What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-16 · 164 added, 144 removed, 230 unchanged (57% of the section changed)

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

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Financial Data,” and our audited consolidated financial statements and the related notes included elsewhere in this Annual Report.

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report.

This discussion and analysis and other parts of this Annual Report contain forward-looking statements that are based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business.

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

Our platform progress, broad capabilities, and strong balance sheet enable us to execute on a broad vision, with a goal of submitting our first INDs in 2022, with the opportunity to file multiple INDs per year beyond 2022.

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

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

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

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

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

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

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

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

Products utilizing this approach have had to manage significant challenges such as scalability, product variability, product quality, cost, patient accessibility, and a limited number of cell types being amenable to this approach.

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

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

Additionally, for cell types for which effective differentiation protocols from a stem cell have not yet been developed, such as T cells, instead of starting from a pluripotent stem cell, we can utilize an allogeneic cell, differentiated cells sourced from a donor, as the starting material to which we then apply our hypoimmune genetic modifications.

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

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

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

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

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

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

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

We are focused on creating transformative ex vivo and in vivo engineered cell therapies across a

range of therapeutic areas.

We are in the early stages of development across a broad pipeline of product candidates, all of which are currently in the preclinical stage of development and are summarized below:

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

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

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

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

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

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

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

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

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

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

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

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

The SC451 program also leverages our hypoimmune platform.

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

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

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

active CAR T cells in multiple preclinical models.

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

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

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

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

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

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

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

Our goal is to file INDs in 2022 for our hypoimmune allogeneic CD19 CAR T (SC291) and our in vivo CD19 CAR T (SG295) product candidates.

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

Our ex vivo and in vivo technologies represent an aggregation of years of innovation and technology from multiple academic institutions and companies, including our ex vivo cell engineering programs focused on replacing damaged cells in the heart and certain brain disorders acquired from Cytocardia Inc.

(Cytocardia) and Oscine Corp.

(Oscine), respectively, hypoimmune technology licensed from the President and Fellows of Harvard College (Harvard) and The Regents of the University of California (UCSF), fusogen technology acquired from Cobalt Biomedicines Inc.

(Cobalt), and genome editing technology licensed from Beam Therapeutics Inc.

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

(Cobalt), and gene editing technology licensed from Beam Therapeutics Inc.

(Beam), among others.

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

We were incorporated in July 2018, and our operations to date have included developing our ex vivo and in vivo cell engineering platforms, identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, acquiring technology, organizing and staffing the company, business planning, establishing our intellectual property portfolio, raising capital, and providing general and administrative support for these operations.

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

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

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Our net losses for the years ended December 31, 2022, 2021, and 2020 were $269.5 million, $355.9 million, and $285.3 million, respectively.

As of December 31, 2021, we had an accumulated deficit of $785.4 million.

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

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

In addition, as of December 31, 2021, the accumulated deficit of $785.4 million includes non-cash charges of $100.1 million and $102.5 million related to the revaluation of the success payment liabilities and contingent consideration, respectively.

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

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

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

We anticipate that our expenses and operating losses will increase substantially for the foreseeable future.

The expected increase in expenses will be driven in large part by our ongoing activities if and as we :

continue to advance our ex vivo and in vivo cell engineering platforms;

continue preclinical development of our current and future product candidates and initiate additional preclinical studies;

commence clinical studies of our current and future product candidates;

establish our manufacturing capabilit ies , including developing our contract development and manufacturing relationships and building our internal manufacturing facility;

acquire and license technologies aligned with our ex vivo and in vivo cell engineering platforms;

seek regulatory approval of our current and future product candidates;

expand our operational, financial, and management systems;

increase personnel, including personnel to support our preclinical and clinical development, manufacturing, and commercialization efforts;

continue to develop, grow, prosecute , and defend our intellectual property portfolio;

and incur additional legal, accounting, or other expenses in operating our business, including the costs associated with operating as a public company.

We are investing early in building world class capabilities in key areas of manufacturing sciences and operations, including development of our ex vivo and in vivo cell engineering platforms, product characterization, and process analytics from the time candidates are in early research phases.

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

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

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

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

identifying additional product candidates;

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

advancing preclinical development of our current and future product candidates;

advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms;

acquiring and licensing technologies aligned with our ambition of translating engineered cells to medicines;

seeking regulatory approval of our current and future product candidates;

increasing our workforce to support our research, clinical and preclinical development, manufacturing, and commercialization efforts;

expanding our operational, financial, and management systems;

continuing to develop, prosecute, and defend our intellectual property portfolio;

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

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

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

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

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

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

Until we can generate significant product revenue, if ever, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, the proceeds of any future equity or debt financings, and upfront, milestone, and royalty payments, if any, received under future license or collaboration agreements.

We may not be able to raise additional capital on terms that are acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

COVID-19 business update

The global COVID-19 pandemic continues to evolve rapidly, and we continue to monitor it closely.

The extent of the impact of the ongoing COVID-19 pandemic on our business, operations, and clinical development timelines and plans remains uncertain and will depend on certain developments, including the duration of the COVID-19 pandemic and spread of COVID-19, and the pandemic’s impact on our ability to build out and operationalize our internal manufacturing facility, expand our laboratory space, and enroll patients in clinical trials, and the impact of the pandemic on our clinical trial sites, contract research organizations (CROs), contract manufacturing organizations, suppliers of key materials and supplies, including raw materials, consumables, and other equipment necessary to manufacture our product candidates, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel.

We have experienced modest delays in our discovery and development activities as a result of the COVID-19 pandemic, primarily due to temporary and partial shutdowns at certain of our CROs and academic institutions that have since resumed operations, and stay-at-home orders in Washington, California, and Massachusetts, where our operations are located.

However, to the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and most of our non-laboratory employees primarily working remotely.

We continue to actively monitor the situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and upfront, milestone, and royalty payments received under any future licenses, collaborations, or other arrangements.

Additional capital may not be available on terms that are reasonable or acceptable to us, if at all.

If we are unable to raise capital when needed or on attractive terms, our business, results of operations, and financial condition would be adversely affected.

Macroeconomic Considerations

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

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

If economic uncertainty continues or increases, or if the global economy worsens, our business, financial condition, and results of operations may be harmed.

For further discussion of the potential impacts of macroeconomic events and conditions on our business, financial condition, and operating results, see the section of this Annual Report titled “Risk Factors.”

We have completed various acquisitions since inception.

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Cobalt success payment and contingent consideration

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

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

As of December 31, 2021, a Cobalt Success Payment had not been triggered.

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

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

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

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

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

As of December 31, 2022, a Cobalt Success Payment had not been triggered.

See Note 3, Acquisitions to our consolidated financial statements included elsewhere in this Annual Report for details on the amount of the potential Cobalt Success Payment and potential Cobalt Contingent Consideration if there is a change of control based on various thresholds for our market capitalization on such change of control date.

As of December 31, 2021 and 2020, the estimated fair value of the Cobalt Success Payment liability was $88.3 million and $64.7 million, respectively, and were recorded in long-term liabilities in the consolidated balance sheets.

In connection with the change in the estimated fair value of the Cobalt Success Payment, we recognized expenses of $23.6 million, $62.3 million, and an immaterial amount, respectively, for the years ended December 31, 2021, 2020, and 2019.

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 consolidated balance sheet.

As of December 31, 2020, the estimated fair value of the Cobalt Contingent Consideration of $121.9 million was recorded in long-term liabilities in the consolidated balance sheet.

In connection with the change in the estimated fair value of the Cobalt Contingent Consideration, we recognized expenses of $31.8 million, $52.8 million, and $17.9 million, respectively, for the years ended December 31, 2021, 2020, and 2019.

See the subsections below titled “—Success payments” and “—Contingent consideration” for more information on the accounting treatment of the Cobalt Success Payment and Cobalt Contingent Consideration.

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Pursuant to the terms of the Harvard agreement, we may be required to make up to an aggregate of $175.0 million in success payments to Harvard (Harvard Success Payments), payable in cash, based on increases in the per share fair market value of our common stock.

