SANA BIOTECHNOLOGY, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report and our audited consolidated financial statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K as filed with theSEC onMarch 16, 2022 (2021 Annual Report). This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements that are based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of numerous factors, including those set forth in the section titled "Risk Factors." See also the section titled "Special Note Regarding Forward-Looking Statements."
Overview
We were founded on the belief that engineered cells will be one of the most
important transformations in medicine over the next several decades. The burden
of diseases that can be addressed at their root cause through engineered cells
is significant. We view engineered cells as having the potential to be as
therapeutically disruptive as biologics to clinical practice. Our long-term
aspirations are to be able to control or modify any gene in the body, to replace
any cell that is damaged or missing, and to markedly improve access to cellular
and gene-based medicines. We have brought together an experienced group of
scientists, engineers, and company builders and combined them with the necessary
technologies to move this vision forward. We are developing ex vivo and in vivo
cell engineering platforms to revolutionize treatment across a broad array of
therapeutic areas with unmet treatment needs, including oncology, diabetes,
central nervous system disorders, cardiovascular diseases, and genetic
disorders, among others. Our platform progress, broad capabilities, and strong
balance sheet enable us to execute on a broad vision, with a goal of submitting
our first investigational new drug applications (INDs) in 2022, with the
opportunity to file multiple INDs per year beyond 2022.
Frequently in disease, cells are damaged or missing entirely, and an effective
therapy needs to replace the entire cell, an approach referred to as cell
therapy or ex vivo cell engineering. A successful therapeutic requires an
ability to manufacture cells at scale that engraft, function, and have the
necessary persistence in the body. Of these, long-term persistence related to
overcoming immunologic rejection of another person's cells has been the most
challenging, which has led many to focus on autologous, or a patient's own,
cells as the therapeutic source. However, autologous therapies require a complex
process of harvesting cells from the patients, manipulating them outside the
body, and returning them to the patient. Products utilizing this approach have
had to manage significant challenges such as scalability, product variability,
product quality, cost, patient accessibility, and a limited number of cell types
being amenable to this approach. Given these limitations, rather than utilizing
autologous cells to overcome immune rejection, we have invested in creating
hypoimmune cells that can "hide" from the patient's immune system. We are
striving to make therapies utilizing pluripotent stem cells with our hypoimmune
genetic modifications as the starting material, which we then differentiate into
a specific cell type, such as a pancreatic islet cell, before treating the
patient. Additionally, for cell types for which effective differentiation
protocols from a stem cell have not yet been developed, such as T cells, instead
of starting from a pluripotent stem cell, we can utilize an allogeneic cell,
differentiated cells sourced from a donor, as the starting material to which we
then apply our hypoimmune genetic modifications.
The process of repairing and controlling genes in the body, referred to as gene
therapy or in vivo cell engineering, requires in vivo delivery of a therapeutic
payload and modification of the genome. There are multiple methods available to
modify the genome, but limited ability to deliver therapeutic payloads in vivo.
Thus, delivery of a therapeutic payload is at the core of our strategic focus,
with our ultimate goal being the delivery of any payload to any cell in a
specific and repeatable way. Our initial effort is on cell-specific delivery and
increasing the diversity and size of payloads. Using our fusogen technology, we
have shown in preclinical studies that we can specifically target numerous cell
surface receptors that, when combined with delivery vehicles to form fusosomes,
allow cell-specific delivery across multiple different cell types. We have
initially chosen to focus this technology on delivering payloads to T cells,
hepatocytes, and hematopoietic stem cells.
