What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-21 compared with 2023-03-22 · 157 added, 153 removed, 212 unchanged (59% of the section changed)

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(formerly known as Dynamics Special Purpose Corp.) and its consolidated subsidiaries following the Company’s Merger.

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Cautionary Statement Regarding Forward-Looking Statements

In This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.

This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.

All statements, other than statements of historical fact included in this Form 10‑K including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements.

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Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Senti is a preclinical biotechnology company developing next-generation cell and gene therapies engineered with its gene circuit platform technologies to fight challenging diseases.

Senti’s mission is to create a new generation of smarter therapies that can outmaneuver complex diseases in ways previously not implemented by conventional medicines.

To accomplish this mission, Senti has built a synthetic biology platform that it believes may enable it to program next-generation cell and gene therapies with what it refers to as “gene circuits.” These gene circuits, which Senti created from novel and proprietary combinations of genetic parts, are designed to reprogram cells with biological logic to sense inputs, compute decisions and respond to their respective cellular environments.

Senti’s gene circuit platform technologies can be applied in a modality-agnostic manner, with applicability to natural killer (NK) cells, T cells, tumor-infiltrating lymphocytes (“TILs”), stem cells including Hematopoietic Stem Cells (“HSCs”), in vivo gene therapy and messenger ribonucleic acid (mRNA).

All of Senti’s current product candidates are in preclinical development.

Senti’s lead product candidates utilize allogeneic chimeric antigen receptor (“CAR”) NK cells outfitted with its gene circuit technologies in several oncology indications with currently high unmet needs.

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

Senti is an early clinical stage biotechnology company developing next-generation cell and gene therapies engineered with its gene circuit platform technologies for patients living with incurable diseases.

Senti’s mission is to create a new generation of smarter therapies that can outsmart complex diseases using novel and unprecedented approaches.

To accomplish this mission, Senti has built a synthetic biology platform that it believes may enable it to program next-generation cell and gene therapies with gene circuits.

These gene circuits, which Senti created from novel and proprietary combinations of DNA sequences, are designed to reprogram cells with biological logic to sense inputs, compute decisions and respond to their respective cellular environments.

Using gene circuits, Senti’s product candidates are designed to precisely kill cancer cells, spare healthy cells, increase specificity to target cells and control the expression of drugs even after administration.

Senti is applying its gene circuit technologies to develop a pipeline of medicines that use off-the-shelf chimeric antigen receptor natural killer (“CAR-NK”) cells with the goal of addressing major challenges and providing potentially lifesaving treatments for people living with cancer.

Senti’s lead product candidates utilize off-the-shelf healthy adult donor derived NK cells to create CAR-NK cells outfitted with its gene circuit technologies in several oncology indications with high unmet need.

We have incurred net losses of $71.1 million and $58.2 million for the years ended December 31, 2023 and 2022, respectively.

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Net cash flows used in operating activities were $52.4 million and $34.9 million during the years ended December 31, 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.

Substantially all of our net losses resulted from costs incurred in connection with our research and development programs, from general and administrative costs associated with our operations , and impairment of the Company’s long-lived assets .

We expect to continue to incur significant losses for the foreseeable future.

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

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

• establish our manufacturing 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;

• fund clinical development of our current product candidates;

• commence clinical studies of our future product candidates;

• fund manufacturing of our current and future product candidates;

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

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• 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.

As of March 21, 2024, the issuance date of the consolidated financial statements for the year ended December 31, 2023, the Company concluded that substantial doubt existed about the Company’s ability to continue as a going concern beyond twelve months from the issuance date of the annual consolidated financial statements.

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Recent Developments

Merger with Dynamics Special Purpose Corp.

On June 8, 2022 (the “Closing Date”), Dynamics Special Purpose Acquisition Corp.

(“Dynamics” or “DYNS”) consummated a merger pursuant to which Explore Merger Sub, Inc.

(“Merger Sub”), a Delaware corporation and wholly owned subsidiary of Dynamics, merged with and into Senti Sub I, Inc.

(formerly named Senti Biosciences, Inc.) (“Legacy Senti”), with Legacy Senti surviving as a wholly-owned subsidiary of Dynamics (such transactions, the “Merger,” and, collectively with the other transactions described in the merger agreement (as defined below, the “Reverse Recapitalization”).

As a result of the Merger, Dynamics was renamed Senti Biosciences, Inc.

Pursuant to the terms of the merger agreement, at the effective time of the Merger (the “Effective Time”), (1) each outstanding share of common stock of Legacy Senti was cancelled and converted into the right to receive approximately 0.1957 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and (2) each outstanding share of preferred stock of Legacy Senti was cancelled and converted into the aggregate number of shares of Common Stock that would be issued upon conversion of the shares of Legacy Senti preferred stock based on the applicable conversion ratio immediately prior to the Effective Time, multiplied by approximately 0.1957, resulting in the issuance of a total of 23,163,614 shares of Common Stock.

