What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-13 · 159 added, 98 removed, 286 unchanged (47% of the section changed)

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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 $11.2 million and $18.7 million for the three months ended June 30, 2024 and 2023, respectively, and net losses to $23.3 million and $37.4 million for the six months ended June 30, 2024 and 2023.

As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents of $15.9 million and $35.9

million, respectively, and an accumulated deficit of $267.7 million and $244.3 million, respectively.

Net cash flows used in operating activities were $20.0 million and $30.0 million during the six months ended June 30, 2024 and 2023, respectively.

We have incurred net losses of $28.9 million and $14.9 million for the three months ended September 30, 2024 and 2023, respectively, and net losses to $52.2 million and $52.3 million for the nine months ended September 30, 2024 and 2023.

As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $10.5

million and $35.9 million, respectively, and an accumulated deficit of $296.5 million and $244.3 million, respectively.

Net cash flows used in operating activities were $27.9 million and $45.4 million during the nine months ended September 30, 2024 and 2023, 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.

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

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

We anticipate that our expenses and operating losses will increase substantially over the foreseeable future to the extent we are able to secure additional financing.

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

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Recent Developments

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

On August 7, 2023, we completed a transaction with GeneFab, LLC (“GeneFab”), a new 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.

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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 is anticipated to be paid to us in the first half of 2025, subject to satisfaction of certain conditions.

The total consideration in connection with the transaction was $37.8 million, 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 consideration is 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.

As of September 30, 2024, we assessed that there is a probability that a suitable license agreement would not be signed.

Refer to Note 3.

GeneFab Transaction , in the footnotes to the condensed consolidated financial statements included in this Form 10-Q elsewhere for further details of the GeneFab transaction.

GeneFab was provided an option to purchase up to 1,963,344 shares (i.e., up to $20.0 million worth) of our common stock at a per share exercise price of $10.18670 (the “GeneFab Option”).

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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 condensed consolidated statements of operations for the three and six months ended June 30, 2023 to reflect the operating results related to the disposed business in discontinued operations.

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

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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.

In November 2023, we 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 product candidate 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.

In addition, we agreed to grant an exclusive option to enter into 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 $156.0 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-401, 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.

On July 17, 2024, the Company filed a Certificate of Amendment to Second Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware, pursuant to which we effected a 1-for-10 reverse stock split (the “Reverse Stock Split”) of Company’s issued and outstanding common stock.

On July 17, 2024, we filed a Certificate of Amendment to Second Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware, pursuant to which the Company effected a 1-for-10 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding common stock.

The Reverse Stock Split became effective as of 5:00 p.m.

(Eastern Time) on July 17, 2024, and the Company’s common stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the market open on July 18, 2024.

All references in this Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Reverse Split on a retroactive basis.

On August 2, 2024, the Company received notification from Nasdaq that for ten consecutive business days, the closing bid price of the Company’s common stock was at least $1.00 per share, and accordingly, the Company regained compliance with the Bid Price Rule, and that the matter is now closed.

On August 3, 2024, the Company executed the agreement with California Institute of Regenerative Medicine (“CIRM”) for a grant award of $8 million.

Pursuant to the executed agreement with CIRM, the first tranche of the grant award is expected to be received in August 2024.

The CIRM grant will support the ongoing clinical development of SENTI-202.

(Eastern Time) on July 17, 2024, and our common stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the market open on July 18, 2024.

On August 2, 2024, we received notification from Nasdaq that for ten consecutive business days, the closing bid price of the Company’s common stock was at least $1.00 per share, and accordingly, we regained compliance with the Bid Price Rule, and that the matter is now closed.

Refer to Note 1 .

Organization and Description of Business, in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere for further details.

On August 3, 2024, we executed an agreement with California Institute for Regenerative Medicine (“CIRM”) for a total grant award of $8.0 million (“CIRM Grant”) in support of the research project related to the ongoing clinical development of SENTI-202.

The award is payable to us upon achievement of milestones that are primarily based on patient enrollment in our related clinical trial.

Refer to Note 8.

CIRM Grant, in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere for further details of the CIRM agreement.

On September 23, 2024, we entered into a sublease agreement with BKPBIOTECH, Inc.

and JLSA2 Therapeutics, Inc.

to sublease a portion of the Company’s corporate headquarter premises in South San Francisco.

The sublease commenced on October 7, 2024, the date when the subtenants gained access to the premises, and will expire on April 30, 2027.