We believe the time is right to develop engineered cell therapies across a broad
range of therapeutic areas. Substantial progress in the understanding of
genetics, gene editing, gene control, protein engineering, stem cell biology,
immunology, process analytics, and computational biology have converged to
create an opportunity to markedly increase the breadth and depth of the
potential impact of genetic and cellular medicines. We are focused on creating
transformative ex vivo and in vivo engineered cell therapies across a
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--------------------------------------------------------------------------------range of therapeutic areas. We are in the early stages of development across a broad pipeline of product candidates, all of which are currently in the preclinical stage of development and are summarized below:
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We continue to make progress on developing our cell engineering platforms and
advancing our product candidates through preclinical development and towards
potential IND submissions. Given the depth and breadth of our portfolio, we
expect to assess and prioritize our programs on an ongoing basis based on
various factors, including internal and external opportunities and constraints,
which may result in our decision to advance certain programs ahead or instead of
others. As certain of our product candidates advance toward potential IND
submissions, we are conducting GLP toxicity studies and establishing necessary
scale-up for our manufacturing processes. Our goal is to file INDs in 2022 for
our hypoimmune allogeneic CD19 CAR T (SC291) and our in vivo CD19 CAR T (SG295)
product candidates followed by INDs as early as 2023 for our hypoimmune
allogeneic CD19/CD22 CAR T (SC276) and our ex vivo hypoimmune islet cell product
candidates (SC451). Based on our current timelines for our lead programs, we
believe our cash runway will enable multiple data readouts across our platforms.
For details regarding our product candidates, see the section titled "Business-
Overview" in Part I, Item 1 included in our 2021 Annual Report.
Our ex vivo and in vivo technologies represent an aggregation of years of
innovation and technology from multiple academic institutions and companies,
including our ex vivo cell engineering programs focused on replacing damaged
cells in the heart and certain brain disorders acquired from Cytocardia Inc. and
Oscine Corp. , respectively, hypoimmune technology licensed from the President
and Fellows of Harvard College (Harvard) and The Regents of the University of
California , fusogen technology acquired from Cobalt Biomedicines Inc. (Cobalt),
and genome editing technology licensed from Beam Therapeutics Inc. (Beam), among
others. For details regarding these acquisitions and license and collaboration
agreements, see Note 3, Acquisitions and Note 4, License and collaboration
agreements, to our consolidated financial statements included in our 2021 Annual
Report, as well as the section titled "Business- Key Intellectual Property
Agreements" in Part I, Item 1 included in our 2021 Annual Report.
We were incorporated in July 2018 , and our operations to date have included
developing our ex vivo and in vivo cell engineering platforms, identifying and
developing potential product candidates, executing preclinical studies,
establishing manufacturing capabilities, acquiring technology, organizing and
staffing the company, developing and executing our business plan, establishing
our intellectual property portfolio, raising capital, and providing general and
administrative support for these operations. All of our programs are currently
in the development stage, and we do not have any products approved for sale.
Since our inception, we have incurred net losses each year. Our net losses for
the six months ended June 30, 2022 and 2021 were $103.9 million and $161.9
million , respectively, and resulted primarily from our research and development
programs, and, to a lesser extent, general and administrative costs associated
with our operations. As of June 30, 2022 , we had an accumulated deficit of
$889.3 million , which includes non-cash charges of $31.1 million and $98.1
million related to the revaluation of the success payment liabilities and
contingent consideration, respectively.
In February 2021 , we completed our initial public offering (IPO) and issued 27.0
million shares of our common stock, including 3.5 million shares pursuant to the
full exercise of the underwriters' option to purchase additional shares, at a
price of $25.00 per share and received net proceeds of $626.4 million . Prior to
the IPO, we funded our operations from the issuance and sale of our convertible
preferred stock, raising an aggregate of $705.5 million in gross proceeds. As of
June 30, 2022 , we had cash, cash equivalents, and
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marketable securities of $579.6 million . Based on our current operating plan, we
believe that our existing cash, cash equivalents, and marketable securities will
be sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months.
