What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-16 · 181 added, 253 removed, 557 unchanged (44% of the section changed)

40 unchanged sentences

Marketable securities

Restricted cash

Prepaid expenses and other current assets

3 unchanged sentences

Operating lease right-of-use assets

Restricted cash

Long-term restricted cash

Intangible asset

Other non-current assets

LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS'

EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

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Success payment liabilities, net of current portion

Other non-current liabilities

Total liabilities

Commitments and contingencies (Note 9)

Convertible preferred stock, $ 0.0001 par value;

zero and 537,786 shares authorized

as of December 31, 2021 and 2020, respectively;

zero and 134,113 shares issued and

outstanding as of December 31, 2021 and 2020, respectively

Stockholders' equity (deficit):

Stockholders' equity:

Preferred stock, $ 0.0001 par value;

50,000 and zero shares authorized as of

December 31, 2021 and 2020, respectively;

zero shares issued and outstanding as of

December 31, 2021 and 2020

50,000 shares authorized;

zero shares issued and outstanding as of December 31, 2022 and 2021, respectively

Common stock, $ 0.0001 par value;

750,000 and 707,000 shares authorized as of

December 31, 2021 and 2020, respectively;

184,929 and 16,170 shares issued and

outstanding as of December 31, 2021 and 2020, respectively

750,000 shares authorized;

191,022 and 184,929 shares issued and outstanding as of December 31, 2022 and 2021, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders' equity (deficit)

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND

STOCKHOLDERS' EQUITY (DEFICIT)

Total stockholders' equity

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial statements.

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Other income (expense), net

Loss before income taxes

Benefit from income taxes

Net loss per common share - basic and diluted

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Year Ended December 31,

Other comprehensive income (loss), net of tax:

Other comprehensive loss, net of tax:

Unrealized gain (loss) on marketable securities, net

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Balance as of December 31, 2019

Adjustment to beginning accumulated deficit from adoption of ASC 842

Issuance of Series A-2 convertible preferred stock, net of $ 300 in issuance costs

Issuance of Series A-2 convertible preferred stock for acquisition, non-cash

Issuance of Series A-2 convertible preferred stock in connection with license agreements

Vesting of restricted stock

Stock-based compensation

Exercise of stock options

Unrealized gain on marketable securities, net

Balance as of December 31, 2019

Issuance of Series B convertible preferred stock, net of $ 33 in issuance costs

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Balance as of December 31, 2021

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

Vesting of restricted stock

Exercise of stock options

Issuance of common stock related to employee stock purchase plan

Stock-based compensation

Unrealized loss on marketable securities, net

Balance as of December 31, 2022

The accompanying notes are an integral part of these consolidated financial statements.

5 unchanged sentences

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

Deferred income tax

Stock-based compensation expense

1 unchanged sentence

Change in the estimated fair value of success payment liabilities

Non-cash expense in connection with license agreement and asset acquisition

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

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Purchases of marketable securities

Proceeds from sales and maturities of marketable securities

Proceeds from maturities of marketable securities

Purchases of property and equipment

Acquisitions, net of cash acquired

Other investing activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

FINANCING ACTIVITIES:

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Proceeds from employee stock purchase plan and exercise of stock options, net

Proceeds from at the market offering of common stock, net of issuance costs

Net cash provided by financing activities

Net increase in cash, cash equivalents, and restricted cash

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

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

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

RECONCILITION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Cash and cash equivalents

Restricted cash

Long-term restricted cash

Total cash, cash equivalents, and restricted cash

SUPPLEMENTAL CASH FLOW INFORMATION:

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

Cash received for amounts related to tenant improvement allowances

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

Issuance of convertible preferred stock for acquisition

Cash received for amounts related to tenant improvement allowances

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

The accompanying notes are an integral part of these consolidated financial statements.

3 unchanged sentences

(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, business planning, establishing the Company’s intellectual property portfolio, raising capital, and providing general and administrative support for these operations.

Reverse stock split

In January 2021, the Company’s board of directors approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-4 reverse stock split of shares of the Company’s common and convertible preferred stock, which was effected on January 27, 2021.

The par value per share and authorized shares of common and convertible preferred stock were not adjusted as a result of the reverse stock split.

All share and per share information included in the accompanying consolidated financial statements has been adjusted to reflect the reverse stock split.

Initial public offering

In February 2021, the Company successfully completed its initial public offering (IPO) of its common stock.

In connection with its IPO, the Company issued 27.0 million shares of its common stock, including 3.5 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $ 25.00 per share, and received $ 626.4 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.

Need for additional capital

The Company is subject to a number of risks and uncertainties similar to other biotechnology companies in the development stage, including, but not limited to, 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 technology, and the need to attract and retain key scientific and management personnel.

The Company’s operations to date have included 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 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.

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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 November 2022, the Company underwent a portfolio prioritization and corporate restructuring designed to optimize development of programs at or nearing clinical development, to continue investments in 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 the Company’s workforce by approximately 15 %.

During the year ended December 31, 2022, the Company recognized $ 6.8 million of expenses 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 restructuring in general and administrative expense.

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

In February 2021, the Company successfully completed its initial public offering (IPO) of its common stock.

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

As of December 31, 2021, the Company had cash, cash equivalents, and marketable securities of $ 746.9 million, and an accumulated deficit of $ 785.4 million, which includes non-cash charges related to the revaluation of the success payment liabilities and contingent consideration of $ 100.1 million and $ 102.5 million, respectively.

As of December 31, 2022, the Company had cash, cash equivalents, and marketable securities of $ 434.0 million, and an accumulated deficit of $ 1.1 billion, which includes non-cash charges related to the revaluation of the success payment liabilities and contingent consideration of $ 18.6 million and $ 99.1 million, respectively.

Summary of significant accounting policies

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Actual results could materially differ from those estimates.

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

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

Cash and cash equivalents

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

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the

resulting gain or loss is recorded in other income (expense), net in the period realized.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is recorded in other income (expense), net in the period realized.

Maintenance and repairs are expensed as incurred.

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

As of December 31, 2021, the Company had goodwill of $ 140.6 million related to the 2019 acquisition of Cobalt, which represents the excess of the purchase price over the estimated fair value of the net assets acquired.

As of December 31, 2022, the Company had goodwill of $ 140.6 million related to its acquisition of Cobalt Biomedicine, Inc.

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

There have been no impairments of goodwill since the acquisition.

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

As of December 31, 2021, there was no amortization or impairments of the intangible asset.

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

Contingent consideration from business combinations

1 unchanged sentence

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

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

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

Success payments

The Company granted rights to a success payment to Cobalt Biomedicine, Inc.

(Cobalt) pursuant to the terms of its acquisition agreement and to the President and Fellows of Harvard College (Harvard) pursuant to the terms of its exclusive license agreement.

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

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

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

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

The success payment related to the acquisition of Cobalt (Cobalt Success Payment) was recorded as a liability on the consolidated balance sheet at fair value on the acquisition date and is remeasured at each subsequent reporting period, with changes in fair value recognized

in research and development related success payments and contingent consideration .

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

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

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

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

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

Additionally, prior to the IPO, the Cobalt Success Payment liability incorporated the estimated future value of the Company implied by the estimated per share value of the Company’s Series B convertible preferred stock at issuance, and the Harvard Success Payment liability incorporated the estimated per share value of the Company’s Series A convertible preferred stock.

Concurrent with the closing of the Company’s IPO in February 2021, the Company’s Series A and Series B convertible preferred stock converted into common stock.

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

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

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

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

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

1 unchanged sentence

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

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

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

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

1 unchanged sentence

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

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

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

The Company does not have any financing leases.

2 unchanged sentences

Claims and contingencies

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

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

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

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

Convertible preferred stock

The carrying value of the Company’s Series A-1, Series A-2, and Series B convertible preferred stock was adjusted to reflect dividends if and when declared by the Company’s board of directors.

No dividends have been declared by the board of directors since inception.

The Company classified its convertible preferred stock outside of permanent equity, as the redemption of such stock was not solely under the control of the Company.

The Company recorded its convertible preferred stock at the issuance price on the dates of issuance, net of issuance costs.

Concurrent with the closing of the Company’s IPO in February 2021, all of the Company’s convertible preferred stock converted into common stock.

Stock-based compensation

1 unchanged sentence

Forfeitures are recognized as they occur.

For RSAs and RSUs, the fair value of the Company’s common stock is used to determine the resulting

stock-based compensation expense.

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

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

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

Research and development expense consist of 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 expense 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 the Company’s goal of translating engineered cells to medicines, facility and other allocated expenses, including rent, depreciation, and allocated overhead costs.

Research and development related success payment and contingent consideration

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Legal fees include those related to corporate and patent matters.

General and administrative expenses for the twelve months ended December 31, 2022 include 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 (Fremont facility), which we plan to replace with our manufacturing facility in Bothell, Washington (the Bothell facility).

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

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

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

Subject to certain conditions set forth in the JOBS Act, an EGC is not required to, among other things, (i) provide an auditor’s attestation report on the company’s system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-

Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non- EGC public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) , or (iv) disclose certain executive compensation-related items , such as the correlation between executive compensation and performance and comparisons of the c hief e xecutive o fficer’s compensation to median employee compensation.

Recent accounting pronouncements

Recently adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 362):

Measurement of Credit Losses on Financial Statements (ASU 2016-13).

The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses.

It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which the carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases.

The targeted transition relief standard allows companies an option to irrevocably elect the fair value option of ASC 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments.

The Company adopted ASU 2016-13 effective January 1, 2021 .

The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures, and no allowance for losses on available-for-sale debt securities attributable to credit risk has been recorded.

Not yet adopted

2017-04 , Intangibles—Goodwill and Other (Topic 350):

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Simplifying the Test for Goodwill Impairment (ASU 2017-04).

To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this ASU remove the second step of the test.

To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in ASU 2017-04 remove the second step of the test.

An entity will instead apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The new guidance does not amend the optional qualitative assessment of goodwill impairment.

The new standard will be effective beginning January 1, 2023.

The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

In September 2020, the Company entered into a stock purchase agreement to acquire 100 % of the outstanding equity of Oscine Corp.

(Oscine), a privately-held early-stage biotechnology company whose primary asset was IPR&D related to its ex vivo glial progenitor cell technology focused on brain disorders.

The Company acquired Oscine for a purchase price of $ 8.5 million, of which $ 7.6 million was an upfront cash payment, and $ 0.9 million was set aside to satisfy certain general representations and warranties set forth in the stock purchase agreement (Oscine Holdback Amount).

The Oscine Holdback Amount was paid in full in December 2021.

The Company evaluated the acquisition and determined the screen test, as permitted under ASC 805, Business Combinations , was met, as the $ 8.5 million purchase price represented consideration for a single identifiable asset related to the technology.

The Company concluded the asset acquired did not meet the definition of a business, and the asset had no alternative future use.

The transaction was accounted for as an asset acquisition, and the purchase price of $ 8.5 million was recorded in research and development expense for the year ended December 31, 2020.

The Company is required to make up to an aggregate of $ 225.8 million in future milestone payments upon the achievement of certain development and commercial milestones.

Cytocardia, Inc.

In November 2019, the Company acquired 100 % of the outstanding equity of Cytocardia, Inc.

(Cytocardia), a privately-held early-stage biotechnology company whose primary asset was IPR&D related to its ex vivo cell engineering technology focused on replacement of damaged heart cells.

The Company acquired Cytocardia for a purchase price of $ 8.0 million, of which $ 6.8 million was an upfront cash payment, and $ 1.2 million was set aside to satisfy certain general representations and warranties set forth in the stock purchase agreement (Cytocardia Holdback Amount).