Prior holders of shares of Legacy Senti common stock and Legacy Senti preferred stock also received the contingent right to receive certain Earnout Shares (as defined below), for each share owned by each such Legacy Senti stockholder that was outstanding immediately prior to the closing of the Merger (the “Closing”).

In addition, certain investors purchased an aggregate of 5,060,000 shares of Common Stock (such investors, the “PIPE Investors”) in a private placement that closed concurrently with the Closing for an aggregate purchase price of $50.6 million (the “PIPE Financing”).

Additionally, at the Closing, 14,915,963 shares of Common Stock were issued to Dynamics stockholders (reflecting actual redemptions by Dynamics public stockholders).

Additionally, an unsecured convertible promissory note in the aggregate principal amount of $5,175,000 that was previously issued by Senti to Bayer Healthcare LLC for a purchase price of $5,175,000 on May 19, 2022 was automatically cancelled and exchanged for 517,500 shares of Common Stock.

Pursuant to the terms of the merger agreement, at the Effective Time of the Merger, options to purchase shares of Legacy Senti common stock were converted into options to purchase an aggregate of 1,667,546 shares of Common Stock.

Following the Closing Date, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of Common Stock (“Earnout Shares”) in the aggregate in two equal tranches if the

volume-weighted average closing sale price of our Common Stock is greater than or equal to $15.00 and $20.00, respectively, for any 20 trading days within any 30 consecutive trading day period.

The first and second tranche term is two and three years, respectively, from the closing of the Merger.

If there is a change of control within the three-year following the closing of the Merger that results in a per share price equal to or in excess of the $15.00 and $20.00 share price milestones not previously met, then Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock.

Common Stock Purchase Agreement

On August 31, 2022, we entered into a Common Stock Purchase Agreement and a Registration Rights Agreement (collectively referred to as the “Purchase Agreement”) with Chardan Capital Markets LLC (“Chardan”) to sell to Chardan up to the lesser of:

(i) $50.0 million of shares of the Company’s common stock over a period of 36 months;

and (ii) 8,727,049 shares of common stock, subject to certain limitations and conditions contained in the Purchase Agreement.

On August 7, 2023, we completed a transaction with GeneFab, LLC (“GeneFab”), a contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

We sold, assigned and transferred rights, title and interest in certain of our assets and contractual rights, including all of our equipment at our facilities in Alameda and certain of our intellectual property related to the schematics for and design of the Alameda facility.

We subleased our recently constructed 92,000 square foot current good manufacturing practice facility in Alameda, California to GeneFab which will support the clinical manufacturing of our CAR-NK programs, including SENTI-202.

The transaction provided us with additional capital in the form of a note receivable and rights to future manufacturing and research activities and reduced longer term operating expenses.

In connection with the transaction, we are entitled to receive total consideration of $37.8 million before the end of 2025, of which $18.9 million was due at closing and was netted against prepayment owed by us for manufacturing and research activities to GeneFab.

The remaining $18.9 million will be paid to us in installments in 2024 and 2025, subject to satisfaction of certain conditions.

The Company determined that the $18.9 million for future manufacturing and research activities, inclusive of the volume discount provided, was executed at market terms and does not result in any impact to the total consideration received from GeneFab for the disposal of the business.

We also agreed to grant a license to GeneFab under certain of our intellectual property rights to conduct manufacturing services and to research, develop, manufacture and commercialize products outside of oncology, pursuant to a license agreement under negotiation.

GeneFab was provided an option to purchase up to 19,633,444 shares (i.e.

up to $20.0 million worth) of our common stock at an exercise price of $1.01867 (the “GeneFab Option”).

The GeneFab Option becomes exercisable upon the execution of the license agreement, no later than August 7, 2026.

The GeneFab Option may be exercised in installments of common stock equal to no more than 19.9% of our outstanding shares of common stock as of the closing date of the transaction.

As additional consideration for the transaction, we entered into a seller economic share agreement with GeneFab (“GeneFab Economic Share”), pursuant to which we will be entitled to receive ten percent of the realized gains of GeneFab’s parent company arising and resulting from any cash or in-kind distributions from GeneFab in connection with a dividend or sale event, subject to the terms and conditions of the GeneFab Economic Share.

As the assets and contractual rights transferred to GeneFab were determined to constitute a business as defined in ASC 805, Business Combinations , we accounted for the disposal by applying the derecognition guidance in ASC 810, Consolidations , which requires that a gain or loss be recognized for the difference between the carrying value of the assets sold and the fair value of the consideration received (or receivable).

In connection with the sale, we recognized a gain on disposal in the amount of $21.9 million in net income from discontinued operations during the year ended December 31, 2023, representing the excess of the fair value of the consideration received and receivable (net of the portion allocated to the GeneFab Option) over the carrying value of the assets sold.

The gain on disposal was primarily related to the grant of the non-oncology license to GeneFab which had no carrying value.

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In accordance with ASC 205, Presentation of Financial Statements , we determined that the disposal of the non-oncology business, including the equipment and transfer of in-house manufacturing services in the Alameda facility, represented a strategic shift that will have a major effect on our operations and financial results, thus meeting the criteria to be reported as discontinued operations.