Total sublease income to be earned from this operating lease, in aggregate, will be approximately $1.0 million over the term of the sublease agreement.

Refer to Note 6.

Operating Leases , in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere for further details of the sublease.

On October 21, 2024, we notified the Nasdaq Stock Market (“Nasdaq”) that we are not in compliance with the audit committee requirement under Nasdaq Listing Rule 5605(c)(2)(A) due having only two members on our audit committee solely due to a vacancy resulting from Susan Berland’s resignation from the Board effective June 11, 2024.

On October 22, 2024, we received a notice (the “Notice”) from Nasdaq indicating that we are no longer compliant with the audit committee requirements as set forth in Nasdaq Listing Rule 5605, we have until December 9, 2024 to regain compliance as provided in Nasdaq Listing Rule 5605(c)(4) which defines the cure period.

We are evaluating the membership of the audit committee and intends to regain compliance with the Nasdaq Listing Rule 5605 prior to the expiration of the applicable cure period.

The Notice has no immediate effect on the listing or trading of our common stock on the Nasdaq Capital Market.

On November 1, 2024, we received a $2.5 million payment from CIRM in relation to a milestone achieved in August 2024.

Refer to Note 8.

CIRM Grant, for additional details regarding the CIRM grant and related milestone payments.

Components of Results of Operations

Total Revenue

Contract Revenue

We currently have no therapeutic products approved for sale, and we have never generated any revenue from the sale of any therapeutic products.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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Office and facilities 1,328 829 3,438 1,547

Depreciation & Amortization 716 406 1,441 588

Depreciation and amortization 714 994 2,155 1,582

Insurance 264 317 1,139 1,236

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Total $ 6,247 $ 9,431 $ 17,975 $ 27,871

Impairment of Long-lived assets

Impairment of long-lived assets relates 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, as well as impairment of lease right-of-use assets as a result of subleasing a portion of our headquarter premises.

Other Income (Expense)

Interest Income, net

Interest income, net consists of interest earned on our cash and cash equivalents, and short-term investments, if any, held during the year, net of interest expense.

Interest income, net consists of interest earned on our cash and cash equivalents, restricted cash and short-term investments, if any, held during the year, net of interest expense.

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.

Refer to Note 4.

Fair Value Measurements , in the footnotes to the condensed consolidated financial statements included in this Form 10-Q elsewhere related to the valuation methodology and assumptions used.

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 and the volatility at each reporting period.

Refer to Note 4.

Fair Value Measurements , in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere related to the valuation methodology and assumptions used.

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 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 $10.18670 per share.

Refer to Note 4.

Fair Value Measurements , in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere related to the valuation methodology and assumptions used.

GeneFab sublease Income - related party

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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):

Three Months Ended June 30, Six months ended June 30,

2024 2023 2024 2023

There was no comparative activity during the nine months ended September 30, 2024.

Net income (loss) from discontinued operations for the three and nine months ended September 30, 2023 is summarized below (in thousands):

Three Months Ended September 30, Nine months ended September 30,

Operating expenses:

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Loss from discontinued operations (163) (9,479)

Net income (loss) from discontinued operations $ — $ (4,447) $ — $ (9,316)

Net income from discontinued operations $ 21,692 $ 12,376

Results of Operations

Comparison of the Three Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023 (in thousands):

Comparison of the Three Months Ended September 30, 2024 and 2023

The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023 (in thousands):

Three Months Ended

September 30,

2024 2023 Change

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General and administrative 6,247 9,431 (3,184)

Impairment of long-lived assets 313 25,691 (25,378)

Total operating expenses 15,215 44,214 (28,999)

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Interest income, net 150 583 (433)

Change in fair value of contingent earnout liability — 148 (148)

Change in fair value of GeneFab Note Receivable - related party (17,435) 287 (17,722)

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Other income (expense) (11) (14) 3

Total other income, net 2,153 938 1,215

Total other income (expense), net (13,651) 7,261 (20,912)

Net loss from continuing operations (28,866) (36,615) 7,749

Net loss from discontinued operations — (4,447) 4,447

Net income from discontinued operations — 21,692 (21,692)

Net loss $ (28,866) $ (14,923) $ (13,943)

Contract revenue .

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

We earned no revenue in the three months ended June 30, 2024.

The decrease of $0.7 million was primarily due to completion of services provided under the Spark collaboration agreement in 2023 that did not occur in 2024.

