Engineering & Capital Goods News

SANA BIOTECHNOLOGY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed consolidated
financial statements and the related notes included elsewhere in this Quarterly
Report and our audited consolidated financial statements and notes thereto and
the related Management's Discussion and Analysis of Financial Condition and
Results of Operations included as part of our Annual Report on Form 10-K as
filed with the SEC on March 16, 2022 (2021 Annual Report). This discussion and
analysis and other parts of this Quarterly Report contain forward-looking
statements that are based upon current beliefs, plans, and expectations related
to future events and our future financial performance that involve risks,
uncertainties, and assumptions, such as statements regarding our intentions,
plans, objectives, and expectations for our business. Our actual results and the
timing of selected events could differ materially from those described in or
implied by these forward-looking statements as a result of numerous factors,
including those set forth in the section titled "Risk Factors." See also the
section titled "Special Note Regarding Forward-Looking Statements."

Overview


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

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

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

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

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

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We continue to make progress on developing our cell engineering platforms and
advancing our product candidates through preclinical development and toward
potential IND submissions. Given the depth and breadth of our portfolio, we
expect to continue to assess and prioritize our programs on an ongoing basis
based on various factors, including internal and external opportunities and
constraints, which may result in our decision to advance certain programs ahead
or instead of others. As certain of our product candidates advance toward
potential IND submissions, we are conducting GLP toxicity studies and
establishing necessary scale-up for our manufacturing processes.

We remain on track to file an IND in 2022 for our hypoimmune-modified
CD19-targeted allogeneic CAR T (SC291). Preclinical data continue to highlight
the potential for our hypoimmune platform to hide our allogeneic cells from
immune detection, creating the potential for longer CAR T cell persistence and
higher durable complete response rates in cancer patients. Our in vivo CAR T
with CD8-targeted fusogen delivery of a CD19-targeted CAR (SG295) has the
potential to generate CAR T cells in vivo, which would potentially eliminate the
need for conditioning chemotherapy and complex CAR T cell manufacturing. We have
demonstrated the ability to safely and selectively deliver the CAR gene to T
cells in vivo and to generate active CAR T cells in multiple preclinical models.
Recently, our scientists have made progress in a second-generation manufacturing
process that results in at least a 50X improvement in product potency, which we
believe has the potential to translate into better efficacy, safety and
long-term manufacturability. In the fourth quarter of 2022, we decided to bring
this second-generation process forward for our first-in-human studies in
patients with B cell malignancies. While implementing this change in our
manufacturing process will delay the IND for our SG295 program until 2023, we
believe the improved process has the potential to provide a better therapy for
patients.

Our goal is to also file an IND for our ex vivo hypoimmune allogeneic CD19/CD22
CAR T (SC276) product candidate as early as 2023 and an IND for our ex vivo
hypoimmune islet cell (SC451) product candidate as early as 2024. The SC276
program will incorporate our hypoimmune platform, potentially offering greater
persistence compared to other allogeneic CAR T therapies, and target CD22 and/or
CD19 expressing cells. This therapy has the potential to treat patients with B
cell malignancies who have either failed previous CAR T therapies or are naive
to CAR T therapy. The SC451 program also leverages our hypoimmune platform. The
goal of SC451is to transplant hypoimmune islet cells with no immunosuppression
into patients with type 1 diabetes so that these cells produce insulin in a
physiologic manner in response to glucose. We believe each of these programs has
the potential to generate clinical data in 2024. Based on our current timelines
for our lead programs, we believe our cash runway will enable multiple data
readouts across our platforms. For details regarding our product candidates, see
the section titled "Business- Overview" in Part I, Item 1 included in our 2021
Annual Report.

Our ex vivo and in vivo technologies represent an aggregation of years of
innovation and technology from multiple academic institutions and companies,
including our ex vivo cell engineering programs focused on replacing damaged
cells in the heart and certain brain disorders acquired from Cytocardia Inc. and
Oscine Corp., respectively, hypoimmune technology licensed from the President
and Fellows of Harvard College (Harvard) and The Regents of the University of
California, fusogen technology acquired

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from Cobalt Biomedicines Inc. (Cobalt), and genome editing technology licensed
from Beam Therapeutics Inc. (Beam), among others. For details regarding these
acquisitions and license and collaboration agreements, see Note 3, Acquisitions
and Note 4, License and collaboration agreements, to our consolidated financial
statements included in our 2021 Annual Report, as well as the section titled
"Business- Key Intellectual Property Agreements" in Part I, Item 1 included in
our 2021 Annual Report.