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

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

See Note 4, License and collaboration agreements to our consolidated financial statements included elsewhere in this Annual Report for more details on the various per share common stock values that trigger a Harvard Success Payment.

The first valuation measurement date occurred in February 2022 on the one-year anniversary of our IPO.

The threshold was not met, and therefore no payment was made as of the measurement date.

Additional valuation measurement dates are triggered by certain events, including a merger, an asset sale, the sale of the majority of the shares held by Series A convertible preferred stockholders, and the last day of the term of the Harvard Success Payments.

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

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

effective date of the agreement.

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

Any previous Harvard Success Payments made are credited against the Harvard Success Payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold.

As of December 31, 2021 and 2020, the estimated fair value of the Harvard Success Payment liability was $14.2 million and $11.8 million, respectively.

As of December 31, 2021 and 2020, $5.0 million and $0, respectively, were recorded in short-term liabilities, and $9.2 million and $11.8 million, respectively, were recorded in long-term liabilities in the consolidated balance sheet.

In connection with the change in the estimated fair value of the Harvard Success Payment liability, we recognized expenses of $2.4 million, $9.9 million, and $1.9 million, respectively, for the years ended December 31, 2021, 2020, and 2019.

As of December 31 , 2022 , a Harvard Success Payment had not been triggered.

See the subsection below titled “—Success payments” for more information on the accounting treatment of the Harvard Success Payments.

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Research and development

To date, research and development expenses have related primarily to discovery and development of our platform technology and product candidates.

To date, research and development expenses have related primarily to discovery and development of our platform technologies and product candidates.

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

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

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

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

We deploy our employee and infrastructure resources across multiple research and development programs for developing our ex vivo and in vivo cell engineering platforms, identifying and developing product candidates, and establishing manufacturing capabilities.

Due to our early stage of development, the number of ongoing projects, and our ability to use resources across several projects, the majority of our research and development costs are not recorded on a program-specific basis.

Due to our early stage of development, the number of ongoing projects, and our ability to use resources across several projects, most of our research and development costs are not recorded on a program-specific basis.

These include costs for personnel, laboratory, and other indirect facility and operating costs.

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

We anticipate that our research and development expenses will increase for the foreseeable future as we expand our research and development efforts, including expanding the capabilities of our cell engineering platforms, identifying product candidates, completing existing preclinical studies and commencing new preclinical studies, commencing clinical trials, establishing internal and external manufacturing capabilities, seeking regulatory approval of our product candidates, and incurring costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines.

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

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

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

identifying additional product candidates;

establishing internal and external manufacturing capabilities;

advancing preclinical development of our current and future product candidates;

advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms;

acquiring and licensing technologies aligned with our ambition of translating engineered cells to medicines;

seeking regulatory approval of our current and future product candidates;

and increasing our workforce to support our expanded research and development operations.

A change in the outcome of any of these factors could result in a significant change in the costs and timing associated with the development of our product candidates.

Research and development related success payments and contingent consideration

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

Research and development expense related to our success payment liabilities and contingent consideration is unpredictable, including because our success payments are based, in part, on our common stock price and market capitalization at the end of each reporting period, and may continue to vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations.

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

General and administrative

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

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

Legal fees include those related to corporate and patent matters.

We anticipate that our general and administrative expenses will increase over the foreseeable future to support our continued research and development activities, grow our business, and support future possible business development opportunities.

We also anticipate that we will continue to incur expenses related to audit and legal services associated with operating as a public company, maintaining compliance with the rules and regulations of the Securities and Exchange Commission (SEC) and standards applicable to companies listed on a national securities exchange, investor relations activities, and other administrative and professional services.

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

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

Results of operations

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(in thousands)

Acquisition and licensing of technology

Research and laboratory

Facility and other allocated costs

Research, development, and laboratory

Facility and other allocated expenses

Third-party manufacturing

Licensing of technology

Total research and development expense

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

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

The increase of $37.3 million was primarily due to:

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

increased personnel-related expenses of $29.5 million, including non-cash stock-based compensation of $10.3 million, which was primarily attributable to an increase in headcount to expand our research and development capabilities;

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

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

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

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

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

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

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

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

Research and development related success payments and contingent consideration

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

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

Year Ended December 31,

(in thousands)

Success payments

Cobalt success payment

Harvard success payments

Contingent consideration

Total research and development related success payments and contingent consideration

For the years ended December 31, 2021 and 2020, we recognized non-cash expenses of $57.9 million and $124.9 million, respectively, for the changes in the estimated fair value of research and development related success payments and contingent

consideration.

The expense related to the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was $ 26.

0 million and $72.1 million , respectively, for the year s ended December 31 , 2021 and 2020 .

The change in the estimated fair value of the success payment liabilities was due to a smaller increase in the growth of our market capitalization and common stock price during the relative periods.

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

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

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

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

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

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

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

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

General and administrative expenses

General and administrative expenses were $50.4 million and $28.3 million, respectively, for the years ended December 31, 2021 and 2020.The increase of $22.1 million was primarily due to increased personnel-related expenses of $10.8 million, including non-cash stock-based compensation of $6.2 million, primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, increased legal fees of $3.9 million to support our patent portfolio and licensing arrangements, increased insurance costs of $3.9 million associated with being a public company, increased consulting fees of $1.4 million, and increased facility costs, including rent, of $0.8 million.

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

Interest income, net

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

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

Comparison of the years ended December 31, 2021 and 2020

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Other income, net

Loss before income taxes

Benefit from income taxes

Research and development expenses

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(in thousands)

Acquisition and licensing of technology

Research and laboratory

Facility and other allocated costs

Acquisition and licensing of technology

Total research and development expense

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The increase of $115.7 million was primarily due to:

increased personnel-related expenses of $19.1 million, including non-cash stock-based compensation of $3.6 million, which was primarily attributable to an increase in headcount to expand our research and development capabilities;

an increase of $18.6 million in research and laboratory costs, including preclinical stud y , laboratory supply, and other external research expenses;

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

increased personnel-related expenses of $29.5 million, including an increase in non-cash stock-based compensation of $10.3 million, which was primarily attributable to an increase in headcount to expand our research and development capabilities;

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

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

These increases were partially offset by a decline in costs to acquire and license technology of $15.8 million due to costs incurred in 2019 related to the Harvard and UCSF agreements, and the upfront fee for the acquisition of Cytocardia, partially offset by the upfront fee for the acquisition of Oscine in 2020.

Research and development related success payments and contingent consideration

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(in thousands)

Success payments

Cobalt success payment

Harvard success payments

Contingent consideration

Total research and development related success payments and contingent consideration

For the years ended December 31, 2020 and 2019, we recognized non-cash expenses of $124.9 million and $19.8 million, respectively, for the changes in the estimated fair value of research and development related success payments and contingent consideration.

The expense related to the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was $72.1 million and $1.9 million, respectively, for the years ended December 31, 2020 and 2019.

The change in the estimated fair value of the success payment liabilities was due to increases in the estimated fair value of our Series A and Series B convertible preferred stock during the relative periods.

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

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

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

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

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

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

The increase of $6.5 million was primarily due to increased personnel-related expenses of $3.2 million, primarily attributable to an increase in headcount to build our infrastructure, increased information technology and facilities costs, including rent of $1.4 million, increased business taxes and insurance of $0.8 million, and increased consulting and legal fees of $0.5 million.

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

Interest income, net

Interest income, net was $0.7 million and $2.9 million, respectively, for the years ended December 31, 2020 and 2019.

The decrease of $2.2 million was due to lower interest rates on cash and marketable securities balances.

Benefit from income taxes

The benefit from income taxes of $7.5 million for the year ended December 31, 2019 was due to a release of valuation allowance associated with the deferred tax liability of $7.5 million recorded in connection with the intangible asset from the Cobalt acquisition.

There was no benefit from income taxes for the year ended December 31, 2020.

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

Liquidity, capital resources, and capital requirements

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As of December 31, 2022, we had $434.0 million in cash, cash equivalents, and marketable securities.

