SANA BIOTECHNOLOGY, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual 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 of this Annual Report titled "Risk Factors." See also the section of this Annual Report 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. We expect clinical data
from our first program, our CD19-targeted allogenic chimeric antigen receptor
(CAR) T (SC291) program, in 2023. We also continue to make progress on
developing our cell engineering platforms and advancing our product candidates
through preclinical development, with the goal of multiple investigational new
drug (IND) submissions in 2023 and beyond.
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 requirements, 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 using this approach have
had to manage significant challenges such as scalability, product variability,
product quality, cost, patient accessibility, and limits on number of cell types
that are amenable to this approach. Given these limitations, rather than using
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 that use 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, there are cell types for which effective differentiation
protocols from a stem cell have not yet been developed, such as T cells. For
these cell types, instead of starting from a pluripotent stem cell, we can use
allogeneic, fully-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.
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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 range of
therapeutic areas. We are in the early stages of development across a broad
pipeline of product candidates, which are summarized below:
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We continue to make progress developing our cell engineering platforms - our
hypoimmune allogeneic CAR T platform, our stem-cell derived platform that also
leverages our hypoimmune technology, and our in vivo fusogen platform. In early
2023, the FDA cleared our first IND submission for our SC291 program and we
continue advancing our other product candidates through preclinical development
toward potential IND submissions in 2023 and beyond.
We expect initial clinical data for our SC291 program in 2023. We also expect
clinical data in 2023 from an Investigator Sponsored Trial (IST) leveraging our
hypoimmune technology. The IST aims to treat type 1 diabetes using
hypoimmune-modified cadaveric primary islet cells. The clinical data from SC291
and the primary islet IST each offer the potential of human proof of concept for
our hypoimmune platform and may unlock learnings for our allogeneic CAR T and
stem-cell derived programs approaching IND filings in the coming years.
We continue to advance our hypoimmune allogeneic CAR T platform with a planned
IND in 2023 for our hypoimmune-modified CD22-targeted allogeneic CAR T (SC262)
with the potential to treat blood cancer patients with previous CD19 treatment
failures, followed by a potential IND in 2024 for a hypoimmune-modified
BCMA-targeted allogeneic CAR T (SC255) for treatment of multiple myeloma. These
programs both use clinically validated CAR constructs and use the same
hypoimmune technology as our SC291 program.
From our stem-cell derived platform, we expect to file an IND as early as 2024
for our stem-cell derived beta islet program (SC451) with the potential to treat
type 1 diabetes. The SC451 program also leverages our hypoimmune platform. The
goal of SC451 is to transplant hypoimmune-modified islet cells with no
immunosuppression into patients with type 1 diabetes so that these cells produce
insulin in a physiologic manner in response to glucose.
Our in vivo CAR T with CD8-targeted fusogen delivery of a CD19-targeted CAR (SG299) has the potential to generate CAR T cells in vivo, which would potentially reduce or eliminate the need for conditioning chemotherapy and complex CAR T cell manufacturing. We have demonstrated the ability to safely and selectively deliver the CAR gene to T cells in vivo and to generate
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active CAR T cells in multiple preclinical models. Recently, our scientists have
made progress in a second-generation manufacturing process that results in at
least a 50X improvement in product potency, which we believe has the potential
to translate into better efficacy, safety, and long-term manufacturability. In
the fourth quarter of 2022, we decided to bring this second-generation process
forward for our first-in-human studies in patients with B cell malignancies. We
plan to file an IND in 2023 for SG299.
We continue to make progress on developing our cell engineering platforms and
advancing our product candidates through preclinical development and towards
potential IND submissions in 2023 and beyond. Based on our current timelines for
our lead programs, we believe our cash runway will enable multiple data readouts
across our platforms. 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 towards potential IND submissions, we
are conducting GLP toxicity studies and establishing necessary scale-up for our
manufacturing processes. For details regarding our product candidates, see the
section titled "Business- Overview" in Part I, Item 1 included elsewhere in this
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 hypoimmune technology licensed from the President and Fellows of
Harvard College (Harvard) and The Regents of the University of California , our
ex vivo cell engineering program focused on certain brain disorders acquired
from Oscine Corp. , fusogen technology acquired from Cobalt Biomedicines Inc.
(Cobalt), and gene 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
this Annual Report, as well as the section titled "Business- Key Intellectual
Property Agreements" in Part I, Item 1 included elsewhere in this Annual Report.
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,
preparing for clinical trials of our product candidates, acquiring technology,
organizing and staffing the company, business planning, establishing and
maintaining 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 years ended December 31, 2022 , 2021, and 2020 were $269.5 million ,
$355.9 million , and $285.3 million , respectively. As of December 31, 2022 , we
had an accumulated deficit of $1.1 billion . Our net losses resulted primarily
from our research and development programs, and, to a lesser extent, general and
administrative costs associated with our operations. In addition, as of December
31, 2022 , the accumulated deficit of $1.1 billion includes non-cash charges of
$18.6 million and $99.1 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
December 31, 2022 , we had cash, cash equivalents, and marketable securities of
$434.0 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 expect our operating losses and expenses to remain relatively flat over the
next few years. If our clinical trials are successful, our operating losses and
expenses will likely increase over the longer term as we expand our research and
development efforts. If we expand our research and development efforts, cost
increases would be driven in large part by advancing our current and future
product candidates through clinical trials; identifying additional product
candidates; establishing our manufacturing capabilities, including through
third-party contract development and manufacturing organizations and building
our internal manufacturing capabilities; advancing preclinical development of
our current and future product candidates; advancing and expanding the
capabilities of our ex vivo and in vivo cell engineering platforms; acquiring
and licensing technologies aligned with our ambition of translating engineered
cells to medicines; seeking regulatory approval of our current and future
product candidates; increasing our workforce to support our research, clinical
and preclinical development, manufacturing, and commercialization efforts;
expanding our operational, financial, and management systems; continuing to
develop, prosecute, and defend our intellectual property portfolio; and
continuing to incur legal, accounting, or other expenses to operate our
business, including the costs associated with being a public company.
We continue to invest 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. 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 capabilities.
In November 2022 , we underwent a portfolio prioritization and corporate
restructuring designed to optimize development of our programs at or nearing
clinical development, to continue investments in our core research platforms and
innovation, and to maintain a strong balance sheet. That process was
substantially completed in 2022 and resulted in a reduction of our workforce by
approximately
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15%. During the year ended December 31, 2022 , we recognized one-time charges of
$6.8 million related to employee severance, benefits and related costs, and a
non-cash stock-based compensation charge of $1.9 million related to equity
awards for employees impacted by the restructuring in general and administrative
expense.
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 such time, if ever, as we can generate substantial product
revenue, we expect to finance our operations with our existing cash, cash
equivalents, and marketable securities, proceeds from any future equity or debt
financings, and upfront, milestone, and royalty payments received under any
future licenses, collaborations, or other arrangements. Additional capital may
not be available on terms that are reasonable or acceptable to us, if at all. If
we are unable to raise capital when needed or on attractive terms, our business,
results of operations, and financial condition would be adversely affected.
Macroeconomic Considerations
Our business and operations may be negatively affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as rising inflation, rising interest rates, declines in consumer confidence, declines in economic growth, uncertainty in the markets, the ongoingRussia -Ukraine war, tensions inU.S. -China relations, and the COVID-19 pandemic along with its aftermath. The severity and duration of the impact of these events and conditions on our business cannot be predicted and may not be fully reflected in our results of operations until future periods. If economic uncertainty continues or increases, or if the global economy worsens, our business, financial condition, and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events and conditions on our business, financial condition, and operating results, see the section of this Annual Report titled "Risk Factors."