We anticipate that our expenses and operating losses will increase substantially
for the foreseeable future. The expected increase in expenses will be driven in
large part by our ongoing activities if and as we continue to advance our ex
vivo and in vivo cell engineering platforms; continue preclinical development of
our current and future product candidates and initiate additional preclinical
studies; commence clinical studies of our current and future product candidates;
establish our manufacturing capabilities, including developing our contract
development and manufacturing relationships and building our internal
manufacturing facility; acquire and license technologies aligned with our ex
vivo and in vivo cell engineering platforms; seek regulatory approval of our
current and future product candidates; expand our operational, financial, and
management systems; increase personnel, including personnel to support our
preclinical and clinical development, manufacturing, and commercialization
efforts; continue to develop, grow, prosecute, and defend our intellectual
property portfolio; and incur additional legal, accounting, or other expenses in
operating our business, including the costs associated with operating as a
public company.
We are investing early in building world class capabilities in key areas of
manufacturing sciences and operations, including development of our ex vivo and
in vivo cell engineering platforms, product characterization, and process
analytics from the time candidates are in early research phases. Our investments
also include scaled research solutions, scaled infrastructure, and novel
technologies to improve efficiency, characterization, and scalability of
manufacturing, including establishing our internal manufacturing facility.
We anticipate that we will need to raise additional financing in the future to
fund our operations, including the commercialization of any approved product
candidates. Until we can generate significant product revenue, if ever, we
expect to finance our operations with our existing cash, cash equivalents, and
marketable securities, the proceeds of any future equity or debt financings, and
upfront, milestone, and royalty payments, if any, received under future license
or collaboration agreements. We may not be able to raise additional capital on
terms that are acceptable to us or at all. If we are unable to raise additional
capital when desired, our business, results of operations, and financial
condition would be adversely affected.
COVID-19 business update
The global COVID-19 pandemic continues to evolve rapidly, and we continue to monitor it closely. The extent of the impact of the ongoing COVID-19 pandemic on our business, operations, and clinical development timelines and plans remains uncertain and will depend on certain developments, including the duration of the COVID-19 pandemic and spread of COVID-19, and the pandemic's impact on our ability to build out and operationalize our internal manufacturing facility, expand our laboratory space, and enroll patients in clinical trials, and the impact of the pandemic on our clinical trial sites, contract research organizations (CROs), contract manufacturing organizations, suppliers of key materials and supplies, including raw materials, consumables, and other equipment necessary to manufacture our product candidates, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. We have experienced modest delays in our discovery and development activities as a result of the COVID-19 pandemic, primarily due to temporary and partial shutdowns at certain of our CROs and academic institutions that have since resumed operations, and stay-at-home orders inWashington, California , andMassachusetts , where our operations are located. However, to the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and most of our non-laboratory employees primarily working remotely. We continue to actively monitor the situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.
Acquisitions
We have completed various acquisitions since inception. For details regarding our acquisitions, see the section titled "Business-Key Intellectual Property Agreements" and Note 3, Acquisitions, to our consolidated financial statements included in our 2021 Annual Report.
License and collaboration agreements
We have entered into license and collaboration agreements with various third
parties. For details regarding these agreements, see the section titled
"Business- Key Intellectual Property Agreements" and Note 4, License and
collaboration agreements, to our consolidated financial statements included in
our 2021 Annual Report.
