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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 theSEC onMarch 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 22 --------------------------------------------------------------------------------
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:
[[Image Removed]] 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 fromCytocardia Inc. andOscine Corp. , respectively, hypoimmune technology licensed from the President and Fellows ofHarvard College (Harvard) and The Regents of theUniversity of California , fusogen technology acquired 23 -------------------------------------------------------------------------------- fromCobalt 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 inJuly 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 endedSeptember 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 ofSeptember 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. InFebruary 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 ofSeptember 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 24 --------------------------------------------------------------------------------Washington, California , andMassachusetts , 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 ofSeptember 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 ofSeptember 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. 25 --------------------------------------------------------------------------------
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 endedSeptember 30, 2022 are construction in progress costs incurred in connection with the write-off of our previously planned manufacturing facility inFremont, California (Fremont facility), which will be replaced by our facility inBothell, 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 theSecurities 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. 26 --------------------------------------------------------------------------------
Results of operations
Comparison of the three and nine months ended
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
Research and development expense was$76.7 million and$53.2 million for the three months endedSeptember 30, 2022 and 2021, respectively. The increase of$23.5 million was primarily due to:
• an increase of
increase in non-cash stock-based compensation of
attributable to an increase in headcount to expand our research and development capabilities;
• an increase of
• an increase of
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
27 -------------------------------------------------------------------------------- Research and development expense was$222.0 million and$140.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of$81.9 million was primarily due to:
• an increase of
increase in non-cash stock-based compensation of
attributable to an increase in headcount to expand our research and development capabilities;
• an increase of
• an increase of
including pass-through costs for materials;
• an increase of
depreciation, and allocated overhead costs; and
• an increase of
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
The expense related to the change in the estimated fair value of our Cobalt Success Payment was$2.4 million for the three months endedSeptember 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 endedSeptember 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 endedSeptember 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
The gain related to the change in the estimated fair value of our Cobalt Success Payment was$56.5 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 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. 28 --------------------------------------------------------------------------------
General and administrative Expenses
General and administrative expenses were$15.5 million and$48.2 million for the three and nine months endedSeptember 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 endedSeptember 30, 2022 was primarily due to operating costs related to theFremont 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 endedSeptember 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 theFremont facility, and operating costs related to theFremont 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 ofSeptember 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. InAugust 2022 , we entered into a sales agreement withCowen 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 ofSeptember 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; 29
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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 inthe 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 endedSeptember 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 endedSeptember 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 . 30 --------------------------------------------------------------------------------
Investing activities
During the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2022 , cash provided by financing activities was$3.9 million , consisting primarily of proceeds from issuance of common stock. During the nine months endedSeptember 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
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
(1) As part of our decision to move the site of our manufacturing facility to
terminate the lease for the
Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as ofSeptember 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 ofSeptember 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
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 -------------------------------------------------------------------------------- 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 inthe 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 ofSeptember 30, 2022 , and for the three and nine months endedSeptember 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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