As a result, we have retrospectively restated our consolidated balance sheet at December 31, 2022 and consolidated statements of operations and comprehensive loss for the year ended December 31, 2022 to reflect the assets and liabilities and operating results, respectively, related to the disposed business in discontinued operations.

We have chosen not to segregate the cash flows of the disposed business in the consolidated statements of cash flows.

Supplemental disclosures related to discontinued operations for the statements of cash flows have been provided in Note 4.

GeneFab Transaction to our consolidated financial statements.

Unless otherwise specified, the results of operations refer to continuing operations only.

In November 2023, the Company entered into a Collaboration and Option Agreement with Celest Therapeutics (Shanghai) Co.

Subject to the terms and conditions of the Agreement, the Company and Celest will enter into a collaboration under which Celest will lead a pilot trial of a candidate product for our SENTI-301A program in mainland China, with certain technical support from the Company.

In addition, the Company agreed to grant an exclusive option to enter a license agreement with Celest to research, develop, manufacture and commercialize SENTI-301A in mainland China, Hong Kong, Macau, and Taiwan.

Outside of these jurisdictions, the Company would retain its rights in the SENTI-301A program.

Pursuant to the Agreement, and beginning with the exercise of the option and entering into a license agreement, the Company may become eligible to receive certain option exercise fee and milestone payments, in an aggregate amount of $156 million, as well as certain tiered royalty payments.

In January 2023 we announced a strategic plan to focus internal resources on SENTI-202 and SENTI-404, to develop gene circuits for other programs with potential partners, and to suspend research and development efforts for SENTI-301A.

In January 2024, we announced a strategic plan to streamline business operations and focus our resource allocation to investment on clinical development of SENTI-202, for which an Investigational New Drug (IND) application was cleared by the U.S.

Food and Drug Administration (“FDA”) in December 2023, and on the partnership of our SENTI-301A program in China with Celest.

Components of Results of Operations

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Operating Expenses

Our operating expenses consist of research and development expenses and general and administrative expenses.

Our operating expenses consist of research and development expenses, general and administrative expenses, and impairment of long-lived assets.

Research and Development Expenses

Research and development costs consist primarily of costs incurred for the discovery and preclinical development of our product candidates, which include:

Research and development costs consist primarily of costs incurred for the discovery, preclinical and clinical development of our product candidates, which include:

• employee-related expenses, including salaries, related benefits, and stock-based compensation expenses for employees engaged in research and development functions;

• expenses incurred in connection with research, laboratory consumables and preclinical studies;

• the cost of consultants engaged in research and development related services and the cost to manufacture drug products for use in our preclinical studies and trials;

• expenses incurred in connection with research, laboratory consumables and clinical and preclinical studies;

• the cost of consultants engaged in research and development, regulatory, and clinical related services

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• the cost to develop our manufacturing process and manufacturing product candidates for use in our research, preclinical studies and clinical trials, including under agreements with third parties, such as consultants, contractors and CMOs;

• facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies;

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We have not historically tracked research and development expenses by program, with the exception of third-party research projects.

We have various ongoing early-stage research and product candidate discovery projects and going forward, we expect to have various products undergoing clinical trials.

Our internal resources, employees and infrastructure are not directly tied to any one research or product candidate discovery project and are typically deployed across multiple projects.

Our internal resources, employees and infrastructure are not directly tied to any one research or product candidate project and are typically deployed across multiple projects.

As such, we do not maintain information regarding these costs incurred for these early-stage research and product candidate discovery programs on a project-specific basis.

Our direct external development program expenses reflect external costs attributable to our preclinical development candidates selected for further development as well as investigational new drug applications (“INDs”)

and clinical development.

Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities.

We do not allocate internal research and development costs which include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline because these costs are deployed across multiple programs and our platform, and, as such, are not separately classified.

Our research and development expenses related to the assets sold to GeneFab are included in discontinued operations.

Research and development expenses consisted of the following (in thousands):

Personnel-related expenses, including share-based compensation expense $ 13,528 $ 7,687

External services and supplies $ 13,247 $ 11,524

Personnel-related expenses, including share-based compensation expense 10,508 8,570

Office and facilities 7,316 7,274

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At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical development of any of our product candidates.

However, we expect that our research and development expenses and manufacturing costs will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future.

The successful development of our current and future product candidates is highly uncertain.

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• product-related side effects experienced by participants in our clinical trials or by individuals using therapeutics similar to our product candidates;

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• delays in submitting IND applications or comparable foreign applications, or delays or failures to obtain the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

• conditions imposed by the U.S.

Food and Drug Administration (“FDA”) or other regulatory authorities regarding the scope or design of our clinical trials;

• conditions imposed by the FDA or other regulatory authorities regarding the scope or design of our clinical trials

• delays in enrolling research subjects in clinical trials;

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• 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;

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General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation expense, for personnel in executive, finance and other administrative functions.

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions.

Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and an allocation of facility-related costs.

Our general and administrative costs related to the assets sold to GeneFab are included in discontinued operations.

