161
Total stock-based compensation expense
$
10,080
$
5,950
$
27,746
$
15,049
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 September 30, 2022 are as follows:
Stock Options
RSAs
RSUs
Unrecognized stock-based compensation expense (in thousands)
$
92,582
$
860
$
5,317
Weighted-average period costs expected to be recognized (in years)
2.8
1.0
2.5
19
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
(in years)
Aggregate Intrinsic
Value
(in thousands)
Outstanding as of December 31, 2021
17,337
$
8.96
8.7
$
141,718
Granted
11,375
6.15
Exercised
( 983
)
2.16
Forfeited/Cancelled
( 2,187
)
8.53
Outstanding as of September 30, 2022
25,542
$
8.00
8.6
$
24,279
Exercisable as of September 30, 2022
6,604
$
6.90
7.8
$
13,114
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:
Nine Months Ended September 30,
Assumptions
2022
2021
Risk free interest rate
1.56% - 3.94%
0.46% - 1.15%
Expected volatility
70 %
70 %
Expected term (years)
5.50 - 6.25
5.50 - 6.40
Expected dividend
0 %
0 %
The following table summarizes additional information related to stock option activity:
Nine Months Ended September 30,
2022
2021
Weighted average grant date fair value per share for options granted
$
3.96
$
14.64
Aggregate intrinsic value of stock options exercised (in thousands)
$
5,854
$
22,187
Restricted stock
A summary of the Company’s restricted stock activity is as follows:
RSAs
(in thousands)
RSAs
Weighted-Average
Grant Date Fair
Value per Share
RSUs
(in thousands)
RSUs
Weighted-Average
Grant Date Fair
Value per Share
Unvested shares as of December 31, 2021
4,365
$
0.43
141
$
9.43
Granted
-
-
983
6.33
Vested
( 3,530
)
0.28
( 59
)
8.56
Forfeited
( 29
)
-
( 88
)
4.66
Unvested shares as of September 30, 2022
806
$
1.13
977
$
6.82
The fair value of RSAs vested during the nine months ended September 30, 2022 and 2021 was $ 1.0 million and $ 1.1 million, respectively. The fair value of RSUs vested during the nine months ended September 30, 2022 and 2021 was $ 0.4 million and $ 0.3 million, respectively.
12. Income taxes
The Company’s income tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising in the quarter. The Company’s effective tax rate differs from the U.S. statutory tax rate primarily due to a valuation allowance on the deferred tax assets. Deferred tax assets and deferred tax liabilities are recognized based
20
on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has recorded a full valuation allowance against the Company’s otherwise recognizable net deferred tax assets.
The Company applies judgment in its determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of September 30, 2022 and December 31, 2021, the Company’s uncertain tax positions were immaterial.
13. 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 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 securities were excluded from the calculation of net loss per diluted share of common stock for periods presented as their effect would have been anti-dilutive:
Nine Months Ended September 30,
2022
2021
(in thousands)
Options to purchase common stock
25,542
17,284
Unvested restricted common stock
806
5,791
Unvested RSUs
977
150
Total
27,325
23,225
21