What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-11 compared with 2023-05-09 · 104 added, 51 removed, 213 unchanged (42% of the section changed)

24 unchanged sentences

Senti expects to file investigational new drug applications (“INDs”) for multiple product candidates starting in 2023.

We have incurred net losses of $18.7 million and $11.8 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, we had cash, cash equivalents and short-term investments of $76.1 million and $98.6 million, respectively, and an accumulated deficit of $192.0 million and

$173.3 million, respectively.

Net cash flows used in operating activities were $16.3 million and $10.1 million during the three months ended March 31, 2023 and 2022, respectively.

We have incurred net losses of $18.7 million and $11.6 million for the three months ended June 30, 2023 and 2022, respectively and $37.4 million and $23.4 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022, we had cash, cash equivalents and short-term investments

of $59.6 million and $98.6 million, respectively, and an accumulated deficit of $210.7 million and $173.3 million, respectively.

Net cash flows used in operating activities were $30.0 million and $15.8 million during the six months ended June 30, 2023 and 2022, respectively.

Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

5 unchanged sentences

• commence clinical studies of our current and future product candidates;

• establish our manufacturing capability, including developing our contract development and manufacturing relationships, and building our internal manufacturing facilities;

• acquire and license technologies aligned with our gene circuit platform technologies;

• seek regulatory approval of our current and future product candidates;

• expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, manufacturing and commercialization efforts;

• expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, and commercialization efforts;

• continue to develop, grow, maintain, enforce and defend our intellectual property portfolio;

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

In addition, in 2021, we began construction on a dedicated in-house, state-of-the-art current good manufacturing practices “cGMP” facility to support clinical and commercial-scale production of multiple allogeneic NK cell product candidates.

We anticipate that this facility will become operational in time to support initial clinical trials for our lead product candidates.

Our manufacturing facility is designed to leverage the latest cell therapy process technologies as we strive to maximize scalability and minimize cost of goods.

Recent Developments

In January 2023, we announced a strategic plan to focus internal resources on SENTI-202, SENTI-401 and, with potential partners, to continue to pursue the development of gene circuits for other programs, including solid tumors.

We do not intend to invest in the clinical development of SENTI-301A, for the treatment of hepatocellular carcinoma (“HCC”), on our own at this time;

however, we believe there is significant market opportunity for SENTI-301A, especially in territories within Asia where HCC is more prevalent than in the United States.

Accordingly, we are actively pursuing strategic geographic partnerships for clinical development of SENTI-301A.

This business realignment is intended to streamline internal efforts and is expected to extend our cash runway through at least the first quarter of 2024.

On August 10, 2023, we announced a transaction with GeneFab, LLC (“GeneFab”), a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

The transaction provided us with additional capital and reduced longer term operating expenses.

In connection with the transaction, we will receive approximately $37.8 million in cash before the end of 2025.

Approximately $18.9 million was due at closing, which amount was netted against prepayment owed by us for manufacturing and support services to GeneFab.

The remaining $18.9 million will be paid to us in installments in 2024 and 2025.

In addition, we will receive $8.0 million in manufacturing credit, subject to certain conditions, and will sublease our recently constructed 92,000 square foot current good manufacturing practice (cGMP) facility in Alameda, CA to GeneFab (a portion of which will be subject to the satisfaction of certain conditions).

Components of Results of Operations

23 unchanged sentences

Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2023 2022 2023 2022

(unaudited) (unaudited) (unaudited) (unaudited)

Personnel-related expenses, including share-based compensation $ 4,571 $ 3,866 $ 9,379 $ 6,664

24 unchanged sentences

• unfavorable FDA or other regulatory authority inspection and review of a clinical trial or manufacturing site;

• delays as a result of the COVID-19 pandemic or events associated with the pandemic;

• failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

8 unchanged sentences

Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2023 2022 2023 2022

(unaudited) (unaudited) (unaudited) (unaudited)

Personnel-related expenses, including share-based compensation $ 6,652 $ 11,533 $ 13,828 $ 15,374

11 unchanged sentences

The change in fair value of the contingent earnout liability that was accounted for as a liability as of the date of the Merger, and is remeasured to fair value at each reporting period, resulting in a non-cash gain or loss.

Gain on Extinguishment of Convertible Notes

Our convertible note was extinguished as part of the Merger and the change in fair value was recorded in earnings.

Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022 (in thousands):

Comparison of the Three Months Ended June 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended

11 unchanged sentences

Change in fair value of contingent earnout liability 148 8,878 (8,730)

Gain on extinguishment of convertible notes — 1,289 (1,289)

Other expense (4) 25 (29)

2 unchanged sentences

Contract revenue .

For the three months ended March 31, 2023 and 2022, we generated revenue from contracts and license agreements of $1.0 million and $0.9 million, respectively.

The increase of $0.2 million was primarily due to increased services provided for collaboration agreements.

For the three months ended June 30, 2023 and 2022, we generated revenue from contracts and license agreements of $0.7 million and $1.1 million, respectively.

The decrease of $0.4 million was primarily due to decline in services provided for the Spark collaboration project.

Grant income .

For the three months ended March 31, 2023 and 2022, we generated revenue from grants of $0.3 million and $0.3 million, respectively, from the SBIR SENTI-202 grant funding.

For the three months ended June 30, 2023 and 2022, we generated revenue from grants of $0.3 million and $0.3 million, respectively, from the SBIR SENTI-202 grant funding.

Research and development expenses .

Research and development expenses were $11.3 million and $7.6 million for the three months ended March 31, 2023 and 2022, respectively.

The increase of $3.7 million was primarily due to an increase of $2.0 million in personnel-related expenses, which includes a $0.3 million increase in stock-based compensation expense, an increase of $0.7 million in professional services costs and $0.8 million in facility costs.

Research and development expenses were $11.0 million and $9.2 million for the three months ended June 30, 2023 and 2022, respectively.

The increase o f $1.7 million w as primarily due to an increase of $0.7 million in personnel-related expenses and an increase of $0.9 million in facility costs.

General and administrative expenses .

General and administrative expenses were $9.8 million and $5.3 million for the three months ended March 31, 2023 and 2022, respectively.

The increase of $4.5 million was primarily due to an increase of $3.3 million in personnel-related expenses, which includes a $2.8 million increase in stock-based compensation expense, an increase of $0.4 million in professional services costs, an increase in insurance of $0.5 million, and an increase of $0.2 million in facility costs.

General and administrative expenses were $9.6 million and $13.9 million for the three months ended June 30, 2023 and 2022, respectively.

The decrease of $4.3 million was primarily due to a decrease of $4.9 million in personnel-related expenses, which includes a $4.8 million decrease in stock-based compensation expense, and an increase in insurance of $0.3 million.

Interest income, net .

Interest income was $1.1 million and nominal for the three months ended March 31, 2023 and 2022, respectively due to a higher cash balances as well as an increase in interest rates in the relevant periods.

Interest income was $0.8 million and nominal for the three months ended June 30, 2023 and 2022, respectively, due to a higher average cash balances, as well as an increase in interest rates in the relevant periods.

Change in fair value of contingent earnout liability .

For the three months ended March 31, 2023, the increase of $0.1 million resulted from a non-cash gain related to the remeasurement of the contingent earnout liability.

For the three months ended June 30, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $8.9 million, respectively.

The decrease of $8.7 million related to the remeasurement of the contingent earnout liability to fair value.

Gain on extinguishment of convertible notes.

For the three months ended June 30, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes as part of the Merger.

Comparison of the Six Months Ended June 30, 2023 and 2022

The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended

2023 2022 Change

Contract revenue $ 1,723 $ 1,962 $ (239)

Grant income 500 500 —

Total revenue 2,223 2,462 (239)

Operating expenses:

Research and development 22,270 16,849 5,421

General and administrative 19,422 19,141 281

Total operating expenses 41,692 35,990 5,702

Loss from operations (39,469) (33,528) (5,941)

Other income (expense):

Interest income, net 1,855 31 1,824

Change in fair value of contingent earnout liability 207 8,878 (8,671)

Gain on extinguishment of convertible notes — 1,289 (1,289)

Other expense (12) (30) 18

Total other income (expense), net 2,050 10,168 (8,118)

Net loss $ (37,419) $ (23,360) $ (14,059)

Contract revenue .

For the six months ended June 30, 2023 and 2022, we generated revenue from contracts and license agreements of $1.7 million and $2.0 million, respectively.

The decrease of $0.2 million was primarily due to decline in services provided for the Spark collaboration project.

Grant income .

For the six months ended June 30, 2023 and 2022, we generated revenue from grants of $0.5 million and $0.5 million, respectively, from the SBIR SENTI-202 grant funding.

Research and development expenses .

Research and development expenses were $22.3 million and $16.8 million for the six months ended June 30, 2023 and 2022, respectively.

The increase of $5.4 million was primarily due to an increase of $2.7 million in personnel-related expenses, an increase of $1.7 million in facility costs, and an increase of $0.7 million in professional services costs.

General and administrative expenses .

General and administrative expenses were $19.4 million and $19.1 million for the six months ended June 30, 2023 and 2022, respectively.

The increase of $0.3 million was primarily due to an increase of $0.7 million in insurance, an increase of $0.5 million in depreciation and amortization, an increase of $0.4 million in professional services costs offset by a decrease of $1.5 million in personnel-related expenses.

Interest Income, net.

Interest income was $1.9 million and nominal for the six months ended June 30, 2023 and 2022, respectively, due to a higher average cash balances, as well as an increase in interest rates in the relevant periods.

Change in fair value of contingent earnout liability .

For the six months ended June 30, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $8.9 million, respectively.

The decrease of $8.7 million related to the remeasurement of the contingent earnout liability to fair value.

Gain on extinguishment of convertible notes.

For the six months ended June 30, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes as part of the Merger.

Liquidity and Capital Resources

Sources of Liquidity

From inception to March 31, 2023, we raised aggregate gross proceeds of $298.8 million from the Merger and PIPE Financing, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a less extent, through collaboration agreements and governmental grants.

From inception to June 30, 2023, we raised aggregate gross proceeds of $299.5 million from the Merger and PIPE Financing, the issuance of shares of our common stock, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a less extent, through collaboration agreements and governmental grants.

On August 31, 2022, we entered into the Purchase Agreement with Chardan.

5 unchanged sentences

We recognized an expense of $0.7 million within general and administrative expenses in our Condensed Consolidated Statements of Operations and Comprehensive Loss for the Chardan related costs and legal fees incurred in connection with the agreement.

Other than the issuance of the commitment shares of the Company’s common stock to Chardan we issued 300,000 shares of common stock up until December 31, 2022, aggregating to net proceeds of $0.7 million under the Purchase Agreement.

There were no shares issued within three months ended March 31, 2023.

Other than the issuance of the commitment shares of our common stock to Chardan we issued 300,000 shares of common stock up until June 30, 2023, aggregating to net proceeds of $0.7 million under the Purchase Agreement.

There were no shares issued within six months ended June 30, 2023.

We do not have any products approved for sale and have not generated any revenue from product sales or otherwise.

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future.

As of March 31, 2023, we had $76.1 million in cash, cash equivalents and short-term investments, and an accumulated deficit of $192.0 million, respectively.

As of June 30, 2023, we had $59.6 million in cash, cash equivalents and short-term investments, and an accumulated deficit of $210.7 million, respectively.

We will need substantial additional funding to support our continuing operations and pursue our development strategy.

3 unchanged sentences

We may also be required to sell or license to other parties rights to develop or commercialize our product candidates that we would prefer to retain.

On August 10, 2023, we announced the transaction with GeneFab, a newly formed independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

The transaction provided us with additional capital and reduced longer term operating expenses.

The following table sets forth a summary of our cash flows for each of the periods indicated (in thousands):

Three Months Ended

Six Months Ended

Net cash from operating activities $ (29,979) $ (15,754)

3 unchanged sentences

Operating Activities

For the three months ended March 31, 2023, net cash used in operating activities of $16.3 million was primarily due to our loss of $18.7 million with non-cash adjustments of $3.8 million for stock-based compensation expense, $0.9 million for depreciation and amortization of operating lease right-of-use-assets and $0.6 million for accretion of

discount on short-term investments.

Other material changes comprised of $1.6 million decrease in accounts payable and accrued expenses and other current liabilities, $0.4 million decrease in deferred revenue, $0.4 million increase in prepaid expenses and other assets offset by $0.9 million increase in operating lease liabilities.

For the three months ended March 31, 2022, net cash used in operating activities of $10.1 million was primarily due to our net loss of $11.8 million with non-cash adjustments of $1.0 million for depreciation and amortization of operating lease right-of-use assets and $0.7 million for stock-based compensation expense, as well as a $1.6 million for a decrease in accounts payable and accrued expenses and other current liabilities and $0.5 million decrease in deferred revenue, offset by an increase of $2.4 million in operating lease liabilities and an increase of $0.4 million in prepaid expenses and other current assets.

For the six months ended June 30, 2023, net cash used in operating activities of $30.0 million was primarily due to our loss of $37.4 million with non-cash adjustments of $7.2 million for stock-based compensation expense, $2.1 million for depreciation and amortization of operating lease right-of-use-assets, $1.0 million for accretion of discount on short-term investments, and $0.2 million for the change in fair value of contingent earnout liability.

Other material changes comprised of $1.2 million decrease in accounts payable and accrued expenses and other current liabilities, $0.6 million decrease in deferred revenue, offset by $1.0 million increase in operating lease liabilities.

For the six months ended June 30, 2022, net cash used in operating activities of $15.8 million was primarily due to our net loss of $23.4 million with non-cash adjustments of $9.9 million for stock-based compensation expense, $8.9 million for the change in fair value of contingent earnout liability, $1.9 million for depreciation and amortization of operating lease right-of-use assets and $1.3 million for gain on extinguishment of convertible notes.

Other material changes comprised of $7.9 million increase in operating lease liabilities and $0.4 million increase in accounts payable and accrued expenses and other current liabilities, offset by $1.4 million increase in prepaid expenses and other assets and $1.0 million decrease in deferred revenue.

Investing Activities

For the three months ended March 31, 2023, net cash used in investing activities of $9.5 million was due to $18.0 million purchases of short-term investments and $6.5 million purchases of property and equipment offset by $15.0 million cash received upon maturity of short-term investments.

For the three months ended March 31, 2022, net cash used in investing activities of $7.4 million, was entirely due to purchases of property and equipment.

For the six months ended June 30, 2023, net cash provided by investing activities of $8.8 million was due to $37.0 million cash received upon maturity of short-term investments offset by $18.0 million purchases of short-term investments and $10.2 million purchases of property and equipment.

For the six months ended June 30, 2022, net cash used in investing activities of $18.6 million, was entirely due to purchases of property and equipment.

Financing Activities

For the three months ended March 31, 2023, $35 thousand cash was used by financing activities.

For the three months ended March 31, 2022, net cash used in financing activities of $0.5 million was primarily due to $0.6 million payment of deferred transaction costs related to the Merger partially offset by $0.1 million proceeds from the issuance of common stock upon exercise of stock options.

For the six months ended June 30, 2023, $0.2 million cash was provided by financing activities primarily due to $0.3 million proceeds from the issuance of common stock under Employee Stock Purchase Plan (ESPP).

For the six months ended June 30, 2022, net cash provided by financing activities of $118.2 million was primarily due to $112.5 million proceeds received from Merger and related PIPE financing activities, net of transaction cost, $5.2 million from issuance of convertible notes and $0.5 million proceeds from the issuance of common stock upon exercise of stock options.

Funding Requirements

Based upon our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our operations for the next twelve months from the date of this Quarterly Report.

Based upon our current operating plans, there is uncertainty about whether our existing cash, cash equivalents, and short-term investments will be sufficient to fund our operations, including clinical trial expenses and capital expenditure requirements, beyond twelve months from the date of this Quarterly Report.