General and administrative expenses consisted of the following (in thousands):

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Office and facilities 2,567 1,361

Depreciation and amortization 2,308 592

Insurance 1,658 1,207

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Total $ 37,176 $ 38,225

We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development, manufacturing activities, and preclinical and clinical activities and to reflect increased costs associated with operating as a public company.

These increased costs will likely include increased expenses for audit, legal, regulatory, tax and related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

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Impairment of Long-lived assets

Impairment of long-lived assets relates mainly to the impairment of our leasehold improvements for the Alameda facility subleased to GeneFab as a result of our asset group reassessment which triggered a need to perform an impairment analysis following the closing of the GeneFab transaction.

Other Income (Expense)

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Change in Fair Value of Contingent Earnout Liability

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.

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

Change in Fair Value of GeneFab Note Receivable - related party

The change in fair value of GeneFab Note Receivable consists of the remeasurement to fair value at each reporting period of the deferred consideration due from GeneFab for which we have elected the fair value option.

Change in Fair Value of GeneFab Economic Share - related party

The change in fair value of GeneFab Economic Share is a result of the change in the equity value of GeneFab at each reporting period.

Change in Fair Value of GeneFab Option - related party

The change in fair value of the GeneFab Option consists of the remeasurement to fair value at each reporting period of the derivative liability related to the option provided to GeneFab to acquire up to $20.0 million in shares of our common stock at a purchase price of $1.01867.

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.

Change in Preferred Stock Tranche Liability

Our preferred stock tranche liability had been accounted for at fair value with changes in the fair value recorded in earnings at each reporting period through settlement on May 14, 2021.

GeneFab sublease Income - related party

Other income (expense) is primarily comprised of income from our sublease with GeneFab.

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Net Income (Loss) from Discontinued Operations

Net income (loss) from discontinued operations includes the results of our manufacturing and research activities related to the Alameda facility through the disposition date of August 7, 2023.

Net income (loss) from discontinued operations is summarized below (in thousands):

Operating expenses:

Research and development $ 10,003 $ 5,922

General and administrative (496) 2,623

Total operating expenses 9,507 8,545

Loss from discontinued operations (9,507) (8,545)

Other income (expense) (6) —

Gain on disposal of business 21,861 —

Net income (loss) from discontinued operations $ 12,348 $ (8,545)

Results of Operations

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Operating expenses

Research and development 34,067 21,957 12,110

Research and development (included related party cost of $3,113 and $0, respectively) 32,150 28,145 4,005

General and administrative 37,176 38,225 (1,049)

Impairment of long-lived assets 25,962 — 25,962

Total operating expenses 95,288 66,370 28,918

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

Change in preferred stock tranche liability — (14,742) 14,742

Loss on impairment of fixed assets — (22) 22

Other expense (32) (120) 88

Change in fair value of GeneFab Note Receivable - related party 626 — 626

Change in fair value of GeneFab Economic Share - related party 16 — 16

Change in fair value of GeneFab Option - related party 3,318 — 3,318

GeneFab sublease income - related party 2,323 — 2,323

Other income (expense) (33) (32) (1)

Total other income (expense), net 9,321 12,419 (3,098)

Net loss from continuing operations (83,406) (49,665) (33,741)

Net income (loss) from discontinued operations $ 12,348 $ (8,545) $ 20,893

Net loss $ (71,058) $ (58,210) $ (33,741)

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For the years ended December 31, 2023 and 2022, we generated revenue from contracts and license agreements of $2.0 million and $3.3 million, respectively.

The increase of $1.0 million was due primarily to a new collaboration agreement entered into in May 2021, partially offset by the collaboration agreement contract modification which caused $0.7 million of the previously recognized upfront payment to be reversed in December 2022.

The decrease of $1.3 million was primarily due to decline in services provided under the Spark collaboration agreement.

Grant income .

For the years ended December 31, 2023 and 2022, we generated revenue from grants of $0.6 million and $1.0 million, respectively.

The increase of $0.5 million was primarily due to the recognition of revenue related to the SBIR SENTI-202 grant funding which began in FY 2021.

The decrease of $0.4 million was primarily due to the recognition of revenue related to the SBIR SENTI-202 grant funding which was completed in FY 2023.

Research and development expenses .

Research and development expenses were $32.2 million and $28.1 million for the years ended December 31, 2023 and 2022, respectively.

The increase of $12.1 million was primarily due to an increase of $5.8 million in personnel-related expenses, which includes a $2.7 million increase in stock-based compensation expense, $3.4 million in professional services costs and $2.6 million in facility costs.

The increase of $4.0 million was primarily due to an increase of $1.9 million in personnel-related expenses, which includes a $0.8 million decrease in stock-based compensation expense, an increase of $1.7 million in professional services costs and an increase of $0.3 million in other research and development expenses.

General and administrative expenses .

General and administrative expenses were $37.2 million and $38.2 million for the years ended December 31, 2023 and 2022, respectively.