For the three months ended September 30, 2023, we generated revenue from contracts and license agreements of $0.3 million.

We earned no revenue in the three months ended September 30, 2024.

The decrease of $0.3 million was primarily due to completion of services provided under the Spark collaboration agreement in 2023.

Grant income .

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

We earned no revenue from grants in the three months ended June 30, 2024.

For the three months ended September 30, 2023, we generated revenue from grants of $0.1 million, from the SBIR SENTI-202 grant funding.

We earned no revenue from grants in the three months ended September 30, 2024.

Research and development expenses .

Research and development expenses were $9.2 million and $6.9 million for the three months ended June 30, 2024 and 2023, respectively.

The increase o f $2.3 million w as primarily due to an increase of $3.5 million in external services and supplies cost offset by a decrease of $0.9 million in office and facilities cost and a decrease of $0.3 million in personnel-related expenses .

Research and development expenses were $8.7 million and $9.1 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease o f $0.4 million w as primarily due to a decrease of $1.0 million in personnel-related expenses and a decrease of $0.2 million in office and facilities cost, offset by an increase of $0.9 million in external services and supplies cost.

General and administrative expenses .

General and administrative expenses were $4.2 million and $9.2 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease of $5.0 million was primarily due to a decrease of $5.7 million in personnel-related expenses and a decrease of $0.4 million in professional services costs offset by an increase of $0.7 million in facilities costs, an increase of $0.3 million in depreciation and amortization costs.

General and administrative expenses were $6.2 million and $9.4 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease of $3.2 million was primarily

due to a decrease of $3.2 million in personnel-related expenses, a decrease of $0.4 million in professional services costs and a decrease of $0.3 million in depreciation and amortization costs, offset by an increase of $0.5 million in facilities costs and an increase of $0.2 million in other general and administrative expenses.

Impairment of long-lived assets:

Impairment of long-lived assets was $0.3 million and $25.7 million for the three months ended September 30, 2024 and 2023, respectively.

The impairment of $0.3 million was related to the impairment of the lease right-of-use assets as a result of subleasing a portion of our headquarter premises.

The impairment of $25.7 million recognized during the three months ended September 30, 2023, was 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 $0.2 million and $0.8 million for the three months ended June 30, 2024 and 2023, respectively.

Interest income was $0.2 million and $0.6 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease is attributed to lower average cash balances in the relevant periods.

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

Change in fair value of the GeneFab Note Receivable - related party was a loss of $17.4 million for the three months ended September 30, 2024 due to the probability that a suitable license agreement, which is a condition of the Company realizing the GeneFab Note Receivable, would not be signed and a gain of $0.3 million for the three months ended September 30, 2023, due to a change in the discount rate.

Change in fair value of GeneFab Economic Share - related party.

For the three months ended June 30, 2024, the change in fair value of GeneFab economic Share was a loss of $1.5 million primarily due to the decrease in the GeneFab equity value, which is a significant input in the measurement of the GeneFab Economic Share.

There was no comparative activity for three months ended June 30, 2023

Change in fair value of the GeneFab Economic Share - related party was a loss of $0.4 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease was primarily due to the low probability of the events triggering the payment underlying the GeneFab Economic Share.

Change in fair value of GeneFab Option - related party.

For the three months ended June 30, 2024, the change in fair value of GeneFab Option was a gain of $1.6 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.

There was no comparative activity for three months ended June 30, 2023.

Change in fair value of the GeneFab Option - related party was a gain of $2.4 million for the three months ended September 30, 2024 due to the low probability that a suitable license agreement, which is a condition for exercise of the Option, would be signed and a gain of $5.6 million for the three months ended September 30, 2023, due to a decrease in the fair value of our common stock as well as an increase in volatility.

GeneFab sublease income - related party.

For the three months ended June 30, 2024, sublease income was $1.6 million from the sublease of Alameda facility as well as a portion of our corporate headquarter premises to GeneFab.

There was no comparative activity for three months ended June 30, 2023.

For the three months ended September 30, 2024 and 2023, sublease income was $1.7 million and $0.9 million, respectively, from the sublease of Alameda facility as well as a portion of our corporate headquarters leased to GeneFab.

Net income (loss) from discontinued operations.

For the three months ended June 30, 2023, net loss from discontinued operations was $4.4 million.

For the three months ended September 30, 2023, net loss from discontinued operations was $21.7 million.

Discontinued operations relate to the transfer of in-house manufacturing activities in the Alameda facility, to GeneFab, and include the costs and depreciation of equipment and related deposits or liabilities, as well as manufacturing personnel-related costs.

There were no discontinued operations for three months ended June 30, 2024.

Comparison of the Six Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023 (in thousands):

Six Months Ended

There were no discontinued operations for the three months ended September 30, 2024.

Comparison of the Nine Months Ended September 30, 2024 and 2023

The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023 (in thousands):

Nine Months Ended

September 30,

2024 2023 Change

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General and administrative 17,975 27,871 (9,896)

Impairment of long-lived assets 313 25,691 (25,378)

Total operating expenses 44,872 76,590 (31,718)

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Other income (expense) (6) (26) 20

Total other income, net 6,343 2,050 4,293

Total other income (expense), net (7,308) 9,311 (16,619)

Net loss from continuing operations (52,180) (64,718) 12,538

Net loss from discontinued operations — (9,316) 9,316

Net income from discontinued operations — 12,376 (12,376)

Net loss $ (52,180) $ (52,342) $ 162

Contract revenue .

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

We earned no revenue in the six months ended June 30, 2024.

For the nine months ended September 30, 2023, we generated revenue from contracts and license agreements of $2.0 million.

We earned no revenue in the nine months ended September 30, 2024.

The decrease of $2.0 million was primarily due to completion of services provided under the Spark collaboration agreement in 2023 that did not occur in 2024.

Grant income .

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

We earned no revenue from grants in the six months ended June 30, 2024.

For the nine months ended September 30, 2023, we generated revenue from grants of $0.6 million, from the SBIR SENTI-202 grant funding.

We earned no revenue from grants in the nine months ended September 30, 2024.

Research and development expenses .

Research and development expenses were $17.9 million and $13.9 million for the six months ended June 30, 2024 and 2023, respectively.

Research and development expenses were $26.6 million and $23.0 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase of $3.6 million was primarily due to an increase of $7.0 million in professional services costs, partially offset by a decrease of $2.0 million in office and facility costs, as well as a decrease of $1.3 million in personnel-related expenses.

General and administrative expenses .

General and administrative expenses were $11.7 million and $18.4 million for the six months ended June 30, 2024 and 2023, respectively.

The decrease of $6.7 million was primarily due to a decrease of $9.0 million in personnel-related expenses, offset by an increase of $1.4 million in office and facility costs and an increase of $0.9 million in depreciation and amortization.

General and administrative expenses were $18.0 million and $27.9 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease of $9.9 million

was primarily due to a decrease of $12.2 million in personnel-related expenses, offset by an increase of $1.9 million in office and facility costs and an increase of $0.6 million in depreciation and amortization.

Impairment of long-lived assets.

Impairment of long-lived assets of $25.7 million for the nine months ended September 30, 2023 was due to the impairment of leasehold improvements related to our 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.

Impairment of long-lived assets of $0.3 million for the nine months ended September 30, 2024 was due to the lease right-of-use asset impairment as a result of a portion of our corporate headquarter premises subleased to third parties.

Interest Income, net.

Interest income was $0.6 million and $1.9 million for the six months ended June 30, 2024 and 2023, respectively.

The decrease is attributed to lower average cash balances in the relevant periods.

Change in fair value of GeneFab Economic Share.

For the six months ended June 30, 2024, the change in fair value of GeneFab Economic Share was a loss of $1.4 million primarily due to the decrease in the GeneFab equity value, which is a significant input in the measurement of the GeneFab Economic Share.

There was no comparative activity for six months ended June 30, 2023.

Change in fair value of GeneFab Option.

For the six months ended June 30, 2024, the change in fair value of GeneFab Option was a gain of $3.9 million primarily due to the decrease in the fair value of our common stock as well as an increase in volatility, which are significant inputs in the measurement of the GeneFab Option.

There was no comparative activity for six months ended June 30, 2023.

Interest income was $0.7 million and $2.4 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease was attributed to lower average cash balances in the relevant periods.

Change in fair value of contingent earnout liability .

For the nine months ended September 30, 2023 we recognized a non-cash gain of $0.2 million.

There was no comparative activity for nine months ended September 30, 2024.

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

For the nine months ended September 30, 2024, the fair value of the GeneFab Note Receivable decreased by $17.2 million.

This decrease was due to the probability that a suitable license agreement, which is a condition of the Company realizing the GeneFab Note Receivable, would not be signed.

For the nine months ended September 30, 2023, the fair value of the GeneFab Note Receivable increased by $0.3 million due to a change in the discount rate.

Change in fair value of GeneFab Economic Share - related party.

Change in fair value of the GeneFab Economic Share - related party was a loss of $1.8 million and $0.1 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease was primarily due to the low probability of the events triggering the payment underlying the GeneFab Economic Share.

Change in fair value of GeneFab Option - related party.

C hange in fair value of the GeneFab Option - related party was a gain of $6.3 million for the nine months ended September 30, 2024 due to the low probability that a suitable license agreement, which is a condition for exercise of the Option, would be signed and a gain of $5.6 million for the nine months ended September 30, 2023, due to a decrease in the fair value of our common stock as well as an increase in volatility.

GeneFab sublease income - related party.

For the six months ended June 30, 2023, sublease income was $3.0 million from the sublease of Alameda facility as well as a portion of our corporate headquarter premises to GeneFab.

There was no comparative activity for six months ended June 30, 2023.

For the nine months ended September 30, 2024 and 2023, sublease income was $4.7 million and $0.9 million, respectively, from the sublease of Alameda facility as well as a portion of our corporate headquarters leased to GeneFab.

Net income (loss) from discontinued operations.

For the six months ended June 30, 2023 net loss from discontinued operations was $9.3 million.

For the nine months ended September 30, 2023 net loss from discontinued operations was $12.4 million.

There were no discontinued operations for six months ended June 30, 2024.

There were no discontinued operations for the nine months ended September 30, 2024.

Liquidity and Capital Resources

Sources of Liquidity

From inception to June 30, 2024, 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.

From inception to September 30, 2024, we raised aggregate gross proceeds of $302.5 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 lesser extent, through collaboration agreements and governmental grants.

On August 31, 2022, we entered into the Purchase Agreement with Chardan, as amended and restated from time to time.

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and (ii) 872,704 shares of common stock at 97% of the volume weighted average price (“VWAP”) of the common stock calculated in accordance with the Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the Purchase Agreement.

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.

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 10,000 shares of our common stock to Chardan and paid a $0.4 million document preparation fee.

Other than the issuance of the commitment shares of our common stock to Chardan, we issued 130,000 shares of common stock up until June 30, 2024 aggregating to net proceeds of $1.2 million, under the Purchase Agreement.

There were no shares issued within the six months ended June 30, 2024.

On July 16, 2024, we amended and restated this Purchase Agreement (hereinafter, the “A&R Purchase Agreement”) with Chardan to update the volume weighted average price purchase mechanics of the equity facility to permit Intraday VWAP Purchases (as defined in the A&R Purchase Agreement).

The Company has issued 143,593 shares of common stock to Chardan under the A&R Purchase Agreement, including 10,000 shares issued to Chardan as consideration for its execution and delivery of the A&R Purchase Agreement, with aggregate net proceeds of $1.2 million.

There were no shares issued under the Purchase Agreement during the three and nine months ended September 30, 2023.

The shares issued during the three and nine months ended September 30, 2024 were 3,593.

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 continuing operations since our inception and anticipate we will continue to incur net losses for the foreseeable future.

As of June 30, 2024, we had $15.9 million in cash and cash equivalents, and an accumulated deficit of $267.7 million.

As of September 30, 2024, we had $10.5 million in cash and cash equivalents, and an accumulated deficit of $296.5 million.

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

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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.

As substantial doubt exists about the Company’s ability to continue as a going concern, 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 is anticipated to be received in the first half of 2025, subject to satisfaction of certain conditions.

The remaining consideration of $18.9 million is subject to satisfaction of certain conditions.

We elected to account for the GeneFab Note Receivable under the fair value option and recorded the GeneFab Note Receivable at its fair value of $16.6 million at the closing date of the transaction.

The GeneFab Note Receivable is remeasured each reporting period with changes from remeasurement included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

As of September 30, 2024, the fair value of the GeneFab Note Receivable was zero due to the probability that a suitable license agreement, which is a condition of the Company realizing the GeneFab Note Receivable, would not be signed.

Refer to Note 4.

Fair Value Measurements, in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere for further details.

The agreement with CIRM, as described in “Recent Developments” above will provide us in total grant of $8.0 million subject to achievement of certain operational milestones.

The CIRM Grant will help support the ongoing clinical development of SENTI-202.

Refer to Note 8.

CIRM Grant, in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere for further details of the CIRM agreement.

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

Six Months Ended

Nine Months Ended

September 30,

Net cash from operating activities $ (27,893) $ (45,358)

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Net cash from financing activities 2,440 223

Net change in cash and cash equivalents $ (20,042) $ (20,899)

Net change in cash, cash equivalents and restricted cash

$ (25,408) $ (15,159)

Operating Activities

For the six months ended June 30, 2024, net cash used in operating activities of $20.0 million was primarily due to our loss of $23.3 million with non-cash adjustments of $3.9 million gain from change in fair value of the GeneFab Option, $1.4 million loss from change in fair value of GeneFab Economic Share, $2.9 million for depreciation and amortization of operating lease right-of-use-assets and $0.5 million for stock-based compensation expense.

Other material changes comprised of $7.1 million decrease in GeneFab prepaid expenses, and $0.8 million decrease in prepaid expenses and other assets offset by $3.2 million decrease in accounts payable and accrued expenses and $1.9 million decrease in operating lease liabilities.

For the six months ended June 30, 2023, net cash used in operating activities of $30.0 million was primarily due to our net 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 and $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 nine months ended September 30, 2024, net cash used in operating activities of $27.9 million was primarily due to our loss of $52.2 million with non-cash adjustments of $17.2 million loss from change in fair value of the GeneFab Note Receivable, $6.3 million gain from change in fair value of the GeneFab Option, $1.8 million loss from change in fair value of GeneFab Economic Share, $4.4 million for depreciation and amortization of operating lease right-of-use assets and $1.2 million for stock-based compensation expense.

Other material changes comprised of $10.9 million decrease in GeneFab prepaid expenses, $1.1 million decrease in prepaid expenses and other assets, $0.1 million increase in other liabilities, net of current portion, offset by $3.1 million decrease in accounts payable and accrued expenses and $3.0 million decrease in operating lease liabilities.

For the nine months ended September 30, 2023, net cash used in operating activities of $45.4 million was primarily due to our net loss of $52.3 million with non-cash adjustments of $25.7 million for impairment of long-lived assets, $21.9 million gain on disposal of business to GeneFab, $7.6 million for stock-based compensation expense, $5.6 million gain from change in fair value of the GeneFab Option, $4.0 million for depreciation and amortization of operating lease right-of-use assets and $1.1 million for accretion of discount on short-term investments, $0.3 million gain for the change in fair value of the GeneFab receivable, and $0.2 million for the change in fair value of contingent earnout liability, and $0.1 million loss for the change in fair value of the GeneFab Economic Share.

Other material changes comprised of $0.8 million decrease in deferred revenue, offset by $0.1 million increase in operating lease liabilities.

Investing Activities

For the six months ended June 30, 2024, net cash used in investing activities was nominal.

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 the short-term investments offset by $18.0 million purchases of short-term investments and $10.2 million purchases of property and equipment.

For the nine months ended September 30, 2024, net cash provided by investing activities was nominal.

For the nine months ended September 30, 2023, net cash provided by investing activities of $30.0 million was due to $60.0 million cash received upon maturity of the short-term investments offset by $18.0 million purchases of short-term investments and $12.0 million purchases of property and equipment.

Financing Activities

For the six months ended June 30, 2024, there was no cash provided by financing activities.

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

For the nine months ended September 30, 2024, there was $2.4 million cash provided by financing activities related to the CIRM Grant.

Refer to Note 8.

CIRM Grant, in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere for further details of the CIRM Grant.

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

Funding Requirements

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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.

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.

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

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Contractual Obligations and Commitments

We lease our corporate headquarters which is located in South San Francisco, California (“HQ lease”) and has an initial term of eight years expiring in 2027, with total undiscounted operating lease payments of $22.1 million for an initial lease term of eight years.

On June 3, 2021, we entered into a lease agreement for a new cGMP facility in Alameda, California to support planned initial clinical trials for our product candidates.

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Refer to Note 7.

Stockholders’ Equity, for further details of the contingent earnout.

Stockholders’ Equity, in the footnotes to condensed consolidated financial statements included in this Form 10-Q elsewhere for further details of the contingent earnout.

Off-Balance Sheet Arrangements

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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 six months ended June 30, 2024, 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, 2023, that are of significance, or potential significance, to us.

During the nine months ended September 30, 2024, 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, 2023, that are of significance, or potential significance, to us.

Emerging Growth Company Status

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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-Q

Item 2. Management’s Discussion and Analysis