Filed Pursuant to Rule 424(b)(3)
Registration No. 333-265873
Prospectus Supplement No. 12
(To Prospectus dated August 8, 2022)
SENTI BIOSCIENCES, INC.
35,444,908 Shares of Common Stock
__________________
This prospectus supplement no. 12 (this “Prospectus Supplement”) amends and supplements the prospectus dated August 8, 2022 (as supplemented or amended from time to time, the “Prospectus”) which forms part of our Registration Statement on Form S-1 (Registration Statement No. 333-265873). This Prospectus Supplement is being filed to update and supplement the information included or incorporated by reference in the Prospectus with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on August 11, 2023 (the “Form 10-Q”). Accordingly, we have attached the Form 10-Q to this Prospectus Supplement.
This Prospectus Supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This Prospectus Supplement should be read in conjunction with the Prospectus, and if there is any inconsistency between the information in the Prospectus and this Prospectus Supplement, you should rely on this Prospectus Supplement.
Our common stock is listed on The Nasdaq Global Market (“Nasdaq”) under the symbol “SNTI”. On August 10, 2023, the last quoted sale price for the Senti Common Shares as reported on Nasdaq was $0.80 per share.
We are an “emerging growth company” under applicable federal securities laws and will be subject to reduced public company reporting requirements.
__________________
Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our securities in “Risk Factors” beginning on page 11 of the Prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the Prospectus or determined if the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this Prospectus Supplement is August 11, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q | ||
| (Mark One) | |||||
| ☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2023 | |||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period from _______ to _______
Commission File Number 001-40440
_________________________
Senti Biosciences, Inc.
(Exact name of registrant as specified in its charter)
_________________________
| Delaware | 86-2437900 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
2 Corporate Drive, First Floor
South San Francisco, CA 94080
(Address of principal executive offices and zip code)
(650) 239-2030
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
_________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common stock, par value $0.0001 per share | SNTI | The Nasdaq Global Market | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||||||||
| Emerging growth company | ☒ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 1, 2023 there were 44,545,186 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.
SENTI BIOSCIENCES, INC.
TABLE OF CONTENTS
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i
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
SENTI BIOSCIENCES, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share data)
(in thousands, except share and per share data)
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 36,752 | $ | 57,621 | |||||||
| Accounts receivable | 567 | 626 | |||||||||
| Short-term investments | 22,883 | 40,942 | |||||||||
| Prepaid expenses and other current assets | 3,290 | 3,390 | |||||||||
| Total current assets | 63,492 | 102,579 | |||||||||
| Restricted cash | 3,336 | 3,366 | |||||||||
| Property and equipment, net | 58,940 | 56,136 | |||||||||
| Operating lease right-of-use assets | 17,469 | 18,418 | |||||||||
| Other long-term assets | 393 | 293 | |||||||||
| Total assets | $ | 143,630 | $ | 180,792 | |||||||
| Liabilities and Stockholders’ Equity (Deficit) | |||||||||||
| Accounts payable | $ | 2,585 | $ | 2,267 | |||||||
| Finance lease liabilities - related party, current portion | 95 | — | |||||||||
| Early exercise liability, current portion | 135 | 135 | |||||||||
| Deferred revenue | 164 | 799 | |||||||||
| Accrued expenses and other current liabilities | 4,991 | 12,864 | |||||||||
| Operating lease liabilities | 2,456 | 1,988 | |||||||||
| Total current liabilities | 10,426 | 18,053 | |||||||||
| Finance lease liabilities - related party, net of current portion | 49 | — | |||||||||
| Operating lease liabilities, net of current portion | 35,640 | 35,103 | |||||||||
| Contingent earnout liability | 20 | 227 | |||||||||
| Early exercise liability, net of current portion | 79 | 146 | |||||||||
| Total liabilities | 46,214 | 53,529 | |||||||||
Commitments and contingencies (Note 11) | |||||||||||
| Stockholders’ equity (deficit): | |||||||||||
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at June 30, 2023 and December 31, 2022; zero shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | — | — | |||||||||
Common stock, $0.0001 par value; 500,000,000 shares authorized at June 30, 2023 and December 31, 2022; 44,465,006 and 44,062,534 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | 4 | 4 | |||||||||
| Additional paid-in capital | 308,117 | 300,544 | |||||||||
| Accumulated other comprehensive income | — | 1 | |||||||||
| Accumulated deficit | (210,705) | (173,286) | |||||||||
| Total stockholders’ equity | 97,416 | 127,263 | |||||||||
| Total liabilities, preferred stock and stockholders’ equity | $ | 143,630 | $ | 180,792 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
SENTI BIOSCIENCES, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share data)
(in thousands, except share and per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Contract revenue | $ | 687 | $ | 1,108 | $ | 1,723 | $ | 1,962 | |||||||||||||||
| Grant income | 250 | 250 | 500 | 500 | |||||||||||||||||||
| Total revenue | 937 | 1,358 | 2,223 | 2,462 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | 10,952 | 9,247 | 22,270 | 16,849 | |||||||||||||||||||
| General and administrative | 9,620 | 13,882 | 19,422 | 19,141 | |||||||||||||||||||
| Total operating expenses | 20,572 | 23,129 | 41,692 | 35,990 | |||||||||||||||||||
| Loss from operations | (19,635) | (21,771) | (39,469) | (33,528) | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest income, net | 794 | 27 | 1,855 | 31 | |||||||||||||||||||
| Change in fair value of contingent earnout liability | 148 | 8,878 | 207 | 8,878 | |||||||||||||||||||
| Gain on extinguishment of convertible notes | — | 1,289 | — | 1,289 | |||||||||||||||||||
| Other income (expense) | (4) | 25 | (12) | (30) | |||||||||||||||||||
| Total other income (expense), net | 938 | 10,219 | 2,050 | 10,168 | |||||||||||||||||||
| Net loss | (18,697) | (11,552) | (37,419) | (23,360) | |||||||||||||||||||
| Other comprehensive loss | |||||||||||||||||||||||
| Unrealized loss on investments | (3) | — | (1) | — | |||||||||||||||||||
| Comprehensive loss | $ | (18,700) | $ | (11,552) | $ | (37,420) | $ | (23,360) | |||||||||||||||
| Net loss per share, basic and diluted | $ | (0.42) | $ | (0.86) | $ | (0.85) | $ | (2.80) | |||||||||||||||
| Weighted-average shares outstanding, basic and diluted | 44,278,427 | 13,446,622 | 44,175,274 | 8,336,451 | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
SENTI BIOSCIENCES, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(unaudited)
(in thousands, except share data)
| Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2021 | 19,517,988 | $ | 171,833 | 2,972,409 | $ | — | $ | 3,619 | $ | — | $ | (115,076) | $ | (111,457) | ||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | — | — | 172,606 | — | 422 | — | — | 422 | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of early exercise of common stock options | — | — | 143,524 | — | 375 | — | — | 375 | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 661 | — | — | 661 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (11,808) | (11,808) | ||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2022 | 19,517,988 | 171,833 | 3,288,539 | — | 5,077 | — | (126,884) | (121,807) | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of redeemable convertible preferred stock into common stock in connection with the Reverse Recapitalization, net of transaction cost | (19,517,988) | (171,833) | 19,517,988 | 2 | 171,833 | — | — | 171,835 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon Reverse Recapitalization, net of transaction costs | — | — | 19,975,963 | 2 | 112,180 | — | — | 112,182 | ||||||||||||||||||||||||||||||||||||||||||
| Contingent earnout liability recognized upon closing of the Reverse Recapitalization | — | — | — | — | (9,688) | — | — | (9,688) | ||||||||||||||||||||||||||||||||||||||||||
| Cancellation and exchange of convertible note in connection with PIPE financing | — | — | 517,500 | — | 5,184 | — | — | 5,184 | ||||||||||||||||||||||||||||||||||||||||||
| Gain recognized on fair value of embedded derivative on SPAC merger date | — | — | — | — | (1,289) | — | — | (1,289) | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | — | — | 27,233 | — | 74 | — | — | 74 | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of early exercise of common stock options | — | — | 41,047 | — | 102 | — | — | 102 | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 9,225 | — | — | 9,225 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (11,552) | (11,552) | ||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2022 | — | $ | — | $ | 43,368,270 | $ | 4 | $ | 292,698 | $ | — | $ | (138,436) | $ | 154,266 | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SENTI BIOSCIENCES, INC.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(unaudited)
(in thousands, except share data)
| Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2022 | — | $ | — | 44,062,534 | $ | 4 | $ | 300,544 | $ | 1 | $ | (173,286) | $ | 127,263 | ||||||||||||||||||||||||||||||||||||
| Vesting of early exercise of common stock options | — | — | 12,660 | — | 34 | — | — | 34 | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | 3,763 | — | — | 3,763 | |||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on investments | — | — | — | — | — | 2 | — | 2 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (18,722) | (18,722) | ||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2023 | — | — | 44,075,194 | 4 | 304,341 | 3 | (192,008) | 112,340 | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of early exercise of common stock options | — | — | 12,660 | — | 34 | — | — | 34 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under Employee Stock Purchase Plan (ESPP) | — | — | 377,152 | — | 308 | — | — | 308 | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 3,434 | — | — | 3,434 | ||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on investments | — | — | — | — | — | (3) | — | (3) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (18,697) | (18,697) | ||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2023 | — | $ | — | 44,465,006 | $ | 4 | $ | 308,117 | $ | — | $ | (210,705) | $ | 97,416 | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SENTI BIOSCIENCES, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | (37,419) | $ | (23,360) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation | 1,221 | 512 | |||||||||
| Amortization of operating lease right-of-use assets | 919 | 1,433 | |||||||||
| Accretion of discount on short-term investments | (952) | — | |||||||||
| Gain on extinguishment of convertible notes | — | (1,289) | |||||||||
| Change in fair value of contingent earnout liability | (207) | (8,878) | |||||||||
| Stock-based compensation expense | 7,197 | 9,886 | |||||||||
| Other non-cash charges | (5) | 21 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | 64 | (90) | |||||||||
| Prepaid expenses and other assets | — | (1,372) | |||||||||
| Accounts payable | 885 | 234 | |||||||||
| Accrued expenses and other current liabilities | (2,082) | 203 | |||||||||
| Deferred revenue | (635) | (999) | |||||||||
| Operating lease liabilities | 1,035 | 7,945 | |||||||||
| Net cash from operating activities | (29,979) | (15,754) | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of short-term investments | (17,990) | — | |||||||||
| Maturities of short-term investments | 37,000 | — | |||||||||
| Purchases of property and equipment | (10,176) | (18,640) | |||||||||
| Net cash from investing activities | 8,834 | (18,640) | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from Merger and related PIPE financing, net of transaction costs | — | 112,464 | |||||||||
| Proceeds from issuance of common stock upon exercise of stock options | — | 521 | |||||||||
| Proceeds from issuance of common stock under Employee Stock Purchase Plan (ESPP) | 308 | — | |||||||||
| Proceeds from issuance of convertible notes | — | 5,175 | |||||||||
| Principal finance lease payments | (62) | — | |||||||||
| Net cash from financing activities | 246 | 118,160 | |||||||||
| Net decrease in cash and cash equivalents | (20,899) | 83,766 | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | 60,987 | 59,291 | |||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 40,088 | $ | 143,057 | |||||||
| Reconciliation of cash, cash equivalents and restricted cash | |||||||||||
| Cash and cash equivalents | $ | 36,752 | $ | 139,800 | |||||||
| Restricted cash | 3,336 | 3,257 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 40,088 | $ | 143,057 | |||||||
| Supplemental disclosures of noncash financing and investing items | |||||||||||
| Purchases of property and equipment in accounts payable and accrued expenses | $ | 1,796 | $ | 9,371 | |||||||
| Merger and related PIPE financing costs included in accounts payable and accrued expenses | $ | — | $ | 263 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
Senti Biosciences, Inc. and its subsidiaries (the “Company” or “Senti”), is a biotechnology company that was founded to create a new generation of smarter medicines that outmaneuver complex diseases using novel and unprecedented approaches. Senti has built a synthetic biology platform that enables it to program next-generation cell and gene therapies with what the Company refers to as “gene circuits.” These gene circuits, which are created from novel and proprietary combinations of DNA sequences, reprogram cells with biological logic to sense inputs, compute decisions and respond to their cellular environments. The Company is headquartered in South San Francisco, California.
On June 8, 2022 (the “Closing Date”), Dynamics Special Purpose Acquisition Corp. (“Dynamics” or “DYNS”) consummated a merger pursuant to which Explore Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and wholly owned subsidiary of Dynamics, merged with and into Senti Sub I, Inc., formerly named Senti Biosciences, Inc. (“Legacy Senti”), with Legacy Senti surviving as a wholly-owned subsidiary of Dynamics (such transactions, the “Merger,” and, collectively with the other transactions described in the merger agreement (as defined below, the “Reverse Recapitalization”)). As a result of the Merger, Dynamics was renamed Senti Biosciences, Inc.
Liquidity and Going Concern
These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.
The Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, and conducting preclinical studies and has not realized substantial revenues from its planned principal operations. To date, the Company raised aggregate gross proceeds of $299.5 million from the Merger and PIPE Financing, the issuance of shares of our common stock, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a less extent, through collaboration agreements and government grants.
At June 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $210.7 million and $173.3 million, respectively. The Company’s net losses were $37.4 million and $23.4 million for the six months ended June 30, 2023 and 2022, respectively. Substantially all of the Company’s net losses resulted from costs incurred in connection with the Company’s research and development programs and from general and administrative costs associated with the Company’s operations. The Company expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future as the Company advances its preclinical activities and clinical trials for its product candidates in development.
As of June 30, 2023 and December 31, 2022, the Company had cash, cash equivalents and short-term investments of $59.6 million and $98.6 million, respectively. As of August 11, 2023, the issuance date of the condensed consolidated financial statements as of and for the three and six months ended June 30, 2023, there is uncertainty about whether the Company’s combined cash, cash equivalents, and short-term investments will be sufficient to fund operations, including clinical trial expenses and capital expenditure requirements, beyond twelve months from the issuance date of these financial statements and therefore the Company concluded that substantial doubt existed about the Company’s ability to continue as a going concern.
On August 10, 2023, the Company announced a transaction with GeneFab, LLC (“GeneFab”), a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies. The transaction provided the Company with additional capital and reduced longer-term operating expenses. Refer to Note 13, Subsequent Events, for further details of the GeneFab transaction.
The Company’s continued existence is dependent upon management’s ability to raise capital and develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital, which included the framework agreement with GeneFab, and there can be no assurance that the Company’s
6
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the meeting of ongoing liquidity needs.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the accounts of Senti Biosciences, Inc., and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We have one business activity and operate in one reportable segment.