The Cytocardia Holdback Amount was paid in full in February 2021.

The Company evaluated the acquisition and determined the screen test, as permitted under ASC 805, Business Combinations , was met, as the $ 8.0 million purchase price represented consideration for a single identifiable asset related to the technology.

The Company concluded the asset acquired did not meet the accounting definition of a business, and the asset had no alternative future use.

The transaction was accounted for as an asset acquisition, and the purchase price of $ 8.0 million was recorded in research and development expense for the year ended December 31, 2019.

The Company is required to make future milestone payments of up to an aggregate of $ 140.0 million upon the achievement of certain pre-specified development and commercial milestones.

The adoption of ASU 2017-04 had no effect on our financial statements and disclosures.

Cobalt Biomedicine, Inc.

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

The Company issued 36.4 million shares of its Series A-2 convertible preferred stock, valued at $ 136.0 million, in consideration for this transaction.

Of the 36.4 million shares of Series A-2 convertible preferred stock issued, 12.1 million shares were restricted based on the achievement of a pre-specified development milestone, which was achieved in July 2019.

Additionally, 0.7 million RSAs and 0.3 million RSUs were granted to former employees of Cobalt.

Upon the closing of the Company’s IPO in February 2021, the Series A-2 convertible preferred stock issued in connection with the acquisition of Cobalt converted into common stock.

The Company accounted for the Cobalt acquisition as a business combination using the acquisition method of accounting.

Under this method, the assets acquired and liabilities assumed are measured at their fair values as of the acquisition date.

The elements of the purchase consideration are as follows (in thousands):

Series A-2 convertible preferred stock issued (1)

First milestone - restricted Series A-2 convertible preferred stock (2)

Success payment (3)

Fair value of contingent consideration (4)

Total consideration

The purchase consideration included 24.3 million shares of the Company’s Series A-2 convertible preferred stock.

The value of the stock issued was $ 4.00 per share, equivalent to the purchase price per share of the Series A-2 convertible preferred stock financing that occurred in February 2019.

The Company concluded the value of the first milestone, to be paid in restricted shares of Series A-2 convertible preferred stock, met the definition of being indexed to common stock.

The restricted Series A-2 convertible preferred shares were recorded in convertible preferred stock valued at $ 38.8 million based on the estimated probability and timing of the milestone achievement on the date of acquisition and are not subject to remeasurement upon achievement of the milestone.

In July 2019, the first milestone was achieved, and the Company issued a total of 12.1 million shares of its Series A-2 convertible preferred stock.

The fair value of the success payment was determined using a Monte Carlo simulation methodology, which models the estimated fair value of the liability based on several key assumptions including the term of the success payment, expected volatility, risk-free interest rate, estimated number and timing of valuation measurement dates on the basis of which payment may be triggered, and the estimated future value of the Company implied by the estimated future per share value of the Company’s Series B convertible preferred stock at issuance.

The fair value of the contingent consideration was determined by calculating the probability-weighted value of the milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved and using estimated discount rates ranging from 15.3 % to 17.6 %.

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

The allocation of the purchase price is based on the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition.

The components of the purchase price allocation are as follows (in thousands):

Net working capital

Property and equipment

Net liabilities assumed

Deferred tax liability

Acquired in-process research and development

Total consideration

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

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

Amortization will begin when regulatory approval is obtained in a major market, typically either the United States or the European Union.

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

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

The goodwill is not deductible for income tax purposes.

Pursuant to the terms and conditions in the Cobalt acquisition agreement, the Company has an obligation to pay to 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, including the closing of the Company’s IPO, 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 (IND), or has filed for, or received approval for, a biologics license application (BLA) or new drug application (NDA).

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

Pursuant to the terms and conditions in the Cobalt acquisition agreement, the Company has an obligation to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $ 500.0 million upon the achievement of certain 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, 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 (IND), or has filed for, or received approval for, a biologics license application (BLA) or new drug application (NDA) for a product developed using the fusogen technology.