We anticipate that we will continue to seek additional funding, though the precise timing of such may prove uncertain.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our assumptions may prove to be inaccurate, and we could deplete our capital resources sooner than we expect.

Our assumptions may prove

to be inaccurate, and we could deplete our capital resources sooner than we expect.

Additionally, the process of testing and manufacturing product candidates in preclinical studies and clinical trials is costly and the timing and expenses in these trials are uncertain.

On August 10, 2023, we announced the transaction with GeneFab, a newly formed independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

The transaction provided us with additional capital and reduced longer term operating expenses.

Our future capital requirements will depend on many factors, including:

2 unchanged sentences

• the costs, timing and outcome of regulatory review of our product candidates;

• the scope and costs of constructing and operating our planned cGMP facility and any commercial manufacturing activities;

• the scope and costs of any commercial manufacturing activities;

• the cost associated with commercializing any approved product candidates;

14 unchanged sentences

In 2021, we began construction of the cGMP facility.

As of March 31, 2023, we have paid $37.5 million in construction costs of the $42.2 million purchase commitment.

Buildout of the cGMP facility was completed in June 2023.

As of June 30, 2023, we have paid $40.0 million in construction costs of the $42.2 million purchase commitment.

The agreements with the construction company provide for termination following a certain period after notice.

Upon termination we will be responsible for payment for work performed to date.

During the year ended December 31, 2021, we entered into a three-year collaboration and option agreement with BlueRock Therapeutics LP (“BlueRock”) under which the Company granted BlueRock an option to execute an exclusive or non-exclusive license to develop, manufacture and commercialize cell therapy products (See Part I, Item 1, Notes to Condensed Consolidated Financial Statements (Unaudited), Note 12 - Related Parties for details into the BlueRock agreement).

In consideration for the option, the Company is responsible for up to $10.0 million in research and development costs and expenses associated with the collaboration plan incurred over the three-year term.

During the year ended December 31, 2021, we entered into a three-year collaboration and option agreement with BlueRock Therapeutics LP (“BlueRock”) under which we granted BlueRock an option to execute an exclusive

or non-exclusive license to develop, manufacture and commercialize cell therapy products (See Part I, Item 1, Notes to Condensed Consolidated Financial Statements (Unaudited), Note 12 - Related Parties for details into the BlueRock agreement).

In consideration for the option, we are responsible for up to $10.0 million in research and development costs and expenses associated with the collaboration plan incurred over the three-year term.

We have also entered into license agreements under which we are obligated to make annual maintenance payments of $0.1 million and specified milestone and royalty payments.

Milestone and royalty payment obligations under these agreements are contingent upon future events, such as our achievement of specified development, regulatory, and sales milestones, or generating product sales.

As of March 31, 2023, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.

As of June 30, 2023, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.

We have entered into sponsored research agreements under which we are obligated to pay $0.4 million and $0.3 million in 2023 and 2024, respectively.

Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of the Company’s common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche.

Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of our common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche.

Refer to Note 6, Stockholders’ Equity (Deficit), for further details of the contingent earnout.

1 unchanged sentence

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.

7 unchanged sentences

GAAP that require us to make subjective estimates and judgments about matters that are inherently uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles.

During the three months ended March 31, 2023, there have not been any other significant changes to our critical accounting policies and estimates from those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance, to us.

During the six months ended June 30, 2023, there have not been any other significant changes to our critical accounting policies and estimates, except as noted below, from those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance, to us.

Impairment of Long-Lived Assets

As a result of the change in the manner in which the Company expects to recover the assets subject to the GeneFab transaction, the asset group used in the long-lived impairment assessment was changed to two asset groups as of June 30, 2023, the oncology and non-oncology asset group, with the non-oncology including all the assets expected to be transferred in the GeneFab transaction.

This asset group reassessment triggered a need to perform an impairment analysis for the non-oncology asset group that considered the final terms of the transaction as the fair value of the non-oncology asset group and no impairment was deemed necessary.

Emerging Growth Company Status

13 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis