Sana Biotechnology, Inc. (SANA)

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements that are based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of numerous factors, including those set forth in the section of this Annual Report titled “Risk Factors.” See also the section of this Annual Report titled “Special Note Regarding Forward-Looking Statements.”

Overview

We were founded on the belief that engineered cells will be one of the most important transformations in medicine over the next several decades. The burden of diseases that can be addressed at their root cause through engineered cells is significant. We view engineered cells as having the potential to be as therapeutically disruptive as biologic drugs to clinical practice, enabling us to repair cells in the body when possible and replace them when needed. We are developing ex vivo and in vivo cell engineering platforms to revolutionize treatment across a broad array of therapeutic areas with unmet treatment needs, including type 1 diabetes, B cell mediated autoimmune diseases, and oncology.

For our ex vivo platform, we have made focused investments in our hypoimmune platform technology, which we refer to as our HIP technology, with the twin goals of engineering allogeneic cells that can "hide" from the patient's immune system to overcome the fundamental challenge of immune rejection and cell persistence, and that we can manufacture at scale. A successful therapeutic requires cells that can engraft, function, and persist in the body, and we believe our approach can unlock a wave of disruptive therapeutics. For in vivo therapies that aim to repair and control genes in the body, a successful product candidate requires both gene modification and in vivo delivery of the therapeutic payload. Of these, we view effective in vivo delivery as the greatest current limitation to dramatically expanding the impact of this class of therapeutics. To this end, our initial focus is on cell-specific delivery of genetic payloads that integrate into the genome of the target cells.

We currently focus our efforts across three areas and have three ongoing clinical trials across multiple disease types and therapeutic areas, including type 1 diabetes (T1D), B cell mediated autoimmune diseases, and B cell malignancies.

•
Type 1 Diabetes: Approximately nine million people suffer from T1D worldwide, and there have been no major novel medicines for the disease since insulin. We are developing SC451, a HIP-modified, stem cell derived pancreatic islet cell therapy, for the treatment of type 1 diabetes. The goal of this therapy is euglycemia, or normal blood glucose, without the need for exogenous insulin injections or immunosuppression. We currently have an ongoing investigator-sponsored first-in-human study (IST) evaluating UP421, an allogeneic, primary islet cell therapy engineered with our HIP technology, in patients with T1D. We expect to share additional data in 2025 and file an investigational new drug application (IND) for SC451 as early as 2026.

•
Allogeneic CAR T cells: We are developing SC291, our HIP-modified allogeneic CD19-directed allogeneic CAR T cell product candidate, in patients with B cell mediated autoimmune diseases. The GLEAM study is a Phase 1 clinical trial evaluating SC291 in patients with lupus nephritis (LN), extrarenal lupus (ERL), and antineutrophil cytoplasmic antibody (ANCA)-associated vasculitis. If successful, SC291 has the potential to benefit patients in a number of additional B cell-mediated autoimmune diseases. We are also studying SC262, our HIP-modified allogeneic CD22-directed CAR T cell product candidate. The VIVID study is a Phase 1 clinical trial evaluating SC262 in patients with relapsed and/or refractory (R/R) B cell malignancies who have received prior CD19-directed CAR T therapy. We are enrolling patients in both the GLEAM and VIVID trials and expect to share data from each study in 2025.

•
In vivo CAR T cells: Using our fusogen platform, which allows for cell-specific, in vivo delivery of various payloads, we are developing our SG299 product candidate, which is a CD8-targeted fusosome that delivers to CD8+ T cells the genetic material to make CD19-directed CAR T cells while avoiding delivery to potentially troublesome tissues such as the liver and gonadal tissue. We plan to develop SG299 in a range of B cell cancers and B cell mediated autoimmune diseases and expect to file an IND for SG299 as early as 2026.

149

We believe the time is right to develop engineered cell therapies across a broad range of therapeutic areas. Substantial progress in the understanding of genetics, gene editing, protein engineering, stem cell biology, immunology, process analytics, and computational biology have converged to create an opportunity to markedly increase the breadth and depth of the potential impact of cellular medicines. We continue to make progress developing our ex vivo cell engineering platforms – our hypoimmune allogeneic CAR T cell platform and our stem-cell derived platform that also leverages our HIP technology – and our in vivo cell engineering platform. We are in the early stages of development across a broad pipeline of product candidates, which are summarized below:

1Investigator sponsored trial. Abbreviations: AAV, ANCA-associated vasculitis; NHL, non-Hodgkin's lymphoma; SLE, systemic lupus erythematosus; T1D, type 1 diabetes; WW, worldwide.

Each of our programs provides the potential for meaningful standalone value while also supporting our potential ability to further exploit our platforms in a manner that leads to the development of broadly applicable medicines. Based on our current timelines for our lead programs, we believe our cash runway will enable multiple data readouts across our programs in 2025.

In early 2025, we announced positive four-week results from the UP421 IST demonstrating that all primary and secondary endpoints were met. Results of the study at four weeks and preliminary results at 12 weeks after cell transplantation demonstrate the survival and function of pancreatic beta cells as measured by the presence of circulating C-peptide, a biomarker indicating that transplanted beta cells are producing insulin. C-peptide levels also increase with a mixed meal tolerance test (MMTT) during testing at these timepoints, consistent with insulin secretion in response to a meal. Magnetic resonance imaging (MRI) scanning also demonstrated a sustained signal at the site of transplanted cells over time, which is consistent with graft survival. The study identified no safety issues, and the HIP-modified islet cells evaded immune detection. The trial continues to evaluate safety, persistence, and function of the transplanted cells. The 12-week data remain subject to source data verification, after which we and our collaborators at Uppsala University Hospital expect to publish in scientific journals and/or present at scientific conferences more details and longer follow-up from this study in 2025 and beyond.

We continue to make progress on advancing our research- and preclinical-stage product candidates into and through preclinical development and toward potential IND submissions. As certain of our product candidates advance toward potential IND submissions, we are conducting good laboratory practices toxicity studies and establishing necessary scale-up for our manufacturing processes.

Given the depth and breadth of our portfolio, we expect to continue to assess and prioritize our programs on an ongoing basis based on various factors, including internal and external opportunities and constraints, which may result in our decision to advance certain programs ahead or instead of others. For details regarding our product candidates, see the section titled “Business—Overview” in Part I, Item 1 included elsewhere in this Annual Report.

150

In November 2024, we announced a portfolio prioritization to prioritize clinical and preclinical development in type 1 diabetes, B-cell mediated autoimmune diseases, refractory B-cell malignancies, and the fusogen platform for generating in vivo CAR T cells. We suspended development of SC291, our HIP-modified CD19 allogeneic CAR T therapy, in oncology, and SC379, our glial progenitor cell program, as we seek partnerships for these programs. As part of these efforts, we are winding down the ARDENT Phase 1 clinical trial evaluating SC291 in B-cell malignancies, including non-Hodgkin’s lymphoma and chronic lymphoblastic leukemia. In connection with the portfolio prioritization, we expect to incur approximately $5.8 million of cash-based expenses related to employee severance, benefits, and related costs. We anticipate that the portfolio update and associated workforce reduction will be substantially complete in the first quarter of 2025.

Our ex vivo and in vivo technologies represent an aggregation of years of innovation and technology from multiple academic institutions and companies, including hypoimmune technology licensed from the President and Fellows of Harvard College (Harvard) and The Regents of the University of California, fusogen technology acquired from Cobalt Biomedicine Inc. (Cobalt), and gene editing technology licensed from Beam Therapeutics Inc. (Beam), among others. For details regarding these acquisitions and license and collaboration agreements, see Note 4, Acquisitions and Note 5, License and collaboration agreements, to our consolidated financial statements included in this Annual Report, as well as the section titled “Business—Key Intellectual Property Agreements” in Part I, Item 1 included elsewhere in this Annual Report.

Our operations to date have included developing our ex vivo and in vivo cell engineering platforms, identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, conducting clinical trials of our product candidates, supporting clinical trials of product candidates developed using our technologies, acquiring technologies, staffing the company, business planning, establishing and maintaining our intellectual property portfolio, raising capital, and providing general and administrative support for these operations. All of our programs are currently in the development stage, and we do not have any products approved for sale. We have incurred net losses each year since our inception. Our net losses for the years ended December 31, 2024, 2023, and 2022 were $266.8 million, $283.3 million, and $269.5 million, respectively. As of December 31, 2024, we had an accumulated deficit of $1.6 billion. Our net losses resulted primarily from our research and development programs, and, to a lesser extent, general and administrative costs associated with our operations.

As of December 31, 2024, we had cash, cash equivalents, and marketable securities of $152.5 million. We will need to raise additional financing in the near-term and in the future to fund our operations, including the commercialization of any approved product candidates. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and milestone, royalty, and other payments received under any future licenses, collaborations, or other arrangements. Additional capital may not be available on terms that are reasonable or acceptable to us, if at all. If we are unable to raise capital when needed or on attractive terms, our business, results of operations, and financial condition would be adversely affected.

Management has determined that our present capital resources may not be sufficient to fund our planned operations for at least one year from the date of this Annual Report, and there is substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern will depend on, among other things, our ability to obtain additional funding and appropriately manage the amount of cash used to fund our operations. We plan to address this condition through equity or debt offerings or capital obtained in connection with strategic collaborations or licensing or other arrangements. If we are unable to obtain such financing, we may be required to significantly modify our operational plans by delaying, reducing the scope of, or ceasing our research and development programs.

We expect our operating losses and expenses to decrease in 2025 compared to 2024 as a result of our portfolio prioritization announced in November 2024. Operating expenses may increase over the longer term if our clinical trials are successful and if we expand our research and development efforts. Cost increases would be driven in large part by commencing and advancing our current and future product candidates through clinical trials; identifying additional product candidates; continuing to establish our manufacturing capabilities, including through third-party contract development and manufacturing organizations (CDMOs) and our internal manufacturing capabilities; initiating and advancing preclinical development of our current and future product candidates; advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms; acquiring and licensing technologies aligned with our ex vivo and in vivo cell engineering platforms, or modifying the terms of existing acquisition or license arrangements; seeking regulatory approval of our current and future product candidates; engaging in commercialization activities for any of our product candidates for which we obtain marketing approval; increasing our personnel, including those required to support our research, clinical and preclinical development, manufacturing, and potential future commercialization efforts; expanding our operational, financial, and management systems; continuing to develop, prosecute, and defend our intellectual property portfolio; and continuing to incur legal, accounting, or other expenses to operate our business, including the costs associated with being a public company.

151

We have invested in building world class capabilities in key areas of manufacturing sciences and operations, including development of our cell engineering platforms, product characterization, and process analytics. Our investments also include scaled research solutions, scaled infrastructure, and novel technologies to improve efficiency, characterization, and scalability of manufacturing.

Macroeconomic Considerations

Our business and operations may be negatively affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as changes in trade policies, including sanctions, treaties, tariffs, regulatory requirements, and other limitations on cross-border operations, changes in inflation and fluctuations in interest rates, instability in the banking and financial services sector, declines in consumer confidence, declines in economic growth, uncertainty in the markets, geo-political and economic instability, and tensions in U.S.-China relations. The extent, severity, and duration of the impact of these events and conditions on our business cannot be predicted and may not be fully reflected in our results of operations until future periods. If economic uncertainty continues or increases, or if the global economy worsens, our business, financial condition, and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events and conditions on our business, financial condition, and operating results, see the section of this Annual Report titled “Risk Factors.”

Acquisitions

We have completed various acquisitions since inception. For details regarding our acquisitions, see the section titled “Business—Key Intellectual Property Agreements” and Note 4, Acquisitions, to our consolidated financial statements included elsewhere in this Annual Report.

License and collaboration agreements

We have entered into license and collaboration agreements with various third parties. For details regarding these agreements, see the section titled “Business— Key Intellectual Property Agreements” and Note 5, License and collaboration agreements, to our consolidated financial statements included elsewhere in this Annual Report.

Success payments and contingent consideration

Cobalt success payment and contingent consideration

Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are obligated to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $500.0 million upon our achievement of certain specified development milestones and a success payment (Cobalt Success Payment) of up to $500.0 million, each of which is payable in cash or stock. The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, our market capitalization equals or exceeds $8.1 billion, and we are advancing a program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a biologics license application or new drug application for a product based on the fusogen technology. The Cobalt Success Payment can be achieved over a maximum of 20 years from the date of the acquisition, but this period could be shorter upon the occurrence of certain events. A valuation measurement date would also be triggered upon a change of control if at least one of our programs based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and our market capitalization is below $8.1 billion as of the date of such change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase. As of December 31, 2024, a Cobalt Success Payment had not been triggered.

See Note 4, Acquisitions to our consolidated financial statements included elsewhere in this Annual Report for details on the amount of the potential Cobalt Success Payment and potential Cobalt Contingent Consideration if there is a change of control based on various thresholds for our market capitalization on such change of control date. See the subsections below titled “—Success payments” and “—Contingent consideration” for more information on the accounting treatment of the Cobalt Success Payment and Cobalt Contingent Consideration.

152

Harvard success payments

Pursuant to the terms of the Harvard agreement, we may be required to make up to an aggregate of $175.0 million in success payments to Harvard (Harvard Success Payments), payable in cash, based on increases in the per share fair market value of our common stock. The potential Harvard Success Payments are based on multiples of increasing value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of $4.00 per share at ongoing pre-determined valuation measurement dates. The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement. If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed. Any previous Harvard Success Payments made are credited against the Harvard Success Payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold. As of December 31, 2024, a Harvard Success Payment had not been triggered.

See Note 5, License and collaboration agreements to our consolidated financial statements included elsewhere in this Annual Report for more details on the various per share common stock values that trigger a Harvard Success Payment. See the subsection below titled “—Success payments” for more information on the accounting treatment of the Harvard Success Payments.

Components of operating results

Operating expenses

Research and development

To date, research and development expenses have related primarily to discovery and development of our platform technologies and product candidates. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, including CDMO manufacturing costs (including pass-through costs) and clinical trial costs, costs for laboratory supplies, costs to acquire and license technologies aligned with our ex vivo and in vivo cell engineering platforms, and facility expenses, including rent and depreciation, and allocated overhead costs. The timing and amount of costs to acquire and license technologies in the future cannot be reliably estimated and may fluctuate from quarter to quarter and year to year.

We deploy our employee and infrastructure resources across multiple research and development programs for developing our ex vivo and in vivo cell engineering platforms, identifying and developing product candidates, and establishing manufacturing capabilities. Due to our early stage of development, the number of ongoing projects, and our ability to use resources across several projects, most of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory, and other indirect facility and operating costs.

Research and development activities account for a significant portion of our operating expenses. As a result of our portfolio prioritization and associated workforce reduction announced in November 2024, we expect our research and development expenses to decrease in 2025 compared to 2024. Research and development expenses may increase over the longer term if our clinical trials are successful and if we expand our research and development efforts. Cost increases, if they occur, would be driven in large part by advancing our current and future product candidates into and through clinical trials; identifying additional product candidates; continuing to establish our manufacturing capabilities, including through third-party CDMOs and our internal manufacturing capabilities; initiating and advancing preclinical development of our current and future product candidates; advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms; acquiring and licensing technologies aligned with our ex vivo and in vivo cell engineering platforms, or modifying the terms of existing acquisition or license arrangements; seeking regulatory approval of our current and future product candidates; and increasing our workforce to support our expanded research, clinical, and preclinical development efforts. A change in the outcome of any of these factors could result in a significant change in the costs and timing associated with the development of our product candidates.

Research and development related success payments and contingent consideration

Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt and Harvard Success Payment liabilities and Cobalt Contingent Consideration liability. The expense or gain associated with our research and development related success payments and contingent consideration is unpredictable, in part, because our success payments are impacted by changes in our common stock price and market capitalization at the end of each reporting period, and continues to vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations.

153

General and administrative

General and administrative expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation for our employees in finance, legal, executive, human resources, and information technology functions, legal and consulting fees, insurance fees, restructuring expenses, and facility costs not otherwise included in research and development expenses. Legal fees include those related to corporate and patent matters. Included in general and administrative expenses for the year ended December 31, 2023, are costs incurred for the early termination of the lease (Fremont lease) for our previously planned manufacturing facility in Fremont, California (Fremont facility).

As a result of our portfolio prioritization and associated workforce reduction commenced in November 2024, we expect our general and administrative expenses to decrease in 2025 compared to 2024. General and administrative expenses may increase over the longer term to support potential expanded research and development activities.

Results of operations

Comparison of the years ended December 31, 2024 and 2023

The following table summarizes our results of operations for the periods presented:

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

154

Research and development expense was $217.6 million and $268.8 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $51.3 million was primarily due to:

•
a decrease of $20.6 million in research expenses primarily due to lower research and development activities;

•
a net decrease of $20.1 million in personnel-related expenses due to lower research and development headcount related to the portfolio prioritizations in the fourth quarters of 2023 and 2024;

•
a decrease of $9.7 million in third-party manufacturing costs for CDMOs;

•
a decrease of $5.8 million in facility and other allocated costs; and

•
a decrease of $5.1 million for impairment of lab equipment and leasehold improvements recorded in 2024 compared to 2023.

These decreases were partially offset by an increase of $11.8 million in clinical development costs.

Research and development related success payments and contingent consideration

The following table summarizes the gains associated with research and development related success payments and contingent consideration for the periods presented:

The gains related to the change in the estimated fair value of our Cobalt Success Payment were $6.9 million and $7.9 million for the years ended December 31, 2024 and 2023, respectively. The changes in value were primarily due to changes in our market capitalization during the relevant periods, and for 2023, the reduction of our near-term investment in our fusogen program in connection with our portfolio prioritization in the fourth quarter of 2023. The gains related to the change in the estimated fair value of our Harvard Success Payments were $1.3 million and $0.3 million for the years ended December 31, 2024 and 2023, respectively. The changes in value were primarily due to changes in our common stock price during the relevant periods. The gains related to the change in the estimated fair value of our Cobalt Contingent Consideration were $0.6 million and $40.8 million for the years ended December 31, 2024 and 2023, respectively. The changes in value were due primarily to changes in the timing and probability of the achievement of milestones during the relevant periods and the discount rates used in the calculations.

General and administrative expenses

General and administrative expenses were $64.0 million and $73.3 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $9.3 million was primarily due to a decrease in legal fees of $3.1 million, a loss on lease termination of $2.7 million associated with the Fremont facility recorded in 2023, a decrease in personnel costs of $2.6 million, a decrease in facility costs of $1.9 million, and a decrease in insurance and consulting fees of $1.1 million. These decreases were partially offset by an increase in non-cash stock-based compensation of $2.0 million.

Interest income, net

Interest income, net, was $10.5 million and $9.9 million for the years ended December 31, 2024 and 2023, respectively, and consisted primarily of interest earned on our cash and marketable securities balances.

Other expense, net

Other expense, net, was $4.5 million and immaterial for the years ended December 31, 2024 and 2023, respectively. The change in value of $4.5 million was due to other-than-temporary impairments of other assets.

155

Comparison of the years ended December 31, 2023 and 2022

The following table summarizes our results of operations for the periods presented:

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

Research and development expenses were $268.8 million and $285.9 million for the years ended December 31, 2023 and 2022, respectively. The decrease of $17.1 million was primarily due to:

•
a decrease of 10.3 million in research and laboratory costs, primarily due to our portfolio prioritizations in 2022 and 2023, partially offset by an increase in clinical development costs as more programs moved into the clinic;

•
a decrease of $7.1 million in third-party manufacturing costs for CDMOs, including pass-through costs for materials;

•
a decrease of $5.8 million in costs to license technology for our CD22 and BCMA programs; and

•
a decrease of $4.3 million in personnel-related costs, including $3.3 million in non-cash stock-based compensation expense.

These decreases were partially offset by $7.0 million for the impairment of certain lab equipment and leasehold improvements, primarily related to the portfolio prioritization in October 2023.

Research and development related success payments and contingent consideration

The following table summarizes the expenses (gains) associated with research and development related success payments and contingent consideration for the periods presented:

156

The gains related to the change in the estimated fair value of our Cobalt Success Payment were $7.9 million and $69.3 million for the years ended December 31, 2023 and 2022, respectively. The changes in value were primarily due to changes in our market capitalization during the relevant periods, and for 2023, the reduction of our near-term investment in our fusogen program in connection with our portfolio prioritization in the fourth quarter of 2023. The gains related to the change in the estimated fair value of our Harvard Success Payments were $0.3 million and $12.2 million for the years ended December 31, 2023 and 2022, respectively. The changes in value were primarily due to changes in our common stock price during the relevant periods. The gains related to the change in the estimated fair value of our Cobalt Contingent Consideration were $40.8 million and $3.4 million for the years ended December 31, 2023 and 2022, respectively. The changes in value were primarily due to the reduction of our near-term investment in our fusogen programs, including delaying the IND for SG299, which impacted the timing and probability of the achievement of milestones.

General and administrative expenses

General and administrative expenses were $73.3 million and $71.6 million for the years ended December 31, 2023 and 2022, respectively. The increase of $1.7 million was primarily due to an increase in patent and other legal fees of $4.3 million, a loss on lease termination of $2.7 million associated with the Fremont facility, and increased facility costs of $1.0 million. These increases were partially offset by the write-off of $4.5 million of construction in progress costs in 2022 for the Fremont facility and a decrease of $2.1 million in insurance costs.

Interest income, net

Interest income, net, was $9.9 million and $3.8 million for the years ended December 31, 2023 and 2022, respectively, and consisted primarily of interest earned on our cash and marketable securities balances.

Liquidity, capital resources, and capital requirements

Sources of liquidity

As of December 31, 2024, we had $152.5 million in cash, cash equivalents, and marketable securities. To date we have raised an aggregate of approximately $1.5 billion in net proceeds from sales of common stock and private placements of our convertible preferred stock.

In February 2024, we completed an underwritten public offering pursuant to which we sold 21.8 million shares of our common stock, including 4.5 million shares pursuant to the full exercise of the underwriters' option to purchase additional shares, and pre-funded warrants to purchase 12.7 million shares of our common stock for net proceeds of approximately $180.0 million, after deducting underwriting discounts and commissions and offering expenses.

In August 2022, we entered into a sales agreement with Cowen, acting as sales agent, pursuant to which we may offer and sell through Cowen, up to $150.0 million in shares of our common stock under the ATM facility. To date, we have sold an aggregate of 4.9 million shares of our common stock under the ATM facility for net proceeds of $28.6 million, after deducting commissions and expenses.

Since our inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses. We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever.

Future funding requirements

We expect to incur additional losses for the foreseeable future as we conduct our research and development efforts, including conducting clinical trials and preclinical studies, developing new product candidates, continuing to establish internal and external manufacturing capabilities, and funding our operations generally. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.

157

Management has determined that our present capital resources may not be sufficient to fund our planned operations for at least one year from the date of this Annual Report, and there is substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern will depend on, among other things, our ability to obtain additional funding and appropriately manage the amount of cash used to fund our operations. We plan to address this condition through equity or debt offerings or capital obtained in connection with strategic collaborations or licensing or other arrangements. If we are unable to obtain such financing, we may be required to significantly modify our operational plans by delaying, reducing the scope of, or ceasing our research and development programs.

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

•
the scope, timing, progress, costs, and results of discovery, preclinical development, and clinical trials for our current or future product candidates, including the development of companion diagnostics to such product candidates;

•
the number and scope of clinical trials required for regulatory approval of our current or future product candidates;

•
the costs, timing, and outcome of regulatory review of our current or future product candidates and any companion diagnostics to such product candidates;

•
the cost, timing, and scope of our manufacturing capabilities, as well as costs associated with the manufacturing of clinical and commercial supplies of our current and future product candidates;

•
the costs and timing of future commercialization activities, including manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive marketing approval;

•
the costs and timing of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights;

•
our ability to maintain existing, and establish new, strategic collaborations, licensing, or other arrangements, and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty, or other payments due under any such agreement;

•
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

•
the expenses required to attract, hire, and retain skilled personnel;

•
the impact of global supply chain issues and changing rates of inflation on the costs of laboratory consumables, supplies, and equipment required for our ongoing operations;

•
the costs of operating as a public company;

•
our ability to effectively manage the amount of cash used in our operations;

•
our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party, including government, payors;

•
potential interruptions or delays resulting from global geo-political, economic, and other factors beyond our control;

•
the effect of competing technological and market developments; and

•
the extent to which we acquire or invest in businesses, products, and technologies.

158

Until such time, if ever, as we can generate significant revenue from product sales, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and milestone, royalty, and other payments received under any future licenses, collaborations, or other arrangements. In the event that additional financing is required, we may not be able to raise it on terms that are acceptable to us or at all. Our ability to raise additional financing may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from public health crises, the escalation in conflict in Ukraine and the Middle East, or other regions, changes in inflation, interest rate uncertainty, disruptions in global trade caused by political tensions and conflicts between countries, and other factors creating market risk. Bank failures have also caused increased concerns about liquidity in the broader financial services industry, and our business, business partners, or industry as a whole may be adversely impacted in ways that we cannot predict at this time. If we raise additional funds through the issuance of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock, and involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or acquiring, selling, or licensing intellectual property rights or assets, which could adversely impact our ability to conduct our business. If we raise funds through strategic collaborations or licensing or other arrangements, we may have to relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from various factors beyond our control. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

Cash flows

The following table summarizes our cash flows for the periods indicated:

Operating activities

During the year ended December 31, 2024, net cash used in operating activities was $223.2 million, consisting primarily of net loss of $266.8 million and the change in net operating assets and liabilities of $1.2 million, offset by non-cash charges of $44.8 million. The non-cash charges of $44.8 million consisted of non-cash stock-based compensation expense of $37.7 million and depreciation expense of $17.4 million, offset by gains of $8.2 million and $0.6 million for revaluation of our success payment liabilities and contingent consideration, respectively, and other non-cash charges of $1.5 million.

During the year ended December 31, 2023, net cash used in operating activities was $253.6 million, consisting primarily of net loss of $283.3 million, the change in net operating assets and liabilities of $18.6 million, and non-cash charges of $11.1 million. The non-cash charges of $11.1 million consisted of non-cash stock-based compensation expense of $35.5 million and depreciation expense of $24.6 million, which includes $7.0 million for the impairment of certain lab equipment and leasehold improvements which were primarily related to the portfolio prioritization in the fourth quarter of 2023, partially offset by gains of $40.8 million and $8.2 million for revaluation of our success payment liabilities and contingent consideration, respectively.

During the year ended December 31, 2022, net cash used in operating activities was $290.1 million, consisting primarily of net loss of $269.5 million, the change in net operating assets and liabilities of $7.5 million, and non-cash charges of $28.1 million. The non-cash charges of $28.1 million consisted of gains of $81.5 million and $3.4 million for revaluation of our success payment liabilities and contingent consideration, respectively, non-cash stock-based compensation expense of $38.3 million, depreciation expense of $15.6 million, and other non-cash charges of $2.9 million.

159

Investing activities

Cash provided by investing activities was $17.5 million, $172.0 million, and $210.6 million during the years ended December 31, 2024, 2023, and 2022, respectively. For the years ended December 31, 2024, 2023, and 2022, this consisted of net purchases and maturities of marketable securities of $50.9 million, $192.0 million, and $231.5 million, respectively, offset by the purchase of property and equipment of $33.4 million, $20.0 million, and $20.9 million, respectively.

Financing activities

During the year ended December 31, 2024, cash provided by financing activities was $199.7 million, consisting primarily of net proceeds from issuance of common stock of $181.0 million, $11.0 million in proceeds from our employee stock purchase program and the exercise of stock options, and net proceeds of $7.7 million from a loan to fund tenant improvements for our manufacturing facility in Bothell, Washington.

During the year ended December 31, 2023, cash provided by financing activities was $31.6 million, consisting primarily of net proceeds from issuance of common stock of $27.0 million and $4.6 million in proceeds from our employee stock purchase program and the exercise of stock options.

During the year ended December 31, 2022, cash provided by financing activities was $4.9 million, consisting primarily of proceeds from our employee stock purchase program and the exercise of stock options.

Contractual obligations and commitments

The following table summarizes our significant contractual obligations and commitments as of December 31, 2024:

Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as of December 31, 2024 are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones or royalties on net product sales. See the section titled “Business—Key Intellectual Property Agreements” for more information about these payment obligations.

We are also obligated to make a success payment to Cobalt of up to $500.0 million, payable in cash or stock, pursuant to the terms and conditions in the Cobalt acquisition agreement, and up to an aggregate of $175.0 million in success payments to Harvard, payable in cash. See the subsection below titled “—Critical accounting policies and significant judgments and estimates—Success payments” and Note 4, Acquisitions, and Note 5, License and collaboration agreements, to our consolidated financial statements located elsewhere in this Annual Report for more information on the success payments. As of December 31, 2024, the timing and likelihood of achieving the milestones and success payments and generating future product sales are uncertain, and therefore any related payments are not included in the table above.

We also enter into agreements in the normal course of business for sponsored research, preclinical studies, clinical trials, contract manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice. These obligations and commitments are not included in the table above.

Off-balance sheet arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

160

JOBS Act accounting election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will remain an emerging growth company until the earliest to occur of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our independent registered public accounting firm provide an attestation report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for any new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early if the standard allows early adoption.

Critical accounting policies and significant judgments and estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report. We believe the following accounting policies relate to the significant areas involving management’s judgments and estimates and are critical to understanding our historical and future performance.

Research and development expenses

We record research and development expenses in the periods in which they are incurred. We accrue for research and development expenses based on the estimated services performed, but not yet invoiced, pursuant to contracts with clinical research organizations, CDMOs, research institutions, or other service providers that conduct and manage clinical trials and preclinical studies, manufacture our product candidates, and perform other research services on our behalf and record these costs in accrued and other current liabilities. We make judgments and estimates in determining the accrued liabilities balance at each reporting period. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

To date, we have not experienced any material differences between accrued expenses and actual expenses incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.

Acquisitions

We account for business combinations using the acquisition method of accounting, which requires the assets acquired, including in-process research and development (IPR&D), and liabilities assumed, be recorded at their fair values as of the acquisition date. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of the estimated fair value of these items requires us to make significant estimates and assumptions.

If we determine the acquisition does not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill or contingent consideration are recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D are recorded in research and development expense if it is determined that there is no alternative future use, and subsequent milestone payments are recorded in research and development expense when achieved.

161

Intangible assets and goodwill

Accounting for business combinations requires us to make significant estimates and assumptions with respect to tangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Intangible assets are reviewed for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment.

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. We evaluate goodwill for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment. Our evaluation includes assessing qualitative factors or performing a quantitative analysis to determine whether it is more-likely-than-not that the fair value of net assets is below the carrying amounts.

Contingent consideration

Contingent consideration obligations are estimated at fair value at the acquisition date of a business combination and at each subsequent balance sheet date, with changes in fair value recorded in research and development related success payments and contingent consideration. The fair value of contingent consideration is determined by calculating the probability-weighted estimated value of the milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and applying the relevant discount rates. We use significant estimates and assumptions in determining the estimated contingent consideration and associated expense or gain at each balance sheet date. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. In evaluating the fair value of contingent consideration, significant judgment is required to estimate the likelihood and timing that the milestones would be achieved. We assess these estimates on an ongoing basis as additional data impacting the assumptions become available. Contingent consideration may change significantly as development progresses and additional data is obtained, impacting our assumptions regarding probabilities of successful achievement of the related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

Success payments

The Cobalt Success Payment was recorded as a liability on the consolidated balance sheet at fair value on the acquisition date and is remeasured at each subsequent reporting period, with changes in fair value recognized in research and development related success payments and contingent consideration. For the Harvard Success Payments, both the initial value and subsequent changes in fair value are recorded in research and development related success payments and contingent consideration. To determine the estimated fair value of the success payment liabilities, we use a Monte Carlo simulation methodology which models the estimated fair value of the liability based on several key assumptions, including the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered, term of the success payments, the risk-free interest rate, and expected volatility, which is estimated using peer company stocks for a period of time commensurate with the expected term assumption. Additionally, the computation of the estimated fair value of the Harvard Success Payments incorporates the per share fair market value of our common stock at the end of each reporting period, and the computation of the estimated fair value of the Cobalt Success Payment incorporates our market capitalization at the end of each reporting period. The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment and a small change in the assumptions may have a relatively large change in the estimated liability and resulting expense or gain.

Stock-based compensation

We recognize compensation costs related to restricted stock awards, restricted stock units, and stock options granted to employees and non-employees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur. For restricted stock awards and restricted stock units, the fair value of our common stock is used to determine the resulting stock-based compensation expense. For stock options, we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model. The fair value of stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Black-Scholes option pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. These assumptions include:

•
Fair Value of Common Stock—The fair value of our common stock is based on the closing price as reported on the Nasdaq Global Select Market on the date of grant.

162

•
Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. We use the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the options.

•
Expected Volatility—Due to our limited operating history, the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded companies and our historical common stock volatility over a period of time commensurate with the expected term of the stock option grants. The comparable companies are chosen based on their size, stage in the product development cycle, or area of specialty. We will continue to apply this process until sufficient historical information regarding the volatility of our own stock price becomes available.

•
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards.

•
Expected Dividend—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

See Note 12, Stock-based compensation to our consolidated financial statements included elsewhere in this Annual Report for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2024, 2023, and 2022. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change or we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Recently adopted and recent accounting pronouncements

See Note 2, Summary of significant accounting policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition or results of operations.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements that are based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of numerous factors, including those set forth in the section of this Annual Report titled “Risk Factors.” See also the section of this Annual Report titled “Special Note Regarding Forward-Looking Statements.”

Overview

We were founded on the belief that engineered cells will be one of the most important transformations in medicine over the next several decades. The burden of diseases that can be addressed at their root cause through engineered cells is significant. We view engineered cells as having the potential to be as therapeutically disruptive as biologic drugs to clinical practice. The key to making this vision a reality will be finding consistent and scalable means of manufacturing cell-based medicines, and we have invested significantly in our hypoimmune platform (HIP) technology with the twin goals of using allogeneic cells that evade immune detection in patients and that we can manufacture at scale. We are developing cell engineering programs to revolutionize treatment across a broad array of therapeutic areas with unmet treatment needs, including oncology, diabetes, B-cell-mediated autoimmune, and central nervous system disorders, among others.

We currently have four clinical trials that are ongoing, or that we expect to commence in the near-term, evaluating our product candidates, or product candidates developed using our technologies, across seven diseases in multiple therapeutic areas, including B-cell malignancies, B-cell-mediated autoimmune disease, and type 1 diabetes, as described below.

•
ARDENT is an ongoing Phase 1 clinical trial evaluating SC291, our HIP-modified CD19 targeted allogeneic chimeric antigen receptor (CAR) T program, in B-cell malignancies, including non-Hodgkin’s lymphoma and chronic lymphoblastic leukemia;

•
GLEAM is a Phase 1 clinical trial evaluating SC291 in patients with lupus nephritis, extrarenal lupus, and antineutrophil cytoplasmic antibody (ANCA)-associated vasculitis;

•
VIVID is a Phase 1 clinical trial evaluating SC262, our HIP-modified CD22 CAR T program, in patients with relapsed or refractory B-cell malignancies who have received prior CD19 CAR T therapy; and

•
Investigator-sponsored first-in-human study (IST) evaluating UP421 an allogeneic, primary islet cell therapy engineered with our HIP technology, in patients with type 1 diabetes mellitus.

We seek to overcome several existing limitations of gene and cell therapy through our ex vivo and in vivo cell engineering platforms, both of which may facilitate the development of therapies that can transform the lives of patients by repairing cells in the body when possible and replacing them when needed. For ex vivo therapies, when diseased cells are damaged or missing entirely and an effective therapy needs to replace the entire cell, a successful therapeutic requires large-scale manufacturing of cells that engraft, function, and persist in the body. Of these, we view cell persistence as the greatest current limitation to dramatically expanding the impact of this class of therapeutics, and in particular, overcoming the barrier of immune rejection of transplanted allogeneic cells. We believe that product candidates developed with our ex vivo cell engineering platform, which uses HIP-modified allogeneic cells that can “hide” from the patient’s immune system, can address this fundamental limitation and unlock a wave of disruptive therapeutics. We refer to this technology as our hypoimmune platform. For in vivo therapies that aim to repair and control genes in the body, a successful product candidate requires both gene modification and in vivo delivery of the therapeutic payload. Of these, we view effective in vivo delivery as the greatest current limitation to dramatically expanding the impact of this class of therapeutics. To this end, our initial focus is on cell-specific delivery of genetic payloads. Based upon early clinical as well as extensive preclinical data from our HIP platform, we decided in October 2023 to focus a meaningful portion of our research and development resources for at least the next several years ion HIP-modified ex vivo manufactured cells as therapeutics.

148

We believe the time is right to develop engineered cell therapies across a broad range of therapeutic areas. Substantial progress in the understanding of genetics, gene editing, protein engineering, stem cell biology, immunology, process analytics, and computational biology have converged to create an opportunity to markedly increase the breadth and depth of the potential impact of cellular medicines. We continue to make progress developing our ex vivo cell engineering platforms – our hypoimmune allogeneic CAR T cell platform and our stem-cell derived platform that also leverages our HIP technology. We are in the early stages of development across a broad pipeline of product candidates, which are summarized below:

Each of our initial programs provides the potential for meaningful standalone value while also supporting our potential ability to further exploit our platforms in a manner that leads to the development of broadly applicable medicines. Based on our current timelines for our lead programs, we believe our cash runway will enable multiple data readouts across our programs.

In 2023 and 2024, the FDA cleared our Investigational New Drug (IND) applications for each of the ARDENT, GLEAM, and VIVID trials, and we supported the submission of a clinical trial application for an IST, which was authorized by the Swedish Medical Products Agency. These four trials will evaluate our product candidates across seven diseases in multiple therapeutic areas, including B-cell malignancies, B cell-mediated autoimmune diseases, and type 1 diabetes. We expect to share data from each of these trials in 2024.

149

Additionally, we continue to make progress on advancing our research- and preclinical-stage product candidates into and through preclinical development and toward potential IND submissions in 2024 and beyond. As certain of our product candidates advance toward potential IND submissions, we are conducting good laboratory practices toxicity studies and establishing necessary scale-up for our manufacturing processes.

Given the depth and breadth of our portfolio, we expect to assess and prioritize our programs on an ongoing basis based on various factors, including internal and external opportunities and constraints, which may result in our decision to advance certain programs ahead or instead of others. For details regarding our product candidates and programs, see the section titled “Business— Overview” in Part I, Item 1 included elsewhere in this Annual Report.

Our ex vivo and in vivo technologies represent an aggregation of years of innovation and technology from multiple academic institutions and companies, including hypoimmune technology licensed from the President and Fellows of Harvard College (Harvard) and The Regents of the University of California, our ex vivo cell engineering program focused on certain brain disorders acquired from Oscine Corp., fusogen technology acquired from Cobalt Biomedicines Inc. (Cobalt), and gene editing technology licensed from Beam Therapeutics Inc. (Beam), among others. For details regarding these acquisitions and license and collaboration agreements, see Note 3, Acquisitions and Note 4, License and collaboration agreements, to our consolidated financial statements included in this Annual Report, as well as the section titled “Business— Key Intellectual Property Agreements” in Part I, Item 1 included elsewhere in this Annual Report.

Our operations to date have included developing our ex vivo and in vivo cell engineering platforms, identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, conducting clinical trials of our product candidates, supporting clinical trials of product candidates developed using our technologies, acquiring technology, organizing and staffing the company, business planning, establishing and maintaining our intellectual property portfolio, raising capital, and providing general and administrative support for these operations. All of our programs are currently in the development stage, and we do not have any products approved for sale. Since our inception, we have incurred net losses each year. Our net losses for the years ended December 31, 2023, 2022, and 2021 were $283.3 million, $269.5 million, and $355.9 million, respectively. As of December 31, 2023, we had an accumulated deficit of $1.3 billion, which includes cumulative non-cash charges of $10.3 million and $58.3 million related to the revaluation of the success payment and contingent consideration liabilities, respectively. Our net losses resulted primarily from our research and development programs, and, to a lesser extent, general and administrative costs associated with our operations.

In February 2024, we completed an underwritten public offering pursuant to which we sold 21.8 million shares of our common stock, including 4.5 million shares pursuant to the full exercise of the underwriters' option to purchase additional shares, and pre-funded warrants to purchase 12.7 million shares of our common stock for net proceeds of approximately $179.9 million, after deducting underwriting discounts and commissions and estimated offering expenses.

In August 2022, we entered into a sales agreement with Cowen and Company, LLC (Cowen), acting as sales agent, pursuant to which we may offer and sell through Cowen up to $150.0 million in shares of our common stock from time to time in a series of one or more at the market equity offerings (collectively, the ATM facility). To date we sold an aggregate of 4.9 million shares of our common stock under the ATM facility for net proceeds of $28.7 million after deducting commissions and expenses.

In February 2021, we completed our initial public offering (IPO) and issued 27.0 million shares of our common stock, including 3.5 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, for net proceeds of $626.4 million after deducting underwriting discounts and commissions and estimated offering expenses. Prior to the IPO, we funded our operations from the issuance and sale of our convertible preferred stock, raising an aggregate of $705.0 million in net proceeds.

As of December 31, 2023, we had cash, cash equivalents, and marketable securities of $205.2 million. Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months from the filing of this Annual Report.

150

We expect our operating losses and expenses to decrease in 2024, excluding potential one-time items, as a result of our strategic repositioning in October 2023, and likely increase over the longer term from the 2024 level if our clinical trials are successful, and if we expand our research and development efforts. Cost increases would be driven in large part by advancing our current and future product candidates into and through clinical trials; identifying additional product candidates; establishing our manufacturing capabilities, including through third-party contract development and manufacturing organizations (CDMOs) and building our internal manufacturing capabilities; advancing preclinical development of our current and future product candidates; advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms; acquiring and licensing technologies aligned with our ambition of translating engineered cells to medicines; seeking regulatory approval of our current and future product candidates; increasing our workforce to support our research, clinical and preclinical development, manufacturing, and commercialization efforts; expanding our operational, financial, and management systems; continuing to develop, prosecute, and defend our intellectual property portfolio; and continuing to incur legal, accounting, or other expenses to operate our business, including the costs associated with being a public company.

We continue to invest in building world class capabilities in key areas of manufacturing sciences and operations, including development of our cell engineering platforms, product characterization, and process analytics. Our investments also include scaled research solutions, scaled infrastructure, and novel technologies to improve efficiency, characterization, and scalability of manufacturing, including establishing our internal manufacturing capabilities.

In October 2023, we announced a strategic repositioning to increase our focus on our ex vivo cell therapy product candidates. As a result, we reduced our near-term investment in our fusogen platform for in vivo gene delivery, including by delaying the IND submission for our SG299 program. The strategic repositioning resulted in a workforce reduction of approximately 29%. We incurred approximately $5.2 million of cash-based expenses related to employee severance, benefits, and related costs. The strategic repositioning and associated workforce reduction is substantially complete, and is expected to result in 2024 operating cash burn of less than $200.0 million.

We anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and upfront, milestone, and royalty payments received under any future licenses, collaborations, or other arrangements. Additional capital may not be available on terms that are reasonable or acceptable to us, if at all. If we are unable to raise capital when needed or on attractive terms, our business, results of operations, and financial condition would be adversely affected.

Macroeconomic Considerations

Our business and operations may be negatively affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as the timing of changes to inflation and interest rates, declines in consumer confidence, declines in economic growth, uncertainty in the markets, geo-political and economic stability resulting from the ongoing Russia-Ukraine war, conflict in the Middle East, tensions in U.S.-China relations, and the aftermath of the COVID-19 pandemic. The severity and duration of the impact of these events and conditions on our business cannot be predicted and may not be fully reflected in our results of operations until future periods. If economic uncertainty continues or increases, or if the global economy worsens, our business, financial condition, and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events and conditions on our business, financial condition, and operating results, see the section of this Annual Report titled “Risk Factors.”

Acquisitions

We have completed various acquisitions since inception. For details regarding our acquisitions, see the section titled “Business—Key Intellectual Property Agreements” and Note 3, Acquisitions, to our consolidated financial statements included elsewhere in this Annual Report.

License and collaboration agreements

We have entered into license and collaboration agreements with various third parties. For details regarding these agreements, see the section titled “Business— Key Intellectual Property Agreements” and Note 4, License and collaboration agreements, to our consolidated financial statements included elsewhere in this Annual Report.

151

Success payments and contingent consideration

Cobalt success payment and contingent consideration

Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are obligated to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $500.0 million upon our achievement of certain specified development milestones and a success payment (Cobalt Success Payment) of up to $500.0 million, each of which is payable in cash or stock. The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, our market capitalization equals or exceeds $8.1 billion, and we are advancing a program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a biologics license application or new drug application for a product based on the fusogen technology. The Cobalt Success Payment can be achieved over a maximum of 20 years from the date of the acquisition, but this period could be shorter upon the occurrence of certain events. A valuation measurement date would also be triggered upon a change of control if at least one of our programs based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and our market capitalization is below $8.1 billion as of the date of such change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase. As of December 31, 2023, a Cobalt Success Payment had not been triggered.

See Note 3, Acquisitions to our consolidated financial statements included elsewhere in this Annual Report for details on the amount of the potential Cobalt Success Payment and potential Cobalt Contingent Consideration if there is a change of control based on various thresholds for our market capitalization on such change of control date. See the subsections below titled “—Success payments” and “—Contingent consideration” for more information on the accounting treatment of the Cobalt Success Payment and Cobalt Contingent Consideration.

Harvard success payments

Pursuant to the terms of the Harvard agreement, we may be required to make up to an aggregate of $175.0 million in success payments to Harvard (Harvard Success Payments), payable in cash, based on increases in the per share fair market value of our common stock. The potential Harvard Success Payments are based on multiples of increasing value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of $4.00 per share at ongoing pre-determined valuation measurement dates. The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement. If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed. Any previous Harvard Success Payments made are credited against the Harvard Success Payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold. As of December 31, 2023, a Harvard Success Payment had not been triggered.

See Note 4, License and collaboration agreements to our consolidated financial statements included elsewhere in this Annual Report for more details on the various per share common stock values that trigger a Harvard Success Payment. See the subsection below titled “—Success payments” for more information on the accounting treatment of the Harvard Success Payments.

Components of operating results

Operating expenses

Research and development

To date, research and development expenses have related primarily to discovery and development of our platform technologies and product candidates. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, including CDMO manufacturing costs (including pass-through costs) and clinical trial costs, costs for laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, and facility expenses, including rent and depreciation, and allocated overhead costs. The timing and amount of costs to acquire and license technologies in the future cannot be reliably estimated and may fluctuate from quarter to quarter and year to year.

We deploy our employee and infrastructure resources across multiple research and development programs for developing our ex vivo and in vivo cell engineering platforms, identifying and developing product candidates, and establishing manufacturing capabilities. Due to our early stage of development, the number of ongoing projects, and our ability to use resources across several projects, most of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory, and other indirect facility and operating costs.

152

Research and development activities account for a significant portion of our operating expenses. As a result of our strategic repositioning in October 2023, we anticipate that our research and development expenses will decrease in 2024, excluding potential one-time items, and likely increase over the longer term from the 2024 level if our clinical trials are successful and if we expand our research and development efforts. Cost increases would be driven in large part by advancing our current and future product candidates into and through clinical trials; identifying additional product candidates; establishing internal and external manufacturing capabilities; advancing preclinical development of our current and future product candidates; advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms; acquiring and licensing technologies aligned with our ambition of translating engineered cells to medicines; seeking regulatory approval of our current and future product candidates; and increasing our workforce to support our expanded research and development operations. A change in the outcome of any of these factors could result in a significant change in the costs and timing associated with the development of our product candidates.

Research and development related success payments and contingent consideration

Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt and Harvard Success Payment liabilities and Cobalt Contingent Consideration liability. The expense or gain associated with our research and development related success payments and contingent consideration is unpredictable, in part, because our success payments are impacted by changes in our common stock price and market capitalization at the end of each reporting period, and may continue to vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations.

General and administrative

General and administrative expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation for our employees in finance, legal, executive, human resources, and information technology functions, legal and consulting fees, insurance fees, and facility costs not otherwise included in research and development expenses. Legal fees include those related to corporate and patent matters. Included in general and administrative expenses for the year ended December 31, 2023, are costs related to our strategic repositioning and associated workforce reduction in October 2023 and costs incurred for the early termination of the lease (Fremont lease) for our previously planned manufacturing facility in Fremont, California (Fremont facility). Included in general and administrative expenses for the year ended December 31, 2022, are costs related to our portfolio prioritization and corporate restructuring in November 2022 and the write-off of construction in progress costs incurred in connection with the Fremont facility.

As a result of our strategic repositioning and associated workforce reduction in October 2023, we anticipate that our general and administrative expenses will decrease in 2024, excluding potential one-time items, and likely increase over the longer term from the 2024 level to support potential expanded research and development activities.

Results of operations

Comparison of the years ended December 31, 2023 and 2022

The following table summarizes our results of operations for the periods presented:

153

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

Research and development expense was $268.8 million and $285.9 million for the years ended December 31, 2023 and 2022, respectively. The decrease of $17.1 million was primarily due to:

•
a decrease of $10.3 million in research and laboratory costs, primarily due to our strategic repositioning in 2022 and 2023, partially offset by an increase in clinical development costs as more programs move into the clinic;

•
a decrease of $7.1 million in third-party manufacturing costs for CDMOs, including pass-through costs for materials;

•
a decrease of $5.8 million in costs to license technology for our CD22 and BCMA programs; and

•
a decrease of $4.3 million in personnel-related costs, including $3.3 million in non-cash stock-based compensation expense.

These decreases were partially offset by $7.0 million for the impairment of certain lab equipment and leasehold improvements, primarily related to the strategic repositioning in October 2023.

Research and development related success payments and contingent consideration

The following table summarizes the gains associated with research and development related success payments and contingent consideration for the periods presented:

The gains related to the change in the estimated fair value of our Cobalt Success Payment were $7.9 million and $69.3 million for the years ended December 31, 2023 and 2022, respectively. The changes in value were primarily due to changes in our market capitalization during the relevant periods, and for 2023, the reduction of our near-term investment in our fusogen program in connection with our strategic repositioning. The gains related to the change in the estimated fair value of our Harvard Success Payments were $0.3 million and $12.2 million for the years ended December 31, 2023 and 2022, respectively. The change in value were primarily due to changes in our common stock price during the relevant periods. The gains related to the change in the estimated fair value of our Cobalt Contingent Consideration were $40.8 million and $3.4 million for the years ended December 31, 2023 and 2022, respectively. The changes in value were due to the reduction of our near-term investment in our fusogen programs, including delaying the IND for SG299, which impacted the timing and probability of the achievement of milestones.

154

General and administrative expenses

General and administrative expenses were $73.3 million and $71.6 million for the years ended December 31, 2023 and 2022, respectively. The increase of $1.7 million was primarily due to an increase in patent and other legal fees of $4.3 million, a loss on lease termination of $2.7 million associated with the Fremont facility, and increased facility costs of $1.0 million. These increases were partially offset by the write-off of $4.5 million of construction in progress costs in 2022 for the Fremont facility and a decrease of $2.1 million in insurance costs.

Interest income, net

Interest income, net, was $9.9 million and $3.8 million for the years ended December 31, 2023 and 2022, respectively, and consisted primarily of interest earned on our cash and marketable securities balances.

Comparison of the years ended December 31, 2022 and 2021

The following table summarizes our results of operations for the periods presented:

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

Research and development expenses were $285.9 million and $248.6 million for the years ended December 31, 2022 and 2021, respectively. The increase of $37.3 million was primarily due to:

•
increased personnel-related expenses of $32.2 million, including an increase in non-cash stock-based compensation of $11.3 million, which was primarily attributable to an increase in headcount to expand our research and development capabilities;

•
an increase of $16.6 million in research, development, and laboratory costs;

•
an increase of $16.5 million primarily related to allocated personnel costs, depreciation expense, and facility and software costs; and

•
an increase of $16.2 million in third-party manufacturing costs for CDMOs, including pass-through costs for materials.

These increases were offset by a decrease of $45.6 million in costs to license technology. Licensing costs in 2022 include an upfront payment of $6.0 million related to licensing technology for our CD22 and BCMA programs, and licensing costs in 2021 include an upfront payment of $50.0 million in 2021 related to licensing Beam’s gene editing technology.

155

Research and development related success payments and contingent consideration

The following table summarizes the expenses (gains) associated with research and development related success payments and contingent consideration for the periods presented:

The gain related to the change in the estimated fair value of our Cobalt Success Payment was $69.3 million for the year ended December 31, 2022, compared to an expense of $23.6 million for the same period in 2021. The change in value was due to the reduction in our market capitalization offset by progress toward filing an IND for SG299 during the relevant period. The gain related to the change in the estimated fair value of our Harvard Success Payments was $12.2 million for the year ended December 31, 2022, compared to an expense of $2.4 million for the same period in 2021. The changes in value were due to changes in our common stock price during the relevant period. The gain related to the change in the estimated fair value of our Cobalt Contingent Consideration was $3.4 million for the year ended December 31, 2022, compared to an expense of $31.8 million for the same period in 2021. The change in value was primarily due to variability of the discount rates used in the calculation offset by scientific progress toward the achievement of milestones during the relevant period.

General and administrative expenses

General and administrative expenses were $71.6 million and $50.4 million for the years ended December 31, 2022 and 2021, respectively. The increase of $21.2 million was primarily due to costs related to the November 2022 restructuring of $8.7 million, including non-cash stock-based compensation of $1.9 million, the write-off of $4.5 million of construction in progress costs incurred in connection with the Fremont facility, an increase in personnel-related costs of $4.0 million primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, operating costs related to the Fremont facility of $1.9 million, and increased facility costs of $1.0 million.

Interest income, net

Interest income, net, was $3.8 million and $0.7 million for the years ended December 31, 2022 and 2021, respectively, and consisted primarily of interest earned on our cash and marketable securities balances.

Liquidity, capital resources, and capital requirements

Sources of liquidity

As of December 31, 2023, we had $205.2 million in cash, cash equivalents, and marketable securities. To date we have raised an aggregate of approximately $1.5 billion in net proceeds from sales of common stock and private placements of our convertible preferred stock.

In February 2024, we completed an underwritten public offering pursuant to which we sold 21.8 million shares of our common stock, including 4.5 million shares pursuant to the full exercise of the underwriters' option to purchase additional shares, and pre-funded warrants to purchase 12.7 million shares of our common stock for net proceeds of approximately $179.9 million, after deducting underwriting discounts and commissions and estimated offering expenses.

In August 2022, we entered into a sales agreement with Cowen, acting as sales agent, pursuant to which we may offer and sell through Cowen, up to $150.0 million in shares of our common stock under the ATM facility. To date, we have sold an aggregate of 4.9 million shares of our common stock under the ATM facility for net proceeds of $28.7 million, after deducting commissions and expenses.

Since our inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses. We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever.

156

Future funding requirements

We expect to incur additional losses for the foreseeable future as we conduct and expand our research and development efforts, including conducting preclinical studies and clinical trials, developing new product candidates, establishing internal and external manufacturing capabilities, and funding our operations generally.

Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. However, we anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.

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

•
the scope, timing, progress, costs, and results of discovery, preclinical development, and clinical trials for our current or future product candidates;

•
the number and scope of clinical trials required for regulatory approval of our current or future product candidates;

•
the costs, timing, and outcome of regulatory review of our current or future product candidates;

•
the cost, timing, and scope of building our manufacturing capabilities, as well as costs associated with the manufacturing of clinical and commercial supplies of our current and future product candidates;

•
the costs and timing of future commercialization activities, including manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive marketing approval;

•
the costs and timing of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights;

•
our ability to maintain existing, and establish new, strategic collaborations, licensing, or other arrangements, and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty, or other payments due under any such agreement;

•
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

•
the expenses required to attract, hire, and retain skilled personnel;

•
the impact of global supply chain issues and rising rates of inflation on the costs of laboratory consumables, supplies, and equipment required for our ongoing operations;

•
the costs of operating as a public company;

•
our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party, including government, payors;

•
potential interruptions or delays resulting from global geo-political, economic, and other factors beyond our control;

•
the effect of competing technological and market developments; and

•
the extent to which we acquire or invest in businesses, products, and technologies.

157

Until such time, if ever, as we can generate significant revenue from product sales, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and upfront, milestone, and royalty payments received under any future licenses, collaborations, or other arrangements. In the event that additional financing is required, we may not be able to raise it on terms that are acceptable to us or at all. Our ability to raise additional financing may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from public health crises, conflicts in Ukraine, the Middle East, or other regions, changes in inflation, interest rate uncertainty, and other factors creating market risk. Recent bank failures have also caused increased concerns about liquidity in the broader financial services industry, and our business, business partners, or industry as a whole may be adversely impacted in ways that we cannot predict at this time. If we raise additional funds through the issuance of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock, and involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or acquiring, selling, or licensing intellectual property rights or assets, which could adversely impact our ability to conduct our business. If we raise funds through strategic collaborations or licensing or other arrangements, we may have to relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from various factors beyond our control. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

Cash flows

The following table summarizes our cash flows for the periods indicated:

Operating activities

During the year ended December 31, 2023, net cash used in operating activities was $253.6 million, consisting primarily of net loss of $283.3 million, the change in net operating assets and liabilities of $18.6 million, and non-cash charges of $11.1 million. The non-cash charges of $11.1 million consisted of gains of $40.8 million and $8.2 million for revaluation of our success payment liabilities and contingent consideration, respectively, non-cash stock-based compensation expense of $35.5 million, and depreciation expense of $24.6 million, which includes $7.0 million for the impairment of certain lab equipment and leasehold improvements which were primarily related to the strategic repositioning in October 2023.

During the year ended December 31, 2022, net cash used in operating activities was $290.1 million, consisting primarily of our net loss of $269.5 million, the change in net operating assets and liabilities of $7.5 million, and non-cash charges of $28.1 million. The non-cash charges of $28.1 million consisted of gains of $81.5 million and $3.4 million for revaluation of our success payment liabilities and contingent consideration, respectively, non-cash stock-based compensation expense of $38.3 million, depreciation expense of $15.6 million, and other non-cash charges of $2.9 million.

During the year ended December 31, 2021, net cash used in operating activities was $251.0 million, consisting primarily of our net loss of $355.9 million, partially offset by the change in our net operating assets and liabilities of $9.8 million and non-cash charges of $95.1 million. The non-cash charges of $95.1 million consisted of $31.8 million for revaluation of contingent consideration, $26.0 million for revaluation of our success payment liabilities, non-cash stock-based compensation expense of $22.4 million, depreciation expense of $11.1 million, and other non-cash charges of $3.8 million.

158

Investing activities

Cash provided by investing activities was $172.0 million during the year ended December 31, 2023, and cash used in investing activities was $210.6 million and $245.8 million during the years ended December 31, 2022 and 2021, respectively. For the year ended December 31, 2023, this consisted of net purchases and maturities of marketable securities of $192.0 million offset by the purchase of property and equipment of $20.0 million. For the years ended December 31, 2022 and 2021, this consisted of net purchases and maturities of marketable securities of $231.5 million and $211.3 million, respectively, and purchases of property and equipment of $20.9 million and $29.9 million, respectively.

Financing activities

During the year ended December 31, 2023, cash provided by financing activities was $31.6 million, consisting primarily of net proceeds from issuance of common stock under the ATM facility of $27.0 million and $4.6 million in proceeds from our employee stock purchase program and the exercise of stock options.

During the year ended December 31, 2022, cash provided by financing activities was $4.9 million, consisting primarily of proceeds from our employee stock purchase program and the exercise of stock options.

During the year ended December 31, 2021, cash provided by financing activities was $631.7 million, consisting primarily of net proceeds from our IPO of $626.4 million and $5.3 million in proceeds from our employee stock purchase plan and the exercise of stock options.

Contractual obligations and commitments

The following table summarizes our significant contractual obligations and commitments as of December 31, 2023:

Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as of December 31, 2023 are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones or royalties on net product sales. See the section titled “Business—Key Intellectual Property Agreements” for more information about these payment obligations.

We are also obligated to make a success payment to Cobalt of up to $500.0 million, payable in cash or stock, pursuant to the terms and conditions in the Cobalt acquisition agreement, and up to an aggregate of $175.0 million in success payments to Harvard, payable in cash. See the subsection below titled “—Critical accounting policies and significant judgments and estimates—Success payments” and Note 3, Acquisitions, and Note 4, License and collaboration agreements, to our consolidated financial statements located elsewhere in this Annual Report for more information on the success payments. As of December 31, 2023, the timing and likelihood of achieving the milestones and success payments and generating future product sales are uncertain, and therefore any related payments are not included in the table above.

We also enter into agreements in the normal course of business for clinical trials, sponsored research, preclinical studies, contract manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice. These obligations and commitments are not included in the table above.

Off-balance sheet arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

159

JOBS Act accounting election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will remain an emerging growth company until the earliest to occur of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our independent registered public accounting firm provide an attestation report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for any new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early if the standard allows early adoption.

Critical accounting policies and significant judgments and estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report. We believe the following accounting policies relate to the significant areas involving management’s judgments and estimates and are critical to understanding our historical and future performance.

Research and development expenses

We record research and development expenses in the periods in which they are incurred. We accrue for research and development expenses based on the estimated services performed, but not yet invoiced, pursuant to contracts with clinical research organizations, CDMOs, research institutions, or other service providers that conduct and manage clinical trials and preclinical studies, manufacture our product candidates, and perform other research services on our behalf and record these costs in accrued and other current liabilities. We make judgments and estimates in determining the accrued liabilities balance at each reporting period. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

To date, we have not experienced any material differences between accrued expenses and actual expenses incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.

Acquisitions

We account for business combinations using the acquisition method of accounting, which requires the assets acquired, including in-process research and development (IPR&D), and liabilities assumed, be recorded at their fair values as of the acquisition date. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of the estimated fair value of these items requires us to make significant estimates and assumptions.

If we determine the acquisition does not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill or contingent consideration are recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D are recorded in research and development expense if it is determined that there is no alternative future use, and subsequent milestone payments are recorded in research and development expense when achieved.

160

Intangible assets and goodwill

Accounting for business combinations requires us to make significant estimates and assumptions with respect to tangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Intangible assets are reviewed for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment.

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. We evaluate goodwill for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment. Our evaluation includes assessing qualitative factors or performing a quantitative analysis to determine whether it is more-likely-than-not that the fair value of net assets is below the carrying amounts.

Contingent consideration

Contingent consideration obligations are estimated at fair value at the acquisition date of a business combination and at each subsequent balance sheet date, with changes in fair value recorded in research and development related success payments and contingent consideration. The fair value of contingent consideration is determined by calculating the probability-weighted estimated value of the milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and applying the relevant discount rates. We use significant estimates and assumptions in determining the estimated contingent consideration and associated expense or gain at each balance sheet date. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. In evaluating the fair value of contingent consideration, significant judgment is required to estimate the likelihood and timing that the milestones would be achieved. We assess these estimates on an ongoing basis as additional data impacting the assumptions become available. Contingent consideration may change significantly as development progresses and additional data is obtained, impacting our assumptions regarding probabilities of successful achievement of the related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

Success payments

The Cobalt Success Payment was recorded as a liability on the consolidated balance sheet at fair value on the acquisition date and is remeasured at each subsequent reporting period, with changes in fair value recognized in research and development related success payments and contingent consideration. For the Harvard Success Payments, both the initial value and subsequent changes in fair value are recorded in research and development related success payments and contingent consideration. To determine the estimated fair value of the success payment liabilities, we use a Monte Carlo simulation methodology which models the estimated fair value of the liability based on several key assumptions, including the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered, term of the success payments, the risk-free interest rate, and expected volatility, which is estimated using peer company stocks for a period of time commensurate with the expected term assumption. Additionally, the computation of the estimated fair value of the Harvard Success Payments incorporates the per share fair market value of our common stock at the end of each reporting period, and the computation of the estimated fair value of the Cobalt Success Payment incorporates our market capitalization at the end of each reporting period. The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment and a small change in the assumptions may have a relatively large change in the estimated liability and resulting expense or gain.

Stock-based compensation

We recognize compensation costs related to restricted stock awards, restricted stock units, and stock options granted to employees and non-employees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur. For restricted stock awards and restricted stock units, the fair value of our common stock is used to determine the resulting stock-based compensation expense. For stock options, we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model. The fair value of stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Black-Scholes option pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. These assumptions include:

•
Fair Value of Common Stock—The fair value of our common stock is based on the closing price as reported on the Nasdaq Global Select Market on the date of grant.

161

•
Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. We use the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the options.

•
Expected Volatility—Due to our limited operating history, the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded companies and our historical common stock volatility over a period of time commensurate with the expected term of the stock option grants. The comparable companies are chosen based on their size, stage in the product development cycle, or area of specialty. We will continue to apply this process until sufficient historical information regarding the volatility of our own stock price becomes available.

•
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards.

•
Expected Dividend—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

See Note 11, Stock-based compensation to our consolidated financial statements included elsewhere in this Annual Report for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2023, 2022, and 2021. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change or we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Recently adopted and recent accounting pronouncements

See Note 2, Summary of significant accounting policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition or results of operations.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements that are based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of numerous factors, including those set forth in the section of this Annual Report titled “Risk Factors.” See also the section of this Annual Report titled “Special Note Regarding Forward-Looking Statements.”

Overview

We were founded on the belief that engineered cells will be one of the most important transformations in medicine over the next several decades. The burden of diseases that can be addressed at their root cause through engineered cells is significant. We view engineered cells as having the potential to be as therapeutically disruptive as biologics to clinical practice. Our long-term aspirations are to be able to control or modify any gene in the body, to replace any cell that is damaged or missing, and to markedly improve access to cellular and gene-based medicines. We have brought together an experienced group of scientists, engineers, and company builders and combined them with the necessary technologies to move this vision forward. We are developing ex vivo and in vivo cell engineering platforms to revolutionize treatment across a broad array of therapeutic areas with unmet treatment needs, including oncology, diabetes, central nervous system disorders, cardiovascular diseases, and genetic disorders, among others. Our platform progress, broad capabilities, and strong balance sheet enable us to execute on a broad vision. We expect clinical data from our first program, our CD19-targeted allogenic chimeric antigen receptor (CAR) T (SC291) program, in 2023. We also continue to make progress on developing our cell engineering platforms and advancing our product candidates through preclinical development, with the goal of multiple investigational new drug (IND) submissions in 2023 and beyond.

Frequently in disease, cells are damaged or missing entirely, and an effective therapy needs to replace the entire cell, an approach referred to as cell therapy or ex vivo cell engineering. A successful therapeutic requires an ability to manufacture cells at scale that engraft, function, and have the necessary persistence in the body. Of these requirements, long-term persistence related to overcoming immunologic rejection of another person’s cells has been the most challenging, which has led many to focus on autologous, or a patient’s own, cells as the therapeutic source. However, autologous therapies require a complex process of harvesting cells from the patients, manipulating them outside the body, and returning them to the patient. Products using this approach have had to manage significant challenges such as scalability, product variability, product quality, cost, patient accessibility, and limits on number of cell types that are amenable to this approach. Given these limitations, rather than using autologous cells to overcome immune rejection, we have invested in creating hypoimmune cells that can “hide” from the patient’s immune system. We are striving to make therapies that use pluripotent stem cells with our hypoimmune genetic modifications as the starting material, which we then differentiate into a specific cell type, such as a pancreatic islet cell, before treating the patient. Additionally, there are cell types for which effective differentiation protocols from a stem cell have not yet been developed, such as T cells. For these cell types, instead of starting from a pluripotent stem cell, we can use allogeneic, fully-differentiated cells sourced from a donor as the starting material to which we then apply our hypoimmune genetic modifications.

The process of repairing and controlling genes in the body, referred to as gene therapy or in vivo cell engineering, requires in vivo delivery of a therapeutic payload and modification of the genome. There are multiple methods available to modify the genome, but limited ability to deliver therapeutic payloads in vivo. Thus, delivery of a therapeutic payload is at the core of our strategic focus, with our ultimate goal being the delivery of any payload to any cell in a specific and repeatable way. Our initial effort is on cell-specific delivery and increasing the diversity and size of payloads. Using our fusogen technology, we have shown in preclinical studies that we can specifically target numerous cell surface receptors that, when combined with delivery vehicles to form fusosomes, allow cell-specific delivery across multiple different cell types. We have initially chosen to focus this technology on delivering payloads to T cells, hepatocytes, and hematopoietic stem cells.

137

We believe the time is right to develop engineered cell therapies across a broad range of therapeutic areas. Substantial progress in the understanding of genetics, gene editing, gene control, protein engineering, stem cell biology, immunology, process analytics, and computational biology have converged to create an opportunity to markedly increase the breadth and depth of the potential impact of genetic and cellular medicines. We are focused on creating transformative ex vivo and in vivo engineered cell therapies across a range of therapeutic areas. We are in the early stages of development across a broad pipeline of product candidates, which are summarized below:

We continue to make progress developing our cell engineering platforms – our hypoimmune allogeneic CAR T platform, our stem-cell derived platform that also leverages our hypoimmune technology, and our in vivo fusogen platform. In early 2023, the FDA cleared our first IND submission for our SC291 program and we continue advancing our other product candidates through preclinical development toward potential IND submissions in 2023 and beyond.

We expect initial clinical data for our SC291 program in 2023. We also expect clinical data in 2023 from an Investigator Sponsored Trial (IST) leveraging our hypoimmune technology. The IST aims to treat type 1 diabetes using hypoimmune-modified cadaveric primary islet cells. The clinical data from SC291 and the primary islet IST each offer the potential of human proof of concept for our hypoimmune platform and may unlock learnings for our allogeneic CAR T and stem-cell derived programs approaching IND filings in the coming years.

We continue to advance our hypoimmune allogeneic CAR T platform with a planned IND in 2023 for our hypoimmune-modified CD22-targeted allogeneic CAR T (SC262) with the potential to treat blood cancer patients with previous CD19 treatment failures, followed by a potential IND in 2024 for a hypoimmune-modified BCMA-targeted allogeneic CAR T (SC255) for treatment of multiple myeloma. These programs both use clinically validated CAR constructs and use the same hypoimmune technology as our SC291 program.

From our stem-cell derived platform, we expect to file an IND as early as 2024 for our stem-cell derived beta islet program (SC451) with the potential to treat type 1 diabetes. The SC451 program also leverages our hypoimmune platform. The goal of SC451 is to transplant hypoimmune-modified islet cells with no immunosuppression into patients with type 1 diabetes so that these cells produce insulin in a physiologic manner in response to glucose.

Our in vivo CAR T with CD8-targeted fusogen delivery of a CD19-targeted CAR (SG299) has the potential to generate CAR T cells in vivo, which would potentially reduce or eliminate the need for conditioning chemotherapy and complex CAR T cell manufacturing. We have demonstrated the ability to safely and selectively deliver the CAR gene to T cells in vivo and to generate

138

active CAR T cells in multiple preclinical models. Recently, our scientists have made progress in a second-generation manufacturing process that results in at least a 50X improvement in product potency, which we believe has the potential to translate into better efficacy, safety, and long-term manufacturability. In the fourth quarter of 2022, we decided to bring this second-generation process forward for our first-in-human studies in patients with B cell malignancies. We plan to file an IND in 2023 for SG299.

We continue to make progress on developing our cell engineering platforms and advancing our product candidates through preclinical development and towards potential IND submissions in 2023 and beyond. Based on our current timelines for our lead programs, we believe our cash runway will enable multiple data readouts across our platforms. Given the depth and breadth of our portfolio, we expect to assess and prioritize our programs on an ongoing basis based on various factors, including internal and external opportunities and constraints, which may result in our decision to advance certain programs ahead or instead of others. As certain of our product candidates advance towards potential IND submissions, we are conducting GLP toxicity studies and establishing necessary scale-up for our manufacturing processes. For details regarding our product candidates, see the section titled “Business— Overview” in Part I, Item 1 included elsewhere in this Annual Report.

Our ex vivo and in vivo technologies represent an aggregation of years of innovation and technology from multiple academic institutions and companies, including hypoimmune technology licensed from the President and Fellows of Harvard College (Harvard) and The Regents of the University of California, our ex vivo cell engineering program focused on certain brain disorders acquired from Oscine Corp., fusogen technology acquired from Cobalt Biomedicines Inc. (Cobalt), and gene editing technology licensed from Beam Therapeutics Inc. (Beam), among others. For details regarding these acquisitions and license and collaboration agreements, see Note 3, Acquisitions and Note 4, License and collaboration agreements, to our consolidated financial statements included in this Annual Report, as well as the section titled “Business— Key Intellectual Property Agreements” in Part I, Item 1 included elsewhere in this Annual Report.

Our operations to date have included developing our ex vivo and in vivo cell engineering platforms, identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, preparing for clinical trials of our product candidates, acquiring technology, organizing and staffing the company, business planning, establishing and maintaining our intellectual property portfolio, raising capital, and providing general and administrative support for these operations. All of our programs are currently in the development stage, and we do not have any products approved for sale. Since our inception, we have incurred net losses each year. Our net losses for the years ended December 31, 2022, 2021, and 2020 were $269.5 million, $355.9 million, and $285.3 million, respectively. As of December 31, 2022, we had an accumulated deficit of $1.1 billion. Our net losses resulted primarily from our research and development programs, and, to a lesser extent, general and administrative costs associated with our operations. In addition, as of December 31, 2022, the accumulated deficit of $1.1 billion includes non-cash charges of $18.6 million and $99.1 million related to the revaluation of the success payment liabilities and contingent consideration, respectively.

In February 2021, we completed our initial public offering (IPO) and issued 27.0 million shares of our common stock, including 3.5 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $25.00 per share and received net proceeds of $626.4 million. Prior to the IPO, we funded our operations from the issuance and sale of our convertible preferred stock, raising an aggregate of $705.5 million in gross proceeds. As of December 31, 2022, we had cash, cash equivalents, and marketable securities of $434.0 million. Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.

We expect our operating losses and expenses to remain relatively flat over the next few years. If our clinical trials are successful, our operating losses and expenses will likely increase over the longer term as we expand our research and development efforts. If we expand our research and development efforts, cost increases would be driven in large part by advancing our current and future product candidates through clinical trials; identifying additional product candidates; establishing our manufacturing capabilities, including through third-party contract development and manufacturing organizations and building our internal manufacturing capabilities; advancing preclinical development of our current and future product candidates; advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms; acquiring and licensing technologies aligned with our ambition of translating engineered cells to medicines; seeking regulatory approval of our current and future product candidates; increasing our workforce to support our research, clinical and preclinical development, manufacturing, and commercialization efforts; expanding our operational, financial, and management systems; continuing to develop, prosecute, and defend our intellectual property portfolio; and continuing to incur legal, accounting, or other expenses to operate our business, including the costs associated with being a public company.

We continue to invest in building world class capabilities in key areas of manufacturing sciences and operations, including development of our ex vivo and in vivo cell engineering platforms, product characterization, and process analytics. Our investments also include scaled research solutions, scaled infrastructure, and novel technologies to improve efficiency, characterization, and scalability of manufacturing, including establishing our internal manufacturing capabilities.

In November 2022, we underwent a portfolio prioritization and corporate restructuring designed to optimize development of our programs at or nearing clinical development, to continue investments in our core research platforms and innovation, and to maintain a strong balance sheet. That process was substantially completed in 2022 and resulted in a reduction of our workforce by approximately

139

15%. During the year ended December 31, 2022, we recognized one-time charges of $6.8 million related to employee severance, benefits and related costs, and a non-cash stock-based compensation charge of $1.9 million related to equity awards for employees impacted by the restructuring in general and administrative expense.

We anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and upfront, milestone, and royalty payments received under any future licenses, collaborations, or other arrangements. Additional capital may not be available on terms that are reasonable or acceptable to us, if at all. If we are unable to raise capital when needed or on attractive terms, our business, results of operations, and financial condition would be adversely affected.

Macroeconomic Considerations

Our business and operations may be negatively affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as rising inflation, rising interest rates, declines in consumer confidence, declines in economic growth, uncertainty in the markets, the ongoing Russia-Ukraine war, tensions in U.S.-China relations, and the COVID-19 pandemic along with its aftermath. The severity and duration of the impact of these events and conditions on our business cannot be predicted and may not be fully reflected in our results of operations until future periods. If economic uncertainty continues or increases, or if the global economy worsens, our business, financial condition, and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events and conditions on our business, financial condition, and operating results, see the section of this Annual Report titled “Risk Factors.”

Acquisitions

We have completed various acquisitions since inception. For details regarding our acquisitions, see the section titled “Business—Key Intellectual Property Agreements” and Note 3, Acquisitions, to our consolidated financial statements included elsewhere in this Annual Report.

License and collaboration agreements

We have entered into license and collaboration agreements with various third parties. For details regarding these agreements, see the section titled “Business— Key Intellectual Property Agreements” and Note 4, License and collaboration agreements, to our consolidated financial statements included elsewhere in this Annual Report.

Success payments and contingent consideration

Cobalt success payment and contingent consideration

Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are obligated to pay to certain former Cobalt stockholders contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $500.0 million upon our achievement of certain pre-specified development milestones and a success payment (Cobalt Success Payment) of up to $500.0 million, each of which is payable in cash or stock. The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, our market capitalization equals or exceeds $8.1 billion, and we are advancing a program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a biologics license application or new drug application for a product based on the fusogen technology. A valuation measurement date would also be triggered upon a change of control if at least one of our programs based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and our market capitalization is below $8.1 billion as of the date of such change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase. As of December 31, 2022, a Cobalt Success Payment had not been triggered.

See Note 3, Acquisitions to our consolidated financial statements included elsewhere in this Annual Report for details on the amount of the potential Cobalt Success Payment and potential Cobalt Contingent Consideration if there is a change of control based on various thresholds for our market capitalization on such change of control date. See the subsections below titled “—Success payments” and “—Contingent consideration” for more information on the accounting treatment of the Cobalt Success Payment and Cobalt Contingent Consideration.

Harvard success payments

Pursuant to the terms of the Harvard agreement, we may be required to make up to an aggregate of $175.0 million in success payments to Harvard (Harvard Success Payments), payable in cash, based on increases in the per share fair market value of our common stock. The potential Harvard Success Payments are based on multiples of increasing value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of $4.00 per share at ongoing pre-determined valuation measurement dates. The Harvard Success Payments can be achieved over a maximum of 12 years from the

140

effective date of the agreement. If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed. Any previous Harvard Success Payments made are credited against the Harvard Success Payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold. As of December 31, 2022, a Harvard Success Payment had not been triggered.

See Note 4, License and collaboration agreements to our consolidated financial statements included elsewhere in this Annual Report for more details on the various per share common stock values that trigger a Harvard Success Payment. See the subsection below titled “—Success payments” for more information on the accounting treatment of the Harvard Success Payments.

Components of operating results

Operating expenses

Research and development

To date, research and development expenses have related primarily to discovery and development of our platform technologies and product candidates. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, including CDMO manufacturing costs (including pass-through costs) and clinical trial costs, costs for laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, and facility expenses, including rent, depreciation, and allocated overhead costs. The timing and amount of costs to acquire and license technologies in the future cannot be reliably estimated and may fluctuate from quarter to quarter and year to year.

We deploy our employee and infrastructure resources across multiple research and development programs for developing our ex vivo and in vivo cell engineering platforms, identifying and developing product candidates, and establishing manufacturing capabilities. Due to our early stage of development, the number of ongoing projects, and our ability to use resources across several projects, most of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory, and other indirect facility and operating costs.

Research and development activities account for a significant portion of our operating expenses. We anticipate that our research and development expenses will remain relatively flat over the next few years. If our clinical trials are successful, our research and development expenses will likely increase over the longer term. If we expand our research and development capabilities, cost increases would be driven in large part by advancing our current and future product candidates through clinical trials; identifying additional product candidates; establishing internal and external manufacturing capabilities; advancing preclinical development of our current and future product candidates; advancing and expanding the capabilities of our ex vivo and in vivo cell engineering platforms; acquiring and licensing technologies aligned with our ambition of translating engineered cells to medicines; seeking regulatory approval of our current and future product candidates; and increasing our workforce to support our expanded research and development operations. A change in the outcome of any of these factors could result in a significant change in the costs and timing associated with the development of our product candidates.

Research and development related success payments and contingent consideration

Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities and our Cobalt Contingent Consideration liability. The expense or gain associated with our research and development related success payments and contingent consideration is unpredictable, in part, because our success payments are impacted by changes in our common stock price and market capitalization at the end of each reporting period and may continue to vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations.

General and administrative

General and administrative expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation for our employees in finance, legal, executive, human resources, and information technology functions, legal and consulting fees, insurance fees, and facility costs not otherwise included in research and development expenses. Legal fees include those related to corporate and patent matters. Included in general and administrative expenses for the twelve months ended December 31, 2022, are costs related to the November 2022 restructuring and construction in progress costs incurred in connection with the write-off of our previously planned manufacturing facility in Fremont, California (the Fremont facility). We anticipate that our general and administrative expenses will remain relatively flat over the next few years.

141

Results of operations

Comparison of the years ended December 31, 2022 and 2021

The following table summarizes our results of operations for the periods presented:

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

Research and development expense was $285.9 million and $248.6 million for the years ended December 31, 2022 and 2021, respectively. The increase of $37.3 million was primarily due to:

These increases were offset by a decrease of $45.6 million in costs to license technology. Licensing costs included an upfront payment of $6.0 million in 2022 related to licensing technology for our CD22 and BCMA programs compared to an upfront payment of $50.0 million in 2021 related to licensing Beam’s gene editing technology.

142

Research and development related success payments and contingent consideration

The following table summarizes the expenses (gains) associated with research and development related success payments and contingent consideration for the periods presented:

The gain related to the change in the estimated fair value of our Cobalt Success Payment was $69.3 million for the year ended December 31, 2022, compared to an expense of $23.6 million for the same period in 2021. The change in value was due to the reduction in our market capitalization offset by progress toward filing an IND for SG299 during the relevant period. The gain related to the change in the estimated fair value of our Harvard Success Payments was $12.2 million for the year ended December 31, 2022, compared to an expense of $2.4 million for the same period in 2021. The change in value was due to changes in our common stock price during the relevant period. The gain related to the change in the estimated fair value of our Cobalt Contingent Consideration was $3.4 million for the year ended December 31, 2022, compared to an expense of $31.8 million for the same period in 2021. The change in value was primarily due to variability of the discount rates used in the calculation offset by scientific progress toward the achievement of milestones during the relevant period.

General and administrative expenses

General and administrative expenses were $71.6 million and $50.4 million, respectively, for the years ended December 31, 2022 and 2021.The increase of $21.2 million was primarily due to costs related to the November 2022 restructuring of $8.7 million, including non-cash stock-based compensation of $1.9 million, the write-off of $4.5 million of construction in progress costs incurred in connection with the Fremont facility, an increase in personnel-related costs of $4.0 million primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, operating costs related to the Fremont facility of $1.9 million, and increased facility costs of $1.0 million.

Interest income, net

Interest income, net, was $3.8 million and $0.7 million for the years ended December 31, 2022 and 2021, respectively, and consisted primarily of interest earned on our cash and marketable securities balances.

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the periods presented:

143

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

Research and development expenses were $248.6 million and $132.9 million, respectively, for the years ended December 31, 2021 and 2020. The increase of $115.7 million was primarily due to:

Research and development related success payments and contingent consideration

The following table summarizes the expenses associated with research and development related success payments and contingent consideration for the periods presented:

The expense related to the change in the estimated fair value of our Cobalt Success Payment was $23.6 million and $62.3 million, respectively, for the years ended December 31, 2021 and 2020. The changes in value were due to changes in our market capitalization and scientific progress toward filing an IND for SG299 during the relevant periods. The expense related to the change in the estimated fair value of our Harvard Success Payment liabilities was $2.4 million and $9.9 million, respectively, for the years ended December 31, 2021 and 2020. The changes in value were due to changes in our common and preferred stock during the relevant periods. The expense related to the change in the estimated fair value of our Cobalt Contingent Consideration was $31.8 million and $52.8 million, respectively, for the years ended December 31, 2021 and 2020. The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to scientific progress toward the achievement of milestones during the relative periods.

General and administrative expenses

General and administrative expenses were $50.4 million and $28.3 million, respectively, for the years ended December 31, 2021 and 2020. The increase of $22.1 million was primarily due to increased personnel-related expenses of $10.8 million, including non-cash stock-based compensation of $6.2 million, primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, increased legal fees of $3.9 million to support our patent portfolio and licensing arrangements, increased insurance costs of $3.9 million associated with being a public company, increased consulting fees of $1.4 million, and increased facility costs, including rent, of $0.8 million.

144

Interest income, net

Interest income, net, was $0.7 million for each of the years ended December 31, 2021 and 2020 and consisted primarily of interest earned on our cash and marketable securities balances for each year.

Liquidity, capital resources, and capital requirements

Sources of liquidity

As of December 31, 2022, we had $434.0 million in cash, cash equivalents, and marketable securities. To date we have raised an aggregate of approximately $1.3 billion in net proceeds from sales of common stock and private placements of our convertible preferred stock.

In August 2022, we entered into a sales agreement with Cowen and Company, LLC, acting as sales agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $150.0 million from time to time in a series of one or more at the market equity offerings (collectively, the ATM facility). As of December 31, 2022, we had raised approximately $0.6 million in net proceeds under the ATM facility.

Since our inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses. We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever.

Future funding requirements

We expect to incur additional losses for the foreseeable future as we conduct and expand our research and development efforts, including conducting preclinical studies and clinical trials, developing new product candidates, establishing internal and external manufacturing capabilities, and funding our operations generally.

Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. However, we anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.

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

145

Until such time, if ever, as we can generate significant revenue from product sales, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, proceeds from any future equity or debt financings, and upfront, milestone, and royalty payments received under any future licenses, collaborations, or other arrangements. In the event that additional financing is required, we may not be able to raise it on terms that are acceptable to us or at all. If we raise additional funds through the issuance of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may result in increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock, and involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or acquiring, selling, or licensing intellectual property rights or assets, which could adversely impact our ability to conduct our business. If we raise funds through strategic collaborations or licensing or other arrangements, we may have to relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from various factors beyond our control. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

Cash flows

The following table summarizes our cash flows for the periods indicated:

Operating activities

During the year ended December 31, 2022, net cash used in operating activities was $290.1 million, consisting primarily of our net loss of $269.5 million, the change in net operating assets and liabilities of $7.5 million, and non-cash charges of $28.1 million. The non-cash charges of $28.1 million consisted of gains of $81.5 million and $3.4 million for revaluation of our success payment liabilities and contingent consideration, respectively, non-cash stock-based compensation expense of $38.3 million, depreciation expense of $15.6 million, and other non-cash charges of $2.9 million.

During the year ended December 31, 2021, net cash used in operating activities was $251.0 million, consisting primarily of our net loss of $355.9 million, partially offset by the change in our net operating assets and liabilities of $9.8 million and non-cash charges of $95.1 million. The non-cash charges of $95.1 million consisted of $31.8 million for revaluation of contingent consideration, $26.0 million for revaluation of our success payment liabilities, non-cash stock-based compensation expense of $22.4 million, depreciation expense of $11.1 million, and other non-cash charges of $3.8 million.

During the year ended December 31, 2020, net cash used in operating activities was $138.0 million, consisting primarily of our net loss of $285.3 million partially offset by non-cash charges of $141.2 million and an increase in our net operating assets of $6.2 million. The non-cash charges of $141.2 million consisted of $72.1 million for revaluation of our success payment liabilities, $52.8 million for revaluation of contingent consideration, depreciation expense of $5.9 million, non-cash stock-based compensation expense of $5.8 million, and other non-cash charges of $4.6 million.

146

Investing activities

Cash provided by investing activities was $210.6 million during the year ended December 31, 2022, and cash used in investing activities was $245.8 million and $252.6 million during the years ended December 31, 2021 and 2020, respectively. For the year ended December 31, 2022 this consisted of net maturities of marketable securities of $231.5 million offset by the purchase of property and equipment of $20.9 million. For the years ended December 31, 2021 and 2020 this consisted of net purchases of marketable securities of $211.3 million and $228.7 million, respectively, and purchases of property and equipment of $29.9 million and $23.9 million, respectively.

Financing activities

During the year ended December 31, 2022, cash provided by financing activities was $4.9 million, consisting primarily of proceeds from our employee stock purchase program and the exercise of stock options.

During the year ended December 31, 2021, cash provided by financing activities was $631.7 million, consisting primarily of net proceeds from our IPO of $626.4 million and $5.3 million in proceeds from our employee stock purchase plan and the exercise of stock options.

During the year ended December 31, 2020, cash provided by financing activities was $435.7 million consisting primarily of net proceeds from the sale of our convertible preferred stock.

Contractual obligations and commitments

The following table summarizes our significant contractual obligations and commitments as of December 31, 2022:

Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as of December 31, 2022 are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones or royalties on net product sales. See the section titled “Business—Key Intellectual Property Agreements” for more information about these payment obligations.

We are also obligated to make a success payment to Cobalt of up to $500.0 million, payable in cash or stock, pursuant to the terms and conditions in the Cobalt acquisition agreement, and up to an aggregate of $175.0 million in success payments to Harvard, payable in cash. See the subsection below titled “—Critical accounting policies and significant judgments and estimates—Success payments” and Note 3, Acquisitions, and Note 4, License and collaboration agreements, to our consolidated financial statements located elsewhere in this Annual Report for more information on the success payments. As of December 31, 2022, the timing and likelihood of achieving the milestones and success payments and generating future product sales are uncertain, and therefore any related payments are not included in the table above.

We also enter into agreements in the normal course of business for sponsored research, preclinical studies, contract manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice. These obligations and commitments are not included in the table above.

Off-balance sheet arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

JOBS Act accounting election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will remain an emerging growth company until the earliest to occur of (1) December 31, 2026, (2) the last day of the fiscal year in which

147

we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our independent registered public accounting firm provide an attestation report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for any new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early if the standard allows early adoption.

Critical accounting policies and significant judgments and estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report. We believe the following accounting policies relate to the significant areas involving management’s judgments and estimates and are critical to understanding our historical and future performance.

Research and development expenses

We record research and development expenses in the periods in which they are incurred. We accrue for research and development expenses based on the estimated services performed, but not yet invoiced, pursuant to contracts with research institutions or other service providers that conduct and manage preclinical studies and other research services on our behalf and record these costs in accrued and other current liabilities. We make judgments and estimates in determining the accrued liabilities balance at each reporting period. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

To date, we have not experienced any material differences between accrued expenses and actual expenses incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.

Acquisitions

We account for business combinations using the acquisition method of accounting, which requires the assets acquired, including in-process research and development (IPR&D), and liabilities assumed, be recorded at their fair values as of the acquisition date. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of the estimated fair value of these items requires us to make significant estimates and assumptions.

If we determine the acquisition does not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill or contingent consideration are recognized at the acquisition date. In an asset acquisition, upfront payments allocated to IPR&D are recorded in research and development expense if it is determined that there is no alternative future use, and subsequent milestone payments are recorded in research and development expense when achieved.

Intangible assets and goodwill

Accounting for business combinations requires us to make significant estimates and assumptions with respect to tangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired

148

intangible assets. Intangible assets are reviewed for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment.

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. We evaluate goodwill for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment. Our evaluation includes assessing qualitative factors or performing a quantitative analysis to determine whether it is more-likely-than-not that the fair value of net assets is below the carrying amounts.

Contingent consideration

Contingent consideration obligations are estimated at fair value at the acquisition date of a business combination and at each subsequent balance sheet date, with changes in fair value recorded in research and development related success payments and contingent consideration. The fair value of contingent consideration is determined by calculating the probability-weighted estimated value of the milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and applying the relevant discount rates. We use significant estimates and assumptions in determining the estimated contingent consideration and associated expense or gain at each balance sheet date. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. In evaluating the fair value of contingent consideration, significant judgment is required to estimate the likelihood and timing that the milestones would be achieved. We assess these estimates on an ongoing basis as additional data impacting the assumptions become available. Contingent consideration may change significantly as development progresses and additional data is obtained, impacting our assumptions regarding probabilities of successful achievement of the related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

Success payments

The Cobalt Success Payment was recorded as a liability on the consolidated balance sheet at fair value on the acquisition date and is remeasured at each subsequent reporting period, with changes in fair value recognized in research and development related success payments and contingent consideration. For the Harvard Success Payments, both the initial value and subsequent changes in fair value are recorded in research and development related success payments and contingent consideration. To determine the estimated fair value of the success payment liabilities, we use a Monte Carlo simulation methodology which models the estimated fair value of the liability based on several key assumptions, including the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered, term of the success payments, the risk-free interest rate, and expected volatility, which is estimated using peer company stocks for a period of time commensurate with the expected term assumption. Additionally, the computation of the estimated fair value of the Harvard Success Payments incorporates the per share fair market value of our common stock at the end of each reporting period, and the computation of the estimated fair value of the Cobalt Success Payment incorporates our market capitalization at the end of each reporting period. The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment and a small change in the assumptions may have a relatively large change in the estimated liability and resulting expense or gain.

Stock-based compensation

We recognize compensation costs related to restricted stock awards, restricted stock units, and stock options granted to employees and non-employees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur. For restricted stock awards and restricted stock units, the fair value of our common stock is used to determine the resulting stock-based compensation expense. For stock options, we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model. The fair value of stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Black-Scholes option pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. These assumptions include:

149

See Note 11, Stock-based compensation to our consolidated financial statements included elsewhere in this Annual Report for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2022, 2021, and 2020. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change or we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Recently adopted and recent accounting pronouncements

See Note 2, Summary of significant accounting policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition or results of operations.

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

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Financial Data,” and our audited consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements that are based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of numerous factors, including those set forth in the section of this Annual Report titled “Risk Factors.” See also the section of this Annual Report titled “Special Note Regarding Forward-Looking Statements.”

Overview

We were founded on the belief that engineered cells will be one of the most important transformations in medicine over the next several decades. The burden of diseases that can be addressed at their root cause through engineered cells is significant. We view engineered cells as having the potential to be as therapeutically disruptive as biologics to clinical practice. Our long-term aspirations are to be able to control or modify any gene in the body, to replace any cell that is damaged or missing, and to markedly improve access to cellular and gene-based medicines. We have brought together an experienced group of scientists, engineers, and company builders and combined them with the necessary technologies to move this vision forward. We are developing ex vivo and in vivo cell engineering platforms to revolutionize treatment across a broad array of therapeutic areas with unmet treatment needs, including oncology, diabetes, central nervous system disorders, cardiovascular diseases, and genetic disorders, among others. Our platform progress, broad capabilities, and strong balance sheet enable us to execute on a broad vision, with a goal of submitting our first INDs in 2022, with the opportunity to file multiple INDs per year beyond 2022.

Frequently in disease, cells are damaged or missing entirely, and an effective therapy needs to replace the entire cell, an approach referred to as cell therapy or ex vivo cell engineering. A successful therapeutic requires an ability to manufacture cells at scale that engraft, function, and have the necessary persistence in the body. Of these, long-term persistence related to overcoming immunologic rejection of another person’s cells has been the most challenging, which has led many to focus on autologous, or a patient’s own, cells as the therapeutic source. However, autologous therapies require a complex process of harvesting cells from the patients, manipulating them outside the body, and returning them to the patient. Products utilizing this approach have had to manage significant challenges such as scalability, product variability, product quality, cost, patient accessibility, and a limited number of cell types being amenable to this approach. Given these limitations, rather than utilizing autologous cells to overcome immune rejection, we have invested in creating hypoimmune cells that can “hide” from the patient’s immune system. We are striving to make therapies utilizing pluripotent stem cells with our hypoimmune genetic modifications as the starting material, which we then differentiate into a specific cell type, such as a pancreatic beta cell, before treating the patient. Additionally, for cell types for which effective differentiation protocols from a stem cell have not yet been developed, such as T cells, instead of starting from a pluripotent stem cell, we can utilize an allogeneic cell, differentiated cells sourced from a donor, as the starting material to which we then apply our hypoimmune genetic modifications.

The process of repairing and controlling genes in the body, referred to as gene therapy or in vivo cell engineering, requires in vivo delivery of a therapeutic payload and modification of the genome. There are multiple methods available to modify the genome, but limited ability to deliver therapeutic payloads in vivo. Thus, delivery of a therapeutic payload is at the core of our strategic focus, with our ultimate goal being the delivery of any payload to any cell in a specific and repeatable way. Our initial effort is on cell-specific delivery and increasing the diversity and size of payloads. Using our fusogen technology, we have shown in preclinical studies that we can specifically target numerous cell surface receptors that, when combined with delivery vehicles to form fusosomes, allow cell-specific delivery across multiple different cell types. We have initially chosen to focus this technology on delivering payloads to T cells, hepatocytes, and hematopoietic stem cells.

We believe the time is right to develop engineered cell therapies across a broad range of therapeutic areas. Substantial progress in the understanding of genetics, gene editing, gene control, protein engineering, stem cell biology, immunology, process analytics, and computational biology have converged to create an opportunity to markedly increase the breadth and depth of the potential impact of genetic and cellular medicines. We are focused on creating transformative ex vivo and in vivo engineered cell therapies across a

141

range of therapeutic areas. We are in the early stages of development across a broad pipeline of product candidates, all of which are currently in the preclinical stage of development and are summarized below:

We continue to make progress on developing our cell engineering platforms and advancing our product candidates through preclinical development and towards potential IND submissions. Given the depth and breadth of our portfolio, we expect to assess and prioritize our programs on an ongoing basis based on various factors, including internal and external opportunities and constraints, which may result in our decision to advance certain programs ahead or instead of others. As certain of our product candidates advance towards potential IND submissions, we are conducting GLP toxicity studies and establishing necessary scale-up for our manufacturing processes. Our goal is to file INDs in 2022 for our hypoimmune allogeneic CD19 CAR T (SC291) and our in vivo CD19 CAR T (SG295) product candidates. For details regarding our product candidates, see the section titled “Business— Overview” in Part I, Item 1 included elsewhere in this Annual Report.

Our ex vivo and in vivo technologies represent an aggregation of years of innovation and technology from multiple academic institutions and companies, including our ex vivo cell engineering programs focused on replacing damaged cells in the heart and certain brain disorders acquired from Cytocardia Inc. (Cytocardia) and Oscine Corp. (Oscine), respectively, hypoimmune technology licensed from the President and Fellows of Harvard College (Harvard) and The Regents of the University of California (UCSF), fusogen technology acquired from Cobalt Biomedicines Inc. (Cobalt), and genome editing technology licensed from Beam Therapeutics Inc. (Beam), among others. For details regarding these acquisitions and license and collaboration agreements, see Note 3, Acquisitions and Note 4, License and collaboration agreements, to our consolidated financial statements included in this Annual Report, as well as the section titled “Business— Key Intellectual Property Agreements” in Part I, Item 1 included elsewhere in this Annual Report.

We were incorporated in July 2018, and our operations to date have included developing our ex vivo and in vivo cell engineering platforms, identifying and developing potential product candidates, executing preclinical studies, establishing manufacturing capabilities, acquiring technology, organizing and staffing the company, business planning, establishing our intellectual property portfolio, raising capital, and providing general and administrative support for these operations. All of our programs are currently in the development stage, and we do not have any products approved for sale. Since our inception, we have incurred net losses each year. Our net losses for the years ended December 31, 2021, 2020, and 2019 were $355.9 million, $285.3 million, and $130.8 million, respectively. As of December 31, 2021, we had an accumulated deficit of $785.4 million. Our net losses resulted primarily from our research and development programs, and, to a lesser extent, general and administrative costs associated with our operations. In addition, as of December 31, 2021, the accumulated deficit of $785.4 million includes non-cash charges of $100.1 million and $102.5 million related to the revaluation of the success payment liabilities and contingent consideration, respectively.

142

In February 2021, we completed our initial public offering (IPO) and issued 27.0 million shares of our common stock, including 3.5 million shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price of $25.00 per share and received net proceeds of $626.4 million. Prior to the IPO, we funded our operations from the issuance and sale of our convertible preferred stock, raising an aggregate of $705.5 million in gross proceeds. As of December 31, 2021, we had cash, cash equivalents, and marketable securities of $746.9 million. Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We anticipate that our expenses and operating losses will increase substantially for the foreseeable future. The expected increase in expenses will be driven in large part by our ongoing activities if and as we: continue to advance our ex vivo and in vivo cell engineering platforms; continue preclinical development of our current and future product candidates and initiate additional preclinical studies; commence clinical studies of our current and future product candidates; establish our manufacturing capabilities, including developing our contract development and manufacturing relationships and building our internal manufacturing facility; acquire and license technologies aligned with our ex vivo and in vivo cell engineering platforms; seek regulatory approval of our current and future product candidates; expand our operational, financial, and management systems; increase personnel, including personnel to support our preclinical and clinical development, manufacturing, and commercialization efforts; continue to develop, grow, prosecute, and defend our intellectual property portfolio; and incur additional legal, accounting, or other expenses in operating our business, including the costs associated with operating as a public company.

We are investing early in building world class capabilities in key areas of manufacturing sciences and operations, including development of our ex vivo and in vivo cell engineering platforms, product characterization, and process analytics from the time candidates are in early research phases. Our investments also include scaled research solutions, scaled infrastructure, and novel technologies to improve efficiency, characterization, and scalability of manufacturing, including establishing our internal manufacturing facility.

We anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. Until we can generate significant product revenue, if ever, we expect to finance our operations with our existing cash, cash equivalents, and marketable securities, the proceeds of any future equity or debt financings, and upfront, milestone, and royalty payments, if any, received under future license or collaboration agreements. We may not be able to raise additional capital on terms that are acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

COVID-19 business update

The global COVID-19 pandemic continues to evolve rapidly, and we continue to monitor it closely. The extent of the impact of the ongoing COVID-19 pandemic on our business, operations, and clinical development timelines and plans remains uncertain and will depend on certain developments, including the duration of the COVID-19 pandemic and spread of COVID-19, and the pandemic’s impact on our ability to build out and operationalize our internal manufacturing facility, expand our laboratory space, and enroll patients in clinical trials, and the impact of the pandemic on our clinical trial sites, contract research organizations (CROs), contract manufacturing organizations, suppliers of key materials and supplies, including raw materials, consumables, and other equipment necessary to manufacture our product candidates, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. We have experienced modest delays in our discovery and development activities as a result of the COVID-19 pandemic, primarily due to temporary and partial shutdowns at certain of our CROs and academic institutions that have since resumed operations, and stay-at-home orders in Washington, California, and Massachusetts, where our operations are located. However, to the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and most of our non-laboratory employees primarily working remotely. We continue to actively monitor the situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.

Acquisitions

We have completed various acquisitions since inception. For details regarding our acquisitions, see the section titled “Business—Key Intellectual Property Agreements” and Note 3, Acquisitions, to our consolidated financial statements included elsewhere in this Annual Report.

License and collaboration agreements

We have entered into license and collaboration agreements with various third parties. For details regarding these agreements, see the section titled “Business— Key Intellectual Property Agreements” and Note 4, License and collaboration agreements, to our consolidated financial statements included elsewhere in this Annual Report.

143

Success payments and contingent consideration

Cobalt success payment and contingent consideration

Pursuant to the terms of the Cobalt acquisition agreement, we have an obligation to pay to certain former Cobalt stockholders’ contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of $500.0 million upon our achievement of certain pre-specified development milestones and a success payment (Cobalt Success Payment) of up to $500.0 million payable in cash or stock. The Cobalt Success Payment is payable if, at pre-determined valuation measurement dates, including the closing of our IPO and periodically thereafter, our market capitalization equals or exceeds $8.1 billion and we are advancing a program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a biologics license application (BLA) or new drug application (NDA). As of December 31, 2021, a Cobalt Success Payment had not been triggered. In addition to our IPO, a valuation measurement date would be triggered upon a change of control if at least one of our programs based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and our market capitalization is below $8.1 billion as of the date of such change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase. See Note 3, Acquisitions to our consolidated financial statements included elsewhere in this Annual Report for details on the amount of the potential Cobalt Success Payment and potential Cobalt Contingent Consideration if there is a change of control based on various thresholds for our market capitalization on such change of control date.

As of December 31, 2021 and 2020, the estimated fair value of the Cobalt Success Payment liability was $88.3 million and $64.7 million, respectively, and were recorded in long-term liabilities in the consolidated balance sheets. In connection with the change in the estimated fair value of the Cobalt Success Payment, we recognized expenses of $23.6 million, $62.3 million, and an immaterial amount, respectively, for the years ended December 31, 2021, 2020, and 2019.

As of December 31, 2021, the estimated fair value of the Cobalt Contingent Consideration was $153.7 million, of which $51.4 million was recorded in short-term liabilities and $102.3 million was recorded in long-term liabilities in the consolidated balance sheet. As of December 31, 2020, the estimated fair value of the Cobalt Contingent Consideration of $121.9 million was recorded in long-term liabilities in the consolidated balance sheet. In connection with the change in the estimated fair value of the Cobalt Contingent Consideration, we recognized expenses of $31.8 million, $52.8 million, and $17.9 million, respectively, for the years ended December 31, 2021, 2020, and 2019. See the subsections below titled “—Success payments” and “—Contingent consideration” for more information on the accounting treatment of the Cobalt Success Payment and Cobalt Contingent Consideration.

Harvard success payments

Pursuant to the terms of the Harvard agreement, we may be required to make up to an aggregate of $175.0 million in success payments to Harvard (Harvard Success Payments), payable in cash, based on increases in the per share fair market value of our common stock. The potential Harvard Success Payments are based on multiples of increased value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of $4.00 per share at pre-determined valuation measurement dates. The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement. See Note 4, License and collaboration agreements to our consolidated financial statements included elsewhere in this Annual Report for more details on the various per share common stock values that trigger a Harvard Success Payment.

The first valuation measurement date occurred in February 2022 on the one-year anniversary of our IPO. The threshold was not met, and therefore no payment was made as of the measurement date. Additional valuation measurement dates are triggered by certain events, including a merger, an asset sale, the sale of the majority of the shares held by Series A convertible preferred stockholders, and the last day of the term of the Harvard Success Payments. If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed. Any previous Harvard Success Payments made are credited against the Harvard Success Payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold.

As of December 31, 2021 and 2020, the estimated fair value of the Harvard Success Payment liability was $14.2 million and $11.8 million, respectively. As of December 31, 2021 and 2020, $5.0 million and $0, respectively, were recorded in short-term liabilities, and $9.2 million and $11.8 million, respectively, were recorded in long-term liabilities in the consolidated balance sheet. In connection with the change in the estimated fair value of the Harvard Success Payment liability, we recognized expenses of $2.4 million, $9.9 million, and $1.9 million, respectively, for the years ended December 31, 2021, 2020, and 2019. See the subsection below titled “—Success payments” for more information on the accounting treatment of the Harvard Success Payments.

144

Components of operating results

Operating expenses

Research and development

To date, research and development expenses have related primarily to discovery and development of our platform technology and product candidates. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses, until the goods or services are received.

Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, costs for laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, facility and other allocated expenses, including rent, depreciation, and allocated overhead costs, and other research and development expenses. The timing and amount of costs to acquire and license technologies in the future cannot be reliably estimated and may fluctuate from quarter to quarter and year to year.

We deploy our employee and infrastructure resources across multiple research and development programs for developing our ex vivo and in vivo cell engineering platforms, identifying and developing product candidates, and establishing manufacturing capabilities. Due to our early stage of development, the number of ongoing projects, and our ability to use resources across several projects, the majority of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory, and other indirect facility and operating costs.

Research and development activities account for a significant portion of our operating expenses. We anticipate that our research and development expenses will increase for the foreseeable future as we expand our research and development efforts, including expanding the capabilities of our cell engineering platforms, identifying product candidates, completing existing preclinical studies and commencing new preclinical studies, commencing clinical trials, establishing internal and external manufacturing capabilities, seeking regulatory approval of our product candidates, and incurring costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines. A change in the outcome of any of these factors could result in a significant change in the costs and timing associated with the development of our product candidates.

Research and development related success payments and contingent consideration

Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities and Cobalt Contingent Consideration liability. Research and development expense related to our success payment liabilities and contingent consideration is unpredictable, including because our success payments are based, in part, on our common stock price and market capitalization at the end of each reporting period, and may continue to vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations.

General and administrative

General and administrative expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation for our employees in finance, legal, executive, human resources, information technology, and other administrative functions, legal and consulting fees, insurance fees, and facility costs not otherwise included in research and development expenses. Legal fees include those related to corporate and patent matters.

We anticipate that our general and administrative expenses will increase over the foreseeable future to support our continued research and development activities, grow our business, and support future possible business development opportunities. We also anticipate that we will continue to incur expenses related to audit and legal services associated with operating as a public company, maintaining compliance with the rules and regulations of the Securities and Exchange Commission (SEC) and standards applicable to companies listed on a national securities exchange, investor relations activities, and other administrative and professional services.

145

Results of operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the periods presented:

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

Research and development expense was $248.6 million and $132.9 million, respectively, for the years ended December 31, 2021 and 2020. The increase of $115.7 million was primarily due to:

Research and development related success payments and contingent consideration

The following table summarizes the expenses associated with research and development related success payments and contingent consideration for the periods presented:

For the years ended December 31, 2021 and 2020, we recognized non-cash expenses of $57.9 million and $124.9 million, respectively, for the changes in the estimated fair value of research and development related success payments and contingent

146

consideration. The expense related to the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was $26.0 million and $72.1 million, respectively, for the years ended December 31, 2021 and 2020. The change in the estimated fair value of the success payment liabilities was due to a smaller increase in the growth of our market capitalization and common stock price during the relative periods. The expense related to the change in the estimated fair value of our Cobalt Contingent Consideration was $31.8 million and $52.8 million, respectively, for the years ended December 31, 2021 and 2020. The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to scientific progress toward the achievement of milestones during the relative periods.

General and administrative expenses

General and administrative expenses were $50.4 million and $28.3 million, respectively, for the years ended December 31, 2021 and 2020.The increase of $22.1 million was primarily due to increased personnel-related expenses of $10.8 million, including non-cash stock-based compensation of $6.2 million, primarily attributable to an increase in headcount to build our infrastructure and support our continued research and development activities, increased legal fees of $3.9 million to support our patent portfolio and licensing arrangements, increased insurance costs of $3.9 million associated with being a public company, increased consulting fees of $1.4 million, and increased facility costs, including rent, of $0.8 million.

Interest income, net

Interest income, net, was $0.7 million for each of the years ended December 31, 2021 and 2020 and consisted primarily of interest earned on our cash and marketable securities balances for each year.

Comparison of the years ended December 31, 2020 and 2019

The following table summarizes our results of operations for the periods presented:

Research and development expenses

The following table summarizes the components of our research and development expenses for the periods presented:

Research and development expenses were $132.9 million and $99.6 million, respectively, for the years ended December 31, 2020 and 2019. The increase of $33.3 million was primarily due to:

147

These increases were partially offset by a decline in costs to acquire and license technology of $15.8 million due to costs incurred in 2019 related to the Harvard and UCSF agreements, and the upfront fee for the acquisition of Cytocardia, partially offset by the upfront fee for the acquisition of Oscine in 2020.

Research and development related success payments and contingent consideration

The following table summarizes the expenses associated with research and development related success payments and contingent consideration for the periods presented:

For the years ended December 31, 2020 and 2019, we recognized non-cash expenses of $124.9 million and $19.8 million, respectively, for the changes in the estimated fair value of research and development related success payments and contingent consideration. The expense related to the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was $72.1 million and $1.9 million, respectively, for the years ended December 31, 2020 and 2019. The change in the estimated fair value of the success payment liabilities was due to increases in the estimated fair value of our Series A and Series B convertible preferred stock during the relative periods. The expense related to the change in the estimated fair value of our Cobalt Contingent Consideration was $52.8 million and $17.9 million, respectively, for the years ended December 31, 2020 and 2019. The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to scientific progress toward the achievement of milestones during the relative periods.

General and administrative expenses

General and administrative expenses were $28.3 million and $21.8 million, respectively, for the years ended December 31, 2020 and 2019. The increase of $6.5 million was primarily due to increased personnel-related expenses of $3.2 million, primarily attributable to an increase in headcount to build our infrastructure, increased information technology and facilities costs, including rent of $1.4 million, increased business taxes and insurance of $0.8 million, and increased consulting and legal fees of $0.5 million.

Interest income, net

Interest income, net was $0.7 million and $2.9 million, respectively, for the years ended December 31, 2020 and 2019. The decrease of $2.2 million was due to lower interest rates on cash and marketable securities balances.

Benefit from income taxes

The benefit from income taxes of $7.5 million for the year ended December 31, 2019 was due to a release of valuation allowance associated with the deferred tax liability of $7.5 million recorded in connection with the intangible asset from the Cobalt acquisition. There was no benefit from income taxes for the year ended December 31, 2020.

Liquidity, capital resources, and capital requirements

Sources of liquidity

As of December 31, 2021, we had $746.9 million in cash, cash equivalents, and marketable securities. To date we have raised an aggregate of approximately $1.3 billion in net proceeds through our IPO and private placements of our convertible preferred stock. Since our inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever.

148

Future funding requirements

We expect to incur additional losses for the foreseeable future as we conduct and expand our research and development efforts, including conducting preclinical studies and clinical trials, developing new product candidates, establishing internal and external manufacturing capabilities, and funding our operations generally.

Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. However, we anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.

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

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations from the proceeds of equity or debt financings or capital obtained in connection with strategic collaborations or licensing or other arrangements. In the event that additional financing is required, we may not be able to raise it on terms that are acceptable to us or at all. If we raise additional funds through the issuance of equity or convertible debt securities, it may result in dilution to our existing stockholders. Debt financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur debt, we could become subject to covenants that would restrict our operations. If we raise funds through strategic collaborations or licensing or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

149

Cash flows

The following table summarizes our cash flows for the periods indicated:

Operating activities

During the year ended December 31, 2021, net cash used in operating activities was $251.0 million, consisting primarily of our net loss of $355.9 million, partially offset by the change in our net operating assets and liabilities of $9.8 million and non-cash charges of $95.1 million. The non-cash charges of $95.1 million consisted of $31.8 million for revaluation of contingent consideration, $26.0 million for revaluation of our success payment liabilities, non-cash stock-based compensation expense of $22.4 million, depreciation expense of $11.1 million, and other non-cash charges of $3.8 million.

During the year ended December 31, 2020, net cash used in operating activities was $138.0 million, consisting primarily of our net loss of $285.3 million partially offset by non-cash charges of $141.2 million and an increase in our net operating assets of $6.2 million. The non-cash charges of $141.2 million consisted of $72.1 million for revaluation of our success payment liabilities, $52.8 million for revaluation of contingent consideration, depreciation expense of $5.9 million, non-cash stock-based compensation expense of $5.8 million, and other non-cash charges of $4.6 million.

During the year ended December 31, 2019, net cash used in operating activities was $85.5 million, consisting primarily of our net loss of $130.8 million and a tax benefit of $7.5 million recorded in connection with the Cobalt acquisition, partially offset by non-cash charges of $42.3 million and an increase in our net operating assets of $10.5 million. The non-cash charges of $42.3 million consisted of $17.9 million for revaluation of contingent consideration, $11.9 million for the issuance of stock in connection with license agreements, $6.5 million for revaluation of success payment and contingent liabilities, depreciation expense of $1.8 million, and other non-cash charges of $4.2 million.

Investing activities

During the years ended December 31, 2021, 2020 and 2019, cash used in investing activities was $245.8 million, $252.6 million, and $87.9 million, respectively. This consisted primarily of net purchases, sales, and maturities of marketable securities of $211.3 million, $228.7 million and $58.5 million, respectively, and purchases of property and equipment of $29.9 million, $23.9 million and $26.2 million, respectively, for the years ended December 31, 2021, 2020 and 2019.

Financing activities

During the year ended December 31, 2021, cash provided by financing activities was $631.7 million, consisting primarily of net proceeds from our IPO of $626.4 million and $5.3 million in proceeds from our employee stock purchase plan and the exercise of stock options.

During the years ended December 31, 2020 and 2019, cash provided by financing activities was $435.7 million and $223.7 million, respectively, consisting primarily of net proceeds from the sale of our convertible preferred stock.

Contractual obligations and commitments

The following table summarizes our significant contractual obligations and commitments as of December 31, 2021:

150

Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as of December 31, 2021 are contingent upon future events such as our achievement of pre-specified development, regulatory, and commercial milestones or royalties on net product sales. See the section titled “Business—Key Intellectual Property Agreements” for more information about these payment obligations.

We are also obligated to make a success payment to Cobalt of up to $500.0 million, payable in cash or stock, pursuant to the terms and conditions in the Cobalt acquisition agreement, and up to an aggregate of $175.0 million in success payments to Harvard, payable in cash. See the subsection below titled “—Critical accounting policies and significant judgments and estimates—Success payments” and Note 3, Acquisitions, and Note 4, License and collaboration agreements, to our consolidated financial statements located elsewhere in this Annual Report for more information on the success payments. As of December 31, 2021, the timing and likelihood of achieving the milestones and success payments and generating future product sales are uncertain, and therefore any related payments are not included in the table above.

We also enter into agreements in the normal course of business for sponsored research, preclinical studies, contract manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice. These obligations and commitments are not included in the table above.

Off-balance sheet arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

JOBS Act accounting election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will cease to be an emerging growth company until the earliest of (1) December 31, 2026, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. For as long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our independent registered public accounting firm provide an attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for any new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early if the standard allows early adoption.

Critical accounting policies and significant judgments and estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report. We believe the following accounting policies relate to the significant areas involving management’s judgments and estimates and are critical to understanding our historical and future performance.

Research and development expenses

We record research and development costs in the periods in which they are incurred. We accrue for research and development costs based on the estimated services performed, but not yet invoiced, pursuant to contracts with research institutions or other service providers that conduct and manage preclinical studies and other research services on our behalf and record these costs in accrued and other current liabilities. We make judgments and estimates in determining the accrued liabilities balance at each reporting period. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

151

To date, we have not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.

Acquisitions

We account for business combinations using the acquisition method of accounting, which requires the assets acquired, including in-process research and development (IPR&D), and liabilities assumed, be recorded at their fair values as of the acquisition date. Any excess of the purchase price over the fair value of net assets acquired is recorded as goodwill. The determination of the estimated fair value of these items requires us to make significant estimates and assumptions.

If we determine the acquisition does not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill or contingent consideration are recognized at the acquisition date. In an asset acquisition, up-front payments allocated to IPR&D are recorded in research and development expense if it is determined that there is no alternative future use, and subsequent milestone payments are recorded in research and development expense when achieved.

Intangible assets and goodwill

Accounting for business combinations requires us to make significant estimates and assumptions with respect to tangible and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Intangible assets are reviewed for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment.

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. We evaluate goodwill for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment. Our evaluation includes assessing qualitative factors or performing a quantitative analysis to determine whether it is more-likely-than-not that the fair value of net assets is below the carrying amounts.

Contingent consideration

Contingent consideration obligations are estimated at fair value at the acquisition date of a business combination and at each subsequent balance sheet date, with changes in fair value recorded in research and development related success payments and contingent consideration. The fair value of contingent consideration is determined by calculating the probability-weighted estimated value of the milestone payments based on the assessment of the likelihood and estimated timing that the milestones would be achieved and applying the relevant discount rates. We utilize significant estimates and assumptions in determining the estimated contingent consideration and associated expense or gain at each balance sheet date. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. In evaluating the fair value of contingent consideration, a significant amount of judgment is required to estimate the likelihood and timing that the milestones would be achieved. We assess these estimates on an on-going basis as additional data impacting the assumptions become available. Contingent consideration may change significantly as development progresses and additional data is obtained, impacting our assumptions regarding probabilities of successful achievement of the related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

Success payments

The Cobalt Success Payment was recorded as a liability on the consolidated balance sheet at fair value on the acquisition date and is remeasured at each subsequent reporting period, with changes in fair value recognized in research and development related success payments and contingent consideration. For the Harvard Success Payments, both the initial value and subsequent changes in fair value are recorded in research and development related success payments and contingent consideration. To determine the estimated fair value of the success payment liabilities, we use a Monte Carlo simulation methodology which models the estimated fair value of the liability based on several key assumptions, including the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered, term of the success payments, the risk-free interest rate, and expected volatility, which is estimated using peer company stocks for a period of time commensurate with the expected term assumption. Prior to our IPO, the calculation of the Harvard Success Payment liability incorporated the estimated fair value of our Series A convertible preferred stock, and the Cobalt Success Payment liability incorporated our estimated future value implied by the per share value of the Series B convertible preferred stock at issuance, or any security into which such stock had been converted or exchanged. Concurrent with the

152

closing of our IPO in February 2021, the Series A and Series B convertible preferred stock converted into common stock. Subsequent to our IPO, the computation of the estimated fair value of the Harvard Success Payments incorporates the per share fair market value of our common stock at the end of each reporting period, and the computation of the estimated fair value of the Cobalt Success Payment incorporates our market capitalization at the end of each reporting period. The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment and a small change in the assumptions may have a relatively large change in the estimated liability and resulting expense or gain.

Stock-based compensation

We recognize compensation costs related to restricted stock awards, restricted stock units, and stock options granted to employees and nonemployees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur. For restricted stock awards and restricted stock units, the fair value of our common stock is used to determine the resulting stock-based compensation expense. For stock options, we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model. The fair value of the stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Black-Scholes option pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. These assumptions include:

See Note 12, Stock-based compensation to our consolidated financial statements included elsewhere in this Annual Report for information concerning certain specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2021, 2020, and 2019. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change or we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Recently adopted and recent accounting pronouncements

See Note 2, Summary of significant accounting policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition or results of operations.

153