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

If the Company’s market capitalization is below $ 8.1 billion as of the date of a change of control, the amount of the potential Cobalt Success

Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase.

As of December 31 , 202 2 , 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 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.

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:

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

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

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 was $ 121.9 million and was recorded in long-term liabilities in the consolidated balance sheet.

For the years ended December 31, 2021, 2020, and 2019 the Company recognized $ 23.6 million, $ 62.3 million, and an immaterial amount, respectively, in connection with the change in fair value of the Cobalt Success Payment, and $ 31.8 million, $ 52.8 million, and $ 17.9 million, respectively, in connection with the change in fair value of the Cobalt Contingent Consideration.

As of December 31, 2022 and 2021, the estimated fair value of the Cobalt Success Payment liability was $ 19.0 million and $ 88.3 million, respectively, and was recorded in long-term liabilities.

For the years ended December 31, 2022, 2021, and 2020 the Company recognized a gain of $ 69.3 million and expenses of $ 23.6 million and $ 62.3 million, respectively, in connection with the change in fair value of the Cobalt Success Payment.

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

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.

For the years ended December 31, 2022, 2021, and 2020, the Company recognized a gain of $ 3.4 million and expenses of $ 31.8 million and $ 52.8 million, respectively, in connection with the change in fair value of the Cobalt Contingent Consideration.

License and collaboration agreements

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

Under this agreement, the Company paid $ 3.0 million in cash and issued 2.2 million shares of its Series A-2 convertible preferred stock, valued at $ 4.00 per share, for total consideration of $ 12.0 million.

The Company determined the licensed technology had no alternative future use and the $ 12.0 million was therefore recorded in research and development expense for the year ended December 31, 2019.

Upon the closing of the Company’s IPO in February 2021, the Series A-2 convertible preferred stock issued in connection with the license agreement with Harvard converted into common stock.

In connection with this agreement, the Company agreed to pay Harvard a license payment of $ 6.0 million in cash contingent upon the closing of the Company’s Series B convertible preferred stock financing.

This contingent license payment was accounted for as a derivative under ASC 815, Derivatives and Hedging , carried at fair value, and was revalued each reporting period, with changes recognized in research and development expense.

As of December 31, 2019, the estimated fair value of the contingent license payment to Harvard was $ 4.6 million, and the Company recorded research and development expense of $ 1.4 million and $ 4.6 million, respectively, for the years ended December 31, 2020 and 2019.

The Series B convertible preferred stock financing closed in June 2020, and the Company paid Harvard $ 6.0 million in cash.

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

The potential Harvard Success Payments are based on multiples of increased value ranging from 5x to 40x, based on a comparison of the fair market value of

the Company’s common stock relative to the original issuance price of $ 4.00 per share at pre-determined valuation measurement dates , which include:

the one year anniversary of the IPO, 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.

The first Harvard valuation measurement date occurred i n February 2022 on the one - year anniversary of the IPO .

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

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.

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

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

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

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

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

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

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:

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

Multiple of Equity Value at Issuance

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

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, of which $ 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 the Company 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 the estimated fair value of the Harvard Success Payment liability was $ 2.0 million and was recorded in long-term liabilities.

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 connection with the change in the estimated fair value of the Harvard Success Payment liability the Company recognized a gain of $ 12.2 million, and expenses of $ 2.4 million, and $ 9.9 million, respectively, for the years ended December 31, 2022, 2021, and 2020.

Restricted cash

As of December 31, 2021 and 2020, the Company maintained standby letters of credit of $ 8.8 million and $ 2.1 million, respectively, which are collateralized with a bank account at a financial institution in accordance with the applicable lease agreements.

The following table sets forth the standby letters of credit associated with the leases for each of the Company’s locations:

(in thousands)

Cambridge, MA

South San Francisco, CA

Total restricted cash

As of December 31, 2022 and 2021, the Company maintained two 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 December 31, 2022.

Fair value measurements

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Money market funds

government and agency securities

Corporate debt securities

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government and agency securities

Corporate debt securities

Total long-term marketable securities

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Contingent consideration

Success payment liabilities

Total short-term financial liabilities

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Money market funds

government and agency securities

Corporate debt securities

6 unchanged sentences

government and agency securities

Corporate debt securities

Total long-term marketable securities

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Financial liabilities:

Short-term financial liabilities:

Contingent consideration

Success payment liabilities

Total short-term financial liabilities

Long-term financial liabilities:

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Success payment liabilities

Total long-term financial liabilities

Total financial liabilities

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The Level 2 marketable securities include U.S.

government, 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.

As of December 31, 2021, all marketable securities had an effective maturity date of two years or less.

Securities in an unrealized loss position have been in an unrealized loss position for less than one year.

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

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

Less than 12 months

12 months or greater

Unrealized losses

(in thousands)

December 31, 2022

government and agency securities

Corporate debt securities

December 31, 2021

government and agency securities

Corporate debt securities

The Company determined that there was no material change in the credit risk of the above investments during the year ended December 31, 2022.

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

As of December 31, 2021, the Company does not intend to sell such securities, and it is not more-likely-than-not that the Company will be required to sell the securities prior to the recovery of the amortized cost basis.

As of December 31, 2021 and 2020, the balance in accumulated other comprehensive income (loss) included net unrealized gains (losses) related to the Company’s available-for-sale debt securities.

There were no material realized gains or losses recognized on the sale or maturity of available-for-sale securities during the years ended December 31, 2021, 2020 and 2019.

As of December 31, 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 December 31, 2021, all marketable securities had an effective maturity date of two years or less.

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

As of December 31, 2022 and 2021, the balance in accumulated other comprehensive loss included net unrealized gains (losses) related to the Company’s available-for-sale debt securities.

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

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Balance as of December 31, 2021

Changes in fair value - expense (gain)

Changes in fair value - gain

Balance as of March 31, 2022

Changes in fair value - expense (gain)

Changes in fair value - gain

Balance as of June 30, 2022

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

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

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:

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

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

Prior to the IPO, the calculation of the estimated fair value of the success payment liabilities incorporated the estimated future per share value of the Company’s Series A convertible preferred stock and the estimated future value of the Company implied by the estimated future per share value of the Company’s Series B convertible preferred stock at issuance.

Concurrent with the closing of the Company’s IPO in February 2021, the Company’s Series A and Series B convertible preferred stock converted into common stock.

As such, subsequent to the IPO, the computation of the estimated fair value of the Harvard Success Payment liabilities incorporates the per share fair market value of the Company’s common stock, and the estimated fair value of the Cobalt Success Payment liability incorporates the market capitalization of the Company.

The fair values of the Cobalt and Harvard success payments were calculated using the following unobservable inputs:

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

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

Unobservable Input

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Property and equipment, net

Depreciation expense was $ 11.1 million, $ 5.9 million, and $ 1.8 million, respectively, for the years ended December 31, 2021, 2020, and 2019.

Depreciation expense was $ 15.6 million, $ 11.1 million, and $ 5.9 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Accrued liabilities

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Accrued compensation:

Accrued bonus

Accrued bonuses

Accrued paid time off

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Accrued expenses and other current liabilities:

Accrued research and development expense services

Accrued property and equipment

Accrued research and development services

Accrued professional fees

Accrued property and equipment

Other accrued current liabilities

2 unchanged sentences

Lease commitments

The Company’s lease portfolio is primarily composed of operating leases for office, laboratory, non-good manufacturing practices (GMP) pilot plant manufacturing, and industrial space located in Seattle, WA, Cambridge, MA, South San Francisco, CA, and Fremont, CA.

Our operating leases have contractual periods expiring between April 2024 and November 2031 .

The Company’s lease portfolio primarily comprises operating leases for office, laboratory, non-good manufacturing practices 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.

The Seattle and South San Francisco lease agreements each provide the Company with the option to renew for an additional period of five years .

The Company is not reasonably certain it will renew these leases, and the renewal options therefore are not considered in the remaining lease term for these leases.

The industrial space located in Fremont, CA will be used for the construction of a GMP manufacturing facility.

The lease agreement initial term is ten years and includes the option to extend for up to two additional five-year terms.

The Company anticipates that it will exercise both options to extend.

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.

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

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

The Company will recognize the right-of-use asset and lease liability when the lease commences in January 2023.

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 twelve months ended December 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.

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

2 unchanged sentences

Expiration Dates

Office/Laboratory

March 2019 to September 2020

1 unchanged sentence

Cambridge, MA

March 2019 to May 2020

November 2025 to February 2028

Office/Laboratory

March 2019 to January 2022

December 2025 to February 2028

South San Francisco, CA

December 2019 to November 2021

Office/Laboratory

December 2019 to April 2022

April 2024 to April 2030

November 2031

Rochester, NY

Office/Laboratory

Office/Laboratory/Industrial

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

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Present value of operating lease liabilities

Convertible preferred stock

Series A-1, A-2, and B convertible preferred stock financings

In 2018 and 2019, the Company issued 67.5 million shares of its Series A-1 and Series A-2 convertible preferred stock at a price of $ 4.00 per share, for gross proceeds of $ 269.9 million.

In 2020, the Company issued 27.2 million shares of Series B convertible preferred stock at $ 16.00 per share for gross proceeds of $ 435.5 million.

In December 2020, the Company amended and restated its certificate of incorporation and amended the investors’ rights agreement and voting agreement with its stockholders.

Under the Company’s amended and restated certificate of incorporation, the authorized capital stock of the Company increased to 707.0 million shares.

The authorized shares consisted of 169.2 million shares designated as common stock and 537.8 million shares designated as convertible preferred stock, each with a par value of $ 0.0001 per share.

current portion of operating lease liabilities

Operating lease liabilities, net of current portion

Stockholders’ equity

Effective February 2021, the Company amended and restated its certificate of incorporation, increasing the number of shares of all classes of stock the Company has authority to issue to 800.0 million shares, of which 750.0 million shares are common stock and 50.0 million shares are preferred stock.

As of December 31, 2021, there were 184.9 million shares of the Company’s common stock outstanding, excluding 4.4 million shares of restricted common stock outstanding that are subject to vesting requirements.

As of December 31, 2022, there were 191.0 million shares of the Company’s common stock outstanding.

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

Stock-based compensation

2021 Incentive Award Plan

In February 2021, the Company adopted the 2021 Incentive Award Plan (2021 Plan), which became effective on the completion of the Company’s IPO.

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).

In conjunction with adopting the 2021 Plan, the Company discontinued the 2018 Equity Incentive Plan with respect to new equity awards.

The 2021 Plan provides for an annual increase in the shares available for issuance thereunder, to be added on the first day of each year, beginning in 2022 and ending in 2031, equal to the lesser of (i) 5 % of the outstanding shares of the Company’s common stock on the last day of the immediately preceding year, or (ii) such smaller number of shares determined by the board of directors or an authorized committee of the board of directors.

As of December 31, 2021, the total number of shares available for future issuance of awards under the 2021 Plan was 13.2 million.

As a result of the operation of this provision, on January 1, 2022, an additional 9.5 million shares became available for issuance under the 2021 Plan.

2021 Employee Stock Purchase Plan

In February 2021, the Company adopted the 2021 Employee Stock Purchase Plan (2021 ESPP), which became effective on the completion of the Company’s IPO.

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 or on the purchase date.

The Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering.

The 2021 ESPP also provides for an annual share increase, to be added on the first day of each year, beginning in 2022 and ending in 2031, equal to the lesser of (i) 1 % of the outstanding shares of the Company’s common stock on the last day of the immediately preceding year and (ii) such number of shares determined by the board of directors or authorized committee of the board of directors, provided that no more than 27.9 million shares may be issued under the 2021 ESPP.

As of December 31, 2021, the total number of shares available for future issuance pursuant to the 2021 ESPP was 1.9 million.

As a result of the operation of this provision, on January 1, 2022, an additional 1.9 million shares became available for issuance under the 2021 ESPP.

As of December 31, 2022, 14.4 million shares and 3.3 million shares were available for future issuance under the 2021 Plan and the 2021 ESPP, respectively.

Stock-based compensation expense

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Total stock-based compensation expense

(1) During the year ended December 31, 2022 the Company recognized stock-based compensation expense of $ 1.9 million related to equity awards for employees impacted by the November 2022 restructuring.

Unrecognized stock-based compensation costs related to unvested awards and the weighted-average period over which the costs are expected to be recognized as of December 31, 2022 are as follows:

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(in thousands)

Weighted-Average Exercise Price per Share

Weighted-Average Remaining Contractual Life (in years)

Aggregate Intrinsic Value

Weighted-Average

Exercise Price per

Weighted-Average

Contractual Life

Aggregate Intrinsic

(in thousands)

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

Year Ended December 31,

Risk free interest rate

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

Year Ended December 31,

Weighted average grant date fair value per share for options granted

3 unchanged sentences

(in thousands)

Weighted-Average Grant Date Fair Value per Share

Weighted-Average

Grant Date Fair

Value per Share

(in thousands)

Weighted-Average Grant Date Fair Value per Share

Weighted-Average

Grant Date Fair

Value per Share

Unvested shares as of December 31, 2021

1 unchanged sentence

The fair value of vested RSAs was $ 1.8 million, $ 1.5 million, and $ 1.5 million, respectively, for the years ended December 31, 2022, 2021, and 2020.

The fair value of vested RSUs was $ 4.1 million for the year ended December 31, 2021 and immaterial for each of the years ended December 31, 2020 and 2019.

The fair value of vested RSUs was $ 0.5 million and $ 4.1 million for the years ended December 31, 2022 and 2021, and immaterial for the year ended December 31, 2020.

As of December 31, 2022, the Company had U.S.

1 unchanged sentence

As of December 31, 2022, the Company also had federal and state research tax credits of $ 30.8 million and $ 13.3 million, respectively, which may be used to offset future liabilities.

The federal NOL carries forward indefinitely, and the state NOL will begin to expire in 2038 .

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

Of the federal net operating losses reported, we have accumulated $ 118.6 million with an indefinite life as of December 31, 2022.

The state NOL will begin to expire in 2036 .

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

2 unchanged sentences

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

In connection with the 2019 Cobalt acquisition, the Company recorded a deferred tax liability of $ 7.5 million associated with the acquired intangible asset, and the Company recorded a tax benefit of $ 7.5 million for the year ended December 31, 2019 related to the release of valuation allowance on U.S.

deferred tax assets as a result of this deferred tax liability .

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

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Net operating loss carryforwards

Lease liabilities

Capitalized research and development

Tax credit carryforwards

Lease liabilities

Stock-based compensation

Accrued liabilities and allowances

Success payment liabilities

Stock-based compensation

Gross deferred tax assets

3 unchanged sentences

Right-of-use assets

Stock-based compensation

Deferred tax liabilities

Net deferred taxes assets

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

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

This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized.

We have included the impact of this provision, which results in a deferred tax asset of approximately $ 49.7 million as of December 31, 2022.

The valuation allowance relates primarily to net U.S.

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

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

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

2 unchanged sentences

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

In its evaluation, the Company considered its cumulative loss in the first year of operation and its forecasted losses in the near term as significant negative evidence.

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

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

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

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

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

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

The following table summarizes the calculation of basic and diluted net loss per share of common stock:

Year Ended December 31,

(in thousands, except per share amounts)

Weighted-average number of common shares - basic and diluted

Net loss per common share - basic and diluted

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

8 unchanged sentences

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

The Company has no t made any matching contributions to the 401(k) Plan on behalf of participants.

Effective as of January 1, 2022, the Company began matching each participant’s 401(k) contributions, up to $ 4,000 per year per participant.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data