Nkarta, Inc. (NKTX)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.

Overview

We are a clinical-stage biopharmaceutical company pioneering the development of allogeneic, off-the-shelf engineered natural killer ("NK") cell therapies. Our lead pipeline program is NKX019, a chimeric antigen receptor-natural killer ("CAR NK") product candidate targeting the CD19 antigen for the treatment of patients with autoimmune diseases. Our CAR NK platform enables an on-demand, off-the-shelf approach involving scaled manufacturing to broaden patient access. We have developed proprietary technologies that enable us to generate an abundant supply of NK cells, increase NK-cell recognition of target antigens, enhance NK-cell fitness and freeze, store, and thaw our engineered NK cells for off-the-shelf administration. NKX019 is allogeneic, which means it is produced using cells from a different person than the patient(s) being treated, and it is produced in quantity, then frozen and therefore available for treating patients without delay, unlike autologous cell therapies, which are derived from a patient’s own cells and must be manufactured as needed for each patient. We believe that engineered NK cells have the potential to be effective and accessible therapies for autoimmune diseases and other diseases, be well tolerated, and avoid some of the toxicities observed with other cell therapies.

Our modular engineering platform builds on the distinctive biology of NK cells and their role in eradicating aberrant and pathologically transformed cells. Our process starts with mature NK cells derived from healthy donors. We build on the intrinsic ability of these immune cells to identify and kill transformed cells with cell engineering to further enhance their activity. This engineering involves inducing the expression of a chimeric antigen receptor ("CAR") on the surface of an NK cell to enable the cell to recognize specific proteins or antigens that are present on the surface of target cells. Our engineered CAR NK cells generally consist of an NK cell engineered with a targeting receptor, OX40 costimulatory domain, CD3ζ(zeta) signaling moiety, and a membrane-bound form of the cytokine IL(interleukin)-15 ("mbIL-15").

In November 2024, we announced the first patient was dosed in our Ntrust-1 clinical trial ("Ntrust-1"), a multi-center, open-label, dose-escalation Phase 1 clinical trial of NKX019 for lupus nephritis ("LN") and the first patient was dosed in an investigator-sponsored trial ("IST") of NKX019 in patients with systemic lupus erythematosus ("SLE") at Columbia University Irving Medical Center. In December 2024, we announced the opening to enrollment of our Ntrust-2 clinical trial ("Ntrust-2"), a multi-center, open-label, dose-escalation Phase 1 clinical trial of NKX019 for systemic sclerosis ("scleroderma"), idiopathic inflammatory myopathy ("myositis") and antineutrophil cytoplasmic antibody (ANCA)-associated vasculitis ("AAV") and the clearance of an Investigational New Drug ("IND") application for an IST led by researchers at the University of California, Irvine and the University of Kansas Medical Center to evaluate NKX019 in patients with myasthenia gravis ("MG").

NKX019 is also being studied in a multi-center Phase 1 clinical trial for the treatment of a variety of B-cell malignancies, which evaluates the safety, pharmacology, and preliminary anti-tumor activity of NKX019. In November 2024, we announced clinical data from a cohort of heavily pretreated patients with large B-cell lymphoma ("LBCL") whose disease had already progressed following treatment with a CD19 CAR T cell therapy. Based on these data and the highly competitive landscape for treatments of B-cell malignancies, we will refocus our research and development activities on autoimmune diseases and plan for no further investment in the clinical development of NKX019 for the treatment of B-cell malignancies.

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Since the commencement of our operations in 2015, we have devoted substantially all our resources in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We have incurred net operating losses since inception and have not generated any revenue from product sales. In the future, we expect that our operating expenses will significantly increase as we continue to develop and seek regulatory approvals for our product candidates, continue to engage in other research and development activities to expand our pipeline of product candidates, maintain and expand our intellectual property portfolio, maintain and expand our product manufacturing capabilities, and ultimately establish a commercial organization. We have funded our operations primarily through the issuance of Company stock and intend to raise additional capital to fund operations until such time that we are able to generate sufficient revenues to cover our operating expenses. We may seek additional funding through the issuance of common stock, including through equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including, among other things, the pace and results of our clinical development efforts for our product candidates. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital as and when needed would compromise our ability to execute our business plan and may cause us to undertake cost containment measures and/or significantly delay, scale back or discontinue the development of some of our programs. We have also incurred increased operating expenses since becoming a public company, which we expect will further increase when we are no longer able to rely on certain “emerging growth company” exemptions we are afforded under the Jumpstart Our Business Startups Act (the "JOBS Act") as further described under “—JOBS Act” below. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.

On March 27, 2024, we sold an aggregate of (i) 21,010,000 shares of its common stock at a price of $10.00 per share, and (ii) pre-funded warrants to purchase 3,000,031 shares of common stock at a price of $9.9999 per pre-funded warrant in an underwritten public offering. The pre-funded warrants can be exercised at any time after issuance for an exercise price of $0.0001 per share, subject to certain ownership limitations. The total net proceeds from the offering were approximately $225.1 million, after deducting underwriting discounts and commissions and offering expenses.

Financial Operations Overview

Operating Expenses

Research and Development

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

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

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

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expenses incurred in connection with conducting clinical trials including investigator grants and site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors or central laboratories and service providers engaged to conduct our trials;

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the cost of consultants engaged in research and development related services;

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the cost to manufacture drug product candidates for use in our preclinical studies and clinical trials;

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

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costs related to regulatory compliance; and

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the cost of annual license fees under our third-party licensing agreements.

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We typically have various early-stage research and drug discovery projects as well as various product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are generally not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early-stage research and drug discovery programs on a project-specific basis. As part of our October 2023 announcement of cost containment measures, early discovery and preclinical programs have been deprioritized with less personnel and funding allocated to advancing these programs.

We expense research and development costs as they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities. The unallocated internal research and development costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline. The partner cost sharing represents reimbursable research and development expenses from the CRISPR Agreement.

Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the future, including as a result of Ntrust-1, our clinical trial of NKX019 for the treatment of LN, and Ntrust-2, our planned clinical trial of NKX019 for the treatment of scleroderma, myositis, and AAV.

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The successful development of our drug candidates is highly uncertain. A change in the outcome of any of a number of variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. A discussion of the risks and uncertainties that we face in the development and commercialization of our drug candidates can be found under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. We may never succeed in obtaining regulatory approval for any of our drug candidates.

General and Administrative

General and administrative expenses consist primarily of salaries and employee-related costs, including share-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and facility-related costs.

While we continue to closely manage our expenditures, we still expect our general and administrative expenses will increase in the future in support of increased research and development activities and to reflect increased costs associated with operating as a public company. These anticipated increased costs will include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, insurance premiums and investor relations costs.

Other Income, net

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and short-term and long-term investments and adjustments related to amortization of purchase premiums and accretion of discounts of cash equivalents, short-term and long-term investments.

Income Taxes

We are subject to corporate U.S. federal and state income taxation. We estimate our income tax provision, including deferred tax assets and liabilities, based on management’s judgment. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.

We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

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Results of Operations

The following table summarizes our results of operations for the periods indicated (in thousands):

Research and development expenses

Research and development expenses were $96.7 million and $96.8 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $0.1 million was attributable primarily to the following:

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a $9.5 million decrease in program costs primarily from lower manufacturing, materials, and clinical expenses related to NKX101 as the program was deprioritized and reduced manufacturing and materials expenses related to programs under the CRISPR partnership, which were partially offset by higher manufacturing, materials, and clinical spending related to NKX019 to support Phase I clinical trials in autoimmune diseases;

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a $2.4 million increase in research supplies purchased due to fewer purchases in 2023 from lab facility relocation;

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a $2.6 million increase in other research costs, primarily consisting of consulting expenses, and facility expenses;

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a $1.5 million decrease in partner cost sharing reimbursable expenses related to a decrease in activities performed under our collaboration with CRISPR; and

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a $2.9 million increase in depreciation expense due to the timing of when assets were placed in-service during the year in 2023.

General and administrative expenses

General and administrative expenses were $31.5 million and $34.9 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $3.4 million was primarily due to the following:

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a $4.1 million decrease due to an impairment of right-of-use assets in 2023 and no impairment expense in 2024;

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a $1.6 million decrease in personnel-related expenses, including a $1.2 million decrease due to severance and other termination expenses related to the reduction in force completed in October 2023;

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a $1.7 million increase in rent, depreciation and other facilities expense; and

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a $0.6 million increase in professional services related to accounting services, corporate legal fees, other consulting and patent legal fees.

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Interest income

Interest income was $19.3 million and $14.1 million for the years ended December 31, 2024 and 2023, respectively. The increase of $5.2 million was primarily due to higher average investment balances and higher yields in the current period. Interest income includes interest earned from investments, partially offset by amortization of purchase premiums and accretion of discounts of investments.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2024, we had cash, cash equivalents, restricted cash and short-term and long-term investments of $380.5 million. We estimate that all $265.1 million in net proceeds from our July 2020 initial public offering have been spent. On April 28, 2022, we received $215.3 million in net proceeds, after deducting underwriting discounts, commissions and other offering expenses, in connection with our secondary offering of our common stock. On March 27, 2024, we received $225.1 million in net proceeds from an underwritten public offering, after deducting underwriting discounts, commissions and expenses, described further below.

On March 17, 2023, the Company filed a Registration Statement on Form S-3, as amended by the Form S-3/A filed on April 24, 2023 (the "Shelf Registration Statement"), covering the offer and sale from time to time, pursuant to Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of up to $350.0 million in aggregate offering price of shares of the Company’s common stock, shares of the Company’s preferred stock, debt securities, warrants, rights and/or units, including up to $120.0 million in aggregate offering price of shares of the Company’s common stock, shares of the Company’s preferred stock, debt securities, warrants, rights and/or units registered on the Company’s Registration Statement on Form S-3 declared effective by the Securities and Exchange Commission (the "SEC") on September 2, 2021 (the "Prior Registration Statement") that had not yet been sold. The Shelf Registration Statement was declared effective by the SEC on May 5, 2023.

On March 27, 2024, we completed an underwritten public offering utilizing the Shelf Registration Statement, pursuant to which we sold an aggregate of (i) 21,010,000 shares of common stock at a price of $10.00 per share, and (ii) pre-funded warrants to purchase 3,000,031 shares of common stock at a price of $9.9999 per pre-funded warrant. The pre-funded warrants can be exercised at any time after issuance for an exercise price of $0.0001 per share, subject to certain ownership limitations. As of December 31, 2024, none of the pre-funded warrants have been exercised. We raised $240.1 million in gross proceeds before underwriting discounts, commissions and other expenses of $15.0 million.

Effective August 27, 2024, the Company and Cowen and Company, LLC mutually terminated the sales agreement entered into on August 12, 2021 related to the Company’s $150.0 million “at-the-market” equity offering program, pursuant to the terms of the sales agreement. Prior to the termination of the sales agreement, $1.8 million of shares of common stock had been sold.

We have incurred net losses and negative cash flows from operations since our inception. As of December 31, 2024, we had an accumulated deficit of $544.2 million and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we develop our product pipeline and advance our drug candidates through clinical development, undergo the regulatory approval process and, if approved, launch commercial activities. Specifically, in the near term we expect to incur substantial expenses relating to initiating and completing our clinical trials, the development and validation of our manufacturing processes, and other development activities.

We will need substantial additional funding to support our continuing operations and pursue our long-term development strategy, including the potential initiation of a pivotal stage clinical trial for any or all of our current development programs. Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we may seek additional funding through the issuance of our common stock, including through equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts for our product candidates and other research, development and manufacturing activities, market conditions, and the success of our recent and any future cost-containment measures. We may not be able to raise additional capital on terms

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acceptable to us, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties’ rights to develop or commercialize our drug candidates that we would prefer to retain.

We believe that our current cash, cash equivalents, restricted cash and short-term and long-term investments as of December 31, 2024 will be sufficient to meet our cash needs for at least 12 months following the issuance date of this Annual Report on Form 10-K.

Cash Flows

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

Operating Activities

Net cash used in operating activities for the year ended December 31, 2024 of $99.7 million was primarily due to a net loss of $108.8 million, adjusted for a decrease in net change in operating assets and liabilities of $12.2 million, which was offset by an increase in net non-cash charges of $21.3 million. The change in net operating assets and liabilities was primarily due to an increase in prepaid expenses for the maintenance of laboratory equipment and interest receivable, and a decrease in accounts payable, accruals, and operating lease liability. The non-cash charges primarily consisted of stock-based compensation of $16.7 million, depreciation and amortization of $9.2 million, which was offset by investment accretion and amortization of $6.9 million.

Net cash used in operating activities for the year ended December 31, 2023 of $86.2 million was primarily due to our net loss of $117.5 million, adjusted for net non-cash charges of $20.4 million and a change in operating assets and liabilities of $10.9 million. The net non-cash charges of $20.4 million consisted primarily of share-based compensation of $17.2 million, depreciation and amortization of $5.9 million, impairment of right-of-use assets of $4.1 million, and non-cash lease expense of $2.2 million, offset by investment accretion and amortization of $8.9 million. The net change in operating assets and liabilities of $10.9 million was related to the decrease in prepaid and other current assets of $1.7 million, an increase in accounts payable and accrued and other liabilities of $4.2 million as we continued to increase our research and development related activities and an increase in operating lease liabilities of $5.0 million.

Investing Activities

Net cash used by investing activities was $129.6 million for the year ended December 31, 2024 comprised of the purchase of marketable securities of $406.4 million and the purchase of property and equipment of $4.4 million, partially offset by proceeds from the maturities of marketable securities of $281.2 million.

Net cash provided by investing activities was $79.0 million for the year ended December 31, 2023 comprised of proceeds from sales and maturities of investments of $367.4 million, offset by purchases of investments of $260.2 million and purchases of property and equipment of $28.1 million, primarily related to the construction of our manufacturing facility.

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Financing Activities

Net cash provided by financing activities of $226.1 million for the year ended December 31, 2024, which primarily consisted of net proceeds from our underwritten public offering of $225.1 million that closed in March 2024.

Net cash provided by financing activities of $0.7 million for the year ended December 31, 2023 was mainly due to the proceeds from ESPP purchases of $0.5 million and exercise of stock options of $0.2 million.

Funding Requirements

Based upon our current operating plans, we believe that our existing cash, cash equivalents, and investments will be sufficient to fund our operations for at least the next 12 months from the date of this Annual Report on Form 10-K. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing therapeutic product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

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

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the type, number, scope, progress, enrollment rate, expansions, results, costs and timing of our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future;

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the outcome, timing and costs of regulatory review of our product candidates;

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the costs and timing of manufacturing for our product candidates, including commercial manufacturing;

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our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;

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the costs associated with the continuation of our preclinical and clinical activities, including as a result of any delays or an increase in development activities;

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the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;

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our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

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patients’ willingness or ability to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;

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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements, including payments required for meeting regulatory and commercial milestones or sales based royalties;

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the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights;

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costs associated with any product candidates, products or technologies that we may in-license or acquire; and

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our ability to closely monitor our expenditures, including subleasing portions of our leased corporate office space in South San Francisco.

Until such time as we can generate significant revenue from sales of our therapeutic product candidates, if ever, we expect to finance our cash needs through public or private equity, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. There may also be instances where our ability to access a portion of our existing cash, cash equivalents and investments may be threatened due to financial conditions affecting the banking system and financial markets. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the

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rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to undertake additional cost-containment measures and/or delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

In March 2025, we approved a reduction in workforce as a result of a review of current strategic priorities and resource allocation and with the intent to decrease our costs and create a more streamlined organization to support our operations and reprioritized product pipeline.

Contractual Obligations and Commitments

We lease certain office, laboratory and manufacturing space under non-cancelable operating leases. In addition to rent, our leases are subject to additional variable charges for common area maintenance, property taxes, property insurance and other variable costs. See Note 6 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional detail.

Total undiscounted aggregate future operating lease obligations under all of our operating leases as of December 31, 2024 are $123.1 million.

We enter into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that non-cancelable obligations under these agreements are not material.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical trial accruals, share-based compensation, pre-funded warrants and impairment of long-lived assets. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.

Recently Issued Accounting Pronouncements

See Recent Accounting Pronouncements in Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Indemnification

As permitted under Delaware law and in accordance with our bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also party to indemnification agreements with our officers and directors. We believe the fair value of the indemnification rights

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and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of December 31, 2024 and 2023.

Segment Information

We have one business activity and operate in one reportable segment.

JOBS Act

We are an “emerging growth company” as described under the JOBS Act, and we could have taken advantage of an extended transition period for complying with new or revised accounting standards. This would have allowed us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen irrevocably to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act").

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"), which would occur if the 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 (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company or a non-accelerated filer, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our prospectuses and in our periodic reports and proxy statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.

Overview

We are a clinical-stage biopharmaceutical company pioneering the development of allogeneic, off-the-shelf engineered NK cell therapies for the treatment of patients with autoimmune diseases or hematologic malignancies. We are currently developing NKX019, a CAR NK cell product candidate targeting the CD19 antigen, as our lead product candidate. We have also been developing NKX101, a CAR NK cell product candidate targeting cells that display NKG2D ligands. Both product candidates enable an on-demand, off-the-shelf approach involving scaled manufacturing to broaden patient access. NKX019 and NKX101 incorporate proprietary technologies that enable us to generate an abundant supply of NK cells, increase NK cell recognition of target antigens, enhance NK cell fitness and freeze, store, and thaw our engineered NK cells for off-the-shelf administration. Our product candidates are allogeneic, which means they are produced using cells from a different person than the patient(s) being treated, and they are produced in quantity, then frozen and therefore available for treating patients without delay, unlike autologous cell therapies, which are derived from a patient’s own cells and must be manufactured as needed for each patient. We believe that engineered NK cells have the potential to be effective and accessible therapies for autoimmune diseases and cancer, be well tolerated, and avoid some of the toxicities observed with other cell therapies. NKX019 is currently being studied in an ongoing Phase 1 clinical trial for certain B-cell malignancies, and preparations for a planned Phase 1 clinical trial of NKX019 for LN are underway. NKX101 has been studied in a Phase 1 clinical trial for certain hematologic malignancies, although we have closed patient enrollment and deprioritized the program as part of a pipeline realignment to direct primary resources to our lead pipeline program, NKX019, for the treatment of autoimmune disease.

Our modular engineering platform builds on the distinctive biology of NK cells and their role in eradicating aberrant and pathologically transformed cells. Our process starts with differentiated, mature NK cells derived from healthy donors. We build on the intrinsic ability of these immune cells to identify and kill transformed cells with cell engineering to further enhance their activity. This engineering involves a chimeric antigen receptor ("CAR") on the surface of an NK cell to enable the cell to recognize specific proteins or antigens that are present on the surface of tumor cells. Our engineered CAR NK cells generally consist of an NK cell engineered with a targeting receptor, OX40 costimulatory domain, CD3ζ(zeta) signaling moiety, and a membrane-bound form of the cytokine IL(interleukin)-15 ("mbIL-15").

In October 2023, we announced that we had received clearance of an IND application by the United States FDA to evaluate NKX019 for the treatment of LN. The planned multi-center, open label, dose escalation Phase 1 clinical trial will evaluate the safety and clinical activity of NKX019 in patients with refractory LN. We are on track to dose the first patient in the first half of 2024. We also plan to evaluate additional autoimmune diseases for potential clinical investigation with NKX019.

NKX019 is currently being studied in a multi-center Phase 1 clinical trial for the treatment of a variety of B-cell malignancies. This ongoing first-in-human study evaluates the safety, pharmacology, and preliminary anti-tumor activity of NKX019, at multiple centers in the United States and Australia.

NKX101 has been evaluated in a multi-center Phase 1 clinical trial in the U.S. for the treatment of r/r AML and MDS. This first-in-human study evaluates the safety, pharmacology, and preliminary anti-tumor activity of NKX101. We have deprioritized the development of NKX101 as part of a realignment of our pipeline to direct primary resources to our lead pipeline program, NKX019, for the treatment of autoimmune disease.

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Under the CRISPR Agreement entered into in May 2021, we agreed with CRISPR to collaboratively design and advance (a) up to two allogeneic, gene-edited NK cell therapies, one of which is the engineered CAR NK product candidate targeting the CD70 tumor antigen, and (b) one allogeneic, gene-edited NK+T cell therapy.

In October 2023 we announced cost containment measures designed to create a more streamlined organization to support our operations through multiple clinical data updates during 2024 and extend our projected cash runway into 2026. These cost containment measures included a reduction in and re-allocation of headcount combined with a cap on future headcount growth, as well as planned centralization of operations to a single location. We plan to continue to carefully manage our discretionary expenses and headcount growth in the near term to ensure we have sufficient capital to achieve these milestones. We have prioritized the development of NKX019, including hiring personnel with the requisite education and experience, to support our expansion into autoimmune disease.

Since the commencement of our operations in 2015, we have devoted substantially all of our resources in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We have incurred net operating losses since inception and have not generated any revenue from product sales. In the future, we expect that our operating expenses will significantly increase as we continue to develop and seek regulatory approvals for our product candidates, continue to engage in other research and development activities to expand our pipeline of product candidates, maintain and expand our intellectual property portfolio, maintain and expand our product manufacturing capabilities, and ultimately establish a commercial organization. We have funded our operations primarily through the issuance of Company stock and intend to raise additional capital to fund operations until such time that we are able to generate sufficient revenues to cover our operating expenses. We may seek additional funding through the issuance of common stock, including through our ATM Offering Program, other equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including, among other things, the pace and results of our clinical development efforts for our product candidates. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital as and when needed would compromise our ability to execute our business plan and may cause us to undertake further cost containment measures and/or significantly delay, scale back or discontinue the development of some of our programs. We have also incurred increased operating expenses since becoming a public company, which we expect will further increase when we are no longer able to rely on certain “emerging growth company” exemptions we are afforded under the Jumpstart Our Business Startups Act (the "JOBS Act") as further described under “—JOBS Act” below. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.

Financial Operations Overview

Operating Expenses

Research and Development

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

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

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

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expenses incurred in connection with conducting clinical trials including investigator grants, site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors, central laboratories and service providers engaged to conduct our trials;

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the cost of consultants engaged in research and development related services;

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the cost to manufacture drug product candidates for use in our preclinical studies and clinical trials;

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

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•
costs related to regulatory compliance; and

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the cost of annual license fees under our third-party licensing agreements.

We typically have various early-stage research and drug discovery projects as well as various product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early-stage research and drug discovery programs on a project-specific basis. As part of our October 2023 announcement of cost containment measures, early discovery and preclinical programs have been deprioritized with less personnel and funding allocated to advancing these programs.

We expense research and development costs as they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

The following table summarizes our research and development expenses for the years ended December 31, 2023 and 2022. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities. The unallocated internal research and development costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline. The partner cost sharing represents reimbursable research and development expenses from the CRISPR Agreement.

Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the future, including as a result of our planned clinical trial of NKX019 for the treatment of LN.

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The successful development of our drug candidates is highly uncertain. A change in the outcome of any of a number of variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. A discussion of the risks and uncertainties that we face in the development and commercialization of our drug candidates can be found under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. We may never succeed in obtaining regulatory approval for any of our drug candidates.

General and Administrative

General and administrative expenses consist primarily of salaries and employee-related costs, including share-based compensation, for personnel in executive, finance, human resources, and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services and facility-related costs.

While we continue to pursue cost containment measures, we still expect our general and administrative expenses will increase in the future in support of any increased research and development activities and to reflect increased costs associated with operating as a public company. These increased costs will include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, insurance premiums and investor relations costs.

Other Income (Expense), net

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and short-term and long-term investments and adjustments related to amortization of purchase premiums and accretion of discounts of short-term and long-term investments.

Income Taxes

We are subject to corporate U.S. federal and state income taxation. We estimate our income tax provision, including deferred tax assets and liabilities, based on management’s judgment. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.

We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

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Results of Operations

The following table summarizes our results of operations for the periods indicated (in thousands):

Research and development expenses

Research and development expenses were $96.8 million and $90.9 million for the years ended December 31, 2023 and 2022, respectively. The increase of $5.9 million was attributable primarily to the following:

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a $5.4 million increase in personnel related expense, including a $0.7 million increase in share-based compensation expense;

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a $2.5 million increase in other internal research costs, primarily consisting of research and laboratory supplies and facilities expenses;

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a $2.6 million decrease in partner cost sharing reimbursable expenses related to activities performed under our collaboration with CRISPR; and

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a $4.7 million decrease in external program expenses primarily related to a $4.5 million decrease in manufacturing expense and a $1.0 million decrease in preclinical program expense, which was offset by a $0.8 million increase in clinical trial related expense.

General and administrative expenses

General and administrative expenses were $34.9 million and $28.1 million for the years ended December 31, 2023 and 2022, respectively. The increase of $6.8 million was primarily due to the following:

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a $0.6 million increase in personnel related expense, including a $0.4 million decrease in share-based compensation expense;

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a $1.2 million increase due to severance and other termination expenses related to the reduction in force completed in October 2023;

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a $4.1 million increase due to an impairment of right-of-use assets;

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a $1.3 million increase in insurance, rent, depreciation and other facilities expense; and

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a $0.4 million decrease in professional services related to accounting services, corporate legal fees, other consulting and patent legal fees.

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Interest income

Interest income was $14.1 million and $5.6 million for the years ended December 31, 2023 and 2022, respectively. Interest income consisted of interest earned on cash and cash equivalents and interest income from investments (including the amortization of discounts and premiums) and increased primarily due to increases in market interest rates.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2023, we had cash, cash equivalents, restricted cash and short-term investments of $250.9 million. As of December 31, 2023, we estimate that we have used all of the $265.1 million net proceeds received from our IPO.

Our Registration Statement on Form S-3, which became effective in September 2021 (the "2021 Shelf Registration Statement") included a prospectus covering the offer and sale from time to time of up to $150.0 million of our common stock through an “at-the-market” equity offering program with Cowen and Company, LLC, as sales agent (the "ATM Offering Program"). In 2022, we issued and sold 113,213 shares of our common stock pursuant to the ATM Offering Program, resulting in net proceeds of approximately $1.6 million, after deducting offering expenses. In 2023, we did not sell any shares under the ATM Offering Program.

On April 28, 2022, we issued and sold 15,333,334 shares of our common stock in an underwritten public offering, including 2,000,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $15.00 per share. The total net proceeds from the offering were approximately $215.3 million, after deducting underwriting discounts, commissions and offering expenses. See Note 10 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional detail.

We have incurred net losses and negative cash flows from operations since our inception. As of December 31, 2023, we had an accumulated deficit of $435.4 million and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we develop our product pipeline and advance our drug candidates through clinical development, undergo the regulatory approval process and, if approved, launch commercial activities. Specifically, in the near term we expect to incur substantial expenses relating to initiating and completing our clinical trials, the development and validation of our manufacturing processes, and other development activities.

We will need substantial additional funding to support our continuing operations and pursue our long-term development strategy, including the potential initiation of a pivotal stage clinical trial for any or all of our current development programs. Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we may seek additional funding through the issuance of our common stock, including through our ATM Offering Program, other equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts for our product candidates and other research, development and manufacturing activities, market conditions, and the success of our planned cost-containment measures. We may not be able to raise additional capital on terms acceptable to us, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties’ rights to develop or commercialize our drug candidates that we would prefer to retain.

In May 2023, our Registration Statement on Form S-3 became effective (the "2023 Shelf Registration Statement"), covering the offer and sale from time to time of up to $350.0 million in aggregate offering price of securities, including shares of our common stock, shares of our preferred stock, debt securities, warrants, rights and/or units (including up to $120.0 million in securities registered on the 2021 Shelf Registration Statement). The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

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We believe that our current cash, cash equivalents, restricted cash and short-term investments as of December 31, 2023 will be sufficient to meet our cash needs for at least 12 months following the issuance date of this Annual Report on Form 10-K.