Unless otherwise noted, the Company has retroactively adjusted all common and preferred share and related price information to give effect to the exchange ratio established in the Merger Agreement.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the valuation of stock-based awards, the accrual for research and development expenses, the valuation of contingent earnout, the valuation of convertible notes, the valuation of common and redeemable convertible preferred stock, standalone selling price (“SSP”) and the determination of the incremental borrowing rate. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying interim condensed consolidated financial statements and the related footnote disclosures are unaudited. These unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2023 and its results of operations for the three and six months ended June 30, 2023 and 2022, and cash flows for the six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ended December 31, 2023 or any other period. The December 31, 2022 year-end condensed consolidated balance sheet was derived from audited annual financial statements but does not include all disclosures from the annual financial statements.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022 and the related notes included in the Company’s Form 10-K, filed with the SEC on March 22, 2023, which provides a more complete discussion of the Company’s accounting policies and certain other information. There have been no material changes to the Company’s significant accounting policies as of and for the three and six months ended June 30, 2023, as compared to the significant accounting policies described in the Company’s audited annual consolidated financial statements as of and for the year ended December 31, 2022.
Recent Accounting Standards
The Company believes that the impact of recently issued accounting standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
7
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
3. Fair Value Measurements
The following tables summarize the estimated value of cash equivalents and restricted cash (in thousands):
| June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Adjusted Cost | Unrealized Gain | Unrealized Loss | Estimated Fair Value | Cash and cash equivalents | Restricted cash | Short-term investments | |||||||||||||||||||||||||||||||||||
| Cash | $ | 4,559 | $ | — | $ | — | $ | 4,559 | $ | 4,559 | $ | — | $ | — | |||||||||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||||||||||||||||||||
| Money market funds | 35,529 | — | — | 35,529 | 32,193 | 3,336 | — | ||||||||||||||||||||||||||||||||||
| Subtotal | 35,529 | — | — | 35,529 | 32,193 | 3,336 | — | ||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | 6,482 | — | — | 6,482 | — | — | 6,482 | ||||||||||||||||||||||||||||||||||
| U.S. agency securities | 13,907 | 1 | (1) | 13,907 | — | — | 13,907 | ||||||||||||||||||||||||||||||||||
| Commercial Paper | 2,494 | — | — | 2,494 | — | — | 2,494 | ||||||||||||||||||||||||||||||||||
| Corporate debt securities | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Subtotal | 22,883 | 1 | (1) | 22,883 | — | — | 22,883 | ||||||||||||||||||||||||||||||||||
| Total | $ | 62,971 | $ | 1 | $ | (1) | $ | 62,971 | $ | 36,752 | $ | 3,336 | $ | 22,883 | |||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Adjusted Cost | Unrealized Gain | Unrealized Loss | Estimated Fair Value | Cash and cash equivalents | Restricted cash | Short-term investments | |||||||||||||||||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | 45,412 | $ | — | $ | — | $ | 45,412 | $ | 42,046 | $ | 3,366 | $ | — | |||||||||||||||||||||||||||
| Subtotal | 45,412 | — | — | 45,412 | 42,046 | 3,366 | — | ||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | 14,866 | 4 | (3) | 14,867 | — | — | 14,867 | ||||||||||||||||||||||||||||||||||
| U.S. agency securities | 5,938 | — | — | 5,938 | 3,983 | — | 1,955 | ||||||||||||||||||||||||||||||||||
| Commercial Paper | 28,122 | — | — | 28,122 | 5,994 | — | 22,128 | ||||||||||||||||||||||||||||||||||
| Corporate debt securities | 7,590 | 1 | (1) | 7,590 | 5,598 | — | 1,992 | ||||||||||||||||||||||||||||||||||
| Subtotal | 56,516 | 5 | (4) | 56,517 | 15,575 | — | 40,942 | ||||||||||||||||||||||||||||||||||
| Total | $ | 101,928 | $ | 5 | $ | (4) | $ | 101,929 | $ | 57,621 | $ | 3,366 | $ | 40,942 | |||||||||||||||||||||||||||
No securities have contractual maturities of longer than one year. There were no transfers between Levels 1, 2, or 3 for any of the periods presented.
8
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments (in thousands):
| Contingent Earnout Liability | ||||||||
Fair value as of December 31, 2022 | $ | (227) | ||||||
| Change in fair value included in other income (expense) | 207 | |||||||
Fair value as of June 30, 2023 | $ | (20) | ||||||
The fair value of the Contingent Earnout Liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.
In determining the fair value of the Contingent Earnout Liability, the Company used a Monte Carlo simulation value model using a distribution of potential outcomes. The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Company common stock price, expected volatility, risk-free rate, expected term and expected dividend yield. Refer to Note 6, Stockholders’ Equity (Deficit), for further details of the Contingent Earnout Liability.
4. Other Financial Statement information
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Prepaid expenses (including prepaid rent) | $ | 1,874 | $ | 1,871 | |||||||
| Deposits | 1,277 | 1,418 | |||||||||
| Other | 139 | 101 | |||||||||
| Total prepaid expenses and other current assets | $ | 3,290 | $ | 3,390 | |||||||
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Leasehold improvements | $ | 46,748 | $ | 1,869 | |||||||
| Lab equipment | 13,336 | 8,265 | |||||||||
| Furniture and fixtures | 583 | 326 | |||||||||
| Computer equipment and software | 383 | 389 | |||||||||
| Construction in progress | 2,029 | 48,273 | |||||||||
| Property and equipment at cost | 63,079 | 59,122 | |||||||||
| Less: accumulated depreciation | (4,139) | (2,986) | |||||||||
| Property and equipment, net | $ | 58,940 | $ | 56,136 | |||||||
Buildout of the current good manufacturing practice (cGMP) facility in Alameda was completed in June 2023 and the assets were placed in service. On August 10, 2023, the Company announced a transaction with GeneFab, a new independent contract manufacturing and synthetic biology biofoundry. As part of the transaction the Company subleased it’s cGMP facility in Alameda, CA to GeneFab. Refer to Note 13, Subsequent Events, for further details of the GeneFab transaction.
Depreciation totaled $0.8 million and $0.3 million for the three months ended June 30, 2023 and 2022, respectively, and $1.2 million and $0.5 million for the six months ended June 30, 2023 and 2022, respectively.
9
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Accrued employee-related expenses | $ | 2,099 | $ | 3,743 | |||||||
| Accrued professional and service fees related to facility construction | 1,615 | 7,342 | |||||||||
| Accrued professional and service fees other | 1,245 | 1,750 | |||||||||
| Other accrued expenses | 32 | 29 | |||||||||
| Total accrued expenses and other current liabilities | $ | 4,991 | $ | 12,864 | |||||||
5. Operating Leases
The Company’s operating leases are primarily for its corporate headquarters located in South San Francisco, California (“HQ lease”) and for additional office and laboratory space located in Alameda, California (“Alameda lease”). The corporate headquarters lease has an initial term of eight years expiring in 2027, with an option to renew for an additional eight years unless canceled by either party thereafter. The Alameda lease has an initial term of eleven years expiring in 2032, with an option to renew the lease for up to two additional terms of five years. The exercise of these renewal options is not recognized as part of the ROU assets and lease liabilities, as the Company did not conclude, at the commencement date of the leases, that the exercise of renewal options or termination options was reasonably certain. The Alameda lease provides for a tenant improvement allowance of up to $17.5 million for the costs relating to the design, permitting and construction of the improvements, to be disbursed by the landlord no later than December 31, 2023. The Company is deemed to be the accounting owner of the tenant improvements primarily because the Company is the principal in the construction and design of the assets, is responsible for costs overruns and retains substantially all economic benefits from the leasehold improvements over their economic lives. Accordingly, the tenant improvement allowance is considered an incentive and was deducted from the initial measurement of the ROU asset and lease liability. The Company estimated the timing of tenant improvement reimbursements at the lease commencement date and upon receipt of the cash incentives, the Company recognized the cash received as an increase in the lease liability. On August 10, 2023, the Company announced a transaction with GeneFab, a new independent contract manufacturing and synthetic biology biofoundry. As part of the transaction the Company subleased the cGMP facility in Alameda to GeneFab. Refer to Note 13, Subsequent Events, for further details of the GeneFab transaction.
A summary of total lease costs and other information for the period relating to the Company’s operating leases is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Operating lease cost | $ | 1,320 | $ | 1,325 | $ | 2,629 | $ | 2,650 | ||||||||||||||||||
| Short-term lease cost | 25 | 27 | 56 | 30 | ||||||||||||||||||||||
| Variable lease cost | 378 | 182 | 622 | 353 | ||||||||||||||||||||||
| Total lease cost | $ | 1,723 | $ | 1,534 | $ | 3,307 | $ | 3,033 | ||||||||||||||||||
10
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
| Six Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Other information: | ||||||||||||||
| Operating cash flows net inflows and (outflows) from operating lease | $ | (675) | $ | 6,740 | ||||||||||
| ROU assets obtained in exchange for operating lease obligations (including remeasurement of ROU and lease liabilities due to changes in the timing of receipt of lease incentives) | $ | (30) | $ | 199 | ||||||||||
| Weighted-average remaining lease term | 7.9 years | 8.2 years | ||||||||||||
| Weighted-average discount rate | 9.1% | 9.1% | ||||||||||||
For the three months ended June 30, 2023 and 2022, the Company received $1.0 million and $5.6 million, respectively, of $17.5 million tenant improvement allowance. For the six months ended June 30, 2023 and 2022, the Company received $2.0 million and $8.1 million, respectively, of the $17.5 million tenant improvement allowance. Through June 30, 2023, the Company received $16.2 million of the tenant improvement allowance inception-to-date.
As of June 30, 2023 and 2022, amounts disclosed for ROU assets obtained in exchange for lease obligations include amounts added to the carrying amount of ROU assets resulting from lease modifications and reassessments.
Maturities of the Company’s lease liabilities as of June 30, 2023, were as follows (in thousands):
| 2023, for the remainder of the year | $ | 3,560 | |||
| 2024 | 7,254 | ||||
| 2025 | 7,478 | ||||
| 2026 | 7,712 | ||||
| 2027 | 5,769 | ||||
| Thereafter | 24,384 | ||||
| Total undiscounted lease payments | 56,157 | ||||
| Less imputed interest | (16,750) | ||||
| Tenant improvement allowance remaining | (1,311) | ||||
| Total lease liabilities | $ | 38,096 | |||
6. Stockholders’ Equity (Deficit)
Common Stock
Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company; although, no preferred stock is outstanding as of June 30, 2023 and December 31, 2022. Through June 30, 2023, no cash dividends have been declared or paid.
11
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
At June 30, 2023 and December 31, 2022, the Company was authorized to issue 500,000,000 shares of common stock, all at a par value of $0.0001 per share, and had reserved the following shares for future issuance:
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Common Stock Purchase Agreement | 8,327,049 | 8,327,049 | |||||||||
| Common stock options issued and outstanding | 12,056,731 | 9,875,675 | |||||||||
| Restricted Stock Units (RSUs) issued and outstanding | 335,884 | 447,948 | |||||||||
| Common stock shares available for future issuance under equity plans | 3,087,881 | 2,948,472 | |||||||||
| Common stock shares available for future issuance under the 2022 Employee Stock Purchase Plan (the "ESPP") | 546,155 | 481,627 | |||||||||
| Contingent earnout common stock | 2,000,000 | 2,000,000 | |||||||||
| Unvested early exercised common stock | 80,180 | 105,500 | |||||||||
| Total | 26,433,880 | 24,186,271 | |||||||||
Preferred Stock
In connection with the close of the Merger, the Company’s Amended and Restated Certificate of Incorporation provides the Company’s board of directors with the authority to issue $0.0001 par value preferred stock in one or more series and to establish from time to time the number of shares to be included in each such series, by adopting a resolution and filing a certification of designations. Voting powers, designations, powers, preferences and relative, participating, optional, special and other rights shall be stated and expressed in such resolutions. There were 10,000,000 shares designated as preferred stock and none were outstanding as of June 30, 2023 and December 31, 2022.
Common Stock Purchase Agreement
On August 31, 2022, the Company entered into a Common Stock Purchase Agreement and a Registration Rights Agreement (collectively referred to as the “Purchase Agreement”) with Chardan Capital Markets LLC (“Chardan”). Pursuant to the Purchase Agreement, the Company has the right, in its sole discretion, to sell to Chardan up to the lesser of (i) $50.0 million of newly issued shares of the Company’s common stock, and (ii) the Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 36-month term of the Purchase Agreement. Under the applicable NASDAQ rules, the Company may not issue to Chardan under the Purchase Agreement more than 8,727,049 shares of common stock, which number of shares is equal to 19.99% of the common shares outstanding immediately prior to the execution of the Purchase Agreement unless certain exceptions are met (the “Exchange Cap”). The purchase price of the shares of common stock will be determined by reference to the Volume Weighted Average Price (“VWAP”) of the common stock during the applicable purchase date, less a fixed 3% discount to such VWAP. However, the total shares to be purchased on any day may not exceed 20% of the trading volume, and the total purchase price on any day may not exceed $3.0 million. As consideration for Chardan’s commitment to purchase shares of common stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, the Company issued 100,000 shares of its common stock to Chardan and paid a $0.4 million document preparation fee. Upon execution of the Purchase Agreement, the Company recognized an expense of $0.7 million within general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss for the Chardan related costs and legal fees incurred in connection with the agreement.
Other than the issuance of the commitment shares of the Company’s common stock to Chardan, the Company issued 300,000 common stock shares up until December 31, 2022 aggregating to net proceeds of $0.7 million, under the Purchase Agreement. There were no shares issued within six months ended June 30, 2023.
Contingent Earnout Equity
Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of the Company’s common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche. The first and second tranches are issuable if the closing volume
12
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
weighted average price (“VWAP”) per share of common stock quoted on the Nasdaq (or the exchange on which the shares of common stock are then listed) is greater or equal to $15.00 and $20.00, respectively over any twenty trading days within any thirty-day trading period. The first and second tranche term is two and three years, respectively, from the closing of the Merger. If there is a change of control within the three-year following the closing of the Merger that results in a per share price equal to or in excess of the $15.00 and $20.00 share price milestones not previously met, then Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock.
The estimated fair value of the total Contingent Earnout Shares at the Closing on June 8, 2022, was $9.8 million based on a Monte Carlo simulation valuation model. Of this amount, $9.7 million was accounted for as a Contingent Earnout Liability because the triggering events that determine the number of Contingent Earnout Shares required to be issued include events that are not solely indexed to the common stock of the Company. The remaining balance of $0.1 million relates to holders of Legacy Senti common stock that are subject to repurchase were accounted for as stock-based compensation expense and recorded as an expense, as there was no remaining service period.
The Contingent Earnout Liability was remeasured to fair value as of June 30, 2023, resulting in the recording of a non-cash gain of $0.1 million for the three months ended June 30, 2023, and a non-cash gain of $0.2 million for the six months ended June 30, 2023, classified within change in fair value of contingent earnout liability in the condensed consolidated statements of operations and comprehensive loss.
Assumptions used in the valuation are described below:
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Current stock price | $ | 0.63 | $ | 1.41 | ||||||||||
| Expected share price volatility | 93.0% | 85.0% | ||||||||||||
| Risk-free interest rate | 4.9% | 4.3% | ||||||||||||
| Estimated dividend yield | 0.0% | 0.0% | ||||||||||||
| Expected term (years) | 1.9 | 2.4 | ||||||||||||
7. Revenue
The Company’s revenue consists of amounts received related to research services provided to customers.
Contract Revenue
In April 2021, the Company entered into a research collaboration and license agreement with Spark Therapeutics, Inc. (“Spark”). Under the agreement, the Company will be responsible for a research program, which includes designing, building and testing five cell type specific-synthetic promoters for use in developing certain gene therapies using the Company’s proprietary technology. The Company received an upfront payment from Spark of $3.0 million and Spark is obligated to reimburse the Company for costs and expenses incurred for the research program. The Company expected to complete the research program over a two-year period.
The Company assessed this agreement in accordance with ASC 606, Revenue Recognition (“ASC 606”) and concluded that the contract counterparty, Spark, is a customer. The Company identified only one combined performance obligation in the agreement, which is to perform research services, the related joint research plan and committees for the five specified promoters. The Company determined that the research activities for each of the five promoters are not distinct given there is one single research plan that is performed by the same research team and research results for one promoter may provide insights for other promoters.
Pursuant to the agreement, once the research program is completed and the Company delivers a data package to Spark, Spark has 24 months (the “Evaluation Period”) to determine whether Spark will exercise its options to obtain field-limited, royalty-bearing licenses to develop, manufacture and commercialize promoters corresponding to each of the five specified promoters being researched. For each licensed promoter option that is exercised, the Company is eligible to receive a license fee, potential research, development and commercial milestone payments and royalties
13
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
on product sales. Spark may generally terminate the agreement upon 90 days prior written notice or 180 days prior written notice if the licensed promoter is in clinical trials or is being commercialized at the time of termination.
The Company evaluated Spark’s optional rights to license, develop, manufacture and commercialize each of the promoter profiles to determine whether they provide Spark with any material rights to purchase the promoter licenses at an incremental discount. The Company’s proprietary technology used to develop the promoters is in the early stages of development, so technological feasibility and probability of developing a product is highly uncertain. As a result, determining the SSP for the optional rights is subject to significant judgment. Given the subjectivity associated with determining the SSP for the right to a future license related to unproven technology at contract inception, the Company also evaluated whether the contract consideration associated with the research services represents the SSP for those services. The Company determined the transaction price, inclusive of the upfront payment and reimbursement of costs and expenses incurred for the research program, is commensurate with SSP for the research being conducted given the specialized nature and reliance on proprietary technology. Based on the Company’s assessment of the optional consideration and the qualitative factors of feasibility and probability of development combined with the quantitative assessment that research services are priced at their SSP, the Company concluded that the license option does not provide Spark with an incremental discount and therefore does not constitute a material right. The transaction price associated with the research services in this agreement consists of the fixed upfront amount of $3.0 million and variable consideration.
For Spark collaboration agreement, the Company will recognize the transaction price as research and development services are provided, using a cost-based input method to measure the progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period. The Company believes that the cost-based input method is the best measure of progress because other measurements would not reflect how the Company transfers the control related to the performance obligation to our customers.
In December 2022, the Company amended the research collaboration and license agreement with Spark to allow for an increase in budget and a two-month extension of the research program. As there were no changes to performance obligations and the services to be provided are not distinct from those already transferred, the transactions was accounted for as a contract modification and a cumulative catch-up of $(0.7) million was recognized in December 2022.
In May 2023, the Company amended the research collaboration and license agreement with Spark to allow for an increase in budget and additional two-month extension of the research program. As there were no changes to performance obligations and the services to be provided are not distinct from those already transferred, the transactions was accounted for as a contract modification with no cumulative catch-up necessary.
As of June 30, 2023 and December 31, 2022, there was a total of $0.2 million and $0.8 million, respectively, remaining of the upfront payment to be recognized over the remaining period of the research program.
For the three months ended June 30, 2023 and 2022, the Company recorded revenue, which was previously included in deferred revenue at the beginning of each period, of $0.2 million and $0.5 million, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded revenue, which was previously included in the deferred revenue at the beginning of each period, of $0.6 million, and $1.0 million respectively. Contract asset balances related to unbilled revenue for our collaboration agreements were zero as of June 30, 2023 and 2022, and are presented within prepaid expenses and other current assets on the condensed consolidated balance sheets.
Grant Income
In 2021, the Small Business Innovation Research (“SBIR”) awarded the Company a grant in the amount of $2.0 million over two years subject to meeting certain terms and conditions. The purpose of the grant is to support the further development of SENTI-202 for acute myeloid leukemia towards clinical development.
Grant income was recognized when qualified research and development costs were incurred and the Company obtained reasonable assurance that the terms and conditions of the grant were met.
14
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Entity-wide information
During the three months ended June 30, 2023, Customers A and B accounted for 73% and 27%, respectively, of revenue. During the three months ended June 30, 2022, Customers A and B accounted for 82% and 18%, respectively, of revenue. During the six months ended June 30, 2023, Customers A and B accounted for 78% and 22%, respectively, of revenue. During the six months ended June 30, 2022, Customers A and B accounted for 80% and 20%, respectively, of revenue.
All revenues were generated in the United States for the three and six months ended June 30, 2023 and 2022.
8. Stock-Based Compensation
2016 Stock Incentive Plan (as Amended and Restated)
The Company’s 2016 Stock Incentive Plan (the “2016 Plan”) provides for the grant of incentive stock options, non-qualified stock options and restricted stock awards to employees, directors, and consultants of the Company.
Stock options granted under the 2016 Plan generally vest over four years and expire no later than ten years after the grant date.
Following the Merger, the 2016 Plan was terminated. No additional stock awards will be granted under the 2016 Plan. All awards previously granted and outstanding as of the effective date of the Merger, were adjusted to reflect the impact of the Merger, but otherwise remain in effect pursuant to their original terms. The shares underlying any award granted under the 2016 Plan that are forfeited back to or repurchased or reacquired by the Company, will revert to and again become available for issuance under the 2022 Plan.
2022 Stock Incentive Plan
On June 8, 2022, upon the Merger, the Company adopted a 2022 Stock Incentive Plan (the “2022 Plan”). The 2022 Plan provides for the grant of incentive stock options to employees, and for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors and consultants.
The exercise price of an option granted under the 2022 Plan shall not be less than the fair market value of a common stock share on the date of grant. With respect to a 10% stockholder, the exercise price of an option granted shall not be less than 110% of the fair value of the common stock share on the date of grant.
Stock options granted under the 2022 Plan generally vest over four years and expire no later than ten years after the grant date.
The Company initially reserved 2,492,735 shares of common stock for issuance under the 2022 Plan. On the first day of each year commencing January 1, 2023, the 2022 Plan will automatically increase by 5% of the outstanding number of shares of common stock of the Company on the last day of the preceding calendar year or such lesser number of shares as approved by the Company’s Board of Directors prior to the effective date of the annual increase. In addition, the shares underlying any award granted under the 2016 Plan that are forfeited back to or repurchased or reacquired by the Company, will revert to and again become available for issuance under the 2022 Plan.
As of June 30, 2023, the total number of shares of common stock available for issuance under the 2022 Plan is 1,942,991.
2022 Inducement Equity Plan
On August 5, 2022, the Company adopted a 2022 Inducement Equity Plan (the “2022 Inducement Plan”). The 2022 Plan provides for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards,
15
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
restricted stock unit awards, performance awards and other forms of awards to persons not previously an employee of the Company and its affiliates.
The exercise price of an option granted under the 2022 Inducement Plan shall not be less than the fair market value of a common stock share on the date of grant.
Stock options granted under the 2022 Inducement Plan generally vest over four years and expire no later than ten years after the grant date.
The Company initially reserved 2,000,000 shares of common stock for issuance under the 2022 Inducement Plan.
As of June 30, 2023, the total number of shares of common stock available for issuance under the 2022 Inducement Plan is 1,144,890.
2022 Employee Stock Purchase Plan
On June 8, 2022, upon the Merger, the Company adopted a 2022 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible employees to purchase shares of the Company's common stock at a price equal to 85% of the lower of the fair market values of the stock on the first day of an offering or on the date of purchase. The Company’s ESPP operates with rolling offering periods, which are generally 24 months.
The Company initially reserved 592,584 shares of common stock for issuance under the ESPP. On the first day of each year commencing January 1, 2023, the 2022 Plan will automatically increase by 1% of the outstanding number of shares of common stock of the Company on the last day of the preceding calendar year or such lesser number of shares as approved by the Company’s Board of Directors prior to the effective date of the annual increase.
As of June 30, 2023, the total number of shares of common stock available for issuance under the ESPP is 546,155.
Stock options
The following table summarizes the Company’s stock option activity and related information under all equity plans, excluding performance and market awards:
| Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||||||||||||
Outstanding at December 31, 2022 | 4,191,426 | $ | 3.18 | 9.1 | $ | 6 | ||||||||||||||||||||
| Granted | 2,794,596 | $ | 1.64 | |||||||||||||||||||||||
| Forfeited | (411,588) | $ | 3.55 | |||||||||||||||||||||||
Outstanding at June 30, 2023 | 6,574,434 | $ | 2.50 | 9.0 | $ | 2 | ||||||||||||||||||||
Vested and exercisable at June 30, 2023 | 1,247,904 | $ | 3.63 | 7.9 | $ | 2 | ||||||||||||||||||||
The weighted-average grant date fair values of stock options granted during the six months ended June 30, 2023 and 2022 were $1.18 and none, respectively. The aggregate intrinsic values of stock options exercised during the six months ended June 30, 2023 and 2022 were none and $0.5 million, respectively.
As of June 30, 2023, the unrecognized stock-based compensation expense related to stock options was approximately $8.6 million, expected to be recognized over a weighted-average period of 2.6 years.
Early Exercise of Stock Options into Restricted Stock
For the six months ended June 30, 2023 and 2022, the Company issued zero shares of common stock upon exercise of unvested stock options. As of June 30, 2023 and December 31, 2022, 80,180 and 105,500 shares were held by employees subject to repurchase at an aggregate price of $0.2 million and $0.3 million, respectively.
16
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Performance Awards
In connection with the Merger, on December 19, 2021, Legacy Senti approved 8,400,892 performance award options to existing employees that vest contingent upon the satisfaction of both a four-year service condition and a performance condition tied to the consummation of the Merger. The awards and the associated recognition of stock-based compensation were contingent on the Merger being consummated. As of the approval date of the performance awards, Legacy Senti did not have sufficient common stock available for issuance. Upon the Merger, the Company increased the number of shares authorized and 6,796,074 awards were granted on June 8, 2022. Refer to Note 6, Stockholders’ Equity (Deficit), for further details of the shares of common stock authorized.
| Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||||||||||||
Outstanding at December 31, 2022 | 5,368,501 | $ | 9.92 | 9.0 | $ | — | ||||||||||||||||||||
| Forfeited | (201,952) | $ | 9.92 | |||||||||||||||||||||||
Outstanding at June 30, 2023 | 5,166,549 | $ | 9.92 | 8.4 | $ | — | ||||||||||||||||||||
Vested and exercisable at June 30, 2023 | 1,436,378 | $ | 9.92 | 8.1 | $ | — | ||||||||||||||||||||
There were no performance based options granted or exercised during the six months ended June 30, 2023, and there were 6,796,074 performance based options granted and no performance based options exercised during the six months ended June 30, 2022.
As of June 30, 2023, the unrecognized stock-based compensation expense related to performance based options was approximately $7.8 million, expected to be recognized over a weighted-average period of 1.8 years.
Market Awards
In connection with the Business Combination Agreement with DYNS, on December 19, 2021, Legacy Senti approved 605,451 market award options to its co-founder and Chief Executive Officer, Dr. Timothy Lu, that vest contingent upon the satisfaction of all three of the following conditions: a service condition, a performance condition tied to the consummation of the Merger, and market conditions. The market condition is achieved in four tranches, where 25% of the options will vest when the trading price of the Company’s stock is above various thresholds of price per share. The award and the associated recognition of stock-based compensation were contingent on the Merger being consummated. The estimated fair value of the market awards at the grant date was based on a Monte Carlo simulation valuation model. As of the approval date, Legacy Senti did not have sufficient common stock available for issuance to allow for exercise of the stock options. Upon the Merger, the Company increased the number of shares authorized and 315,748 awards were granted on June 8, 2022. Through June 30, 2023, these market awards did not meet the vesting thresholds. Refer to Note 6, Stockholders’ Equity (Deficit), for further details of the shares of common stock authorized.
The were no market based options granted or exercised during the six months ended June 30, 2023, and there were 315,748 market based options granted and no market based options exercised during the six months ended June 30, 2022.
As of June 30, 2023, the unrecognized stock-based compensation expense related to market based options was approximately $0.5 million, expected to be recognized over a weighted-average period of 0.9 years.
17
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Restricted Stock Units
The following table summarizes the Company’s restricted stock units activity and related information under all equity plans:
| Number of Restricted Stock Units | Weighted-Average Grant Date Fair Value | |||||||||||||
Outstanding at December 31, 2022 | 447,948 | $ | 2.50 | |||||||||||
| Forfeited | (112,064) | $ | 2.50 | |||||||||||
Outstanding at June 30, 2023 | 335,884 | $ | 2.50 | |||||||||||
As of June 30, 2023, the unrecognized stock-based compensation expense related to restricted stock units was approximately $0.5 million, expected to be recognized over a weighted-average period of 1.2 years.
Stock-Based Compensation Expense
In determining the fair value of the stock-based awards, the Company uses the assumptions below for the Black-Scholes option pricing model, which are subjective and generally require significant judgment.
Fair Value of Common Stock — The fair value of the shares of common stock has historically been determined by the Company’s board of directors as there was no public market for the common stock. The board of directors determined the fair value of the common stock by considering a number of objective and subjective factors, including: third-party valuations of the Company’s common stock, the valuation of comparable companies, the Company’s operating and financial performance, and general and industry-specific economic outlook, amongst other factors. As of the closing of the Merger and going forward, the fair value of common stock will be based on the publicly traded market value.
Expected Term — The expected term represents the period that the Company’s stock options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The expected term for the ESPP purchase rights is the length of the purchase period.
Volatility — The expected volatility is based on the average historical volatility of comparable publicly-traded peer companies, over a period equal to the expected term of the stock option grants, as the Company was not publicly traded prior to the Merger and does not have a trading history for its common stock for a sufficient period of time subsequent to the Merger.
Risk-free Rate — The risk-free rate assumption is based on the U.S. Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.
Dividends — The Company has never paid dividends on its common stock and does not anticipate paying dividends on common stock. Therefore, the Company uses an expected dividend yield of zero.
The assumptions used to determine the grant date fair value of non-market based, stock options granted were as follows, presented on a weighted-average basis:
| Six Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Expected term (in years) | 5.9 | 5.8 | ||||||||||||
| Expected volatility | 83% | 78% | ||||||||||||
| Risk-free interest rate | 3.5% | 3.0% | ||||||||||||
| Dividend yield | — | — | ||||||||||||
18
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Total stock-based compensation expense was as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| General and administrative | $ | 3,081 | $ | 7,863 | $ | 6,320 | $ | 8,322 | ||||||||||||||||||
| Research and development | 353 | 1,362 | 877 | 1,564 | ||||||||||||||||||||||
| Total stock-based compensation expense | $ | 3,434 | $ | 9,225 | $ | 7,197 | $ | 9,886 | ||||||||||||||||||
9. Income Tax
No provision for income taxes was recorded for the three and six months ended June 30, 2023 and 2022, respectively. Deferred tax assets generated from the Company’s net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized due to the Company’s cumulative losses generated to date.
10. Net Loss Per Share
A reconciliation of net loss available to common stockholders and the number of shares in the calculation of basic and diluted loss per share is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Net loss | $ | (18,697) | $ | (11,552) | $ | (37,419) | $ | (23,360) | ||||||||||||||||||
| Weighted-average shares used in computing net loss per share, basic and diluted | 44,278,427 | 13,446,622 | 44,175,274 | 8,336,451 | ||||||||||||||||||||||
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.42) | $ | (0.86) | $ | (0.85) | $ | (2.80) | ||||||||||||||||||
The following potential common stock securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (on an as-converted basis):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Stock options to purchase common stock | 12,056,731 | 8,779,368 | 12,056,731 | 8,779,368 | ||||||||||||||||||||||
| Unvested early exercised options | 80,180 | 288,807 | 80,180 | 288,807 | ||||||||||||||||||||||
| Restricted stock units outstanding | 335,884 | — | 335,884 | — | ||||||||||||||||||||||
| Contingent earnout common stock | 2,000,000 | 2,000,000 | 2,000,000 | 2,000,000 | ||||||||||||||||||||||
| Total | 14,472,795 | 11,068,175 | 14,472,795 | 11,068,175 | ||||||||||||||||||||||
The potential common stock securities above do not reflect 19,633,444 of potentially dilutive securities as a result of the option issued to GeneFab, as announced on August 10, 2023. Refer to Note 13, Subsequent Events, for further details of the GeneFab transaction.
11. Commitments and Contingencies
In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which the Company is liable in future periods.
On June 3, 2021, the Company entered into a lease agreement for a new cGMP facility in Alameda, California to support planned initial clinical trials for our product candidates. The lease will expire in 2032 with future
19
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
undiscounted operating lease payments of $46.0 million over an initial lease period of eleven years. Refer to Note 5, Operating Leases, for further details of the leases.
In 2021, the Company began construction of the cGMP facility. Buildout of the cGMP facility was completed in June 2023. As of June 30, 2023 the Company paid $40.0 million in construction costs of the $42.2 million purchase commitment. The agreements with the construction company provide for termination following a certain period after notice. Upon termination, the Company will be responsible for payment for work performed to date.
In 2021, the Company entered into a three-year collaboration and option agreement with BlueRock Therapeutics LP (“BlueRock”) under which the Company granted BlueRock an option to acquire an exclusive or non-exclusive license to develop, manufacture and commercialize cell therapy products. Refer to Note 12, Related Parties, for details into the BlueRock agreement. In consideration for the option, the Company is responsible for up to $10.0 million in costs and expenses incurred over the three-year term.
As of June 30, 2023, purchase commitments related to sponsored research agreements amounted to approximately $0.7 million.
The Company has entered into license agreements under which they are obligated to make annual maintenance payments of $0.1 million and specified milestone and royalty payments. Future milestone and royalty payments under these agreements are not considered contractual obligations since the payments under these agreements are contingent upon future events, such as the Company’s achievement of specified development, regulatory, and sales milestones, or generating product sales. As of June 30, 2023, the Company is unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.
Following the Closing, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of the Company’s common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche. Refer to Note 6, Stockholders’ Equity (Deficit), for further details of the contingent earnout liability.
Legal Proceedings
The Company is subject to claims and assessments from time to time in the ordinary course of business but does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions and has never accrued any liabilities related to such obligations in its condensed consolidated financial statements. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance.
12. Related Parties
NEA
NEA held 4,429,725 shares of the Company’s common stock as of June 30, 2023 and December 31, 2022. NEA held one of the six seats on the Company’s Board of Directors as of June 30, 2023 and December 31, 2022.
20
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Bayer Healthcare LLC
On May 19, 2022, Legacy Senti issued to Bayer a $5.2 million unsecured convertible promissory note (“the “May 2022 Note”). On June 8, 2022, the May 2022 Note was automatically cancelled and exchanged for 517,500 shares of Common Stock at a price of $10.00 per share.
On May 21, 2021, the Company entered into a collaboration and option agreement (“BlueRock Agreement”) with BlueRock, a wholly-owned subsidiary of Bayer, pursuant to which the Company granted to BlueRock an option (“BlueRock Option”), on a collaboration program-by-collaboration program basis, to obtain an exclusive or non-exclusive license to develop, manufacture and commercialize cell therapy products that contain cells of specified types and which incorporate an option gene circuit from such collaboration program or a closely related derivative gene circuit. The Company is responsible for up to $10 million in costs and expenses incurred in connection with the research plan and related activities to be conducted over a term of three years as specified in the collaboration and option agreement. If the Company and BlueRock agree to add new research activities to the research plan, then BlueRock will be obligated to reimburse the Company for the costs and expenses incurred that, together with costs and expenses incurred under the initial research plan, exceed $10 million.
The Company concluded that the Agreement is not within the scope of ASC 808, Collaborative Arrangements, because the Company did not receive any consideration and therefore, is not exposed to both significant risks and rewards for the arrangement. The Company also determined that the agreement is also not currently within the scope of ASC 606 because the BlueRock Agreement does not currently meet the criteria of a contract with a customer, and will not be within the scope of ASC 606 until any consideration is paid. Potential future milestone payments and royalties are subject to BlueRock’s exercise of the BlueRock Option and execution of a commercial license agreement by both parties. Under the BlueRock Agreement, the specific financial terms for milestone payments and royalties will be negotiated and agreed to only after the option is exercised.
Bayer held 5,878,488 shares, of the Company’s common stock as of June 30, 2023 and December 31, 2022. Bayer held one of the six seats on the Company’s Board of Directors as of June 30, 2023 and December 31, 2022. Bayer’s parent company is Bayer AG, which served as the lead investor in our Series B financing prior to the Merger through its Leaps by Bayer unit. Accordingly, Bayer is considered a related party.
Seer, Inc.
In January 2023, the Company acquired lab automation equipment purchased from Seer, Inc. (“Seer”) (NASDAQ: SEER). Omid Farokhzad, a member of the Company’s board of directors is the Chief Executive Officer for Seer. The consideration of $0.2 million, plus interest, will be paid over a two-year period, and title will transfer to the Company upon final payment. The transaction was classified as a finance lease in accordance with ASC 842.
GeneFab, LLC.
In August 2023, the Company entered into a framework agreement with GeneFab and Valere Bio, Inc., a Delaware corporation and the parent company of GeneFab (“Valere”), which is wholly owned by Celadon Partners, LLC, pursuant to which the Company, subject to the terms and conditions therein, (i) shall sell, assign and transfer its rights, title and interest in certain of the assets and contractual rights, including all of Company’s equipment and leasehold improvements at the Company’s facilities in Alameda (the “Alameda Facility”) and certain of the Company’s intellectual property related to the schematics for and design of the Alameda Facility, and (ii) sublease to GeneFab its premises under the lease for the Alameda Facility. In addition, the Company has agreed to grant a license to GeneFab under certain of its intellectual property rights to conduct manufacturing services and to research, develop, manufacture and commercialize products outside of oncology, pursuant to a license agreement under negotiation. As part of this transaction, the Company entered into a transition services agreement with GeneFab whereby certain services are to be provided by each party to the other party during a transition period beginning on the closing of the transaction.
On August 7, 2023, Philip Lee, Ph.D., the Company’s former Chief Technology Officer, notified the Company of his resignation as an employee and as Chief Technology Officer of the Company, effective on August 7, 2023, to join GeneFab as its Chief Executive Officer. Dr. Lee’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
21
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
13. Subsequent Events
GeneFab, LLC.
On August 10, 2023, the Company announced the transaction with GeneFab, a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies. The Company sold, assigned and transferred its rights, title and interest in certain of the assets and contractual rights, including all of the Company’s equipment and leasehold improvements at the Company’s facilities in Alameda and certain of the Company’s intellectual property related to the schematics for and design of the Alameda facility, and subleased to GeneFab its premises under the lease for the Alameda facility. The transaction provided the Company with additional capital and reduced longer term operating expenses.
a.Under the terms of the agreement, the Company will receive $37.8 million in cash before the end of 2025. Approximately $18.9 million was due at closing, which amount was netted against prepayment owed by the Company for manufacturing and support services to GeneFab. The remaining $18.9 million will be paid to the Company in installments in 2024 and 2025.
b.The Company has agreed to prepay GeneFab $18.9 million for manufacturing and research activities. In addition, the Company will receive $8.0 million of manufacturing credit from GeneFab for their services.
c.The Company subleased the cGMP facility in Alameda, CA to GeneFab, a portion of which will be subject to the satisfaction of certain conditions, which will support the clinical manufacturing of the Company’s chimeric antigen receptor natural killer (CAR-NK) programs, including SENTI-202.
d.The Company agreed to grant a license to GeneFab under certain of its intellectual property rights to conduct manufacturing services and to research, develop, manufacture and commercialize products outside of oncology, pursuant to a license agreement under negotiation.
e.Philip Lee, Ph.D., former Co-Founder and Chief Technology Officer of the Company, assumed the role of Chief Executive Officer of GeneFab.
f.GeneFab intends to extend offers of employment to approximately forty-six of the Company's employees currently employed in its research and development and manufacturing functions. Employees that accept the offers of employment will continue to be actively engaged in the CMC and manufacturing components for the clinical manufacturing of the Company’s Gene Circuit products.
g.GeneFab was provided an option to purchase up to $20.0 million of the Company’s common stock at an exercise price of $1.01867. The Option is exercisable for a period of 36 months following the execution of the license agreement.
h.The Company and GeneFab entered into a seller economic share agreement (the “SESA”), pursuant to which the Company will be entitled to receive ten percent of the realized gains of GeneFab’s parent company arising and resulting from any cash or in-kind distributions from GeneFab in connection with the dividend or sale event, subject to the terms and conditions of the SESA.
As of June 30, 2023, the GeneFab transaction did not meet the assets held for sale classification as management had not committed to a plan to sell the long-term assets. As a result of the signing of the transaction non-binding term sheet in June 2023 with GeneFab and the change in the manner in which the Company expects to recover the assets subject to the GeneFab transaction, the asset group used in the long-lived impairment assessment was changed to two asset groups as of June 30, 2023, the oncology and non-oncology asset group, with the non-oncology including all the assets expected to be transferred in the GeneFab transaction. This asset group reassessment triggered a need to perform an impairment analysis for the non-oncology asset group that considered the final terms of the transaction and no impairment was deemed necessary.
NASDAQ Bid Price Compliance Notice
On August 7, 2023, the Company received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying the Company that, for the last 30 consecutive trading days, the closing bid price of the Company’s common stock had closed below the minimum bid price requirement of $1.00 per share for
22
SENTI BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
continued listing on The Nasdaq Global Market. The Company has been provided an initial compliance period of 180 calendar days, or until February 5, 2024, to regain compliance with the minimum bid price requirement.
23
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Senti Biosciences, Inc. (“Senti”) entered into a business combination agreement (the “Agreement”) with Dynamics Special Purpose Corp. (“DYNS”) on December 19, 2021. The transactions contemplated by the terms of the Agreement were completed on June 8, 2022 (the “Closing”), in conjunction with which DYNS changed its name to Senti Biosciences, Inc. (hereafter referred to, collectively with its subsidiaries, as “Senti,” the “Company,” “we,” “us,” or “our,” unless the context otherwise requires). The transactions contemplated in the Agreement are collectively referred to as the “Merger.”
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) as well as Senti’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”) and filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023.Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10‑Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “explore,” “intend,” “estimate,” “seek,” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Annual Report and Part II, Item 1A of this Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Senti is a preclinical biotechnology company developing next-generation cell and gene therapies engineered with its gene circuit platform technologies to fight challenging diseases. Senti’s mission is to create a new generation of smarter therapies that can outmaneuver complex diseases in ways previously not implemented by conventional medicines. To accomplish this mission, Senti has built a synthetic biology platform that it believes may enable it to program next-generation cell and gene therapies with what it refers to as “gene circuits.” These gene circuits, which Senti created from novel and proprietary combinations of genetic parts, are designed to reprogram cells with biological logic to sense inputs, compute decisions and respond to their respective cellular environments. Senti’s gene circuit platform technologies can be applied in a modality-agnostic manner, with applicability to natural killer (NK) cells, T cells, tumor-infiltrating lymphocytes (“TILs”), stem cells including Hematopoietic Stem Cells (“HSCs”), in vivo gene therapy and messenger ribonucleic acid (mRNA). All of Senti’s current product candidates are in preclinical development. Senti’s lead product candidates utilize allogeneic chimeric antigen receptor (“CAR”) NK cells outfitted with its gene circuit technologies in several oncology indications with currently high unmet needs. Senti expects to file investigational new drug applications (“INDs”) for multiple product candidates starting in 2023.
We have incurred net losses of $18.7 million and $11.6 million for the three months ended June 30, 2023 and 2022, respectively and $37.4 million and $23.4 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, we had cash, cash equivalents and short-term investments
24
of $59.6 million and $98.6 million, respectively, and an accumulated deficit of $210.7 million and $173.3 million, respectively. Net cash flows used in operating activities were $30.0 million and $15.8 million during the six months ended June 30, 2023 and 2022, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant losses for the foreseeable future.
We anticipate that our expenses and operating losses will increase substantially over the foreseeable future. The expected increase in expenses will be driven in large part by our ongoing activities, if and as we:
•continue to advance our gene circuit platform technologies;
•continue preclinical development of our current and future product candidates and initiate additional preclinical studies;
•commence clinical studies of our current and future product candidates;
•acquire and license technologies aligned with our gene circuit platform technologies;
•seek regulatory approval of our current and future product candidates;
•expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, and commercialization efforts;
•continue to develop, grow, maintain, enforce and defend our intellectual property portfolio; and
•incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company.
Recent Developments
On August 10, 2023, we announced a transaction with GeneFab, LLC (“GeneFab”), a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies. The transaction provided us with additional capital and reduced longer term operating expenses. In connection with the transaction, we will receive approximately $37.8 million in cash before the end of 2025. Approximately $18.9 million was due at closing, which amount was netted against prepayment owed by us for manufacturing and support services to GeneFab. The remaining $18.9 million will be paid to us in installments in 2024 and 2025. In addition, we will receive $8.0 million in manufacturing credit, subject to certain conditions, and will sublease our recently constructed 92,000 square foot current good manufacturing practice (cGMP) facility in Alameda, CA to GeneFab (a portion of which will be subject to the satisfaction of certain conditions).
Components of Results of Operations
Total Revenue
We currently have no therapeutic products approved for sale, and we have never generated any revenue from the sale of any therapeutic products. Total revenue consists of contract revenue related to research services provided to customers and grant income which is research funding received from grants.
Our ability to generate product revenues will depend on our partners’ ability to replicate our results and the successful development and eventual commercialization of our product candidates, which we do not expect for the foreseeable future, if ever. We may also look to generate revenue from collaboration and license agreements in the future.
Operating Expenses
Our operating expenses consist of research and development expenses and general and administrative expenses.
25
Research and Development Expenses
Research and development costs consist primarily of costs incurred for the discovery and preclinical development of our product candidates, which include:
•employee-related expenses, including salaries, related benefits, and stock-based compensation expenses for employees engaged in research and development functions;
•expenses incurred in connection with research, laboratory consumables and preclinical studies;
•the cost of consultants engaged in research and development related services and the cost to manufacture drug products for use in our preclinical studies and trials;
•facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies;
•costs related to regulatory compliance; and
•the cost of annual license fees.
We have not historically tracked research and development expenses by program, with the exception of third-party research projects. We have various ongoing early-stage research and product candidate discovery projects and going forward, we expect to have various products undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to any one research or product candidate discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding these costs incurred for these early-stage research and product candidate discovery programs on a project-specific basis.
Our direct external development program expenses reflect external costs attributable to our preclinical development candidates selected for further development as well as investigational new drug applications (“INDs”) and clinical development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities. We do not allocate internal research and development costs which include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline because these costs are deployed across multiple programs and our platform, and, as such, are not separately classified.
Research and development expenses consisted of the following (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||
| Personnel-related expenses, including share-based compensation | $ | 4,571 | $ | 3,866 | $ | 9,379 | $ | 6,664 | ||||||||||||||||||
| External services and supplies | 3,407 | 3,424 | 7,011 | 6,332 | ||||||||||||||||||||||
| Office and facilities | 2,636 | 1,782 | 5,229 | 3,528 | ||||||||||||||||||||||
| Other | 338 | 175 | 651 | 325 | ||||||||||||||||||||||
| Total | $ | 10,952 | $ | 9,247 | $ | 22,270 | $ | 16,849 | ||||||||||||||||||
Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our preclinical development programs. Product candidates in clinical development generally have higher development costs than those in preclinical stages of development, primarily due to the increased size and duration of clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical development of any of our product candidates. However, we expect that our research and development
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expenses and manufacturing costs will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future.
The successful development of our current and future product candidates is highly uncertain. This is due to numerous risks and uncertainties, including the following:
•negative or inconclusive results from our preclinical studies or clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon any or all of our programs;
•product-related side effects experienced by participants in our clinical trials or by individuals using therapeutics similar to our product candidates;
•delays in submitting IND applications or comparable foreign applications, or delays or failures to obtain the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;
•conditions imposed by the U.S. Food and Drug Administration (“FDA”) or other regulatory authorities regarding the scope or design of our clinical trials;
•delays in enrolling research subjects in clinical trials;
•high drop-out rates of research subjects;
•inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;
•Chemistry, manufacturing and control (“CMC”) challenges associated with manufacturing and scaling up biologic product candidates to ensure consistent quality, stability, purity and potency among different batches used in clinical trials;
•greater-than-anticipated clinical trial costs;
•poor potency or effectiveness of our product candidates during clinical trials;
•unfavorable FDA or other regulatory authority inspection and review of a clinical trial or manufacturing site;
•failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;
•delays and changes in regulatory requirements, policies and guidelines; and
•the FDA or other regulatory authorities interpret our data differently than we do.
A change in the outcome of any of these variables may significantly impact the costs and timing associated with the development of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and an allocation of facility-related costs.
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General and administrative expenses consisted of the following (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||
| Personnel-related expenses, including share-based compensation | $ | 6,652 | $ | 11,533 | $ | 13,828 | $ | 15,374 | ||||||||||||||||||
| External services and supplies | 1,546 | 1,505 | 2,837 | 2,446 | ||||||||||||||||||||||
| Office and facilities | 407 | 359 | 856 | 643 | ||||||||||||||||||||||
| Insurance | 414 | 161 | 918 | 202 | ||||||||||||||||||||||
| Other | 601 | 324 | 983 | 476 | ||||||||||||||||||||||
| Total | $ | 9,620 | $ | 13,882 | $ | 19,422 | $ | 19,141 | ||||||||||||||||||
We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development, manufacturing activities, and preclinical and clinical activities and to reflect increased costs associated with operating as a public company. These increased costs will likely include increased expenses for audit, legal, regulatory, tax and related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.
Other Income (Expense)
Interest Income, net
Interest income, net consists of interest earned on our cash and cash equivalents, and short-term investments, if any, held during the year, net of interest expense.
Change in Fair Value of Contingent Earnout Liability
The change in fair value of the contingent earnout liability that was accounted for as a liability as of the date of the Merger, and is remeasured to fair value at each reporting period, resulting in a non-cash gain or loss.
Gain on Extinguishment of Convertible Notes
Our convertible note was extinguished as part of the Merger and the change in fair value was recorded in earnings.
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Results of Operations
Comparison of the Three Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022 (in thousands):
| Three Months Ended June 30, | ||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Contract revenue | $ | 687 | $ | 1,108 | $ | (421) | ||||||||||||||
| Grant income | 250 | 250 | — | |||||||||||||||||
| Total revenue | 937 | 1,358 | (421) | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Research and development | 10,952 | 9,247 | 1,705 | |||||||||||||||||
| General and administrative | 9,620 | 13,882 | (4,262) | |||||||||||||||||
| Total operating expenses | 20,572 | 23,129 | (2,557) | |||||||||||||||||
| Loss from operations | (19,635) | (21,771) | 2,136 | |||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income, net | 794 | 27 | 767 | |||||||||||||||||
| Change in fair value of contingent earnout liability | 148 | 8,878 | (8,730) | |||||||||||||||||
| Gain on extinguishment of convertible notes | — | 1,289 | (1,289) | |||||||||||||||||
| Other expense | (4) | 25 | (29) | |||||||||||||||||
| Total other income (expense), net | 938 | 10,219 | (9,281) | |||||||||||||||||
| Net loss | $ | (18,697) | $ | (11,552) | $ | (7,145) | ||||||||||||||
Contract revenue. For the three months ended June 30, 2023 and 2022, we generated revenue from contracts and license agreements of $0.7 million and $1.1 million, respectively. The decrease of $0.4 million was primarily due to decline in services provided for the Spark collaboration project.
Grant income. For the three months ended June 30, 2023 and 2022, we generated revenue from grants of $0.3 million and $0.3 million, respectively, from the SBIR SENTI-202 grant funding.
Research and development expenses. Research and development expenses were $11.0 million and $9.2 million for the three months ended June 30, 2023 and 2022, respectively. The increase of $1.7 million was primarily due to an increase of $0.7 million in personnel-related expenses and an increase of $0.9 million in facility costs.
General and administrative expenses. General and administrative expenses were $9.6 million and $13.9 million for the three months ended June 30, 2023 and 2022, respectively. The decrease of $4.3 million was primarily due to a decrease of $4.9 million in personnel-related expenses, which includes a $4.8 million decrease in stock-based compensation expense, and an increase in insurance of $0.3 million.
Interest income, net. Interest income was $0.8 million and nominal for the three months ended June 30, 2023 and 2022, respectively, due to a higher average cash balances, as well as an increase in interest rates in the relevant periods.
Change in fair value of contingent earnout liability. For the three months ended June 30, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $8.9 million, respectively. The decrease of $8.7 million related to the remeasurement of the contingent earnout liability to fair value.
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Gain on extinguishment of convertible notes. For the three months ended June 30, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes as part of the Merger.
Comparison of the Six Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022 (in thousands):
| Six Months Ended June 30, | ||||||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Contract revenue | $ | 1,723 | $ | 1,962 | $ | (239) | ||||||||||||||
| Grant income | 500 | 500 | — | |||||||||||||||||
| Total revenue | 2,223 | 2,462 | (239) | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Research and development | 22,270 | 16,849 | 5,421 | |||||||||||||||||
| General and administrative | 19,422 | 19,141 | 281 | |||||||||||||||||
| Total operating expenses | 41,692 | 35,990 | 5,702 | |||||||||||||||||
| Loss from operations | (39,469) | (33,528) | (5,941) | |||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income, net | 1,855 | 31 | 1,824 | |||||||||||||||||
| Change in fair value of contingent earnout liability | 207 | 8,878 | (8,671) | |||||||||||||||||
| Gain on extinguishment of convertible notes | — | 1,289 | (1,289) | |||||||||||||||||
| Other expense | (12) | (30) | 18 | |||||||||||||||||
| Total other income (expense), net | 2,050 | 10,168 | (8,118) | |||||||||||||||||
| Net loss | $ | (37,419) | $ | (23,360) | $ | (14,059) | ||||||||||||||
Contract revenue. For the six months ended June 30, 2023 and 2022, we generated revenue from contracts and license agreements of $1.7 million and $2.0 million, respectively. The decrease of $0.2 million was primarily due to decline in services provided for the Spark collaboration project.
Grant income. For the six months ended June 30, 2023 and 2022, we generated revenue from grants of $0.5 million and $0.5 million, respectively, from the SBIR SENTI-202 grant funding.
Research and development expenses. Research and development expenses were $22.3 million and $16.8 million for the six months ended June 30, 2023 and 2022, respectively. The increase of $5.4 million was primarily due to an increase of $2.7 million in personnel-related expenses, an increase of $1.7 million in facility costs, and an increase of $0.7 million in professional services costs.
General and administrative expenses. General and administrative expenses were $19.4 million and $19.1 million for the six months ended June 30, 2023 and 2022, respectively. The increase of $0.3 million was primarily due to an increase of $0.7 million in insurance, an increase of $0.5 million in depreciation and amortization, an increase of $0.4 million in professional services costs offset by a decrease of $1.5 million in personnel-related expenses.
Interest Income, net. Interest income was $1.9 million and nominal for the six months ended June 30, 2023 and 2022, respectively, due to a higher average cash balances, as well as an increase in interest rates in the relevant periods.
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Change in fair value of contingent earnout liability. For the six months ended June 30, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $8.9 million, respectively. The decrease of $8.7 million related to the remeasurement of the contingent earnout liability to fair value.
Gain on extinguishment of convertible notes. For the six months ended June 30, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes as part of the Merger.
Liquidity and Capital Resources
Sources of Liquidity
From inception to June 30, 2023, we raised aggregate gross proceeds of $299.5 million from the Merger and PIPE Financing, the issuance of shares of our common stock, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a less extent, through collaboration agreements and governmental grants.
On August 31, 2022, we entered into the Purchase Agreement with Chardan. Pursuant to the Purchase Agreement, we have the right, in our sole discretion, to sell to Chardan up to the lesser of: (i) $50.0 million of shares of our common stock; and (ii) 8,727,049 shares of common stock at 97% of the volume weighted average price (“VWAP”) of the common stock calculated in accordance with the Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the Purchase Agreement. Sales and timing of any sales of common stock are solely at our election, and we are under no obligation to sell any securities to Chardan under the Purchase Agreement. As consideration for Chardan’s commitment to purchase shares of our common stock at our direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, we issued 100,000 shares of our common stock to Chardan and paid a $0.4 million document preparation fee. We recognized an expense of $0.7 million within general and administrative expenses in our Condensed Consolidated Statements of Operations and Comprehensive Loss for the Chardan related costs and legal fees incurred in connection with the agreement.
Other than the issuance of the commitment shares of our common stock to Chardan we issued 300,000 shares of common stock up until June 30, 2023, aggregating to net proceeds of $0.7 million under the Purchase Agreement. There were no shares issued within six months ended June 30, 2023.
We do not have any products approved for sale and have not generated any revenue from product sales or otherwise. We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of June 30, 2023, we had $59.6 million in cash, cash equivalents and short-term investments, and an accumulated deficit of $210.7 million, respectively.
We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, if at all. Should we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties rights to develop or commercialize our product candidates that we would prefer to retain.
On August 10, 2023, we announced the transaction with GeneFab, a newly formed independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies. The transaction provided us with additional capital and reduced longer term operating expenses.
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Cash Flows
The following table sets forth a summary of our cash flows for each of the periods indicated (in thousands):
| Six Months Ended June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net cash from operating activities | $ | (29,979) | $ | (15,754) | ||||||||||
| Net cash from investing activities | 8,834 | (18,640) | ||||||||||||
| Net cash from financing activities | 246 | 118,160 | ||||||||||||
| Net change in cash and cash equivalents | $ | (20,899) | $ | 83,766 | ||||||||||
Operating Activities
For the six months ended June 30, 2023, net cash used in operating activities of $30.0 million was primarily due to our loss of $37.4 million with non-cash adjustments of $7.2 million for stock-based compensation expense, $2.1 million for depreciation and amortization of operating lease right-of-use-assets, $1.0 million for accretion of discount on short-term investments, and $0.2 million for the change in fair value of contingent earnout liability. Other material changes comprised of $1.2 million decrease in accounts payable and accrued expenses and other current liabilities, $0.6 million decrease in deferred revenue, offset by $1.0 million increase in operating lease liabilities.
For the six months ended June 30, 2022, net cash used in operating activities of $15.8 million was primarily due to our net loss of $23.4 million with non-cash adjustments of $9.9 million for stock-based compensation expense, $8.9 million for the change in fair value of contingent earnout liability, $1.9 million for depreciation and amortization of operating lease right-of-use assets and $1.3 million for gain on extinguishment of convertible notes. Other material changes comprised of $7.9 million increase in operating lease liabilities and $0.4 million increase in accounts payable and accrued expenses and other current liabilities, offset by $1.4 million increase in prepaid expenses and other assets and $1.0 million decrease in deferred revenue.
Investing Activities
For the six months ended June 30, 2023, net cash provided by investing activities of $8.8 million was due to $37.0 million cash received upon maturity of short-term investments offset by $18.0 million purchases of short-term investments and $10.2 million purchases of property and equipment.
For the six months ended June 30, 2022, net cash used in investing activities of $18.6 million, was entirely due to purchases of property and equipment.
Financing Activities
For the six months ended June 30, 2023, $0.2 million cash was provided by financing activities primarily due to $0.3 million proceeds from the issuance of common stock under Employee Stock Purchase Plan (ESPP).
For the six months ended June 30, 2022, net cash provided by financing activities of $118.2 million was primarily due to $112.5 million proceeds received from Merger and related PIPE financing activities, net of transaction cost, $5.2 million from issuance of convertible notes and $0.5 million proceeds from the issuance of common stock upon exercise of stock options.
Funding Requirements
Based upon our current operating plans, there is uncertainty about whether our existing cash, cash equivalents, and short-term investments will be sufficient to fund our operations, including clinical trial expenses and capital expenditure requirements, beyond twelve months from the date of this Quarterly Report. We anticipate that we will continue to seek additional funding, though the precise timing of such may prove uncertain. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our assumptions may prove
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to be inaccurate, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing and manufacturing product candidates in preclinical studies and clinical trials is costly and the timing and expenses in these trials are uncertain.
On August 10, 2023, we announced the transaction with GeneFab, a newly formed independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies. The transaction provided us with additional capital and reduced longer term operating expenses.
Our future capital requirements will depend on many factors, including:
•the scope, rate of progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
•the number and development requirements of product candidates that we may pursue, and other indications for our current product candidates that we may pursue;
•the costs, timing and outcome of regulatory review of our product candidates;
•the scope and costs of any commercial manufacturing activities;
•the cost associated with commercializing any approved product candidates;
•the cost and timing of developing our ability to establish sales and marketing capabilities, if any;
•the costs of preparing, filing and prosecuting patent applications, maintaining, enforcing and protecting our intellectual property rights, defending intellectual property-related claims and obtaining licenses to third-party intellectual property;
•the timing and amount of any milestone and royalty payments we are required to make under our present or future license agreements;
•our ability to establish and maintain collaborations on favorable terms, if at all; and
•the extent to which we acquire or in-license other product candidates and technologies and associated intellectual property.
In order to improve our liquidity, management is actively pursuing additional financing. We expect our expenses to increase substantially in connection with ongoing activities, particularly as we advance our preclinical activities and clinical trials for our product candidates in development. Accordingly, we will need to obtain substantial additional funding for continuing operations. If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce or eliminate our research or drug development programs or any future commercialization efforts. Although management continues to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
Contractual Obligations and Commitments
On June 3, 2021, we entered into a lease agreement for a new cGMP facility in Alameda, California to support planned initial clinical trials for our product candidates. The lease will expire in 2032 with future undiscounted operating lease payments of $46.0 million over an initial lease period of eleven years. See Note 5 - Operating Leases for details on our lease obligations.
In 2021, we began construction of the cGMP facility. Buildout of the cGMP facility was completed in June 2023. As of June 30, 2023, we have paid $40.0 million in construction costs of the $42.2 million purchase commitment. The agreements with the construction company provide for termination following a certain period after notice. Upon termination we will be responsible for payment for work performed to date.
During the year ended December 31, 2021, we entered into a three-year collaboration and option agreement with BlueRock Therapeutics LP (“BlueRock”) under which we granted BlueRock an option to execute an exclusive
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or non-exclusive license to develop, manufacture and commercialize cell therapy products (See Part I, Item 1, Notes to Condensed Consolidated Financial Statements (Unaudited), Note 12 - Related Parties for details into the BlueRock agreement). In consideration for the option, we are responsible for up to $10.0 million in research and development costs and expenses associated with the collaboration plan incurred over the three-year term.
We have also entered into license agreements under which we are obligated to make annual maintenance payments of $0.1 million and specified milestone and royalty payments. Milestone and royalty payment obligations under these agreements are contingent upon future events, such as our achievement of specified development, regulatory, and sales milestones, or generating product sales. As of June 30, 2023, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.
We have entered into sponsored research agreements under which we are obligated to pay $0.4 million and $0.3 million in 2023 and 2024, respectively.
Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of our common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche. Refer to Note 6, Stockholders’ Equity (Deficit), for further details of the contingent earnout.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements. We define our critical accounting policies as those under U.S. GAAP that require us to make subjective estimates and judgments about matters that are inherently uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles.
During the six months ended June 30, 2023, there have not been any other significant changes to our critical accounting policies and estimates, except as noted below, from those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance, to us.
Impairment of Long-Lived Assets
As a result of the change in the manner in which the Company expects to recover the assets subject to the GeneFab transaction, the asset group used in the long-lived impairment assessment was changed to two asset groups as of June 30, 2023, the oncology and non-oncology asset group, with the non-oncology including all the assets expected to be transferred in the GeneFab transaction. This asset group reassessment triggered a need to perform an impairment analysis for the non-oncology asset group that considered the final terms of the transaction as the fair value of the non-oncology asset group and no impairment was deemed necessary.
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Emerging Growth Company Status
The Jumpstart Our Business Startups Act (“JOBS”) Act permits an emerging growth company to take advantage of an extended transition to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to not take advantage of the benefits of this extended transition period.
We expect to remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Dynamics Initial Public Offering (“IPO”) (which occurred on May 25, 2021), (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter and our net sales for the year exceed $100 million; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding, rolling three-year period.
Smaller Reporting Company Status
The Company is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company if (1) the market value of our common stock held by non-affiliates is less than $250 million as of the last business day of the second fiscal quarter, or (2) our annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter are less than $100 million and the market value of our common stock held by non-affiliates is less than $700 million as of the last business day of the second fiscal quarter.
Segment Information
We have one business activity and operate in one reportable segment.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company,” we are not required to provide this information.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Prior to the Merger, we had been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with our preparation and the audit of our consolidated financial statements as of and for the year ended December 31, 2021, we and our independent registered public accounting firm identified a material weakness, as defined under the Exchange Act and by the Public Company Accounting Oversight Board (United States), in our internal control over financial reporting. The material weakness related to a lack of sufficient and adequate resources in the finance and accounting function that resulted in a lack of formalized risk assessment process, lack of segregation of duties, and ineffective process level control activities over the management review of journal entries, account reconciliations and non-routine transactions. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.
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We have taken a number of remediation actions during the year ended December 31, 2022, and are continuing with our efforts. Remediation actions taken during the fiscal year ended December 31, 2022 and that continue include:
•hiring personnel with appropriate levels of experience in accounting, technology, and internal controls;
•engaging a professional accounting services firm to help us commence the documentation and assessment of our internal controls for complying with the Sarbanes-Oxley Act;
•implementing a risk assessment over financial reporting controls; and
•implementing new software tools.
While significant progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing our processes, procedures, and controls. Additional time is required to complete the remediation of these material weaknesses and the assessment to ensure the sustainability of these remediation actions. We believe the above actions, when complete, will be effective in the remediation of the material weakness described above.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company currently is not aware of any legal proceedings or claims that management believes will have, individually or in the aggregate, a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. Before you decide to invest in common stock, you should consider carefully the risks described below, together with the information contained in the Quarterly Report on Form 10-Q for the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on May 9, 2023, including our financial statements and the related notes appearing in that Form 10-Q.. We believe the risks described below are the risks that are material to us as of the date of the Annual Report. Factors that could cause our actual results to differ materially from those in the Annual Report are any of the risks described in the Item 1A below. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. If any of the following risks actually occur, our business, results of operations and financial condition would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose part or all of your investment.
Summary Risk Factors
The risk factors set forth below represent a summary of some of the principal risk factors which potential investors in our securities should be aware of. Although each of these risks is important, this list is not and is not intended to be a substitute for investors reviewing all of the information in this Quarterly Report, including all risk factors which follow this summary.
•We are a preclinical stage biotechnology company with a history of losses. We expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.
•We have identified a material weakness in our internal control over financial reporting. If our remediation of the material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
•Members of our management team have limited experience in managing the day-to-day operations of a public company and, as a result, we may incur additional expenses associated with the management of our company.
•Our history of recurring losses and anticipated expenditures raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.
•We may not achieve the intended objectives of our strategic prioritization plan announced in January 2023.
•Our current product candidates are in preclinical development and have never been tested in humans. One or all of our current product candidates may fail in clinical development or suffer delays that materially and adversely affect their ability to receive regulatory approval or to attain commercial viability.
•If any of our current or potential future product candidates is ever tested in humans, it may not demonstrate the safety, purity and potency, or efficacy, necessary to become approvable or commercially viable.
•Our gene circuit platform technologies are based on novel technologies that are unproven and may not result in approvable or marketable products, which exposes us to unforeseen risks and makes it difficult for us to predict the time and cost of product development and potential for regulatory approval.
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•We may not be successful in our efforts to use and expand our gene circuit platform to expand our pipeline of product candidates.
•The market, physicians, patients, regulators and potential investors may not be receptive to our current or potential future product candidates and may be skeptical of the viability and benefits of our gene circuit pipeline technology because it is based on a relatively novel and complex technology.
•The occurrence of serious complications or side effects in connection with use of our product candidates, either in clinical trials or post-approval, could lead to discontinuation of our clinical development programs, refusal of regulatory authorities to approve our product candidates or, post-approval, revocation of marketing authorizations or refusal to approve applications for new indications, which could severely harm our business, prospects, operating results and financial condition.
•We and our collaborators may not achieve projected discovery and development milestones and other anticipated key events in the time frames that we or they announce, which could have an adverse impact on our business and could cause our stock price to decline.
•If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
•If we decide to seek orphan drug designation for one or more of our product candidates, we may be unsuccessful or may be unable to maintain the benefits associated with orphan drug designation for our current or future product candidates that we may develop.
•We may not be able to conduct, or contract with others to conduct, animal testing in the future, which could harm our research and development activities.
•We rely on third parties to conduct our preclinical studies, and plan to rely on third parties to conduct clinical trials, and those third parties may not perform satisfactorily.
•Supply of our product candidates for preclinical and clinical development may become limited or interrupted or may not be of satisfactory quantity or quality, and we could experience delays relying on third-party manufacturers.
•We are exposed to a number of risks related to our supply chain for the materials required to manufacture our product candidates.
•We face competition from companies that have developed or may develop product candidates for the treatment of the diseases that we may target, including companies developing novel therapies and platform technologies. If these companies develop platform technologies or product candidates more rapidly than we do, or if their platform technologies or product candidates are more effective or have fewer side effects, our ability to develop and successfully commercialize product candidates may be adversely affected.
•Our business entails a significant risk of product liability, and our inability to obtain sufficient insurance coverage could have a material adverse effect on our business, financial condition, results of operations and prospects.
•Our business, operations and clinical development plans and timelines could be adversely affected by the impact of global economic and political developments, including high inflation and capital market disruption, the war in Ukraine, economic sanctions and economic slowdowns or recession, including any lingering impact from the COVID-19 pandemic, or by the manufacturing, clinical trial and other business activities performed by us or by third parties with whom we may conduct business, including our anticipated contract manufacturers, contract research organizations (“CROs”), shippers and others.
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Risks Related to Our Limited Operating History and Financial Condition
We are a preclinical stage biotechnology company with a history of losses. We expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.
We are a preclinical stage biotechnology company with a history of losses. Since our inception, we have devoted substantially all of our resources to research and development, preclinical studies, building our management team and building our intellectual property portfolio, and we have incurred significant operating losses. Our net losses were $37.4 million and $23.4 million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, we had an accumulated deficit of $210.7 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. To date, we have not generated any revenue from product sales, and we have not sought or obtained regulatory approval for any product candidate. Furthermore, we do not expect to generate any revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies, clinical trials, manufacturing and the regulatory approval process for our current and potential future product candidates.
We expect our net losses to increase substantially as we:
• | continue to advance our gene circuit platform technologies; | ||||||||||
• | continue preclinical development of our current and future product candidates and initiate additional preclinical studies; | ||||||||||
• | commence clinical trials of our current and future product candidates; | ||||||||||
• | acquire and license technologies aligned with our gene circuit platform technologies; | ||||||||||
• | seek regulatory approval of our current and future product candidates; | ||||||||||
• | expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, and commercialization efforts; | ||||||||||
• | continue to develop, maintain, expand, and defend our intellectual property portfolio; and | ||||||||||
• | incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company. | ||||||||||
However, the amount of our future losses is uncertain. Our ability to achieve or sustain profitability, if ever, will depend on, among other things, successfully developing product candidates, obtaining regulatory approvals to market and commercialize product candidates, ensuring our product candidates are manufactured on commercially reasonable terms, entering into potential future alliances, establishing a sales and marketing organization or suitable third-party alternatives for any approved product and raising sufficient funds to finance business activities. If we, or our existing or potential future collaborators, are unable to commercialize one or more of our product candidates, or if sales revenue from any product candidate that receives approval is insufficient, we will not achieve or sustain profitability, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We will need substantial additional funding. If we are unable to raise capital when needed on acceptable terms, or at all, we may be forced to restructure our business or delay, reduce, or terminate our research and product development programs, future commercialization efforts or other operations.
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We will need substantial additional funds to advance development of product candidates and our gene circuit platform, and we cannot guarantee that we will have sufficient funds available in the future to develop and commercialize our current or potential future product candidates and technologies.
The development of biotechnology product candidates is capital-intensive. If any of our current or potential future product candidates enter and advance through preclinical studies and clinical trials, we will need substantial additional funds to expand our development, regulatory, marketing and sales capabilities. We have used substantial funds to develop our gene circuit platform, SENTI-202, SENTI-301A, SENTI-401 and other potential product candidates, and we will require significant funds to continue to develop our platform and conduct further research and development, including preclinical studies and clinical trials. In addition, we expect to incur significant additional costs associated with operating as a public company.
As of June 30, 2023, we had $59.6 million in cash, cash equivalents, and short-term investments. Our future capital requirements and the period for which our existing resources will support our operations may vary significantly from what we expect. Our monthly spending levels vary based on new and ongoing research and development and other corporate activities. Because the length of time and activities associated with successful research and development of platform technologies and product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future capital requirements and the timing and amount of our operating expenditures will depend largely on:
• | the timing and progress of preclinical and clinical development of our current and potential future product candidates; | ||||||||||
• | the timing and progress of our development of our gene circuit platforms; | ||||||||||
• | the number and scope of preclinical and clinical programs we decide to pursue; | ||||||||||
• | the terms of any third-party manufacturing contract or biomanufacturing partnership we may enter into; | ||||||||||
• | our ability to maintain our current licenses and collaborations, conduct our research and development programs and establish new strategic partnerships and collaborations; | ||||||||||
• | the progress of the development efforts of our existing strategic partners and third parties with whom we may in the future enter into collaboration and research and development agreements; | ||||||||||
• | the costs involved in obtaining, maintaining, enforcing and defending patents and other intellectual property rights; | ||||||||||
• | supply chain disruptions, global political and market conditions, and inflationary pressures on our business; | ||||||||||
• | the cost and timing of regulatory approvals; and | ||||||||||
• | our efforts to enhance operational systems and to hire and retain personnel, including personnel to support development of our product candidates and to satisfy our obligations as a public company. | ||||||||||
To date, we have primarily financed our operations through the sale of equity securities. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, grants and other marketing and distribution arrangements. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved.
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We cannot assure you that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms acceptable to us, if at all. If we are unable to obtain adequate financing when needed, our business, financial condition and results of operations will be harmed, and we may need to significantly modify our operational plans, or else we may not be able to continue as a going concern beyond twelve months from the issuance date of this Form 10-Q. For example, in January 2023 we announced a strategic plan to focus internal resources on SENTI-202 and SENTI-401, to develop gene circuits for other programs with potential partners, and to suspend research and development efforts for SENTI-301A. In the future, we may have to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development programs, or commercialization efforts. Further, if we are unable to continue as a going concern, we might have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our consolidated financial statements. Because of the numerous risks and uncertainties associated with the development and commercialization of our current and potential future product candidates and the extent to which we may enter into collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials, including related manufacturing costs.
To the extent that we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our current and potential future product candidates, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Moreover, the issuance of additional securities by us, whether equity or debt, or the market perception that such issuances are likely to occur, could cause the market price of our common stock to decline.
We do not expect to realize revenue from product sales or royalties from licensed products for the foreseeable future, if at all, and unless and until our current and potential future product candidates are clinically tested, approved for commercialization and successfully marketed.
We identified a material weakness in our internal control over financial reporting. If our remediation of the material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of shares of our common stock.
Prior to the closing of the Merger, we were a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with our preparation and the audit of our consolidated financial statements as of and for the years ended December 31, 2021, we and our independent registered public accounting firm identified a material weakness, as defined under the Exchange Act and by the Public Company Accounting Oversight Board (United States), in our internal control over financial reporting. The material weakness related to a lack of sufficient and adequate resources in the finance and accounting function that resulted in a lack of formalized risk assessment process, lack of segregation of duties, and ineffective process level control activities over the management review of journal entries, account reconciliations and non-routine transactions.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.
We implemented a risk assessment process and measures designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weakness, including hiring additional accounting personnel. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. Moreover, the rules governing the standards that must be met for our
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management to assess our internal control over financial reporting are complex and require significant documentation, testing, and remediation. To maintain and improve the effectiveness of our financial reporting, we will need to commit significant resources, implement and strengthen existing disclosure processes controls, reporting systems, and procedures, train personnel and provide additional management oversight, all of which may divert attention away from other matters that are important to our business.
We cannot be certain that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, an independent registered public accounting firm has not yet performed an evaluation of our internal control over financial reporting, though such an evaluation will be required when we lose our status as an “emerging growth company” and become an “accelerated filer” or a “large accelerated filer.” When an evaluation by an independent registered public accounting firm is performed, such firm may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated, or reviewed.
Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. A material weakness in internal controls could result in our failure to detect a material misstatement of our annual or quarterly consolidated financial statements or disclosures. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal controls over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of the shares of our common stock.
We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or identify any additional material weaknesses, the accuracy and timing of our financial reporting may be negatively impacted, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm when required may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.
Members of our management team have limited experience in managing the day-to-day operations of a public company and, as a result, we may incur additional expenses associated with the management of our company.
Members of our management team have limited experience in managing the day-to-day operations of a public company. As a result, we may need to obtain outside assistance from legal, accounting, investor relations, or other professionals that could be more costly than planned. These compliance costs will make some activities significantly more time-consuming and costly. If we lack cash resources to cover these costs in the future, our failure to comply with reporting requirements and other provisions of securities laws could negatively affect our stock price and adversely affect our potential results of operations, cash flow and financial condition.
Our ability to use net operating loss carryforwards (“ NOLs”) and credits to offset future taxable income may be subject to certain limitations.
Our NOLs could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. NOLs generated in taxable years beginning before January 1, 2018 are permitted to be carried forward for 20 taxable years under applicable U.S. federal income tax law. Under current U.S. federal income tax law, NOLs arising in tax years beginning after December 31, 2020 may not be carried back. Moreover, NOLs generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such NOLs generally will be limited in taxable years beginning after December 31, 2020 to 80% of current year taxable income. As of December 31, 2022, we had NOLs for U.S. federal
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and state income tax purposes of approximately $100.3 million and $55.0 million, respectively, a portion of which expire beginning in 2036 if not utilized. NOLs for U.S. federal tax reporting purposes of approximately $96.8 million have an indefinite life.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” (defined under Section 382 of the Code and applicable Treasury Regulations as a greater than 50 percentage point change (by value) in a corporation’s equity ownership by certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. We have not determined whether our NOLs are limited under Section 382 of the Code. We may have experienced ownership changes in the past and may experience ownership changes in the future, including as a result of the Merger or subsequent shifts in our stock ownership (some of which are outside our control). Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to reduce future income tax liabilities, including for state tax purposes. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheets, even if we attain profitability, which could potentially result in increased future tax liability to us and could adversely affect our operating results and financial condition.
Changes in tax law may adversely affect us or our investors.
The U.S. rules dealing with federal, state, and local taxation are constantly under review by those involved in the legislative process, as well as by the U.S. Treasury Department. Changes to tax laws, which may have retroactive application, could adversely affect us or holders of our common stock. For example, under Section 174 of the Code, in taxable years beginning after December 31, 2021, expenses that are incurred for research and development in the U.S. will be capitalized and amortized, which may have an adverse effect on our cash flow. In recent years, many such changes have been made and change are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial conditions, or results of operations. The existence, timing, and content of new tax laws are unpredictable, and could cause an increase in our or our shareholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law. We urge investors to consult with their legal and tax advisers regarding the implications of potential changes in tax laws on an investment in our common stock.
The sale or issuance of our common stock to GeneFab may cause significant dilution and the sale of the shares of common stock acquired by GeneFab, or the perception that such sales may occur, could cause the price of our common stock to fall.
Pursuant to an option under the transaction with GeneFab, GeneFab may choose to invest up to approximately $20 million to purchase up to 19,633,444 shares of our common stock, subject to certain limitations, including stockholder approval in certain circumstances and compliance with applicable law, for a period of 36 months after the option agreement effective date and following execution of a license agreement. The exercise or conversion of these securities could result in a significant increase in the number of outstanding shares and substantially dilute the ownership interest of our existing stockholders. In addition, we have agreed to register for resale these shares purchased by GeneFab under their option, subject to certain restrictions. If GeneFab chooses to sell its shares in the Company, the price of our shares could fluctuate based on the market price of the common stock during the period in which such sales occur. Additionally, the sale of a substantial number of shares of our common stock, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
It is not possible to predict the number of shares of our common stock, if any, that we may sell to Chardan Capital Markets LLC, or Chardan, under our common stock Purchase Agreement, or the Purchase Agreement, with Chardan, or the actual gross proceeds resulting from those sales, or the dilution to our stockholders from those sales.
On August 31, 2022, we entered into the Purchase Agreement with Chardan, pursuant to which Chardan may purchase from us up to $50.0 million in shares of our common stock (the “Total Commitment”), upon the terms and subject to the conditions and limitations set forth in the Purchase Agreement. To date, we have sold $0.7 million in shares of our common stock to Chardan. The shares of our common stock that may be issued under the Purchase Agreement may be sold by us to Chardan at our discretion from time to time until the earliest to occur of (i) October
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1, 2025, (ii) the date on which Chardan has purchased the Total Commitment pursuant to the Purchase Agreement, (iii) the date on which our common stock fails to be listed or quoted on Nasdaq or any successor market, and (iv) the date on which, pursuant to or within the meaning of any bankruptcy law, we commence a voluntary case or any person or entity commences a proceeding against us, a custodian is appointed for us or for all or substantially all of our property, or we make a general assignment for the benefit of our creditors.
We generally have the right to control the timing and amount of any sales of our common stock to Chardan under the Purchase Agreement. Sales of our common stock to Chardan under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Chardan all or some of the common stock that may be available for us to sell to Chardan pursuant to the Purchase Agreement. Accordingly, we cannot guarantee that we will be able to sell all of the Total Commitment or how much in proceeds we may obtain under the Purchase Agreement. If we cannot sell securities under the Purchase Agreement, we may be required to utilize more costly and time-consuming means of accessing the capital markets, which could have a material adverse effect on our liquidity and cash position.
Because the purchase price per share of common stock to be paid by Chardan for the common stock that we may elect to sell to Chardan under the Purchase Agreement will fluctuate based on the market prices of our common stock at the time we elect to sell shares to Chardan pursuant to the Purchase Agreement it is not possible for us to predict, as of the date of this Quarterly Report on Form 10-Q and prior to any such sales, the number of shares of common stock that we will sell to Chardan under the Purchase Agreement, the purchase price per share that Chardan will pay for shares of common stock purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Chardan under the Purchase Agreement.
The actual number of shares of our common stock issuable will vary depending on the then current market price of shares of our common stock sold to Chardan and the number of shares of common stock we ultimately elect to sell to Chardan under the Purchase Agreement. If it becomes necessary for us to issue and sell to Chardan under the Purchase Agreement more than the 8,727,049 shares of common stock we registered pursuant to the Purchase Agreement, in order to receive aggregate gross proceeds equal to $50.0 million under the Purchase Agreement, we will have to file with the SEC one or more additional registration statements to register under the Securities Act the resale by Chardan of any such additional shares of common stock we wish to sell from time to time under the Purchase Agreement, which the SEC must declare effective, in each case before we may elect to sell any additional shares of our common stock under the Purchase Agreement. Under applicable Nasdaq rules, in no event may we issue to Chardan more than 19.99% of the total number of shares of common stock that were outstanding immediately prior to the execution of the Purchase Agreement, unless we obtain prior stockholder approval or if such approval is not required in accordance with the applicable Nasdaq rules. In addition, Chardan is not obligated to buy any common stock under the Purchase Agreement if such shares, when aggregated with all other shares of our common stock then beneficially owned by Chardan and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in Chardan beneficially owning common stock in excess of 4.99% of our outstanding shares of common stock. Our inability to access a portion or the full amount available under the Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business or results of operation.
Investors who buy common stock from Chardan at different times will likely pay different prices.
Pursuant to the Purchase Agreement, the timing, price and number of shares sold to Chardan will vary depending on when we choose to sell shares, if any, to Chardan. If and when we elect to sell any additional common stock to Chardan pursuant to the Purchase Agreement, after Chardan has acquired such common stock, Chardan may resell all, some or none of such shares at any time or from time to time in its sole discretion and at different prices. As a result, investors who purchase shares from Chardan at different times will likely pay different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from Chardan as a result of future sales made by us to Chardan at prices lower than the prices such investors paid for their shares from Chardan.
The sale or issuance of shares of our common stock to Chardan will result in additional outstanding shares and the resale of shares of our common stock by Chardan that it acquires pursuant to the Purchase Agreement, or the perception that such sales may occur, could cause the price of shares of our common stock to decrease.
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As of the date of this Form 10-Q, we have issued 400,000 shares of common stock to Chardan under the Purchase Agreement, including 100,000 shares issued to Chardan as consideration for its execution and delivery of the Purchase Agreement. The shares of common stock issuable under the Purchase Agreement may be sold by us to Chardan at our sole discretion, subject to the satisfaction of certain conditions in the Purchase Agreement, from time to time, until the earliest to occur of (i) October 1, 2025, (ii) the date on which Chardan has purchased the Total Commitment pursuant to the Purchase Agreement, (iii) the date on which our common stock fails to be listed or quoted on Nasdaq or any successor market, and (iv) the date on which, pursuant to or within the meaning of any bankruptcy law, we commence a voluntary case or any person or entity commences a proceeding against us, a custodian is appointed for us or for all or substantially all of our property, or we make a general assignment for the benefit of our creditors. The purchase price for shares of our common stock that we may sell to Chardan under the Purchase Agreement will fluctuate based on the trading price of shares of our common stock. Depending on market liquidity at the time, sales of shares of our common stock may cause the trading price of shares of our common stock to decrease. We generally have the right to control the timing and amount of any future sales of shares of our common stock to Chardan. Additional sales of shares of our common stock, if any, to Chardan will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Chardan all or some of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell shares of our common stock to Chardan, after Chardan has acquired shares of our common stock, Chardan may resell all, some or none of such shares of common stock at any time or from time to time in its discretion. Therefore, sales to Chardan by us could result in substantial dilution to the interests of other holders of shares of our common stock. In addition, if we sell a substantial number of shares of our common stock to Chardan under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares of our common stock or the mere existence of our arrangement with Chardan may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.
We may use our cash resources, including proceeds from sales of our common stock made pursuant to the Purchase Agreement in ways with which you may not agree or in ways which may not yield a significant return.
We have broad discretion over the use of capital we have raised, including proceeds from sales of our common stock made pursuant to the Purchase Agreement, and you will not have the opportunity, as part of any decision to invest in our common stock, to assess whether the proceeds are being used appropriately. Accordingly, you will have to rely on the judgment of our management with respect to the use of these funds, with only limited information regarding management’s specific intentions. We may spend all or a portion of the net proceeds of our prior financing activities, including sales of our common stock under the Purchase Agreement, in ways that are not what our stockholders may desire or that may not yield favorable results. Because of the number and variability of factors that will determine our use of the net proceeds, their ultimate use may vary substantially from their currently intended use. The failure by us to apply these funds effectively could harm our business, and the net proceeds may be used for corporate purposes that do not increase our operating results or enhance the value of our common stock.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect the Company’s current and projected business operations and its financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. As of June 30, 2023, we had two letters of credit held with SVB in an aggregate amount of $3.3 million related to our facility lease. Due to the receivership of SVB, we may be unable to access such funds. In addition, if any of our suppliers or other parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new
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commercial arrangements requiring additional payments to us could be adversely affected. In this regard, counterparties to SVB credit agreements and arrangements, and third parties such as beneficiaries of letters of credit (among others), may experience direct impacts from the closure of SVB and uncertainty remains over liquidity concerns in the broader financial services industry. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. Additionally, there is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.
Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect the Company, the financial institutions with which we have or may enter into credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions with which we have or may enter into financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.
The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, the following:
•Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;
•Delayed or lost access to other working capital sources and/or delays, inability or reductions in our ability to enter into new credit facilities or access other working capital resources;
•Potential or actual breach of contractual obligations that require the Company to maintain letters of credit or other credit support arrangements;
•Potential or actual breach of financial covenants in any credit agreements or credit arrangements; or
•Potential or actual cross-defaults in other credit agreements, credit arrangements or operating or financing agreements.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or state wage and hour laws and otherwise have a material adverse impact on our business.
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Risks Related to the Development and Clinical Testing of Our Product Candidates
Our current product candidates are in preclinical development and have never been tested in humans. One or all of our current product candidates may fail in clinical development or suffer delays that materially and adversely affect their commercial viability.
We have no products on the market or that have gained regulatory approval or that have entered clinical trials. None of our product candidates has ever been tested in humans. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for and successfully commercializing product candidates, either alone or with collaborators.
Before obtaining regulatory approval for the commercial distribution of our product candidates, we or a collaborator must conduct extensive preclinical studies, followed by clinical trials to demonstrate the safety, purity and potency, or efficacy of our product candidates in humans. There is no guarantee that the FDA will permit us to conduct clinical trials. Further, we cannot be certain of the timely completion or outcome of our preclinical studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs, our clinical protocols or if the outcome of our preclinical studies will ultimately support the further development of our preclinical programs or testing in humans. As a result, we cannot be sure that we will be able to submit IND or similar applications for our proposed clinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials for any of our product candidates to begin.
Our current product candidates are in preclinical development and we are subject to the risks of failure inherent in the development of product candidates based on novel approaches, targets and mechanisms of action. Although we anticipate initiating clinical trials for our lead product candidates, there is no guarantee that we will be able to proceed with clinical development of any of these product candidates or that any product candidate will demonstrate a clinical benefit once we advance these candidates to testing in patients. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by preclinical stage biotechnology companies such as ours.
We may not be able to access the financial resources to continue development of, or to enter into any collaborations for, any of our current or potential future product candidates. This may be exacerbated if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, a product candidate, such as:
• | negative or inconclusive results from our preclinical studies or clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon any or all of our programs; | ||||||||||
• | adverse events experienced by participants in our clinical trials or by individuals using therapeutics similar to our product candidates; | ||||||||||
• | delays in submitting INDs or comparable foreign applications, or delays or failures to obtain the necessary approvals from regulatory authorities to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; | ||||||||||
• | conditions imposed by the FDA or other regulatory authorities regarding the scope or design of our clinical trials; | ||||||||||
• | delays in enrolling research subjects in clinical trials; | ||||||||||
• | high drop-out rates of research subjects; | ||||||||||
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• | inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials; | ||||||||||
• | conditioning patients with fludarabine in advance of administering our product candidates, which may be difficult to source, costly, or increase the risk of infections and other adverse side effects; | ||||||||||
• | chemistry, manufacturing and control (“CMC”) challenges associated with manufacturing and scaling up biologic product candidates to ensure consistent quality, stability, purity and potency among different batches used in clinical trials; | ||||||||||
• | greater-than-anticipated clinical trial costs; | ||||||||||
• | poor potency or effectiveness of our product candidates during clinical trials; | ||||||||||
• | unfavorable FDA or other regulatory authority inspection and review of a clinical trial or manufacturing site; | ||||||||||
• | delays as a result of a pandemic or events associated with a pandemic; | ||||||||||
• | failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all; | ||||||||||
• | delays and changes in regulatory requirements, policies and guidelines; or | ||||||||||
• | the FDA or other regulatory authorities interpreting our data differently than we do. | ||||||||||
Further, we and any existing or potential future collaborator may never receive approval to market and commercialize any product candidate. Even if we or any existing or potential future collaborator obtains regulatory approval, the approval may be for targets, disease indications or patient populations that are not as broad as we intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We or an existing or potential future collaborator may also be subject to post-marketing testing requirements to maintain regulatory approval.
If any of our current or potential future product candidates is ever tested in humans, it may not demonstrate the safety, purity and potency, or efficacy, necessary to become approvable or commercially viable.
None of our current product candidates have ever been tested in humans. We may ultimately discover that our current product candidates do not possess certain properties that we believe are helpful for therapeutic effectiveness and safety or would otherwise support the submission of an IND on the timelines we expect, or at all. We do not know if the observations we have made regarding our gene circuits generally and our product candidates in particular will translate into any clinical response when tested in humans. As an example, while the Tumor-Associated Antigen (“TAA”) CD33 has been clinically validated as a target for an approved antibody-drug conjugate therapy, it has not been clinically validated as a target for CAR-NK or CAR-T therapies, and may not prove to be a clinically sufficient target for the CAR-NK therapies we are developing. As a result of these uncertainties related to our gene circuit platform technologies and our product candidates, we may never succeed in developing a marketable product based on our current product candidates. If any of our current or potential future product candidates prove to be ineffective, unsafe or commercially unviable, our entire pipeline could have little, if any, value, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
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Our gene circuit platform technologies are based on novel technologies that are unproven and may not result in approvable or marketable products, which exposes us to unforeseen risks and makes it difficult for us to predict the time and cost of product development and potential for regulatory approval.
We are seeking to identify and develop a broad pipeline of product candidates using our gene circuit platform technologies. The scientific research that forms the basis of our efforts to develop product candidates with our platforms is still ongoing. We are not aware of any FDA approved therapeutics utilizing similar technologies as ours. Further, the scientific evidence to support the feasibility of developing therapeutic treatments based on our platform technologies is preliminary. As a result, we are exposed to a number of unforeseen risks and it is difficult to predict the types of challenges and risks that we may encounter during development of our product candidates. For example, we have not tested any of our current product candidates in humans, and our current data is limited to animal models and preclinical cell lines, the results of which may not translate into humans. Further, relevant animal models and assays may not accurately predict the safety and efficacy of our product candidates in humans, and we may encounter significant challenges creating appropriate models and assays for demonstrating the safety and efficacy of our product candidates. In addition, our gene circuit technologies have potential safety risks.
Given the novelty of our technologies, we intend to work closely with the FDA and comparable foreign regulatory authorities to evaluate our proposed approaches to obtain regulatory approval for our product candidates; however, due to a lack of comparable experiences, the regulatory pathway with the FDA and comparable regulatory authorities may be more complex and time-consuming relative to other more well-known therapeutics. Even if we obtain human data to support our product candidates, the FDA or comparable foreign regulatory agencies may lack experience in evaluating the safety and efficacy of our product candidates developed using our platforms, which could result in a longer than expected regulatory review process, increase our expected development costs, and delay or prevent commercialization of our product candidates. The validation process takes time and resources, may require independent third-party analyses, and may not be accepted or approved by the FDA and comparable foreign regulatory authorities. We cannot be certain that our approach will lead to the development of approvable or marketable products, alone or in combination with other therapies.
The occurrence of serious complications or side effects in connection with the use of our product candidates, either in clinical trials or post-approval, could lead to discontinuation of our clinical development programs, refusal of regulatory authorities to approve our product candidates, or, post-approval, revocation of marketing authorizations or refusal to approve applications for new indications, which could severely harm our business, prospects, operating results, and financial condition.
Undesirable side effects caused by any of our current or potential future product candidates could cause regulatory authorities to interrupt, delay, or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. While we have not yet initiated clinical trials for SENTI-202, SENTI-404, or any other product candidate, it is likely that there will be side effects associated with their use. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of these side effects. For example, if the NOT GATE gene circuit, as described below, engineered into one of our product candidates, such as SENTI-202, does not provide a clinically sufficient level of inhibition, it may kill healthy cells that it has been designed to preserve or may cause systemic immune cytotoxicity. It is possible that safety events or concerns such as these or others could negatively affect the development of our product candidates, including adversely impacting patient enrollment among the patient populations that we intend to treat. In such an event, our trials could be suspended or terminated, and the FDA or other regulatory authorities could order us to cease further development of or deny approval of a product candidate for any or all targeted indications. Such side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. To date, we have not observed any such effects in our preclinical studies, but there can be no guarantee that our current or future product candidates will not cause such effects in clinical trials. Any of these occurrences may materially and adversely impact our business and financial condition and impair our ability to generate revenues.
Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of a product candidate may only be uncovered when a significantly large number of patients are exposed to the product candidate or when patients are exposed for a longer period of time.
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In the event that any of our current or potential future product candidates receives regulatory approval and we or others identify undesirable side effects caused by one of these products, any of the following events could occur, which could result in the loss of significant revenue to us and materially and adversely impact our results of operations and business:
•regulatory authorities may withdraw their approval of the product or seize the product;
•we may be required to recall the product or change the way the product is administered to patients;
•additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;
•we may be subject to fines, injunctions, or the imposition of civil or criminal penalties;
•regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
•we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
•we could be sued and held liable for harm caused to patients;
•the product may become less competitive; and
•our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations, and prospects.
We may not be successful in our efforts to use and expand our gene circuit platform to expand our pipeline of product candidates.
A key element of our strategy is to use and advance our gene circuit platform to design, test and build our portfolio of product candidates focused on allogeneic gene circuit-equipped CAR-NK cell therapies for the treatment of cancer. Although our research and development efforts to date have resulted in our discovery and preclinical development of SENTI-202, SENTI-401 and other potential product candidates, none of these product candidates has advanced to clinical development. We cannot assure you that any of our existing product candidates will advance to clinical trials or, if they do, that such trials will demonstrate these product candidates to be safe or effective therapeutics, and we may not be able to successfully develop any product candidates. Even if we are successful in expanding our pipeline of product candidates, any additional product candidates that we identify may not be suitable for clinical development or generate acceptable clinical data, including as a result of being shown to have unacceptable effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval from the FDA or other regulatory authorities or achieve market acceptance. If we do not successfully develop and commercialize product candidates, we will not be able to generate product revenue in the future.
Although we intend to explore other therapeutic opportunities in addition to the product candidates that we are currently developing, we may fail to identify viable new product candidates for clinical development for a number of reasons. If we fail to identify additional potential product candidates, our business could be materially harmed.
Although a substantial amount of our efforts will focus on the planned clinical trials and potential approval of the current and potential future product candidates we are evaluating, a key element of our strategy is to discover, develop, and globally commercialize additional targeted therapies beyond our current product candidates to treat various conditions and in a variety of therapeutic areas. Even if we identify investigational therapies that initially show promise, we may fail to successfully develop and commercialize such products for many reasons, including the following:
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• | the research methodology used may not be successful in identifying potential investigational therapies; | ||||||||||
• | competitors may develop alternatives that render our investigational therapies obsolete; | ||||||||||
• | investigational therapies we develop may nevertheless be covered by third parties’ patents or other exclusive rights; | ||||||||||
• | an investigational therapy may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; | ||||||||||
• | it may take greater human and financial resources than we will possess to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, thereby limiting our ability to develop, diversify and expand our product portfolio; | ||||||||||
• | an investigational therapy may not be capable of being produced in clinical or commercial quantities at an acceptable cost, or at all; and | ||||||||||
• | an approved product may not be accepted as safe and effective by trial participants, the medical community or third-party payors. | ||||||||||
Identifying new investigational therapies requires substantial technical, financial and human resources, whether or not any investigational therapies are ultimately identified. Because we have limited financial and human resources, we may initially focus on research programs and product candidates for a limited set of indications. As a result, we may forgo or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. For example, if we do not accurately evaluate the commercial potential or target market for a particular product candidate or technology, we may relinquish valuable rights to that product candidate or technology through collaborations, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate or technology.
Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, which could materially adversely affect our future growth and prospects. We may focus our efforts and resources on potential product candidates or other potential programs that ultimately prove to be unsuccessful.
The market, physicians, patients, regulators and potential investors may not be receptive to our current or potential future product candidates and may be skeptical of the viability and benefits of our gene circuit pipeline technology because it is based on a relatively novel and complex technology.
The market, physicians, patients, regulators and potential investors, may be skeptical of the viability and benefits of our gene circuit pipeline technology or our product candidates because they are based on a relatively novel and complex technology and there can be no assurance that our product candidates or platform technologies will be understood, approved, or accepted. If potential investors are skeptical of the success of our pipeline products, our ability to raise capital and the value of our stock may be adversely affected. If physicians, patients, or regulators do not understand or accept our gene circuit platform technologies or our product candidates, we may be delayed in or unable to develop our product candidates.
Even if regulatory approval is obtained for a product candidate, including SENTI-202 or SENTI-401, we may not generate or sustain revenue from sales of approved products. Market acceptance of our gene circuit platform
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technologies and our current and potential future product candidates, if approved, will depend on, among other factors:
• | the timing of our receipt of any marketing and commercialization approvals; | ||||||||||
• | the terms of any approvals and the countries in which approvals are obtained; | ||||||||||
• | the safety and efficacy of our product candidates and gene circuit technologies in general; | ||||||||||
• | the prevalence and severity of any adverse side effects associated with our product candidates; | ||||||||||
• | limitations or warnings contained in any labeling approved by the FDA or other regulatory authority; | ||||||||||
• | relative convenience and ease of administration of our product candidates; | ||||||||||
• | the success of our physician education programs; | ||||||||||
• | the availability of coverage and adequate government and third-party payor reimbursement; | ||||||||||
• | the pricing of our products, particularly as compared to alternative treatments; and | ||||||||||
• | availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relative risks, benefits and costs of those treatments. | ||||||||||
If any product candidate we commercialize fails to achieve market acceptance, it could have a material adverse impact on our business, financial condition, results of operations, and prospects.
While we believe our pipeline will yield multiple INDs, we may not be able to file INDs to commence clinical trials on the timelines we expect, and even if we are able to, the FDA may not permit us to proceed.
We expect our pipeline to yield multiple INDs beginning as early as 2023, including an IND for SENTI-202. We cannot be sure that submission of an IND will result in the FDA allowing testing and clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such clinical trials. The manufacturing of our product candidates, including SENTI-202 and SENTI-401, remains an emerging and evolving field. Accordingly, we expect chemistry, manufacturing and control related topics, including product specifications, will be a focus of IND reviews, which may delay the clearance of INDs. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or clinical trial application, we cannot guarantee that such regulatory authorities will not change their requirements in the future.
In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight of institutional biosafety committees (“IBCs”), as set forth in the National Institutes of Health (“NIH”), Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, NIH Guidelines. Under the NIH Guidelines, recombinant and synthetic nucleic acids are defined as: (i) molecules that are constructed by joining nucleic acid molecules and that can replicate in a living cell (i.e., recombinant nucleic acids); (ii) nucleic acid molecules that are chemically or by other means synthesized or amplified, including those that are chemically or otherwise modified but can base pair with naturally occurring nucleic acid molecules (i.e., synthetic nucleic acids); or (iii) molecules that result from the replication of those described in (i) or (ii). Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory
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unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.
Interim, topline and preliminary data that we announce or publish from time to time for any clinical trials that we initiate may change as more patient data become available or as additional analyses are conducted, and as the data are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose interim, preliminary or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular trial. We also make assumptions, estimates, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, preliminary or topline results that we report may differ from future resu