We were incorporated in July 2018, and our operations to date have included
developing our ex vivo and in vivo cell engineering platforms, identifying and
developing potential product candidates, executing preclinical studies,
establishing manufacturing capabilities, acquiring technology, organizing and
staffing the company, developing and executing our business plan, establishing
our intellectual property portfolio, raising capital, and providing general and
administrative support for these operations. All of our programs are currently
in the development stage, and we do not have any products approved for sale.
Since our inception, we have incurred net losses each year. Our net losses for
the nine months ended September 30, 2022 and 2021 were $189.0 million and $245.2
million, respectively, and resulted primarily from our research and development
programs, and, to a lesser extent, general and administrative costs associated
with our operations. As of September 30, 2022, we had an accumulated deficit of
$974.4 million, which includes non-cash charges of $33.3 million and $89.9
million related to the revaluation of the success payment liabilities and
contingent consideration, respectively.

In February 2021, we completed our initial public offering (IPO) and issued 27.0
million shares of our common stock, including 3.5 million shares pursuant to the
full exercise of the underwriters' option to purchase additional shares, at a
price of $25.00 per share and received net proceeds of $626.4 million. Prior to
the IPO, we funded our operations from the issuance and sale of our convertible
preferred stock, raising an aggregate of $705.5 million in gross proceeds. As of
September 30, 2022, we had cash, cash equivalents, and marketable securities of
$511.6 million. Based on our current operating plan, we believe that our
existing cash, cash equivalents, and marketable securities will be sufficient to
meet our working capital and capital expenditure needs for at least the next 12
months.

We anticipate that our expenses and operating losses will increase for the
foreseeable future. The expected increase in expenses will be driven in large
part by our ongoing activities if and as we continue to advance our ex vivo and
in vivo cell engineering platforms; continue preclinical development of our
current and future product candidates and initiate additional preclinical
studies; commence clinical studies of our current and future product candidates;
establish our manufacturing capabilities, including developing our contract
development and manufacturing relationships and building our internal
manufacturing capabilities; acquire and license technologies aligned with our ex
vivo and in vivo cell engineering platforms; seek regulatory approval of our
current and future product candidates; expand our operational, financial, and
management systems; increase personnel, including personnel to support our
preclinical and clinical development, manufacturing, and commercialization
efforts; continue to develop, grow, prosecute, and defend our intellectual
property portfolio; and incur additional legal, accounting, or other expenses in
operating our business, including the costs associated with operating as a
public company.

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

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

COVID-19 business update


The global COVID-19 pandemic continues to evolve rapidly, and we continue to
monitor it closely. The extent of the impact of the ongoing COVID-19 pandemic on
our business, operations, and clinical development timelines and plans remains
uncertain and will depend on certain developments, including the duration of the
COVID-19 pandemic and spread of COVID-19, and the pandemic's impact on our
ability to build out and operationalize our internal manufacturing facility,
expand our laboratory space, and enroll patients in clinical trials, and the
impact of the pandemic on our clinical trial sites, contract research
organizations (CROs), contract development and manufacturing organizations
(CDMOs), suppliers of key materials and supplies, including raw materials,
consumables, and other equipment necessary to manufacture our product
candidates, and other third parties with whom we do business, as well as its
impact on regulatory authorities and our key scientific and management
personnel. We have experienced modest delays in our discovery and development
activities as a result of the COVID-19 pandemic, primarily due to temporary and
partial shutdowns at certain of our CROs and academic institutions that have
since resumed operations, and stay-at-home orders in

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Washington, California, and Massachusetts, where our operations are located.
However, to the extent possible, we are conducting business as usual, with many
of our administrative employees continuing to work outside of our offices on at
least a part-time basis.

Acquisitions

We have completed various acquisitions since inception. For details regarding
our acquisitions, see the section titled "Business-Key Intellectual Property
Agreements" and Note 3, Acquisitions, to our consolidated financial statements
included in our 2021 Annual Report.

License and collaboration agreements


We have entered into license and collaboration agreements with various third
parties. For details regarding these agreements, see the section titled
"Business- Key Intellectual Property Agreements" and Note 4, License and
collaboration agreements, to our consolidated financial statements included in
our 2021 Annual Report.

Success payments and contingent consideration

Cobalt success payment and contingent consideration


Pursuant to the terms and conditions of the Cobalt acquisition agreement, we are
obligated to pay to certain former Cobalt stockholders contingent consideration
(Cobalt Contingent Consideration) of up to an aggregate of $500.0 million upon
our achievement of certain pre-specified development milestones and a success
payment (Cobalt Success Payment) of up to $500.0 million, each of which is
payable in cash or stock. The Cobalt Success Payment is payable if, at
pre-determined valuation measurement dates, which include the closing of our IPO
and periodically thereafter, our market capitalization equals or exceeds $8.1
billion, and we are advancing a program based on the fusogen technology in a
clinical trial pursuant to an IND, or have filed for, or received approval for,
a biologics license application or new drug application. A valuation measurement
date would also be triggered upon a change of control if at least one of our
programs based on the fusogen technology is the subject of an active research
program at the time of such change of control. If there is a change of control
and our market capitalization is below $8.1 billion as of the date of such
change of control, the amount of the potential Cobalt Success Payment will
decrease, and the amount of potential Cobalt Contingent Consideration will
increase. As of September 30, 2022, a Cobalt Success Payment had not been
triggered.

See Note 3, Acquisitions to our condensed consolidated financial statements
included elsewhere in this Quarterly Report for details on the amount of the
potential Cobalt Success Payment and potential Cobalt Contingent Consideration
if there is a change of control based on various thresholds for our market
capitalization on such change of control date. See Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
"-Critical accounting policies and significant judgments and estimates-Success
payments" and "-Critical accounting policies and significant judgments and
estimates-Contingent consideration" in our 2021 Annual Report for more
information on the accounting treatment of the Cobalt Success Payment and Cobalt
Contingent Consideration.

Harvard success payments

Pursuant to the terms of the Harvard agreement, we may be required to make up to
an aggregate of $175.0 million in success payments to Harvard (Harvard Success
Payments), payable in cash, based on increases in the per share fair market
value of our common stock. The potential Harvard Success Payments are based on
multiples of increased value ranging from 5x to 40x based on a comparison of the
per share fair market value of our common stock relative to the original
issuance price of $4.00 per share at pre-determined valuation measurement dates.
The Harvard Success Payments can be achieved over a maximum of 12 years from the
effective date of the agreement. Future valuation measurement dates are
triggered by certain events, which include the one-year anniversary of our IPO,
and periodically thereafter, the date of the consummation of a merger, an asset
sale, the sale of the majority of the shares held by our Series A convertible
preferred stockholders, and the last day of the term of the Harvard Success
Payments. If a higher success payment tier is met at the same time a lower tier
is met, both tiers will be owed. Any previous Harvard Success Payments made are
credited against the Harvard Success Payment owed as of any valuation
measurement date so that Harvard does not receive multiple success payments in
connection with the same threshold. As of September 30, 2022, a Harvard Success
Payment had not been triggered.

See Note 4, License and collaboration agreements to our condensed consolidated
financial statements included elsewhere in this Quarterly Report for details on
the various per share common stock values that trigger a Harvard Success
Payment. See Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations "-Critical accounting policies and
significant judgments and estimates-Success payments" in our 2021 Annual Report
for more information on the accounting treatment of the Harvard Success
Payments.

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Components of operating results

Operating expenses

Research and development


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

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

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

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

Research and development related success payments and contingent consideration


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

General and administrative


General and administrative expenses consist of personnel-related costs,
including salaries, benefits, and non-cash stock-based compensation for our
employees in finance, legal, executive, human resources, and information
technology functions, legal and consulting fees, insurance fees, and facility
costs not otherwise included in research and development expenses. Legal fees
include those related to corporate and patent matters. Included in general and
administrative expenses for the nine months ended September 30, 2022 are
construction in progress costs incurred in connection with the write-off of our
previously planned manufacturing facility in Fremont, California (Fremont
facility), which will be replaced by our facility in Bothell, Washington
(Bothell facility).

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

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Results of operations

Comparison of the three and nine months ended September 30, 2022 and 2021

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

                                        Three Months Ended
                                           September 30,                              Nine Months Ended September 30,
                                       2022             2021         Change             2022                   2021             Change
                                                                               (in thousands)
Operating expenses:
Research and development            $   76,735       $   53,245     $  23,490     $        221,964       $        140,121     $   81,843
Research and development related
success payments and contingent
consideration                           (6,062 )         16,753       (22,815 )            (79,428 )               67,778       (147,206 )
General and administrative              15,514           13,433         2,081               48,240                 37,731         10,509
Total operating expenses                86,187           83,431         2,756              190,776                245,630        (54,854 )
Loss from operations                   (86,187 )        (83,431 )      (2,756 )           (190,776 )             (245,630 )       54,854
Interest income, net                     1,173              158         1,015                2,149                    409          1,740
Other income (expense), net               (106 )             10          (116 )               (406 )                   24           (430 )
Net loss                            $  (85,120 )     $  (83,263 )   $  (1,857 )   $       (189,033 )     $       (245,197 )   $   56,164



Research and development expenses

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

                                                    Three Months Ended September 30,
                                                       2022                  2021            Change
                                                                    (in thousands)
Personnel                                         $        30,950       $        20,972     $   9,978
Research, development, and laboratory                      20,080                13,326         6,754
Third-party manufacturing                                   7,845                 4,612         3,233
Facility and other allocated costs                         16,286                13,199         3,087
Other                                                       1,574                 1,136           438
Total research and development expense            $        76,735       $   

53,245 $ 23,490



Research and development expense was $76.7 million and $53.2 million for the
three months ended September 30, 2022 and 2021, respectively. The increase of
$23.5 million was primarily due to:

• an increase of $10.0 million in personnel-related expenses, including an

increase in non-cash stock-based compensation of $3.4 million, which was

        attributable to an increase in headcount to expand our research and
        development capabilities;

• an increase of $6.8 million in research, development, and laboratory costs;

• an increase of $3.2 million in third-party manufacturing costs for CDMOs,

        including pass-through costs for materials; and


    •   an increase of $3.1 million in facility costs, including rent and
        depreciation, and allocated overhead costs.



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

                                                      Nine Months Ended September 30,
                                                        2022                   2021            Change
                                                                     (in thousands)
Personnel                                         $         89,077       $         56,105     $  32,972
Research, development, and laboratory                       54,314                 39,188        15,126
Third-party manufacturing                                   20,941                  6,848        14,093
Facility and other allocated costs                          47,441                 33,667        13,774
Acquisition and licensing of technology                      6,602                  1,845         4,757
Other                                                        3,589                  2,468         1,121
Total research and development expense            $        221,964       $  

140,121 $ 81,843

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Research and development expense was $222.0 million and $140.1 million for the
nine months ended September 30, 2022 and 2021, respectively. The increase of
$81.9 million was primarily due to:

• an increase of $33.0 million in personnel-related expenses, including an

increase in non-cash stock-based compensation of $10.7 million, which was

        attributable to an increase in headcount to expand our research and
        development capabilities;

• an increase of $15.1 million in research, development, and laboratory costs;

• an increase of $14.1 million in third-party manufacturing costs for CDMOs,

including pass-through costs for materials;

• an increase of $13.8 million in facility costs, including rent and

depreciation, and allocated overhead costs; and

• an increase of $4.8 million primarily related to licensing technology

related to our CD22 and BCMA programs.

Research and development related success payments and contingent consideration


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

                                                    Three Months Ended September 30,
                                                       2022                  2021            Change
                                                                    (in thousands)
Cobalt success payment                            $         2,439       $        21,790     $ (19,351 )
Harvard success payments                                     (246 )               3,439        (3,685 )
Contingent consideration                                   (8,255 )              (8,476 )         221
Total research and development related success
payments and contingent consideration             $        (6,062 )     $   

16,753 $ (22,815 )



The expense related to the change in the estimated fair value of our Cobalt
Success Payment was $2.4 million for the three months ended September 30, 2022,
compared to $21.8 million for the same period in 2021. The changes in value were
due to changes in our market capitalization and scientific progress toward
filing an IND for SG295 during the relevant periods. The gain related to the
change in the estimated fair value of our Harvard Success Payments was $0.2
million for the three months ended September 30, 2022, compared to an expense of
$3.4 million for the same period in 2021. The changes in value were due to
changes in our common stock price during the relevant periods. The gain related
to the change in the estimated fair value of our Cobalt Contingent Consideration
was $8.3 million for the three months ended September 30, 2022, compared to $8.5
million for the same period in 2021. The changes in value were primarily due to
variability of the discount rates used in the calculation offset by scientific
progress toward the achievement of milestones during the relevant periods.

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

                                                     Nine Months Ended September 30,
                                                        2022                  2021            Change
                                                                     (in thousands)
Cobalt success payment                            $        (56,457 )     $       46,915     $ (103,372 )
Harvard success payments                                   (10,358 )             10,783        (21,141 )
Contingent consideration                                   (12,613 )             10,080        (22,693 )
Total research and development related success
payments and contingent consideration             $        (79,428 )     $  

67,778 $ (147,206 )



The gain related to the change in the estimated fair value of our Cobalt Success
Payment was $56.5 million for the nine months ended September 30, 2022, compared
to an expense of $46.9 million for the same period in 2021. The changes in value
were due to changes in our market capitalization and scientific progress toward
filing an IND for SG295 during the relevant periods. The gain related to the
change in the estimated fair value of our Harvard Success Payments was $10.4
million for the nine months ended September 30, 2022, compared to an expense of
$10.8 million for the same period in 2021. The changes in value were due to
changes in our common stock price during the relevant periods. The gain related
to the change in the estimated fair value of our Cobalt Contingent Consideration
was $12.6 million for the nine months ended September 30, 2022, compared to an
expense of $10.1 million for the same period in 2021. The changes in value were
primarily due to variability of the discount rates used in the calculation
offset by scientific progress toward the achievement of milestones during the
relevant periods.

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General and administrative Expenses


General and administrative expenses were $15.5 million and $48.2 million for the
three and nine months ended September 30, 2022, respectively, compared to $13.4
million and $37.7 million for the same periods in 2021, respectively.

The increase of $2.1 million for the three months ended September 30, 2022 was
primarily due to operating costs related to the Fremont facility of $1.0 million
and non-cash stock-based compensation of $0.8 million.

The increase of $10.5 million for the nine months ended September 30, 2022 was
primarily due to increased personnel-related expenses of $4.6 million, including
non-cash stock-based compensation of $2.1 million, primarily attributable to an
increase in headcount to build our infrastructure, the write-off of $4.5 million
of construction in progress costs incurred in connection with the Fremont
facility, and operating costs related to the Fremont facility of $1.1 million.
These increases were partially offset by a decrease in legal fees of $1.6
million.

Liquidity, capital resources, and capital requirements

Sources of liquidity


As of September 30, 2022, we had $511.6 million in cash, cash equivalents, and
marketable securities. To date we have raised an aggregate of approximately $1.3
billion in net proceeds from sales of common stock and private placements of our
convertible preferred stock.

In August 2022, we entered into a sales agreement with Cowen and Company, LLC
(Cowen), acting as sales agent, pursuant to which we may offer and sell shares
of our common stock having an aggregate offering price of up to $150.0 million
from time to time in a series of one or more at the market equity offerings
(collectively, the ATM facility). As of September 30, 2022, we had raised
approximately $0.7 million in net proceeds under the ATM facility.

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

Future funding requirements


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

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

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

• the scope, timing, progress, costs, and results of discovery, preclinical

        development, and clinical trials for our current or future product
        candidates;

• the number and scope of clinical trials required for regulatory approval

of our current or future product candidates;

• the costs, timing, and outcome of regulatory review of our current or

future product candidates;

• the cost, timing, and scope of building our manufacturing capabilities, as

well as costs associated with the manufacturing of clinical and commercial

supplies of our current and future product candidates;

• the costs and timing of future commercialization activities, including

manufacturing, marketing, sales, and distribution, for any of our product

        candidates for which we receive marketing approval;


    •   the costs and timing of preparing, filing, and prosecuting patent

applications, maintaining and enforcing our intellectual property rights,

and defending any intellectual property-related claims, including any

        claims by third parties that we are infringing upon their intellectual
        property rights;


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• our ability to maintain existing, and establish new, strategic

collaborations, licensing, or other arrangements and the financial terms

of any such agreements, including the timing and amount of any future

milestone, royalty, or other payments due under any such agreement;

• the revenue, if any, received from commercial sales of our product

        candidates for which we receive marketing approval;


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

• the impact of global supply chain issues and rising rates of inflation on

the costs of laboratory consumables, supplies, and equipment required for

        our ongoing operations;


  • the costs of operating as a public company;

• our ability to establish a commercially viable pricing structure and

obtain approval for coverage and adequate reimbursement from third-party

and government payors;

• potential interruptions or delays resulting from factors related to the

        ongoing COVID-19 pandemic;


  • the effect of competing technological and market developments; and

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

technologies.



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

Cash flows

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

                                                            Nine Months Ended September 30,
                                                              2022                   2021
                                                                    (in thousands)
Net cash provided by (used in):
Operating activities                                    $       (213,983 )     $       (140,955 )
Investing activities                                             122,134               (172,137 )
Financing activities                                               3,852                628,632
Net increase (decrease) in cash, cash equivalents,
and restricted cash                                     $        (87,997 )     $        315,540




Operating activities

During the nine months ended September 30, 2022, net cash used in operating
activities was $214.0 million, consisting primarily of net loss of $189.0
million, the change in net operating assets and liabilities of $13.1 million,
and non-cash adjustments of $38.1 million. The non-cash adjustments of $38.1
million consisted of gains of $66.8 million and $12.6 million for revaluation of
our success payment liabilities and contingent consideration, respectively,
non-cash stock-based compensation expense of $27.7 million, depreciation expense
of $11.4 million, and other non-cash adjustments of $2.2 million.

During the nine months ended September 30, 2021, net cash used in operating
activities was $141.0 million, consisting primarily of net loss of $245.2
million and the change in net operating assets and liabilities of $11.3 million,
partially offset by non-cash adjustments of $92.9 million. The non-cash
adjustments of $92.9 million consisted primarily of expenses of $57.7 million
and $10.1 million for revaluation of our success payment liabilities and
contingent consideration, respectively, non-cash stock-based compensation
expense of $15.0 million, depreciation expense of $7.7 million, and other
non-cash adjustments of $2.4 million.

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Investing activities


During the nine months ended September 30, 2022, cash provided by investing
activities was $122.1 million, consisting of net purchases and maturities of
marketable securities of $138.4 million, partially offset by purchases of
property and equipment of $16.3 million. During the nine months ended September
30, 2021, cash used in investing activities was $172.1 million, consisting of
net purchases and maturities of marketable securities of $147.4 million, and
purchases of property and equipment of $24.7 million.

Financing activities


During the nine months ended September 30, 2022, cash provided by financing
activities was $3.9 million, consisting primarily of proceeds from issuance of
common stock. During the nine months ended September 30, 2021, cash provided by
financing activities was $628.6 million, consisting primarily of net proceeds
from our IPO of $626.4 million.

Contractual obligations and commitments

The following table summarizes our significant contractual obligations and
commitments as of September 30, 2022:

                                                      Payments Due by Period
                                                                                  More than 5
                     Less than 1 Year       1 to 3 Years       3 to 5 Years          Years            Total
                                                          (in thousands)
Operating lease
obligations(1)      $           22,742     $       54,713     $      

49,972 $ 96,144 $ 223,571

(1) As part of our decision to move the site of our manufacturing facility to

Bothell, Washington from Fremont, California, we intend to sublease or

terminate the lease for the Fremont facility.



Other than as disclosed in the table above, the payment obligations under our
license, collaboration, and acquisition agreements as of September 30, 2022 are
contingent upon future events such as our achievement of pre-specified
development, regulatory, and commercial milestones or royalties on net product
sales. See the section titled "Business-Key Intellectual Property Agreements" in
Part I, Item 1 of our 2021 Annual Report for more information about these
payment obligations.

We are also obligated to make a success payment to Cobalt of up to
$500.0 million, payable in cash or stock, pursuant to the terms and conditions
in the Cobalt acquisition agreement, and up to an aggregate of $175.0 million in
success payments to Harvard, payable in cash. See Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
"-Critical accounting policies and significant judgments and estimates-Success
payments" in our 2021 Annual Report and Note 4, License and collaboration
agreements, to our condensed consolidated financial statements located elsewhere
in this Quarterly Report for more information on these success payments. As of
September 30, 2022, the timing and likelihood of achieving the milestones and
success payments and generating future product sales are uncertain, and
therefore any related payments are not included in the table above.

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

Off-balance sheet arrangements

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

JOBS Act accounting election


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

For so long as we remain an emerging growth company, we are permitted and intend
to rely on certain exemptions from various public company reporting
requirements, including not being required to have our internal control over
financial reporting by our independent registered public accounting firm
pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations

                                       31
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regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and any golden parachute payments not previously
approved.

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

Critical accounting policies and significant judgements and estimates


Our condensed consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States. The preparation
of these financial statements requires us to make estimates and assumptions that
affect the amounts reported in the condensed consolidated financial statements
and accompanying notes. Our estimates are based on our historical experience and
on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions. The critical accounting policies used in preparation
of these condensed consolidated financial statements as of September 30, 2022,
and for the three and nine months ended September 30, 2022 and 2021 are
consistent with those discussed in Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations "-Critical accounting
policies and significant judgments and estimates" in our 2021 Annual Report.

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