Cash Flows

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

Operating Activities

Cash used in operating activities for the year ended December 31, 2023 of $86.2 million was primarily due to our net loss of $117.5 million, adjusted for net non-cash charges of $20.4 million and a change in operating assets and liabilities of $10.9 million. The net non-cash charges of $20.4 million consisted primarily of share-based compensation of $17.2 million, depreciation and amortization of $5.9 million, impairment of right-of-use assets of $4.1 million, and non-cash lease expense of $2.2 million, offset by investment accretion and amortization of $8.9 million. The net change in operating assets and liabilities of $10.9 million was related to the decrease in prepaid and other current assets of $1.7 million, an increase in accounts payable and accrued and other liabilities of $4.2 million as we continued to increase our research and development related activities and an increase in operating lease liabilities of $5.0 million.

Cash used in operating activities for the year ended December 31, 2022 of $57.0 million was primarily due to our net loss of $113.8 million, adjusted for net non-cash charges of $23.1 million and a change in operating assets and liabilities of $33.7 million. The net non-cash charges of $23.1 million consisted primarily of share-based compensation of $16.9 million, depreciation and amortization of $2.6 million, investment accretion and amortization of $0.8 million and non-cash lease expense of $3.9 million. The net change in operating assets and liabilities of $33.7 million was related to the increase in prepaid and other current assets of $1.5 million, offset by an increase in accounts payable and accrued and other liabilities of $2.8 million as we continued to increase our research and development related activities and an increase in operating lease liabilities of $32.5 million.

Investing Activities

Cash provided by investing activities was $79.0 million for the year ended December 31, 2023 comprised of proceeds from sales and maturities of investments of $367.4 million, offset by purchases of investments of $260.2 million and purchases of property and equipment of $28.1 million, primarily related to the construction of our manufacturing facility.

Cash used in investing activities was $184.7 million for the year ended December 31, 2022 comprised of purchases of property and equipment of $47.1 million primarily related to the construction of our manufacturing facility and purchases of investments of $385.9 million, partially offset by proceeds from sales and maturities of investments of $248.3 million.

Financing Activities

Cash provided by financing activities of $0.7 million for the year ended December 31, 2023 was mainly due to the proceeds from ESPP purchases of $0.5 million and exercise of stock options of $0.2 million.

Cash provided by financing activities of $219.0 million for the year ended December 31, 2022 was mainly due to the net proceeds of $215.6 million from the secondary offering, after deducting underwriting discounts and

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commissions and other offering costs, net proceeds of $1.6 million from the ATM Offering Program after deducting issuance costs, proceeds from ESPP purchases of $0.4 million, and proceeds of $1.4 million from the exercise of stock options.

Funding Requirements

Based upon our current operating plans, we believe that our existing cash, cash equivalents, restricted cash and investments will be sufficient to fund our operations for at least the next 12 months from the date of issuing this Annual Report on Form 10-K. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing therapeutic product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

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

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the type, number, scope, progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future;

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the outcome, timing and costs of regulatory review of our product candidates;

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the costs and timing of manufacturing for our product candidates, including commercial manufacturing;

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our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;

•
the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;

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the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;

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our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

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patients’ willingness or ability to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;

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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements, including payments required for meeting regulatory and commercial milestones or sales based royalties;

•
the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights;

•
costs associated with any product candidates, products or technologies that we may in-license or acquire; and

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our ability to implement cost containment measures, including subleasing portions of our leased corporate office space in South San Francisco.

Until such time as we can generate significant revenue from sales of our therapeutic product candidates, if ever, we expect to finance our cash needs through public or private equity, including pursuant to the ATM Offering Program, or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. There may also be instances where our ability to access a portion of our existing cash, cash equivalents and investments may be threatened due to financial conditions affecting the banking system and financial markets. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to

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relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to undertake additional cost-containment measures and/or delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

We lease certain office, laboratory and manufacturing space under non-cancelable operating leases. In addition to rent, our leases are subject to additional variable charges for common area maintenance, property taxes, property insurance and other variable costs. See Note 6 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional detail.

Total undiscounted aggregate future operating lease obligations under all of our operating leases as of December 31, 2023 are $140.5 million.

We enter into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that non-cancelable obligations under these agreements are not material.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to preclinical studies and clinical trial accruals, share-based compensation, impairment of long-live assets. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.

Recently Issued Accounting Pronouncements

See Recent Accounting Pronouncements in Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Indemnification

As permitted under Delaware law and in accordance with our bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also a party to indemnification agreements with our officers and directors. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of December 31, 2023 and 2022.

Segment Information

We have one business activity and operate in one reportable segment.

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JOBS Act

We are an “emerging growth company” as described under the JOBS Act, and we could have taken advantage of an extended transition period for complying with new or revised accounting standards. This would have allowed us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen irrevocably to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act").

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) 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 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 (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company or a non-accelerated filer, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our prospectuses and in our periodic reports and proxy statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.

Overview

We are a biopharmaceutical company focused on the discovery, development and commercialization of allogeneic, off-the-shelf engineered NK cell therapies to treat cancer. We currently have two lead product candidates, NKX101, a CAR NK product candidate targeting cells that display NKG2D ligands, and NKX019, a CAR NK product candidate targeting the CD19 antigen, in ongoing Phase 1 clinical trials. Both product candidates incorporate proprietary technologies that enable us to generate an abundant supply of NK cells, improve the persistence of these cells for sustained activity in the body, engineer enhanced NK cell recognition of tumor targets, enhance cell fitness and tumor microenvironment evasion, and freeze, store and thaw our engineered NK cells for the treatment of cancer. Our product candidates are designed to be allogeneic and off-the-shelf, which means they are produced using cells from a different person than the patient(s) being treated, and they are produced in quantity, then frozen and therefore available for treating patients without delay, unlike autologous cell therapies, which are derived from a patient’s own cells. We believe that engineered NK cells have the potential to be an effective cancer therapy, be well tolerated, and avoid some of the toxicities observed with other cell therapies.

Our modular NK cell engineering platform is designed to address the limitations and challenges of current technologies for engineering T cells and NK cells and is a result of our internal expertise and deep understanding of NK cell biology. Our platform includes proprietary technologies for NK cell expansion, persistence, targeting and cryopreservation. All of our product candidates incorporate each of the four components of our technology platform, which we believe provides the best opportunity for achieving clinically meaningful results in our development program.

NKX101 is currently being studied in a multi-center Phase 1 clinical trial in the U.S. for the treatment of r/r AML and MDS. This ongoing first-in-human study evaluates the safety, pharmacology, and preliminary anti-tumor activity of NKX101. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose.

NKX019 is currently being studied in a multi-center Phase 1 clinical trial in the U.S. and Australia for the treatment of a variety of B-cell malignancies by targeting the CD19 antigen that is found on these types of cancerous cells and where CD19-targeted engineered NK cells, T cells and monoclonal antibodies have demonstrated clinical activity. This ongoing first-in-human study evaluates the safety, pharmacology, and preliminary anti-tumor activity of NKX019. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose.

Under the CRISPR Agreement entered into in May 2021, we are collaboratively designing and advancing up to two allogeneic, gene-edited NK cell therapies, one of which is the engineered CAR NK product candidate targeting the CD70 tumor antigen, and one allogeneic, gene-edited NK+T cell therapy.

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Since the commencement of our operations in 2015, we have devoted substantially all of our resources in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We have not generated any revenue from product sales and have funded our operations primarily from our initial public offering completed in July 2020, the issuance of convertible promissory notes, private placements of our preferred stock, the secondary offering of our common stock completed in April 2022, the proceeds from the sale of our common stock pursuant to the ATM Offering Program, and with proceeds from our previous collaboration. We have incurred a net loss of $113.8 million and $86.1 million during the years ended December 31, 2022 and 2021, respectively, and we expect to continue to incur significant losses for the foreseeable future. As of December 31, 2022, we had an accumulated deficit of $317.9 million. At December 31, 2022, we had cash, cash equivalents, restricted cash and short-term investments of $354.9 million.

We expect our operating expenses to significantly increase as we continue to develop and seek regulatory approvals for our product candidates, engage in other research and development activities to expand our pipeline of product candidates, maintain and expand our intellectual property portfolio, and ultimately establish a commercial organization. We have also incurred increased operating expenses since becoming a public company, which we expect will further increase when we are no longer able to rely on certain “emerging growth company” exemptions we are afforded under the Jumpstart Our Business Startups Act (the "JOBS Act") as further described under “—JOBS Act” below. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, and our expenditures on other research and development activities.

In April 2022, we issued and sold 15,333,334 shares of our common stock in an underwritten public offering, including 2,000,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $15.00 per share. The total net proceeds from the offering were approximately $215.3 million, after deducting underwriting discounts and commissions and offering expenses.

In the third quarter of 2022, we issued and sold 113,213 shares of our common stock pursuant to the ATM Offering Program, resulting in net proceeds of approximately $1.6 million, after deducting offering expenses.

We will need substantial additional funding to support our continuing operations and pursue our long-term development strategy. We may seek additional funding through the issuance of our common stock, including through our ATM Offering Program, other equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts for our product candidates and other research, development and manufacturing activities. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital as and when needed would compromise our ability to execute on our business plan and may cause us to significantly delay, scale back or discontinue the development of some of our programs or curtail any efforts to expand our product pipeline.

Update on COVID-19, Macroeconomic Conditions, and Supply Disruptions

Our operations have been and may in the future be impacted by the COVID-19 pandemic, as well as by global and national economic and market conditions generally.

The COVID-19 pandemic has caused and may in the future cause disruptions in the conduct and enrollment of current and future clinical trials due to, among other things, bed shortages and staffing challenges at our treating hospitals. Hospitals may experience staffing challenges as a result of employee turnover and attrition, the current labor shortage, and/or personnel being pulled off clinical trials to care for patients with COVID-19. In addition, the COVID-19 pandemic has resulted in a significant increase in FDA workload, as well as the need to reprioritize the projects under review, and may do so again in the future. As a result, we may experience delays in FDA timelines along the course of the regulatory process.

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The continuing disruptions in the global supply chain due to COVID-19 outbreaks or other factors have also resulted in limited disruptions in the supply of our product candidates, as well as global supply shortages of certain materials that we and our CDMO partners use for research and cGMP manufacturing, such as certain raw materials, cell culture media, disposable plastics, and equipment. To the extent there is a subsequent outbreak of COVID-19, or if such an outbreak begins to significantly impact essential distribution systems or our third-party manufacturers, contractors or suppliers, we may experience further disruptions in our supply chain and operations with associated delays in the manufacturing and supply of our product candidates.

In addition, we could experience delays in the construction of our commercial-scale cGMP manufacturing facility and future headquarters due to the COVID-19 pandemic or current macroeconomic conditions. We saw significant inflation in construction costs in 2022, which has negatively affected the costs of constructing our new facility, and inflation may continue to impact our future construction and maintenance costs. In addition, global supply chain disruptions, including procurement delays and long lead times on certain materials, have impacted and could in the future further adversely impact the scheduled completion and/or costs of constructing our new facility.

A shortage of fludarabine, an agent commonly used in oncology, including in LD, was initially reported in 2022 and is ongoing. Fludarabine is used in our NKX101 and NKX019 clinical trials prior to treatment with our product candidates. Certain of our clinical trial sites have indicated that they are experiencing a shortage of fludarabine. Although we and our clinical sites are taking steps to try to mitigate any impact of the shortage on our clinical trials, enrollment has been delayed at certain of our clinical trial sites, and we could continue to experience enrollment delays due to the fludarabine shortage in the future.

We continuously monitor the effects of domestic and global events, including but not limited to the current and expected impact of the COVID-19 pandemic, inflation, labor shortages, and supply chain matters on our operations, including continued enrollment in the NKX101 and NKX019 clinical trials, as well as on our CROs, CDMOs, and clinical trial sites, to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment.

Financial Operations Overview

Operating Expenses

Research and Development

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

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

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

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expenses incurred in connection with conducting clinical trials including investigator grants and site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors or central laboratories and service providers engaged to conduct our trials;

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the cost of consultants engaged in research and development related services;

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the cost to manufacture drug product candidates for use in our preclinical studies and clinical trials;

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

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costs related to regulatory compliance; and

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the cost of annual license fees.

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We typically have various early-stage research and drug discovery projects as well as various product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early-stage research and drug discovery programs on a project-specific basis.

We expense research and development costs as they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities. The partner cost sharing represents reimbursable research and development expenses from the CRISPR Agreement. The unallocated internal research and development costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline.

Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future.

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The successful development of our drug candidates is highly uncertain. A change in the outcome of any of a number of variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. A discussion of the risks and uncertainties that we face in the development and commercialization of our drug candidates can be found under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. We may never succeed in obtaining regulatory approval for any of our drug candidates.

General and Administrative

General and administrative expenses consist primarily of salaries and employee-related costs, including share-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and facility-related costs.

We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities and to reflect increased costs associated with operating as a public company. These increased costs will likely include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

Other Income (Expense)

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and short-term investments and adjustments related to amortization of purchase premiums and accretion of discounts of short-term investments.

Income Taxes

We are subject to corporate U.S. federal and state income taxation. As of December 31, 2022, we had federal and state net operating loss carryforwards of approximately $153.3 million and $65.1 million, respectively. Of the $153.3 million federal net operating loss carryforwards, $3.2 million will begin expiring in 2035, if not utilized, while $150.1 million can be carried forward indefinitely. The state tax loss carryforwards will begin expiring in 2036, if not utilized. As of December 31, 2022, we had federal and state research and development tax credits of approximately $9.9 million and $5.6 million, respectively. If not utilized, the federal research tax credit will begin to expire in 2035. The California research tax credit can be carried forward indefinitely.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of net operating losses and credits before utilization. We have not performed an analysis to determine the limitation of our net operating loss carryforwards.

We estimate our income tax provision, including deferred tax assets and liabilities, based on management’s judgment. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.

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We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2022 and 2021, we had gross unrecognized tax benefits of $2.3 million and $1.4 million, respectively, all of which would affect our income tax expense if recognized, before consideration of our valuation allowance. As of December 31, 2022, we do not expect our unrecognized tax benefits will significantly change over the next 12 months.

Results of Operations

The following table summarizes our results of operations for the periods indicated (in thousands):

Research and development expenses

Research and development expenses were $90.9 million and $63.4 million for the years ended December 31, 2022 and 2021, respectively. The increase of $27.5 million was primarily due to increases of $4.7 million in personnel costs, including an increase in share-based compensation expense of $0.6 million as a result of continued growth in headcount, and increases of $13.4 million in our external program costs primarily related to NKX101 and NKX019, and $11.2 million in other internal research costs, primarily consisting of research and laboratory supplies and facilities expenses, offset by an increase of $1.9 million in partner cost sharing reimbursable expenses. The increase in program costs relating to NKX101 and NKX019 is primarily due to additional clinical development activities compared to the prior year period. We expect our research and development expenses will continue to increase in future periods as we progress our product candidates and conduct our clinical trials and development activities.

General and administrative expenses

General and administrative expenses were $28.1 million and $23.0 million for the years ended December 31, 2022 and 2021, respectively. The increase of $5.1 million was primarily due to an increase in personnel costs of $3.4 million, including an increase of $1.8 million in share-based compensation expense as a result of continued growth in headcount. The increases in general and administrative expense were also due to a $1.0 million increase in professional services related to accounting services, corporate legal fees, other consulting and patent legal fees, and a $0.7 million increase in other general and administrative expenses that included insurance, rent, depreciation expense and other facilities expense. We have incurred and expect to continue to incur additional expenses as a result of being a public company following the completion of our IPO in July 2020, which we expect will further increase when we no longer qualify as an “emerging growth company” under the JOBS Act. In addition, we have incurred and expect to continue to incur increased expenses related to additional insurance, investor relations and other increases related to needs for additional human resources and professional services associated with being a public company.

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Interest income

Interest income was $5.6 million and $0.4 million for the years ended December 31, 2022 and 2021, respectively. The increase in interest income was due to higher interest earned from short-term investments, partially offset by amortization of purchase premiums and accretion of discounts of short-term investments.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2022, we had cash, cash equivalents, restricted cash and short-term investments of $354.9 million. In connection with our IPO which closed on July 14, 2020, we received $265.1 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses.

On August 12, 2021, we filed a Registration Statement on Form S-3 (the "Shelf Registration Statement"), covering the offer and sale from time to time, pursuant to Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of up to $500.0 million in aggregate offering price of shares of our common stock, shares of our preferred stock, debt securities, warrants, and rights and units. The Shelf Registration Statement was declared effective by the SEC on September 2, 2021. The Shelf Registration Statement included a prospectus covering the offer and sale from time to time of up to $150.0 million in aggregate offering price of shares of the Company’s common stock through an “at-the-market” equity offering program under the Securities Act (the "ATM Offering Program") with Cowen and Company, LLC, as sales agent. In 2022, we issued and sold 113,213 shares of our common stock pursuant to the ATM Offering Program, resulting in net proceeds of approximately $1.6 million, after deducting offering expenses.

On April 28, 2022, we issued and sold 15,333,334 shares of our common stock in an underwritten public offering, including 2,000,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $15.00 per share. The total net proceeds from the offering were approximately $215.3 million, after deducting underwriting discounts and commissions and offering expenses.

We have incurred net losses and negative cash flows from operations since our inception and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we develop our product pipeline and advance our drug candidates through clinical development, undergo the regulatory approval process and, if approved, launch commercial activities. Specifically, in the near term we expect to incur substantial expenses relating to initiating and completing our clinical trials, the development and validation of our manufacturing processes, and other development activities. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

We will need substantial additional funding to support our continuing operations and pursue our long-term development strategy. Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we may seek additional funding through the issuance of our common stock, including through our ATM Offering Program, other equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts for our product candidates and other research, development and manufacturing activities. We may not be able to raise additional capital on terms acceptable to us, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties’ rights to develop or commercialize our drug candidates that we would prefer to retain.

We believe that our current cash, cash equivalents, restricted cash and short-term investments as of December 31, 2022 will be sufficient to meet our cash needs for at least 12 months following the issuance date of this Annual Report on Form 10-K.

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Cash Flows

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

Operating Activities

The net cash used in operating activities for the year ended December 31, 2022 of $57.0 million was primarily due to our net loss of $113.8 million, adjusted for net non-cash charges of $23.1 million and a change in operating assets and liabilities of $33.7 million. The net non-cash charges of $23.1 million consisted primarily of share-based compensation of $16.9 million, depreciation and amortization of $2.6 million, investment accretion and amortization of $0.8 million and non-cash lease expense of $3.9 million. The net change in operating assets and liabilities of $33.7 million was related to the increase in prepaid and other current assets of $1.5 million, offset by an increase in accounts payable and accrued and other liabilities of $2.8 million as we continued to increase our research and development related activities and an increase in operating lease liabilities of $32.5 million.

The net cash used in operating activities for the year ended December 31, 2021 of $67.9 million was primarily due to our net loss of $86.1 million, adjusted for net non-cash charges of $19.8 million and a change in operating assets and liabilities of $1.6 million. The net non-cash charges of $19.8 million consisted primarily of share-based compensation of $14.5 million, depreciation and amortization of $1.8 million, investment accretion and amortization of $3.2 million and non-cash lease expense of $0.4 million. The net change in operating assets and liabilities of $1.6 million was related to the increase in prepaid and other current assets of $4.4 million primarily due to the cost sharing receivable, higher manufacturing and clinical deposits and other current assets, offset by an increase in accounts payable and accrued and other liabilities of $2.8 million as we continued to increase our research and development related activities.

Investing Activities

The net cash used in investing activities for the year ended December 31, 2022 of $184.7 million was comprised of purchases of property and equipment of $47.1 million primarily related to the construction of our manufacturing facility and purchases of short-term investments of $385.9 million, partially offset by proceeds from maturities of short-term investments of $248.3 million.

The net cash provided by investing activities for the year ended December 31, 2021 of $32.5 million was comprised of proceeds from maturities of short-term investments of $264.8 million, partially offset by purchases of property and equipment of $5.0 million primarily related to the construction of our manufacturing facility and purchases of short-term investments of $227.3 million.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 of $219.0 million was mainly due to the net proceeds of $215.6 million from the secondary offering, after deducting underwriting discounts and commissions and other offering costs, net proceeds of $1.6 million from the ATM Offering Program after deducting issuance costs, proceeds from ESPP purchases of $0.4 million, and proceeds of $1.4 million from the exercise of stock options.

Net cash provided by financing activities for the year ended December 31, 2021 of $1.2 million was mainly due to proceeds from the exercise of stock options, partially offset by payment of deferred offering costs of $0.3

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million associated with the filing of our Shelf Registration Statement and the establishment of our ATM Offering Program.

Funding Requirements

Based upon our current operating plans, we believe that our existing cash, cash equivalents, restricted cash and short-term investments will be sufficient to fund our operations for at least the next 12 months from the date of issuing this Annual Report on Form 10-K. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing therapeutic product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

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

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the type, number, scope, progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future;

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the outcome, timing and costs of regulatory review of our product candidates;

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the costs and timing of manufacturing for our product candidates, including commercial manufacturing and the costs associated with building our manufacturing facility;

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our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;

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the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;

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the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;

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our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

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patients’ willingness or ability to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;

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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements, including payments required for meeting regulatory and commercial milestones or sales based royalties;

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the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights; and

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costs associated with any product candidates, products or technologies that we may in-license or acquire.

Until such time as we can generate significant revenue from sales of our therapeutic product candidates, if ever, we expect to finance our cash needs through public or private equity, including pursuant to the ATM Offering Program, or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. There may also be instances where our ability to access a portion of our existing cash, cash equivalents and investments may be threatened due to financial conditions affecting the banking system and financial markets. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to

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grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

In May 2018, we entered into a lease agreement for our corporate office and laboratory space located in South San Francisco, California with an expiration date in May 2025 (the "Initial Lease Agreement"). In April 2019, we executed the first amendment to the Initial Lease Agreement for additional corporate space, laboratory space and manufacturing capabilities and an extension to the lease term through April 2026. The terms of the lease amendment contain a rent abatement for the first month and rent escalation provisions. In addition to the base rent payments, we will be obligated to pay certain customary amounts for our share of operating expenses and tax obligations related to the facilities.

In May 2020, we executed the second amendment to the Initial Lease Agreement for an eight-year non-cancelable lease for additional office and laboratory space in the same building. The lease amendment for the additional space provided for abatement of rent during the first three months of the lease and contained rent escalations during the term of the lease. The lease amendment for this additional space commenced in January 2021 and expires in January 2029. The lease amendment also included an extension of the lease term of our existing office and laboratory space through January 2029, with an option to extend the lease for an additional seven-year term.

In January 2021, we executed the third amendment to the Initial Lease Agreement for a three-year non-cancelable lease for additional office space in the same building. The lease amendment for this additional space commenced in the second quarter of 2021 and expires in March 2024.

In October 2021, we executed the fourth amendment to the Initial Lease Agreement for a seven-year non-cancelable lease for additional office and laboratory space in the same building. The lease amendment for additional space provided for abatement of rent during the first two months of the lease and contained rent escalations during the term of the lease. The lease amendment for this additional space is anticipated to commence in April 2022 and expires in January 2029. The Company expects to pay base rent of approximately $4.6 million over the lease term. The lease amendment also includes this additional space in our option to extend the lease for an additional seven-year term. The other terms of the Initial Lease Agreement, as amended, remain unchanged.

In July 2021, we entered into a lease agreement for corporate office, manufacturing and laboratory space located in South San Francisco, California with an expiration date approximately twelve years after the lease's legal commencement date (the "Additional Lease Agreement"). We will become responsible for paying rent on the lease's legal commencement date. The Company expects to pay base rent of approximately $99.6 million over the lease term. In addition to the base rent payments, we will be obligated to pay certain customary amounts for our share of operating expenses and tax obligations related to the facilities. The Additional Lease Agreement also provides for certain tenant improvement allowances for tenant improvements and certain infrastructure upgrades in connection with the initial buildout of the premises, a portion of which, if utilized, would need to be repaid by us over the lease term.

In November 2021, we executed the first amendment to the Additional Lease Agreement for our corporate office, manufacturing and laboratory space. The amendment expressly includes manufacturing as a permitted use at the facility, clarifies that Silicon Valley Bank is an acceptable bank for purposes of issuing a letter of credit under the lease, revises the letter of credit transferability terms and replaces the form of letter of credit attached to the lease. The other terms of the Additional Lease Agreement remain unchanged.

In August 2022, we executed the fifth amendment to the Initial Lease Agreement and the second amendment to the Additional Lease Agreement. The amendments provide for approximately $15 million of additional tenant improvement allowances for the future facility, increase the rent for the future facility, and increase the rent and

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term of the lease for some of our existing facilities. These allowances are in addition to the tenant improvement allowances of $25.2 million included in the original lease agreement for the future facility.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to preclinical studies and clinical trial accruals, and share-based compensation. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.

Recently Issued Accounting Pronouncements

See Recent Accounting Pronouncements in Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Indemnification

As permitted under Delaware law and in accordance with our bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also a party to indemnification agreements with our officers and directors. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of December 31, 2022 and 2021.

Segment Information

We have one business activity and operate in one reportable segment.

JOBS Act

We are an “emerging growth company” as described under the JOBS Act, and we could have taken advantage of an extended transition period for complying with new or revised accounting standards. This would have allowed us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen irrevocably to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act").

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) 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 Securities Exchange Act of 1934, as amended (the

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"Exchange Act"), which would occur if the 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 (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company or a non-accelerated filer, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our prospectuses and in our periodic reports and proxy statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.

Overview

We are a biopharmaceutical company focused on the discovery, development and commercialization of allogeneic, off-the-shelf engineered natural killer (“NK”), cell therapies to treat cancer. Our NK cell engineering platform builds on prior experience and success with engineering T cells and includes proprietary technologies that enable us to generate an abundant supply of NK cells, improve the persistence of these cells for sustained activity in the body, engineer enhanced NK cell recognition of tumor targets and to freeze, store and thaw our engineered NK cells for off-the-shelf use for the treatment of cancer. All of our product candidates are designed to be allogeneic, meaning they are produced using cells from a different person than the patient treated, as well as off-the-shelf, meaning they are produced in quantity, then frozen and therefore available for treating patients without delay, unlike existing autologous cell therapies, or cell therapies derived from a patient’s own cells. Based on recently published data and data presented at medical conferences from a number of clinical trials of certain NK cell therapies, we believe that engineered NK cells have the potential to be an effective cancer therapy, be well tolerated, and avoid some of the toxicities observed with other cell therapies. Our two co-lead product candidates are NKX101 and NKX019.

Our NK cell engineering platform is designed to address the limitations and challenges of current technologies for engineering T cells and NK cells and is a result of our internal expertise and deep understanding of NK cell biology. Our platform includes proprietary technologies for NK cell expansion, persistence, targeting and cryopreservation. All of our product candidates incorporate each of the four components of our technology platform, which we believe provides the best opportunity for achieving clinically meaningful results in our development program.

We currently have two ongoing Phase 1 clinical trials. In November 2020, we announced that the first patient was treated in the multi-center Phase 1 clinical trial of NKX101 for the treatment of relapsed/refractory acute AML or higher risk MDS. This first-in-human multi-center study evaluates the safety, pharmacokinetics, and preliminary anti-tumor activity of NKX101.

In October 2021, we announced that we had dosed the first patients with NKX019 in the Phase 1 clinical trial for the treatment of B-cell malignancies. This multi-center first-in-human study evaluates the safety, pharmacokinetics, and preliminary anti-tumor activity of NKX019, administered in a cycle of three weekly infusions following lymphodepletion.

Under the Company’s collaboration with CRISPR, we are collaboratively designing and advancing up to two (2) allogeneic, gene-edited NK cell therapies, one of which is the CD70 CAR-NK program, and one (1) allogeneic, gene-edited NK+T cell therapy.

Since the commencement of our operations in 2015, we have devoted substantially all of our resources in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We have not generated any revenue from product sales and have funded our operations primarily from our initial public offering, the issuance of convertible promissory notes, private placements of our preferred stock and with proceeds from our previous collaboration. We have incurred a net loss of $86.1 million and $91.4 million during the years ended December 31, 2021 and 2020, respectively, and we expect to continue to incur significant losses for the foreseeable future. As of December 31, 2021, we had an accumulated deficit of $204.1 million. At December 31, 2021, we had cash, cash equivalents, restricted cash and short-term investments of $240.2 million.

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We expect our operating expenses to significantly increase as we continue to develop and seek regulatory approvals for our product candidates, engage in other research and development activities to expand our pipeline of product candidates, maintain and expand our intellectual property portfolio, and ultimately establish a commercial organization. We have also incurred increased operating expenses since becoming a public company, which we expect will further increase when we are no longer able to rely on certain “emerging growth company” exemptions we are afforded under the Jumpstart Our Business Startups Act (the “Jobs Act”) as further described under “—Jobs Act” below. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, and our expenditures on other research and development activities.

We will need substantial additional funding to support our continuing operations and pursue our long-term development strategy. We may seek additional funding through the issuance of our common stock, including through our ATM Offering Program (as defined below), other equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts for our product candidates and other research, development and manufacturing activities. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital as and when needed would compromise our ability to execute on our business plan and may cause us to significantly delay, scale back or discontinue the development of some of our programs or curtail any efforts to expand our product pipeline.

We issued shares of our Series B convertible preferred stock for aggregate gross proceeds of $64.4 million on July 1, 2020 in connection with the exercise by the holders of at least one-third of our Series B convertible preferred stock prior to the completion of our IPO (the “Series B Milestone Closing”). On July 14, 2020, we completed our IPO. In connection with the IPO, we issued and sold 16,100,000 shares of our common stock, including 2,100,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $18.00 per share. We received approximately $265.1 million in net proceeds, after deducting underwriting discounts and commissions and other offering costs of $24.7 million. The shares began trading on the Nasdaq Global Select Market on July 10, 2020. Upon completion of the IPO, all of our outstanding shares of convertible preferred stock converted into 14,689,215 shares of our common stock.

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The COVID-19 pandemic has affected and may continue to affect our business and operations and those of third parties on which we rely, including by causing disruptions in the supply of our product candidates and the conduct and enrollment of current and future clinical trials. We have taken certain precautionary measures to minimize exposure of our employees to the virus and to comply with directives from public health officials. This includes work from home policies for our employees as well as enhanced safety measures for our employees and other personnel working in our offices, labs and manufacturing facility. We have mandated vaccination for our employees working on site and have encouraged vaccination of our employees working remotely. Some of the third-party vendors that we use, including some of our contract manufacturing sites, and our contract research organizations (“CROs”), have experienced employee turnover/attrition, delays or other disruptions during this pandemic and the accompanying flexible work options and, in some instances, costs have increased. We have incorporated remote monitoring of clinical trial sites, where feasible, for our ongoing NKX101 Phase 1 trial in the U.S. and ongoing NKX019 Phase 1 trial with sites in both the U.S. and Australia. In addition, we have experienced some internal delays due to COVID-19, including some delays in construction of our GMP manufacturing facility and in our internal research efforts. COVID-19 has also caused global supply shortages of certain materials that we and our contract development and manufacturing organization (“CDMO”) partners use for research and cGMP manufacturing, such as certain raw materials, cell culture media, disposable plastics, and equipment. Supply chain and operational disruptions due to COVID-19 have contributed to certain enrollment delays in our NKX101 clinical trial. In addition, we have had minor delays in setting up clinical sites in our NKX019 clinical trial due to repurposing of healthcare personnel and facilities to support local pandemic efforts. We will continue to monitor the impact of COVID-19 and any additional waves of the pandemic on the Company’s operations including continued enrollment in the NKX101 and NKX019 clinical trials, as well as on our CROs, CDMOs, and clinical trial sites with respect to COVID-19 related shutdowns, restrictions on travel, and restrictions on hospital visits for clinical trial participants or clinical research staff. Our clinical programs may also be impacted by delays at the FDA or other regulatory authorities due to COVID-19. In response to the pandemic, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We continue to evaluate the impact of the CARES Act on our financial position, results of operations and cash flows. We currently do not believe the CARES Act will have a material impact on our financial condition, results of operations, or liquidity.

Financial Operations Overview

Operating Expenses

Research and Development

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

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

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

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expenses incurred in connection with conducting clinical trials including investigator grants and site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors or central laboratories and service providers engaged to conduct our trials;

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

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

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costs related to regulatory compliance; and

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the cost of annual license fees.

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We typically have various early-stage research and drug discovery projects as well as various product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early-stage research and drug discovery programs on a project-specific basis.

We expense research and development costs as they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

The following table summarizes our research and development expenses for the years ended December 31, 2021 and 2020. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities. The partner cost sharing represents reimbursable research and development expenses from the CRISPR Agreement. The unallocated internal research and development costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline.

Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future.

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The successful development of our drug candidates is highly uncertain. A change in the outcome of any of a number of variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. A discussion of the risks and uncertainties that we face in the development and commercialization of our drug candidates can be found under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. We may never succeed in obtaining regulatory approval for any of our drug candidates.

General and Administrative

General and administrative expenses consist primarily of salaries and employee-related costs, including share-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and facility-related costs.

We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities and to reflect increased costs associated with operating as a public company. These increased costs will likely include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

Other Income (Expense)

Change in Fair Value of Preferred Stock Purchase Right Liability

In August 2019, we entered into a Series B Preferred Stock Purchase Agreement that contained future purchase rights that were required to be accounted for as liabilities and remeasured to fair value at each reporting date, with any change in the fair value reported as a component of other expense, net. We recorded periodic adjustments to the estimated fair value of the preferred stock purchase rights until they were exercised in July 2020, in connection with our IPO. Upon the exercise of the preferred stock purchase right, the final remeasurement adjustment of the convertible preferred stock purchase right liability was recorded and was reclassified to additional paid-in capital on the balance sheets.

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and short-term investments and adjustments related to amortization of purchase premiums and accretion of discounts of short-term investments.

Income Taxes

We are subject to corporate U.S. federal and state income taxation. As of December 31, 2021, we had federal and state net operating loss carryforwards of approximately $139.0 million and $65.4 million, respectively. Of the $139.0 million federal net operating loss carryforwards, $3.2 million will begin expiring in 2035, if not utilized, while $135.8 million can be carried forward indefinitely. The state tax loss carryforwards will begin expiring in 2036, if not utilized. As of December 31, 2021, we had federal and state research and development tax credits of approximately $5.4 million and $3.6 million, respectively. If not utilized, the federal research tax credit will begin to expire in 2035. The California research tax credit can be carried forward indefinitely.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. This annual limitation may result in the expiration of net operating losses and credits before utilization. We have not performed an analysis to determine the limitation of our net operating loss carryforwards.

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We estimate our income tax provision, including deferred tax assets and liabilities, based on management’s judgment. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.

We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2021 and 2020, we had gross unrecognized tax benefits of $1.4 million and $0.8 million, respectively, all of which would affect our income tax expense if recognized, before consideration of our valuation allowance. As of December 31, 2021, we do not expect our unrecognized tax benefits will significantly change over the next 12 months.

Results of Operations

The following table summarizes our results of operations for the periods indicated (in thousands):

Research and development expenses

Research and development expenses were $63.4 million and $36.2 million for the years ended December 31, 2021 and 2020, respectively. The increase of $27.2 million was primarily due to increases of $12.9 million in personnel costs, including an increase in share-based compensation expense of $4.8 million as a result of continued growth in headcount, and increases of $11.2 million in our external program costs related to NKX101 and NKX019, and $5.4 million in other internal research costs, primarily consisting of research and laboratory supplies and facilities expenses, offset by $2.3 million in partner cost sharing reimbursable expenses. The increase in program costs relating to NKX101 and NKX019 is primarily due to additional clinical development activities compared to the prior year period. We expect our research and development expenses will continue to increase in future periods as we progress our product candidates and conduct our clinical trials and development activities.

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General and administrative expenses

General and administrative expenses were $23.0 million and $15.3 million for the years ended December 31, 2021 and 2020, respectively. The increase of $7.7 million was primarily due to an increase in personnel costs of $4.7 million, including an increase of $2.9 million in share-based compensation expense as a result of continued growth in headcount. The increases in general and administrative expense were also due to a $0.9 million increase in professional services related to accounting services, corporate legal fees, other consulting and patent legal fees, and a $2.1 million increase in other general and administrative expenses that included insurance, rent, depreciation expense and other facilities expense. We have incurred and expect to continue to incur additional expenses as a result of being a public company following the completion of our IPO in July 2020, which we expect will further increase when we no longer qualify as an “emerging growth company” under the JOBS Act. In addition, we have incurred and expect to continue to incur increased expenses related to additional insurance, investor relations and other increases related to needs for additional human resources and professional services associated with being a public company.

Change in fair value of preferred stock purchase right liability

We recognized a remeasurement adjustment for the change in fair value of preferred stock purchase right liability of $40.2 million in other expense for the year ended December 31, 2020. This remeasurement adjustment was related to the Series B Preferred Stock Purchase Agreement entered into in August 2019, which contained future purchase rights that were required to be accounted for as liabilities and remeasured to fair value at each reporting date, with any change in the fair value reported as a component of other expense, net. Upon the exercise of the preferred stock purchase right with the completion of the Series B Milestone Closing in July 2020, that resulted in the issuance of 27,066,206 shares of our Series B convertible preferred stock for an aggregate gross proceeds of $64.4 million, the final remeasurement adjustment of the preferred stock purchase right liability was recorded and reclassified to additional paid-in capital on the balance sheet.

Interest income

Interest income was $0.4 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively. The increase in interest income was due to interest earned from short-term investments, partially offset by amortization of purchase premiums and accretion of discounts of short-term investments.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2021, we had cash, cash equivalents, restricted cash and short-term investments of $240.2 million. In connection with our IPO which closed on July 14, 2020, we received $265.1 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses. We issued and sold 16,100,000 shares of our common stock, including 2,100,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $18.00 per share. On July 1, 2020, we issued 27,066,206 shares of our Series B convertible preferred stock at a price of $2.37935 per share for gross proceeds of $64.4 million in connection with the Series B Milestone Closing.

Prior to our IPO, we funded our operations primarily through the issuance of convertible promissory notes and private placements of our convertible preferred stock with total gross proceeds of $126.0 million, and $7.9 million from our previous collaboration agreement with GlaxoSmithKline, which terminated in December 2018.

On August 12, 2021, we filed a Registration Statement on Form S-3 (the “Shelf Registration Statement”), covering the offer and sale from time to time, pursuant to Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of up to $500.0 million in aggregate offering price of shares of our common stock, shares of our preferred stock, debt securities, warrants, and rights and units. The Shelf Registration Statement was declared effective by the SEC on September 2, 2021. The Shelf Registration Statement included a prospectus covering the

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offer and sale from time to time of up to $150.0 million in aggregate offering price of shares of the Company’s common stock through an “at-the-market” equity offering program under the Securities Act (the “ATM Offering Program”) with Cowen and Company, LLC, as sales agent. As of December 31, 2021, no sales of our common stock had been made pursuant to the ATM Offering Program.

We have incurred net losses and negative cash flows from operations since our inception and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we develop our product pipeline and advance our drug candidates through clinical development, undergo the regulatory approval process and, if approved, launch commercial activities. Specifically, in the near term we expect to incur substantial expenses relating to initiating and completing our clinical trials, the development and validation of our manufacturing processes, and other development activities. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we expect to finance our operations through the sale of equity, including pursuant to our ATM Offering Program, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties’ rights to develop or commercialize our drug candidates that we would prefer to retain.

We believe that our current cash, cash equivalents, restricted cash and short-term investments as of December 31, 2021 will be sufficient to meet our cash needs for at least 12 months following the issuance date of this Annual Report on Form 10-K.

Cash Flows

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

Operating Activities

The net cash used in operating activities for the year ended December 31, 2021 was $67.9 million was primarily due to our net loss of $86.1 million, adjusted for net non-cash charges of $19.8 million and a change in operating assets and liabilities of $1.6 million. The net non-cash charges of $19.8 million consisted primarily of share-based compensation of $14.5 million, depreciation and amortization of $1.8 million, investment accretion and amortization of $3.2 million and non-lease lease expense of $0.4 million. The net change in operating assets and liabilities of $1.6 million was related to the increase in prepaid and other current assets of $4.4 million primarily due to the cost sharing receivable, higher manufacturing and clinical deposits and other current assets, offset by an increase in accounts payable and accrued and other liabilities of $2.8 million as we continued to increase our research and development related activities.

The net cash used in operating activities for the year ended December 31, 2020 was $43.5 million was primarily due to our net loss of $91.4 million, adjusted for net non-cash charges of $48.7 million and a change in operating assets and liabilities of $0.8 million. The net non-cash charges of $48.7 million consisted primarily of change in fair value of our preferred stock purchase right liability of $40.2 million related to the remeasurement

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adjustment of the Series B convertible preferred stock purchase right liability, share-based compensation of $6.7 million, depreciation and amortization of $0.8 million, investment accretion and amortization of $0.7 million and non-lease lease expense of $0.3 million. The net change in operating assets and liabilities of $0.8 million was related to the increase in prepaid and other current assets of $3.6 million primarily due to higher prepayments for director and officer insurance premiums and other current assets, offset by an increase in accounts payable and accrued and other liabilities of $2.8 million as we continued to increase our research and development related activities.

Investing Activities

The net cash provided by investing activities for the year ended December 31, 2021 of $32.5 million was comprised of proceeds from maturities of short-term investments of $264.8 million, partially offset by purchases of property and equipment of $5.0 million primarily related to the construction of our manufacturing facility and purchases of short-term investments of $227.3 million.

The net cash used by investing activities for the years ended December 31, 2020 of $210.1 million was comprised of purchases of short-term investments of $222.6 million using the proceeds from Series B preferred stock upon the closing of Series B Preferred Stock Milestone Closing and proceeds from our initial public offering in July 2020, offset by proceeds from maturities of short-term investments of $20.0 million, and purchases of property and equipment of $7.5 million primarily related to the construction of our manufacturing facility.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2021 of $1.2 million was mainly due to proceeds from the exercise of stock options, partially offset by payment of deferred offering costs of $0.3 million associated with the filing of our Shelf Registration Statement and the establishment of our ATM Offering Program.

Net cash provided by financing activities for the year ended December 31, 2020 of $329.8 million, was mainly due to the net proceeds of $265.1 million from initial public offering, after deducting underwriting discounts and commissions and other offering costs of $24.7 million, net proceeds of $64.3 million from the issuance of our Series B convertible preferred stock, after deducting issuance costs of $0.1 million, and proceeds of $0.4 million from the exercise of stock options.

Funding Requirements

Based upon our current operating plans, we believe that our existing cash, cash equivalents, restricted cash and short-term investments will be sufficient to fund our operations for at least the next 12 months from the date of issuing this Annual Report on Form 10-K. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing therapeutic product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

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

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the type, number, scope, progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future;

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the outcome, timing and costs of regulatory review of our product candidates;

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the costs and timing of manufacturing for our product candidates, including commercial manufacturing and the costs associated with building our manufacturing facility;

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our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;

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the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;

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the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;

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our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

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patients’ willingness or ability to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;

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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements, including payments required for meeting regulatory and commercial milestones or sales based royalties;

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the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights; and

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costs associated with any product candidates, products or technologies that we may in-license or acquire.

Until such time as we can generate significant revenue from sales of our therapeutic product candidates, if ever, we expect to finance our cash needs through public or private equity, including pursuant to our ATM Offering Program, or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

In May 2018, we entered into a lease agreement for our corporate office and laboratory space located in South San Francisco, California with an expiration date in May 2025 (the “Initial Lease Agreement”). In April 2019, we executed the first amendment to the Initial Lease Agreement for additional corporate space, laboratory space and manufacturing capabilities and an extension to the lease term through April 2026. The terms of the lease amendment contain a rent abatement for the first month and rent escalation provisions. In addition to the base rent payments, we will be obligated to pay certain customary amounts for our share of operating expenses and tax obligations related to the facilities.

In May 2020, we executed the second amendment to the Initial Lease Agreement for an eight-year non-cancelable lease for additional office and laboratory space in the same building. The lease amendment for the additional space provided for abatement of rent during the first three months of the lease and contained rent escalations during the term of the lease. The lease amendment for this additional space commenced in January 2021 and expires in January 2029. The lease amendment also included an extension of the lease term of our existing office and laboratory space through January 2029, with an option to extend the lease for an additional seven-year term.

In January 2021, we executed the third amendment to the Initial Lease Agreement for a three-year non-cancelable lease for additional office space in the same building. The lease amendment for this additional space commenced in the second quarter of 2021 and expires in March 2024.

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In October 2021, we executed the fourth amendment to the Initial Lease Agreement for a seven-year non-cancelable lease for additional office and laboratory space in the same building. The lease amendment for additional space provided for abatement of rent during the first two months of the lease and contained rent escalations during the term of the lease. The lease amendment for this additional space is anticipated to commence in April 2022 and expires in January 2029. The Company expects to pay base rent of approximately $4.6 million over the lease term. The lease amendment also includes this additional space in our option to extend the lease for an additional seven-year term. The other terms of the Initial Lease Agreement, as amended, remain unchanged.

In July 2021, we entered into a lease agreement for corporate office, manufacturing and laboratory space located in South San Francisco, California with an expiration date approximately twelve years after the lease's legal commencement date (the “Additional Lease Agreement”). We will become responsible for paying rent on the lease's legal commencement date. The Company expects to pay base rent of approximately $99.6 million over the lease term. In addition to the base rent payments, we will be obligated to pay certain customary amounts for our share of operating expenses and tax obligations related to the facilities. The Additional Lease Agreement also provides for certain tenant improvement allowances for tenant improvements and certain infrastructure upgrades in connection with the initial buildout of the premises, a portion of which, if utilized, would need to be repaid by us over the lease term.

In November 2021, we executed an amendment to the Additional Lease Agreement for our corporate office, manufacturing and laboratory space. The amendment expressly includes manufacturing as a permitted use at the facility, clarifies that Silicon Valley Bank is an acceptable bank for purposes of issuing a letter of credit under the lease, revises the letter of credit transferability terms and replaces the form of letter of credit attached to the lease. The other terms of the Additional Lease Agreement remain unchanged.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to preclinical studies and clinical trial accruals, and share-based compensation. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.

Recently Issued Accounting Pronouncements

See Recent Accounting Pronouncements in Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Indemnification

As permitted under Delaware law and in accordance with our bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also a party to indemnification agreements with our officers and directors. We believe the fair value of the indemnification rights

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and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of December 31, 2021 and 2020.

Segment Information

We have one business activity and operate in one reportable segment.

JOBS Act

We are an “emerging growth company” as described under the JOBS Act, and we could have taken advantage of an extended transition period for complying with new or revised accounting standards. This would have allowed us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen irrevocably to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the 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 (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company or a non-accelerated filer, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our prospectuses and in our periodic reports and proxy statements.