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--------------------------------------------------------------------------------Success payments and contingent consideration
Cobalt success payment and contingent consideration
Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are obligated to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of$500.0 million upon our achievement of certain pre-specified development milestones and a success payment (Cobalt Success Payment) of up to$500.0 million , each of which is payable in cash or stock. The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, which include the closing of our IPO and periodically thereafter, our market capitalization equals or exceeds$8.1 billion , and we are advancing a program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a biologics license application or new drug application. As ofJune 30, 2022 , a Cobalt Success Payment had not been triggered. A valuation measurement date would also be triggered upon a change of control if at least one of our programs based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and our market capitalization is below$8.1 billion as of the date of such change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase. See Note 3, Acquisitions to our condensed consolidated financial statements included elsewhere in this Quarterly Report for details on the amount of the potential Cobalt Success Payment and potential Cobalt Contingent Consideration if there is a change of control based on various thresholds for our market capitalization on such change of control date. As ofJune 30, 2022 andDecember 31, 2021 , the estimated fair value of the Cobalt Success Payment liability was$29.5 million and$88.3 million , respectively, and were recorded in long-term liabilities in the balance sheets. In connection with the change in the estimated fair value of the Cobalt Success Payment, we recognized gains of$12.1 million and$66.6 million for the three months endedJune 30, 2022 and 2021, respectively, and a gain of$58.9 million and an expense of$25.1 million for the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , the estimated fair value of the Cobalt Contingent Consideration was$149.4 million , of which$51.4 million was recorded in short-term liabilities and$98.0 million was recorded in long-term liabilities in the balance sheet. As ofDecember 31, 2021 , the estimated fair value of the Cobalt Contingent Consideration was$153.7 million , of which$51.4 million was recorded in short-term liabilities and$102.3 million was recorded in long-term liabilities in the balance sheet. In connection with the change in the estimated fair value of the Cobalt Contingent Consideration, we recognized a gain of$3.8 million and an expense of$7.2 million , for the three months endedJune 30, 2022 and 2021, respectively, and a gain of$4.4 million and an expense of$18.6 million for the six months endedJune 30, 2022 and 2021, respectively. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "-Critical accounting policies and significant judgments and estimates-Success payments" and "-Critical accounting policies and significant judgments and estimates-Contingent consideration" in our 2021 Annual Report for more information on the accounting treatment of the Cobalt Success Payment and Cobalt Contingent Consideration.
Harvard success payments
Pursuant to the terms of the Harvard agreement, we may be required to make up to an aggregate of$175.0 million in success payments to Harvard (Harvard Success Payments), payable in cash, based on increases in the per share fair market value of our common stock. The potential Harvard Success Payments are based on multiples of increased value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of$4.00 per share at pre-determined valuation measurement dates. The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement. See Note 4, License and collaboration agreements to our condensed consolidated financial statements included elsewhere in this Quarterly Report for details on the various per share common stock values that trigger a Harvard Success Payment. As ofJune 30, 2022 , a Harvard Success Payment had not been triggered. Future valuation measurement dates are triggered by certain events, which include dates occurring subsequent to the IPO, the date of the consummation of a merger, an asset sale, the sale of the majority of the shares held by the Company's Series A convertible preferred stockholders, and the last day of the term of the Harvard Success Payments. If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed. Any previous Harvard Success Payments made are credited against the Harvard Success Payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold. As ofJune 30, 2022 , the estimated fair value of the Harvard Success Payment liability was$4.1 million , which was recorded in long-term liabilities in the balance sheet. As ofDecember 31, 2021 , the estimated fair value of the Harvard Success Payment was$14.2 million , of which$5.0 million was recorded in short-term liabilities and$9.2 million was recorded in long-term liabilities in the balance sheet. In connection with the change in the estimated fair value of the Harvard Success Payment liability, we recognized gains 24 -------------------------------------------------------------------------------- of$2.0 million and$16.6 million for the three months endedJune 30, 2022 and 2021, respectively, and a gain of$10.1 million and an expense of$7.3 million for the six months ended June, 30, 2022 and 2021, respectively. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "-Critical accounting policies and significant judgments and estimates-Success payments" in our 2021 Annual Report for more information on the accounting treatment of the Harvard Success Payments.
Components of operating results
Operating expenses
Research and development
To date, research and development expenses have related primarily to discovery and development of our platform technology and product candidates. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses, until the goods or services are received. Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, including manufacturing costs for contract development and manufacturing organizations (CDMOs), including pass-through costs, costs for laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, facility and other allocated expenses, including rent, depreciation, and allocated overhead costs, and other research and development expenses. The timing and amount of costs to acquire and license technologies in the future cannot be reliably estimated and may fluctuate from quarter to quarter and year to year. We deploy our employee and infrastructure resources across multiple research and development programs for developing our ex vivo and in vivo cell engineering platforms, identifying and developing product candidates, and establishing manufacturing capabilities. Due to our early stage of development, the number of ongoing projects, and our ability to use resources across several projects, the majority of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory, and other indirect facility and operating costs. Research and development activities account for a significant portion of our operating expenses. We anticipate that our research and development expenses will increase for the foreseeable future as we expand our research and development efforts, including by expanding the capabilities of our cell engineering platforms, identifying product candidates, completing existing preclinical studies and commencing new preclinical studies, commencing clinical trials, establishing internal and external manufacturing capabilities, seeking regulatory approval of our product candidates, and incurring costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines. A change in the outcome of any of these factors could result in a significant change in the costs and timing associated with the development of our product candidates.
Research and development related success payments and contingent consideration
Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities and Cobalt Contingent Consideration liability. The expense or gain associated with our research and development related success payments and contingent consideration is unpredictable, including because our success payments are based, in part, on our common stock price and market capitalization at the end of each reporting period, and may continue to vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations.
General and administrative
General and administrative expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation for our employees in finance, legal, executive, human resources, and information technology functions, legal and consulting fees, insurance fees, and facility costs not otherwise included in research and development expenses. Legal fees include those related to corporate and patent matters. Included in general and administrative expenses for the three and six months endedJune 30, 2022 are construction in progress costs incurred in connection with the write-off of our previously planned manufacturing facility inFremont, California (Fremont facility), which will be replaced by our facility inBothell, Washington (Bothell facility). We anticipate that our general and administrative expenses will increase over the foreseeable future to support our expanded research and development activities, grow our business, and support future possible business development opportunities, but at a slower rate than our research and development expenses. We also anticipate that we will continue to incur expenses related to audit 25 -------------------------------------------------------------------------------- and legal services associated with operating as a public company, maintaining compliance with the rules and regulations of theSecurities and Exchange Commission (SEC) and standards applicable to companies listed on a national securities exchange, investor relations activities, and other administrative and professional services. Results of operations
Comparison of the three and six months ended
The following table summarizes our results of operations for the periods
presented:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in thousands)
Operating expenses (gains):
Research and development $ 72,540 $ 44,996 $ 27,544 $ 145,229 $ 86,876 $ 58,353
Research and development related
success payments and contingent
consideration (17,928 ) (76,025 ) 58,097 (73,366 ) 51,025 (124,391 )
General and administrative 18,292 12,477 5,815 32,726 24,298 8,428
Total operating expenses (gains) 72,904 (18,552 ) 91,456 104,589 162,199 (57,610 )
Gain (loss) from operations (72,904 ) 18,552 (91,456 ) (104,589 ) (162,199 ) 57,610 Interest income, net
637 130 507 976 251 725
Other income (expense), net (198 ) 1 (199 ) (300 ) 14 (314 )
Net income (loss) $ (72,465 ) $ 18,683 $ (91,148 ) $ (103,913 ) $ (161,934 ) $ 58,021 Research and development expenses
The following table summarizes the components of our research and development expenses for the periods presented:
Three Months Ended June 30,
2022 2021 Change
(in thousands)
Personnel $ 29,724 $ 17,900 $ 11,824
Third-party manufacturing 7,603 1,489 6,114
Facility and other allocated costs 16,551 11,177 5,374
Research and laboratory 17,230 13,220 4,010
Other 1,432
1,210 222
Total research and development expense
Research and development expense was$72.5 million and$45.0 million for the three months endedJune 30, 2022 and 2021, respectively. The increase of$27.5 million was primarily due to:
• an increase of
increase in non-cash stock-based compensation of
attributable to an increase in headcount to expand our research and
development capabilities;
• an increase of
including pass-through costs for materials;
• an increase of
rent, depreciation, and allocated overhead costs; and
• an increase of $4.0 million in research and laboratory costs.
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The following table summarizes the components of our research and development expenses for the periods presented:
Six Months Ended June 30,
2022 2021 Change
(in thousands)
Personnel $ 58,127 $ 35,133 $ 22,994
Third-party manufacturing 13,096 2,236 10,860
Facility and other allocated costs 31,155 20,467 10,688
Research and laboratory 34,233 25,862
8,371
Acquisition and licensing of technology 6,406 1,632
4,774
Other 2,212 1,546
666
Total research and development expense
Research and development expense was$145.2 million and$86.9 million for the six months endedJune 30, 2022 and 2021, respectively. The increase of$58.3 million was primarily due to:
• an increase of
increase in non-cash stock-based compensation of
attributable to an increase in headcount to expand our research and
development capabilities;
• an increase of
including pass-through costs for materials;
• an increase of
rent, depreciation, and allocated overhead costs;
• an increase of $8.4 million in research and laboratory costs; and
• an increase of
our CD22 and BCMA programs.
Research and development related success payments and contingent consideration
The following table summarizes the expenses (gains) associated with research and
development related success payments and contingent consideration for the for
the periods presented:
Three Months Ended June 30,
2022 2021 Change
(in thousands)
Success payments $ (14,098 ) $ (83,188 ) $ 69,090
Contingent consideration (3,830 ) 7,163 (10,993 )
Total research and development related success
payments and contingent consideration $ (17,928 ) $
(76,025 )
For the three months endedJune 30, 2022 and 2021, we recognized non-cash gains of$17.9 million and$76.0 million , respectively, for the changes in the estimated fair value of research and development related success payments and contingent consideration. The change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was a gain of$14.1 million for the three months endedJune 30, 2022 compared to a gain of$83.2 million for the same period in 2021. The change in the estimated fair value of the success payment liabilities was due to changes in our market capitalization and common stock price during the relevant periods. The change in the estimated fair value of the Cobalt Contingent Consideration was a gain of$3.8 million for the three months endedJune 30, 2022 compared to an expense of$7.2 million for the same period in 2021. The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to variability of the discount rates used in the calculation offset by scientific progress toward the achievement of milestones during the relevant periods. 27 -------------------------------------------------------------------------------- The following table summarizes the expenses (gains) associated with research and development related success payments and contingent consideration for the for the periods presented: Six Months Ended June 30, 2022 2021 Change (in thousands) Success payments$ (69,008 ) $ 32,469 $ (101,477 ) Contingent consideration (4,358 ) 18,556 (22,914 ) Total research and development related success payments and contingent consideration$ (73,366 ) $
51,025
For the six months endedJune 30, 2022 and 2021, we recognized a non-cash gain of$73.4 million and a non-cash expense of$51.0 million , respectively, for the changes in the estimated fair value of research and development related success payments and contingent consideration. The change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was a gain of$69.0 million for the six months endedJune 30, 2022 compared to an expense of$32.5 million for the same period in 2021. The change in the estimated fair value of the success payment liabilities was due to changes in our market capitalization and common stock price during the relevant periods. The change in the estimated fair value of the Cobalt Contingent Consideration was a gain of$4.4 million for the six months endedJune 30, 2022 compared to an expense of$18.6 million for the same period in 2021. The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to variability of the discount rates used in the calculation offset by scientific progress toward the achievement of milestones during the relevant periods.
General and administrative Expenses
General and administrative expenses were
The increase of$5.8 million for the three months endedJune 30, 2022 was primarily due to the write-off of$4.5 million of construction in progress costs in general and administrative expense incurred in connection with theFremont facility, which will be replaced by ourBothell facility. The increase was also due to increased personnel-related expenses of$1.8 million , including non-cash stock-based compensation of$0.7 million , primarily attributable to an increase in headcount to build our infrastructure, and increased information technology and facility costs, including rent, of$0.8 million , partially offset by a decrease in legal fees of$1.3 million . The increase of$8.4 million for the six months endedJune 30, 2022 was primarily due to the write-off of$4.5 million of construction in progress costs in general and administrative expense incurred in connection with theFremont facility. The increase was also due to increased personnel-related expenses of$3.8 million , including non-cash stock-based compensation of$1.3 million , primarily attributable to an increase in headcount to build our infrastructure, increased information technology and facility costs, including rent, of$0.7 million , partially offset by a decrease in legal fees of$1.3 million .
Liquidity, capital resources, and capital requirements
Sources of liquidity
As ofJune 30, 2022 , we had$579.6 million in cash, cash equivalents, and marketable securities. To date we have raised an aggregate of approximately$1.3 billion in net proceeds from our IPO and private placements of our convertible preferred stock. Since our inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses. We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever.
Future funding requirements
We expect to incur additional losses for the foreseeable future as we conduct
and expand our research and development efforts, including conducting
preclinical studies and clinical trials, developing new product candidates,
establishing internal and external manufacturing capabilities, and funding our
operations generally.
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Based on our current operating plan, we believe that our existing cash, cash
equivalents, and marketable securities will be sufficient to meet our working
capital and capital expenditure needs for at least the next 12 months. However,
we anticipate that we will need to raise additional financing in the future to
fund our operations, including the commercialization of any approved product
candidates. We are subject to the risks typically related to the development of
new products, and we may encounter unforeseen expenses, difficulties,
complications, delays, and other unknown factors that may adversely affect our
business.
Our future capital requirements will depend on many factors, including:
• the scope, timing, progress, costs, and results of discovery, preclinical
development, and clinical trials for our current or future product
candidates;
• the number and scope of clinical trials required for regulatory approval
of our current or future product candidates;
• the costs, timing, and outcome of regulatory review of our current or
future product candidates;
• the cost associated with building our manufacturing capabilities, as well
as costs associated with the manufacturing of clinical and commercial
supplies of our current and future product candidates;
• the costs and timing of future commercialization activities, including
manufacturing, marketing, sales, and distribution, for any of our product
candidates for which we receive marketing approval;
• the costs and timing of preparing, filing, and prosecuting patentapplications, maintaining and enforcing our intellectual property rights,
and defending any intellectual property-related claims, including any
claims by third parties that we are infringing upon their intellectual
property rights;
• our ability to maintain existing, and establish new, strategiccollaborations, licensing, or other arrangements and the financial terms
of any such agreements, including the timing and amount of any future
milestone, royalty, or other payments due under any such agreement;
• the revenue, if any, received from commercial sales of our product
candidates for which we receive marketing approval;
• the expenses required to attract, hire, and retain skilled personnel;
• the impact of global supply chain issues and rising rates of inflation on
the costs of laboratory consumables, supplies, and equipment required for
our ongoing operations;
• the costs of operating as a public company;
• our ability to establish a commercially viable pricing structure and
obtain approval for coverage and adequate reimbursement from third-party
and government payors;
• potential interruptions or delays resulting from factors related to the
ongoing COVID-19 pandemic;
• the effect of competing technological and market developments; and
• the extent to which we acquire or invest in businesses, products, and
technologies.
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations from the proceeds of equity or debt financings or capital obtained in connection with strategic collaborations or licensing or other arrangements. In the event that additional financing is required, we may not be able to raise it on terms that are acceptable to us or at all. If we raise additional funds through the issuance of equity or convertible debt securities, it may result in dilution to our existing stockholders. Debt financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur debt, we could become subject to covenants that would restrict our operations. If we raise funds through strategic collaborations or licensing or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. 29 --------------------------------------------------------------------------------
Cash flows
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
2022 2021
(in thousands)
Net cash provided by (used in):
Operating activities $ (149,187 ) $ (90,469 )
Investing activities 90,275 13,767
Financing activities 2,231 627,036
Net increase (decrease) in cash, cash equivalents,
and restricted cash $ (56,681 ) $ 550,334
Operating activities
During the six months ended June 30, 2022 , net cash used in operating activities
was $149.2 million , consisting primarily of net loss of $103.9 million , the
change in net operating assets and liabilities of $1.0 million , and non-cash
adjustments of $46.3 million . The non-cash adjustments of $46.3 million
consisted of a gain of $69.0 million for revaluation of our success payment
liabilities, a gain of $4.4 million for revaluation of contingent consideration,
non-cash stock-based compensation expense of $17.7 million , depreciation expense
of $7.4 million , and other non-cash adjustments of $2.0 million .
During the six months ended June 30, 2021 , net cash used in operating activities
was $90.5 million , consisting primarily of net loss of $161.9 million and the
change in net operating assets and liabilities of $5.6 million , partially offset
by non-cash adjustments of $65.8 million . The non-cash adjustments of $65.8
million consisted primarily of $32.5 million for revaluation of our success
payment liabilities, $18.6 million for revaluation of contingent consideration,
non-cash stock-based compensation expense of $9.1 million , depreciation expense
of $4.9 million , and other non-cash adjustments of $0.7 million .
Investing activities
During the six months endedJune 30, 2022 and 2021, cash provided by investing activities was$90.3 million and$13.8 million , respectively. This consisted primarily of net purchases and maturities of marketable securities of$102.2 million and$30.4 million , respectively, partially offset by purchases of property and equipment of$11.9 million and$16.6 million , respectively.
Financing activities
During the six months endedJune 30, 2022 , cash provided by financing activities was$2.2 million , consisting primarily of proceeds from the employee stock purchase program and exercise of stock options. During the six months endedJune 30, 2021 , cash provided by financing activities was$627.0 million , consisting primarily of net proceeds from our IPO of$626.4 million .
Contractual obligations and commitments
The following table summarizes our significant contractual obligations and
commitments as of
Payments Due by Period
More than 5
Less than 1 Year 1 to 3 Years 3 to 5 Years Years Total
(in thousands)
Operating lease
obligations(1) $ 22,973 $ 54,741 $
51,237
(1) As part of our decision to move our manufacturing facility to
from
30
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Other than as disclosed in the table above, the payment obligations under our
license, collaboration, and acquisition agreements as of June 30, 2022 are
contingent upon future events such as our achievement of pre-specified
development, regulatory, and commercial milestones or royalties on net product
sales. See the section titled "Business-Key Intellectual Property Agreements" in
Part I, Item 1 of our 2021 Annual Report for more information about these
payment obligations.
We are also obligated to make a success payment to Cobalt of up to
$500.0 million , payable in cash or stock, pursuant to the terms and conditions
in the Cobalt acquisition agreement, and up to an aggregate of $175.0 million in
success payments to Harvard, payable in cash. See Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
"-Critical accounting policies and significant judgments and estimates-Success
payments" in our 2021 Annual Report and Note 4, License and collaboration
agreements, to our condensed consolidated financial statements located elsewhere
in this Quarterly Report for more information on these success payments. As of
June 30, 2022 , the timing and likelihood of achieving the milestones and success
payments and generating future product sales are uncertain, and therefore any
related payments are not included in the table above.
We also enter into agreements in the normal course of business for sponsored
research, preclinical studies, contract manufacturing, and other services and
products for operating purposes, which are generally cancelable upon written
notice. These obligations and commitments are not included in the table above.
Off-balance sheet arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements
as defined under the rules and regulations of the
JOBS Act accounting election
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will cease to be an emerging growth company until the earliest of (1)December 31, 2026 , (2) the last day of the fiscal year in which we have total annual gross revenue of at least$1.07 billion , (3) the last day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded$700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for any new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early if the standard allows early adoption.
Critical accounting policies and significant judgements and estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States . The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The critical accounting policies used in preparation of these condensed consolidated financial statements as ofJune 30, 2022 , and for the three and six months endedJune 30, 2022 and 2021 are consistent with those discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "-Critical accounting policies and significant judgments and estimates" in our 2021 Annual Report. 31
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