The increase of $19.6 million was primarily due to increases of $18.1 million in personnel-related expenses, which includes an $11.4 million increase in stock-based compensation expense, an increase in insurance of $1.7 million and $0.2 million in other corporate expenses, partially offset by a decrease of $0.2 million related to professional, legal and accounting services expenses and a decrease of $0.1 million in facility costs.

The decrease of $1.0 million was primarily due to a decrease of $4.4 million in personnel-related expenses, which includes a $3.1 million decrease in stock-based compensation expense, partially offset by an increase of $1.7 million in depreciation and amortization expenses, an increase of $1.2 million in facility costs and an increase in insurance of $0.5 million.

Impairment of long-lived assets.

Impairment of long-lived assets was $26.0 million for the year ended December 31, 2023, mainly due to the impairment of our leasehold improvements related to the Alameda facility subleased to GeneFab as a result of our asset group reassessment which triggered a need to perform an impairment analysis following the closing of the GeneFab transaction.

Interest Income, net.

Interest income was $2.9 million and $1.7 million for the years ended December 31, 2023 and 2022, respectively.

The increase of $1.2 million was due to 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 year ended December 31, 2022, the increase of $9.5 million resulted from a non-cash gain related to the remeasurement of the contingent earnout liability.

For the years ended December 31, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $9.5 million, respectively.

The decrease of $9.3 million related to the decrease in the fair value of our common stock.

Gain on extinguishment of convertible notes.

For the year ended December 31, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes.

Change in preferred stock tranche liability.

For the year ended December 31, 2021, we recognized a loss of $14.7 million as an adjustment to the preferred stock tranche liability.

The adjustment stems primarily from the increase, since the December 31, 2020 measurement date, in management’s estimate of the fair value of our Series B redeemable convertible preferred stock resulting from a decrease in time to liquidity as we drew nearer to completing an exit strategy.

There was no equivalent activity for the year ended December 31, 2022, as the preferred stock tranches were issued on May 14, 2021.

Change in fair value of GeneFab Note Receivable - related party.

For the year ended December 31, 2023, the change in fair value of GeneFab Note Receivable was a gain of $0.6 million primarily due to a change in the discount rate and passage of time.

Change in fair value of GeneFab Option - related party.

For the year ended December 31, 2023, the change in fair value of GeneFab Option was a gain of $3.3 million primarily due to the decrease in the fair value of our common stock, which is a significant input in the measurement of the GeneFab Option.

GeneFab sublease income - related party.

For the year ended December 31, 2023, sublease income was $2.3 million from the sublease to GeneFab for the Alameda facility.

Net income (loss) from discontinued operations.

Net income from discontinued operations was $12.3 million for the year ended December 31, 2023, compared to net loss from discontinued operations of $8.5 million for the year ended December 31, 2022.

The increase was primarily due to the gain of $21.9 million on the disposal of the assets sold to GeneFab and an increase of $1.0 million in discontinued operations expense mainly stemming from increased personnel costs.

Liquidity and Capital Resources

Sources of Liquidity

From inception to December 31, 2022, we raised aggregate gross proceeds of $158.1 million from the issuance of shares of our redeemable convertible preferred stock and the issuance of convertible notes and in connection with the Merger and PIPE Financing, the Company received $140.7 million in proceeds, including the Bayer convertible note cancellation and exchange.

From inception to December 31, 2023, we raised aggregate gross proceeds of $300.1 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 lesser extent, through collaboration agreements and governmental grants.

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

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Sales and timing of any sales of common stock are solely at our election, and we are under no obligation to sell any securities to Chardan under the Purchase Agreement.

As consideration for Chardan’s commitment to purchase shares of our common stock at our direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, we issued 100,000 shares of our common stock to Chardan and paid a $0.4 million document preparation fee.

preparation fee.

We recognized an expense of $0.7 million within general and administrative expenses in our 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 Class A common stock as of December 31, 2022 aggregating to net proceeds of $0.7 million under the Common Stock Purchase Agreement.

Other than the issuance of the commitment shares of the Company’s common stock to Chardan, we issued 1,300,000 shares of Class A common stock through December 31, 2023, for aggregate net proceeds of $1.2 million under the Common Stock Purchase Agreement.

There were 1,000,000 issued during the year ended December 31, 2023 for aggregate net proceeds of $0.5 million.

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

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Adequate funding may not be available to us on acceptable terms, if at all.

Should we fail to raise capital or enter into such agreements as, and when,

needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates or delay our efforts to expand our product pipeline.

Should we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates or delay our efforts to expand our product pipeline.

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.

The transaction with GeneFab, as described in “Recent Developments” above, provided us with additional capital in the form of a note receivable and rights to future manufacturing and research activities and reduced longer term operating expenses.

The remaining consideration of $18.9 million will be received in installments during 2024 and 2025, subject to satisfaction of certain conditions.

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

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Operating Activities

For the year ended December 31, 2023, net cash used in operating activities of $52.4 million was primarily due to our loss of $71.1 million with non-cash expense adjustments of $26.0 million for impairment of long-lived assets, $9.7 million for stock-based compensation expense, and $5.4 million for depreciation and amortization of operating lease right-of-use-assets offset by non-cash gains of $21.9 million gain on disposal of business to GeneFab $3.3 million gain from change in fair value of the GeneFab Option, $1.1 million for accretion of discount on short-term investments, $0.6 million gain for the change in fair value of the GeneFab receivable, and $0.2 million gain for the change in fair value of contingent earnout liability.

Other material changes were comprised of $4.8 million decrease

in prepaid expenses and other current assets, $0.7 million increase in sublease deferred income, $0.5 million increase in operating lease liabilities and a $0.4 million increase in accounts payable and accrued expenses and other liabilities, offset by $0.9 million increase in accounts receivable and $0.8 million decrease in deferred revenue.

For the year ended December 31, 2022, net cash used in operating activities of $34.9 million was primarily due to our loss of $58.2 million with non-cash adjustments of $16.4 million for stock-based compensation expense, $9.5 million for the change in fair value of the contingent earnout liability, $3.9 million for depreciation and amortization of operating lease right-of-use-assets, $1.3 million for gain on extinguishment of convertible notes and $0.4 million for accretion of discount on short-term investments.

Other material changes comprised of $14.1 million increase in operating lease liabilities, $2.2 million increase in accounts payable and accrued expenses and other current liabilities offset by $1.3 million increase in prepaid expenses and other assets and as well as a $1.0 million decrease in deferred revenue.

For the year ended December 31, 2021, net cash used in operating activities of $34.6 million was primarily due to our net loss of $55.3 million with non-cash adjustments of $14.7 million for an increase in our preferred stock tranche liability, $3.0 million for depreciation and amortization of operating lease right-of-use assets and $2.3 million for stock-based compensation expense, as well as a $1.8 million increase in deferred revenue, $2.0 million for an increase in accounts payable and accrued expenses and other current liabilities, offset by a decrease of $1.1 million in operating lease liabilities, an increase of $1.6 million in prepaid and other assets and an increase of $0.4 million in accounts receivable.

During the year ended December 31, 2021 the Company expensed $2.2 million of deferred offering costs related to the suspended IPO, all of which was paid and is included in the net cash used in operating activities.

Other material changes comprised of $14.1 million increase in operating lease liabilities, $2.2 million increase in accounts payable and accrued expenses and other current liabilities offset by $1.3 million increase in prepaid expenses and other current assets and as well as a $1.0 million decrease in deferred revenue.

Investing Activities

For the year ended December 31, 2022, net cash used in investing activities of $82.0 million was due to $40.6 million purchases of short-term investments and $41.4 million purchases of property and equipment.

For the year ended December 31, 2021, net cash used in investing activities of $5.5 million respectively, was entirely due to purchases of property and equipment.

For the year ended December 31, 2023, net cash provided by investing activities of $30.1 million was due to $60.0 million in proceeds from maturities of short-term investments and $0.1 million in proceeds from the sale of property and equipment, offset by $18.0 million in purchases of short-term investments and $12.0 million in purchases of property and equipment.

For the year ended December 31, 2022, net cash used in investing activities of $82.0 million was due to $40.6 million in purchases of short-term investments and $41.4 million in purchases of property and equipment.

Financing Activities

For the year ended December 31, 2023, net cash provided by financing activities of $0.8 million was primarily due to $0.5 million from issuance of common stock under Common Stock Purchase Agreement and $0.4 million from the issuance of common stock under Employee Stock Purchase Plan (ESPP), offset by $0.1 million of principal finance lease payments.

For the year ended December 31, 2022, net cash provided by financing activities of $118.6 million was primarily due to $112.0 million proceeds received from Merger and related PIPE financing activities, net of transaction cost, $5.2 million from issuance of convertible notes, $0.7 million from issuance of common stock under Common Stock Purchase Agreement, $0.5 million from the issuance of common stock upon exercise of stock options and $0.2 million from the issuance of common stock under Employee Stock Purchase Plan (ESPP).

For the year ended December 31, 2021, net cash provided by financing activities of $68.4 million was primarily due to proceeds received of $67.0 million from the issuance of our Series B redeemable convertible preferred stock and $1.5 million from the issuance of common stock upon exercise of stock options.

Funding Requirements

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

• the scope, rate of progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

• the scope, rate of progress, results and costs of drug discovery, clinical and preclinical development, laboratory testing and clinical trials for our product candidates;

• the number and development requirements of product candidates that we may pursue, and other indications for our current product candidates that we may pursue;

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In order to improve our liquidity, management is actively pursuing additional financing.

We expect our expenses to increase substantially in connection with ongoing activities, particularly as we advance our preclinical activities and clinical trials for our product candidates in development.

Accordingly, we will need to obtain substantial additional funding for continuing operations.

We will need to obtain substantial additional funding for continuing operations.

If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce or eliminate our research or drug development programs or any future commercialization efforts.

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See Note 7 - Operating Leases for details on our lease obligations.

In 2021, we began construction of the cGMP facility.

As of December 31, 2022, we have paid $35.5 million in construction costs of the $42.1 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 II, Item 8, Notes to Consolidated Financial Statements, Note 16 - Related Parties for details into the BlueRock agreement).

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As of December 31, 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 $1.1 million and $0.2 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.

Refer to Note 9, Stockholders’ Equity (Deficit), for further details of the contingent earnout.

Off-Balance Sheet Arrangements

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.

generally accepted accounting principles, or GAAP.

generally accepted accounting

principles, or GAAP.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes.

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We define our critical accounting policies as those under U.S.

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.

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.

Impairment of Long-Lived Assets

As a result of the change in the manner in which the Company expects to recover the assets associated with the lease on the Alameda facility to GeneFab and the related leasehold improvements became a separate asset group for the purposes of long-lived asset impairment assessment.

This asset group reassessment triggered a need to perform an impairment analysis.

The Company tested the asset group for impairment and recognized an impairment loss in the amount of $25.7 million during the year ended December 31, 2023, representing the difference between the carrying value of the asset group of $54.6 million and its estimated fair value of $28.9 million, determined based on the discounted cash flows expected to be generated from the use of the asset group through the sublease.

Further, the Company determined that the individual fair value of the ROU asset within the asset group exceeded its carrying value as of the impairment testing date.

Accordingly, the Company allocated the entire impairment loss to the leasehold improvements associated with the Alameda lease.

GeneFab Note Receivable

We elected to account for the GeneFab Note Receivable from GeneFab under the fair value option in ASC 825, Financial Instruments (“ASC 825” ) .

The GeneFab Note Receivable was recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the consolidated statements of operations and comprehensive loss until settlement.

We estimated the fair value by discounting future payments under multiple probability-weighted scenarios using GeneFab’s cost of borrowing based on published CCC-rated corporate bond yields.

GeneFab Economic Share

We elected to account for the GeneFab Economic Share under the fair value option in ASC 825.

The GeneFab Economic Share was recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the consolidated statements of operations and comprehensive loss until settlement.

We estimated the fair value using the option pricing method, which allocates total estimated enterprise value to various classes of equity using the Backsolve method.

Significant assumptions used were the equity value of GeneFab, volatility, risk-free rate, expected term, and dividend yield.

GeneFab Option

The GeneFab Option meets the definition of a derivative under ASC 815, Derivatives and Hedging (“ASC 815”), and does not meet the criteria for equity classification.

The derivative liability was recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the consolidated statements of operations and comprehensive loss until settlement.

The fair value of the liability was determined using a Black-Scholes option pricing model incorporating assumptions such as the fair value of our common stock, the risk-free rate, volatility, expected term and dividend yield.

Contingent Earnout Liability

In connection with the Reverse Recapitalization, Legacy Senti equity holders are entitled to receive as additional merger consideration up to 2,000,000 shares of our common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche, for no consideration upon the occurrence of certain triggering events, including a change of control event.

In accordance with ASC 815-40, Derivatives and Hedging , as certain terms of the Contingent Earnout Shares were not indexed to the common stock, they were accounted for as a liability at the Reverse Recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.

In accordance with ASC 815, as certain terms of the Contingent Earnout Shares were not indexed to the common stock, they were accounted for as a liability at the Reverse Recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.

The estimated fair value of the Contingent Earnout Shares was determined using a Monte Carlo simulation valuation model using a distribution of potential outcomes.

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The risk-free rate and expected volatility requires significant judgment and actual results can differ from assumed and estimated amounts.

Determination of the Fair Value of Common Stock

Historically, for all periods prior to the Merger, we were required to estimate the fair value of our common stock underlying our share-based awards when performing the fair value calculations using the Black-Scholes option pricing model.

Because our common stock is not currently publicly traded, the fair value of our common stock underlying our share-based awards has been determined on each grant date by our board of directors, with input from management, considering our most recently available third-party valuation of our common stock.

In the absence of a public trading market for our common stock, on each grant date, our board of directors has made a reasonable determination of the fair value of our common stock based on the information known to us on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock, and timely valuations from an independent third-party valuation in accordance with guidance provided by the American Institute of Certified Public Accountants, Inc.

Practice Aid:

Valuation of Privately-Held-Company Equity Securities Issued as Compensation, 2013.

In addition, our board of directors considered various objective and subjective factors to determine the fair value of our common stock, including:

• the estimated value of each security both outstanding and anticipated;

• the anticipated capital structure that will directly impact the value of the currently outstanding securities;

• our results of operations and financial position;

• the status of our research and development efforts;

• the composition of, and changes to, our management team and board of directors;

• the lack of liquidity of our common stock as a private company;

• our stage of development and business strategy and the material risks related to our business and industry;

• external market conditions affecting the life sciences and biotechnology industry sectors;

and global economic conditions;

• the results of independent third-party valuations of our common stock;

• the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions;

• the market value and volatility of comparable companies.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date.

In accordance with the Practice Aid, we considered various income, market or asset valuation methods.

Based on our early stage of development and other relevant factors, we appropriately used different valuation methods including a hybrid of the option pricing method, or OPM, and guideline transactions Backsolve method, a hybrid of the OPM and guideline public company methods or a hybrid of OPM, Backsolve method, and Monte Carlo simulation to determine the estimated fair value of our common stock for valuations performed through March 31, 2022.

In determining the estimated fair value of our common stock, our Board of Directors also considered the fact that our stockholders could not freely trade our common stock in the public markets.

Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity.

Our board of directors and management develop best estimates based on the application of these approaches and the assumptions underlying these valuations, giving careful consideration to the advice from our third-party valuation expert.

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As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation expense could be materially different.

Valuation of Preferred Stock Tranche Liability

Our Series B redeemable convertible preferred stock included an obligation whereby the investors agreed to buy, and the Company agreed to sell, additional shares at a fixed price if certain agreed-upon milestones were achieved or at the election of investors.

This obligation was determined to be a freestanding financial instrument that should be accounted for as a liability at fair value, and until settlement, the preferred stock tranche liability was revalued at each reporting period with changes in the fair value recorded in earnings.

Upon achieving specific milestones, and obtaining Board and stockholder approval, the tranches were called and settled on May 14, 2021.

The liability was then extinguished and the fair value was reclassified to redeemable convertible preferred stock.

Historically, we utilized the Monte Carlo valuation model and/or Black-Scholes option pricing model which incorporated assumptions and estimates, to value the preferred stock tranche feature prior to its settlement.

Significant estimates and assumptions impacting the fair value measurement included the estimated fair value per share of the underlying Series B redeemable convertible preferred stock, risk-free rate, expected dividend yield, time to liquidity, expected volatility of the price of the underlying preferred stock and determining the type of option (call option and/or forward contract) and associated probabilities.

The most significant assumptions impacting the fair value of the preferred stock tranche feature included the estimated fair value of our Series B redeemable convertible preferred stock, the estimated probability of and time to liquidity for going public and staying-private, and the determination of the type of option (call option and/or forward contract) and associated probability.

Historically, we determined the estimated fair value per share of the underlying redeemable convertible preferred stock by taking into consideration the most recent sales of our redeemable convertible preferred stock as well as additional factors that we deemed relevant.

We assessed these assumptions and estimates on a quarterly basis as additional information impacting the assumptions became available.

The risk-free rate was determined by reference to the U.S.

Treasury yield curve for time periods approximately equal to the expected term of the preferred stock tranche feature.

We estimated a 0% dividend yield based on the expected dividend yield and the fact that we

have never paid or declared dividends.

We estimated the time to liquidity by weighting potential timelines associated with reaching various pipeline milestones and completing an initial public offering.

Historically, we have been a private company and lack company-specific and implied volatility information of our stock.

Therefore, we estimated our expected stock volatility based on the historical volatility of a representative group of public companies in the biotechnology industry for the expected terms.

The determination of the type of option is based on the payouts available to the holders of the tranche rights and the level of control the investors had over-exercising these rights.

These estimates involved inherent uncertainties and the application of significant judgment.

As a result, if factors or expected outcomes change and we used significantly different assumptions or estimates, our preferred stock tranche liability could be materially different.

Revenue from Contracts

We recognize revenue from contracts when our customer obtains control of the promised goods or services, in an amount that reflects the consideration which we have received or expect to receive in exchange for those goods or services.

Our revenues are primarily derived through our collaborative research, development and license agreements.

The terms of these types of agreements may include (i) research and development services, (ii) licenses for our technology or programs, and (iii) services or obligations in connection with participation in research or steering committees.

Payments to us under these arrangements typically include one or more of the following:

nonrefundable upfront and license fees, research funding, milestone and other contingent payments for the achievement of defined research, development and commercial-based events, as well as royalties on sales of any commercialized products.

We assess whether the promises in its arrangements with customers are considered distinct performance obligations that should be accounted for separately.

Judgment may be required to determine whether the research and development services are distinct from the license to our intellectual property or participation on steering committees.

Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options.

If these options provide a material right to the customer, they are considered performance obligations.

The identification of material rights requires judgments related to the determination of the value of the underlying license relative to the option exercise price, including assumptions about the technical feasibility and the probability of developing a candidate that would be subject to the option rights.

The transaction price in each arrangement is allocated based on the relative standalone selling price (“SSP”) of each distinct performance obligation, which requires judgment.

In instances where SSP is not directly observable, such as when a license or service is not sold separately, SSP is determined using information that may include market conditions and other observable inputs.

Due to the early stage of our licensed technology, the license of such technology is typically combined with research and development services and steering committee participation as one performance obligation.

Changes in the key assumptions used to determine the SSP could have a significant effect on the allocation of arrangement consideration between multiple performance obligations.

Emerging Growth Company Status

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We expect to remain an emerging growth company until the earlier of:

(1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Dynamics Initial Public Offering (“IPO”) (which occurred on May 25, 2021), (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter and our net sales for the year exceed

$100 million;

and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding, rolling three-year period.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis