Senti Biosciences Holdings, Inc. 10-Q

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Senti Biosciences, Inc. (“Senti”) entered into a business combination agreement (the “Agreement”) with Dynamics Special Purpose Corp. (“DYNS”) on December 19, 2021. The transactions contemplated by the terms of the Agreement were completed on June 8, 2022 (the “Closing”), in conjunction with which DYNS changed its name to Senti Biosciences, Inc. (hereafter referred to, collectively with its subsidiaries, as “Senti,” the “Company,” “we,” “us,” or “our,” unless the context otherwise requires). The transactions contemplated in the Agreement are collectively referred to as the “Merger.” The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) as well as Senti’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”) and filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2024. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Cautionary Statement Regarding Forward-Looking Statements This Quarterly 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‑Q 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. Words such as “expect,” “believe,” “anticipate,” “explore,” “intend,” “estimate,” “seek,” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Annual Report and Part II, Item 1A of this Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. 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. Overview 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 $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 29 Table of Contents 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 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: • continue to advance our gene circuit platform technologies; • continue preclinical development of our current and future product candidates and initiate additional preclinical studies; • continue to expand our pipeline by exploring new partnerships and collaborations that align with our strategic goals; • fund clinical development of our current product candidates; • commence clinical studies of our current and future product candidates; • fund manufacturing of our current and future product candidates; • seek regulatory approval of our current and future product candidates; • expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, and commercialization efforts; • continue to develop, grow, maintain, enforce and defend our intellectual property portfolio; and • incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company. Recent Developments 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. 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. 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. 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”). The GeneFab Option is exercisable for a period of 36 months following the execution of the license agreement. 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, pursuant to which we will be entitled to receive ten percent of the realized gains of GeneFab’s parent 30 Table of Contents 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 of $5.5 million. The gain on disposal was primarily related to the grant of the non-oncology license to GeneFab which had no carrying value. 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. We have chosen not to segregate the cash flows of the disposed business in the condensed consolidated statements of cash flows. Supplemental disclosures related to discontinued operations for the statements of cash flows have been provided in Note 3. GeneFab Transaction to our condensed consolidated financial statements. Unless otherwise specified, the results of operations refer to continuing operations only. In November 2023, we entered into a Collaboration and Option Agreement with Celest Therapeutics (Shanghai) Co. Ltd. (“Celest”). 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, 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 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, 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 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. 31 Table of Contents 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. Total revenue consists of contract revenue related to research services provided to customers and grant income which is research funding received from grants. Our ability to generate product revenues will depend on our partners’ ability to replicate our results and the successful development and eventual commercialization of our product candidates, which we do not expect for the foreseeable future, if ever. We may also look to generate revenue from collaboration and license agreements in the future. Operating 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: • 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, regulatory, and clinical related services; • 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 contract manufacturing organizations (“CMOs”); • facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies; • costs related to regulatory compliance; and 32 Table of Contents • the cost of annual license fees. We have not historically tracked research and development expenses by program, with the exception of third-party research projects. 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. 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 INDs and clinical development activities. 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): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (unaudited) (unaudited) (unaudited) (unaudited) Personnel-related expenses, including share-based compensation $ 1,685 $ 2,733 $ 6,306 $ 7,593 External services and supplies 5,284 4,384 15,519 8,517 Office and facilities 1,453 1,702 4,065 6,108 Other 233 273 694 810 Total $ 8,655 $ 9,092 $ 26,584 $ 23,028 Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our preclinical development programs. Product candidates in clinical development generally have higher development costs than those in preclinical stages of development, primarily due to the increased size and duration of clinical trials. 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 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. This is due to numerous risks and uncertainties, including the following: • negative or inconclusive results from our preclinical studies or clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon any or all of our programs; • product-related side effects experienced by participants in our clinical trials or by individuals using therapeutics similar to our product candidates; • 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; 33 Table of Contents • 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; • high drop-out rates of research subjects; • inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials; • Chemistry, manufacturing and control (“CMC”) challenges associated with manufacturing and scaling up biologic product candidates to ensure consistent quality, stability, purity and potency among different batches used in clinical trials; • greater-than-anticipated clinical trial costs; • poor potency or effectiveness of our product candidates during clinical trials; • unfavorable FDA or other regulatory authority inspection and review of a clinical trial or manufacturing site; • 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; • delays and changes in regulatory requirements, policies and guidelines; and • the FDA or other regulatory authorities interpret our data differently than we do. A change in the outcome of any of these variables may significantly impact the costs and timing associated with the development of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. General and Administrative Expenses 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, insurance 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): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (unaudited) (unaudited) (unaudited) (unaudited) Personnel-related expenses, including share-based compensation $ 1,927 $ 5,127 $ 6,074 $ 18,243 External services and supplies 1,674 2,025 4,480 4,810 Office and facilities 1,328 829 3,438 1,547 Depreciation and amortization 714 994 2,155 1,582 Insurance 264 317 1,139 1,236 Other 340 139 689 453 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. 34 Table of Contents Other Income (Expense) Interest Income, net 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 Sublease Income is primarily comprised of income from our sublease agreements with GeneFab. 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. 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, 2023 2023 Operating expenses: Research and development $ 1,641 $ 9,975 General and administrative (1,478) (496) Total operating expenses 163 9,479 Loss from discontinued operations (163) (9,479) Net income from discontinued operations $ 21,692 $ 12,376 35 Table of Contents Results of Operations 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 Revenue Contract revenue $ — $ 255 $ (255) Grant income — 83 (83) Total revenue — 338 (338) Operating expenses Research and development (including related party cost of $3,790 and $1,186, respectively) 8,655 9,092 (437) 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) Loss from operations (15,215) (43,876) 28,661 Other income (expense) Interest income, net 150 583 (433) Change in fair value of GeneFab Note Receivable - related party (17,435) 287 (17,722) Change in fair value of GeneFab Economic Share - related party (398) (123) (275) Change in fair value of GeneFab Option - related party 2,386 5,629 (3,243) GeneFab sublease income - related party 1,657 899 758 Other income (expense) (11) (14) 3 Total other income (expense), net (13,651) 7,261 (20,912) Net loss from continuing operations (28,866) (36,615) 7,749 Net income from discontinued operations — 21,692 (21,692) Net loss $ (28,866) $ (14,923) $ (13,943) Contract revenue . 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 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 $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 $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 36 Table of Contents 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 $0.6 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. 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. 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 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 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 the three months ended September 30, 2024. 37 Table of Contents 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 Revenue Contract revenue $ — $ 1,978 $ (1,978) Grant income — 583 (583) Total revenue — 2,561 (2,561) Operating expenses Research and development (including related party cost of $11,059 and $1,186, respectively) 26,584 23,028 3,556 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) Loss from operations (44,872) (74,029) 29,157 Other income (expense) Interest income, net 718 2,438 (1,720) Change in fair value of contingent earnout liability — 207 (207) Change in fair value of GeneFab Note Receivable - related party (17,240) 287 (17,527) Change in fair value of GeneFab Economic Share - related party (1,816) (123) (1,693) Change in fair value of GeneFab Option - related party 6,331 5,629 702 GeneFab sublease income - related party 4,705 899 3,806 Other income (expense) (6) (26) 20 Total other income (expense), net (7,308) 9,311 (16,619) Net loss from continuing operations (52,180) (64,718) 12,538 Net income from discontinued operations — 12,376 (12,376) Net loss $ (52,180) $ (52,342) $ 162 Contract revenue . 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 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 $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 $18.0 million and $27.9 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease of $9.9 million 38 Table of Contents 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 $0.7 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 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 nine months ended September 30, 2023 net loss from discontinued operations was $12.4 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 the nine months ended September 30, 2024. Liquidity and Capital Resources Sources of Liquidity 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. Pursuant to the Purchase Agreement, we have the right, in our sole discretion, to sell to Chardan up to the lesser of: (i) $50.0 million of shares of our common stock; 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 39 Table of Contents 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. 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 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. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. 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. 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 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 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. Cash Flows The following table sets forth a summary of our cash flows from continuing and discontinued operations for each of the periods indicated (in thousands): 40 Table of Contents Nine Months Ended September 30, 2024 2023 Net cash from operating activities $ (27,893) $ (45,358) Net cash from investing activities 45 29,976 Net cash from financing activities 2,440 223 Net change in cash, cash equivalents and restricted cash $ (25,408) $ (15,159) Operating Activities 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 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 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 Based upon our current operating plans, substantial doubt exists about whether our existing cash and cash equivalents will be sufficient to fund our operations, including clinical trial expenses and business operating expenses requirements, beyond twelve months from the date of this Quarterly Report. We anticipate that we will continue to seek additional funding, though the precise timing of such may prove uncertain. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our assumptions may prove to be inaccurate, and we could deplete our capital resources sooner than we expect. Additionally, the process of 41 Table of Contents 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: • 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; • the costs, timing and outcome of regulatory review of our product candidates; • the scope and costs of any commercial manufacturing activities; • the cost associated with commercializing any approved product candidates; • the cost and timing of developing our ability to establish sales and marketing capabilities, if any; • the costs of preparing, filing and prosecuting patent applications, maintaining, enforcing and protecting our intellectual property rights, defending intellectual property-related claims and obtaining licenses to third-party intellectual property; • the timing and amount of any milestone and royalty payments we are required to make under our present or future license agreements; • our ability to establish and maintain collaborations on favorable terms, if at all; and • the extent to which we acquire or in-license other product candidates and technologies and associated intellectual property. In order to improve our liquidity, management is actively pursuing additional financing. 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. Although management continues to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all. 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. The lease will expire in 2032 with total undiscounted operating lease payments of $46.0 million over an initial lease period of eleven years. See Note 6. Operating Leases, for details on our lease obligations. Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 200,000 additional shares of our common stock in the aggregate, in two equal tranches of 100,000 shares of common stock per tranche. The share price milestone for the first tranche was not satisfied during the First Tranche Term and any such rights to receive the first tranche of additional shares of the Company’s common stock have been cancelled and extinguished. Refer to Note 7. 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 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. 42 Table of Contents 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. 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. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements. 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. 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 The Jumpstart Our Business Startups Act (“JOBS”) Act permits an emerging growth company to take advantage of an extended transition to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to not take advantage of the benefits of this extended transition period. 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. Smaller Reporting Company Status The Company is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company if (1) the market value of our common stock held by non-affiliates is less than $250 million as of the last business day of the second fiscal quarter, or (2) our annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter are less than $100 million and the market value of our common stock held by non-affiliates is less than $700 million as of the last business day of the second fiscal quarter. Segment Information We have one business activity and operate in one reportable segment. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company,” we are not required to provide this information. 43 Table of Contents