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 elsewhere in this 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 elsewhere in this Annual Report.
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, 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 for a product based on the fusogen technology. 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. As ofDecember 31, 2022 , a Cobalt Success Payment had not been triggered. See Note 3, Acquisitions to our consolidated financial statements included elsewhere in this Annual 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. See the subsections below titled "-Success payments" and "-Contingent consideration" 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 increasing 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 ongoing pre-determined valuation measurement dates. The Harvard Success Payments can be achieved over a maximum of 12 years from the 140 -------------------------------------------------------------------------------- effective date of the agreement. 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 ofDecember 31, 2022 , a Harvard Success Payment had not been triggered. See Note 4, License and collaboration agreements to our consolidated financial statements included elsewhere in this Annual Report for more details on the various per share common stock values that trigger a Harvard Success Payment. See the subsection below titled "-Success payments" 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 technologies 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 CDMO manufacturing costs (including pass-through costs) and clinical trial costs, costs for laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, and facility expenses, including rent, depreciation, and allocated overhead costs. 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, most 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 remain relatively flat over the next few years. If our clinical trials are successful, our research and development expenses will likely increase over the longer term. If we expand our research and development capabilities, cost increases would be driven in large part by advancing our current and future product candidates through clinical trials; identifying additional product candidates; establishing internal and external manufacturing capabilities; advancing preclinical development of our current and future product candidates; advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms; acquiring and licensing technologies aligned with our ambition of translating engineered cells to medicines; seeking regulatory approval of our current and future product candidates; and increasing our workforce to support our expanded research and development operations. 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 our Cobalt Contingent Consideration liability. The expense or gain associated with our research and development related success payments and contingent consideration is unpredictable, in part, because our success payments are impacted by changes in 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 twelve months endedDecember 31, 2022 , are costs related to theNovember 2022 restructuring and construction in progress costs incurred in connection with the write-off of our previously planned manufacturing facility inFremont, California (theFremont facility). We anticipate that our general and administrative expenses will remain relatively flat over the next few years. 141
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Results of operations
Comparison of the years ended
The following table summarizes our results of operations for the periods
presented:
Year Ended December 31,
2022 2021 Change
(in thousands)
Operating expenses:
Research and development $ 285,885 $ 248,626 $ 37,259
Research and development related success (84,882 ) 57,873
payments and contingent consideration (142,755 ) General and administrative 71,561 50,410 21,151 Total operating expenses 272,564 356,909 (84,345 ) Loss from operations (272,564 ) (356,909 ) 84,345 Interest income, net 3,762 676 3,086 Other income, net (674 ) 305 (979 ) Net loss$ (269,476 ) $ (355,928 ) $ 86,452
Research and development expenses
The following table summarizes the components of our research and development expenses for the periods presented:
Year Ended December 31,
2022 2021 Change
(in thousands)
Personnel $ 111,208 $ 79,028 $ 32,180 Research, development, and laboratory 70,585 54,017
16,568
Facility and other allocated expenses 64,196 47,735
16,461 Third-party manufacturing 27,986 11,794 16,192 Licensing of technology 6,873 52,439 (45,566 ) Other 5,037 3,613 1,424
Total research and development expense
37,259
Research and development expense was
• increased personnel-related expenses of
increase in non-cash stock-based compensation of
primarily attributable to an increase in headcount to expand our research
and development capabilities;
• an increase of
• an increase of
costs, depreciation expense, and facility and software costs; and
• an increase of
including pass-through costs for materials.
These increases were offset by a decrease of$45.6 million in costs to license technology. Licensing costs included an upfront payment of$6.0 million in 2022 related to licensing technology for our CD22 and BCMA programs compared to an upfront payment of$50.0 million in 2021 related to licensing Beam's gene editing technology. 142
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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
periods presented:
Year Ended December 31,
2022 2021 Change
(in thousands)
Cobalt success payment $ (69,337 ) $ 23,659 $ (92,996 )
Harvard success payments (12,181 ) 2,372 (14,553 )
Contingent consideration (3,364 ) 31,842 (35,206 )
Total research and development related success
payments and contingent consideration $ (84,882 ) $ 57,873 $ (142,755 )
The gain related to the change in the estimated fair value of our Cobalt Success
Payment was $69.3 million for the year ended December 31, 2022 , compared to an
expense of $23.6 million for the same period in 2021. The change in value was
due to the reduction in our market capitalization offset by progress toward
filing an IND for SG299 during the relevant period. The gain related to the
change in the estimated fair value of our Harvard Success Payments was $12.2
million for the year ended December 31, 2022 , compared to an expense of $2.4
million for the same period in 2021. The change in value was due to changes in
our common stock price during the relevant period. The gain related to the
change in the estimated fair value of our Cobalt Contingent Consideration was
$3.4 million for the year ended December 31, 2022 , compared to an expense of
$31.8 million for the same period in 2021. The change in value 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
period.
General and administrative expenses
General and administrative expenses were$71.6 million and$50.4 million , respectively, for the years endedDecember 31, 2022 and 2021.The increase of$21.2 million was primarily due to costs related to theNovember 2022 restructuring of$8.7 million , including non-cash stock-based compensation of$1.9 million , the write-off of$4.5 million of construction in progress costs incurred in connection with theFremont facility, an increase in personnel-related costs of$4.0 million primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, operating costs related to theFremont facility of$1.9 million , and increased facility costs of$1.0 million .
Interest income, net
Interest income, net, was
Comparison of the years ended
The following table summarizes our results of operations for the periods
presented:
Year Ended December 31,
2021 2020 Change
(in thousands)
Operating expenses:
Research and development $ 248,626 $ 132,944 $ 115,682
Research and development related success 57,873 124,935 (67,062 )
payments and contingent consideration
General and administrative 50,410 28,270 22,140
Total operating expenses 356,909 286,149 70,760
Loss from operations (356,909 ) (286,149 ) (70,760 )
Interest income, net 676 747 (71 )
Other income, net 305 97 208
Net loss $ (355,928 ) $ (285,305 ) $ (70,623 )
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Research and development expenses
The following table summarizes the components of our research and development expenses for the periods presented:
Year Ended December 31,
2021 2020 Change
(in thousands)
Acquisition and licensing of technology $ 52,439 $ 11,991 $ 40,448
Personnel 79,028 49,508 29,520
Research and laboratory 59,908 31,913 27,995
Facility and other allocated costs 47,730 30,215 17,515
Other 9,521 9,317
204
Total research and development expense
Research and development expenses were
• an increase in upfront license fees of
expense of
technology, partially offset by the upfront expense of $8.5 million
recorded in 2020 related to the acquisition of Oscine;
• increased personnel-related expenses of $29.5 million , including an
increase in non-cash stock-based compensation of
primarily attributable to an increase in headcount to expand our research
and development capabilities;
• an increase of
preclinical study, laboratory supply, third-party manufacturing, and other
external research expenses; and
• an increase of
including rent, depreciation, and overhead.
Research and development related success payments and contingent consideration
The following table summarizes the expenses associated with research and
development related success payments and contingent consideration for the
periods presented:
Year Ended December 31,
2021 2020 Change
(in thousands)
Cobalt success payment $ 23,659 $ 62,255 $ (38,596 )
Harvard success payments 2,372 9,887 (7,515 )
Contingent consideration 31,842 52,793 (20,951 )
Total research and development related success
payments and contingent consideration $ 57,873 $ 124,935 $ (67,062 )
The expense related to the change in the estimated fair value of our Cobalt
Success Payment was $23.6 million and $62.3 million , respectively, for the years
ended December 31, 2021 and 2020. The changes in value were due to changes in
our market capitalization and scientific progress toward filing an IND for SG299
during the relevant periods. The expense related to the change in the estimated
fair value of our Harvard Success Payment liabilities was $2.4 million and $9.9
million , respectively, for the years ended December 31, 2021 and 2020. The
changes in value were due to changes in our common and preferred stock during
the relevant periods. The expense related to the change in the estimated fair
value of our Cobalt Contingent Consideration was $31.8 million and $52.8
million , respectively, for the years ended December 31, 2021 and 2020. The
change in the estimated fair value of the Cobalt Contingent Consideration was
primarily due to scientific progress toward the achievement of milestones during
the relative periods.
General and administrative expenses
General and administrative expenses were$50.4 million and$28.3 million , respectively, for the years endedDecember 31, 2021 and 2020. The increase of$22.1 million was primarily due to increased personnel-related expenses of$10.8 million , including non-cash stock-based compensation of$6.2 million , primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, increased legal fees of$3.9 million to support our patent portfolio and licensing arrangements, increased insurance costs of$3.9 million associated with being a public company, increased consulting fees of$1.4 million , and increased facility costs, including rent, of$0.8 million . 144
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Interest income, net
Interest income, net, was
Liquidity, capital resources, and capital requirements
Sources of liquidity
As ofDecember 31, 2022 , we had$434.0 million in cash, cash equivalents, and marketable securities. To date we have raised an aggregate of approximately$1.3 billion in net proceeds from sales of common stock and private placements of our convertible preferred stock. InAugust 2022 , we entered into a sales agreement withCowen and Company, LLC , acting as sales agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to$150.0 million from time to time in a series of one or more at the market equity offerings (collectively, the ATM facility). As ofDecember 31, 2022 , we had raised approximately$0.6 million in net proceeds under the ATM facility. 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. 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, timing, and scope of 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;
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• our ability to establish a commercially viable pricing structure and
obtain approval for coverage and adequate reimbursement from third-party,
including government, payors;
• potential interruptions or delays resulting from global geo-political,
economic, and other factors beyond our control;
• 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, if ever, as we can generate significant revenue from product sales, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and upfront, milestone, and royalty payments received under any future licenses, collaborations, 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, existing stockholders' ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our 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, and involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or acquiring, selling, or licensing intellectual property rights or assets, which could adversely impact our ability to conduct our business. If we raise funds through strategic collaborations or licensing or other arrangements, we may have to 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 various factors beyond our control. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.
Cash flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
2022 2021 2020
(in thousands)
Net cash provided by (used in):
Operating activities $ (290,050 ) $ (251,054 ) $ (137,982 )
Investing activities 210,562 (245,798 ) (252,563 )
Financing activities 4,913 631,751 435,687
Net increase in cash, cash equivalents, and
restricted cash $ (74,575 ) $ 134,899 $ 45,142
Operating activities
During the year ended December 31, 2022 , net cash used in operating activities
was $290.1 million , consisting primarily of our net loss of $269.5 million , the
change in net operating assets and liabilities of $7.5 million , and non-cash
charges of $28.1 million . The non-cash charges of $28.1 million consisted of
gains of $81.5 million and $3.4 million for revaluation of our success payment
liabilities and contingent consideration, respectively, non-cash stock-based
compensation expense of $38.3 million , depreciation expense of $15.6 million ,
and other non-cash charges of $2.9 million .
During the year ended December 31, 2021 , net cash used in operating activities
was $251.0 million , consisting primarily of our net loss of $355.9 million ,
partially offset by the change in our net operating assets and liabilities of
$9.8 million and non-cash charges of $95.1 million . The non-cash charges of
$95.1 million consisted of $31.8 million for revaluation of contingent
consideration, $26.0 million for revaluation of our success payment liabilities,
non-cash stock-based compensation expense of $22.4 million , depreciation expense
of $11.1 million , and other non-cash charges of $3.8 million .
During the year ended December 31, 2020 , net cash used in operating activities
was $138.0 million , consisting primarily of our net loss of $285.3 million
partially offset by non-cash charges of $141.2 million and an increase in our
net operating assets of $6.2 million . The non-cash charges of $141.2 million
consisted of $72.1 million for revaluation of our success payment liabilities,
$52.8 million for revaluation of contingent consideration, depreciation expense
of $5.9 million , non-cash stock-based compensation expense of $5.8 million , and
other non-cash charges of $4.6 million .
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Investing activities
Cash provided by investing activities was$210.6 million during the year endedDecember 31, 2022 , and cash used in investing activities was$245.8 million and$252.6 million during the years endedDecember 31, 2021 and 2020, respectively. For the year endedDecember 31, 2022 this consisted of net maturities of marketable securities of$231.5 million offset by the purchase of property and equipment of$20.9 million . For the years endedDecember 31, 2021 and 2020 this consisted of net purchases of marketable securities of$211.3 million and$228.7 million , respectively, and purchases of property and equipment of$29.9 million and$23.9 million , respectively.
Financing activities
During the year ended
During the year endedDecember 31, 2021 , cash provided by financing activities was$631.7 million , consisting primarily of net proceeds from our IPO of$626.4 million and$5.3 million in proceeds from our employee stock purchase plan and the exercise of stock options. During the year endedDecember 31, 2020 , cash provided by financing activities was$435.7 million consisting primarily of net proceeds from the sale of our convertible preferred stock.
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) $ 23,523 $ 59,662 $
51,880
(1) As part of our decision to move the site of our manufacturing facility to
Bothell, Washington fromFremont, California , we intend to sublease or terminate the lease for theFremont facility. Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as ofDecember 31, 2022 are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones or royalties on net product sales. See the section titled "Business-Key Intellectual Property Agreements" 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 the subsection below titled "-Critical accounting policies and significant judgments and estimates-Success payments" and Note 3, Acquisitions, and Note 4, License and collaboration agreements, to our consolidated financial statements located elsewhere in this Annual Report for more information on the success payments. As ofDecember 31, 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 remain an emerging growth company until the earliest to occur of (1)December 31, 2026 , (2) the last day of the fiscal year in which 147 -------------------------------------------------------------------------------- we have total annual gross revenue of at least$1.235 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 independent registered public accounting firm provide an attestation report on our internal control over financial reporting 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 after 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 judgments and estimates
Our 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 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. Our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report. We believe the following accounting policies relate to the significant areas involving management's judgments and estimates and are critical to understanding our historical and future performance.
Research and development expenses
We record research and development expenses in the periods in which they are incurred. We accrue for research and development expenses based on the estimated services performed, but not yet invoiced, pursuant to contracts with research institutions or other service providers that conduct and manage preclinical studies and other research services on our behalf and record these costs in accrued and other current liabilities. We make judgments and estimates in determining the accrued liabilities balance at each reporting period. 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. To date, we have not experienced any material differences between accrued expenses and actual expenses incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.
Acquisitions
We account for business combinations using the acquisition method of accounting, which requires the assets acquired, including in-process research and development (IPR&D), and liabilities assumed, be recorded at their fair values as of the acquisition date. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of the estimated fair value of these items requires us to make significant estimates and assumptions. If we determine the acquisition does not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill or contingent consideration are recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D are recorded in research and development expense if it is determined that there is no alternative future use, and subsequent milestone payments are recorded in research and development expense when achieved.
Intangible assets and goodwill
Accounting for business combinations requires us to make significant estimates
and assumptions with respect to tangible and intangible assets acquired and
liabilities assumed. We use our best estimates and assumptions to accurately
assign fair value to the tangible and intangible assets acquired and liabilities
assumed at the acquisition date as well as the useful lives of those acquired
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intangible assets. Intangible assets are reviewed for impairment annually and
upon the occurrence of triggering events or substantive changes in circumstances
that could indicate a potential impairment.
Goodwill represents the excess of the purchase price over the estimated fair
value of the identifiable assets acquired and liabilities assumed in a business
combination. We evaluate goodwill for impairment annually and upon the
occurrence of triggering events or substantive changes in circumstances that
could indicate a potential impairment. Our evaluation includes assessing
qualitative factors or performing a quantitative analysis to determine whether
it is more-likely-than-not that the fair value of net assets is below the
carrying amounts.
Contingent consideration
Contingent consideration obligations are estimated at fair value at the acquisition date of a business combination and at each subsequent balance sheet date, with changes in fair value recorded in research and development related success payments and contingent consideration. The fair value of contingent consideration is determined by calculating the probability-weighted estimated value of the milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and applying the relevant discount rates. We use significant estimates and assumptions in determining the estimated contingent consideration and associated expense or gain at each balance sheet date. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. In evaluating the fair value of contingent consideration, significant judgment is required to estimate the likelihood and timing that the milestones would be achieved. We assess these estimates on an ongoing basis as additional data impacting the assumptions become available. Contingent consideration may change significantly as development progresses and additional data is obtained, impacting our assumptions regarding probabilities of successful achievement of the related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.
Success payments
The Cobalt Success Payment was recorded as a liability on the consolidated balance sheet at fair value on the acquisition date and is remeasured at each subsequent reporting period, with changes in fair value recognized in research and development related success payments and contingent consideration. For the Harvard Success Payments, both the initial value and subsequent changes in fair value are recorded in research and development related success payments and contingent consideration. To determine the estimated fair value of the success payment liabilities, we use a Monte Carlo simulation methodology which models the estimated fair value of the liability based on several key assumptions, including the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered, term of the success payments, the risk-free interest rate, and expected volatility, which is estimated using peer company stocks for a period of time commensurate with the expected term assumption. Additionally, the computation of the estimated fair value of the Harvard Success Payments incorporates the per share fair market value of our common stock at the end of each reporting period, and the computation of the estimated fair value of the Cobalt Success Payment incorporates our market capitalization at the end of each reporting period. The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment and a small change in the assumptions may have a relatively large change in the estimated liability and resulting expense or gain.
Stock-based compensation
We recognize compensation costs related to restricted stock awards, restricted stock units, and stock options granted to employees and non-employees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur. For restricted stock awards and restricted stock units, the fair value of our common stock is used to determine the resulting stock-based compensation expense. For stock options, we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model. The fair value of stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Black-Scholes option pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. These assumptions include:
• Fair Value of Common Stock-The fair value of our common stock is based on
the closing price as reported on the Nasdaq Global Select Market on the
date of grant.
• Expected Term-The expected term represents the period that the stock-based
awards are expected to be outstanding. We use the simplified method to
determine the expected term, which is based on the average of the
time-to-vesting and the contractual life of the options.
• Expected Volatility-Due to our limited operating history and lack ofcompany-specific historical and implied volatility data, the expected
volatility is estimated based on the average historical volatilities of
common stock of comparable
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publicly traded entities over a period of time commensurate with the
expected term of the stock option grants. The comparable companies are
chosen based on their size, stage in the product development cycle, orarea of specialty. We will continue to apply this process until sufficient
historical information regarding the volatility of our own stock price
becomes available.
• Risk-Free Interest Rate-The risk-free interest rate is based on the
the awards.
• Expected Dividend-We have never paid dividends on our common stock and
have no plans to pay dividends on our common stock. Therefore, we used an
expected dividend yield of zero.
See Note 11, Stock-based compensation to our consolidated financial statements included elsewhere in this Annual Report for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years endedDecember 31, 2022 , 2021, and 2020. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change or we use significantly different assumptions or estimates, our stock-based compensation could be materially different.
Recently adopted and recent accounting pronouncements
See Note 2, Summary of significant accounting policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition or results of operations.
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