To date we have raised an aggregate of approximately $1.3 billion in net proceeds through our IPO and private placements of our convertible preferred stock.

To date we have raised an aggregate of approximately $1.3 billion in net proceeds from sales of common stock and private placements of our convertible preferred stock.

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

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

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

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the costs, timing, and outcome of regulatory review of our current or future product candidates;

the cost associated with building our manufacturing capabilities, as well as costs associated with the manufacturing of clinical and commercial supplies of our current and future product candidates;

the cost, timing, and scope of building our manufacturing capabilities, as well as costs associated with the manufacturing of clinical and commercial supplies of our current and future product candidates;

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

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the expenses required to attract, hire, and retain skilled personnel;

the impact of global supply chain issues and rising rates of inflation on the costs of laboratory consumables, supplies, and equipment required for our ongoing operations;

the costs of operating as a public company;

our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party and government payors;

potential interruptions or delays resulting from factors related to the ongoing COVID-19 pandemic;

our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party, including government, payors;

potential interruptions or delays resulting from global geo-political, economic, and other factors beyond our control;

the effect of competing technological and market developments;

the extent to which we acquire or invest in businesses, products, and technologies.

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations from the proceeds of equity or debt financings or capital obtained in connection with strategic collaborations or licensing or other arrangements.

Until such time, if ever, as we can generate significant revenue from product sales, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and upfront, milestone, and royalty payments received under any future licenses, collaborations, or other arrangements .

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

If we raise additional funds through the issuance of equity or convertible debt securities, it may result in dilution to our existing stockholders.

Debt financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock.

If we incur debt, we could become subject to covenants that would restrict our operations.

If we raise funds through strategic collaborations or licensing or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise.

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

Debt financing, if available, may result in increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock, and involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or acquiring, selling, or licensing intellectual property rights or assets, which could adversely impact our ability to conduct our business.

If we raise funds through strategic collaborations or licensing or other arrangements, we may have to relinquish significant rights or grant licenses on terms that are not favorable to us.

If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

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Operating activities

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

The non-cash charges of $28.1 million consisted of gains of $81.5 million and $3.4 million for revaluation of our success payment liabilities and contingent consideration, respectively, non-cash stock-based compensation expense of $38.3 million, depreciation expense of $15.6 million, and other non-cash charges of $2.9 million.

During the year ended December 31, 2021, net cash used in operating activities was $251.0 million, consisting primarily of our net loss of $355.9 million, partially offset by the change in our net operating assets and liabilities of $9.8 million and non-cash charges of $95.1 million.

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

During the year ended December 31, 2019, net cash used in operating activities was $85.5 million, consisting primarily of our net loss of $130.8 million and a tax benefit of $7.5 million recorded in connection with the Cobalt acquisition, partially offset by non-cash charges of $42.3 million and an increase in our net operating assets of $10.5 million.

The non-cash charges of $42.3 million consisted of $17.9 million for revaluation of contingent consideration, $11.9 million for the issuance of stock in connection with license agreements, $6.5 million for revaluation of success payment and contingent liabilities, depreciation expense of $1.8 million, and other non-cash charges of $4.2 million.

Investing activities

During the years ended December 31, 2021, 2020 and 2019, cash used in investing activities was $245.8 million, $252.6 million, and $87.9 million, respectively.

This consisted primarily of net purchases, sales, and maturities of marketable securities of $211.3 million, $228.7 million and $58.5 million, respectively, and purchases of property and equipment of $29.9 million, $23.9 million and $26.2 million, respectively, for the years ended December 31, 2021, 2020 and 2019.

Cash provided by investing activities was $210.6 million during the year ended December 31, 2022, and cash used in investing activities was $245.8 million and $252.6 million during the years ended December 31, 2021 and 2020, respectively.

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

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

Financing activities

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

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

During the years ended December 31, 2020 and 2019, cash provided by financing activities was $435.7 million and $223.7 million, respectively, consisting primarily of net proceeds from the sale of our convertible preferred stock.

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

Contractual obligations and commitments

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Operating lease obligations ( 1)

Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as of December 31, 2021 are contingent upon future events such as our achievement of pre-specified development, regulatory, and commercial milestones or royalties on net product sales.

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

Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as of December 31, 2022 are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones or royalties on net product sales.

See the section titled “Business—Key Intellectual Property Agreements” for more information about these payment obligations.

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

We will cease to be an emerging growth company until the earliest of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

For as long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our independent registered public accounting firm provide an attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.

In addition, 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.

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

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

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

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use the extended transition period for any new or revised accounting standards during the period in which we remain an emerging growth company;

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Research and development expenses

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

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

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

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

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

Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

To date, we have not experienced any material differences between accrued costs and actual costs incurred.

To date, we have not experienced any material differences between accrued expenses and actual expenses incurred.

However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods.

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If we determine 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 and no goodwill or contingent consideration are recognized at the acquisition date.

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.

In an asset acquisition, upfront 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.

Intangible assets and goodwill

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

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

intangible assets.

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

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The fair value of contingent consideration is determined by calculating the probability-weighted estimated value of the milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and applying the relevant discount rates.

We utilize significant estimates and assumptions in determining the estimated contingent consideration and associated expense or gain at each balance sheet date.

We use significant estimates and assumptions in determining the estimated contingent consideration and associated expense or gain at each balance sheet date.

The valuation of contingent consideration uses assumptions we believe would be made by a market participant.

In evaluating the fair value of contingent consideration, a significant amount of judgment is required to estimate the likelihood and timing that the milestones would be achieved.

We assess these estimates on an on-going basis as additional data impacting the assumptions become available.

In evaluating the fair value of contingent consideration, significant judgment is required to estimate the likelihood and timing that the milestones would be achieved.

We assess these estimates on an ongoing basis as additional data impacting the assumptions become available.

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

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To determine the estimated fair value of the success payment liabilities, we use a Monte Carlo simulation methodology which models the estimated fair value of the liability based on several key assumptions, including the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered, term of the success payments, the risk-free interest rate, and expected volatility, which is estimated using peer company stocks for a period of time commensurate with the expected term assumption.

Prior to our IPO, the calculation of the Harvard Success Payment liability incorporated the estimated fair value of our Series A convertible preferred stock, and the Cobalt Success Payment liability incorporated our estimated future value implied by the per share value of the Series B convertible preferred stock at issuance, or any security into which such stock had been converted or exchanged.

Concurrent with the

closing of our IPO in February 2021, the Series A and Series B convertible preferred stock converted into common stock.

Subsequent to our IPO, the computation of the estimated fair value of the Harvard Success Payments incorporate s the per share fair market value of our common stock at the end of each reporting period , and the computation of the estimated fair value of the Cobalt Success Payment incorporate s our market capitalization at the end of each reporting period .

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

The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment and a small change in the assumptions may have a relatively large change in the estimated liability and resulting expense or gain.

Stock-based compensation

We recognize compensation costs related to restricted stock awards, restricted stock units, and stock options granted to employees and nonemployees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur.

We recognize compensation costs related to restricted stock awards, restricted stock units, and stock options granted to employees and non-employees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur.

For restricted stock awards and restricted stock units, the fair value of our common stock is used to determine the resulting stock-based compensation expense.

For stock options, we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model.

The fair value of the stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The fair value of stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Black-Scholes option pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards.

These assumptions include:

Fair Value of Common Stock—For all periods prior to our IPO, there was no active public market for our common stock.

Therefore, our board of directors, with the assistance and upon the recommendation of management, had, for financial reporting purposes, periodically determined the estimated per share fair value of our common stock on the date of grant using contemporaneous independent third-party valuations consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, as well as a range of factors and assumptions.

The determination of such estimates involved inherent uncertainties, and our board of directors exercised significant judgment in estimating the value of our common stock.

As a result, if factors or expected outcomes changed or we had used significantly different assumptions or estimates, our equity-based compensation could have been materially different.

Following the closing of our IPO, t he fair value of common stock is based on the closing price as reported on The Nasdaq Global Select Market on the date of grant.

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

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

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

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

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.

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Recently adopted and recent accounting pronouncements

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis