UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20212023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-38359

 

Adicet Bio, Inc.Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

81-3305277

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Clarendon131 Dartmouth Street, 3rd Floor 6

Boston, MA 02116

(650) 503-9095

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

ACET

The Nasdaq Global Market

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☒ No

As of June 30, 2021,2023, the aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates was approximately $226.076.7 million based on a closing price of $10.29$2.43 per share as quoted by The Nasdaq Global Market as of such date. In determining the market value of non-affiliate common stock, shares of the registrant’s common stock beneficially owned by officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 10, 202214, 2024 there were 39,877,10982,153,984 shares of common stock, $0.0001 par value per share, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 20222024 annual meeting of shareholders, scheduled to be held on June 2, 2022,5, 2024, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2021.2023. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.

 

 


 

Summary of the Material and Other Risks Associated with Our Business

 

We have a limited operating history and face significant challenges and expenseexpenses as we build our capabilities.
Our business is highly dependent on the success of ADI-001. If we are unable to obtain regulatory approval for ADI-001 in one or more indications and effectively commercialize ADI-001 for the treatment of patients in our approved indications for which we receive approval (if any), our business would be significantly harmed.
Our gamma delta T cell candidates represent a novel approach to the treatment of autoimmune diseases and cancer treatmentindications that creates significant challenges for us.
Our product candidates are based on novel technologies, which makes it difficult to predict the likely success of such product candidates and the time and cost of product candidate development and obtaining regulatory approval.
Our clinical trials may fail to demonstrate the safety and efficacy of any of our product candidates, which would prevent or delay regulatory approval and commercialization.
We may not be able to file investigational new drugInvestigational New Drug (IND) applications to commence additional clinical trials on the timelines we expect, and even if we are able to, the FDAU.S. Food and Drug Administration (FDA) may not permit us to proceed.
We may encounter substantial delays in our clinical trials, or may not be able to conduct our trials on the timelines we expect.
The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
We dohave not currently operateyet commenced manufacturing operations at our own manufacturing facility and currently depend on the ability of our third-party suppliers and manufacturers with whom we contract to perform adequately, particularly with respect to the timely production and delivery of our product candidates, including ADI-001. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
We will need substantial additional financing to develop our product candidates and implement our operating plans. If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. A pandemic, epidemic or outbreak
Global conflicts may increase the likelihood of an infectious disease, such as COVID-19, may materially and adversely affectsupply interruptions which could impact our business and operations.ability to find the materials we need to make our product candidates.
Failure to achieve and maintain effective internal control over financial reporting could harm our business and negatively impact the value of our common stock.
If our collaboration agreement with Regeneron Pharmaceuticals, Inc. (Regeneron) is terminated, or if Regeneron materially breaches its obligations thereunder, our business, prospects, operating results, and financial condition would be materially harmed.
The U.S. Food and Drug AdministrationFDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates.
If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.
We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.
We will need substantial additional financing to develop our products and implement our operating plans. If we fail to obtain additional financing, we may be unable to complete the development and commercializationThe trading price of our product candidates.common stock is highly volatile, which could result in substantial losses for purchasers of our common stock. Securities class action or other litigation involving our company or members of our management team could also substantially harm our business, financial condition and results of operations.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

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TABLE OF CONTENTS

 

 

 

 

Page

EXPLANATORY NOTE

3

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

3

 

 

 

 

 

PART I

 

 

 

5

Item 1.

 

Business

 

5

Item 1A.

 

Risk Factors

 

4637

Item 1B.

 

Unresolved Staff Comments

87

Item 1C.

Cybersecurity

 

87

Item 2.

 

Properties

 

87

Item 3.

 

Legal Proceedings

 

87

Item 4.

 

Mine Safety Disclosures

 

8788

 

 

 

 

PART II

 

 

 

8889

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

 

8889

Item 6.

 

[Reserved]

 

8889

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

8990

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

99100

Item 8.

 

Financial Statements and Supplementary Data

 

100101

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

100101

Item 9A.

 

Controls and Procedures

 

100101

Item 9B.

 

Other Information

 

102

Item 9C.

 

Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

 

102

 

 

 

 

PART III

 

 

 

103

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

103

Item 11.

 

Executive Compensation

 

103

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

103

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

103

Item 14.

 

Principal Accountant Fees and Services

 

103

 

 

 

 

PART IV

 

 

 

104

Item 15.

 

Exhibits and Financial Statement Schedules

 

104

Item 16.

 

Form 10-K Summary

 

104136

 

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EXPLANATORY NOTE

Prior to September 15, 2020, we were a clinical-stage biopharmaceutical company known as resTORbio, Inc. (resTORbio) that had historically focused on developing innovative medicines that target the biology of aging, to prevent or treat age-related diseases with the potential to extend healthy lifespans. resTORbio was originally incorporated under the laws of the State of Delaware in July 2016 and commenced research and development operations in March 2017.

On September 15, 2020, we completed our business combination whereby a wholly-owned subsidiary of resTORbio merged with and into Adicet Bio, Inc. (Former Adicet), with Former Adicet surviving as a wholly-owned subsidiary of resTORbio and changing our name to Adicet Therapeutics, Inc. (such transactions, the Merger). In connection with the completion of the Merger, resTORbio was renamed Adicet Bio, Inc. (Adicet Bio).

Immediately prior to the Effective Time of the Merger, resTORbio effected a reverse stock split of our common stock at a ratio of 1-for-7 (the Reverse Stock Split). At the Effective Time of the Merger, each outstanding share of Former Adicet’s capital stock was converted into the right to receive 0.1240 (the Exchange Ratio) shares of Adicet Bio’s common stock.

Unless otherwise noted, all references to common stock share and per share amounts in this Annual Report on Form 10-K have been retroactively adjusted to reflect the conversion of shares in the Merger based on the Exchange Ratio and Reverse Stock Split. As used herein, the words “Adicet Bio,” “Adicet,” “the Company,” “we,” “us,” and “our” refer to, for periods following the Merger, Adicet Bio (formerly resTORbio, Inc.), together with its direct and indirect subsidiaries, and for periods prior to the Merger, Adicet Therapeutics, Inc. (formerly Adicet Bio, Inc.). In addition, the word “resTORbio” refers to the Company prior to the completion of the Merger, and we sometimes refer to Adicet Therapeutics, Inc. as “Former Adicet.”

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

the timing of and our ability to execute our clinical trials for ADI-001 in Non-Hodgkin’sautoimmune indications and non-Hodgkin’s lymphoma (NHL), including the ability to successfully complete our Phase 1 clinical trial in NHL and initiate a Phase 1 clinical trial in lupus nephritis (LN) and additional potential autoimmune indications;
our expectations regarding our additional internal gamma delta T cell therapy programs in preclinical development, including ADI-270, and our ability to develop other product candidates in our research pipeline;
our expectations regarding the availability, timing and announcement of data from our Phase 1 clinical trials for ADI-001;
our expectations for ADI-270 as a treatment for renal cell carcinoma (RCC) and other CD70+ solid tumor and hematological malignancies;
our expectations regarding discussions with the U.S. Food and Drug Administration (FDA) and the period during which the resultsEuropean Medicines Agency (EMA) of the trial will become available;a potential path to support Biologics License Application (BLA) and Marketing Authorization Application (MAA) for our product candidates;
the anticipated timing of our submission of Investigational New Drug (IND) applications or equivalent regulatory filings and initiation of future clinical trials, including the timing of the anticipated results;
our expectations regarding the impact of unstable market and economic conditions, including impacts of inflation and adverse developments affecting the ongoing COVID-19 pandemicfinancial services industry, on our continuingbusiness, results of operations clinical development plans, including the timing of initiation and completion of studies or trials, financial forecasts and expectations, and other matters related to our business and operations;conditions;
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
the rate and degree of acceptance and clinical utility of any products for which we receive regulatory approval;
our expectations regarding the manufacturing of our product candidates and any products for which we receive regulatory approval by us or by our third-party suppliers;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and strategy;
our ability to identify additional product candidates with significant commercial potential;
our plans to enter into collaborations for the development and commercialization of product candidates;
the potential benefits of any current and future collaboration;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
the success of competing therapies that are or may become available;

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developments relating to our competitors and our industry;
our ability to retain the continued service of our key professionals and to identify, hire, and retain additional qualified professionals;
our financial performance;
our expectations related to the use of cash and cash equivalents and marketable securities;equivalents;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

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our ability to maintain effective internal control over financial reporting;
the impact of government laws and regulations; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

This Annual Report on Form 10-K includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this Annual Report on Form 10-K, and we believe these industry publications and third-party research, surveys and studies are reliable.

 

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PART I

All brand names or trademarks appearing in this report are the property of their respective owners. Unless the context requires otherwise, references in this report to “Adicet Bio,” “Adicet,” the “Company,” “we,” “us” and “our” refer to Adicet Bio, Inc. and its subsidiaries, as applicable.

Item 1. Business.

Overview

We are a clinical stage biotechnology company discovering and developing allogeneic gamma delta T cell therapies for autoimmune diseases and cancer. We are advancing a pipeline of “off-the-shelf” gamma delta T cells, engineered with chimeric antigen receptors (CAR) and T cell receptor-like antibodies (TCRL)(CARs), to enhance selective tumor targeting, facilitate innate and adaptive anti-tumor immune response, and improve persistence for durable activity in patients.

Our approach to activate, engineer and manufacture allogeneic gamma delta T cell product candidates derived from the peripheral blood cells of unrelated donors allows us to generate new product candidates in a rapid and cost-efficient manner. Our allogeneic "off-the-shelf" manufacturing process is designed to allow product from unrelated donors to be stored and sold on demand to treat patients without inducing a graft versus host immune response. This is in contrast to products based on alpha beta T cells, which either must be manufactured for each patient from his or her own T cells, or require significant gene editing to manufacture if the T cells are derived from donors that are unrelated to the patient.

Our lead product candidate, ADI-001, a first-in-class allogeneic gamma delta T cell therapy expressing a CAR targeting CD20, is in an ongoing Phase 1 studybeing developed for the potential treatment of Non-Hodgkin's Lymphomaautoimmune diseases and relapsed or refractory aggressive B cell non-Hodgkin's lymphoma (NHL). Our pipeline also includes ADI-002,our lead preclinical candidate, ADI-270, an allogeneicarmored gamma delta CAR-TCAR T cell product candidate targeting renal cell carcinoma, with potential for other CD70+ solid tumor and hematological malignancies indications. Our pipeline has several additional internal gamma delta T cell therapy expressing a GPC3-targeted CAR and a cell intrinsic soluble form of interluiken-15 (IL-15), for the treatment of solid tumors. In addition, we are engagedprograms in discovery and preclinical stage activities directed to expansion of our pipeline of product candidatesdevelopment for both hematological malignancies and solid tumors.

Our Approach

Our proprietary engineering We expect to continue to develop product candidates in autoimmune diseases and manufacturing process begins with isolating and expandingcancer based on our gamma delta T cellscell platform using either previously validated antigens or those that we identify and target using CAR and other technology. We plan to file one new Investigational New Drug (IND) application every 12-18 months, including an IND for ADI-270 in the first half of 2024.

ADI-001

Autoimmune Diseases

In December 2023, the U.S. Food and Drug Administration (FDA) cleared our IND application for ADI-001 in lupus nephritis, an autoimmune disease caused by systemic lupus erythematosus (SLE). Lupus nephritis is a serious complication of SLE which affects approximately 40% of the estimated 325,000 patients with SLE in the U.S. We expect to initiate a Phase 1 clinical trial of ADI-001 for the treatment of lupus nephritis in the second quarter of 2024 and expand development of the candidate into one to two additional autoimmune indications in the second and third quarters of 2024, subject to clearance of INDs in those indications. We believe the potential market opportunity for ADI-001 in B cell mediated autoimmune diseases is substantial based on the prevalence in the U.S., EU5, China and Japan of greater than 1.7 million patients with autoimmune diseases where CAR-T cell therapy has demonstrated clinical proof-of-concept, including SLE (which includes lupus nephritis), systemic sclerosis and idiopathic inflammatory myopathies.

We anticipate providing preliminary clinical data from our Phase 1 clinical trial of ADI-001 in lupus nephritis in the fourth quarter of 2024 or first quarter of 2025, subject to study site activation and enrollment, and to begin to provide preliminary clinical data in the additional autoimmune indications starting in the fourth quarter of 2024 or first half of 2025, subject to clearance of INDs in those indications as well as successful site initiation and patient enrollment in the relevant clinical protocols.

Relapsed or Refractory Aggressive B cell NHL

In March 2021, we initiated the first-in-human Phase 1 (GLEAN) trial to assess safety and efficacy of ADI-001 in patients with relapsed or refractory aggressive B cell NHL. The study includes a dose escalation portion followed by dose expansion cohorts to explore the activity of ADI-001 in multiple subtypes of NHL. In April 2022, the FDA granted fast track designation for ADI-001 for NHL. As of the May 4, 2023 cutoff date, of the 24 evaluable subjects in the GLEAN trial, 18 had large B cell lymphoma (LBCL), five had mantle cell lymphoma (MCL), and one patient had follicular lymphoma. Most patients were heavily pre-treated, with a median four lines of prior therapy, and twelve patients (50%) had previously

5


progressed following CAR T cell therapy. Despite the advanced nature of patients at baseline, we observed a high complete response (CR) rate and favorable durability in MCL patients. Across all doses of MCL patients, we observed an 80% (4/5 patients) overall response rate (ORR), an 80% CR rate (4/5 patients) and a 60% CR rate (3/5 patients) at six months. As of May 4, 2023, the safety profile of ADI-001 was generally favorable, with no significant risk of cytokine release syndrome (CRS), immune effector cell-associated neurotoxicity syndrome (ICANS), or T cell malignancy observed. In November 2023, we initiated an expansion cohort, EXPAND, in post-CAR T LBCL. In January 2024, we announced our decision to deprioritize enrolling LBCL patients in the GLEAN trial in order to focus on advancing MCL enrollment.

We expect to provide a clinical update from the blood of unrelated donors,Phase 1 study in NHL patients which will include efficacy data, including six-month CR rate, and resultssafety data from additional MCL patients in the potentialsecond half of 2024. Subject to treat upclinical data and regulatory feedback, in the first half of 2025, we plan to 1,000 patients per batch depending on dosingdefine the regulatory path for a potentially pivotal Phase 2 study for ADI-001 in MCL and provide a further clinical update in the CAR target. Gammasecond half of 2025.

We have expanded manufacturing capabilities of ADI-001 by transferring the manufacturing process to an additional contract development and manufacturing organization (CDMO) that is capable of operating at a larger scale of production.

ADI-270

ADI-270 is an investigational allogeneic gamma delta T cells have unique attributes that we believe make them especially well-suited to be used for cancer therapy. Approximately 95% of T cells in circulation are so-called alpha beta T cells, named after the proteins that make up the cells’CAR T cell therapy targeting CD70 via the CD27-ligand for the treatment of renal cell carcinoma (RCC) and with potential in other solid tumor indications. ADI-270 is designed to home to solid tumors, with a highly specific targeting moiety for CD70 and an armoring technology of transforming growth factor (TGF) beta dominant-negative receptor (TCR). The remaining T cells include a population that makes up between 1% and 5% of all T cells,to address immunosuppressive factors in the tumor microenvironment. Building on gamma delta T cells, along with a few other cell types. Distinct among immune cell populations, we believe1 tissue tropism to solid tumors and three mechanisms of anti-tumor activity (CAR, innate and adaptive), CAR gamma delta 1 T cells may havebe well positioned to address solid tumors. We plan to file an IND application for ADI-270 in RCC in the following combinationsecond quarter of attributes:

Can be used2024 and provide clinical data in patient irrespectivethe first half of 2025, subject to regulatory clearance and study initiation activities. We are also considering potential expansion into additional CD70+ tumor indications in the tissue-typesfirst half of 2025, with potential clinical data from such studies in the patient i.e., a “universal” product;
Can be used “off-the-shelf” after being expanded from unrelated donors;
Are actively cytotoxicsecond half of 2025, subject to tumor cells;
May functionally persist in patients for clinically meaningful periods or time;
Can replicate in an appropriateregulatory clearance and measured way after manufacture and administration; Can have their reactivity to tumor cells enhanced further by the addition of a CAR;
Express both T cell and natural killer (NK) cell receptors, facilitating both adaptive and innate anti-tumor immune responses; and
Can be manufactured potentially in large numbers to facilitate the consistent treatment of many patients and avoids the cumbersome nature and expense of isolating cells from each patient.

By contrast, approved CAR-T cell therapies, as well as the majority of CAR-T cell therapies in clinical development, are based on a different population of T cells, known as alpha beta T cells, which have the ability to attack unrelated tissues if they are not immunologically matched to the patient. For this reason, the majority of alpha-beta-T-cell-derived CAR-T cell products are custom-generated from cells isolated from each patient, or require significant gene editing to manufacture if the T cells are derived from donors that are unrelated to the patient. Gamma delta T cells, by contrast, do not in principle require immunological matching and therefore cells isolated from unrelated donors can potentially be administered to any patient. This may enable cell therapy products based on gamma delta T cells to be manufactured in bulk and distributed as readily available off-the-shelf products. In animal models and early third-party clinical trials, gamma delta T cells do not expand in healthy tissues, indicating that they may be associated with a lower risk of life-threatening immune responses. In addition to their ability to circulate, gamma delta T cells have an inherent capacity to locate in tissues and recognize and attack cancerous cells.

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In comparison to a number of NK cell therapies currently in development, CAR-modified gamma delta T cells functionally persist in non-clinical models for protracted periods of time and are designed to persist after single or repeat dosing of patients for clinically meaningful periods. Our manufacturing process results in highly homogeneous cell populations that we have observed to display potent anti-tumor activity in non-clinical models. Unlike most NK cells, that only exhibit characteristics on innate lymphocytes, gamma delta T cells display features of both innate and adaptive anti-tumor immunity and readily recognize and kill tumor cells with and without expression of CARs. Additionally, we believe that our short proprietary process to manufacturing CAR-modified gamma delta T cells without any “feeder” cell lines compares favorably to manufacturing alternatives used in expanded allogeneic NK cell-based therapies.study initiation activities.

Our Pipeline

Our lead product candidate, ADI-001,We are currently developing a first-in-classpipeline of allogeneic “off-the-shelf” gamma delta T cell therapy expressing atherapies, using either previously validated antigens or those that we identify and target using our CAR targeting CD20,and other technology. Our most advanced product candidate in development, ADI-001, is in an ongoing Phase 1 studyclinical trial for relapsed or refractory aggressive B NHL targeting B cell antigen CD20 and we expect to initiate a Phase 1 clinical trial of ADI-001 for the treatment of NHL. On December 6, 2021, we reported positive interim clinical data from the initial dose escalation portion of this study that showed complete and near complete responses at low doses along with a generally favorable tolerability profile. We aim to provide a further clinical update for ADI-001lupus nephritis in the first halfsecond quarter of 2022.2024. We are also developing a pipeline to advance the research and development of allogeneic CAR T cell product candidates in autoimmune diseases, hematological malignancies and solid tumor indications. We expect to continue to develop product candidates in autoimmune diseases and cancer based on our gamma delta T cell platform using either previously validated antigens or those that we identify and target using CAR and other technologies.

Our pipeline also includes three other product candidatesis represented in the discovery or preclinical phases for which we aim to file investigational new drug (IND) applications between 2023 and 2025.diagram below:

As part of a collaboration with Regeneron Pharmaceuticals, Inc. (Regeneron) pursuant to an agreement signed in 2016, Regeneron has the option to obtain development and commercial rights for a certain number of product candidates, and we have an option to participate

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img104831930_0.jpg 

* - Phase 3 may not be required if Phase 2 is registrational

1 - Adicet is focused on advancing MCL enrollment in the developmentGLEAN trial and commercialization of these potential products or are entitled to royalty payments by Regeneron. Immunocellular therapy product candidates developed and commercialized by us under our agreement with Regeneron will be subject to payment of royalties to Regeneron. On January 28, 2022, Regeneron exercised its option to license exclusive rights to ADI-002. For additional information on our agreement with Regeneron, please see the section entitled “Business—Strategic Agreements” of this Annual Report on Form 10-K.has deprioritized enrolling large B-cell lymphoma patients.

img102984888_0.jpg 

Figure 1. Company Pipeline

Our Strategy

Our objective is to be the leading biotechnology company developing CAR-modifiedallogeneic gamma delta T cellscell therapies for oncology.autoimmune diseases and cancer. Key elements of our strategy include our plans to:

Continue to advance clinical development of ADI-001. ADI-001, our lead hematologic cancer product candidate, is currently in an ongoing Phase 1 studyclinical development for the treatment ofautoimmune diseases and relapsed or refractory B cell NHL. CD20 is a well validated target for immunotherapy for NHL. Our goal isNHL and has emerged as an important target for autoimmune diseases. In December 2023, the FDA cleared our IND application for ADI-001 in lupus nephritis. We expect to capitalizeinitiate a Phase 1 clinical trial of ADI-001 for the treatment of lupus nephritis in the second quarter of 2024. We expect to provide a clinical update from the Phase 1 study in NHL patients which will include efficacy data, including 6-month complete response rate, and safety data from additional MCL patients in the second half of 2024. Subject to clinical data and regulatory feedback, in the first half of 2025, we plan to define the regulatory path for a potentially pivotal Phase 2 study for ADI-001 in MCL and provide a further clinical update in the second half of 2025.
Advance ADI-270 into clinical development for renal cell carcinoma. Building on our leadership in engineered allogeneic anti-CD20 gamma delta 1 tissue tropism to solid tumors and three mechanisms of anti-tumor activity (CAR, innate and adaptive), CAR gamma delta 1 T cell therapycells may be well positioned to address solid tumors. We expect to file an IND application for ADI-270 in the second quarter of 2024 and pursue a broadadvance the product candidate into Phase 1 clinical development plan for multiple subtypesthe treatment of NHL.renal cell carcinoma.

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Continue to innovate and invest in the gamma delta T cell platform and pipeline. We expect to continue to develop product candidates in oncologyautoimmune diseases and cancer based on the gamma delta T cell platform using either previously validated antigens or those that we identify and targettarget. We also expect to continue to develop product candidates in autoimmune diseases and cancer based on our allogeneic gamma delta T cell platform using our TCRL technology.CAR and other technologies. We may utilize additional genetic engineering, editing technologies or other technologies with the goal of further improving the activity and tolerability profile of our product candidates. A key strength of our gamma delta T cell therapy platform lies in our ability to target antigens of both known and unknown potential and devote our clinical development resources to those antigens that show the most promise in preclinical in vivo analyses and early human trials.
Exploit the potential for outpatient administration. While we expect that the initial subjects receiving our allogeneic gamma delta T cell-based therapies in clinical studies will be hospitalized for a minimum of 24-hour24-hours for observation after infusion, a favorable tolerability profile may allow administration of such investigational therapies

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in an outpatient setting. We believe this would represent a significant competitive advantage for our gamma delta T cell-based therapies as compared to existing approved CAR-T cellCAR T-cell therapy or other therapies.
Expand and protect our intellectual property. We will continue to aggressively protect the allogeneic gamma delta T cell production methodology we have developed as well as specific product candidates based on proprietary antigen-binding domains. For more information on our intellectual property, see “Business—Our Intellectual Property section of this Annual Report on Form 10-K.

Background

Anticancer Immune Cell Therapy

Autoimmune Diseases and Relapsed or Refractory Aggressive B cell NHL

Autoimmune Diseases

CAR T therapy, originally developed as a cancer treatment, has recently been the subject of increased interest for autoimmune diseases, due to its potential to remove disease causing immune cells with a single dose or treatment over a short period of time. Currently approved therapies for autoimmune indications treat only the symptoms with a chronic treatment regimen and are not considered curative. There are currently no FDA approved CAR T therapies for autoimmune indications. Initial support for and increased interest in the use of CAR T therapies for autoimmune indications was based on durable proof of concept data presented by Dr. Georg Schett at the American College of Rheumatology and the 2023 American Society of Hematology Meeting showing that CD19-targeted CAR T cells induced persistent, drug-free remission in three distinct autoantibody dependent autoimmune diseases with good tolerability.

Clinical data for ADI-001 in NHL have shown B cell depletion that mirrors the B cell depletion by autologous alpha beta CD19-targeted CAR T in academic clinical studies in systemic lupus erythematosus, systemic sclerosis and idiopathic inflammatory myopathy patients. Given that gamma delta 1 T cells preferentially traffic to organs and tissues, ADI-001 is designed to target and deplete B cells in the periphery, secondary lymphoid organs, kidneys and other organs, which is highly desirable in autoimmune diseases. We believe ADI-001's off-the-shelf availability and favorable safety profile in the cancer setting support the potential for outpatient administration.

Relapsed or Refractory Aggressive B cell NHL

In recent years, the field of immuno-oncology has advanced numerousmany therapies for the treatment of cancer.cancer treatment. Immuno-oncology deploys the immune system to attack and, in some cases, to eliminate cancer. One of the key breakthroughs in immuno-oncology involved using T cells, a key element of the immune system, and turning them into even more potent, tumor-cell-specific killers. Researchers have achieved this improvement and targeting by loading the T cells with a gene encoding a CAR. These engineered receptors represent a powerful combination of, first, a region that binds to a target on a cancer cell and tethers the T cell to it; and second, a signal that activates the T cell to eliminate the tethered cancer cell. To our knowledge, all marketed CAR-TCAR T cells contain predominantly alpha beta T cells. While we believe the use of CAR-T cellCAR T-cell therapies is promising, conventional CAR-T cellCAR T-cell therapies also have some key flaws that, we believe, can potentially be addressed by using a cell population, specifically, gamma delta T cells rather than alpha beta T cells.

Existing Approved CAR T Cell Therapies in Cancer

As of December 31, 2021,2023, four CD19-targeting CAR-T cellCAR T-cell therapies have been approved by the FDA for the treatment of B cell lymphomas: axicabtagene ciloleucel (Yescarta®) and brexucabtagene autoleucel (Tecartus™) developed by Kite Pharma, now Gilead Sciences, Inc. (Gilead); tisagenlecleucel (Kymriah®), developed by Novartis; and lisocabtagene maraleucel (Breyanzi®) developed by Juno Therapeutics, Inc. (now Bristol Myers Squibb Company). Among the 111 patients with diffuse large B cell lymphoma, (DLBCL), treated with Yescarta® in a clinical trial, an objective response rate of 82% was observed with 54% of patients achieving a complete response. This high efficacy, however, is associated with significant adverse events, with 13% of patients experiencing grade 3 or higher cytokine release syndrome and 28% of patients experiencing grade 3 or higher neurologic events. In the Yescarta® DLBCL clinical trial, three patients died due to adverse events during treatment and ten patients who were enrolled in the trial were not able to be treated due to disease progression or complications that arose during the period of time required to generate the patient-specific therapy or because of the inability to generate the desired CAR-T cells from the patient’s cells. We believe that, despite their progress to date, currently available CAR-T cellCAR T-cell therapies have not reached their full promise, and our allogeneic gamma delta CAR-T cellCAR T-cell approach has the potential to be a significant improvement.

The current generation of approved CAR-T cellCAR T-cell therapies for B cell lymphomas represented by Yescarta®, Tecartus™, Breyanzi®, and Kymriah® are autologous cell therapies, that is, they are based on immune cells isolated from a patient, modified and expanded in a laboratory and then reintroduced into the same patient. One key reason for taking this autologous approach is that the cytotoxic, or, cell-killing, cells are predominantly alpha beta T cells that are used to generate these therapies and are cells that the immune system uses to recognize and attack foreign cells. If these types of T cells were to be introduced into a patient from an unrelated donor, the donor T cells would attack healthy tissues throughout the patient in a

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process known as graft versus host disease (GvHD) potentially causing multiple organ failure and death.

The T cells used for first-generation CAR-T cellCAR T-cell therapies were derived from a highly abundant subclass of T cells known as alpha beta T cells. Alpha beta T cells, which comprise approximately 95% of the T cells in circulation in the body, are able to distinguish whether cells that they encounter are either normal cells that belong in the body or foreign or damaged cells that need to be destroyed. Alpha beta T cells have a receptor on their surface called a TCRnaturally occurring T cell receptors (TCRs) which is made up of alpha and beta protein chains. These TCRs recognize targets, also known as antigens, on cells that are presented by antigen-presenting molecules encoded by the major histocompatibility complex (MHC). The MHC contains genes that encode a number of proteins with multiple variants, such that most individuals have a distinct MHC profile. During normal T cell development, those T cells that recognize the combination of the specific MHC profile and antigens that are presented by healthy cells of the specific individual are eliminated, resulting in a population of T cells that circulate throughout the body, vigilantly checking for abnormal antigens or foreign cells, including from another individual.

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In one type of cellular immunotherapy known as adoptive cell therapy, naturally occurring immune cells from a patient are isolated and are activated using cytokines and tumor-specific antigens to stimulate the growth and expansion of antitumor T cells that already exist at low abundance in the patient. After activation and expansion in the laboratory, large numbers of T cells that are primed to recognize the tumor are reintroduced into the same patient.

CAR-T cellCAR T-cell therapies are a variant of this adoptive cell therapy in which, instead of trying to activate T cells based on the ability of naturally occurring TCRs to recognize tumor antigens, a CAR designed to recognize a specific tumor antigen is genetically introduced into T cells. These CAR-TCAR T cells are then able to destroy any cells expressing the appropriate antigen completely independent of MHC. However, without further genetic engineering, CAR-TCAR T cells derived from alpha beta T cells still have endogenous TCRs which restrict their use to the original patient.

Limitations of autologous cell therapiesAutologous Cell Therapies

Autologous cell therapies, such as those developed by Kite Pharma and Novartis, have a number of limitations, including but not limited to the following:

Treatment delays imposed by individualized manufacturing. Due to the individualized manufacturing process, patients must wait up to three to four weeks for the individualized products to be manufactured and administered. In the registrational trials for Yescarta® and Kymriah®, up to 31% of intended patients ultimately did not receive treatment primarily due to complications from the underlying disease that occurred during manufacturing or due to manufacturing failures.
Manufacturing variability and failure. It was reported by Novartis in 2018 that variability in product specifications had been observed in the production of Kymriah®. In addition, in approximately 9% of the cases, no product could be shipped to patients at all due to out-of-specification issues or from manufacturing failures.
High cost limitscosts limit patient access. The high cost of therapy and payer policies can limit access to autologous CAR-T cellCAR T-cell therapies. According to a 2019 article published in the journal Managed Care, treating physicians estimate that the costs of autologous CAR-T cellCAR T-cell therapies combined with patient care services are approximately $1 million per patient, generating reluctance of payers to approve these therapies for patients before they have exhausted other options. These therapies are then relegated to the most heavily pretreated patients who may be unable to withstand the severe side effects.
Scalability.Scalability. Because each patient requires a custom manufacturing batch, the production of autologous CAR-TCAR T cells at the scale needed to meet commercial demand and anticipated label and geographic expansions may be challenging.

Autologous cell therapies, such as CAR-TCAR T cells derived from alpha beta T cells, have been successful in their initial use in hematological malignancies. Furthermore, they have provided critical data that demonstrates the potential of immunocellular cancer therapies. However, manufacturing of these cells imposes some critical limitations that could be minimized if similar allogeneic cell therapies that can be given to any patient, regardless of the donor of cells, are developed. We believe that allogeneic cell therapies offer great promise for optimizing the access to therapy, overcoming manufacturing-related and cost-related limitations of autologous cell therapies.

Gamma delta T cells and their allogeneic potential9


Gamma delta T cells are a subset of T cells that have TCRs comprising gamma and delta receptor chains. In contrast to alpha beta T cells, gamma delta T cells are not selective for patient-specific MHC molecules. Therefore, gamma delta T cells from an unrelated donor can be administered to a patient without inducing GvHD and may recognize tumor-associated antigens in an MHC-independent manner. Gamma delta T cells primarily reside in tissues and comprise between 1% and 5% of circulating T cells.

Gamma delta T cells correlate with improved outcomes

An analysis of the transcriptional profiles of 5,872 patient tumor samples across 25 malignancies published in Nature Medicine in 2015 found that gene signatures consistent with gamma delta T cells were the strongest predictors of overall survival.

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The association of gamma delta T cells with overall survival in solid tumors had a z-score over three, meaning it was over three standard deviations above the mean, corresponding to a p value less than 0.001.

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Figure 2. Analysis of the immune cell composition of tumor samples that gamma delta T cells were highly predictive of overall survival. Adapted from Gentles et al., Nat Med. 2015; 21(8).

Additionally, high levels of gamma delta T cells have been associated with improved overall survival in acute leukemia patients who received hematopoietic stem cell transplants (HSCT). In a study published by KT Godder et al. in 2007 in the journal Bone Marrow Transplantation, those patients with high levels of gamma delta T cells after the transplant had a leukemia free survival at five-years of 54.4% and overall survival of 70.8%. Those with low levels of gamma delta T cells had a significantly lower five-year leukemia free survival of 19.1% and a five-year overall survival of 19.6%.

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Figure 3. HSCT patients who develop high levels of gamma delta T cells have improved survival. Adapted from Godder et al., Bone Marrow Transplantation 2007; 39.

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The correlation between high levels of gamma delta T cells and disease-free survival extends to patients with solid tumors. In a study published by Meraviglia et al in 2017 in the journal OncoImmunology, across a cohort of 557 patients with colorectal cancer, those with high gamma delta T cell levels had a five-year disease-free survival rate of over 80%, and revealed that disease-free survival probability was significantly higher in CRC patients with high number of tumor infiltrating gamma delta T cells.

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Figure 4. High levels of gamma delta T cells are correlated with increased disease-free survival in colorectal cancer patients. Adapted from Meraviglia et al., Oncoimmunology 2017; 6 (10).

We believe that these studies and others point to an important role of gamma delta T cells in disease control and overall survival and indicate that gamma delta T cell-based therapies have the potential to deliver clinically meaningful results.

Potential Advantages of gamma deltaGamma Delta T cell-based therapiesCell-Based Therapies

Immunotherapies developed using gamma delta T cells have a number of potential or anticipated advantages over other therapies developed using other cell types, including the following:

Exposure. Exposure, measured by Cmax, D28 persistence and AUC with ADI-001 is consistent with values reported for approved autologous CD19 CAR T. This property differentiates our CAR gamma-delta1 allogeneic T cell therapies from other allogeneic therapies.
Potential for superior cytotoxic activity. T cells from some patients, for example those with chronic lymphocytic leukemia, often display an exhausted, or otherwise dysfunctional, phenotype and CAR T-cell products from these cells may perform poorly. Our allogeneic cell therapy is manufactured from unrelated donors whose T cells have been shown to generate highly active CAR T-cells.Clinical B-cell depletion data from our ADI-001 in lymphoma, mirrors the B-cell depletion reported in academic studies by Shett et.al.of autologous CD19 CAR-T in lupus patients who experienced robust efficacy associated with an immune reset of the B cell compartment. Similarly, in lymphoma patients, ADI-001 has demonstrated deep cytoreductive complete responses that surpass the depth of response demonstrated by autologous CAR T therapy in the same patient.
Tissue and tumor localization. In addition to being present in the circulation at low frequency, gamma delta T cells have an inherent propensity to home to tissues and tumors. Their ability to be activated in tissue environments less perfused with oxygen, such as those found in the tumor microenvironment, has the potential to increase the activity of gamma delta T cells in solid tumors and in tissues. Similarly, this tissue homing may be ideally suited to deplete B-cell nests located in peripheral tissues including secondary lymphoid organs and kidneys associated with autoimmune disease, which may better enable an effective reset of the immune system.
MHC-independent antigen recognition for tissue homeostasis and tumor targeting.Gamma delta TCR can recognize antigens associated with dysfunctional cells, associated with tumorigenic or dysregulated functions, in a MHC-independent manner. This further facilitates the use of products derived from donors who are unrelated to patients which may avoid the need to match the human leukocyte antigen (HLA)-type of the donor to the patient.
Limited ability for antigen escape. Although the initial responses to immunotherapies such as antibodies and CAR T cells are often impressive, many patients become refractory or relapse. A common mechanism for the relapse to these therapies is loss of the expression of the CAR-targeted antigen such as CD19 from target cells. Because gamma delta T cells also express innate cytotoxic immune receptors, they can recognize and kill dysfunctional cells even in the absence of the CAR-targeted tumor antigen.
Ability to manufacture more efficiently and cost-effectively. Unlike alpha beta T cells, therapies based on gamma delta T cells can potentially be manufactured in bulk and used in the allogeneic or "off-the-shelf" setting, addressing many of the shortcomings of conventional alpha beta T cell therapy.
Lack of GvHD. A body of published evidence, mainly in the field of HSCT,haematopoietic stem cell transplantation(HSCT), supports the safety profile of transfer of allogeneic gamma delta T cells to patient recipients from unrelated donors. HSCT procedures containing significant numbers of gamma delta T cells were able to proceed with no signs of acute or chronic GvHD. In many cases, the presence of gamma delta T cells in the HSCT products correlated with improved clinical outcomes, indicating the antitumor potential of gamma delta T cells. Additionally, a study performed by Martin Wilhelm and colleagues in 2014 indicated that gamma delta T cells from haploidentical donors could be successfully expanded and infused in large numbers (2.17x106 cells / kg (range, 0.9-3.84)), followed by further expansion (mean, 68-fold) in the patients without any observed GvHD.
MHC-independent tumor antigen recognition. Gamma delta TCR can recognize tumor associated antigens in a MHC-independent manner, facilitating the use of products derived from donors who are unrelated to patients which may avoid the need to match the human leukocyte antigen (HLA)-type of the donor to the patient.
Tumor localization. In addition to being present in the circulation at low frequency, gamma delta T cells have an inherent propensity to home to tissues and tumors. Their ability to be activated in environments with low levels of oxygen such as those found in the tumor microenvironment has the potential to increase the activity of gamma delta T cells in solid tumors.
Limited cytokine secretion. Unlike alpha beta T cells, gamma delta T cells can be made to secrete lower levels of certain cytokines such as interleukin 2 (IL-2)6 (IL-6). This, combined with lack of recognition of normal, non-malignant, cells by of gamma delta T cells, may lower the risk of life-threatening cytokine release syndrome.
Limited ability for tumors to escape. Although the initial responses to immunotherapies such as antibodies and CAR-T cells are often impressive, many patients become refractory or relapse. A common mechanism for the relapse to these therapies is loss of the expression of the CAR-targeted antigen such as CD19 from tumor cells. Because gamma delta

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T cells also express innate cytotoxic immune receptors, they can recognize and kill tumor cells even in the absence of the CAR-targeted tumor antigen.
Ability to manufacture more efficiently and cost-effectively. Unlike alpha beta T cells, therapies based on gamma delta T cells can potentially be manufactured in bulk and used in the allogeneic or off-the-shelf setting, addressing many of the shortcomings of conventional alpha beta T cell therapy.
Potential for superior cytotoxic activityre-dosing. T cells from some cancer patients, for example those with chronic lymphocytic leukemia, often display an exhausted, or otherwise dysfunctional, phenotype and CAR-T cell products from these cells may perform poorly. Our allogenic cell therapy is manufactured from unrelated donors whose T cells have been proven to generate highly active CAR-T cell product.
Potential for re-dosing. Along with increased availability of material due to the ability to utilize off-the-shelf"off-the-shelf" donor-derived starting material from unrelated donors compared to conventional CAR-T cellCAR T-cell therapies, the lack of MHC-dependent GvHD also opens up the possibility of being able to re-dose patients to achieve further clinical activity if they do not obtain an adequate clinical response from initial treatment or if they relapse. A number of studies with other CAR-T cellCAR T-cell therapies have linked the development of cytokine release syndrome with high numbers of circulating CAR T cells following rapid alpha beta T cell proliferation. Having the option to retreat patients with gamma delta T cells provides the option of starting with a low dose and re-dosing if required.

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Safety Potential. ADI-001 has shown to be well tolerated with no significant CRS, ICANS and an inherently lower risk of T-cell malignancies compared to autologous CAR-Ts. This profile and ADI-001 off-the-shelf availability makes it suitable for the treatment of autoimmune diseases and provides the potential to those patients in the community setting.

Our CAR gamma deltaAllogeneic Gamma Delta T cell technologyCell Technology

Human gamma delta T cells can be divided into three main subsets based on their TCR delta chain usage: Vδ1, Vδ2 and Vδ3. The most abundant subset of gamma delta T cells in the circulatory system, the Vδ2 cells, is also the most well-studied. However, it is the Vδ1 subset which primarily resides in tissues and presents a favorable cytotoxic anti-tumor profile against target cells that we are activating and manufacturing using our proprietary platform technology.

Vδ1 gamma deltaGamma Delta T cellsCells

Vδ1 cells have properties of both the innate and adaptive immune system, meaning that they can be activated by tumor-specific antigens as well as by general activators common to damaged or otherwise abnormal cells. Similar to other T cells, they express TCRs, but also express cytotoxicity receptors that are found on innate immune cells such as NKnatural killer (NK) cells. These gamma delta T cells can induce tumor cell death through multiple mechanisms including the secretion of cytotoxic proteins such as granzymes and perforin as well as through the secretion of cytokines such as interferon gamma (IFNγ), and tumor necrosis factor alpha (TNFα).

In in vitro and in vivo preclinical cancer models, Vδ1 cells are more cytotoxic and may have a longer durability than Vδ2 cells. Vδ1 cells are also more resistant to activation induced cell death (AICD), which has posed significant problems in clinical trials following chronic stimulation of Vδ2 cells. Vδ1 cells normally reside within tissues and they are able to adapt to lower nutrient availability and decreased oxygen levels, conditions which are similar to those in the microenvironments or localized areas associated with certain solid tumors. Incubation of these gamma delta T cells in conditions of low oxygen (hypoxia) that are typical of tumors has been shown to enhance their cytotoxicity.

Anticipated advantagesAdvantages of Vδ1 gamma deltaGamma Delta T cells overCells Over NK cell based therapiesCell Based Therapies

An alternate approach to the development of allogeneic CAR T cells consists of engineered NK cell-based therapy. While both gamma delta T cell and NK cell therapy generally are not expected to cause GvHD, NK cells express a broad repertoire of both inhibitory and activating receptors and have more limited tumor induced secretion of multiple cytokines. We believe that the gamma delta T cell technology we are developing has several advantages over this approach. Unlike engineered NK cells, Vδ1 gamma delta T cells have the following advantages:

The presence of cytotoxic gamma delta cells in tumors and disease-associated tissues is strongly correlated with positive clinical outcomes;
Can display tumor-induced secretion ofsecrete multiple cytokines associated with potent cytotoxicity including expressing high levels of interferon-gamma;
Can be produced as highly homogeneous cell populations that display potent non-clinical anti-tumor activity;
Express activating receptors more predominantly; and
Display features of adaptive immunity including, TCR-mediated, but MHC-independent, tumor antigen recognition against those commonly displayed on malignant and abnormal cells, a long lifespan and persistence for protracted periods of time;time.

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We believe these advantages position gamma delta T cell-based therapies to become an attractive alternative to NK based therapies for many oncologyautoimmune and cancer indications and lines of therapy.

Anticipated advantagesAdvantages of Vδ1 gamma deltaGamma Delta T cells over other approachesCells Over Other Approaches to generate allogeneic CAR-T cellsGenerate Allogeneic CAR T Cells

An alternative approach to the development of allogeneic gamma delta CAR T cells consists of introducing genetic modifications that disable the TCR in alpha beta T cells derived from donors that are unrelated to the patient. This process prevents these cells from attacking the patient’s healthy cells. We believe that the unrelated donor-derived gamma delta T cell

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technology, which lacks the ability to attack healthy cells from unrelated individuals, has a number of advantages over this approach. In an allogeneic paradigm, unlike alpha beta T cells, Vδ1 gamma delta T cells have the following advantages:

Do not rely on genetic manipulations to inactivate the alpha beta TCR;
Display properties of both adaptive and innate immune systems and are capable of killing cells even if their specifically targeted CAR antigen is expressed at low levels or not present;
May not be prone to exhaustion and are likely to persist longer;
May maintain the capacity to home to tissues and tumors rather than predominantly residing in circulation; and
May be less likely to induce cytokine release syndrome due to more limited endogenous IL-2IL-6 secretion by activated cells.

We believe these advantages position gamma delta T cell based therapies to become an attractive alternative to alpha beta T cell based therapies.

Anticipated advantagesAdvantages of Vδ1 gamma deltaGamma Delta T cells over bispecific antibodyCells Over Bispecific Antibody T cell recruitmentCell Recruitment for tumor immunotherapyTumor Immunotherapy

An alternative approach to the development of allogeneic CAR T cells consists of bispecific antibodies that are designed to crosslink T cells to specific targets on the tumor. This approach generally requires healthy and functional T cells able to attack the tumor when guided to the tumor expressing the target antigen. We believe that the unrelated donor-derived gamma delta T cell technology has a number of potential advantages over this approach. Unlike bispecific antibodies, Vδ1 gamma delta T cells have the following advantages:

Do not rely on functional T cells derived from the patient for clinical activity;
Display properties of both adaptive and innate immune systems and are capable of killing cells even if their specifically targeted CAR antigen is not present;
Maintain the capacity to home to tissues and tumors rather than predominantly residing in circulation and can actively distribute into localized tumors; and
May be less likely to induce cytokine release syndrome due to more limited endogenous IL-2IL-6 secretion by activated cells.

We believe these advantages position gamma delta T cell-based therapies to become an attractive alternative to bispecific-based therapies for many oncologyautoimmune and cancer indications and lines of therapy.

Our key anticipated differentiationKey Anticipated Differentiation from gamma deltaGamma Delta T cell competitorsCell Competitors

We believe that the gamma delta T cell technology that we are developing has a number of potential advantages over the technology of gamma delta T cell competitor companies, including the following:

Robust and practical proprietary antibody-based manufacturing method for gamma delta T cellscells;
Large-scale expansion of blood-derived gamma delta T cellscells;
Ability to selectively expand multiple gamma delta T cell subpopulations including highly potent Vδ1 cellscells;
No potentially pro-tumorigenic or pro-autoimmune Th17-type responses in our Vδ1 subpopulationsubpopulation;

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In-house CAR target identification and verification processprocess; and
Ability to effectively target tumor-specific intracellular protein-derived peptides using proprietary TCRL antibodiesT cell receptor-like (TCRL) antibodies.

We believe these advantages position our gamma delta T cell based therapies to become an attractive approach to the technologies used by other gamma delta T cell competitor companies.

Production of gamma deltaGamma Delta T cellsCells

To produce gamma delta T cell-based product candidates, we isolate peripheral blood mononuclear cells from unrelated donors that meet all the safety criteria for human cells, tissues, and cellular and tissue-based products (HCT/P), criteria for donors as

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outlined by the FDA in Title 21 of the Code of Federal Regulations (CFR), Part 1271. We then activate Vδ1 gamma delta T cells using a proprietary agonistic antibody and cytokines andwhich expands these cells before introduction oftransduction with replication-incompetent retroviral vectors containing the coding sequence for CAR constructs. These CAR-modified cells are further expanded at significant orders of magnitude, routinely greater than 6,000-fold at clinical scale, resulting in cell cultures that primarily consist of the desired gamma delta T cells. To reduce the chance of a patient developing GvHD, the remaining alpha beta T cells are then depleted using alpha-beta-specific, antibody-based techniques. The resulting gamma delta T cells are then formulated in an infusible solution to form the final drug product, which is filled into vials and then frozen to enable delivery of a post-thaw cell dose from each vial of CAR-T cells.

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Figure 5. Production process for A schematic of our CAR gamma delta T cell products.

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Figure 6. Fold expansion of gamma delta T cells.

We believe that our manufacturing process, including the generation of the antibodies and retroviral vectors, meets current Good Manufacturing Practices (cGMPs). We expect to be able to produce tens to hundreds of doses from a single donor, greatly increasing the efficiency of manufacturing compared to autologous alpha beta T cell therapies. We have chosen to partner with a number of contract manufacturing organizations (CMOs) in the United States and Europe to access specific capabilities to ensure that thelarge-scale manufacturing process is highly scalable, and fully cGMP-compliant. We believe this process hassummarized in the potential to treat up to 1,000 patients per batch.diagram below.

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13Figure 2. Production of Gamma Delta T Cells


 

ADI-001, an anti-CD20Anti-CD20 CAR gamma deltaGamma Delta T cell therapy targetingCell Product Candidate Targeting Autoimmune Diseases and Aggressive Relapsed/Refractory NHL

B cell NHL overview

NHL is the most common cancer of the lymphatic system. An estimated 77,240 new cases are expected to be diagnosed in the United States in 2020, according to the web site of the U.S. National Institutes of Health (NIH). According to the cancer.net web site maintained by the American Society for Clinical Oncology (ASCO), approximately 90% of NHL patients in western countries have B cell lymphomas of various types and DLBCL is the most common and aggressive type of NHL, accounting for 30% of NHL. The second most common type is follicular lymphoma (FL), which occurs in 20% of NHL patients. Mantle cell lymphoma (MCL), is diagnosed in 5% to 7% of NHL cases.

Although B cell NHLs represent a heterogeneous set of lymphomas, many cell surface antigens are shared among them, including CD19 and CD20. First line therapy for patients with aggressive B cell NHLs, such as DLBCL, is chemotherapy in combination with radiation or rituximab, an antibody that targets CD20. According to the rituximab label as published on the FDA web site, the addition of rituximab to chemotherapy results in an approximately 10% to 15% overall increase in survival at one year compared to chemotherapy alone with almost no increase in toxicity. According to an article published by K.T. Godder et al. in the journal Bone Marrow Transplantation in 2007, up to 50% of patients become refractory or relapse after treatment. Of those, according to an article published by Andrew R. Rezvani and David G. Maloney in the journal Best Practice & Research Clinical Haematology in 2011, approximately 60% percent are resistant to rituximab upon relapse. Subsequent chemotherapy-based therapies typically have limited efficacy in these patients and, at that point, they become candidates for treatment with allogeneic HSCT or anti-CD19 CAR-T cell therapy. Approximately 35% of patients treated with anti-CD19 CAR-T cell therapies relapse within one year, according to the label for Kymriah® published on the Novartis web site.

Our solution,Solution, ADI-001

ADI-001 is aour gamma delta T cellCAR T-cell product candidate that targetsis designed to target malignant B-cellsB cells via an anti-CD20 CAR and via the gamma delta T cell endogenous receptors, which we are developing as an allogeneic immunocellular therapy for the treatment of B-cellB cell NHL. ADI-001 is created from Vδ1 gamma delta T cells isolated from unrelated donors. It is manufactured in bulk under cGMP-compliantcurrent Good Manufacturing Practices (cGMP) -compliant conditions and is intended to be supplied as an immediately available off-the-shelf"off-the-shelf" anti-CD20 CAR-T cellCAR T-cell therapy.

ADI-001 contains an anti-CD20 CAR that has a proprietary antigen-binding domain that recognizes a region of CD20 distinct from that recognized by rituximab. Similar to other CAR-Ts cells including the one used to create Kymriah®, our CAR-TCAR T cells contain the clinically validated costimulatory domain from 4-1BB and the CD3ζ.

Clinical dataADI-001 Development Program

Autoimmune Diseases

Our Phase 1 study of ADI-001 in lupus nephritis will perform a 3+3 dose escalation starting at 100 million CAR+ cells flat dose. Subject to safety findings, higher doses will be explored up to one billion CAR+ cells. Before ADI-001 infusion, each patient will be conditioned with cyclophosphamide and fludarabine lymphodepletion. The dose limiting toxicity reporting window is set to 42 days; safety events during this period will be driving dose escalation decisions. The first safety assessment is scheduled on Day 28 after infusion, and then on months 3-6-9-12-18 and 24 thereafter. Once the maximum tolerated dose is

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determined, a dose expansion cohort will be opened to further characterize the safety and efficacy of ADI-001 in lupus nephritis patients. Primary endpoints will be focused on safety. For an illustration of our ADI-001 Phase 1 study design in lupus nephritis, please refer to Figure 3 below.

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Figure 3. Planned ADI-001 Phase 1 Study Design: Lupus Nephritis

Aggressive Relapsed and Refractory NHL

In October 2020, the FDA cleared our IND application for ADI-001 for the treatment of NHL. The active IND enabled us to initiate the first-in-human clinical trial to assess safety and efficacy of ADI-001 in NHL patients in the first quarter of 2021. The ongoing Phase 1 study for ADI-001 will enroll up to 80 late-stage NHL patients at a number of cancer centers across the United StatesStates. The study includes a dose finding portion followed by dose expansion cohorts to explore the activity of ADI-001 in multiple subtypes of NHL. Included in this trial will be previously treated patients who were not able to receive approved autologous CAR-T cellCAR T-cell therapies due to medical, technical, logistical, or financial reasons, as well as patients who relapsed after receiving autologous CAR-T cellCAR T-cell therapies.

PatientsMCL patients enrolled in the trial will undergo chemotherapy-based lymphodepletion for three days followed by ADI-001 dosing by infusion on day five. Patients will be evaluated at four weeks, twelve12 weeks and then every three months for the first year and at months 18 and 24 after treatment. Once a recommended dose has been selected, up to 36 patients will be enrolled in indication-specific dose expansion cohorts: DLBCL, MCL, and one for all other B cell malignancies. Select patients experiencing clinical benefit with ADI-001 may be eligible for retreatment.

An additional cohort in this trial will investigate Refer to Figure 4. for the potential of IL-2 therapy to boost the activity and durability of ADI-001. Treatment with IL-2 is supported by preclinical data that we have generated demonstrating that IL-2 improves the antitumor

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activity of our gamma delta T cells both in vitro and in vivo. Treatment of HSCT patients with IL-2 has also been shown to stimulate the proliferation of gamma delta T cells in the clinic.

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(*)Dose escalation study

Figure 7. Phase 1 ADI-001 study patient flow.

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Figure 4. Phase 1 Interim Clinical DataADI-001 study patient flow

Enrollment in the Phase 1 clinical study of ADI-001 is currently ongoing to provide additional durability data and further support the recommended Phase 2 dose. See “Results from Ongoing ADI-001 Phase 1 Trial in Relapsed or Refractory NHL” for information regarding recent interim results.

Results from Ongoing ADI-001 Phase 1 Trial in Relapsed or Refractory NHL

On December 6, 2021,June 26, 2023, we reported positiveannounced interim clinical dataresults from the initial dose escalation portion of theongoing Phase 1 study evaluating the safety and tolerability of ADI-001 in NHL that showed complete and near complete responses at low doses along with a generally favorable tolerability profile. We have since completed dosing of subjects inrelapsed or refractory NHL. Data highlights from the second lowest dose level of our Phase 1 study and we are currently enrolling subjects in dose level three. We aim to provide a clinical update for ADI-001 in the first half of 2022.

Asas of the November 22, 2021 data cutoff, six patients had been enrolled and received ADI-001. The first two patients enrolled in the lowest dose level tested did not reach the day 28 assessment and were not evaluable for efficacy per protocol. Three of the four evaluable patients achieved responses, including two complete responses (CR) and one partial response (PR) that investigators characterized as near complete response. Patients were heavily pre-treated, with a median of five lines of prior systemic therapy, including a patient who had received prior autologous CD19 CAR T, and achieved complete response following a single infusion of ADI-001 administered at the lowest dose level.May 4, 2023 cut-off date are summarized below.

Of the four efficacy evaluable24 efficacy-evaluable patients, three received ADI-001 at dose level one1 (DL1) (30 million CAR+ cells) and one, three received ADI-001 at dose level two2 (DL2) (100 million CAR+ cells). In, six received ADI-001 at dose level 3 (DL3) (300 million CAR+ cells), four received two infusions of ADI-001 at DL3 (two doses of 300 million CAR+ cells, one on day one patient achievedand the second dose on day seven following a CR, one patient achieved a PR that was characterized as near CRsingle lymphodepletion), and one patient had progressive disease (PD). Ineight received ADI-001 at dose level two, the first patient achieved a CR.4 (DL4) (1 billion CAR+ cells).

All evaluable patients had been

Patients were heavily pre-treatedpretreated with a median of five lines of prior systemic therapies. Of the three patients who achieved PR or better under Lugano 2014 criteria (ORR=75%, CR=50%), one had FL transformed into a large B-cell tumor with four prior lines of therapy one(range: 2 to 9), had DLBCLrelatively high tumor burden, and had a poor prognostic outlook based on their median International Prognostic Index (IPI) score. 50% of patients enrolled in the study had progressed on prior CAR T cell therapy.
Patients receiving ADI-001 demonstrated a 71% ORR and 63% CR rate in the study across all dose levels.
ADI-001 demonstrated an 83% ORR and 67% CR rate in heavily pre-treated patients (four median prior lines of therapy) who had progressed on prior CAR T cell therapy.
ADI-001 demonstrated a 6-month CR rate consistent with fiveautologous CAR T cell therapy when factoring number of prior lines of therapy including two cyclesand percent of anti-CD19patients enrolled in the study who progressed on prior CAR T cell therapy.
We selected the recommended Phase 2 dose (RP2D) as 1 billion CAR positive cells (DL4).
At the RP2D (DL4) (with four median prior lines of therapy, 38% post- CAR T cell therapy) the six-month CR rate was 25%. At this dose level, in patients who had progressed on prior CAR T cell therapy, the CR rate was 67% and the third had MCLsix-month CR rate was 33%.

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The expansion and persistence of ADI-001 at the RP2D exceeded values reported for approved autologous CD19 CAR T cell therapy. DL4 demonstrated a mean Cmax of 483 cells/ul with five prior linesa mean time-to-peak at approximately day 9 and demonstrated persistence through day 28 with a mean concentration of therapy. These patients achieved two CRs21 cells/ul.
ADI-001 was generally well-tolerated in the study and a near CR.

Overall, ADI-001 infusionsthere were generally well-tolerated. Nono occurrences of dose-limiting toxicities GvHD, Immune Effector Cell-Associated Neurotoxicity Syndrome (ICANS),or GvHD. Of the 24 patients evaluable for safety, there was one report of Grade 3 or higher Cytokine Release Syndrome (CRS) have been reported to-date, suggestingCRS and one report of Grade 3 or higher ICANS.

We plan to focus on the MCL patient population in our ongoing Phase 1 GLEAN study (at dose level 4), based on the results observed in the June 2023 update. Subject to clinical data and regulatory feedback, in the first half of 2025, we plan to define the regulatory path for a potentially wide therapeutic windowpivotal Phase 2 study for ADI-001.

A significant increase in circulating IL-15 was observed during the 28-day window following lymphodepletion, potentially providing cytokine support for the proliferation of ADI-001. Emergence of circulating ADI-001 in MCL and provide a further clinical update in the blood was observed by quantitative polymerase chain reaction and by flow cytometry, demonstrating expansionsecond half of ADI-001 in patients. Elevations in additional circulating cytokines, primarily IL-2 and IL-8 were observed during the first 14 days from dosing, consistent with the activation profile of ADI-001 and similar to the observed time-to-peak for cytokines previously reported in association with autologous alpha-beta CAR T cells. Importantly, no meaningful increases in IL-6 were seen in association with ADI-001, except for one patient who experienced COVID-19 infection, suggesting reduced likelihood for ICANS and high-grade CRS.

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2025.

 

Table 1: SummaryADI-270, an investigational allogeneic gamma delta CAR T cell therapy targeting CD70 via the CD27-ligand for the treatment of ADI-001 interimRCC

ADI-270 is an investigational allogeneic gamma delta CAR T cell therapy targeting CD70 via the CD27-ligand for the treatment of RCC, with potential in other solid tumor indications. ADI-270 is designed to home to solid tumors, with a highly specific targeting moiety for CD70 and an armoring technology of a dominant-negative TGF beta receptor to address immunosuppressive factors in the tumor microenvironment.  Building on gamma delta 1 tissue tropism to solid tumors and three mechanisms of anti-tumor activity (CAR, innate and adaptive) observed in preclinical models, CAR gamma delta 1 T cells may be well positioned to address solid tumors.

We plan to file an IND application for ADI-270 in RCC in the second quarter of 2024 and provide clinical data in the first half of 2025, subject to regulatory clearance and study initiation activities. We are also considering potential expansion into additional CD70+ tumor indications in the first half of 2025, with potential clinical data from two dosing cohorts*:such studies in the second half of 2025, subject to regulatory clearance and study initiation activities.

 

Dose Level

Age/Sex

B-cell lymphoma subtypes

# Prior lines of therapies

Prior CAR T?

Best Response (BOR) by Lugano Criteria (2014)

30 million CAR+ cells

62/F

Transformed DLBCL​ (from chronic lymphocytic leukemia)

5 prior lines

No

PD

66/F

Transformed high grade​ B cell tumor (from FL)

4 prior lines

No

PR

(Near CR)

75/M

DLBCL

5 prior lines

Yes (liso-cel)

CR

100 million CAR+ cells

62/M

MCL

5 prior lines

No

CR

*Efficacy evaluable patients as of November 22, 2021 database entry. Data are subject to further reviewAdditional Preclinical Programs (CAR and verification.Other Technologies)

Preclinical data

All preclinical experiments were conducted using anti-CD20 CAR-modifiedOur pipeline also includes additional internal gamma delta T cells, a research versioncell therapy programs in discovery and preclinical development for autoimmune diseases, hematological malignancies and solid tumors. These pipeline programs were selected by integrating aspects of ADI-001. We evaluated the in vitro potency of our anti-CD20 CAR gamma delta T cells using human-derived laboratory cell lines, known as Rajione tissue homing, differentiated mechanisms of action, targeting enhancement and Daudi human Burkitt’s lymphoma cell lines, which are known to express high levelsengineered armoring. We believe that the combination of CD20. Mixing the tumor cells with the anti-CD20 CAR gamma delta T cells resulted in apoptosis, or cell death, of the tumor cells after four hours. Increasing the ratio of the number of anti-CD20 CAR gamma delta T cells to tumor cells resulted in a higher percentage of dying tumor cells. Similar potency in the killing of target cells by anti CD20 CAR gamma delta T cells was observed in both Mino cells, a human MCL line that expresses high levels of CD20; and WILL-2 cells, cells derived from a rituximab-resistant patient with B cell lymphoma that expresses low levels of CD20. These results suggest that anti-CD20 CAR gamma delta cells can be

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highly efficient at recognizing and eliminating tumor cells that express any level of CD20. In all cases, our gamma delta T cells that did not have anti-CD20engineered with CAR expression also caused tumor cell death due to innate cytotoxic receptors.

img102984888_7.jpg 

Figure 8. Anti-CD20 CARor other technology provides the basis for a new generation of gamma delta T cells demonstrated potent cell killing activity across multiple human tumor cell lines.

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We have tested the antitumor activity of our anti-CD20 CAR gamma delta T cells in multiple tumor models in immunocompromised mice including Raji tumor models, a Mino tumor model and a Granta tumor model derived from a mantle cell tumor. Five to seven days after tumors were implanted into these mice, anti-CD20 CAR gamma delta T cells were administered as a single intravenous dose. Human recombinant IL-2 was administered three times a week for the duration of the study to stimulate the gamma delta T cells. In all cases, treatment using our anti-CD20 CAR gamma delta T cells was able to arrest tumor growth. The absolute duration of these studies was not pre-specified, however each of the studies were terminated when the growth of tumors in any of the animals in the no-treatment control group (tumor-only) exceeded a pre-specified limit; in subcutaneous tumor models this limit was generally tumor growth exceeding 4000mm3. This resulted in the individual studies being run for slightly different durations.

img102984888_8.jpg 

Figure 9. Anti-CD20 CAR gamma delta T cells inhibited tumor growth in multiple animal models.

Treatment of Raji tumors in mice with anti-CD20 CAR gamma delta T cells resulted in the complete elimination of tumors in four out of six mice. Sixty days after the original — and only – dose of anti-CD20 CAR gamma delta T cells, the four mice with complete responses were re-challenged with Raji tumor cells. Growth of these newly introduced tumors continued to be suppressed at least until the end of the experiment at day 100. We believetherapies that these results suggest that our gamma delta cells

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had a long persistence in vivo and remain active. Other preclinical experiments have shown that they can undergo up to twenty cell doublings and can have antitumor activity that can extend to six months in animal models.

img102984888_9.jpg 

Figure 10. Gamma delta T cells retained their antitumor activity for at least 90 days in a Raji tumor model. Four of the six mice in the primary tumor challenge exhibited complete responses, and these four mice were given a second tumor challenge without additional gamma delta CAR T cells.

We performed a direct analysis of the ability of our gamma delta CAR-T cells to migrate and proliferate in tumors using a fluorescent dye technology to examine cell division. Gamma delta CAR-T cells were treated with a fluorescent dye that attaches to cellular proteins. As these fluorescent cells divided, the molecules modified with the fluorescent dye were split among the mother and daughter cells. This resulted in a reduction in the average fluorescence signal per cell. Quantification of the amount of fluorescence per cell was then used as a surrogate for the number of divisions that a cell has undergone.

Using this assay, we observed that, within six days, our CAR gamma delta T cells had undergone significant cell divisions in tumors with little replication in blood, spleen, bone marrow or liver. By contrast, in a similar experiment using CAR alpha beta T cells, it was observed that replication occurred in all tissues examined. We believe that this selective replication in tumors by CAR gamma delta T cells, compared to CAR alpha beta T cells, may contribute to increased antitumor activity and a lower risk of developing life-threatening systemic immune responses such as cytokine release syndrome.

img102984888_10.jpg 

Figure 11. Proliferation of CAR gamma delta T cells was primarily localized in tumors, while the proliferation of CAR alpha beta T cells was observed in all tissues examined.

Interleukin 15 (IL-15) is a cytokine that preferentially stimulates T cell and NK cell activation, proliferation and cytolytic activity. These functional activities of IL-15 translate to enhanced antitumor responses in multiple tumor models. IL-15 is closely related to a cytokine that is a known activator of immune responses, IL-2. Both cytokines have the potential to stimulate gamma delta T cells. IL-15 plays a more important role in maintaining T cell responses that are long-lasting and show high affinity for cancer cell targets, while IL-2 has a more significant role in activating cytotoxic responses.

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The antitumor activity of our anti-CD20 CAR gamma delta T cells was tested in SRG-15 mice. These are mice that lack much of their mouse immune system but that do express human IL-15. In these studies, potent antitumor activity against Raji tumors in was observed. Furthermore, this activity was not accompanied by the development of GvHD. In contrast, mice treated with anti-CD20 CAR alpha beta T cells had antitumor responses, but subsequently experienced increased mortality due to the development of GvHD.

img102984888_11.jpg 

Figure 12. Anti-CD20 CAR gamma delta T cells do not induce GvHD, whereas treatment with anti-CD20 CAR alpha beta cells caused GvHD that led to increased mortality.

ADI-002, an anti-GPC3 CAR gamma delta T cell therapy for HCC

HCC disease background

Hepatocellular carcinoma (HCC) is the most prevalent form of liver cancer. The risk of HCC development is increased by a number of environmental and lifestyle factors such as hepatitis B and hepatitis C virus, alcohol drinking, tobacco smoking, aflatoxin exposure, obesity and diabetes. These factors lead to wide disparities in disease incidence across geographies. According to a 2013 publication by Sahil Mittal and Hashem B. El-Serag in the Journal of Clinical Gastroenterology, in the U.S., the incidence is approximately six per 100,000 per year, while in sub-Saharan Africa and Eastern Asia the incidence is over 20 per 100,000 per year.

Patients diagnosed with HCC generally have a poor prognosis. The majority of patients are diagnosed with advanced disease and they have a five-year survival rate of approximately 11%, according to cancer.net, the web site of ASCO. Patients are initially treated with combinations of cytotoxic drugs or radiation. In some cases, they may also receive targeted therapies including kinase inhibitors such as lenvatinib, marketed as Lenvima® by Eisai; and sorafenib, marketed as Nexavar® by Bayer and subsequently cabozantinib, marketed as Cabometyx® by Exelixis. These therapies, however, have significant toxicities and limited clinical benefit with progression free survival of less than eight months. Checkpoint immunotherapies such as pembrolizumab and nivolumab have demonstrated some efficacy in HCC, although response rates are less than 20% according to the label for pembrolizumab, marketed by Merck as Keytruda®. The combination of both nivolumab and ipilimumab, despite increased toxicities, increased this response rate to 33%. We believe these results demonstrate that there is significant unmet need in HCC and that there is potential to treat HCC with immunotherapy.

GPC3, a tumor-associated antigen

GPC3 is a tumor-associated antigen that is expressed in many tumors but in almost no normal tissues other than embryonic liver and kidney or placenta.

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Glypican 3 Expression in Tumors*

No. (%) Staining

Tumor Entity

No. of Cases

Negative

Positive

Hepatocellular carcinoma

44

15 (34)

29 (66)

Squamous cell carcinoma of the lung

50

23 (46)

27 (54)

Liposarcoma

29

14 (48)

15 (52)

Testicular nonseminomatous germ cell tumor

62

30 (48)

32 (52)

Cervical intraepithelial neoplasia (grade 3)

29

17 (59)

12 (41)

Malignant melanoma

48

34 (71)

14 (29)

Adenoma of the adrenal gland

15

11 (73)

4 (27)

Schwannoma

46

34 (74)

12 (26)

Malignant fibrous histiocytoma

29

22 (76)

7 (24)

Adenocarcinoma of the stomach (intestinal subtype)

45

36 (80)

9 (20)

Chromophobe renal cell carcinoma

15

12 (80)

3 (20)

Invasive lobular carcinoma of the breast

46

37 (80)

9 (20)

Medullary carcinoma of the breast

30

25 (83)

5 (17)

Squamous cell carcinoma of the larynx

49

41 (84)

8 (16)

Small cell carcinoma of the lung

49

41 (84)

8 (16)

Invasive transitional cell carcinoma of the urinary bladder

43

36 (84)

7 (16)

Mucinous carcinoma of the breast

26

22 (85)

4 (15)

Squamous cell carcinoma of the cervix

41

35 (85)

6 (15)

Figure 13. Screening of a panel of over 4,000 tumor samples found that GPC3 is expressed in numerous cancers. Baumhoer et al., Am. J. Clin. Pathol. 2008;129.

In a trial conducted by David Ho at the University of Hong Kong and colleagues and published in the journal PLOS One in 2012, high levels of GPC3 are detected by immunohistochemistry in a large proportion of HCC tumor tissue samples, but no GPC3 can be detected in adjacent normal cells.

img102984888_12.jpg 

Figure 14. Immunohistochemistry detected strong signals of GPC3 in liver tumor tissue, but negative staining for GPC3 was detected in the adjacent non-tumorous tissue. Adapted from Ho et al., PLoS One. 2012;7(5).

Our solution, ADI-002

ADI-002 is an anti-GPC3 CAR gamma delta T cell product candidate that we are developing fortransform the treatment of solid tumors. We believe that modification of Vγ1 gamma delta

ADI-002, an Anti-GPC3 CAR Gamma Delta T cells, which have an inherent tumor homing ability, with a CAR that is specific for GPC3, may result in a therapeutic product able to have potent antitumor activity in patients suffering from multiple solid tumors. Cell Product Candidate

On January 28, 2022, Regeneron exercised its option to license the exclusive, worldwide rights to ADI-002, an anti-GPC3 allogeneic CAR gamma delta T cell product candidate, pursuant to our agreement signed in 2016. In conjunction with the exercise of its option, Regeneron paid us an exercise fee of $20.0 million. We elected not to exercise our option to co-fund the further development of ADI-002. Accordingly, Regeneron is responsible, at its sole cost, for all development, manufacturing and commercialization of ADI-002 and we are entitled to royalties of any future sales of such products by Regeneron. See the section titled “Business—Strategic Agreements” ofNote 8. Third Party Agreements to our consolidated financial statements in this Annual Report on Form 10-K.

To enhance the proliferative ability and durability of our anti-GPC3 CAR gamma delta T cells, we engineered these cells to express soluble IL-15. We anticipate that the tumor homing ability of gamma delta T cells will potentially result in expression

21


of IL-15 predominantly in tumors. In combination with the inherent secretion of factors such as interferon gamma from activated gamma delta T cells, the secretion of IL-15 is anticipated to lead to reversal of immunosuppressive effects in the tumor microenvironment and direct stimulation of the gamma delta T cells.

We demonstrated in in vitro assays that our anti-GPC3 CAR gamma delta T cells have potent and GPC3-antigen-dependent cell killing activity. When our anti-GPC3 CAR-T cells were added to HepG2 cells, a cell line expressing GPC3 that was derived from a patient with HCC, an increase in tumor cell killing was observed. Gamma delta T cells prepared without the addition of our anti-GPC3 CAR were still able to kill the HepG2 cells, only with less potency at 18 hours. We believe that this CAR-independent killing activity was driven by innate receptors on our gamma delta T cells and that this innate antitumor activity may provide meaningful antitumor clinical activity in cases in which tumors may lose the expression of the targeted GPC3 antigen. Loss of tumor-expressed antigens represents a significant mechanism of escape from antitumor activities from other immunotherapies such as anti-CD19 CAR-T cell therapies. The ability to continue to have antitumor activity driven by the innate immune cell properties of our gamma delta T cells is a distinct advantage compared to alpha beta T cells, which lack this capability. Our gamma delta T cells had no cell killing activity when added to RAT2 normal fibroblasts that do not express GPC3.

img102984888_13.jpg 

Figure 15. Expression of an anti-GPC3 CAR in gamma delta T cells led to potentiation of killing of HepG2 hepatocellular carcinoma cell line.

Anti-GPC3 CAR gamma delta T cells had dose-dependent antitumor activity in HepG2 tumors in immunodeficient mice. HepG2 tumor cells were inoculated into immunocompromised mice and allowed to grow to a volume of 200 mm3 over a period of approximately eight days. A single dose of anti-GPC3 CAR gamma delta T cells was then administered and tumor growth at day 37 was assessed. High doses of anti-GPC3 gamma delta T cells led to complete suppression of tumor growth.

img102984888_14.jpg 

Figure 16. Dose-dependent inhibition of HepG2 tumor growth by anti-GPC3 gamma delta T cells

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Future clinical candidates in solid tumors.

In addition to the product candidates described above, we anticipate many further opportunities for developing product candidates based on our gamma delta T cell technology. We believe that thespectrum of indications that products such as CAR-T cell therapies have been able to address has been limited by two factors: the weak ability of alpha beta T cell-based therapies to penetrate solid tumors, and the scarcity of tumor-specific antigens on the cell surface that can be targeted by antibody-derived binding domains that are an essential component of the CAR constructs. We believe that the tumor homing ability of our gamma delta T cell technology represents a potential solution to the solid tumor localization problem and our TCRL antibody technology can be used to identify and target tumor-specific antigens.

The tumor recognition challenge

Therapeutics such as antibodies and CARs recognize cell surface molecules. In HCC and select other tumors, there are proteins such as GPC3 which are selectively expressed on the surface of tumors cells that can be used as antigens for immune-targeted therapy. The lack of their expression on normal cells limits the potential of on-target, off-tumor systemic toxicities. Surface-expressed proteins that are strictly expressed only on tumor cells are, however, rare. In most cases surface expressed antigens such as CD19 and CD20 are expressed both on hematopoietic tumor and normal cells. Therapies that target CD19 or CD20 therefore result in killing of both tumor and normal cells. In hematological malignancies these therapies result in systemic depletion of normal B cells. However, this is mechanism-based toxicity can be managed in clinical practice. Challenges arise with antigens such as epidermal growth factor receptor (EGFR) that is overexpressed on some types of tumor cells, but also expressed on normal epithelial cells elsewhere in the body. Dosing with anti-EGFR antibodies has led to significant dermatological and cardiac toxicities.

Intracellular proteins represent nearly half of the proteins found in human cells. These proteins provide an untapped reservoir of potential tumor-specific antigens that are inaccessible to traditional antibody-binding domains. Immune surveillance for these intracellular proteins is normally done by alpha beta T cells. These intracellular proteins are chopped up by a cell component known as the proteasome into short peptides between eight and ten amino acids long. These short peptides are then presented to the T cells by the MHC. TCRs on the T cells are then able to recognize the complex of the peptide and the MHC, triggering creation of T cell populations prepared to attack these specific sequences.

Gamma delta T cells have advantages compared to alpha beta T cells with regard to their potential as allogeneic therapies, their ability to localize to tumors and their retention of innate immune signaling pathways. However, to be most effective they need to be able to be engineered to attack specific tumors.

Our solution, TCRLsStrategic Agreements

We have developed an antibody platform that enables the discovery of TCRL antibodies that recognize peptides that are presented on the cell surface by specific MHC molecules. In effect,entered into multiple strategic agreements and collaborations, including our TCRL antibodies have the same antigen recognition properties as TCRs but are highly specific for a single tumor antigenLicense and MHC molecule. They do not recognize other MHC molecules or antigens that may be expressed by healthy cells.

img102984888_15.jpg 

Figure 17. Schematic diagram of the interaction between our TCRL antibodies and tumor-specific peptides presented by the MHC.

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TCRLs are conventional antibodiesCollaboration Agreement with antigen binding domains that specifically recognize peptide-MHC complexes that can be used to create CARs. Introduction of these CARs into our gamma delta T cells enables them to target tumors expressing intracellular tumor antigens when these antigens are selectively presented by MHC on the surface of tumor cells. Gamma delta CAR-T cells generated using TCRLs open up the potential to bring immune cell therapy to tumors that lack tumor-specific surface antigens, a group that includes most solid tumors.

The TCRL discovery process starts by carrying out an analysis of the peptides expressed by MHC receptors in a panel of hundreds of tumor and normal tissues. In searching for candidate peptides, we focus on differentially expressed peptides that are broadly expressed in tumors but that are not found in normal tissues. Candidate peptides are then validated by expression analysis both in other tissuesRegeneron as well as our Antibody Discovery Agreement with Twist Bioscience Corporation. We have also entered into amendments to these original agreements. For additional information regarding our significant agreements, refer to Note 8. Third Party Agreements to our consolidated financial statements appearing elsewhere in databases. Those peptides that, basedthis Annual Report on bioinformatic analysis, are predicted to have minimal cross-reactivity with peptides from normal cells are then further prioritized. This peptide discovery process leads, step-by-step, to the narrowing of the list of potential candidates by approximately one thousand-fold. Once a tractable number of remaining candidates has been identified, a population that includes the most promising ones, antibodies are then created that are specific to the complex of an MHC receptor and the bound peptides. These antibodies mimic key aspects of tumor as recognized by the immune system. By creating CARs that incorporate these antigen-recognition templates in gamma delta T cell-based product candidates, we create a set of candidates designed to specifically attack tumors by virtue of their intracellular proteins.

Tyrosinase is a well-validated tumor-expressed antigen for which we have developed TCRLs. The specificity for a mouse and a humanized version of one of these TCRLs was determined by comparing their binding affinityto that of a series of peptides that contained single amino acid changes. It was learned that changes to any of the internal eight amino acid positions to the amino acid alanine led to reductions in binding of 70% or greater. Substituting any amino acid in a non-anchor position resulted in substantial loss of binding and indicates the high degree of specificity that the TCRL antibody has for the targeted MHC peptide complex.

img102984888_16.jpg 

Figure 18. Single amino acid changes to the targeted peptide reduced binding by at least 70 percent.

The antigen-binding domain from a tyrosinase TCRL was incorporated into a CAR and introduced into our gamma delta T cells to assess cell killing activity against tumor cell lines. These anti-Tyr CAR gamma delta T cells led to cell killing of WM266.4 human metastatic melanoma tumor cells, which are known to express tyrosinase. Anti-Tyr CAR gamma delta T cells, however, had no cell killing activity when tested against ten other cell lines from tumors such as colon, bladder and pancreatic cancers, B cell leukemia and retinoblastoma – all of which do not express tyrosinase. That observation points to a desirable level of specificity for our anti-Tyr CAR gamma delta T cells and to an important in vitro proof of concept.

Furthermore, these anti-Tyr CAR gamma delta T cells had potent antitumor activity in a WM266.4 tumor model leading to tumor shrinkage within five days of administration and a durable antitumor response through 27 days. Although the TCRL-based

24


CAR that is generated binds to an MHC-peptide complex, it does not induce the GvHD that is seen with alpha beta T cells because it recognizes a single peptide that has been selected to be highly specific for tumor cells.Form 10-K.

 

img102984888_17.jpg 

Figure 19. Anti-Tyr CAR gamma delta T cells showed potent antitumor activity in a WM266.4 melanoma model.

We have generated TCRLs against a number of solid tumor antigens which are being evaluating in animal models. We believe that the combination of our gamma delta and TCRL technology provides the basis for a new generation of CAR-T cell therapies that have the potential to transform the treatment of solid tumors.

Our Intellectual Property

Our gamma delta T cell-based product candidates and substantially all of our intellectual property have been developed by us, with certain antigen binding domains derived from our collaboration with Regeneron. Additional intellectual portfolio assets were acquired in 2016 via acquisition of Applied Immune Technologies Ltd. (AIT), which is now our wholly owned

16


subsidiary, Adicet Bio Israel, Ltd. We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially material to our business, including seeking, maintaining and defending our patent rights.

Our policy is to develop and maintain protection of our proprietary position by, among other methods, filing or in-licensing United States and foreign patents and applications related to our technology, inventions, and improvements that are material to the development and implementation of our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation, confidentiality agreements, and invention assignment agreements to develop and maintain our proprietary position.

Our patent portfolio includes composition of matter, method of treatment and manufacturing process protection for our lead product candidates, ADI-001 and ADI-002,ADI-270, as well as for our otherpartnered program ADI-002 and several additional research-stage candidates. As of February 23, 2022,March 14, 2024, there are multiple patent families comprising threefour pending United States non-provisional applications and over 3050 corresponding granted foreign patents and pending foreign patent applications pending in such jurisdictions as Australia, Canada, China, Europe, Israel, Japan, Korea, Mexico, Russia, Singapore and South Africa with claims directed to particular reagents and related protocols for gamma delta T cell expansion and resulting gamma delta T cell compositions of matter, encompassing both ADI-001 and ADI-002,including engineered gamma delta CAR T cells which, if issued, are expected to expire between 2035 and 2038. The first U.S. non-provisional application in our original patent family recentlywas granted as U.S. Patent No. 11,135,245, expiring on May 19, 2038, and the pendingfirst U.S. non-provisional application in our second patent family stands allowed. As of February 23, 2022, there are also two patent families comprising twowas granted as U.S. Patent No. 11,299,708, expiring on December 26, 2037. Additional U.S. non-provisional applications are pending in both of these patent families.

For our ADI-001 program in particular, there is one patent family comprising one U.S. non-provisional application and over 25 corresponding foreign patent applications pending in such jurisdictions as Australia, Canada, China, Europe, Israel, Japan, South Korea, Mexico, New Zealand, Russia, Singapore and South Africa, , with claims directed to CAR constructs and antigen binding domains relating to ADI-001, and ADI-002, as well as their methods of use for certain indications, preconditioning methods, and dosing regimens, where applications claiming the benefit of these PCT applications,which, if issued, would expire between 2038 andin 2039. Additionally, we have one pending U.S. provisionalinternational Patent Cooperation Treaty (PCT) application directed to certain methods of treatment using ADI-001, where subsequent national stage applications claiming the benefit of this PCT application would expire in 2042 assuming they are filed and anotherissued in due course.

For our research-stage programs, we have three pending international PCT applications focusing on CD70, prostate specific member antigen and B7-H6, respectively, where any subsequent national stage applications claiming the benefit of these PCT applications would expire in 2043 assuming they are filed and issued in due course. We also have two pending U.S. provisional patent applications directed to certain improvements in T cell engineering, and one pending U.S. provisional patent application directed to certain proprietary antibodies to GPC3a companion diagnostic and methodsrelated adjunctive therapy for use in adoptive cell therapies in general, where applications claiming the benefit of use thereof. With respect to ADI-001, we have a collaboration with Regeneron which grants us access to certain proprietary antigen binding domains covered by Regeneron’s patent rights, includingthese provisional applications would expire in particular the antigen binding domain incorporated into ADI-001.

Additionally, there2044 assuming they are converted, prosecuted and issued in due course. There are also multiple granted patents and pending patent applications in the United States and internationally directed to our TCRL platform technology with actualexpiring between 2023 and in the case of pending applications, anticipated expiration dates between 2021 and 2037. Although certain earlier patents relating to our TCRL platform technology will expire in 2021, other patents covering this technology remain in force, or are expected to issue from pending applications,2037, including three pending patent families directed to certain carcinoma, melanoma and glioblastoma targets are expected to expireexpiring between 2036 and 2037. As a result, we do not expect that the expiration of the earlier patents in our TCRL portfolio, individually or in the aggregate, will have a material adverse effect on our future operations or financial position.

25For our ADI-002 program, partnered with Regeneron, there is one patent family comprising one U.S. non-provisional application and corresponding foreign patent applications pending in such jurisdictions as Australia, Canada, China, Europe, Israel, Japan, South Korea, Mexico, New Zealand, Russia, Singapore and South Africa, with claims directed to CAR constructs and antigen binding domains relating to ADI-002, as well as their methods of use for certain indications, preconditioning methods, and dosing regimens, which, if issued, would expire in 2039. We also have one patent family comprising one U.S. non-provisional application and corresponding foreign patent applications pending in such jurisdictions as Australia, Canada, China, Europe, Israel, Japan, South Korea, Mexico, New Zealand, Singapore and South Africa directed to certain proprietary antibodies to GPC3 and methods of use thereof, where the national stage applications claiming the benefit of this PCT application will expire in 2042 if issued in due course.


The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the date of filing of the first non-provisional application to which priority is claimed. In the U.S., patent term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office (USPTO) in granting a patent or may be shortened if a patent is terminally disclaimed over an earlier-filed patent. In the U.S., the term of a patent that covers an FDA-approved drug may also be eligible for a patent term extension of up to five years under the Hatch-Waxman Act, which is designed to compensate for the patent term lost during the FDA regulatory review process. The length of the patent term extension involves a complex calculation based on the length of time it takes for regulatory review. A patent term extension under the Hatch-Waxman Act cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Moreover, a patent can only be extended once, and thus, if a

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single patent is applicable to multiple products, it can only be extended based on one product. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug.

Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, as well as novel discoveries, core technologies, and know-how, as well as our ability to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights.

The patent positions of companies like us are generally uncertain and involve complex legal, scientific, and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by enforceable patents or will be commercially useful in protecting our commercial products and methods of using and manufacturing the same. We also cannot predict whether the patent applications it is currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold, or control may be challenged, circumvented or invalidated by third parties. In addition, while we have confidence in our agreements and security measures, either may be breached, and we may not have adequate remedies. Further, our trade secrets may otherwise become known or independently discovered by competitors.

We have licensed various intellectual property and trade secrets to third parties for purposes of collaboration, product development and research and development.

Strategic Agreements

License and Collaboration Agreement with Regeneron

On July 29, 2016, our wholly owned subsidiary, Adicet Therapeutics, Inc. (Former Adicet), entered into a license and collaboration agreement with Regeneron, which was amended in April 2019, with such amendment becoming effective in connection with Regeneron’s investment in Former Adicet's Series B preferred stock financing transaction in July 2019 (as amended, referred to as the Regeneron Agreement) when Former Adicet was an early-stage, privately held company.

Agreement Structure. The Regeneron Agreement has two principal components: (a) a research collaboration component under which the parties will research, develop, and commercialize next-generation engineered gamma delta immune cell therapeutics (ICPs) namely engineered gamma delta immune cells with CARs and TCRs directed to disease-specific cell surface antigens, which includes the grant of certain licenses to intellectual property between the two parties, and (b) for a certain period following the effective date, a license to us to use certain of Regeneron’s proprietary mice to develop and commercialize ICPs generated by us, with certain limitations relating to targets under the Regeneron Agreement.

Research Collaboration. Research activities under the collaboration are governed by research plans, which include the strategy, goals, activities, and responsibilities of the parties with respect to a target. We are primarily responsible for generating, validating, and optimizing ICPs, developing processes for manufacture of ICPs, and certain preclinical and clinical manufacturing activities for ICP’s; Regeneron’s key responsibility is generating, validating, and optimizing CARs and TCRs that bind to the applicable target. The parties have formed a joint research committee to monitor and govern the research and development efforts during the research program term.

Rights to Research Targets. Under the terms of the collaboration, the parties will conduct research on mutually agreed upon targets. Regeneron may obtain exclusive rights for the targets that it chooses in accordance with the target selection mechanism set forth in the Regeneron Agreement, and we similarly may obtain exclusive rights for targets it chooses in accordance with such target selection mechanism. We have the right to develop and commercialize ICPs to the first collaboration target to come out of the research program. On January 28, 2022, we received a payment of $20 million from Regeneron for exercise of its option to license exclusive rights to ADI-002 and Regeneron potentially has additional options to other ICP targets under the Regeneron Agreement. For those targets it does not have an option to license, Regeneron has a right of first negotiation for up to two targets. Regeneron has the right to terminate the research program in its entirety (a) for convenience on six months prior written notice given at any time after December 31, 2019, or (b) following a change of control (as defined in the Regeneron Agreement) of us. The parties mutually agreed to their first product declaration criteria for collaboration ICP, CD20, in 2018.

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Rights to Adicet-Developed Targets. Regeneron has an exclusive license to use targeting moieties generated by us by its use of Regeneron’s proprietary mice to develop and commercialize non-ICPs.

Exclusivity. During the five-year target selection period that expired in July 2021, we were not permitted to directly or indirectly research, develop, manufacture or commercialize an ICP, or grant a license to do the foregoing, except pursuant to the Regeneron Agreement. For so long as either party is researching or developing an ICP to a target under the research program, neither party may research, develop, manufacture or commercialize any other ICP to such target, or grant a license to do the foregoing. And for so long as a party is researching, developing or commercializing an ICP to target that is licensed to it (and royalty bearing) under the agreement, neither party may research, develop, manufacture or commercialize any other ICP to such target, or grant a license to permit another party to do the foregoing. These exclusivity obligations are limited to engineered gamma delta immune cells to targets reasonably considered to have therapeutic relevance in oncology. The Regeneron Agreement includes certain exceptions to the exclusivity obligations of the parties, including with respect to targets that are rejected by one party in the target selection process, as well as protections in the event of a change of control of a party where the acquirer has a competing program.

Co-Funding and Profit Sharing. We have an option to co-fund specified portions of the future development costs for, and to co-promote, ICPs to a target for which Regeneron has exercised an option, and to participate in the profits for such target. We have the right to exercise this right in various geographic regions, including on a worldwide basis. In the event we exercise such right, the parties will share further development costs and profits proportionally to their co-funding percentages.

Financial Terms. We received a non-refundable upfront payment of $25.0 million from Regeneron upon execution of the Regeneron Agreement and received an aggregate of $20.0 million of additional payments for research funding from Regeneron as of December 31, 2021. On January 28, 2022, we received payment of $20.0 million from Regeneron for exercise of its option to license exclusive rights to ADI-002. Regeneron has additional options to other ICP targets under the Regeneron Agreement which may entitle us to exercise fees of up to an aggregate of $80.0 million. For each collaboration ICP, we have a specified period of time to elect to co-fund the future development costs and participate in any potential profits with Regeneron up to a specified co-funding percentage in various geographic regions. If we do not exercise our right to co-fund the development of such collaboration ICPs, Regeneron must also pay us high single digit royalties as a percentage of net sales for ICPs to targets for which it has exclusive rights, and low single digit royalties as a percentage of net sales on any non-ICP product comprising a targeting moiety generated by us through the use of Regeneron’s proprietary mice. We elected not to exercise our option to co-fund the development of ADI-002. Additionally, under the Regeneron Agreement, we must pay Regeneron mid-single to low double digit, but less than teens, of royalties as a percentage of net sales of ICPs to targets for which we have exercised exclusive rights, and low to mid-single digit of royalties as a percentage of net sales of targeting moieties generated from our license to use Regeneron’s proprietary mice. Royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or twelve (12) years from first commercial sale.

Other Terms. The Regeneron Agreement contains customary representations, warranties and covenants by us and Regeneron and includes (i) an obligation of ours to use commercially reasonable efforts to develop and commercialize at least one product based on a collaboration ICP that is not an optioned collaboration ICP for each collaboration target and (ii) an obligation of Regeneron to use commercially reasonable efforts to develop and commercialize at least one product based on an optioned collaboration ICP for each collaboration target. We and Regeneron are required to indemnify the other party against all losses and expenses related to breaches of the representations, warranties and covenants under the Regeneron Agreement.

Term and Termination. The term of the Regeneron Agreement expires, on a product-by-product basis, on the expiration of the obligation to pay royalties for such product. The Regeneron Agreement is subject to early termination by either party upon uncured material breach by the other party. The licenses to develop and commercialize an ICP to a target that one party has exclusively licensed may be terminated by such party for convenience.

Equity Investments. In connection with the collaboration, Regeneron and we entered into a side letter pursuant to which, among other matters, Regeneron was granted certain stockholder rights and investment rights in connection with our next equity financing that met certain criteria and in connection with an initial public offering by us. Regeneron exercised its investment right and purchased approximately $10.0 million of our Series B preferred stock in a private placement transaction in July 2019.

License Agreement with TRDF

We and our wholly owned subsidiary, Adicet Bio Israel, Ltd. (formerly AIT), are parties to an Amended and Restated License Agreement dated May 21, 2014, as was amended in June 2015 and January 2016, with Technion Research and Development Foundation Ltd. (TRDF) the technology transfer subsidiary of Technion – Israel Institute of Technology (Technion). The license agreement provides us with an exclusive, royalty-bearing, worldwide license, with a right to grant sublicenses, to make use of certain TRDF patents and know-how relating to moieties that recognize and bind to TCRLs, along with certain improvements and research results developed at TRDF and relating to either the licensed patents and know-how of TCRL, in each case for the purposes of research, development, and commercialization of specified products. We further obtained joint ownership rights in improvements, developments, and inventions developed in the laboratory of a specified professor under certain conditions, including where we provided specified amounts of funding for research specific to TCRL compounds. TRDF

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also grants us an exclusive, worldwide, assignable, sublicensable license to TRDF’s rights in such jointly owned improvements, developments, and inventions. Technion further agrees not to enforce against us any TCRL-related technology owned by Technion but not licensed to us under the agreement, and to require its licensees to agree to the same. We are required to meet certain diligence obligations to preserve our exclusive licenses. Either Adicet or Technion may terminate the agreement or a specific license if the other party materially breaches its obligations under the agreement or with respect to a specific license granted under it and fails to cure that breach. We have the right to terminate the agreement at any time by providing notice to TRDF.

In return for the license, We are required to pay TRDF, for ten (10) years after the first commercial sale of a product for which it owes royalties under the agreement, on a licensed-product-by-licensed-product basis, (i) certain royalties in the low single-digit percentages of all net sales by us and any of our controlled affiliates, and (ii) the lesser of (a) a low single-digit percentage of net sales of our sublicensees, or (b) low double-digit percentage of amounts received by us or our controlled affiliates in the form of royalties on net sales from our sublicensees, subject to certain reductions. Furthermore, we agreed to pay for all patent filing and maintenance expenses for the patents included in the licenses granted to us by TRDF, with limited exceptions.

Under the agreement, TRDF reserves the right, for itself, alone or with other certain academic institutions, to utilize the licensed technology solely for educational and non-commercial research purposes.

The license agreement continues in full force and effect on a product-by-product and country-by-country basis until the expiration of all payment obligations for any licensed product as described above. Upon the expiration, we will have a fully paid-up, worldwide, non-exclusive license (with the right to grant sublicenses) to develop, have developed, manufacture, have manufactured, use, market, offer for sale, sell, have sold, import, export, and otherwise transfer physical possession or title to products for which royalties would have otherwise been due under the agreement.

Manufacturing

We are developing and enabling scalable and propriety cGMP-compliantproprietary current Good Manufacturing Practice (cGMP)-compliant manufacturing processes. We have invested resources to optimize our manufacturing process and plansplan to continue to investmaintain that investment to continuously improve our production and supply chain capabilities over time.

We manufacture cell-based immunotherapy products based on gamma delta T cells obtained from the blood of donors who are unrelated to the patients that will be treated. These products are classed as allogeneic cell therapy products. Donor-derived blood product is fractionated and the fractionsfraction containing gamma delta T cells areis frozen prior to use in future manufacturing campaigns. We believe that our freezing and storing of the donor blood products allows us to efficiently schedule subsequent manufacturing steps. After obtaining blood products from unrelated donors the manufacturing process begins with the activation of a subpopulation of gamma delta T cells, referred to as Vd1 T-cells, using an antibody that is proprietary to us. This antibody, in combination with other factors including the cytokine, IL-2, induces gamma delta T cells to proliferate, whereupon we expose the cells to a viral vector that transfers a gene sequence encoding a CAR or other gene sequences, to the proliferating cells. This step is referred to as the transduction step. Following the transduction step gamma delta T cells are induced to proliferate further with IL-2 before an enrichment step that increases the proportion of gamma delta T cells, removes unwanted residual alpha beta T cells and results in the CAR-modified gamma delta T cellscell drug product. CAR-modified gamma delta T cell products are then frozen in single-use vials for long-term storage at cryogenic temperatures. These storage conditions are designed to ensure stability of the cell-based drug products for protracted periods of time. The storage in singesingle use vials is designed to simplify the handling and treatment administration. Just prior to administration of treatment, the vials will be thawed and then the contents infused into the patient. We believe that the single manufacturing process we are developing will be able to be completed in approximately two weeks and will result in sufficient quantities of drug product to treat numerous patients.

To date, we currently rely, and expectsexpect to continue to rely, on third parties for the manufacture of our product candidates and any products that we may develop. We have chosen to partner with a number of CMOsCDMOs in the United States and Europe to access specific capabilities to ensure that the manufacturing process is highly scalable, closed and fully cGMP compliant. This strategy allows us to maintain a more flexible infrastructure while focusing our expertise on developing our products. In addition to the quality management systems utilized by strategic manufacturing partners, we have established a quality control and quality assurance program, which includes a set of standard operating procedures and specifications designed to ensure that our products are manufactured in accordance with cGMPs, and other applicable domestic and foreign regulations.

For example, we currently engage a single US-basedmultiple third-party manufacturer to providemanufacturers for both viral vector and drug product across our pipeline. We also will have internal GMP cell processing and vector manufacturing operations at our 1000 Bridge Parkway, Redwood City, California facility (1000 Bridge Parkway) for the active pharmaceutical ingredientproduction of drug products intended for ADI-001.Phase 1/2 clinical trials. We also utilize separate third partythird-party contractors to manufacture cGMP-compliant starting and critical materials that are used for the manufacturing of our product candidates, such as donor blood products, gamma delta T cell activating antibody and viral vectors that are used to deliver the applicable CAR gene into the T cells. We believe all materials and components

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utilized in the production of the activating antibody producing cell line, viral vector and final gamma delta T cell product are available from qualified suppliers and suitable for pivotal process development in readiness for registration and commercialization. Going forward, we intend to continue to expand our manufacturing capability through agreements with leading cell therapy CMOs.

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and viral vector CDMOs.

If any ofthere is a setback or delay with third-party manufacturing, or our current manufacturers becomes unavailable to us for any reason,own internal cell or vector manufacturing, we believe that there are a number of potential replacements, although we would likely incur some delay in identifying and qualifying such replacements. We plan to continue to create a robust supply chain with redundant sources of supply comprised of both internal and external infrastructure.

Competition

The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including existing and novel therapies developed by biopharmaceutical companies, academic research institutions, governmental agencies and public and private research institutions, in addition to standard of care treatments.

Novartis and Kite Pharma (now Gilead) were the first to achieve FDA approval for autologous T cell therapies. In August 2017, Novartis obtained FDA approval to commercialize Kymriah®, for the treatment of children and young adults with B-cellB cell acute lymphoblastic leukemia (ALL) that is refractory or has relapsed at least twice. In May 2018, Kymriah® received FDA approval for adults with relapsed or refractory (R/R) large B-cellB cell lymphoma. In October 2017, Kite Pharma obtained FDA approval to commercialize Yescarta®, the first CAR T cellT-cell product candidate for the treatment of adult patients with R/R large B-cellB cell lymphoma. In July 2020, Gilead obtained FDA approval to commercialize Tecartus™, the first CAR T cellT-cell product candidate for the treatment of adult patients with R/R MCL. In February 2021, Bristol Myers Squibb obtained FDA approval to commercialize Breyanzi® for the treatment of adults with R/R large B-cellB cell lymphoma. In 2022, both Yescarta and Breyanzi were approved by the FDA for treating a subset of adult patients with LBCL in the second line, representing a line-expansion from the earlier third-line approvals.

Due to the promising therapeutic effect of T cell therapies in clinical trials, we anticipate increasing competition from existing and new companies developing these therapies, as well as in the development of allogeneic T cell therapies generally. Potential T cell therapy competitors include, but are not limited to:

Autoimmune Competition

Allogeneic T cellT-cell therapy competition: Atara Biotherapeutics, Sana Biotechnology, Inc., CRISPR Therapeutics AG, Fate Therapeutics, Inc., Nkarta, Inc., and Century Therapeutics, Inc.
Autologous T-cell therapy competition: Novartis AG, Bristol-Myers Squibb Company, Autolus Therapeutics PLC, Cartesian Therapeutics, Inc., iCell Gene Therapeutics Inc., Cabaletta Bio, Inc., Gracell Biotechnologies Inc., and Kyverna Therapeutics, Inc.

Cancer Competition

Allogeneic T-cell therapy competition:Allogene Therapeutics, Inc., Caribou Biosciences, Inc., Century Therapeutics, Inc., Cellectis, S.A., Celyad S.A., CRISPR Therapeutics AG, Editas Medicine, Inc., Fate Therapeutics Inc., Gilead Sciences, Inc., Intellia Therapeutics, Inc., Poseida Therapeutics, Inc., Precision Biosciences, Inc., Immatics Biotechnologies GmbH, GammaDelta Therapeutics Limited,Takeda, TC BioPharm Limited, Incysus Therapeutics, Inc., and Gadeta BV.
Autologous T cellT-cell therapy competition: competition: Adaptimmune Therapeutics PLC, Autolus Therapeutics plc, bluebird bio, Inc., Bristol-Myers Squibb Company, Gilead Sciences, Inc., Johnson & Johnson, Iovance Biotherapeutics, Inc., Mustang Bio, Inc., and Novartis International AG, TCR² Therapeutics Inc. and Tmunity Therapeutics, Inc.AG.

Although we believe our development of proprietary processes for engineering and manufacturing gamma delta T cells expressing CARs is unique due to what we believe is the enormous potential of these cells, it is likely that additional competition may arise from existing companies currently focusing on development of alpha beta or gamma delta T cell therapies, or from new entrants in the field.

Competition may also arise from non-cell based immune oncologycancer platforms. For instance, we may experience competition from companies, such as Amgen Inc., Bristol-Myers Squibb Company, F. Hoffmann-La Roche AG, Genmab A/S, GlaxoSmithKline plc, MacroGenics, Inc., Merus N.V., Regeneron Pharmaceuticals, Inc., and Xencor Inc., that are pursuing

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bispecific antibodies, which target both the cancer antigen and T cell receptor, thus bringing both cancer cells and T cells in close proximity to maximize the likelihood of an immune response to the cancer cells. Further, companies such as Novartis AG, F. Hoffmann-La Roche AG, Biogen Inc., and GSK plc are developing antibody-based therapies targeting B cell antigens and other targets for the treatment of autoimmune diseases. Additionally, companies, such as Amgen Inc., AbbVie Inc., Daiichi Sankyo Company, Limited, GlaxoSmithKlineGSK plc, ImmunoGen, Inc., Immunomedics, Inc., and Seattle Genetics,Pfizer Inc., are pursuing antibody drug conjugates, which utilize the targeting ability of antibodies to deliver cell-killing agents directly to cancer cells. Further competition in MCL may arise from Bruton’s tyrosine kinase inhibitors, including those approved and under development by AstraZeneca plc, BeiGene Ltd., Merck KGaA and Eli Lilly and Company.

Many of our competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, preclinical testing, clinical trials, manufacturing, and marketing than we do. Future collaborations and mergers and acquisitions may result in further resource concentration among a smaller number of competitors.

Our commercial potential could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for our own products, which could result in our competitors establishing a strong market position before we are able to enter the market or make our development more complicated. The key competitive factors affecting the success of all of our programs are likely to be efficacy, safety and tolerability profile, convenience, price, reimbursement and cost of manufacturing.

These competitors may also vie for a similar pool of qualified scientific and management talent, sites and patient populations for clinical trials, and investor capital, as well as for technologies complementary to, or necessary for, our programs.

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Government Regulation and Product Approval

As a biopharmaceutical company that operates in the United States, we are subject to extensive regulation. Our cell products will be regulated as biologics. With this classification, commercial production of our products will need to occur in registered facilities in compliance with cGMP for biologics. The FDA categorizes human cell- or tissue-based products as either minimally manipulated or more than minimally manipulated and has determined that more than minimally manipulated products require clinical trials to demonstrate product safety and efficacy and the submission of a Biologics License Application (BLA)BLA to the FDA for marketing authorization. Our products are considered more than minimally manipulated and will require evaluation in clinical trials and the submission and approval of a BLA before we can market them. Generally, before a new drug or biologic can be marketed, considerable data demonstrating our quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

Government authorities in the United States (at the federal, state, and local level) and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of biopharmaceutical products such as those we are developing. Our product candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although there can be important differences. Additionally, some significant aspects of regulation in Europe are addressed in a centralized way but country-specific regulation remains essential in many respects. The process for obtaining regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

United States Product Development Process

In the U.S., the FDA regulates pharmaceutical and biological products under the Federal Food, Drug and Cosmetic Act (the FDCA), the Public Health Service Act (the PHSA), and their implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include, among other actions, refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls or withdrawals from the market, product seizures, total or partial

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suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a biological product may be marketed in the United States generally involves the following:

completion of nonclinical laboratory tests and key animal studies according to good laboratory practices (GLPs), and applicable requirements for the humane use of laboratory animals or other applicable regulations;
submission to the FDA of an IND application, which is subject to a waiting period of thirty (30)30 calendar days, must become effective before human clinical trials may begin;
approval by an independent Institutional Review Board (IRB) or ethics committee for each clinical site before the trial is commenced;
performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical practices (GCPs) and any additional requirements for the protection of human research patients and their health information, to establish the safety and efficacy of the proposed biological product for our intended use;
submission to the FDA of a BLABiologics License Application (BLA) for marketing approval that includes substantial evidence of safety, purity, and potency from results of nonclinical testing and clinical trials;
satisfactory completion of an FDA Advisory Committee review, if applicable;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess compliance with cGMP, to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices (GTPs)(cGTPs) for the use of human cellular and tissue products;
potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA; and

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FDA review and approval, or licensure, of the BLA prior to any commercial marketing or sale of the biologic in the U.S.

Before testing any biological product candidate, including our product candidates, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of the key preclinical tests must comply with federal regulations and requirements including GLPs. An IND application is a request for authorization from the FDA to administer an investigational product to humans and must become effective before human clinical trials may begin. The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even after the IND application is submitted. The IND automatically becomes effective thirty (30)30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and requests additional information and or places the trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a biological product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. Accordingly, we cannot be sure that submission of an IND application will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trials.

Clinical trials involve the administration of the biological product candidate to patients under the supervision of qualified investigators at independent clinical sites/hospitals, physicians not employed by or under the trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements, including the requirement that all research patients provide informed consent. Further, each clinical trial must be reviewed and approved by an independent institutional review board (IRB)IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as

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whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent that must be signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of a BLA. A clinical trial outside the United States may also be conducted under the authorization of similar regulatory authorities of the country/region. The FDA will accept a well-designed and well-conducted foreign clinical study not conducted under an IND if the study was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

Phase 1. The biological product is typically introduced into healthy human subjects and tested for safety. However, in the case of some products for severe or life-threatening diseases, such as cancer or the hematological malignancies that we aspire to treat, initial human testing is routinely conducted directly in ill patients with the approval of relevant ethics committee(s) under the supervision of a licensed physician.
Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk to benefit ratio of the product and provide an adequate basis for product labeling.

Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. In case of an accelerated BLA approval based on limited clinical data, FDA may mandate a Phase 4 clinical trial prior to full approval. During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress

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reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk for human patients, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within fifteen (15)15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven (7)7 calendar days after the sponsor’s initial receipt of the information.

Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk, including risks inferred from other unrelated immunotherapy trials. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated with unexpected serious harm to patients.

Concurrently with clinical trials, companies usually complete additional studies and must also develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product according to the requirements of the phase of clinical development.

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Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.

Further, as a result of the ongoing COVID-19 pandemic, the extent and length of which is uncertain, we will be required to develop and implement additional clinical study policies and procedures designed to help protect study participants from the COVID-19 virus, which may include using telemedicine visits and remote monitoring of patients and clinical sites. We will also need to ensure data from our clinical studies that may be disrupted as a result of the pandemic is collected pursuant to the study protocol and is consistent with GCPs, with any material protocol deviation reviewed and approved by the site IRB. Patients who may miss scheduled appointments, any interruption in study drug supply, or other consequence that may result in incomplete data being generated during a study as a result of the pandemic must be adequately documented and justified. For example, on March 18, 2020, the FDA issued a guidance on conducting clinical trials during the pandemic, which describes a number of considerations for sponsors of clinical trials impacted by the pandemic, including the requirement to include in the clinical study report (or as a separate document) contingency measures implemented to manage the study, and any disruption of the study as a result of COVID-19; a list of all study participants affected by COVID-19-related study disruption by unique subject identifier and by investigational site, and a description of how the individual’s participation was altered; and analyses and corresponding discussions that address the impact of implemented contingency measures (e.g., participant discontinuation from investigational product and/or study, alternative procedures used to collect critical safety and/or efficacy data) on the safety and efficacy results reported for the study. The FDA has continued to update and revise its guidance for ongoing clinical trials throughout the COVID-19 public health emergency.

United States Review and Approval Processes

After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological product. The BLA submission must include results of product safety, efficacy, development, laboratory and animal studies, human trials, information on the manufacture and composition of the product, proposed labeling and other relevant information. The testing and approval processes require substantial time and effort and there can be no assurance or guarantee that the FDA will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.

Under the Prescription Drug User Fee Act (PDUFA), as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for biological products. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

Within 60 or 74 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date to complete its initial review of an original BLA and respond to the applicant, and six months from the filing date of an original BLA

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designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs, and the review process is often extended by FDA requests for additional information or clarification.

Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, potent, and/or effective for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel biological products or biological products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

During the biological product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy (REMS) is necessary to assure the safe use of the biological product. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS. The FDA will not approve a BLA without a REMS, if required. Both Kymriah® and Yescarta® were approved with a REMS.

Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. For cellular immunotherapy products, the FDA also will not approve the product if the manufacturer is not in compliance with current good tissues practices (cGTP),cGTPs, to the extent applicable. These are FDA regulations and guidance documents that in part govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissue, and HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the GTP requirementscGTPs is to ensure that cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through screening and testing. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND trial requirements and GCP requirements. To assure cGMP, GTPcGTPs and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production, and quality control.

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Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.

If a product receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Pediatric Information

In addition, under the Pediatric Research Equity Act, a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. A sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration must submit an initial Pediatric Study Plan (PSP), within sixty (60)60 days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any

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time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or other clinical development programs.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the U.S., or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user fee.

A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Expedited Development and Review Programs

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FDA provides programs intended to facilitate and expedite development and review of new products that are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are referred to as fast track designation, priority review designation, accelerated approval, Regenerative Medicine Advanced Therapy (RMAT) designation, and breakthrough therapy designation. Additionally, under the Food and Drug Omnibus Reform Act of 2022 (FDORA), sponsors of designated platform technologies may receive expedited development and review of any subsequent application for a drug or biologic that uses or incorporates the platform technology.

The fast track program is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.

Any product submitted to the FDA for approval, including a product with a fast track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new product designated for priority review in an effort to facilitate the review. Additionally, a product may be eligible for accelerated approval. Products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical studies.studies and, under FDORA, the FDA is now permitted to require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval for a product granted accelerated approval. Under FDORA, the FDA has increased authority for expedited procedures to withdraw approval of a drug or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, for products being considered for accelerated approval, the FDA generally requires, unless otherwise informed by the agency, that all advertising and promotional materials intended for dissemination or publication within 120 days of marketing approval be submitted to the agency for review during the pre-approval review period, which could adversely impact the timing of the commercial launch of the product.

Regenerative Medicine Advanced Therapy (RMAT),RMAT designation was established by the FDA in 2017 to facilitate an efficient development program for, and expedite review of, any drug that meets the following criteria: (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. RMAT designation provides potential benefits that include more frequent

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meetings with FDA to discuss the development plan for the product candidate and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. Once approved, when appropriate, the FDA can permit fulfillment of post-approval requirements under accelerated approval through the submission of clinical evidence, clinical studies, patient registries, or other sources of real world evidence such as electronic health records; through the collection of larger confirmatory datasets; or through post-approval monitoring of all patients treated with the therapy prior to approval.

Breakthrough therapy designation is also intended to expedite the development and review of products that treat serious or life-threatening conditions. The designation by FDA requires preliminary clinical evidence that a product candidate, alone or in combination with other drugs and biologics, demonstrates substantial improvement over currently available therapy on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Breakthrough therapy designation comes with all of the benefits of fast track designation, which means that the sponsor may file sections of the BLA for review on a rolling basis if certain conditions are satisfied, including an agreement with FDA on the proposed schedule for submission of portions of the application and the payment of applicable user fees before the FDA may initiate a review.

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Fast Tracktrack designation, priority review, RMAT and breakthrough therapy designation do not change the standards for approval but may expedite the development or regulatory approval process for our products.

Additionally, under FDORA, a platform technology incorporated within or utilized by a biological product is eligible for designation as a designated platform technology if (1) the platform technology is incorporated in, or utilized by, a biological product approved under a BLA; (2) preliminary evidence submitted by the sponsor of the licensed biological product, or a sponsor that has been granted a right of reference to data submitted in the application for such biological product, demonstrates that the platform technology has the potential to be incorporated in, or utilized by, more than one biological product without an adverse effect on quality, manufacturing, or safety; and (3) data or information submitted by the applicable person indicates that incorporation or utilization of the platform technology has a reasonable likelihood to bring significant efficiencies to the biological product development or manufacturing process and to the review process. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND for a biological product that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original BLA for a biological product that uses or incorporates the platform technology. Designated platform technology status does not ensure that a biological product will be developed more quickly or receive FDA approval. In addition, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation.

Post-Approval Requirements

Any products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved uses (known as off-label use), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although a physician may prescribe a legally available product for an off-label use, if the physician deems such product to be appropriate in his/her professional medical judgment, a manufacturer may not market or promote off-label uses. However, it is permissible to share in certain circumstances truthful and not misleading information that is consistent with the product’s approved labeling.

Further, additional FDA limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and may also require the implementation of other risk management measures, including a REMS, or the conduct of post-marketing studies to assess a newly discovered safety issue.

In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval to ensure the adequate stability of the product. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also comply with product tracking and tracing requirements and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the United States. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including, among other things, recall or withdrawal of the product from the market. Under FDORA, sponsors of approved drugs and biologics must provide 6 months’ notice to the FDA of any changes in marketing status, such as the withdrawal of a product, and failure to do so could result in the FDA placing the product on a list of discontinued products, which would revoke the product’s ability to be marketed. In addition, changes to the manufacturing process are strictly regulated, and depending on the significance of the change, may require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and claims, are also subject to further FDA review and approval.

We rely, and expect to continue to rely, on third parties to produce clinical and commercial quantities of our products in accordance with cGMP regulations. These manufacturers must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct

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any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved biologics are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws.

The FDA also may require post-marketing testing, known as Phase 4 testing, and surveillance to monitor the effects of an approved product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among

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others. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.

U.S. Marketing Exclusivity

The Biologics Price Competition and Innovation Act of 2009 (BPCIA), amended the PHSA to authorize the FDA to approve similar versions of innovative biologics, commonly known as biosimilars. A competitor seeking approval of a biosimilar must file an application to establish its molecule as highly similar to an approved innovator biologic, among other requirements. BPCIA, however, bars the FDA from approving biosimilar applications for 12 years after an innovator biological product receives initial marketing approval. This 12-year period of data exclusivity may be extended by six months, for a total of 12.5 years, if the FDA requests that the innovator company conduct pediatric clinical investigations of the product.

Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates, some of our United States patents, if granted, may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years, as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The United States Patent and Trademark Office,USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may intend to apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA.

Pediatric exclusivity is another type of regulatory market exclusivity in the United States Pediatric exclusivity that, if granted, adds six months to existing exclusivity periods for all formulations, dosage forms, and patent terms.indications of the biologic. This six-month exclusivity, which runs from the end of other exclusivity protection, or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial.

Other U.S. Healthcare Laws and Compliance Requirements

In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare & Medicaid Services (CMS), other divisions of the United States Department of Health and Human Services (HHS) (e.g., the Office of Inspector General, the United States Department of Justice (DOJ), and individual United States Attorney offices within the DOJ, and state and local governments). For example, our business practices, including any of our research and future sales, marketing and scientific/educational grant programs may be required to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the patient data privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), transparency requirements, and similar state, local and foreign laws, each as amended.

The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item, good, facility or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary managers, and other individuals and entities on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from

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prosecution. The exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of the facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.

Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, collectively, the Affordable Care Act (ACA), to a stricter standard such that a person or entity no longer needsdoes not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation.it. Rather, if “one purpose” of the remuneration is to induce referrals, the federal Anti-Kickback Statute is violated. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the ACA codified case law that

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a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act (discussed below).

The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to, among others, a federal healthcare program that the person knows or should know is for a medical or other item or service that was not provided as claimed or is false or fraudulent.

The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the United States government. For example, pharmaceutical and other healthcare companies have been, and continue to be, investigated or prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product and for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non-reimbursable, uses. Manufacturers can be held liable under the federal False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The federal False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the federal False Claims Act and to share in any monetary recovery.

HIPAA created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Also, many states have similar fraud and abuse statutes or regulations, such as state anti-kickback and false claims laws, which may be broader in scope and apply regardless of payor. These laws are enforced by various state agencies and through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant federal government compliance guidance, require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, and restrict marketing practices or require disclosure of marketing expenditures. In addition, certain state and local laws require the registration of pharmaceutical sales representatives.

We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) and their implementing regulations, impose requirements on certain types of individuals and entities relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates that are independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. State and foreign laws,

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including for example the European Union General Data Protection Regulation also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

We may also be subject to federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs, as well as federal consumer protection and unfair competition laws, which broadly regulate marketplace activities that potentially harm consumers.

Additionally, the federal Physician Payments Sunshine Act within the Affordable Care Act, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) annually report information to CMS related to certain payments or other transfers of value made or distributed to physicians, as defined by such law, certain other licensed health care practitioners and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, physicians and teaching hospitals and certain ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations extend to include transfers of value made to certain non-physician providers (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, and certified nurse midwives).

In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit

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pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including without limitation, civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government programs, such as Medicare and Medicaid, refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage, and establish adequate reimbursement levels for such products. In the U.S., third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, or also known as a formulary, which might not include all of the FDA-approved products for a particular indication. Third-party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. We may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

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Different pricing and reimbursement schemes exist in other countries. In the European Union (EU), governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company profits. Historically, products launched in the EU do not follow price structures of the United States and generally prices tend to be significantly lower. The downward pressure on health care costs has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any product candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Healthcare Reform

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

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For example, the ACA has substantially changed healthcare financing and delivery by both governmental and private insurers. Among the ACA provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:

created an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs that began in 2011;
increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price (AMP);
created a new Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 50% (increase to 70% pursuant to the Bipartisan Budget Act of 2018, effective as of January 1, 2019) point-of-sale discounts, off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D;
extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled inunder the Medicaid managed care organizations;Drug Rebate Program;
expanded eligibility criteria for Medicaid programs, by, among other things, allowing states to offer Medicaid coverage to additional individuals and added new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;
expanded the entities eligible for discounts under the 340B Drug Discount Program;
created a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;
expanded healthcare fraud and abuse laws, including the Anti-Kickback Statute and the Foreign Corrupt Practices Act (FCPA), created new government investigative powers, and enhanced penalties for noncompliance;
created a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected;
required reporting of certain financial arrangements with physicians and teaching hospitals;
required annual reporting of certain information regarding drug samples that manufacturers and distributors provide to physicians;

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established a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending; and
created a licensure framework for follow on biologic products.

There remain legal and political challenges to certain aspects of the ACA. On June 17, 2021, the Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court's decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create barriers to unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or replace the ACA will impact our business. In addition, other legislative and regulatory changes have been proposed and adopted in the United States since the ACA was enacted.

Further legislation or regulation could be passed that could harm our business, financial condition and results of operations. Other legislative changes have been proposed and adopted since the ACA was enacted:

On August 2, 2011, President Obama signed into law theThe Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals inmeasures for spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs.reductions by Congress. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 20302031 unless additional

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Congressional action is taken. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, as well as subsequentSubsequent legislation these reductions have been suspended from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic. Following the temporary suspension, a 1% payment reduction will occur beginning April 1, 2022 through June 30, 2022, andextended the 2% payment reduction which remains in effect through 2030. Due to the Statutory Pay-As-You-Go Act of 2010, estimated budget deficit increases resulting from the American Rescue Plan Act of 2021, and subsequent legislation, Medicare payments to providers will resume on July 1, 2022.be further reduced starting in 2025 absent further legislation;
On January 2, 2013, theThe U.S. American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers.providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years;
On April 13, 2017, CMS published a final rule that gives states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.marketplaces;
On May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.Act; and
On May 23, 2019, CMS published a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020.
On December 20, 2019, former President Trump signed into law the Further Consolidated Appropriations Act (H.R. 1865), which repealed the Cadillac tax, the health insurance provider tax, and the medical device excise tax. It is impossible to determine whether similar taxes could be instated in the future.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent United States Congressional inquiries and federal and state legislative activity designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.

At the federal level, President Biden signed an Executive Order on July 9, 2021 affirming the administration’s policyhas issued multiple executive orders that have sought to (i) support legislative reforms that would lower the prices ofreduce prescription drug and biologics, including by allowingcosts. In February 2023, HHS also issued a proposal in response to an October 2022 executive order from President Biden that includes a proposed prescription drug pricing model that will test whether targeted Medicare payment adjustments will sufficiently incentivize manufacturers to negotiate drug prices, by imposing inflation caps, and, by supporting the development and market entry of lower-cost generic drugs and biosimilars; and (ii) support the enactment of a public health insurance option. Among other things, the Executive Order also directs HHS to provide a report on actions to combat excessive pricing of prescription drugs, enhance the domestic drug supply chain, reduce the price that the Federal government payscomplete confirmatory trials for drugs and address price gouging in the industry; and directs the FDA to work with states and Indian Tribes that propose to develop section 804 Importation Programs in accordance with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and theapproved through FDA’s implementing regulations. FDA released such implementing regulations on September 24, 2020, which went into effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. On September 25, 2020, CMS stated drugs imported by states under this rule will not be eligible for federal rebates under Section 1927 of the Social Security Act and manufacturers would not report these drugs for “best price” or Average Manufacturer Price purposes. Since these drugs are not considered covered outpatient drugs, CMS further stated it will not publish a National Average Drug Acquisition Cost for these drugs. If implemented, importation of drugs from Canada may materially and adversely affect the price we receive for any of our product candidates. Further, on November 20, 2020 CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates would have been be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. However, on December 29, 2021 CMS rescinded the Most Favored Nations rule. Additionally, on November 30, 2020, HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Pursuant to court order, the removal and addition of the aforementioned safe harbors were delayed and recent legislation imposed a moratorium on implementation of the rule until January 1, 2026.accelerated approval pathway. Although a number of these and other proposed measures may require authorization through additional legislation to become effective, and the Biden administration may reverse or otherwise change these measures, both the Biden administration and Congress have indicated that they will continue to seek new legislative measures to control drug costs.

The Inflation Reduction Act of 2022, or IRA includes several provisions that may impact our business to varying degrees, including provisions that reduce the out-of-pocket cap for Medicare Part D beneficiaries to $2,000 starting in 2025; impose new manufacturer financial liability on certain drugs under Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D price caps for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for certain drug prices that increase faster than inflation, and delay the rebate rule that would limit the fees that pharmacy benefit managers can charge. Further, under the IRA, orphan drugs are exempted from the Medicare drug price negotiation program, but only if they have one orphan designation and for which the only approved indication is for that disease or condition. If a product receives multiple orphan designations or has multiple approved indications, it may not qualify for the orphan drug exemption. The implementation of the IRA is currently subject to ongoing litigation challenging the constitutionality of the IRA’s Medicare drug price negotiation program. The effects of the IRA on our business and the healthcare industry in general is not yet known.

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Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Individual states in the United States have also been increasingly passing legislation

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and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We anticipate that these and other healthcare reform efforts will continue to result in additional downward pressure on coverage and the price that we receive for any approved product, and could materially harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

The Foreign Corrupt Practices Act

The FCPA prohibits any United States individual or business from offering, paying, promising to pay, or authorizing payment of money or anything of value, to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to any foreign official, political party or candidate to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist the individual or business in obtaining or retaining business.

The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls. Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are owned and operated by the government, and doctors and other hospital employees are considered foreign officials for the purposes of the statute. Certain payments made in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. Various laws, regulations and executive orders also restrict the use and dissemination outside of the U.S.,United States, or the sharing with certain non-United States nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products.

Accordingly, if we expand our presence outside of the U.S.,United States, we will need to dedicate additional resources to complying with the laws and regulations in each jurisdiction in which it plans to operate. Therefore, this may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the U.S.,United States, which could limit our growth potential and increase our development costs.

Packaging and Distribution in the United States

If our products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the United States Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws.

The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products. The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, exclusion from federal healthcare programs, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.

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Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

Additional Regulation

In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act,

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affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations.

Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. We maintain workers’ compensation insurance to cover costs and expenses it may incur due to injuries to our employees, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against it. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.

Europe / Rest of World Government Regulation

In addition to regulations in the U.S., we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval of a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In the EU, for example, a clinical trial application must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the clinical trial application is approved in accordance with a country’s requirements, clinical trial development may proceed. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

In April 2014, the EU adopted the new Clinical Trials Regulation (EU) No 536/2014 or Regulation,(Regulation), which replaced the Clinical Trials Directive 2001/20/EC or Directive,(Directive), on January 31, 2022. The new Regulation overhauls the current system of approvals for clinical trials in the EU. Specifically, the new Regulation, which is directly applicable in all EU member states (meaning that no national implementing legislation in each EU member state is required), aims at simplifying and streamlining the approval of clinical trials in the EU. The main characteristics of the regulation include: a streamlined application procedure via a single-entry point through the Clinical Trials Information System or CTIS;(CTIS); a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials.

To obtain regulatory approval of a medicinal product under EU regulatory systems, we must submit an MAA. The centralized procedure provides for the grant of a single marketing authorization by the European Commission (EC) that is valid across all of the EU, and in the additional member states of the European Economic Area (Iceland, Liechtenstein and Norway). The scientific evaluation of MAAs for Advanced Therapy Medicinal Product or ATMPS(ATMPS) (which comprise gene therapy, somatic cell therapy and tissue engineered medicines) is primarily performed by a specialized scientific committee called the Committee for Advanced

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Therapies or CAT.(CAT). The CAT prepares a draft opinion on the quality, safety and efficacy of the ATMP which is the subject of the MAA, which is sent for final approval to the Committee for Medicinal Products for Human Use or CHMP.(CHMP). The CHMP recommendation is then sent to the European Commission,EC, which adopts a decision binding in all EU Member States. The maximum timeframe for the evaluation of an MAA for an ATMP is 210 days from receipt of a valid MAA, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions asked by the CAT and/or CHMP. Clock stops may extend the timeframe of evaluation of an MAA considerably beyond 210 days. Where the CHMP gives a positive opinion, the EMA provides the opinion together with supporting documentation to the European Commission,EC, who make the final decision to grant a marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is of major public health interest, particularly from the viewpoint of therapeutic innovation. If the CHMP accepts such a request, the timeframe of 210 days for assessment will be reduced to 150 days (excluding clock stops), but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that the application is no longer appropriate to conduct an accelerated assessment.

Products with an orphan designation in the EU can receive ten years of market exclusivity, during which time “no similar medicinal product” for the same indication may be placed on the market. A “similar medicinal product” is defined as a medicinal

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product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. An orphan product can also obtain an additional two years of market exclusivity in the EU where an agreed pediatric investigation plan for pediatric studies has been complied with. The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. Under Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as an orphan medicinal product if it meets the following criteria: (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; and (2) either (i) the prevalence of such condition must not be more than five in 10,000 persons in the EU when the application is made, or (ii) without the benefits derived from orphan status, it must be unlikely that the marketing of the medicine would generate sufficient return in the EU to justify the investment needed for its development; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Otherwise, orphan medicine marketing exclusivity may be revoked only in very select cases, such as if: (i) a second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior; (ii) the marketing authorization holder of the authorized orphan product consents to a second orphan medicinal product application; or (iii) the marketing authorization holder of the authorized orphan product cannot supply enough orphan medicinal product.

For other countries outside of the EU, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we or our potential collaborators fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

European Union General Data Protection Regulation

In addition to EU regulations related to the approval and commercialization of our products, we may be subject to the EU’s General Data Protection Regulation (GDPR). The GDPR imposes stringent requirements for controllers and processors of personal data of persons in the EU, including, for example, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelinesensuring a legal basis or condition applies to the processing of personal data, rules relating to for data breach notifications, limitations on retention of information, increased requirements pertaining to special categories of data, such as health data, and additional obligations when we contracts with third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European UnionEU to the United States and other

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third countries. In addition, the GDPR provides that EU member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data.

The GDPR applies extraterritorially, and we may be subject to the GDPR because of our data processing activities that involve the personal data of individuals located in the European Union,EU, such as in connection with our EU clinical trials. Failure to comply with the requirements of the GDPR and the applicable national data protection laws of the EU member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. GDPR regulations may impose additional responsibility and liability in relation to the personal data that we process and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules.

In addition, further tofollowing the U.K.’sUnited Kingdom’s (UK) exit from the EU, on January 31, 2020, the GDPR ceased to apply in the U.K. at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the U.K.’sUK’s European Union (Withdrawal) Act 2018 incorporated the U.K.UK GDPR into U.K.UK law. The U.K.UK GDPR and the U.K.UK Data Protection Act 2018 set out the U.K.’sUK’s data protection regime, which is independent from but aligned to the EU’s data protection regime. Non-compliance with the U.K.UK GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. Although the UK is regarded as a third country under the EU’s GDPR, the European Commission (“EC”)EC has now issued a decision recognizing the UK as providing adequate protection under the EU GDPR and, therefore, transfers of personal data originating in the EU to the UK remain unrestricted. Like the EU GDPR, the UK GDPR restricts personal data transfers outside the UK to countries not regarded by the UK as providing adequate protection. The UK government has confirmed that personal data transfers from the UK to the EEAEuropean Economic Area (EEA) remain free flowing.

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To enable the transfer of personal data outside of the EEA or the UK, adequate safeguards must be implemented in compliance with European and UK data protection laws. On June 4, 2021, the EC issued new forms of standard contractual clauses for data transfers from controllers or processors in the EU/EEA (or otherwise subject to the GDPR) to controllers or processors established outside the EU/EEA (and not subject to the GDPR). The new standard contractual clauses replace the standard contractual clauses that were adopted previously under the EU Data Protection Directive. The UK is not subject to the EC’s new standard contractual clauses but has published a draft version of a UK-specific transfer mechanism, which once finalized, will enable transfers from the UK.UK (the International Data Transfer Addendum). We will be required to implement these new safeguards when conducting restricted data transfers under the EU and UK GDPR and doing so will require significant effort and cost.

Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations.

U.S. Data Privacy Law

California recently enacted legislation, effective January 1, 2020, that has been dubbed the first “GDPR-like” law in the United States. Known as theThe California Consumer Privacy Act (CCPA), it creates newwhich went into effect on January 1, 2020, created comprehensive individual privacy rights for consumers (as that word is broadly defined in the law) and placesplaced increased privacy and security obligations on entities handling the personal data of consumers or households. The CCPA requiresrequired covered companies to provide new disclosures to California consumers, providesprovided such consumers new ways to opt-out of certain sales of personal information, and allowsallowed for a new private cause of action for data breaches. The CCPA was amended by the California Privacy Rights Act (CPRA) which became effective on January 1, 2023 and imposed additional obligations on companies covered by the legislation. The CPRA significantly modified the CCPA and created a state agency that is vested with authority to implement and enforce the CCPA. As our business progresses, the CCPA may impact (possibly significantly) our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to personal data and protected health information.

Some observersSimilar laws have noted thatbeen passed and proposed in numerous other states. These laws are substantially similar in scope and contain many of the same requirements and exceptions as the CCPA, could mark the beginning ofincluding a trend toward more stringent privacy legislation in the United States, which could increase our potential liabilitygeneral exemption for clinical trial data and adversely affect our business.

Further, a new California privacy law, the California Privacy Rights Act, or CPRA, was passedlimited obligations for entities regulated by California voters on November 3, 2020. The CPRA will create additional obligations with respect to processing and storing personal informationHIPAA. There are also states that are scheduled to take effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). Additionally, some observers have noted that the CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business. Already, in the United States, we have witnessed significant developments at the state level.specifically regulating health information. For example, on March 2, 2021, Virginia enacted the Consumer Data Protection Act (the “CDPA”) and, on July 8, 2021, Colorado’s governor signed the Colorado Privacy Act (“CPA”), into law. The CDPA and the CPA will both become effective January 1, 2023. While the CDPA and CPA incorporate many similar concepts of the CCPA and CPRA, there are also several key differences in the scope, application, and enforcement of theWashington state recently passed a health privacy law that will changeregulate the operational practicescollection and sharing of regulated businesses. The new laws will, among other things, impact how regulated businesses collecthealth information, and process personal sensitive data, conduct data protection assessments, transfer personal data to affiliates, and respond to consumer rights requests.the law also has a private right of action, which further increases the relevant compliance risk.

A number of other states haveSuch enacted and proposed new privacy laws, some of which are similar to the above discussed recently passed laws. Such proposed legislation if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. The existence of comprehensive privacy laws in different states in the country would make our compliance obligations more complex and costly and may increase the likelihood that we may be subject to enforcement actions or otherwise incur liability for noncompliance.

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Human Capital

As of December 31, 2021,2023, we had 86143 full-time employees and 16 consultants. Of our full-time employees, 24 hold a Ph.D. and 4 hold a M.D.employees. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

We have built a strong culture by collaboratively creating company values, a Mission and Vision. We seek input from employees on our culture through regular employee engagement surveys. We offer attractive benefits, including competitive salaries, excellent health insurance, and a 401K match. We are committed to pay equity, regardless of gender, race/ethnicity, or sexual orientation and conduct comprehensive pay equity analyses on a semi-annual basis. During the pay equity reviews we assess and ensure equality in pay for various groups to ensure fairness. In addition to providing strong benefits packages to employees, we believe in fostering individual and organizational effectiveness by offering our employees various professional development opportunities. We believe that investing in our employees’ career growth provides individuals and the organization with the knowledge and skills to respond effectively to current and future business demands and support to the organization’s development efforts. Our culture is one that actively supports the application of new knowledge and skills on the job. In 2022,addition, we recognize several cultural holidays during the year in support of our diverse workforce. In 2024, we plan to continue add to our human capital resources as we grow. We are also monitoring the current landscape of wage inflation and labor shortages in connection with our employees' overall compensation.

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Corporate Information

Prior to September 15, 2020, we were a clinical-stage biopharmaceutical company known as resTORbio, Inc. that had historically focused on developing innovative medicines that target the biology of aging, to prevent or treat age-related diseases with the potential to extend healthy lifespan. resTORbio was originally incorporated under the laws of the State of Delaware in July 2016 and commenced research and development operations in March 2017.

On September 15, 2020, we completed our business combination whereby a wholly owned subsidiary of resTORbio, Inc. merged with and into Adicet Bio, Inc., with Adicet Bio, Inc. surviving as a wholly-owned subsidiary of resTORbio and changing our name to Adicet Therapeutics, Inc. In connection with the completion of the Merger, resTORbio was renamed Adicet Bio, Inc. (Adicet Bio).

Immediately prior to the Effective Time of the Merger, resTORbio effected a reverse stock split of our common stock at a ratio of 1-for-7. At the Effective Time of the Merger, each outstanding share of former our capital stock was converted into the right to receive 0.1240 shares of resTORbio common stock.

Our website is located at www.adicetbio.com. Our common stock trades on the Nasdaq Global Market under the symbol “ACET.”

We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This Annual Report on Form 10-K may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Annual Report on Form 10-K is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report on Form 10-K may appear without the ®, ™ or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names.
 

Available Information

Our Internet address is www.adicetbio.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are available through the “Investors” portion of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Information on our website is not part of this Annual Report on Form 10-K or any of our other securities filings unless specifically incorporated herein by reference. In addition, our filings with the SEC may be accessed through the SEC’s Interactive Data Electronic Applications system at www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

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Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. In evaluating the Company and our business, you should carefully consider the following risks and uncertainties, together with all other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Financial Condition,” as well as our other filings with the Securities and Exchange Commission (SEC),SEC, before investing in our common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our common stock could decline if one or more of these risks or uncertainties actually occur, causing you to lose all or part of your investment in our common stock. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties that we currently do not know about or that we currently believe to be immaterial may also impair our business. Certain statements below are forward-looking statements. See “Special Note Regarding Forward-Looking Statements and Industry Data” section in this Annual Report on Form 10-K.

Risks Related to Our Business and Industry

Risks Related to Operating History

We have a limited operating history and face significant challenges and expenseexpenses as we build our capabilities.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We began operationoperations in November 2014. We have a limited operating history upon which someone can evaluate our business and prospects and is subject to the risks inherent in any early stage company, including, among other things, risks that we may not be able to hire sufficient qualified personnel and establish operating controls and procedures. We currently do not have complete in-house resources to enable our gamma delta T cell platform. As we build our own capabilities, we expect to encounter risks and uncertainties frequently experienced by growing companies in new and rapidly evolving fields, including the risks and uncertainties described herein. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products.

We have incurred net losses in every period since our inception and anticipate that we will incur substantial net losses in the future.

We are an early clinical stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we will continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred net losses in each period since our inception. To date, we have financed our operations primarily with proceeds from our license and collaboration agreements and the issuance and sale of our capital stock, including a follow-on public offering in December 2021 which raisedmost recently: (i) net proceeds of approximately $94.2$19.3 million, after deducting sales agent commissions, but before deducting any expenses related to such sales, from sales of our common stock under our “at-the-market” program in January 2024 and (ii) net proceeds of approximately $91.8 million, after deducting the underwriting discount and commissions and other estimated offering expenses, from the sale of our common stock.stock and pre-funded warrants in an underwritten public offering in January 2024. For the yearsyear ended December 31, 2021 and 2020,2023, we reportedrecorded net lossesloss of $62.0 million and $36.7 million, respectively.$142.7 million. As of December 31, 2021,2023, we had an accumulated deficit of $168.3$380.8 million.

We expect to incur significant expenditures for the foreseeable future, and we expect these expenditures to increase as we continue our research and development of, and seek regulatory approvals for, product candidates based on our gamma delta T cell platform, including ADI-001.ADI-001 and ADI-270. Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Further, even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product candidates or even continue our operations, any of which could have a material adverse effect on our

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business, financial condition, results of operations, and prospects and cause investors to lose all or part of their investments.

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Our history of recurring losses and anticipated expenditures could raise substantial doubts about our ability to continue as a going concern.

In our financial statements for the period ending to December 31, 2020, we concluded that our recurring losses from operations and need for additional financing to fund future operations raised substantial doubt about our ability to continue as a going concern. Similarly, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements for the period ended December 31, 2020 with respect to this uncertainty. As of December 31, 2021,the date of this Annual Report on Form 10-K, we believe that with our existing$159.7 million in cash and cash equivalents as of December 31, 2023, as well as the proceeds raised subsequent to year end through our ATM program and underwritten public offering, we are able to fund our expenses and capital expenditure requirements beyond twelve months from the issuance of these financial statements andcapitalized into the second half of 2024.2026. Our ability to continue as a going concern beyond this point will require us to obtain additional funding. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected, and we may be unable to continue as a going concern. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, limit, reduce or terminate our product development or future commercialization efforts of one or more of our product candidates, or may be forced to reduce or terminate our operations. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will lose all or a part of their investment. In our own future required quarterly assessments, we may again conclude that there is substantial doubt about our ability to continue as a going concern, and future reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there exists substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, if at all.

Risks Related to Our Product Candidates

Our business is highly dependent on the success of ADI-001. If we are unable to obtain regulatory approval for ADI-001 in one or more indications and effectively commercialize ADI-001 for the treatment of patients in our approved indications for which we receive approval (if any), our business would be significantly harmed.

Our business and future success depends on our ability to obtain regulatory approval of, and then successfully commercialize, our most advanced product candidate, ADI-001. ADI-001 is in the early stages of development with an ongoing Phase 1 study to assess the safety and efficacy of ADI-001 in Non-Hodgkin's Lymphomapatients with relapsed or refractory aggressive non-Hodgkin’s lymphoma (NHL) patients that commenced in March 2021.2021, and we plan to initiate a Phase 1 study of ADI-001 in lupus nephritis (LN) in the second quarter of 2024.

Our preclinical results or clinical results to date may not predict results for our planned or ongoing trials or any future studies of ADI-001 or any other allogeneic gamma delta T cell product candidate. Because of the lack of evaluation of allogeneic products and gamma delta T cell therapy products in the clinic to date, any such product’s failure, or the failure of other allogeneic T cell therapies or gamma delta T cell therapies, may significantly influence physicians’ and regulators’ opinions in regards to the viability of our entire pipeline of allogeneic T cell therapies, which could have a material adverse effect on our reputation. If our gamma delta T cell therapy is viewed as less safe or effective than autologous therapies or other allogeneic T cell therapies, our ability to develop other allogeneic gamma delta T cell therapies may be significantly harmed.

All of our product candidates, including ADI-001, , will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. In addition, because ADI-001 is our most advanced product candidate, and because our other product candidates are based on similar technology, if ADI-001 encounters safety or efficacy problems, manufacturing problems, developmental delays, regulatory issues or other problems, our development plans and business would be significantly harmed, which could have a material adverse effect on our business, reputation and prospects.

Our gamma delta T cell candidates represent a novel approach to the treatment of autoimmune diseases and cancer treatmentindications that creates significant challenges for us.

We are developing a pipeline of gamma delta T cell product candidates and a novel antibody platform that are intended for use in patientpatients with certain autoimmune diseases and cancers. Advancing these novel product candidates creates significant challenges for us, including:

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negative or inconclusive results from our clinical trials, preclinical studies or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional clinical trials or preclinical studies or abandon a program;
delays in enrolling or inability to enroll subjects in our clinical trials;
manufacturing our product candidates to our specifications and in a timely manner to support our current and future clinical trials, and, if approved, commercialization;
sourcing current and future clinical and, if approved, commercial supplies for the raw materials used to manufacture our product candidates;
understanding and addressing variability in the quality of a donor’s T cells, which could ultimately affect our ability to produce product in a reliable and consistent manner;
inability to achieve efficacy in autoimmune disease and cancer patients following treatment with our product candidates;

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achieving a side effect profile including graft-versus-host disease (GvHD), from our product candidates in autoimmune diseases and cancer indications that makes them clinically and commercially attractive for further development;
educating medical personnel regarding the potential side effect profile of our product candidates, if approved;
using medicines to manage adverse side effects of our product candidates which may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment;
conditioning patients with chemotherapy or other lymphodepletion agents in advance of administering our product candidates, which may increase the risk of adverse side effects;
obtaining regulatory approval, as the U.S. Food and Drug Administration (FDA)FDA and other regulatory authorities have limited experience with development of allogeneic T cell therapies for autoimmune diseases and cancer; and
establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of a novel therapy.

The success of our business, including our ability to obtain financing and generate any revenue in the future, will primarily depend on the successful development, manufacturing, positive efficacy and safety profile and durability of our product candidates in our clinical trials, regulatory approval, successful development and commercialization of our novel product candidates, and our ability to build out our manufacturing capabilities, which may never occur. We have not yet succeeded and may not succeed in demonstrating efficacy and safety or durability for any of our product candidates in clinical trials or in obtaining marketing approval thereafter. Given our early stage of development, it may be several years, if at all, before we have demonstrated the safety and efficacy of a product candidate sufficient to warrant approval for commercialization. If we are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize our product candidates, we may not be able to generate sufficient revenue to continue our business, which could have a material adverse effect on our results of operations and prospects.

Our product candidates are based on novel technologies, which makes it difficult to predict the likely success of such product candidates and the time and cost of product candidate development and obtaining regulatory approval.

We have concentrated our research and development efforts on our allogeneic gamma delta T cell therapy and our future success depends on the successful development of this therapeutic approach. We are in the early stages of developing our platform and product candidates and there can be no assurance that any development problems we have experienced or may experience in the future will not cause significant delays or result in unforeseen issues or unanticipated costs, or that any such development problems or issues can be overcome. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent us from completing our future clinical studies or commercializing our products on a timely or profitable basis, if at all. In addition, our expectations with regard to the advantages of an allogenicallogeneic gamma delta T cell therapy platform relative to other therapies may not materialize or materialize to the

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degree we anticipate. Further, our scalability and costs of manufacturing may vary significantly as we develop our product candidates and understand these critical factors.

In addition, the clinical study requirements of the FDA, the European Medicines Agency (EMA) and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate are determined according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more complex and consequently more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. Approvals by the EMA and FDA for existing autologous CAR-TCAR T cell therapies, such as Kymriah® and Yescarta®, as well as other pathways to approval, may not be indicative of what these regulators may require for approval of our therapies. Also, while we expect reduced variability in our productsproduct candidates compared to autologous products, we do not have significant clinical data supporting any benefit of lower variability. More generally, approvals by any regulatory agency may not be indicative of what any other regulatory agency may require for approval or what such regulatory agencies may require for approval in connection with new product candidates.

Our product candidates may also not perform successfully in clinical trials or may be associated with adverse events that distinguish them from the autologous CAR-TCAR T-cell therapies that have previously been approved or alpha beta T cell therapies that may be approved in the future. Unexpected clinical outcomes could materially and adversely affect our business, results of operations and prospects.

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Our product candidates may cause undesirable side effects or have other properties that could halt our clinical development, prevent our regulatory approval, limit our commercial potential or result in significant negative consequences.

Undesirable or unacceptable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA or other comparable foreign regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Approved autologous CAR-TCAR T-cell therapies and those under development have shown frequent rates of cytokine release syndrome and neurotoxicity, and adverse events have resulted in the death of patients. Additionally, in November 2023, the FDA announced an investigation into reports of T-cell malignancies in patients who had received BCMA-directed or CD19-directed autologous CAR T cell immunotherapies. In January 2024, the FDA determined that new boxed warning language related to T-cell malignancies should be included in the labeling for all BCMA- and CD19-directed genetically modified autologous T cell immunotherapies. While we believe our gamma delta T cell approach may lessen such results, similar or other adverse events for our allogeneic gamma delta T cell product candidates may occur.occur and could result in increased government regulation, unfavorable public perception and publicity, potential impacts on enrollment in our clinical trials, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates . In addition, while we anticipate our focus on gamma delta T cells may lessen the likelihood of GvHD relative to therapies relying on unrelated alpha beta T cells, similar or other adverse events for our allogeneic gamma delta T cell product candidates may occur.

If unacceptable toxicities arise in the development of our product candidates, we could suspend or terminate our trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. TheA data safety monitoring board may also suspend or terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk, including risks inferred from other unrelated immunotherapy trials. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Novel therapeutic candidates, such as those we are developing, may result in novel side effect profiles that may not be appropriately recognized or managed by the treating medical staff. We anticipate having to train medical personnel using our product candidates to understand the side effect profile of our product candidates for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in serious adverse events including patient deaths. Based on available preclinical data and on management’s clinical experience with other cell therapy agents, the safety profile of our pipeline product candidates is expected to include cytokine release syndrome, neurotoxicity, and possibly additional adverse events. Any of these occurrences may have a material adverse effect our business, financial condition and prospects.

In addition to side effects and adverse events caused by any product candidates we may develop, the conditioning, administration process or related procedures that may be used with our product candidates may also cause adverse side effects. A T cell therapy patient is generally administered cytotoxic drugs to remove stem cells from the bone

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marrow to create sufficient space in the bone marrow for the modified stem cells to engraft and produce new cells. This procedure causes side effects and, among other potential risks, can transiently compromise the patient’s immune system, known as neutropenia, and reduce blood clotting, known as thrombocytopenia. If we are unable to demonstrate that such adverse events were caused by the conditioning regimens used, administration process or related procedure, the FDA, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, any product candidates we may develop for any or all target indications. Even if we are able to demonstrate that adverse events are not related to our product candidate, such occurrences could affect patient recruitment, the ability of enrolled patients to complete the clinical trial or the commercial viability of any product candidates that obtain regulatory approval.

Risks Related to Clinical Trials

Our clinical trials may fail to demonstrate the safety and efficacy of any of our product candidates, which would prevent or delay regulatory approval and commercialization.

Before obtaining regulatory approvals for the commercial sale of our product candidates, including ADI-001 and ADI-002, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials.

There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy, insufficient durability of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products.

In addition, for the ongoing Phase 1 study of ADI-001 and ADI-002 and any future trials that may be completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. Any of the foregoing could have a material adverse effect on our business, prospects and financial condition.

We may not be able to file investigational new drugInvestigational New Drug (IND) applications to commence additional clinical trials on the timelines we expect, and even if we are able to, the FDA may not permit us to proceed.

In October 2020, the IND for our lead product candidate, ADI-001, to treat patients with NHL was cleared by the FDA.FDA for a clinical trial in patients with NHL. In December 2023, the FDA cleared our IND for a clinical trial of ADI-001 in LN patients. Our pipeline also includes ADI-270, an armored gamma delta CAR T cell product candidate targeting CD70+ cancers. We have several additional internal gamma delta T cell therapy programs in preclinical development. We previously announced our plan to file one new IND every 12-18 months, including an IND for ADI-270 in the first half of 2024. We may not be able to make these filings on the timelines we expect, which may cause delays in commencing additional clinical trials. Even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND application or clinical trial application, we cannot guarantee that such regulatory authorities will not change their requirements in the future. Moreover, we cannot be sure that submission of an IND application for any of our other product candidates will result in the FDA allowing trials to begin, or that, once begun, issues will not arise that result in a decision by us, by independent Institutional Review Boardsinstitutional review boards (IRBs) or independent ethics committees, or by the FDA, the EMA or other regulatory authorities to suspend or terminate clinical trials. For

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example, we may experience manufacturing delays or other delays with IND-enabling studies or the FDA, the EMA or other regulatory authorities may require additional preclinical studies that we did not anticipate. Moreover, we cannot be assured that submission of an IND application will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that result in a decision by us, by IRBs, or independent ethics committees or by the FDA, the EMA or other regulatory authorities to suspend or terminate clinical trials, including as a result of a clinical hold. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND application or clinical trial application, we cannot guarantee that such regulatory authorities will not change their requirements in the future. The inability to initiate clinical trials

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any of our product candidates on the timeline currently anticipated or at all could have a material adverse effect on our business, results of operations and prospects.

We may encounter substantial delays in our clinical trials, or may not be able to conduct our trials on the timelines we expect.

Clinical testing is expensive, time consuming and subject to uncertainty. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. Even if these trials begin as planned, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include:

inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of clinical studies;
delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for advanced clinical trials;
delays in developing suitable assays for screening patients for eligibility for trials with respect to certain product candidates;
delays in reaching a consensus with regulatory agencies on study design;
delays in reaching an agreement on acceptable terms with prospective contract research organizations (CROs) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;
delays in obtaining required IRB approval at each clinical study site;
imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND application or amendment, or equivalent application or amendment; as a result of a safety finding that presents unreasonable risk to clinical trial participants; a negative finding from an inspection of our clinical study operations or study sites; developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of the technology broadly; or if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;
delays in recruiting suitable patients to participate in our clinical studies;
difficulty collaborating with patient groups and investigators;
failure by our CROs or other third parties or it to adhere to clinical study requirements;
failure to perform in accordance with the FDA’s Good Clinical Practice (GCP)Practices (GCPs) requirements or applicable regulatory guidelines in other countries;
transfer ofchallenges in transferring manufacturing processes to any new contract development and manufacturing organization (CMO)organizations (CDMOs) or our own manufacturing facilities or any other development or commercialization partner for the manufacture of product candidates;
delays in having patients’ complete participation in a study or return for post-treatment follow-up;
patients dropping out of a study;
occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

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changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;
the cost of clinical studies of our product candidates being greater than we anticipate;
clinical studies of our product candidates producing negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional clinical studies or abandon product development programs;
delays or failure to secure supply agreements with suitable raw material suppliers, or any failures by suppliers to meet our quantity or quality requirements for necessary raw materials;
political conditions or conflicts in regions where we conduct or may seek to conduct our clinical trials; and
manufacturing challenges, including delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing.

Our timing of filing on theseINDs for our product candidates is dependent on further preclinical and manufacturing success, which we work on with various third parties. We cannot be sure that we will be able to submit our INDs in a timely manner, if at all, or that submission of an IND application or IND amendment will result in the FDA allowing testing and clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or clinical trial application, we cannot guarantee that such regulatory authorities will not change their requirements in the future.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical study delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

Monitoring safety of patients receiving our product candidates is challenging, which could adversely affect our ability to obtain regulatory approval and commercialize.

In our current and planned clinical trials of our product candidates, we have contracted with and expect to continue to contract with academic medical centers and hospitals experienced in the assessment and management of toxicities arising during clinical trials. Nonetheless, these centers and hospitals may have difficulty observing patients and treating toxicities, which may be more challenging due to personnel changes, inexperience, shift changes, house staff coverage or related issues. This could lead to more severe or prolonged toxicities or even patient deaths, which could result in us or the FDA delaying, suspending or terminating one or more of our clinical trials, and which could jeopardize regulatory approval. Medicines used at centers to help manage adverse side effects of ADI-001 and ADI-002 may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment. Use of these medicines may increase with new physicians and centers administering our product candidates, any of which could have a material adverse effect on our ability to obtain regulatory approval and commercialize on the timelines anticipated or at all, which could have a material adverse effect on our business and results of operations.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including, without limitation, the impact of the ongoing COVID-19 pandemic.reasons. The timely completion of clinical trials in accordance with the protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until the conclusion. The enrollment of patients depends on many factors, including:

the patient eligibility criteria defined in the protocol;
the size of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to study sites;

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the design of the trial;
Ourour ability to recruit clinical trial investigators with the appropriate competencies and experience;
Ourour ability to obtain and maintain patient consents; and

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the risk that patients enrolled in clinical trials will drop out of the trials before the infusion of our product candidates or trial completion.

We intend to conduct a number of clinical trials for product candidates in the fields of cancer in different geographies, all of which have been affected to varying extents by the ongoing COVID-19 pandemic. We believe that the coronavirus pandemic will have an impact on various aspects of our future clinical trials. For example, investigators may not want to take the risk of exposing cancer patients to COVID-19 since the dosing of patients is conducted within an in-patient setting. Other potential impacts of the COVID-19 pandemic on our future various clinical trials include patient dosing and study monitoring, which may be paused or delayed due to changes in policies at various clinical sites, federal, state, local or foreign laws, rules and regulations, including quarantines or other travel restrictions, prioritization of healthcare resources toward pandemic efforts, including diminished attention of physicians serving as our clinical trial investigators and reduced availability of site staff supporting the conduct of our clinical trials, interruption or delays in the operations of the government regulators, or other reasons related to the COVID-19 pandemic. It is unknown how long these pauses or disruptions could continue.

In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, some of our clinical trial sites are also being used by some of our competitors, which may reduce the number of patients who are available for our clinical trials in that clinical trial site.

Moreover, because our product candidates represent unproven methods for the treatment of autoimmune diseases and cancer, treatment, potential patients and their doctors may be inclined to use conventional therapies such asrather than enroll in our clinical trial. For cancer, they may use chemotherapy and hematopoietic cell transplantation or autologous CAR-TCAR T cell therapies, rather than enroll patients in our clinical trial.therapies. Patients eligible for allogeneic CAR-TCAR T cell therapies but ineligible for autologous CAR-TCAR T cell therapies due to aggressive cancer and inability to wait for autologous CAR-TCAR T cell therapies may be at greater risk for complications and death from therapy. For autoimmune diseases, potential patients may use therapies that focus on symptomatic relief.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing clinical trial and planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

Clinical trials are expensive, time-consuming and difficult to design and implement.

Human clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because our gamma delta T cell product candidates are based on new technologies and will require the creation of inventory of mass-produced, off-the-shelf“off-the-shelf” products, we expect that we will require extensive research and development and have substantial manufacturing and processing costs. In addition, costs to treat patients with NHLautoimmune diseases and cancer and to treat potential side effects that may result from our product candidates can be significant. Accordingly, our clinical trial costs are likely to be significantly higher than for more conventional therapeutic technologies or drug products, which is expected to have a material adverse effect on our financial position and ability to achieve profitability.

As a result, because we have limited financial and managerial resources, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. For example, in November 2023, we announced that we paused preclinical development of ADI-925 to prioritize corporate resources on ADI-270 and in January 2024, we announced we had deprioritized enrollment of LBCL patients in our Phase 1 clinical trial of ADI-001 in NHL. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Failure to allocate resources or capitalize on strategies in a successful manner will have an adverse impact on our business, financial condition and results of operations.

A variety of risks associated with conducting research and clinical trials abroad and marketing our product candidates internationally could materially adversely affect our business.

We plan to globally develop our product candidates. Accordingly, we expect that itour development programs will be subject to additional risks related to operating in foreign countries, including:

differing regulatory requirements in foreign countries;
unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

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increased difficulties in managing the logistics and transportation of storing and shipping product candidates produced in the United States and shipping the product candidate to the patient abroad;
import and export requirements and restrictions;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;

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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
difficulties staffing and managing foreign operations;
workforce uncertainty in countries where labor unrest is more common than in the United States;
differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;
potential liability under the Foreign Corrupt Practices Act or comparable foreign regulations;
challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geo-political actions, including war, such as the ongoing conflicts in the Ukraine and the Middle East, and terrorism.

These and other risks associated with our potential international operations may materially adversely affect our ability to develop our product candidates and attain or maintain profitable operations, which could have a material adverse effect on our business and results of operations.

Risks Related to Marketing Our Product Candidates

The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.

The FDA often approves new therapies initially only for use in patients who are currently not adequately treated with currently approved therapies. We expect to initially seek approval of ADI-001 and our other product candidates in this setting. Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval in earlier lines of treatment and potentially as a first line therapy. There is no guarantee that our product candidates, even if approved, would be approved for earlier lines of therapy, and, prior to any such approvals, we will have to conduct additional clinical trials, including potentially comparative trials against approved therapies. We are also targeting a similar patient population as autologous CAR-TCAR T-cell product candidates, including approved autologous CAR-TCAR T-cell products. Our therapies may not be as safe and effective as autologous CAR-TCAR T-cell therapies and may only be approved for patients who are ineligible for autologous CAR-TCAR T-cell therapy.

Our projections of both the number of people who have the cancersindications we are targeting, as well as the subset of people with these cancersindications in a position to receive second or later lines of therapy and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, patient foundations or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers.indications. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. Even if

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we obtain significant market share for our product candidates, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications.

If we fail to develop additional product candidates, our commercial opportunity will be limited.

One of our core strategies is to pursue clinical development of additional product candidates beyond ADI-001. Our pipeline also includes ADI-270, an armored gamma delta CAR T-cell product candidate targeting CD70+ cancers, in the preclinical development stage. In addition, we have several additional internal gamma delta T cell therapy programs in preclinical development. We plan to submit one new IND to the FDA every 12-18 months, including an IND for ADI-270 in the first half of 2024. Developing, obtaining regulatory approval for and commercializing additional gamma delta T cell product candidates will require substantial additional funding and is prone to the risks of failure inherent in medical product development. We cannot provide you any assurance that itwe will be able to successfully advance any of these additional product candidates through the development process.

Even if we receive FDA approval to market additionalour product candidates for the treatment of cancer,our targeted indications, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize additional product candidates, our commercial opportunity will be limited. Moreover, a failure in obtaining regulatory approval of additional product candidates may have a negative effect on the approval process of any other, or result in losing approval of any approved, product candidate which could have a material adverse effect on our business and prospects.

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We currently have no marketing and sales organization and as a company have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if approved, we may not be able to generate product revenue.

We currently have no sales, marketing or distribution capabilities and as a company have no experience in marketing products. We may develop a marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products; however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that it will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.

There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product that receives regulatory approval in the United States or overseas. If we are unable to successfully market and distribute our products, our business, results of operations and prospects could be materially adversely affected.

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

The biopharmaceutical industry and the immuno-oncology industry specifically, is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than

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our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products.

Specifically, engineered T cells face significant competition in both the chimeric antigen receptor (CAR)CAR and T cell receptor (TCR) technology space from multiple companies. Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is affected by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.

Risks Related to Manufacturing

We dohave not currently operateyet commenced manufacturing operations at our own manufacturing facility and currently depend on the ability of our third-party suppliers and manufacturers with whom we contract to perform adequately, particularly with respect to the timely production and delivery of our product candidates, including ADI-001. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not currently own or operate anyAlthough we built out manufacturing facilities. Wecapabilities at our Redwood City facility in the fourth quarter of 2022, we rely and expect to continue to rely to a significant extent on third parties for the manufacture of our product candidates for preclinical and clinical development. We may not be able to achieve clinical or commercial manufacturing and cell processing on our own or through our contract manufacturing organizations (CMOs),CDMOs, including timely supply of off-the-shelf“off-the-shelf” product to satisfy demands to support clinical trials of any of our product candidates. To the extent we are not able to obtain timely supply of “off-the-shelf” product, the anticipated timing for our clinical trials and the development of our product candidates could be adversely impacted. Very few companies have experience in manufacturing gamma delta T cell therapy derived from blood of unrelated donors, and gamma delta T cells require several complex manufacturing steps before being available as a mass-produced, off-the-shelf“off-the-shelf” product. While we believe our manufacturing and processing approaches are appropriate to support our clinical product development, weWe have limited experience in managing the allogeneic gamma delta T cell engineering process, and our allogeneic

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processes may be more difficult or more expensive than the approaches taken by our competitors. We cannot be sure that the manufacturing processes employed by or on our behalf will result in T cells that will be safe and effective.

Our operations remain subject to review and oversight by the FDA and the FDA could object to our use of any manufacturing facilities. We must first receive approval from the FDA prior to licensure to manufactureEven if our product candidates which we may never obtain. Even ifare approved, we would be subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with current Good Manufacturing Practices (cGMPs) and other government regulations. Our license to manufacture product candidates will be subject to continued regulatory review.

Our cost of goods development is at an early stage. The actual cost to manufacture and process our product candidates could be greater than we expect and could materially and adversely affect the commercial viability of our product candidates.

The manufacture of biopharmaceutical products is complex and requires significant expertise, including the development of advanced manufacturing techniques and process controls. Manufacturers of cell therapy products often encounter difficulties in production, particularly in scaling out and validating initial production and ensuring the absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. The occurrence of any of such problems could adversely impact the availability of products for our clinical trials and commercial sale. Furthermore, if contaminants are discovered in our supply of product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We have experienced manufacturing delays due to these issues in the past and cannot assure you that any stability or other issues relating to the manufacture of our product candidates will not occur in the future.

Our product candidates and any products that we may develop may compete with other product candidates and approved products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

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We may fail to manage the logistics of storing and shipping our product candidates. Storage failures and shipment delays and problems caused by us, our vendors or other factors not in our control, such as weather, could result in loss of usable product or prevent or delay the delivery of product candidates to patients.

We may also experience both internal and external manufacturing difficulties due to resource constraints or as a result of labor disputes. IfWe have experienced external manufacturing difficulties in the past; if we were to continue to encounter any of these difficulties, our ability to provide our product candidates to patients would be jeopardized, which could have a material adverse effect on our business, results of operations and prospects.

Risks Related to Our Operations

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel. The loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business.

We conduct substantially all of our operations at our facilities in the San Francisco Bay Area. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in this market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain at theour company, in addition to salary and cash incentives, we have provided stock options and restricted stock units that vest over time. The value to employees of stock options that vest over time may be significantly affected by fluctuations in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key person” insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel. To provide added incentives to retain and motivate key contributors, our board of directors recently approved a stock option repricing in August 2023. Despite this, we may have difficulty retaining key personnel, which could adversely affect our business and further development of our product candidates. See the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments – Option Repricing” elsewhere in this Annual Report on Form 10-K for information about the stock option repricing.

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We will need substantial additional financing to develop our productsproduct candidates and implement our operating plans. If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates.

We expect to spend a substantial amount of capital in the clinical development of our product candidates, including the ongoing Phase 1 clinical trial for ADI-001.ADI-001, the potential pivotal Phase 2 study for ADI-001 and the preclinical development of additional internal gamma delta T cell therapy programs, including ADI-270. We will need substantial additional financing to develop our products and implement our operating plans. In particular, we will require substantial additional financing to enable commercial production of our products and initiate and complete registration trials for multiple products. Further, if approved, we will require significant additional amounts in order to launch and commercialize our product candidates.

As of December 31, 2021,the date of this Annual Report on Form 10-K, we believe that with our$159.7 million in cash and cash equivalents as of December 31, 2023, as well as the proceeds raised subsequent to year end through our ATM program and underwritten public offering, we are able to fund our expenses and capital expenditure requirements beyond twelve months fromcapitalized into the issuance datesecond half of the accompanying consolidated financial statements.2026. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may require additional capital for the further development and commercialization of our product candidates, including funding our internal manufacturing capabilities and may need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate.

We cannot be certain that additional funding will be available on acceptable terms, or at all. Other than the funding agreement and our loan agreementLoan Agreement (as defined below) with Banc of California (formerly known as Pacific Western Bank,Bank), we have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or other research and development initiatives. Our license agreements may also be terminated if we are unable to meet the payment obligations under the agreements. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization themselves.ourselves. Additionally, weUnited States and global economic uncertainty, higher interest rates and diminished credit availability may not be ablelimit our ability to incur indebtedness if the ongoing macroeconomic effects of the COVID-19 pandemic, including certain actions taken by U.S. or other governmental authorities, such as decreases in short-term interest rates as announced by the Federal Reserve, cause the closure of banks for an extended period of time or a sudden increase in requests for indebtedness at one time by many potential borrowers, either or both of which could overwhelm the banking industry.on favorable terms. Furthermore, the impact of geopolitical tension, such as a deterioration in the bilateral relationship between the United States and China, or an escalation in conflict between Russia and Ukraine or the ongoing armed conflict in Israel and the Gaza strip, including any resulting sanctions, export controls or other restrictive actions, also could lead to disruption, instability and volatility in the global markets, which may have an impact on our ability to obtain additional funding.

Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

We have grown rapidly and will need to continue to grow the size of our organization, and it may experience difficulties in managing this growth.

As our development and commercialization plans and strategies develop, and as we transitionhave transitioned into operating as a public company, we have rapidly expanded our employee base and expect to continue to add managerial, operational, sales, research and development, marketing, financial and other personnel. Current and future growth imposes significant added responsibilities on members of management, including:

identifying, recruiting, integrating, maintaining and motivating additional employees;
managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and
improving our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage our growth, and our management may also have to divert a disproportionate amount

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of our attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants, pursuant to arrangements which expire after a certain period of time, to provide certain services, including certain research and development as well as general and administrative support. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise

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advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals, which could have a material adverse effect on our business, results of operations and prospects.

We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.

We may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.

If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. For instance, our License and Collaboration Agreement (the Regeneron Agreement) with Regeneron Pharmaceuticals, Inc. (Regeneron) requires significant research and development commitments that may not result in the development and commercialization of product candidates. We cannot be certain that, following a strategic transaction or license, we will achieve the results, revenue or specific net income that justifies such transaction, which could have a material adverse effect on our business and results of operations.

Risks Related to Business Disruptions

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations, and those of our CMO,CDMO, CROs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, such as the COVID-19 pandemic, andpublic health crises or other natural or man-made disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.

Our ability to manufacture our product candidates could be disrupted if our operations or those of our suppliers are affected by a man-made or natural disaster, the severity and frequency of which may be amplified by global climate change, or other business interruptions. We have facilities located in California near major earthquake faults and fire zones. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near major

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earthquake faults and fire zones and being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.

A pandemic, epidemicGlobal conflicts may increase the likelihood of supply interruptions which could impact our ability to find the materials we need to make our product candidates.

Ongoing conflicts, including conflicts between Russia and Ukraine and Israel and Hamas, may increase the likelihood of supply interruptions and hinder our ability to find the materials we need to make our product candidates. Supply disruptions make it more difficult for us to find favorable pricing and reliable sources for the materials we need, which increases pressure on our costs and increases the risk that we may be unable to acquire the necessary goods and services to successfully manufacture our product candidates. If we were to encounter any of these difficulties, our ability to provide our product candidates to patients in preclinical studies or outbreak of an infectious disease,clinical trials, such as theour ongoing COVID-19 pandemic, may materially and adversely affect our business and operations.

Our business, financial position, resultsor planned clinical trials of operationsADI-001, could be delayed or cash flows may be affected by the ongoing global COVID-19 pandemic and the resulting volatility and uncertainty it has caused, and is likely to continue to cause, in the United States and international markets, including as a result of prolonged economic downturnsuspended. Any delay or recession. Since January 2020, the COVID-19 pandemic has spread around the world. The continued spread of COVID-19, despite progress in vaccination efforts, has resulted in significant governmental measures being implemented to control the spread of COVID-19 and its variants, including quarantines, travel restrictions, social distancing and business shutdowns. Such measures have had, and are likely to continue to have, adverse impacts on the United States economy of uncertain severity and duration and may negatively impact our operations and those of third parties on which we rely, including by causing disruptionsinterruption in the supply of our product candidatestrial materials could delay the completion of such trials, increase the costs associated with maintaining these research and development activities and, depending upon the conductperiod of current and future clinical trials. In addition, the COVID-19 pandemic has affected and may further affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respectdelay, require us to our product candidates. The ongoing COVID-19 pandemic is also likely to directlycommence new preclinical studies or indirectly impact the pace of enrollment in our future clinical trials as patients may avoidat additional expense or may not be able to travel to healthcare facilities and physicians’ offices unless

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due to a health emergency, and clinical trial sites may be less willing to enroll patients in clinicalterminate such trials that may compromise a person’s immune system. Such facilities and offices may also be required to focus limited resources on non-clinical trial matters, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial services related to ADI-001 or our other product candidates. Additionally, while the ultimate economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity.

The extent to which the ongoing COVID-19 pandemic may continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration and severity of the pandemic, including the continued emergence of new variants, developments or perceptions regarding the safety of vaccines, or any additional preventative and protective actions taken to contain the pandemic or treat its impact. We do not yet know the full extent of potential delays or impacts on our business, financing, or clinical trial activities or on healthcare systems or the global economy as a whole. However, any of the foregoing risks, or other unforeseen risks related to the COVID-19 pandemic, could have a material impact on our liquidity, capital resources, operations, and business and those of the third parties on which it relies.completely.

Inadequate funding for the FDA, the SEC and other government agencies, including from government shut downs, or other disruptions in their staffing levels related to the COVID-19 global pandemic,these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the approval of our product candidates rely, which would negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, adequate staffing, furloughs, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved, by necessary government agencies, which would adversely affect our business. For example, over the last several years, including beginning on December 22, 2018,past decade, the U.S. government has shut down several times, and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA and other government employees and stop critical activities. Since March 2020 when foreign and domestic inspections of facilities were largely placed on hold, the FDA has been working to resume routine surveillance, bioresearch monitoring and pre-approval inspections on a prioritized basis. Since April 2021, the FDA has conducted limited inspections and employed remote interactive evaluations, using risk management methods, to meet user fee commitments and goal dates. Ongoing travel restrictions and other uncertainties continue to impact oversight operations both domestic and abroad and it is unclear when standard operational levels will resume. The FDA is continuing to complete mission-critical work, prioritize other higher-tiered inspectional needs (e.g., for-cause inspections), and carry out surveillance inspections using risk-based approaches for evaluating public health. Should FDA determine that an inspection is necessary for approval of a marketing application and an inspection cannot be completed during the review cycle due to restrictions on travel, and the FDA does not determine a remote interactive evaluation to be adequate, FDA has stated that it generally intends to issue, depending on the circumstances, a complete response letter or defer action on the application until an inspection can be completed. During the COVID-19 public health emergency, a number of companies announced receipt of complete response letters due to the FDA's inability to complete required inspections for their applications. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business, including our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue to fund our operations.

Risks Related to Healthcare Regulation

Our relationships with customers, physicians including clinical investigators, clinical research organizations and third-party payors are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, transparency laws, government price reporting and other healthcare laws and regulations. If we or our employees, independent contractors, consultants, commercial partners, vendors, or other agents violate these laws, we could face substantial penalties.

These laws may impact, among other things, our clinical research program, as well as our proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services is subject to extensive laws and regulations designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive and other business arrangements. We may also be subject to federal, state and foreign laws governing the privacy and

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security of identifiable patient information. SeeFor further

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discussion on U.S. healthcare regulations, see the section entitled “Business – Business–Government Regulation and Product Approval - Approval—Other United StatesU.S. Healthcare Laws and Compliance Requirements” elsewhereRequirements in this Annual Report on Form 10-K.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities, or our arrangements with physicians, could be subject to challenge under one or more of such laws. If we or our employees, independent contractors, consultants, commercial partners and vendors violate these laws, we may be subject to investigations, enforcement actions and/or significant penalties.

We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct or business noncompliance, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending themselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Data protection, privacy and similar laws restrict access, use, and disclosure of information, and failure to comply with or adapt to changes in these laws could materially and adversely harm our business.

We are subject to federal and state data privacy and security laws and regulations, and Lawslaws and expectations relating to privacy continue to evolve. Changes in these laws may limit our data access, use and disclosure, and may require increased expenditures. In addition, data protection, privacy and similar laws protect more than patient information and, although they vary by jurisdiction, these laws can extend to employee information, business contact information, provider information, and other information relating to identifiable individuals. For example, the California Consumer Privacy Act (CCPA) requires covered businesses to, among other things, provide disclosuresnotices to California consumers regarding the collection, use and disclosure of such consumers’ personal information and afford such consumers new rights with respect to their personal information, including the right to opt out of certain sales of personal information. In addition, the California Privacy Rights Act (CPRA), which amended the CCPA, became effective on January 1, 2023 and imposed additional obligations on companies covered by the legislation. The CPRA as well as comprehensivemodified the CCPA and has created a state agency that is vested with authority to implement and enforce the CCPA. There are also states that are specifically regulating health information. For example, Washington state recently passed a health privacy law that will regulate the collection and sharing of health information, and the law also has a private right of action, which further increases the relevant compliance risk. Since then, similar laws have been passed in Coloradonumerous other states and Virginia will become effective in 2023. Further, numerous other states have proposed similar new privacy laws.

We believe that further increased regulation in additional jurisdictions is likely in the area of data privacy. Any of the foregoing may have a material adverse effect on our ability to provide services to patients and, in turn, our results of operationsoperations.

The collection and use of personal health data in the European Union (EU) areEconomic Area (EEA) is governed by the GDPR.General Data Protection Regulation (GDPR). The GDPR imposes stringent requirementsapplies to any company established in the EEA and to companies established outside the EEA that process personal data in connection with the offering of goods or services to data subjects in the EEA or the monitoring of the behavior of data subjects in the EEA. The GDPR enhances data protection obligations for controllers and processors of personal data, including stringent requirements relating to ensuring an appropriate legal

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basis or condition applies to the processing of personal data, stricter requirements relating to obtaining consent from data subjects, stricter requirements around the collection of sensitive data (such as health data), expanded disclosures about how personal data is used, requirements to conduct data protection impact assessments for example, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications,“high risk” processing, limitations on retention of information, increasedpersonal data, mandatory data breach notification and “privacy by design” requirements, pertainingimplementing safeguards to special categoriesprotect the security and confidentiality of data, such as healthpersonal data and additionalcreates direct obligations when we contract with third-party processors in connection with the processing of the personal data.on service providers acting as processors. The GDPR also imposes strict rules on the transfer of personal data outoutside of the EEA to countries that do not ensure an adequate level of protection, like the United States.

Following the United Kingdom’s (UK) exit from the European Union (EU), the UK’s European Union (Withdrawal) Act 2018 incorporated the GDPR into UK law, referred to as the UK GDPR. The UK GDPR and the UK Data Protection Act 2018 set out the United Kingdom’s data protection regime, which is independent from but aligned to the European Union’s data protection regime. Although the GDPR and the UK GDPR currently impose substantially similar obligations, it is possible that over time the UK GDPR could become less aligned with the GDPR. The UK Government has also now introduced a Data Protection and Digital Information Bill (the UK Bill) into the UK legislative process with the intention for this bill to reform the UK’s data protection regime following Brexit. If passed, the final version of the UK Bill may have the effect of further altering the similarities between the UK and EU data protection regime. This may lead to additional compliance costs and could increase our overall risk. This lack of clarity on future UK laws and regulations and their interaction with EU laws and regulations could add legal risk, uncertainty, complexity and cost to our handling of EU personal information and our privacy and data security compliance programs and could require us to implement different compliance measures for the UK and the EU. Non-compliance with the UK GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. Although the UK is regarded as a third country under the European Union’s GDPR, the European Commission has now issued a decision recognizing the UK as providing adequate protection under the EU GDPR and, therefore, transfers of personal data originating in the EU to the UK remain unrestricted. Like the EU GDPR, the UK GDPR restricts personal data transfers outside the United Kingdom to countries not regarded by the United Kingdom as providing adequate protection. The UK government has confirmed that personal data transfers from the United Kingdom to the EEA remain free flowing.

To enable the transfer of personal data outside of the EEA or the UK, adequate safeguards must be implemented in compliance with European and UK data protection laws. The European Commission has issued forms of standard contractual clauses for data transfers from controllers or processors in the EU/EEA (or otherwise subject to the GDPR) to controllers or processors established outside the EU/EEA (and not subject to the GDPR). The UK is not subject to the EC’s new standard contractual clauses but has published the UK International Data Transfer Agreement and International Data Transfer Addendum to the new standard contractual clauses (the IDTA), which enable transfers from the UK. For new transfers, the IDTA already needs to be in place, and must be in place for all existing transfers from the UK from March 21, 2024. Following a ruling from the Court of Justice of the EU, in Data Protection Commissioner v Facebook Ireland Limited and Maximillian Schrems, Case C-311/18 (Schrems II), companies relying on standard contractual clauses to govern transfers of personal data to third countries (in particular the United States) will need to assess whether the data importer can ensure sufficient guarantees for safeguarding the personal data under GDPR. This assessment includes assessing whether third party vendors can also ensure these guarantees. The same assessment is required for transfers governed by the IDTA. Further, the EU and United States have adopted its adequacy decision for the EU-U.S. Data Privacy Framework (Framework), which entered into force on July 11, 2023. This Framework provides that the protection of personal data transferred between the EU and the United States is comparable to that offered in the EU. This provides a further avenue to ensuring transfers to the United States and other third countries. In addition,are carried out in line with GDPR. There has been an extension to the Framework to cover UK transfers to the United States. The Framework could be challenged like its predecessor frameworks. We will be required to implement these new safeguards when conducting restricted data transfers under the GDPR provides that EU member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data.doing so will require significant effort and cost.

The GDPR applies extraterritorially, and we may be subject to the GDPR because of our data processing activities that involve the personal data of individuals located in the European Union, such as in connection with our EU clinical trials. Failure to comply with the requirements of the GDPR or UK GDPR and the applicablerelated national data protection laws of the EU member statesEEA Member States may result in fines of up to €20,000,000€20 million or up to 4% of the total worldwidea company’s global annual turnover ofrevenues for the preceding financial year, whichever is higher,higher. Moreover, the GDPR and other administrative penalties.UK GDPR regulations may impose additional responsibilitygrant data subjects the right to claim material and liabilitynon-material damages resulting from infringement of the GDPR or UK GDPR. Given the breadth and depth of changes in relation todata protection obligations, maintaining compliance with the personal data that our processesGDPR and UK GDPR, will require significant time, resources and expense, and we may be required to put in place additional mechanisms to ensureensuring compliance with the new data protection rules. This may be onerous and may interrupt or delay our development activities, and adversely affect our business, financial condition, results of operations and prospects.

In addition, many other jurisdictions outside of Europe are also considering and/or enacting new and/or amended comprehensive data protection legislation. We also continue to see jurisdictions imposing data localization laws. These regulations may interfere with our intended business activities, inhibit our ability to expand into those markets or

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prohibit us from continuing to offer services in those markets without significant additional costs. Because the interpretation and application of many privacy and data protection laws (including the GDPR), commercial frameworks, and standards are uncertain, it is possible that these laws, frameworks, and

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standards may be interpreted and applied in a manner that is inconsistent with our existing data management practices and policies. If so, in addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions, which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and security or data security laws, regulations, and policies, could result in additional cost and liability to us, damage our reputation, inhibit our ability to conduct trials, and adversely affect our businessbusiness.

Data protection, privacy and similar laws protect more than patient information and, although they vary by jurisdiction, these laws can extend to employee information, business contact information, provider information, and other information relating to identifiable individuals. Failure to comply with these laws may result in, among other things, civil and criminal liability, negative publicity, damage to our reputation, and liability under contractual provisions. In addition, compliance with such laws may require increased costs to us or may dictate that wet not offer certain types of services in the future.

Risks Related to Litigation

Artificial intelligence presents risks and challenges that can impact our business including by posing security risks to our confidential information, proprietary information, and personal data.

Issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. As with many technological innovations, artificial intelligence presents risks and challenges that could impact our business. We expect to see increasing government and supranational regulation related to artificial intelligence use and ethics, which may also significantly increase the burden and cost of research, development and compliance in this area. For example, the EU’s Artificial Intelligence Act (AI Act) — the world’s first comprehensive AI law — is anticipated to enter into force in Spring 2024 and, with some exceptions, become effective 24 months thereafter. This legislation imposes significant obligations on providers and deployers of high risk artificial intelligence systems, and encourages providers and deployers of artificial intelligence systems to account for EU ethical principles in their development and use of these systems. If product liability lawsuitswe develop or use AI systems that are brought againstgoverned by the AI Act, it may necessitate ensuring higher standards of data quality, transparency, and human oversight, as well as adhering to specific and potentially burdensome and costly ethical, accountability, and administrative requirements. We may adopt and integrate generative artificial intelligence tools into our systems for specific use cases reviewed by legal and information security. Our vendors may incorporate generative artificial intelligence tools into their offerings without disclosing this use to us, and the providers of these generative artificial intelligence tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors’ ability to maintain an adequate level of service and experience. If we, our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of generative artificial intelligence, we may incur substantial liabilitieslose valuable intellectual property and may be required to limit commercializationconfidential information and our reputation and the public perception of the effectiveness of our product candidates.

We face an inherent risksecurity measures could be harmed. Further, bad actors around the world use increasingly sophisticated methods, including the use of product liability as aartificial intelligence, to engage in illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property. Any of these outcomes could damage our reputation, result of the future clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend themselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

decreased demand for our product candidates;
injury to our reputation;
withdrawal of clinical trial participants;
initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
exhaustion of any available insurancevaluable property and information, and adversely impact our capital resources; and
the inability to commercialize any product candidate.

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. Assuming we obtain clinical trial insurance for our clinical trials, we may have to pay amounts awarded by a court or negotiated in a settlement that exceeds our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle it to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

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business.

Risks Related to Our Financial Position

Raising funds through lending arrangements may restrict our operations or produce other adverse results.

Our current Loan and Security Agreement with Pacific Western Bank,Banc of California, as amended on July 8, 2020, September 14, 2020, September 15, 2020, October 21, 2021, December 2, 2022 and May 30, 2023 (the Loan Agreement), sets the interest rate of the term loans under the Loan Agreement at the greater of (i) 0.25% above the Prime Rate then in effect and (ii) 4.25%. The Loan Agreement contains a variety of affirmative and negative covenants, including required financial reporting, requirements to maintain certain balances at Banc of California, limitations on certain dispositions of assets, limitations on the incurrence of additional debt and other requirements. To secure our performance of our obligations under this Loan Agreement, we granted a security interest in substantially all of our assets, other than certain intellectual property assets, to Pacific Western BankBanc of California and issued a warrant to purchase our capital stock.

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On March 13, 2023, we executed a letter agreeing that, notwithstanding the covenants included in the Fifth Amendment to the Loan Agreement, dated as of December 2, 2022 (the 2022 Loan Amendment), until June 30, 2023 (i) we and our subsidiaries will not be required to maintain the lesser of $200 million or seventy percent (70%) of our combined balances in demand deposit accounts, money market funds and/or insured cash sweep (ICS) accounts with Banc of California and (ii) we must maintain our combined balances at Banc of California or its affiliates, including Pacific Western Asset Management (the Letter). Upon executing the Letter, we wired $187.2 million from our ICS accounts at Banc of California to Pacific Western Asset Management who subsequently invested the funds into money market funds held in custody with U.S. Bank National Association.

On May 30, 2023, we entered into the Sixth Amendment to the Loan Agreement, dated as of May 30, 2023 (the 2023 Loan Amendment). Pursuant to the 2023 Loan Amendment, we must maintain the lesser of (i) $35.0 million or (ii) all of the Company’s combined balances in demand deposit accounts, money market accounts, and/or insured cash sweep accounts with Banc of California. If our total cash and investments drop to less than $35.0 million, the 2023 Loan Amendment permits us to maintain cash and/or investments in one or more accounts outside of Banc of California up to a total of $2.5 million. As of December 31, 2023, we were in compliance with such covenants.

Our failure to comply with the covenants in the Loan Agreement, including as a result of changing the position of certain of our accounts, failure to transfer funds back to Banc of California at expiration of the Letter, the occurrence of a material impairment in our prospect of repayment operations, business or financial condition, our ability to repay the loan, or in the value, perfection or priority of Pacific Western Bank’sBanc of California’s lien on our assets, as determined by Pacific Western Bank,PacWest, or the occurrence of certain other specified events could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt, potential foreclosure on our assets and other adverse results. Additionally, we are bound by certain negative covenants setting forth actions that are not permitted to be taken during the term of the Loan Agreement without consent of Pacific Western Bank,Banc of California, including, without limitation, incurring certain additional indebtedness, making certain asset dispositions, entering into certain mergers, acquisitions or other business combination transactions or incurring any non-permitted lien or other encumbrance on our assets. The foregoing prohibitions and constraints on our operations could result in our inability to: (a) acquire promising intellectual property or other assets on desired timelines or terms; (b) reduce costs by disposing of assets or business segments no longer deemed advantageous to retain; (c) reallocate certain of our cash deposits and money market accounts depending on various global banking events; (d) stimulate further corporate growth or development through the assumption of additional debt; or (d)(e) enter into other arrangements that necessitate the imposition of a lien on corporate assets. Moreover, if the conditions set forth in the consent provided by Pacific Western BankBanc of California are not satisfied, or if we do not comply with the terms of the Letter, we would effectively need to terminate the Loan Agreement and repay any outstanding loan funds or refinance the facility with another lender. As of the date of this Annual Report on Form 10-K, no amounts have been drawn under the Loan Agreement.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC stated all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. Although we are not a borrower or party to any such instruments with SVB, Signature or any other financial institution currently in receivership, if any of our lenders or counterparties to any such instruments, including Banc of California or its affiliates, were to be placed into receivership, we may be unable to access such funds. In addition, counterparties to SVB credit agreements and arrangements, and third parties such as beneficiaries of letters of credit (among others), may experience direct impacts from the closure of SVB and uncertainty remains over liquidity concerns in the broader financial services industry. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.

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Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.

Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial institutions with which we have credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, the following:

delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;
loss of access to revolving existing credit facilities or other working capital sources and/or the inability to refund, roll over or extend the maturity of, or enter into new credit facilities or other working capital resources;
potential or actual breach of contractual obligations that require us to maintain letters or credit or other credit support arrangements;
potential or actual breach of financial covenants in our credit agreements or credit arrangements;
potential or actual cross-defaults in other credit agreements, credit arrangements or operating or financing agreements; or
termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash management arrangements.

Failure to achieve and maintain effective internal control over financial reporting could harm our business and negatively impact the value of our common stock.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements, or may identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually. However, for as long as we are an emerging growth company (EGC) or a smaller reporting company (SRC),non-accelerated filer, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404.404 of the Sarbanes-Oxley Act of 2002, as amended. We will remain an EGC until the earliesta non-accelerated filer as long as we qualify to occur of: (1) the last daybe a “smaller reporting company” under Rule 12b-2 of the fiscal year inExchange Act, which we have more than $1.07 billion in annual revenue; (2) the date we qualifywill be for as a large accelerated filer, with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; or (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering, which would be December 31, 2023.
We will qualify
long as a SRC ifeither (i) the market value of our common stock held by non-affiliates is below $250less than $250.0 million (or $700 million ifor (ii) our annual revenue is less than $100 million)$100.0 million during the most recently completed

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fiscal year and the market value of our common stock held by non-affiliates is less than $700.0 million as of the prior June 30 in any given year.30. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.

We and our independent registered public accounting firm previously identified material weaknesses in our internal control over financial reporting, which have since been remediated. Nevertheless, if we experience additional material weaknesses or deficiencies in the future or otherwise fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.

In our Annual Report on Form 10-K for the year ended December 31, 2020, we reported material weaknesses in our internal control over financial reporting related to deficiencies in our controls over the financial statement close process, including over complex accounting issues, expense classification and accrued research and development expenses, as well as the cash disbursement process. During 2021, we took a number of actions to improve our internal control over financial reporting to remediate these material weaknesses, including the hiring key personnel, implementing an Enterprise Resource Planning (ERP) system, and augmenting our controls to enhance our control environment. As a result of these efforts, management has concluded

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that the previously disclosed material weaknesses have been remediated as of December 31, 2021.

We expect to continue our efforts to improve our control processes, though there can be no assurance that our efforts will ultimately be successful or avoid potential future material weaknesses, and we expect to continue incurring additional costs as a result of these efforts. If we are unable to successfully remediate any future material weaknesses in our internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our stock price may decline as a result. We also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which could harm our reputation and our financial condition, or divert financial and management resources from our core business.

Risks Related to Taxation

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 and Section 383 of the Internal Revenue Code of 1986 (IRC), as amended, or the IRC, if a corporation undergoes an “ownership change” (generally defined as one or more shareholders or groups of shareholders who own at least 5 percent of the corporation’s equity increasing their equity ownership in the aggregate by a greater than 50 percentage point change (by value) in the ownership of its equity over a three yearthree-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and certain other pre-change tax attributes to offset its post-change income may be limited. Similar rules may apply under state tax laws. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2021,2023, we had federal net operating loss carryforwards of approximately $271.6$294.8 million,, and our ability to utilize those net operating loss carryforwards could be limited by an “ownership change” as described above.above or subject to other limitations, which could potentially result in increased future tax liability to us.

ComprehensiveChanges in tax reform legislationlaws or in their implementation or interpretation could adversely affect our business and financial condition.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service or IRS,(IRS) and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many changes have been made and changes are likely to continue to occur in the future. For example, under Section 174 of the code, in taxable years beginning after December 31, 2021, expenses that are incurred for research and development in the U.S. are capitalized and amortized, which may have an adverse effect on our cash flow. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation.

Additional changes to U.S. federal income tax law are currently being contemplated, and future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. It cannot be predicted whether, when, in what form, or with what effective dates, new tax laws may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof. You are urged to consult your tax advisor regarding the implications of potential changes in tax laws on an investment in our common stock.

Risks Related to Third Parties

If our collaboration with Regeneron is terminated, or if Regeneron materially breaches its obligations thereunder, our business, prospects, operating results, and financial condition would be materially harmed.

Our financial performance may be significantly affected by our Regeneron collaboration that we have entered into to develop next-generation engineered immune-cell therapeutics with fully human CARs and TCRs directed to disease-specific cell surface antigens in order to enable the precise engagement and killing of tumor cells. Under the Regeneron Agreement, Regeneron paid us a non-refundable upfront payment of $25.0 million and an aggregate of $20.0 million of additional payments for research funding as of December 31, 2021,2023, and we will collaborate with

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Regeneron to identify and validate targets and develop a pipeline of engineered immune-cell therapeutics for selected targets. Regeneron has the option to obtain development and commercial rights for a certain number of the product candidates developed by the parties, subject to an option payment for each product candidate. On January 28, 2022, we received a payment of $20.0 million from Regeneron for exercise of its option to license exclusive rights to ADI-002.ADI-002, and we completed the transfer of the associated license rights to Regeneron in the first quarter of 2022. If Regeneron exercises its option on a given product candidate, we then have an option to participate in the development and commercialization for such product. If we do not exercise our option, we will be entitled to royalties on any future sales of such products by Regeneron. We did not exercise our option to participate in the development and commercialization of ADI-002. In addition to developing CARs and TCRs for use in novel immune-cell therapies as part of the collaboration, Regeneron will have the right to use these CARs and TCRs in our other antibody programs outside of the collaboration. Regeneron will also be entitled to royalties on any future sales of products developed and commercialized by us under the agreement. If Regeneron were to terminate our collaboration agreement with us, we may not have the resources or skills to replace those of our collaborator, which could require us to seek additional funding or another collaboration that might not be available on favorable terms or at all, and could cause significant delays in development and/or commercialization efforts and result in substantial additional costs to us. Termination of such collaboration agreement or the loss of rights provided to us under such agreement may create substantial new and additional risks to the successful development and commercialization of our products and could materially harm our financial condition and operating results.

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Regeneron may change its strategic focus or pursue alternative technologies in a manner that results in reduced, delayed or no revenue to us under the agreement. Regeneron has a variety of marketed products and product candidates either by itself or under collaboration with other companies, including some of our competitors, and the corporate objectives of Regeneron may not be consistent with our best interests. Regeneron may change its position regarding its participation and funding of our and Regeneron joint activities, which may impact our ability to successfully pursue the program.

Our existing and future collaborations will be important to our business. If we are unable to maintain any of these collaborations, or if these collaborations are not successful, our business could be adversely affected.

We have entered, and plan to enter, into collaborations with other companies, including our collaboration agreement with Regeneron and discovery agreement with Twist Bioscience Corporation (Twist), that we believe can provide us with additional capabilities beneficial to our business. The collaboration with Regeneron provideshas provided us with important technologies, expertise and funding for our programs and technology. Under our discovery agreement with Twist, Twist will utilize its proprietary platform technology and we expect to assist us with the discovery of novel antibodies related to our gamma delta T cell therapy programs. We may receive additional technologies, expertise and funding under this and other collaborations in the future. Our existing therapeutic collaborations, and any future collaborations we enter into, may pose a number of risks, including the following:

collaborators have significant discretion in determining the efforts and resources that they will apply;
collaborators may not perform their obligations as expected;
collaborators may dispute the amounts of payments owed;
collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs or license arrangements based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as a strategic transaction that may divert resources or create competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
collaborators could develop independently, or with third parties, products that compete directly or indirectly with our products and product candidates if the collaborators believe that the competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

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product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with our own product candidates or products, which may cause collaborators to cease to devote resources to the development or commercialization of our product candidates;
collaborators may dispute ownership or rights in jointly developed technologies or intellectual property;
collaborators may fail to comply with applicable legal and regulatory requirements regarding the development, manufacture, sale, distribution or marketing of a product candidate or product;
collaborators with sales, marketing, manufacturing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the sale, marketing, manufacturing and distribution of such product or products;
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, payment obligations or the preferred course of discovery, development, sales or marketing, might cause delays or terminations of the research, development or commercialization of product candidates, might lead to additional and burdensome responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
collaborators may not properly maintain or defend their or our relevant intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation and liability;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
if a collaborator of ours is involved in a business combination or cessation, the collaborator might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us; and

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collaborations may be terminated by the collaborator, and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates, or potentially lose access to the collaborator’s intellectual property.

If our therapeutic collaborations do not result in the successful discovery, development and commercialization of products or if one of our collaborators terminates our agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development and commercialization of our technology and product candidates could be delayed and we may need additional resources to develop product candidates and our technology. All of the risks relating to product discovery, development, regulatory approval and commercialization described in these risk factors also apply to the activities of our therapeutic collaborators.

In addition to the Regeneron collaboration described above, for some of our programs, we may in the future determine to collaborate with pharmaceutical and biotechnology companies for discovery, development and potential commercialization of therapeutic products. We face significant competition in seeking appropriate collaborators because, for example, third parties also have rights to allogeneic T cell technologies. For example, in April 2020, Johnson & Johnson entered into a collaboration agreement with Fate Therapeutics, a company that is also using allogeneic T cell technologies, for up to four CAR Natural Killer (NK) and CAR-T cellCAR T-cell therapies. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail discovery efforts or the development of a product candidate, reduce or delay our development program or one or more of our other development programs, delay our potential manufacture or commercialization, or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our expense. If we elect to fund and undertake discovery, development, manufacturing or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary discovery, development, manufacturing and commercialization activities, we may not be able to further develop our product

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candidates, manufacture the product candidates, bring them to market or continue to develop our technology and our business may be materially and adversely affected.

We are subject to certain exclusivity obligations under our agreement with Regeneron.

During the five-year period following the effective date of the Regeneron agreement,Agreement, with certain limited exceptions, we may not directly or indirectly research, develop, manufacture or commercialize a gamma delta immune cell product (ICP) or grant a license to do the foregoing, except pursuant to the terms of the Regeneron agreement.Agreement. Both parties also have obligations not to research, develop, manufacture or commercialize an ICP with the same target as one being developed under a research program or commercialized by a party (and royalty bearing under the agreement), for so long as such activities are occurring. These exclusivity obligations are limited to engineered gamma delta immune cells to targets reasonably considered to have therapeutic relevance in oncology.cancer. If our collaboration with Regeneron is not successful, including any failure caused by the risks listed in the preceding paragraphs, and the agreement and research programs are not terminated, we may not be able to enter into collaborations with other companies with respect to ICP’sICPs and our business could be adversely affected.

The exclusivity obligations under the Regeneron agreementAgreement expired on July 29, 2021. Prior to this expiration date, our ability to advance any gamma delta immune cell therapeutics outside of the scope of the research plan agreed on with Regeneron was limited. The restrictions on internal development under the Regeneron agreementAgreement could lead to delays in our ability to discover and develop gamma delta immune cell therapeutics for targets not covered by the collaboration with Regeneron and loss of opportunities to obtain additional research funding and advance our own technologies separately from the Regeneron collaboration. If we are delayed in our ability to advance our technologies due to the Regeneron agreement,Agreement, our business could be harmed.

We rely and will continue to rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

We currently depend and will continue to depend upon independent investigators and collaborators, such as universities, medical institutions, CROs and strategic partners to conduct our preclinical and clinical trials under agreements with us.

We negotiate budgets and contracts with CROs and study sites, which may result in delays to our development timelines and increased costs. We will rely heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be

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deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP regulations. In addition, our clinical trials must be conducted with biologic product produced under cGMPs and will require a large number of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Any third parties conducting our clinical trials are and will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

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If any of our relationships with trial sites, or any CRO that we may use in the future, terminates, we may not be able to enter into arrangements with alternative trial sites or CROs or do so on commercially reasonable terms. Switching or adding third parties to conduct our clinical trials will involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.

We currently rely on third parties to manufacture our clinical product supplies, and we may have to rely on third parties to produce and process our product candidates, if approved.

We currently utilize, and expect to continue to utilize, third parties to manufacture our product candidates. If the field of cell therapy continues to expand, we may encounter increasing competition and costs for these materials and services. Demand for third-party manufacturing in cell therapy may grow at a faster rate than existing capacity, which could disrupt our ability to find and retain third-party manufacturers capable of producing sufficient quantities of our product candidates at an acceptable cost or at all. We have also not yet caused our product candidates to be manufactured or processed on a commercial scale and may not be able to achieve manufacturing and processing at a commercial scale and therefore may be unable to create an inventory of mass-produced, off-the-shelf"off-the-shelf" product to satisfy demands for any of our product candidates.

We do not yet have sufficient information to reliably estimate the cost of the commercial manufacturing and processing of our product candidates, and the actual cost to manufacture and process our product candidates could materially and adversely affect the commercial viability of our product candidates. As a result, we may never be able to develop a commercially viable product.

In addition, we anticipate reliance on a limited number of third-party manufacturers may adversely affect our operations and exposes us to the following risks:

We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA may have questions regarding any replacement contractor. This may require new testing and regulatory interactions. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA questions, if any.products;
Our third-party manufacturers might be unable to timely formulate and manufacture our product or produce the quantity and quality required to meet our clinical and commercial needs, if any.any;
Contract manufacturers may not be able to execute our manufacturing procedures appropriately.appropriately;
Our future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.products;
Manufacturers are subject to ongoing periodic unannounced inspection by the FDA the Drug Enforcement Administration and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards.standards;

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We may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our products.products; and
Our third-party manufacturers could breach or terminate their agreement(s) with us.

If any CMOCDMO with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different CMO,CDMO, which we may not be able to do on reasonable terms, if at all. In either scenario, our clinical trials supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our product candidates may be unique or proprietary to the original CMOCDMO and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change CMOsCDMOs for any reason, we will be required to verify that the new CMOCDMO maintains facilities and procedures that comply with quality standards

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and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidates according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new CMOCDMO could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a CMOCDMO may possess technology related to the manufacture of our product candidates that such CMOCDMO owns independently. This would increase our reliance on such CMOCDMO or require us to obtain a license from such CMOCDMO in order to have another CMOCDMO manufacture our product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.

Our contract manufacturers would also be subject to the same risks we face in developing our own manufacturing capabilities, as described above. Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA or the commercialization of our product candidates or result in higher costs or deprive us of potential product revenue. In addition, we will rely on third parties to perform release tests on our product candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of serious harm.

Cell-based therapies rely on the availability of specialty raw materials, which may not be available to us on acceptable terms or at all.

Our product candidates require many specialty raw materials, including viral vectors that deliver the targeting moiety and other genes to the product candidate. We currently manufacture through contract manufacturers, some of which have limited resources and experience supporting a commercial product, and such suppliers may not be able to deliver raw materials to our specifications. Those suppliers normally support blood-based hospital businesses and generally do not have the capacity to support commercial products manufactured under cGMP by biopharmaceutical firms. The suppliers may be ill-equipped to support our needs, especially in non-routine circumstances like an FDA inspection or medical crisis, such as widespread contamination. We also do not have contracts with many of these suppliers, and we may not be able to contract with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key raw materials to support clinical or commercial manufacturing. Additionally, since the beginning of the COVID-19 pandemic, three vaccines for COVID-19 have received Emergency Use Authorization by the FDA, and one of those later received marketing approval. Additional vaccines may be authorized or approved in the future. The resultant demand for vaccines and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing slots for the materials needed for our clinical trials, which could lead to delays in these trials.

In addition, some raw materials utilized in the manufacture of our candidates are currently available from a single supplier, or a small number of suppliers. We cannot be sure that these suppliers will remain in business or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose. Further, the lead time needed to establish a relationship with a new supplier can be lengthy, and we may experience delays in meeting demand in the event we must switch to a new supplier. The time and effort to qualify a new supplier could result in additional costs, diversion of resources or reduced manufacturing yields, any of which would negatively impact our operating results. We may be unable to enter into agreements with a new supplier on commercially reasonable terms, which could have a material adverse impact on our business.

If we or our third-party suppliers use hazardous, non-hazardous, biological or other materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials. We and our suppliers are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our and our suppliers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we and our suppliers cannot completely eliminate the risk of contamination or injury resulting from medical or

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hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.

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Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.

Our internal computer systems and the systems of our CROs, contractors and consultants are vulnerable to damage from computer viruses and unauthorized access.cybersecurity threats. Additionally, aswe operate in a result of the ongoing COVID-19 pandemic, we have transitioned certain of our workforce to a remote working model.hybrid work environment. As our employees and our business partners’ employees work from home and access our systems remotely, we may be subject to heightened security and privacy risks, including the risks of cyberattacks and privacy incidents. Cybersecurity threats may include, but are not limited to, social-engineering attacks (including through phishing attacks), business email compromise, online and offline fraud, malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks, access attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, and telecommunications failures among other cybersecurity risks. Threat actors and their techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred. We may expend significant resources to try to protect against these threats to our systems. Certain data privacy and security laws, as well as industry best practice standards, may require us to implement and maintain security measures. While we have implemented security measures designed to protect our systems and confidential and sensitive data, there can be no assurance that these measures will be effective.

While we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed. Other consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Further, our insurance coverage may not be adequate or sufficient in type or amount to protect us from or to mitigate liabilities arising out of our privacy and security practices.

We may not realize the benefits of acquired assets or other strategic transactions.

We actively evaluate various strategic transactions on an ongoing basis. We may acquire other businesses, products or technologies as well as pursue joint ventures or investments in complementary businesses. The success of our strategic transactions, and any future strategic transactions depends on the risks and uncertainties involved including:

unanticipated liabilities related to acquired companies or joint ventures;
difficulties integrating acquired personnel, technologies, and operations into our existing business;
retention of key employees;
diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition integration challenges;
increases in our expenses and reductions in our cash available for operations and other uses;
disruption in our relationships with collaborators or suppliers as a result of such a transaction; and possible write-offs or impairment charges relating to acquired businesses or joint ventures.

If any of these risks or uncertainties occur, we may not realize the anticipated benefit of any acquisition or strategic transaction. Additionally, foreign acquisitions and joint ventures are subject to additional risks, including those related to integration of operations across different cultures and languages, currency risks, potentially adverse tax consequences of overseas operations and the particular economic, political and regulatory risks associated with specific countries.

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Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could have a material adverse effect on our financial condition.

Risks Related to Government Regulation

Risks Related to Regulatory Approval

The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing, and distribution of drug products, including biologics, are subject to extensive regulation by the FDA and other regulatory authorities in the United States. We are not permitted to market any biological drug product in the United States until we receive approval of a biologics license application (BLA) from the FDA. We have not previously submitted a BLA to the FDA, or similar approval filings to the EMA or comparable

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foreign authorities. A BLA must include extensive preclinical and clinical data and sufficient supporting information to establish the product candidate’s safety and effectiveness for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing and controls for the product.

We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA has limited experience with commercial development of allogeneic T cell therapies for autoimmune diseases and cancer. We may also request regulatory approval of future product candidates by target, regardless of cancer type or origin, which the FDA may have difficulty accepting if our clinical trials only involved cancers of certain origins. The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support licensure. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain licensure of the product candidates based on the completed clinical trials, as the FDA often adheres to the Advisory Committee’s recommendations. Accordingly, the regulatory approval pathway for our product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.

We may also experience delays in obtaining regulatory approvals, including but not limited to:

obtaining regulatory authorization to begin a trial, if applicable;
redesigning our study protocols and need to conduct additional studies as may be required by a regulator;
governmental or regulatory delays and changes in regulation or policy relating to the development and commercialization of our product candidate by the FDA, EMA or other comparable foreign regulatory authorities;
the outcome, timing and cost of meeting regulatory requirements established by the FDA, EMA and other comparable foreign regulatory authorities;
the availability of financial resources to commence and complete the planned trials;
negotiating the terms of any collaboration agreements we may choose to initiate or conclude;
reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
failure of third-party contractors, such as CROs, or investigators to comply with regulatory requirements, including GCP standards;
clinical sites deviating from trial protocol or dropping out of a trial;
delay or failure in obtaining the necessary approvals from regulators or institutional review boards, or IRBs, in order to commence a clinical trial at a prospective trial site, or their suspension or termination of a clinical trial once commenced;

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Inabilityinability to recruit and enroll suitable patients to participate in a trial;
having patients complete a trial, including having patients enrolled in clinical trials dropping out of the trial before the product candidate is manufactured and returned to the site, or return for post-treatment follow-up;
difficulty in having patients complete a trial or return for post-treatment follow-up;
addressing any patient safety concerns that arise during the course of a trial;
inability to add new clinical trial sites;
varying interpretations of the data generated from our preclinical studies or clinical trials;
the cost of defending intellectual property disputes, including patent infringement actions brought by third parties;
the effect of competing technological and market developments;

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the cost and timing of establishing, expanding and scaling manufacturing capabilities;
inability to manufacture, or obtain from third parties, sufficient quantities of qualified materials under cGMPs, for the completion in preclinical and clinical studies;
problems with biopharmaceutical product candidate storage, stability and distribution resulting in global supply chain disruptions;
the cost of establishing sales, marketing and distribution capabilities for any product candidate for which we may receive regulatory approval in regions where we choose to commercialize our products on our own; or
potential unforeseen business disruptions or market fluctuations that delay our product development or clinical trials and increase our costs or expenses, such as business or operational disruptions, delays, or system failures due to malware, unauthorized access, terrorism, war, natural disasters, strikes, geopolitical conflicts, restrictions on trade, import or export restrictions, or public health crises, such as the ongoing COVID-19 pandemic.crises.

We could also encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which such trials are being conducted or by the FDA, EMA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA or other regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or based on a recommendation by the Data Safety Monitoring Committee. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.

Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ultimately lead to the denial of regulatory approval of our product candidates.

We expect the product candidates we develop will be regulated as biological products, or biologics, and therefore they may be subject to competition sooner than anticipated.from biosimilar products.

The Biologics Price Competition and Innovation Act (BPCIA) was enacted as part of the Affordable Care Act to establish an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The

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regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an approved biologic. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the reference product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement the BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

We believe that any of theour product candidates we develop that are approved in the United States as a biological product under a BLA should qualify for the 12-year period of reference product exclusivity. However, there is a risk that this exclusivity could be shortened due to congressionalCongressional action or otherwise, potentially creating the opportunity for genericbiosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of the reference productsproduct in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors, including under state laws, that are still developing.

The regulatory landscape that will govern our product candidates is uncertain; regulations relating to more established cell therapy products are still developing, and changes in regulatory requirements could result in delays or discontinuation of development of our product candidates or unexpected costs in obtaining regulatory approval.

Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy and durability of effect must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

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Because we are developing novel allogeneic cell immunotherapy product candidates, the regulatory requirements that we will be subject to are not entirely clear. Even with respect to more established products that fit into the category of cell therapies, the regulatory landscape is still developing. For example, regulatory requirements governing cell therapy products have changed frequently and may continue to change in the future. Moreover, there is substantial, and sometimes uncoordinated, overlap in those responsible forthe regulation of existing cell therapy products.

Complex regulatory environments also exist in other jurisdictions in which we might consider seeking regulatory approvals for our product candidates, further complicating the regulatory landscape. For example, in the EU a special committee called the Committee for Advanced Therapies (CAT) was established within the EMA in accordance with Regulation (EC) No 1394/2007 on advanced-therapy medicinal products (ATMPs) to assess the quality, safety and efficacy of ATMPs, and to follow scientific developments in the field. ATMPs include somatic cell therapy products and tissue engineered products. These various regulatory review committees and advisory groups and new or revised guidelines that they promulgate from time to time may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. Because the regulatory landscape for our gamma delta CAR-T cellCAR T-cell product candidates is new, we may face even more cumbersome and complex regulations than those emerging for cell therapy products. Furthermore, even if our product candidates obtain required regulatory approvals, such approvals may later be withdrawn as a result of changes in regulations or the interpretation of regulations by applicable regulatory agencies.

Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business.

The FDA may disagree with our regulatory plan and we may fail to obtain regulatory approval of our product candidates.

The general approach for FDA approval of a new biologic or drug is for the sponsor to provide dispositive data from two well-controlled, Phase 3 clinical studies of the relevant biologic or drug in the relevant patient population. Phase 3 clinical studies typically involve hundreds of patients, have significant costs and take years to complete. We expect registrational trials for our product candidates to be designed to evaluate the efficacy of the product candidate in an open-label, non-comparative, two-stage, pivotal, multicenter, single-arm clinical trial in patients who have exhausted available treatment options. If the results are sufficiently compelling, we intend to discuss with the FDA submission of a BLA for the relevant product candidate. Subject to clinical data and regulatory feedback, in the first half of 2025, we plan to define the regulatory path for a potentially pivotal Phase 2 study for ADI-001 and provide a further clinical update in the second half of 2025. However, the process of clinical development is inherently uncertain and we do not have any agreement or guidance from the FDA that itsour future regulatory development plans are

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acceptable or will be sufficient forto support submission of a BLA. In addition, the FDAFor example, we may only allow us to evaluate patients that have failedseek an accelerated approval pathway for our one or who are ineligible for autologous therapy, which are extremely difficult patients to treat and patients with advanced and aggressive cancer, andmore of our product candidates may failfrom the FDA, EMA or comparable foreign regulatory authorities. If we decide to improve outcomessubmit an application for accelerated approval, there can be no assurance that such patients.application will be accepted or that any approval will be granted on a timely basis, or at all.

The FDA may grant accelerated approval for our product candidates and, asthat meet the criteria for accelerated approval. As a condition for accelerated approval, the FDA may require a sponsor of a drug or biologic receiving accelerated approval to perform post marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint,endpoint. Under the Food and Drug Omnibus Reform Act of 2022 (FDORA), the FDA is permitted to require, as appropriate, that a post-approval confirmatory study or studies be underway prior to approval or within a specified time period after the date of accelerated approval was granted. FDORA also requires sponsors to send updates to the FDA every 180 days on the status of such studies, including progress toward enrollment targets, and the FDA must promptly post this information publicly. FDORA also gives the FDA increased authority to withdraw approval of a drug or biologic may be subjectgranted accelerated approval on an expedited basis if the sponsor fails to withdrawal procedures byconduct such studies in a timely manner, send the necessary updates to the FDA, or if such post-approval studies fail to verify the drug’s predicted clinical benefit. Under FDORA, the FDA is empowered to take action, such as issuing fines, against companies that are morefail to conduct with due diligence any post-approval confirmatory study or submit timely reports to the agency on their progress. Even if we seek to utilize the accelerated than those availableapproval pathway, we may not be able to obtain accelerated approval and, even if we do, we may not experience a faster development, regulatory review or approval process for regular approvals.that product. In addition, receiving accelerated approval does not assure that the product’s accelerated approval will eventually be converted to a traditional approval. Further, the standard of care may change with the approval of new products in the same indications that we are studying. This may result in the FDA, EMA or other regulatory agencies requesting additional studies to show thatevaluate our product candidate is superiorrelative to the new products.

Our clinical trial results may also not support approval. In addition, our product candidates could fail to receive regulatory approval for many reasons, including the following:

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective for any of their proposed indications;
the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval, including due to the heterogeneity of patient populations;
we may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;

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the FDA or comparable foreign regulatory authorities will inspect our commercial manufacturing facility (or our CDMO's facility) and may not approve our facility;find it acceptable; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

We may seek orphan drug designation for some or all of our product candidates across various indications, but we may be unable to obtain such designations or to maintain the benefits associated with orphan drug designation, including market exclusivity, which may cause our revenue, if any, to be reduced.

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that

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the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. In order to obtain orphan drug designation, the request must be made before submitting a BLA. In the U.S., orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval of that particular product for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a BLA, to market the same biologic (meaning, a product with the same principal molecular structural features) for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other biologics that do not have the same principal molecular structural features for use in treating the same indication or disease or the same biologic for a different indication or disease during the exclusivity period. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product or if a subsequent applicant demonstrates clinical superiority over our products.

We may seek orphan drug designation for some or all of our product candidates in specific orphan indications in which there is a medically plausible basis for the use of these products. Even if we obtain orphan drug designation, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition, or if a subsequent applicant demonstrates clinical superiority over our products, if approved. In addition, although we may seek orphan drug designation for other product candidates, we may never receive such designations. Further, the FDA may further reevaluate its regulations and policies under the Orphan Drug Act. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.

Regenerative Medicine Advanced Therapy (RMAT)

A fast track designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our product candidates will receive marketing approval.

We have received fast track designation for ADI-001 for the treatment of NHL. If a drug or biologic is intended for the treatment of a serious or life-threatening condition and the product candidate demonstrates the potential to address unmet medical needs for this condition, the product candidate sponsor may apply for fast track designation for a particular indication. We may seek fast track designation for certain of our product candidates, but there is no assurance that the FDA will grant this status to any of our product candidates. Marketing applications filed by sponsors of product candidate with fast track designation may qualify for priority review under the policies and procedures offered by the FDA, but the fast track designation does not assure any such qualification or ultimate marketing approval by the FDA. The FDA has broad discretion whether or not to grant fast track designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a fast track designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. In addition, the FDA may withdraw any fast track designation at any time.

RMAT designation, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.

We may seek RMAT designation for one or more of our product candidates. In 2017, the FDA established the RMAT designation to expedite review of a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and for which preliminary clinical evidence indicates that the potential to address unmet medical needs for such a disease or condition. RMAT designation

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provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. There is no assurance that we will be able to obtain RMAT designation for any of our product candidates. RMAT designation does not change the FDA’s standards for product approval, and there is no assurance that such designation will result in expedited review or approval or that the approved indication will not be narrower than the indication covered by the designation. Additionally, RMAT designation can be revoked if the criteria for eligibility cease to be met as clinical data emerges.

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Positive results from early preclinical studies and clinical trials are not necessarily predictive of the results of any future clinical trials of our product candidates, and may change as more patient data becomes available and is subject to audit and verification procedures that could result in material changes in the final data. If we cannot replicate the positive results from our earlier preclinical studies and clinical trials of our product candidates in our future clinical trials, we may be unable to successfully develop, obtain regulatory approval for and commercialize our product candidate.

From time to time, we may publish interim, top-line or preliminary results from our preclinical studies or clinical trials. Such clinical results are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. Preliminary or “top line”“top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously announced. As a result, interim, “top-line,” and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. It is also difficult to predict the timing of announcing interim results.

Accordingly, any positive results from our preclinical studies and ongoing and future clinical trials of our product candidates may not necessarily be predictive of the results from required later clinical trials. Similarly, even if we are able to complete our planned preclinical studies or any future clinical trials according to our current development timeline, the positive results from such preclinical studies and clinical trials may not be replicated in subsequent preclinical studies or clinical trial results.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidate performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or similar regulatory approval.

Additionally, our ongoing clinical trial utilizes an “open-label” trial design, as may be the case in planned future clinical trials. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. The results from an open-label trial may not be predictive of future clinical trial results with any of our product candidates when studied in a controlled environment with a placebo or active control.

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If the clinical updates, or the interim, "top-line", or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our product candidates, our business, operating results, prospects or financial condition may be harmed.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

Additionally, on June 23, 2016, the UK held a referendum in which a majority of voters approved an exit from the EU, or Brexit, and the UK formally left the EU on January 31, 2020. There was a transition period during which EU pharmaceutical laws continued to apply to the UK, which expired on December 31, 2020. However, the EU and the UK have concluded a trade and cooperation agreement or TCA,(TCA) which was provisionally applicable since January 1, 2021 and has been formally applicable since May 1, 2021. The TCA includes specific provisions concerning pharmaceuticals, which include the mutual recognition of GMP, inspections of manufacturing facilities for medicinal products and GMP documents issued, but does not foresee wholesale

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mutual recognition of UK and EU pharmaceutical regulations. At present, Great Britain has implemented EU legislation on the marketing, promotion and sale of medicinal products through the Human Medicines Regulations 2012 (as amended) (under the Northern Ireland Protocol, the EU regulatory framework will continue to apply in Northern Ireland). The regulatory regime in Great Britain therefore currently aligns in the most part with EU regulations, however it is possible that these regimes will diverge in future now that Great Britain’s regulatory system is independent from the EU and the TCA does not provide for mutual recognition of UK and EU pharmaceutical legislation. For example, the new Clinical Trials Regulation, which became effective in the EU on January 31, 2022 and provides for a streamlined clinical trial application and assessment procedure covering multiple EU Member States, has not been implemented into UK law, and a separate application will need to be submitted for clinical trial authorization in the UK. The separate, and potentially diverging, regulatory regimes between Great Britain and the EU may increase our regulatory burden of applying for and obtaining authorization in Great Britain and the EU.

Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any regulatory approvals that we receive for our product candidates will require post-market surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a risk evaluation and mitigation strategy (REMS), in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any

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clinical trials that we conduct post-approval. As such, we and our contract manufacturers are required to register establishments with the FDA and certain state agencies, and will be subject to continual review and unannounced inspections by the FDA and state agencies to assess compliance with cGMPs and adherence to commitments made in any BLA, other marketing application and previous responses to inspectional observations. Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations and applicable product tracking and tracing requirements. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also notify the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the United States. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. In addition, the FDA could require us to conduct another study to obtain additional safety or biomarker information.

Further, weeven if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. We will also be required to comply with FDA's promotion and advertising rules, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved uses (known as “off-label use”), limitations on industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet and social media. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label may be subject to significant liability. However, physicians may, in their independent medical judgment, prescribe legally available products for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatments, but the FDA does restrict manufacturer’smanufacturers' communications on the subject of off-label use of their products. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party suppliers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market or voluntary or mandatory product recalls;
fines, warning letters or holds on clinical trials;
refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;
product seizure or detention, or refusal to permit the import or export of our product candidates; and
injunctions or the imposition of civil or criminal penalties.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

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Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers and others in the medical community, adversely affecting our ability to achieve our commercial and financial projections.

The use of engineered gamma delta T cells as a potential treatments for autoimmune diseases and cancer treatment is a recent development and may not become broadly accepted by physicians, patients, hospitals, cancer treatment centers and others in the medical community. We expect physicians, in the large bone marrow transplant centersincluding rheumatologists, nephrologists and oncologists, to be particularly important to the market acceptance of our products and we may not be able to educate them on the

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benefits of using our product candidates for many reasons. Additional factors will influence whether our product candidates are accepted in the market, including:

the clinical indications for which our product candidates are approved;
physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;
the potential and perceived advantages of our product candidates over alternative treatments;
the prevalence and severity of any side effects;
product labeling or product insert requirements of the FDA, EMA or other regulatory authorities;
limitations or warnings contained in the labeling approved by the FDA;
the timing of market introduction of our product candidates as well as competitive products;
the cost of treatment in relation to alternative treatments;
the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;
the willingness of patients to pay out-of-pocket in the absence of coverage and adequate reimbursement by third-party payors and government authorities;
relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and
the effectiveness of our sales and marketing efforts.

If our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, cancer treatment centers or others in the medical community, we will not be able to generate significant revenue. Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates, if approved, profitably.

Successful sales of our product candidates, if approved, depend on the availability of coverage and adequate reimbursement from third-party payors including governmental healthcare programs, such as Medicare and Medicaid, managed care organizations and commercial payors, among others. Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In addition, because our product candidates represent new approaches to the treatment of autoimmune diseases and cancer, we cannot accurately estimate the potential revenue from our product candidates. SeeFor further discussion on coverage and reimbursement matters, see the section entitled Business – Business–Government Regulation and Product Approval – Approval–Coverage, Pricing and Reimbursement”in elsewhere in this Annual Report on Form 10-K.

Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Obtaining coverage and adequate reimbursement from third-party payors is critical to new product acceptance.

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Third-party payors decide which drugs and treatments they will cover and the amount of reimbursement. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination that use of a product is:

a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.

Obtaining coverage and reimbursement of a product from a government or other third-party payor is a time consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain coverage for a given product, if the resulting reimbursement rates are insufficient, hospitals may not approve our product for use in their facility or third-party payors may require co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost of our product candidates. Separate reimbursement for the product itself may or may not be available. Instead, the hospital or administering physician may be reimbursed only for providing the treatment or procedure in which our product is used. Further, from time to time, CMSCenters for Medicare and Medicaid Services (CMS) revises the reimbursement systems used to reimburse health care providers, including the Medicare Physician Fee Schedule and Outpatient Prospective Payment System, which may result in reduced Medicare payments. In some cases, private third-party payers rely on all or portions of Medicare payment systems to determine payment rates. Changes to government healthcare programs that reduce payments under these programs may negatively impact payments from private third-party payers and reduce the willingness of physicians to use our product candidates.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Because our product candidate may have a higher cost of goods than conventional therapies, and may require long-term follow-up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater. There is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidate. Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. Additional state and federal healthcare reform measures are expected to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for certain pharmaceutical products or additional pricing pressures. Specifically, there have been several United States Congressional inquiries and federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, cost containment initiatives and additional legislative changes.

Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives.

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We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. Increased efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidate. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in Europe, the pricing of biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. Some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other EU member states allow companies to fix their own prices for medicines but monitor and control company profits. The downward pressure on health care costs has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any product candidates for which we receive regulatory approval for commercial sale may suffer if government and other third-party payors fail to provide coverage and adequate reimbursement. We expect downward pressure on pharmaceutical pricing to continue. Further, coverage policies and third-party reimbursement rates may change at any time.

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Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

The advancement of healthcare reform may negatively impact our ability to sell our product candidates, if approved, profitably.

Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our product candidates, if approved, profitably. SeeFor further discussion on healthcare reform matters, see the section entitled “BusinessBusiness – Government Regulation and Product Approval – Healthcare Reform” elsewhereReform in this Annual Report on Form 10-K.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.

The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical and biologics pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in various congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.

On July 9, 2021, President Biden issued an executive order directing the FDA to, among other things, continue to clarify and improve the approval framework for generic drugs and biosimilars, including the standards for interchangeability of biological products, facilitate the development and approval of biosimilar and interchangeable products, clarify existing requirements and procedures related to the review and submission of BLAs, and identify and address any efforts to impede generic drug and biosimilar competition.

We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. Federal Government will pay for healthcare drugs and services, which could result in reduced demand for our drug candidates or additional pricing pressures. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain drug access and marketing cost disclosure and transparency measures, and designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, financial condition, results of operations and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our drugs or put pressure on our drug pricing, which could negatively affect our business, financial condition, results of operations and prospects. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

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the demand for our product candidates if we obtain regulatory approval;
our ability to set a price that it believes is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.

Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

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Risks Related to Our Intellectual Property

Risks Related to Our Intellectual Property

If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and license agreements to protect the intellectual property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

Additional patent applications have been filed, and we anticipate additional patent applications will be filed, both in the United States and in other countries, as appropriate. However, we cannot predict:

if and when patents will issue;
the degree and range of protection any issued patents will afford us against competitors including whether third parties will find ways to invalidate or otherwise circumvent our patents;
whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; or
whether we will need to initiate litigation or administrative proceedings which may be costly whether we win or lose.

Composition of matter patents for biological and pharmaceutical products such as CAR-based product candidates often provide a strong form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain that the claims in our pending patent applications covering composition of matter of our product candidates will be considered patentable by the United States Patent and Trademark Office (USPTO), or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered valid and enforceable by courts in the United States or foreign countries. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the patentability, validity, enforceability or scope thereof, for example through inter partes review (IPR) post-grant review or ex parte reexamination before the USPTO

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or oppositions and other comparable proceedings in foreign jurisdictions, which may result in such patents being cancelled, narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing their products to avoid being covered by our claims. If the breadth or strength of protection provided by the patents and patent applications we hold with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. United States patent applications containing or that at any time contained a claim not entitled to a priority date before March 16, 2013 are subject to the “first to file” system implemented by the America Invents Act (2011).

This first to file system will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that it was the first to file any patent application related to our product candidates. Furthermore, for United States applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For United States applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law in view of the passage of the America Invents Act, which brought into effect significant changes to the United States patent laws, including new procedures for challenging patent applications and issued patents.

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We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses.

We may require access to additional intellectual property to develop our current or future product candidates. Accordingly, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights.

Our product candidates may also require specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, which would harm our business. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. We may need to cease use of the compositions or methods covered by such third-party intellectual property rights.

The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our patents is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.

Interference proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does

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not offer us a license on commercially reasonable terms. Litigation or interference proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

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The lives of our patents may not be sufficient to effectively protect our products and business.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its first effective filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from biosimilar or generic medications. In addition, although upon issuance in the United States a patient’s life can be increased based on certain delays caused by the USPTO, this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. If we do not have sufficient patent life to protect our products, our business and results of operations will be adversely affected.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We may in the future be subject to claims that former employees, collaborators, or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Issued patents covering our product candidates could be found unpatentable, invalid or unenforceable if challenged in court or the USPTO.

If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include IPR, ex parte re-examination and post grant review in the United States, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that

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they no longer cover and protect our product candidates. The outcome following legal assertions of unpatentability, invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of unpatentability, invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.

Risks Related to Third Party Intellectual Property

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

We are dependent on patents, know-how and proprietary technology, both our own and licensed from others. We depend substantially on our license agreements with Regeneron. These licenses may be terminated upon certain conditions. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates. To the extent these licensors fail to meet their obligations under their license agreements, which we are not in control of, we may lose the benefits of our license agreements with these licensors. In the future, we may also enter into additional license agreements that are material to the development of our product candidates.

Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including those related to:

the scope of rights granted under the license agreement and other interpretation-related issues;
whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
our right to sublicense patent and other rights to third parties under collaborative development relationships;

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our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; and
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.

If disputes over intellectual property that we have licensed or license in the future, prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

We are generally also subject to all of the same risks with respect to protection of intellectual property that we license, as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize products could suffer.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our product discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Trade secrets, however, may be difficult to protect. Although we require all of our employees to assign their inventions to us, and require all of our employees and key consultants who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent

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unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results, and financial condition.

Third-party claims of intellectual property infringement may prevent or delay our product discovery and development efforts.

Our commercial success depends in part on us avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.

We are aware of United States and foreign patents held by a third parties relating to gamma delta T cell expansion protocols and related compositions which, on information and belief, are invalid and/or not infringed. In the event that these patents are successfully asserted against our product candidates, such as ADI-001, ADI-270 and ADI-002, or the use of our precursor cells in manufacture of these product candidates, such litigation may negatively impact our ability to commercialize these product candidates in such jurisdictions. We are also aware of several United States and foreign patents held by third parties relating to certain CAR compositions of matter, methods of making and methods of use which, on information and belief, are invalid and/or not infringed. Nevertheless, third parties may assert that we infringe their patents or are otherwise employing their proprietary technology without authorization and may sue us. Generally, conducting clinical trials and other development activities in the United States is not considered an act of infringement. If and when ADI-001, orADI-270, ADI-002 or another CAR-based product candidate is approved by the FDA, third parties may then seek to enforce their patents by filing a patent infringement lawsuit against us. Patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof. We may not be able to prove in litigation that any patent enforced against us is invalid and/or not infringed.

Additionally, there may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, constructs or molecules used in or formed during the manufacturing process, or any final product itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held not infringed, unpatentable, invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent

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jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the product candidate unless we obtained a license or until such patent expires or is finally determined to be held not infringed, unpatentable, invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business and may impact our reputation. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly.

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Risks Related to Intellectual Property Laws

Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. Recent United States Court of Appeals for the Federal Circuit and Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the United States Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

We may not be able to protect our intellectual property rights throughout the world.

We may not be able to protect our intellectual property rights outside the United States Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United StatesStates. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions in and intooutside of the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United StatesStates. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that it develops or licenses.

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of

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these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

Risks Related to Ownership of Our Common Stock

Risks Related to Ownership Generally

An active trading market for our common stock may not be sustained. If an active trading market is not sustained, our ability to raise capital in the future may be impaired.

Our shares began trading on The Nasdaq Global Select Market on January 26, 2018. Given the limited trading history of our common stock, there is a risk that an active trading market for our shares may not be sustained, which could put downward pressure on the market price of our common stock and thereby affect your ability to sell shares you purchased. An inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and impair our ability to acquire other companies or technologies by using our shares as consideration.

The trading price of our common stock is highly volatile, which could result in substantial losses for purchasers of our common stock. Securities class action or other litigation involving our company or members of our management team could also substantially harm our business, financial condition and results of operations.

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Our stock price is highly volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. In addition, if the market for pharmaceutical and biotechnology stocks or the broader stock market continues to experience a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. As a result of this volatility, you may not be able to sell your common stock at or above the purchase price and you may lose some or all of your investment. The market price for our common stock may be influenced by many factors, including:

the success of existing or new competitive products or technologies;
regulatory actions with respect to our product candidates or our competitors’ products and product candidates;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
the timing and results of clinical trials of ADI-001;
our ability to obtain FDA clearance of additional INDs for ADI-001 in NHL;autoimmune indications;
the timing and results of preclinical studies of ADI-270;
commencement or termination of collaborations for our development programs;
failure or discontinuation of any of our development programs;
results of clinical trials of product candidates of our competitors;
regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
the level of expenses related to any of our product candidates or clinical development programs;
the results of our efforts to develop additional product candidates or products;
issues or delays regarding the manufacturing of our product candidates and, if approved, products by us or by our third-party suppliers;
actual or anticipated changes in estimates as to financial results or development timelines;
announcement or expectation of additional financing efforts;
sales of our common stock by us, our insiders or other stockholders;
variations in our financial results or those of companies that are perceived to be similar to us;
changes in estimates or recommendations by securities analysts, if any, that cover us;
changes in the structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.

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In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for biopharmaceutical companies, which have experienced significant stock price volatility in recent years. We have been, and may in the future be, subject to securities litigation related to corporate governance matters determined in good faith by our board of directors, including the stock option repricing in August 2023 in accordance with the terms of our 2015 Plan and 2018 Plan. Even if the allegations against us are unfounded or we ultimately are not held liable, we may experience related negative publicity resulting in damage to our reputation. Further, the costs to defend ourselves may be significant and the litigation may subject us to

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substantial settlements, fines, penalties or judgments against us and may consume management’s bandwidth and attention, some or all of which may negatively impact our financial condition and results of operations.

An active trading market for our common stock may not be sustained. If an active trading market is not sustained, our ability to raise capital in the future may be impaired.

Our common stock began trading on The Nasdaq Global Select Market on January 26, 2018 and now trades on The Nasdaq Global Market under the symbol “ACET.” Given the limited trading history of our common stock, there is a risk that an active trading market for our shares may not be sustained, which could put downward pressure on the market price of our common stock and thereby affect your ability to sell shares you purchased. An inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and impair our ability to acquire other companies or technologies by using our shares as consideration.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Our executive officers, directors, and 5% stockholders beneficially owned, in the aggregate, approximately 42.2%56.9% of our outstanding voting common stock.stock as of December 31, 2023. Accordingly, these stockholders will have the ability to influence us through this ownership position and significantly affect the outcome of all matters requiring stockholder approval. For example, these stockholders may be able to significantly affect the outcome of elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Risks Related to Market Uncertainties

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

The global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, volatile interest rates, rising and fluctuating inflation rates, reduced corporate profitability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. In addition, inflation rates in the U.S. have recently increased to levels not seen in decades.

We believe that the state of global economic conditions are particularly volatile and uncertain not only in light of the COVID-19 pandemic and the potential global recession resulting therefrom, but also due to recent and expected shifts in political, legislative and regulatory conditions concerning, among other matters, international trade and taxation, and that an uneven recovery or a renewed global downturn may negatively impact our ability to conduct clinical trials on the scale and timelines anticipated. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business or political environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make obtaining any necessary debt or equity financing more difficult, more costly and more dilutive. For example, as a result of political, social, and economic instability abroad, including as a result of armed conflict, war or threat of war, in particular, the current conflict between Russia and Ukraine, including resulting sanctions, terrorist activity and other security concerns in general, there could be a significant disruption of global financial markets, impairing our ability to raise capital when needed on acceptable terms, if at all. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive an economic downturn, which could directly affect our ability to attain our operating goals on schedule and on budget. To the extent that our profitability and strategies are negatively affected by downturns or volatility in general economic conditions, our business and results of operations may be materially adversely affected.

Our business is affected by macroeconomic conditions, including rising inflation, interest rates and supply chain constraints.

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Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global financial markets. For instance, rising interest rates have impacted our net income. Recent supply chain constraints have led to higher inflation, which, if sustained, could have a negative impact on our product development and operations. If inflation or other factors were to significantly increase our business costs, our ability to develop our current pipeline and new therapeutic products may be negatively affected. Current capital market conditions, including the impact of inflation, have increased borrowing rates and can be expected to significantly increase our cost of capital as compared to prior periods and could also affect our ability to raise capital on favorable terms, or at all, in order to fund our operations. Similarly, these macroeconomic factors could affect the ability of our third-party suppliers and manufacturers to manufacture clinical trial materials for our product candidates.

Risks Related to our Charter and Bylaws

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our third amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;
a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, or by a majority of the total number of authorized directors;
advance notice requirements for stockholder proposals and nominations for election to our board of directors;
a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of the holders of not less than 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors;

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a requirement of approval of not less than 75% of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and
the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our amended and restated bylaws provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

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Our amended and restated bylaws specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our director, officer or other employee of the Company to the Companyus or the Company’sour stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the restated certificate of incorporation or amended and restated bylaws, or (iv) any action asserting a claim against the Companyus governed by the internal affairs doctrine.doctrine (Delaware Forum Provision); provided, however, that the Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. This choice of forum provision contained in our amended and restated bylaws will not apply to any causes of action arising under the Securities Act or the Exchange Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated bylaws described above; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.

We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors, officers, employees and agents as it may limit any stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our directors, officers, employees or agents. The enforceability of similar choice of forum provisions in other companies’ bylaws or certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our amended and restated bylaws to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

General Risk Factors

We are an EGC and the reduced disclosure requirements applicable to EGCs may make our common stock less attractive to investors.

We are an EGC, and, for as long as we continue to be an EGC, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” We will remain an EGC until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a large accelerated filer, with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. For as long as we remain an “emerging growth company,” we expect to avail ourselves of the exemptions from various reporting requirements applicable to other public companies but not to EGCs, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (Section 404).

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Assuming we do not surpass one of the thresholds in clauses (1) through (3), our status as an EGC will end on December 31, 2023, which will be the last day of the fiscal year ending after the fifth anniversary of our initial public offering. As such, we will be subject to the disclosure requirements applicable to other public companies that were not applicable to us as an EGC. These requirements include:

compliance with the auditor attestation requirements of Section 404;
compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
full disclosure obligations regarding executive compensation; and
compliance with the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.


When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Additionally, we expect that our loss of EGC status will require additional attention from management and will result in increased costs to us, which could include higher legal fees, accounting fees and fees associated with investor relations activities, among others.

We are also a SRC and the reduced disclosure requirements applicable to SRCs may make our common stock less attractive to investors.

We are considered a SRC under Rule 12b-2 of the Exchange Act. We are therefore entitled to rely on certain reduced disclosure requirements, such as an exemption from providing selected financial data and executive compensation information. These exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company also mean our auditors are not required to review our internal control over financial reporting and may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our common stock prices may be more volatile. We will remain a smaller reporting company untilfor as long as (i) the market value of our public float exceeds $250common stock held by non-affiliates is less than $250.0 million or (ii) our annual revenues exceed $100revenue is less than $100.0 million with a public float greaterduring the most recently completed fiscal year and the market value of our common stock held by non-affiliates is less than $700 million.$700.0 million as of the prior June 30.


We have broad discretion over the use of our cash and cash equivalents and marketable securities and may not use them effectively.

Our management has broad discretion to use our cash and cash equivalents and marketable securities to fund our operations and could spend these funds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending our use to fund operations, we may invest our cash and cash equivalents and marketable securities in a manner that does not produce income or that loses value.


We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly, stockholders must rely on capital appreciation, if any, for any return on their investment.

We have never declared nor paid cash dividends on our capital stock. We currently plan to retain all of our future earnings, if any, to finance the operation, development and growth of our business. In addition, the terms of any future debt or credit agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish

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reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability as a result of the future clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend themselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

decreased demand for our product candidates;
injury to our reputation;
withdrawal of clinical trial participants;
initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
exhaustion of any available insurance and our capital resources; and
the inability to commercialize any product candidate.

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. Assuming we obtain clinical trial insurance for our clinical trials, we may have to pay amounts awarded by a court or negotiated in a settlement that exceeds our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle it to indemnification against losses, such indemnification may not be available or adequate should any claim arise.


Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the

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market price of our common stock. Certain holders of our common stock have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Registration of these shares under the Securities Act of 1933, as amended (Securities Act) would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

On March 12, 2021,15, 2022, we filed a registration statement on Form S-3 (File No. 333-254193)333-263587) with the SEC, which was amended by the Amendment No. 1 to the Registration Statement on Form S-3, as filed with the SEC on March 16, 2022, declared effective on March 30, 2021 (ShelfMay 9, 2022 (2022 Shelf Registration Statement), in relation to the registration of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof for the purposes of selling, from time to time, our common stock, debt securities or other equity securities in one or more offerings. We also simultaneously entered intoUnder the 2022 Shelf Registration Statement and a Capital On Demand™ Sales Agreement (Sales Agreement) with JonesTrading Institutional Services, LLC (Sales Agent), to provide for theprospectus supplement filed on January 22, 2024, on January 25, 2024, we completed an underwritten public offering issuance and sale of up to an aggregate amount of $75.0 million32,379,667 shares of our common stock, from timewhich included 5,325,000 shares sold and issued upon the exercise in full by the underwriters of their option to time in “at-the-market” offerings under the Shelf Registration Statement and subject to the limitations thereof. The Company will pay to the Sales Agent cash commissions of 3% of the aggregate gross proceeds of sales of common stock under the Sales Agreement. Sales of common stock, debt securities or other equity securities by us may represent a significant percentagepurchase additional shares of our common stock, currently outstanding.and, in lieu of common stock to certain investors, pre-funded warrants to purchase 8,445,333 shares of common stock. The shares of common stock were sold at a public offering price of $2.40 per share and the pre-funded warrants were sold at a public offering price of $2.3999 per pre-funded warrant, which represents the per share public offering price of each share of common stock minus the $0.0001 per share exercise price for each pre-funded warrant. We received $98.0 million in aggregate gross proceeds from the offering, before deducting underwriting discounts and commissions and offering expenses. As a result of this offering, our stockholders experienced significant dilution. If we sell, or the market perceives that we intend to sell, substantial amounts of our common stock under the 2022 Shelf Registration Statement or otherwise, the market price of our common stock could decline significantly.

We have also filed a registration statementstatements on Form S-8 registering the issuance of shares of common stock issued or reserved for future issuance under our equity compensation plans. Shares registered under thisthese registration statementstatements on Form S-8 can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described above. If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

In addition, certain of our employees, executive officers, and directors may enter into Rule 10b5-1 trading plans providing for sales of shares of our common stock from time to time. Under a Rule 10b5-1 trading plan, a broker executes trades pursuant to parameters established by the employee, director, or officer when entering into the plan, without further direction from the employee, officer, or director. A Rule 10b5-1 trading plan may be amended or terminated in some circumstances. Our employees, executive officers, and directors also may buy or sell additional shares outside of a Rule 10b5-1 trading plan when they are not in possession of material, nonpublic information.

 

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Item 1B. Unresolved Staff Comments.

Not applicable.

Item 1C. Cybersecurity.

Cyber Risk Management and Strategy

The Company relies on electronic systems and information technologies to conduct its operations. We have adopted and maintain a cybersecurity risk management program, in accordance with our risk profile and business, that is informed by industry standards.

We leverage the support of third-party information technology and security providers, including to perform penetration testing and threat intelligence analysis. We have previously conducted a cybersecurity risk assessment that was intended to take into account the evolving cyber threat landscape and industry best practices, and we have endeavored to adapt our cyber risk strategy to mitigate emerging cybersecurity risks. We implement a multi-layered approach to cybersecurity that includes, for example, employee security awareness training, various security tools and technologies, and incident response planning.

Although risks from cybersecurity threats have to date not materially affected, and we do not believe they are reasonably likely to materially affect, us, our business strategy, results of operations or financial condition, we could, from time to time, experience threats and security incidents relating to our, and our third party vendors’, information systems. For more information, please see the section entitled “Risk Factors” in this Annual Report on Form 10-K.

Governance Related to Cybersecurity Risks

Our Senior Director of Information Technology (“IT”) reports directly to our Chief Financial Officer and is responsible for the strategic leadership and direction of our cybersecurity program, with support from our Associate Director of Information Security and Senior Manager of IT. With over 20 years of experience in IT and cybersecurity risk management, our Senior Director of IT works alongside individuals across other Company management functions to establish and implement our cybersecurity risk management strategy.

Our audit committee, which reports directly to the board of directors, is responsible for overseeing our cybersecurity risk management program pursuant to the audit committee’s charter. The audit committee receives periodic updates on cybersecurity risks, mitigation strategies, and, if necessary, incident response activities from our Senior Director of IT. The audit committee may update the full board of directors on matters relating to cybersecurity risk management as needed.

Item 2. Properties.

We have offices in Boston, Massachusetts, and Menlo Park,Redwood City, California. Our principal executive offices are located at 200 Clarendon,131 Dartmouth Street, 3rd Floor, 6,Boston, Massachusetts. On January 31, 2024, our Boston, Massachusetts 02116.lease at 200 Berkeley Street was terminated by the landlord due to closing of the office space. On January 19, 2024, we entered into a membership agreement with Industrious Bos 131 Dartmouth Street LLC for office space at 131 Dartmouth Street, Boston, Massachusetts (the Dartmouth Street Agreement). The original term of this leaseDartmouth Street Agreement commenced on February 1, 2024 and expires on MarchJanuary 31, 2022, and was renewed in February 2022 to expire on July 31, 2022. 2025.

We also leasedlease office and laboratory space located in Menlo Park,at 1000 Bridge Parkway, Redwood City, California. The lease expirescommenced on June 30, 2022. In addition, in October 2018, we entered a new lease for officeMarch 31, 2020 and laboratory space in Redwood City, California that expires on February 28, 2030. We expect to complete occupancy in the new facility in the fourth quarter of 2022. In addition, we lease office space at 1200 Bridge Parkway, Redwood City, California. This lease commenced on June 17, 2022 and expires on June 30, 2025.

We believe that our office and laboratory space is sufficient to meet our current needs and that suitable additional space will be available as and when needed.

We are not currently subject to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this report, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

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Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock trades on The Nasdaq Global Market under the symbol “ACET”. Trading of our common stock commenced on January 26, 2018, in connection with our initial public offering of resTORbio. Prior to that time, there was no established public trading market for our common stock.

As of March 10, 2022,14, 2024, we had approximately 2416 holders of record of our common stock. The actual number of holders of our common stock is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividends

We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings, if any, to fund the development and growth of our business. We do not expect to pay any cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects, then applicable contractual restrictions and any other factors deemed relevant by our board of directors. Investors should not purchase our common stock with the expectation of receiving cash dividends.

Equity Compensation Plan

The information required by Item 5 of Form 10‑K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10‑K.

Recent Sales of Unregistered Securities

Securities Purchase Agreement

On February 12, 2021, we entered into a stock purchase agreement with certain existing investors for $15.0 million of shares of our common stock, with an initial closing for certain investors held simultaneously with the closing of our February 2021 public offering and a subsequent closing for certain additional investors. Pursuant to the terms of the private placement, we issued 1,153,840 shares of common stock at a price of $13.00 per share, which was the price per share of our February 2021 public offering (the Private Placement Shares). We received the full proceeds from the sale and did not pay any underwriting discounts or commissions with respect to the shares of common stock that sold in the concurrent private placement. Proceeds from the private placement will be used primarily to fund activities related to our internal discovery research, other pipeline candidates and to fund the continued development of our gamma delta T cell platform; the external costs for the development of ADI-001 through the completion of a Phase 1 dose expansion study for ADI-001 in NHL; and the remainder, if any, to fund working capital and other general corporate purposes. The private placement was exempt from registration pursuant to Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. Pursuant to the terms of the private placement, we subsequently filed a Registration Statement on Form S-3 (File No. 333-256088), dated May 21, 2021, pursuant to which we registered the Private Placement Shares. We have agreed to maintain the effectiveness of the registration statement until such time as all Private Placement Shares covered by the registration statements have been sold or may be sold under Rule 144 without manner of sale restrictions or volume limitations, subject to certain exceptions.None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our equity securities during the period covered by this Annual Report on Form 10-K.

Item 6. Reserved[Reserved].

 

 

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Overview

We are a clinical stage biotechnology company discovering and developing allogeneic gamma delta T cell therapies for autoimmune diseases and cancer. We are advancing a pipeline of “off-the-shelf” gamma delta T cells, engineered with chimeric antigen receptors (CAR) and T cell receptor-like antibodies (TCRL)(CARs), to enhance selective tumor targeting, facilitate innate and adaptive anti-tumor immune response, and improve persistence for durable activity in patients.

Our approach to activate, engineer and manufacture allogeneic gamma delta T cell product candidates derived from the peripheral blood cells of unrelated donors allows us to generate new product candidates in a rapid and cost-efficient manner.

Our lead product candidate, ADI-001, a first-in-class allogeneic gamma delta T cell therapy expressing a CAR targeting CD20, is in an ongoing Phase 1 study for the treatment of Non-Hodgkin's Lymphoma (NHL). Our pipeline also includes ADI-002, an allogeneic gamma delta CAR-T cell therapy expressing a GPC3-targeted CAR and a cell intrinsic soluble form of interluiken-15 (IL-15), for the treatment of solid tumors In addition, we are engaged in discovery and preclinical stage activities directed to expansion of our pipeline of product candidates for both hematological malignancies and solid tumors.

Our proprietary engineering and"off-the-shelf" manufacturing process begins with isolating and expanding gamma delta T cellsis designed to allow product from the blood of unrelated donors to be stored and results in the potentialsold on demand to treat up to 1,000 patients per batch depending on dosing and the CAR target. The potential to administer product candidates based on gamma delta T cells to patients without inducing a graft versus host immune response could mean that our products can potentially be used as “off-the-shelf” therapies.response. This is in contrast to products based on alpha beta T cells, which either must be manufactured for each patient from his or her own T cells, or require significant gene editing to manufacture if the T cells are derived from donors that are unrelated to the patient. Based on what we believe

Our lead product candidate, ADI-001, a first-in-class allogeneic gamma delta T cell therapy expressing a CAR targeting CD20, is being developed for the unique potential treatment of these cellsautoimmune diseases and associated modifications, we are initially developingrelapsed or refractory aggressive B cell non-Hodgkin's lymphoma (NHL). Our pipeline also includes our lead preclinical candidate, ADI-270, an armored gamma delta CAR T cell product candidate targeting renal cell carcinoma, with potential for other CD70+ solid tumor and hematological malignancies indications. Our pipeline has several additional internal gamma delta T cell therapy programs in discovery and preclinical development for both hematological malignancies and solid tumors. We expect to continue to develop product candidates in oncology, bothautoimmune diseases and cancer based on our gamma delta T cell platform using either previously validated antigens or those that we identify and target using CAR and other technology. We plan to file one new Investigational New Drug (IND) application every 12-18 months, including an IND for hematological malignancies and for solid tumors. ADI-270 in the first half of 2024.

ADI-001

Autoimmune Diseases

In October 2020,December 2023, the U.S. Food and Drug Administration (FDA) cleared our Investigational New Drug (IND)IND application for ADI-001 our lead product candidate,in lupus nephritis, an autoimmune disease caused by systemic lupus erythematosus (SLE). Lupus nephritis is a serious complication of SLE which affects approximately 40% of the estimated 325,000 patients with SLE in the U.S. We expect to initiate a Phase 1 clinical trial of ADI-001 for the treatment of Non-Hodgkin’s Lymphoma (NHL). lupus nephritis in the second quarter of 2024 and expand development of the candidate into one to two additional autoimmune indications in the second and third quarters of 2024, subject to clearance of INDs in those indications. We believe the potential market opportunity for ADI-001 in B cell mediated autoimmune diseases is substantial based on the prevalence in the U.S., EU5, China and Japan of greater than 1.7 million patients with autoimmune diseases where CAR-T cell therapy has demonstrated clinical proof-of-concept, including SLE (which includes lupus nephritis), systemic sclerosis and idiopathic inflammatory myopathies.

We anticipate providing preliminary clinical data from our Phase 1 clinical trial of ADI-001 in lupus nephritis in the fourth quarter of 2024 or first quarter of 2025, subject to study site activation and enrollment, and to begin to provide preliminary clinical data in the additional autoimmune indications starting in the fourth quarter of 2024 or first half of 2025, subject to clearance of INDs in those indications as well as successful site initiation and patient enrollment in the relevant clinical protocols.

Relapsed or Refractory Aggressive B cell NHL

In March 2021, we initiated the first-in-human clinicalPhase 1 (GLEAN) trial to assess safety and efficacy of ADI-001 in NHL patients. The Phase 1 study for ADI-001 will enroll up to 80 late-stage NHL patients at a number of cancer centers across the United States.with relapsed or refractory aggressive B cell NHL. The study includes a dose escalation portion followed by dose expansion cohorts to explore the activity of ADI-001 in multiple subtypes of NHL. In December 2021,April 2022, the FDA granted fast track designation for ADI-001 for NHL. As of the May 4, 2023 cutoff date, of the 24 evaluable subjects in the GLEAN trial, 18 had

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large B cell lymphoma (LBCL), five had mantle cell lymphoma (MCL), and one patient had follicular lymphoma. Most patients were heavily pre-treated, with a median four lines of prior therapy, and twelve patients (50%) had previously progressed following CAR T cell therapy. Despite the advanced nature of patients at baseline, we observed a high complete response (CR) rate and favorable durability in MCL patients. Across all doses of MCL patients, we observed an 80% (4/5 patients) overall response rate (ORR), an 80% CR rate (4/5 patients) and a 60% CR rate (3/5 patients) at six months. As of May 4, 2023, the safety profile of ADI-001 was generally favorable, with no significant risk of cytokine release syndrome (CRS), immune effector cell-associated neurotoxicity syndrome (ICANS), or T cell malignancy observed. In November 2023, we initiated an expansion cohort, EXPAND, in post-CAR T LBCL. In January 2024, we announced positive interimour decision to deprioritize enrolling LBCL patients in the GLEAN trial in order to focus on advancing MCL enrollment.

We expect to provide a clinical update from the Phase 1 study in NHL patients which will include efficacy data, including six-month CR rate, and safety data from additional MCL patients in the second half of 2024. Subject to clinical data and regulatory feedback, in the first half of 2025, we plan to define the regulatory path for a potentially pivotal Phase 2 study for ADI-001 in MCL and provide a further clinical update in the second half of 2025.

We have expanded manufacturing capabilities of ADI-001 by transferring the manufacturing process to an additional contract development and manufacturing organization (CDMO) that is capable of operating at a larger scale of production.

ADI-270

ADI-270 is an investigational allogeneic gamma delta CAR T cell therapy targeting CD70 via the CD27-ligand for the treatment of renal cell carcinoma (RCC) and with potential in other solid tumor indications. ADI-270 is designed to home to solid tumors, with a highly specific targeting moiety for CD70 and an armoring technology of transforming growth factor (TGF) beta dominant-negative receptor to address immunosuppressive factors in the tumor microenvironment. Building on gamma delta 1 tissue tropism to solid tumors and three mechanisms of anti-tumor activity (CAR, innate and adaptive), CAR gamma delta 1 T cells may be well positioned to address solid tumors. We plan to file an IND application for ADI-270 in RCC in the second quarter of 2024 and provide clinical data in the first half of 2025, subject to regulatory clearance and study initiation activities. We are also considering potential expansion into additional CD70+ tumor indications in the first half of 2025, with potential clinical data from such studies in the initial dose escalation portionsecond half of this study.2025, subject to regulatory clearance and study initiation activities.

Recent Developments

Public Offerings1000 Bridge Parkway Lease and Private PlacementLetter of Credit

On January 9, 2023, we entered into a third lease amendment (the Third Amendment) with Westport Office Park, LLC (Westport). The Third Amendment further amends the Redwood City Lease and increases the tenant improvement allowance as of January 1, 2023 by an additional $3.0 million. We expect to utilize the full allowance for the continued buildout of office and laboratory space at 1000 Bridge Parkway. Per the terms of this amendment, this additional allowance will be repaid through equal monthly payments of principal amortization and interest on a monthly basis over the term of the lease at an interest rate of eight percent (8%) per annum. We received the allowance on February 21, 2023.

On August 7, 2023, we entered into a fourth lease amendment (the Fourth Amendment) with Westport. The Fourth Amendment amended the period over which the tenant improvement allowance received in the Third Amendment will be amortized and identified our monthly amortization payable.

On September 1, 2023, we amended our letter of credit with Westport. The amendment reduced the amount of the letter of credit associated with our 1000 Bridge Parkway facility by $2.1 million resulting in an updated letter of credit amount of $2.1 million.

Option Repricing

On August 8, 2023, our board of directors approved a stock option repricing (the Option Repricing) to be effective on August 14, 2023 (the Effective Date) in accordance with the terms of our 2015 Stock Incentive Plan and 2018 Plan (together, the Plans). Pursuant to the Option Repricing and subject to a one year cliff period, the exercise price of each stock option previously granted under the Plans, totaling 6,431,910 options, was amended to reduce the exercise price of such options to $2.14 per share, the closing price of our common stock on the Nasdaq Global Market on the Effective Date. Under the terms of the Option Repricing, a repriced option will revert to its original exercise price if, prior to the one-year anniversary of the Effective Date, (a) the option holder’s employment is terminated by us with cause or by the option holder or (b) the option is exercised. The repriced options otherwise retained their existing terms and conditions as set forth in the Plans and applicable award agreements.

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In February 2021,addition, as of the Effective Date, we completedissued 1,418,042 options to purchase shares of common stock under the 2018 Plan to eligible employees who held inducement awards as of August 8, 2023. These new options were issued to eligible employees because their inducement awards granted under Nasdaq Listing Rule 5635(c)(4) are not eligible for repricing. The prior inducement awards remain outstanding under their original terms.

Underwritten Public Offering

On January 22, 2024, we entered into an Underwriting Agreement (the Underwriting Agreement) with Jefferies LLC and Guggenheim Securities, LLC, as representatives of the underwriters (the Underwriters), related to an underwritten public offering (the Offering) of 10,575,51332,379,667 shares of our common stock, includingwhich included 5,325,000 shares sold and issued upon the exercise in full by the underwritersUnderwriters of their option to purchase up to an additional 1,344,743 shares of common stock, and, in lieu of common stock to certain investors, pre-funded warrants to purchase 8,445,333 shares of common stock. The shares of common stock were sold at a public offering price of $13.00 per share. The net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses were approximately $128.8 million.

In connection with the February 2021 offering, we also entered into a stock purchase agreement with certain existing investors to purchase 1,153,840 shares of our common stock for $15.0 million at a price$2.40 per share equal toand the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors. We received the full proceeds from the sale and did not pay any underwriting discounts or commissions with respect to the shares of common stock thatpre-funded warrants were sold in the concurrent private placement. Pursuant to the terms of the private placement, we subsequently filed a Registration Statement on Form S-3 (File No. 333-256088), dated May 21, 2021, pursuant to which we registered the Private Placement Shares. We have agreed to maintain the effectiveness of the registration statement until such time as all Private Placement Shares covered by the registration statements have been sold or may be sold under Rule 144 without manner of sale restrictions or volume limitations, subject to certain exceptions.

In December 2021, we completed an underwritten public offering of 7,187,500 shares of our common stock, including the exercise in full by the underwriters of their option to purchase up to an additional 937,500 shares of common stock, at a public offering price of $14.00$2.3999 per share. Thepre-funded warrant, which represents the per share public offering price of each share of common stock minus the $0.0001 per share exercise price for each pre-funded warrant. We received net proceeds from the offering,Offering, after deducting the underwriting discountsdiscount and commissions and other estimated offering expenses, wereof approximately $94.2$91.8 million.

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We may receive nominal proceeds, if any, from the exercise of the pre-funded warrants.

At-the-Market (ATM) Offering

On March 12, 2021,In January 2024, we entered intosold an aggregate of 6,350,000 shares of common stock in a Sales Agreement (the 2021 Sales Agreement)series of sales in accordance with our “at-the-market” offering program (ATM Program) with JonesTrading Institutional Services (theLLC (Sales Agent), pursuant to which we could sell, from time to time, at our option, up to an aggregate of $75.0 million of shares of our common stock, through the Agent, as our sales agent. No shares were sold under the 2021 Sales Agreement as of December 31, 2021. In connection with the 2021 Sales Agreement, we terminated a prior ATM program with Evercore Group L.L.C. and H.C. Wainwright & Co., L.L.C.

Loan Agreement

On October 21, 2021, we amended our Loan and Security Agreement (the Loan Agreement) with Pacific Western Bank (PacWest)(the Loan Amendment) under which PacWest will provide one or more Term Loans, as well as Non-Formula Ancillary Services which shall not exceed $5.5 million in the aggregate. Non-Formula Ancillary Services are defined as automated clearinghouse transactions, corporate credit card services, letters of credit, or other treasury management services. The aggregate sum of the outstanding Term Loans and Non-Formula Ancillary Services shall at no time exceed $15.0 million, which each Term Loan to be in an amount of not less than $1.0 million. As of December 31, 2021, we had outstanding Non-Formula Ancillary Services of $4.4 million. Accordingly, as of December 31, 2021, the Company has $10.6 million available under the Term Loan. Pursuant to the Loan Amendment, the interest rate for the Term Loans shall be set at an annual rate equalaverage price of $3.13 per share, for aggregate net proceeds of approximately $19.3 million, after deducting sales agent commissions, but before deducting any expenses related to the greater of (i) 0.25% above the Prime Rate then in effect and (ii) 4.25%.

such sales. As of the date of this Annual Report on Form 10-K, we were in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement.

Impact of COVID-19 Pandemic

In December 2019, a novel strain of coronavirus, COVID-19, was reported in China. The spread of COVID-19 from Chinaup to other countries has resulted in the World Health Organization (WHO) declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Since then, COVID-19 has spread globally and new variants of the virus have emerged. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses. The continued spread of COVID-19, despite progress in vaccination efforts, has resulted in significant governmental measures being implemented to control the spread of COVID-19 and its variants. These measures may result in a period of business, supply, and drug product manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.

In response to the COVID-19 pandemic, we tasked members$80.1 million of our Executive Leadership team, Human Resources, Facilities and Operations and Employee Communicationscommon stock remains available for sale from time to develop guidelines and processes intended to raise awareness of new health and well-being protocols and potentially helpful practices for cross-functional teamwork fortime under our employees. We implemented remote working and shift scheduling, providedATM Program. In March 2024, we terminated our team members practical recommendations based on guidelines from the Centers for Disease Control and Prevention, State of California Department of Health Care Services, State of Massachusetts Department of Public Health, OSHA and other regional government entities. In addition, we are committed to updating these recommendations and communicating new pertinent information when available. While doing so we are sensitive to ensuring any guidance provided may vary by locality based on government orders and regulations.

Thus far we have not experienced a significant disruption or delay in our operations as it relates to the clinical development of our drug candidates. However, we anticipate that the impact of the COVID-19 pandemic may create difficulties in our clinical trials for a variety of reasons, including future regulations regarding, or the inability or unwillingness of patients to, travel to participate in clinical trials, or to participate in clinical trials that are administered in medical facilities that also treat COVID-19, potential delays in the FDA’s review and approval processes and/or shortages of medical supplies that may force medical professionals to focus on non-clinical procedures, including treatment of COVID-19. The duration and ultimate impact of the ongoing COVID-19 pandemic on clinical trials generally, and on our trials particularly, is currently unknown.

In addition, the spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and its variants could materially affect our business. Possible effects may also include absenteeism in our labor workforce, unavailability of products and supplies used in operations, and a decline in value of assets held by us, including property and equipment, and marketable debt securities.

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ATM Program.

Financial Operations Overview

Revenue

We have no products approved for commercial sale and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for our product candidates, which we expect will not be for at least several years, if ever. Our revenues to date arehave been generated from our License and Collaboration Agreement with Regeneron Pharmaceuticals, Inc. (Regeneron) and the agreement referred to as the “Regeneron Agreement”. The primary purpose of the Regeneron Agreement is to establish a strategic relationship to identify and validate appropriate targets and work together to develop a pipeline of engineered immune cell products (Collaboration ICPs) for the selected targets. The Regeneron Agreement provides for the following: (i) licenses to our technology, (ii) research and development services, (iii) services or obligations in connection with participation in the research committee, (iv) information sharing, and (v) manufacturing services to manufacture of Collaboration ICPs for the research programs. The Regeneron Agreement provides Regeneron an option to obtain an exclusive, royalty-bearing development and commercial license under our intellectual property to develop and commercialize the optioned Collaboration ICPs ready for an IND submission.Agreement.”

We received a non-refundable upfront payment of $25.0 million from Regeneron upon execution of the Regeneron Agreement on July 29, 2016 and have received an aggregate of $20.0 million of additional payments for research funding from Regeneron as of December 31, 2020. In addition,2023. Our obligations under the Regeneron Agreement were completed during the first quarter of 2022. Regeneron may have to pay us additional amounts in the future consisting of up to an aggregate of $80.0 million of option exercise fees for a certain number of Interprofessional Collaboration ICPs.Practices (ICPs). On January 28, 2022, we received a payment of $20.0 million from Regeneron for exercise of its option to license exclusive rights to ADI-002 and Regeneron potentially has additional options to other Collaboration ICP targets under the Regeneron Agreement. We declined to exercise our option to co-fund the development of ADI-002 with Regeneron, and accordingly, Regeneron must also pay us high single digit royalties as a percentage of net sales for ADI-002 or any other optioned ICPs to targets for which it has exclusive rights and low single digit royalties as a percentage of net sales on any non-ICP product comprising a target generated by us through the use of Regeneron’s proprietary mice. We must pay Regeneron mid-single to low double digit royalties as a percentage of net sales of Collaboration ICPs to targets for which we have exercised exclusive rights, and low to mid-single digit royalties as a percentage of net sales of targeting moieties generated from our license to use Regeneron’s proprietary mice. Royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or 12 years from first commercial sale.

We useused a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize under the Regeneron Agreement. In applying the cost-based input method of revenue recognition, we useused actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. Revenue iswas recognized based on actual costs incurred as a percentage of total budgeted costs as we completecompleted our performance obligations over the research term of five years.term. A cost-based input method of revenue recognition requires us to estimate costs to complete our performance obligations, which requires significant judgment to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete our performance obligations is recorded in the period in which changes are identified and amounts can be reasonably estimated.

Operating 92


Expenses

Research and Development

Research and development expenses, which consist primarily of costs incurred in connection with the development of our product candidates, are expensed as incurred. Research and development expenses consist primarily of:

employee related costs, including salaries, benefits and stock-based compensation expenses for research and development employees;
costs incurred under agreements with consultants, contract manufacturing organizations (CMOs)CDMOs and contract research organizations (CROs);
lab materials, supplies and maintenance of equipment used for research and development activities; and
allocated facility-related costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and amortization, information technology costs and general support services.

We do not allocate our costs by product candidate, as a significant amount of research and development expenses are not tracked by product candidate, and we believe the allocation of such costs would be arbitrary and would not provide a meaningful assessment as we have used our employee and infrastructure resources across multiple product candidate research and development programs.

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We are focusing substantially all of our resources on the development of our product candidates. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

the scope, rate of progress and expense of clinical trials and other research and development activities;
clinical trial results;
uncertainties in clinical trial enrollment rate or design;
significant and changing government regulation;
the timing and receipt of any regulatory approvals;
the FDA’s or other regulatory authority’s influence on clinical trial design;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
commercializing product candidates, if and when approved, whether alone or in collaboration with others;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for product candidates;
continued applicable safety profiles of the products following approval; and
retention of key research and development personnel.

A change in the outcome of any of these or other variables with respect to the development of aany of our product candidatecandidates could significantly change the costs timing and viabilitytiming associated with the development of that product candidate. For example, ifFurthermore, our operating plans may change in the FDA, or another regulatory authority, werefuture, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans.

Adequate funding may not be available to us on acceptable terms or at all. Our failure to conduct clinical trials beyond those that it currently anticipates will be required for the completion of clinical development ofraise capital as and when needed could have a product candidate, or if we experience significant delays in enrollment in any ofnegative impact on our clinical trials, we could be requiredfinancial condition and our ability to expend significant additional financial resources and time on the completion of clinical development. Furthermore,pursue our business strategies. If we are unable to predictraise additional funds when needed, we may be required to delay, reduce, or ifterminate some or all of our development programs and clinical trials or we may also be required to sell or license to other rights to our product candidates will receive regulatory approval with any certainty.in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other

We are focusing substantially all of93


arrangements to supplement our resources on the development offunds, we may have to give up certain rights that limit our product candidates. We expect our researchability to develop and development expenses to increase substantially during the next few years, as we seek to initiate clinical trials forcommercialize our product candidates completeor may have other terms that are not favorable to us or our clinical program, pursue regulatory approval ofstockholders, which could materially affect our product candidatesbusiness and prepare for a possible commercial launch. Predicting the timing or the cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.condition.

General and Administrative

General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-basedstock based compensation expenses, professional fees for legal, consulting, accounting and tax services, allocated overhead expenses, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will increase for the foreseeable future due to anticipated expenses related to the Merger and future expenses related to operating as a public company, including expenses related to personnel costs, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with the applicable Nasdaq and SEC requirements, investor relations costs and director and officer insurance premiums.

Goodwill Impairment

Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in our merger with resTORbio, Inc. in September 2020. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below the carrying value. If the fair value of the reporting unit is less than the carrying value, we measure the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. This amount is recognized as a goodwill impairment charge for the period. The Company performed an interim test for goodwill impairment in the third quarter of 2023 and determined that the entire balance of goodwill was impaired.

Interest Income

Interest income consists primarily of interest income earned on our cash and cash equivalents and marketable debt securities.

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equivalents.

Interest Expense

Interest expense consists primarily of the non-cash amortization of costs incurred in connection with the Loan Agreement entered into with PacWest in April 2020, and subsequently amended in October 2021.(as defined below).

Other Income (Expense),Expense, Net

In 2020, other income (expense), net primarily consists of changes in the fair value of our redeemable convertible preferred stock tranche liability and redeemable convertible preferred stock warrant liability prior to their conversion to warrants to purchase common stock upon closing of the Merger. In 2021, other income (expense),Other expense, net primarily consists of state franchise and capital taxes not related to income.

Results of Operations

Comparison of the Years Ended December 31, 20212023 and 20202022

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

 

 

Twelve Months Ended December 31,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

 

% Change

 

Revenue – related party

 

$

 

 

$

24,990

 

 

$

(24,990

)

 

 

(100

%)

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

106,043

 

 

 

71,246

 

 

 

34,797

 

 

 

49

%

General and administrative

 

 

26,533

 

 

 

26,295

 

 

 

238

 

 

 

1

%

Goodwill impairment

 

 

19,462

 

 

 

 

 

 

19,462

 

 

 

100

%

Total operating expenses

 

 

152,038

 

 

 

97,541

 

 

 

54,497

 

 

 

56

%

Loss from operations

 

 

(152,038

)

 

 

(72,551

)

 

 

(79,487

)

 

 

110

%

Interest income

 

 

9,978

 

 

 

3,760

 

 

 

6,218

 

 

 

165

%

Interest expense

 

 

(25

)

 

 

(80

)

 

 

55

 

 

 

69

%

Other expense, net

 

 

(573

)

 

 

(919

)

 

 

346

 

 

 

38

%

Loss before income tax benefit

 

 

(142,658

)

 

 

(69,790

)

 

 

(72,868

)

 

 

104

%

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

0

%

Net loss

 

$

(142,658

)

 

$

(69,790

)

 

$

(72,868

)

 

 

104

%

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

 

% Change

 

Revenue – related party

 

$

9,730

 

 

$

17,903

 

 

$

(8,173

)

 

 

(46

)%

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

48,943

 

 

 

34,334

 

 

 

14,609

 

 

 

43

%

General and administrative

 

 

22,220

 

 

 

22,760

 

 

 

(540

)

 

 

(2

)%

Total operating expenses

 

 

71,163

 

 

 

57,094

 

 

 

14,069

 

 

 

25

%

Loss from operations

 

 

(61,433

)

 

 

(39,191

)

 

 

(22,242

)

 

 

57

%

Interest income

 

 

91

 

 

 

785

 

 

 

(694

)

 

 

(88

)%

Interest expense

 

 

(176

)

 

 

(134

)

 

 

(42

)

 

 

31

%

Other income (expense), net

 

 

(606

)

 

 

(953

)

 

 

347

 

 

 

(36

)%

Loss before income tax benefit

 

 

(62,124

)

 

 

(39,493

)

 

 

(22,631

)

 

 

57

%

Income tax expense (benefit)

 

 

(125

)

 

 

(2,815

)

 

 

2,690

 

 

*%

 

Net loss

 

$

(61,999

)

 

$

(36,678

)

 

$

(25,321

)

 

 

69

%

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* Not meaningful

Revenue

Revenue decreased by $8.2$25.0 million, or 46%100%, for the year ended December 31, 20212023 compared to the year ended December 31, 2020 resulting from the2022. The decrease inwas due to no revenue recognized under the Regeneron Agreement. This decreaseAgreement in the current period. Our obligations under the combined performance obligation with Regeneron were completed during the first quarter of 2022, resulting in revenue was primarily due to our achievement of a milestonefully recognized under the Regeneron Agreement in June 2020 relating to the selectionagreement as of a clinical candidate for ADI-002. This resulted in an increase in the transaction price of $10.0 million and recognition of an additional cumulative catch-up of revenue of $5.0 million in June 2020.March 31, 2022.

Research and developmentDevelopment

 

Year Ended December 31,

 

 

Twelve Months Ended December 31,

 

 

2021

 

 

2020

 

 

2023

 

 

2022

 

Payroll and personnel expenses(1)

 

$

21,267

 

 

$

15,490

 

Costs incurred under agreements with consultants, CMOs, and CROs

 

 

14,853

 

 

 

11,195

 

Lab materials, supplies, and maintenance of equipment used for research
and development activities

 

 

4,649

 

 

 

4,401

 

Other research and development expenses(2)

 

 

8,174

 

 

 

3,248

 

Payroll and personnel expenses(1)

 

$

42,744

 

 

$

31,201

 

Costs incurred under agreements with consultants, CDMOs, and CROs

 

 

29,963

 

 

 

19,233

 

Lab materials, supplies and maintenance of equipment
used for research and development activities

 

 

11,065

 

 

 

6,929

 

Other research and development expenses(2)

 

 

22,271

 

 

 

13,883

 

Total research and development expenses

 

$

48,943

 

 

$

34,334

 

 

$

106,043

 

 

$

71,246

 

(1)Employee related costs, including salaries, benefits, bonuses, and stock-based compensation expenses for research and development employees.

(2)Allocated facility-related costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and amortization, information technology costs and general support services.

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Research and development expenses increased by $14.6$34.8 million, or 43%49%, during the year ended December 31, 20212023 compared to the year ended December 31, 2020.2022. The increase in research and development expenses was primarily due to ana $10.7 million increase of $5.8 million in personnel expenses including salaries, benefits,related to CDMOs and bonuses due to increases in headcount of employees involved inother externally conducted research and development activities, as well asand a $11.5 million increase in payroll and personnel expenses resulting from an increase in stock-based compensation expense of $3.1 million due to higher option grant activity.overall headcount. In addition, there was an increase of $3.7 million in fees incurred for CRO, CMO, consultants, and other externally sponsored research and $4.9$8.5 million increase in allocated facility expenses and other expenses.a $4.1 million increase in laboratory expenses for the period. This increase was primarily due to ramping up of clinical development activities related to ADI-001, our leading product candidate.partially offset by a $0.2 million decrease in professional fees.

General and administrativeAdministrative

General and administrative expenses decreasedincreased by $0.5$0.2 million, or 2%1%, during the year ended December 31, 2021 as2023 compared to the same period in 2020.year ended December 31, 2022. The decreaseincrease in general and administrative expenses was primarily due to a decrease of $6.3 million in professional fees primarily related to decreases of $5.1 million in legal fees and $1.7 million in audit fees, due to higher expenses associated with the Merger in 2020.

These decreases in professional fees were offset by an increase of $0.5 million in other professional fees consisting of investor relations, IT management, and other enterprise solutions. In addition, the decreases in general and administrative expenses were offset by a $3.1$3.3 million increase in payroll and personnel expenses, which includes salaries, benefits, bonuses, and temporary contractor fees due to higher stock-based compensation expenses of $4.2 million caused by increased option grant activity and higheran increase in salaries and benefits of $1.0 million, reduced by lower temporary contractor fees of $2.2$0.9 million, stock-based compensation of $1.2 million and recruiting fees of $0.3 million. These increases were the result of increased headcount for the period. The increase was partially offset by a $2.6 million decrease in allocated facility expenses. There was also a $0.5 million decrease in professional fees for the period.

Further, there was an increase of $2.8 million in facilities and other expenses, primarily related to rent, depreciation costs, and director and officer liability insurance.Goodwill Impairment

Interest income

Interest income decreasedGoodwill impairment charges increased by $0.7$19.5 million, or 88%100%, during the year ended December 31, 20212023 compared to the year ended December 31, 2020, which was primarily attributable to2022. Beginning in the third quarter of 2023, we experienced a significant decline in our stock price. We concluded that the decrease in average balancestock price was sustained and that it was more likely than not that the fair value of marketable debt securities in 2021 and decrease in interest rates, which lowered return on investments.

Interest Expense

Interest expense increased byour single reporting unit was less than $0.1its carrying amount. As such, we performed an interim goodwill impairment test as of

95


September 30, 2023. Based on our interim impairment test, we recorded a goodwill impairment charge of $19.5 million during the year ended December 31, 2021 as compared to2023, representing the same period in 2020 due to the non-cash amortizationentire balance of costs incurred in connection with the Loan Agreement that was entered in April 2020 and subsequently amended in October 2021.goodwill.

Other income (expense), netInterest Income

OtherInterest income (expense), net decreasedincreased by $0.3$6.2 million, or 36%165%, during the year ended December 31, 20212023 compared to the year ended December 31, 2020. The decrease2022, which was primarily due to a realized gain recognizedhigher interest rates as well as our investments in 2020 related to a change in fair value of the redeemable preferred stock warrant liability prior to their conversion to warrants to purchase common stock upon closing of the Merger in September 2020 offset by $0.2 million related to the derecognition of fixed assets related to the sublease of the Boston lease in August 2021, $0.6 million of franchise taxes,treasury securities and less than $0.1 million of realized loss due to foreign exchange.money market funds.

Income tax expense (benefit)Other Expense, Net

We recognized an income tax benefit of $0.1Other expense decreased by $0.3 million, or 38%, during the year ended December 31, 20212023 compared to the income tax benefit of $2.8 million for the year ended December 31, 2020. The reduction in benefit relates to the nature of discrete tax benefit during the year ended December 31, 2020, as a result of the recognition of a net operating loss carryback under the CARES Act. Income tax benefit of $0.1 million for the year ended December 31, 20212022, which was primarily due to a decrease in franchise and capital taxes for the period.

Income Tax Benefit

There was no income tax effect ofexpense or benefit for the reduction in the deferred tax liability associated with the basis differences from in-process researchyears ended December 31, 2023 and development (IPR&D).2022.

Liquidity and Capital Resources

As of December 31, 2021, our principal source of liquidity was cash and cash equivalents, which totaled $277.5 million. Our net losses were $62.0 million and $36.7 million for the years ended December 31, 2021 and 2020, respectively.

Sources of Liquidity

Since our formation in 2014, weWe have historically funded our operations primarily through a collaboration and licensing arrangement, public and private placements of equity securities and debt, and cash received in our merger with an aggregateresTORbio, Inc.

In August 2022, we received net proceeds of $116.3$43.6 million in gross cash proceeds from the sale of redeemable convertible preferred stock and an aggregate of $45.0 million received to date from Regeneron under the Regeneron Agreement. In September 2020, following the closing of the Merger, all outstanding shares of the redeemable

94


convertible preferred stock converted into 12,048,671 shares of common stock. We also acquired $64.1 million of cash, cash equivalents, and restricted cash owned by resTORbio, as part of the Merger.

In February 2021, we completed an underwritten public offering of 10,575,513 shares of our common stock includingunder our ATM Program with the exerciseSales Agent and, in full by the underwriters of their option to purchase up to an additional 1,344,743 shares of common stock, at a public offering price of $13.00 per share. TheJanuary 2024, we received net proceeds of $19.3 million from the offering, after deducting underwriting discounts and commissions and offering expenses were approximately $128.8 million. In connection with the offering, we also entered into a stock purchase agreement with certain existing investors to purchase 1,153,840sale of shares of our common stock for $15.0under our ATM Program. Up to $80.1 million at a price per share equal to the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors.

In December 2021, we completed an underwritten public offering of 7,187,500 shares of our common stock including the exercise in full by the underwriters of their option to purchase up toremains available for sale under our ATM Program, providing us with an additional 937,500 sharessource of common stock, at a public offering price of $14.00 per share. Theliquidity, subject to market conditions. In March 2024, we terminated our ATM Program.

In addition, in January 2024, we completed the Offering, which resulted in net proceeds from the offering,to us, after deducting the underwriting discountsdiscount and commissions and other estimated offering expenses, wereof approximately $94.2$91.8 million. We may also receive nominal proceeds, if any, from the exercise of the Pre-Funded Warrants.

As of December 31, 2023, we had cash and cash equivalents of $159.7 million. We expect that our cash and cash equivalents, together with the proceeds raised subsequent to year-end through our ATM Program and the Offering, will be sufficient to fund our forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the issuance of the consolidated financial statements included in this Annual Report on Form 10-K.
 

Loan Agreement

On April 28, 2020, we entered into a Loan and Security Agreement, as amended on July 8, 2020, September 14, 2020, September 15, 2020, October 21, 2021, December 2, 2022 and May 30, 2023 (the Loan Agreement), with Banc of California (formerly known as Pacific Western Bank) to finance leasehold improvements for our facilities in Redwood City, California and other purposes permitted under the Loan Agreement.

On May 30, 2023, we amended theour Loan Agreement with PacWestBanc of California (the 2023 Loan Amendment) under which PacWest will provide. Pursuant to the 2023 Loan Amendment, we must maintain the lesser of (i) $35.0 million or (ii) all of our combined balances in demand deposit accounts, money market accounts, and/or insured cash sweep accounts with Banc of California. If our total cash and investments drop to less than $35.0 million, the 2023 Loan Amendment permits us to maintain cash and/or investments in one or more Term Loans, as well as Non-Formula Ancillary Services which shall not exceed $5.5 million in the aggregate. Non-Formula Ancillary Services are defined as automated clearinghouse transactions, corporate credit card services, lettersaccounts outside of credit, or other treasury management services. The aggregate sumBanc of the outstanding Term Loans and Non-Formula Ancillary Services shall at no time exceed $15.0 million, which each Term LoanCalifornia up to be in an amounta total of not less than $1.0$2.5 million.

As of December 31, 2021,2023, we had outstanding Non-Formula Ancillary Services of $4.4 million. Accordingly, as of December 31, 2021, the Company has $10.6have $12.7 million available under the Term Loan. Pursuant to the Loan Amendment, the interest rate for the Term Loans shall be set at an annual rate equal to the greater of (i) 0.25% above the Prime Rate then in effect and (ii) 4.25%.

Agreement. As of the date of this Annual Report on Form 10-K, we were in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement.

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At-the-Market (ATM) Offering

On March 12, 2021, we entered into the 2021 Sales Agreement with the Agent, pursuant to which we could sell, from time to time, at our option, up to an aggregate of $75.0 million of shares of our common stock, through the Agent, as our sales agent. No shares were sold under the 2021 Sales Agreement as of December 31, 2021.

Future Funding Requirements

We have incurred losses since inception and have incurred losses of $62.0$142.7 million and $36.7$69.8 million for the years ended December 31, 20212023 and 2020,2022, respectively. As of December 31, 2021,2023, we had an accumulated deficit of $168.3$380.8 million.

As of December 31, 2021,2023, we had cash and cash equivalents of $277.5$159.7 million. Subsequent to December 31, 2023, we raised aggregate net proceeds of approximately $19.3 million through our ATM Program and approximately $91.8 million through the Offering. We believe that our cash and cash equivalents, together with the proceeds raised subsequent to year-end through our ATM Program and the Offering, will be sufficient for us to continue as a going concernfund our operations for at least 12 months from the issuance date of our consolidated financial statements as of, and for the year ended, December 31, 20212023 included elsewhere in this Annual Report on Form 10-K. We have based these estimates on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. Because of the risks and uncertainties associated with research, development, and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements.

All of our revenue to date ishas been generated from the Regeneron Agreement, which is a collaboration and license agreement. We do not expect to generate any significant product revenue until we obtain regulatory approval of and commercialize any of our product candidates or enter into additional collaborative agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with

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corporate sources, or through other sources of financing. We anticipate that we will need to raise substantial additional capital, the requirements for which will depend on many factors, including:

the scope, timing, rate of progress and costs of our drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates;
the timing, number and scope of clinical programs we decide to pursue;
the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates;
the scope and costs of development and commercial manufacturing activities;
the cost and timing associated with commercializing our product candidates, if they receive marketing approval;
the extent to which we acquire or in-license other product candidates and technologies;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
our ability to establish and maintain collaborations on favorable terms, if at all;
our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval;
our implementation of operational, financial and management systems;
the impact of the COVID-19 pandemicpotential health emergencies on United States and global economic conditions that may impact our ability to access capital on terms anticipated, or at all; and
the post-merger costs associated with being a public company.

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans.

Adequate funding may not be available to us on acceptable terms or at all.

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Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to other rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition.

See the section of this Annual Report on Form 10-K titled “Risk Factors” for additional risks associated with our substantial capital requirements.

Summary Statement of Cash Flows

The following table sets forth the primary sources and uses of our cash, cash equivalents, and restricted cash for each of the periods presented below (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

Net cash provided by (used in):

 

 

 

 

 

 

Operating activities

 

$

(51,052

)

 

$

(41,552

)

Investing activities

 

 

(2,796

)

 

 

115,217

 

Financing activities

 

 

242,685

 

 

 

303

 

Net increase in cash, cash equivalents and restricted cash

 

$

188,837

 

 

$

73,968

 

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Twelve Months Ended December 31,

 

 

 

2023

 

 

2022

 

Net cash provided by (used in):

 

 

 

 

 

 

Operating activities

 

$

(93,717

)

 

$

(44,765

)

Investing activities

 

 

(4,464

)

 

 

(16,782

)

Financing activities

 

 

236

 

 

 

41,509

 

Net decrease in cash and cash equivalents

 

$

(97,945

)

 

$

(20,038

)

 

Cash Flows from Operating Activities

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. The increases inNet cash used in operating activities for the years ended December 31, 2021 and 2020 were primarily due to increased external research and development expenses as we continue to develop our product candidates, and increased internal and external expenses related to the initiation of our Phase 1 clinical trial. Higher costs associated with increased employee headcount related to expanded development activities also contributed to the increase in cash used in operating activities.

These factors were partially offset by lower professional services costs in 2021. Non-cash charges for the year ended December 31, 2021 also include $12.5 million of stock-based compensation expense, compared to $5.3was $93.7 million for the year ended December 31, 2020.2023. Cash used in operating activities consisted of net loss offset by non-cash adjustments of $48.7 million and a net increase in operating assets and liabilities of $0.3 million. Non-cash items primarily included goodwill impairment of $19.5 million, stock-based compensation expense of $20.3 million, depreciation and amortization of $6.1 million and non-cash lease expense of $2.8 million. The changesnet increase in assets and liabilities was primarily due to an increase of $0.9 million in prepaid expenses and other current assets accounts payable, and an increase of $0.4 million in other non-current assets accounts. There was also an increase in accrued and other current and non-current liabilities resulted from the timing of payments to our service providers.$0.8 million. The increase was partially offset by a decrease in accounts payable of $1.7 million.

We currentlyNet cash used in operating activities was $44.8 million for the year ended December 31, 2022. Cash used in operating activities consisted of net loss and non-cash adjustments of $22.3 million as well as an increase in assets and liabilities of $2.7 million. Non-cash items primarily included stock-based compensation expense of $17.1 million, non-cash lease expense of $2.4 million and depreciation and amortization of $2.6 million. The net change in assets and liabilities was primarily due to an office spaceincrease in Boston, MA underaccrued and other current and non-current liabilities of $5.8 million, an increase in accounts payable of $1.7 million and an increase in prepaid expenses and other current assets of $1.3 million. The increase was partially offset by a non-cancellabledecrease in deferred revenue of $4.8 million related to the Regeneron Agreement and a decrease in operating lease (the Boston Lease), with an expiration dateliability of July 31, 2026. The Boston Lease was amended on April 1, 2019, to relocate into a premises in the same building with additional space. The initial annual base rent for this lease was $0.6 million and increases 2% annually. On July 19, 2021, we subleased the office space in Boston, MA. The term of the sublease started on September 1, 2021 and will end on July 30, 2026. The aggregate base rent due to us under the Sublease Agreement is approximately $3.5$2.3 million. Pursuant to the Sublease Agreement, we agreed to transfer certain furniture located in the subleased premises to the sublessee for $1.00. We remain liable for the lease payments under the Boston Lease.

We also have an office facility in Menlo Park, CA under a non-cancellable operating lease (the Menlo Park Lease), with an expiration date of March 31, 2022 (subject to any optional extension). This lease was amended on June 25, 2021 to extend the term of lease from March 31, 2022 to June 30, 2022 and replace the previously leased premises (known as 173 and 175-177 Jefferson Drive) with a nearby premises (known as 235 Constitution Drive). The lease commenced on July 15, 2021 and expires on June 30, 2022. In connection with these changes, we incur monthly rent payments ranging from $87,286 to $89,904, increasing over the remaining term of the lease. This lease was amended on September 30, 2019 to include additional office space, with an expiration date of March 31, 2022 (subject to any optional extension). The initial annual base rent for the Menlo Park Lease is an aggregate of $1.0 million, and such amount will increase 3% annually. On October 28, 2018, we executed an additional non-cancelable lease agreement for a new office and laboratory facility in Redwood City, CA (the Redwood City Lease), with an expiration date of February 28, 2030. The initial annual base rent for the Redwood City Lease is an aggregate of $1.3 million, and such amount will increase 3% annually.

On July 30, 2021, we entered a short-term lease agreement with the Boston Properties, Inc. for a temporary office space located at 200 Clarendon Street, Boston, MA. The initial lease term commenced on July 30, 2021 and expire on November 30, 2021. In October 2021, we extended the lease term to March 31, 2022 and most recently, in February 2022, extended the lease term to July 31, 2022. The base rent is less than $0.1 million per month.

Cash Flows from Investing Activities

Net cash used in investing activities was $2.8$4.5 million for the year ended December 31, 2021,2023, which consisted of purchases of property and equipment of $13.0 million related to the construction of our new buildingfacilities in Redwood City, CA, partially offset by proceeds from sales and maturities of marketable debt securities of $10.3 million.California.

Net cash provided byused in investing activities was $115.2$16.8 million for the year ended December 31, 2020,2022, which consisted of cash and restricted cash acquired in connection with the Merger of $64.1 million, proceeds from maturities of marketable debt securities of $57.8 million, partially offset by purchases of marketable debt securities of $5.7 million and purchases of property and equipment related to the construction of $1.0 million.our facilities in Redwood City, California.

Cash Flows from Financing Activities

Net cash provided by financing activities was $242.7$0.2 million for the year ended December 31, 2021,2023, which was primarily related to $0.4 million in net proceeds from the issuance of common stock in connection with our employee stock purchase plan. This was partially offset by $0.2 million of cash paid for taxes withheld on the net share settlement of equity awards.

Net cash provided by financing activities was $41.5 million for the year ended December 31, 2022, which primarily consisted of $43.4 million in proceeds from the issuance of common stock pursuant to our ATM Program and $1.7 million in cash proceeds received from our public offerings and concurrent private placement in February 2021 and December 2021 of $238.1 million, and cash proceeds of $4.8 million fromthe exercise of stock options and purchases under our Employee Stock Purchase Plan (ESPP), offset by debt issuance costs of approximately $0.2 million.


Plan. Net cash provided by financing activities was $0.3 million for the year ended December 31, 2020, due to cash proceeds of $0.5 million from exercise of stock options partlypartially offset by payment$3.2 million of debttaxes withheld and paid related to net share settlement of employee equity awards and $0.4 million related to deferred issuance costs of $0.2 million.costs.

9798


 

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.generally accepted accounting practices (GAAP). The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results. While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:

Revenue Recognition

We earn all of our revenue in connection with our license and collaboration agreement with Regeneron, which allows Regeneron to utilize our technology and know-how to develop product candidates.

For elements of collaboration arrangements that are accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, we identify the performance obligations and allocate the total consideration we expect to receive on a relative standalone selling price basis to each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, the expected number of targets or indications expected to be pursued, discount rates and probabilities of technical and regulatory success.

We recognize revenue associated with each performance obligation as the control over the promised goods or services transfer to our collaboration partner which occurs either at a point in time or over time. If control transfers over time, revenue is recognized by using a method of measuring progress that best depicts the transfer of goods or services, for example based on actual costs incurred relative to total forecasted costs to be incurred over the period the transfer of goods or services occurs. We evaluate the measure of progress and related inputs each reporting period and any resulting adjustments to revenue are recorded on a cumulative catch-up basis. Revenue to be recognized is equal to the total transaction price multiplied by the ratio of actual expense incurred divided by total forecasted expense.

Accrued CMO,CDMO, CRO, and Research and Development Expenses

We have entered into various agreements with CMOsCDMOs and CROs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued and other current liabilities on the consolidated balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CMOsCDMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets on the consolidated balance sheets until the services are rendered. To date, our estimated accruals have not differed materially from the actual costs.

Stock-Based Compensation

We use a fair value-based method to account for all stock-based compensation arrangements with employees and non-employees, including stock options and restricted stock awards. Our determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option pricing model. The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. For awards that have a performance condition, the Company recognizes compensation expense based on its assessment of the probability that the performance condition will be achieved, using an accelerated attribution model, over the explicit or implicit service period. We account for forfeitures as they occur. In determining fair value of the stock options granted, we use the Black–Scholes option-pricing model, which requires the input of subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (expected term), the estimated volatility of our common stock price over the expected term (expected volatility), risk-free interest rate and expected dividends. Changes in the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized; and the resulting change in fair value, if any, is recognized in our consolidated statementstatements of operations and comprehensive loss during the period the related services are rendered. These inputs are subjective and generally require significant analysis and judgment to develop. Changes in the following assumptions can materially affect the estimate of the fair value of stock-based compensation:

Expected Term — The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.

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Expected Volatility — The Company has limited trading history. As such, the expected volatility was determined by examining the historical volatilities of a peer group of comparable publicly traded companies in biotechnology and pharmaceutical related industries to be representative of our expected future stock price volatility. For purposes of identifying these peer companies, we consider the industry, stage of development, size and financial leverage of potential comparable companies. For each grant, we measure historical volatility over a period equivalent to the expected term.
Risk-Free Interest Rate — The risk-free interest rate is based on the implied yield currently available on United States Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock award.
Expected Dividend Rate — We have not paid and doesdo not anticipate paying dividends in the near future. Accordingly, we estimate the dividend yield to be zero.

Common Stock ValuationsGoodwill

Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in a business combination. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below the carrying value.

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Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. We have determined that we operate in a single operating segment and have a single reporting unit.

Prior to our Merger,performing the estimatedimpairment test, we assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the common stock underlying our stock options and stock awardsreporting unit was determined at each grant date by our board of directors, with assistance from management and external appraisers. All options to purchase shares of our common stock were intended to be exercisable at a price per share not less than the per-share fair valuecarrying amount. If after assessing the totality of our common stock underlying those options on the date of grant. The approachevents or circumstances, we were to estimatedetermine that it is more likely than not that the fair value of our common stock was consistent with the methods outlined inreporting unit is less than the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (Practice Aid). Subsequent to the Merger,carrying amount, we would perform a quantitative impairment test.

The quantitative impairment test involves comparing the fair value of our common stockthe reporting unit to the carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than the carrying value, we measure the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. We performed an interim test for goodwill impairment in the third quarter of the fiscal year ended December 31, 2023 and determined based on the closing market price.that goodwill was impaired.

Emerging Growth Company and Smaller Reporting Company

In April 2012,We are a “smaller reporting company” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) was enacted. Section 107 of the JOBS Act provides that an emerging growthExchange Act. As a smaller reporting company, (EGC), canwe may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not smaller reporting companies. These provisions include (i) not being required to comply with the extended transition period provided inauditor attestation requirements of Section 7(a)(2)(B)404(b) of the SecuritiesSarbanes Oxley Act of 1933,2002, as amended, oramended; (ii) scaled executive compensation disclosures; and (iii) the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoptionoption to provide only two years of certain accounting standards until those standards would otherwise apply to private companies.audited financial statements, instead of three years.

We have elected to use the extended transition period for 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. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a large accelerated filer, with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) last day of the fiscal year ending after the fifth anniversary of our initial public offering, which would be December 31, 2023.

We are also a smaller reporting company meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if eitherfor as long as we continue to have (i) theless than $250 million in market value of our stockshares held by non-affiliates is less than $250 millionas of the last business day of our second fiscal quarter or (ii) our annual revenue was less than $100 million during theof annual revenues in our most recently completedrecent fiscal year completed before the last business day of our second fiscal quarter and thea market value of our stockshares held by non-affiliates isof less than $700 million. If we are a smaller reporting company atmillion as of the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company welast business day of our second fiscal quarter.

We may choose to present onlytake advantage of some but not all of these exemptions. Accordingly, the two most recent fiscal yearsinformation contained herein may be different from the information you receive from other public companies in which you hold stock. We have elected to avail ourselves of audited financial statements in our Annual Report on Form 10-Kthe exemption for the delayed adoption of certain accounting standards and, similartherefore, are not subject to emerging growththe same new or revised accounting standards as other public companies that are not smaller reporting companies have reduced disclosure obligations regarding executive compensation.companies.

Recently Issued and Adopted Accounting Pronouncements

See the section titled “SummarySummary of Significant Accounting Policies”Policies in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

As of December 31, 2021,2023, we had cash and cash equivalents of $277.5$159.7 million, which consisted of cash and money market funds.treasury securities. Interest income is sensitive to general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material impact on our cash and cash equivalents, financial position, or results of operations.

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Foreign Currency Exchange Risk

Our headquarters are located in the United States, where a majority of our general and administrative expenses and research and development costs are incurred in U.S. Dollars. As we grow our business, our results of operations and cash flows may be subject to fluctuations due to foreign currency exchange rates. To date, we do not believe foreign currency exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein.

Inflation Risk

Our assets are primarily monetary, consisting of cash and cash equivalents. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture, fixtures and office equipment, computer hardware and software and leasehold improvements, we believe that the incremental inflation related to

100


replacement costs of such items will not materially affect our operations. Inflation generally affects us by increasing our cost of labor, clinical trial and manufacturing costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 20212023 and 2020.2022.

Item 8. Financial Statements and Supplementary Data.

All financial statements and supplementary data required to be filed hereunder are filed as listed under Item 15(a) of this Annual Report on Form 10-K and are incorporated herein by this reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021.2023. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange actAct is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company.. Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of our

100


consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material affecteffect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

Our management, with the participation of itsour Chief Executive Officer and Chief Financial Officer, assessed our internal control over financial reporting as of December 31, 2021.2023. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2021.2023.

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This Annual Report on Form 10-K does not include an attestation report offrom our independent registered public accounting firm due to a transition period established by rules of the SEC for “emerging growth companies”.

Remediation of Previously Reported Material Weakness

During the preparation of our consolidated financial statements as of and for the year ended December 31, 2020, we identified material weaknesses in ourregarding internal control over financial reporting. The material weaknessesAs we identified were as follows:

we didare a non-accelerated filer, management’s report is not design or maintain an effective control environment commensurate withsubject to attestation by our financial reporting requirements due to lack of a sufficient number ofregistered public accounting professionals with the appropriate level of experience and training;
we did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, and monitoring controls maintained at the corporate level were not at a sufficient level of precision to provide the appropriate level of oversight of activities related to our internal control over financial reporting;
we did not design and maintain effective controls over segregation of duties with respect to the preparation and review of account reconciliations as well as creating and posting manual journal entries; and
we did not design and maintain formal accounting policies, processes and controls to analyze, account for and disclose complex transactions.

We took a number of actions in 2021 to improve our internal control over financial reporting to remediate these material weaknesses. The remediation efforts and progress summarized below are intended to address and remediate the identified material weaknesses:

In the first quarter of 2021, we engaged a permanent Vice President, Corporate Controller, and a Senior Manager of Finance, together with third-party consultants, to improve and oversee all aspects of accounting operations, financial reporting, and Sarbanes-Oxley Act of 2002, as amended, compliance;
We also successfully implemented a new Enterprise Resource Planning (ERP) system, Microsoft 365 Business Central, in January 2021, replacing QuickBooks and providing efficiency and financial controls. We provided appropriate training to all key accounting personnel who are responsible for posting and reviewing journal entries; and
In the first quarter of 2021, we reevaluated our existing internal controls and, in the second quarter, we implemented additional controls to enhance our internal control environment. Since the third quarter of 2021, we have been performing internal control testing to ensure these controls are operating effectively as designed and implemented.

101


For the year ended December 31, 2021, we completed our testing of the design and operating effectiveness of the implemented controls and determined they were effective. As a result, we have concluded the material weaknesses identified in fiscal year 2020 have been remediated as of December 31, 2021.firm.

We cannot assure you that material weaknesses or significant deficiencies will not occur in the future or that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. For additional information, see the related risks in the section titled "Risk Factors" of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

Other than as stated above, no change in our internal control over our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the year ended December 31, 20212023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As a result of the COVID-19 pandemic, since March 2020, we have requested that our employees work remotely, as appropriate. We have not identified any material changes in our internal control over financial reporting as a result of these changes to the working environment. We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.

Item 9B. Other Information.

(a) None.

As previously disclosed, on March 12, 2021, we entered into a Capital On Demand™ Sales Agreement (Sales Agreement) with JonesTrading Institutional Services LLC (Sales Agent), pursuant to which we may sell from time to time, at our option, up to an aggregate of $75,000,000 of shares of the our common stock (ATM Shares), through our Sales Agent (ATM Program). On November 8, 2022, we filed a new prospectus supplement covering the offer and sale of up to $100.0 million of shares of our common stock under the ATM Program, which included the $30.0 million of shares of our common stock not sold pursuant to the existing prospectus and up to an additional $70.0 million of shares of our common stock.

On March 13, 2024, we delivered written notice to our Sales Agent to terminate the Sales Agreement, effective as of March 15, 2024, pursuant to Section 12(b) thereof. We are not subject to any termination penalties related to the termination of the Sales Agreement. Prior to termination, $64.9 million of the ATM Shares had been sold and $80.1 million of the ATM Shares remained available for sale pursuant to the Sales Agreement. As a result of the termination of the Sales Agreement, we will not offer or sell any additional shares under the ATM Program.

(b) None.

Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.

Not applicable.

102


 

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item regarding directors, executive officers and corporate governance will be included in our 20222024 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.reference (excluding pay versus performance disclosure).

We have adopted a code of business conduct and ethics for directors, officers, and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http:https://www.adicetbio.com under the Corporate Governance section of our Investors page.investor.adicetbio.com/corporate-governance/governance-highlights. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver. Shareholders may request a free copy of the Code of Business Conduct and Ethics from our Compliance Officer, c/o Adicet Bio, Inc., 200 Clarendon131 Dartmouth Street, 3rd Floor, 6, Suite #6041, Boston, MAMassachusetts 02116.

Item 11. Executive Compensation.

The information required by this item regarding executive compensation will be included in our 20222024 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.reference (excluding pay versus performance disclosure).

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item regarding security ownership of certain beneficial owners and management and securities authorized for issuance under equity compensation plans will be included in our 20222024 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

The information required by this item regarding certain relationships and related transactions and director independence will be included in our 20222024 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

Our independent public accounting firm is KPMG LLP, Boston, Massachusetts (PCAOB Auditor ID: 185).

The information required by this item regarding principal accounting fees and services will be included in our 20222024 Proxy Statement, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K, and is incorporated herein by reference.

103


 

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are included in this Annual Report on Form 10-K:

(1)
The following Report and Consolidated Financial Statements of the Company are included in this Annual Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.
(3)
Exhibits. The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K. The Exhibit Index is incorporated herein by reference.

Item 16. 10-K Summary

We have elected not to include summary information.

 

104


 

104


ADICET BIO, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

 

 

Report of Independent Registered Public Accounting Firm (KPMG LLP, Boston, MA, Auditor Firm ID: 185)

F-2

Consolidated Financial Statements

 

Consolidated Balance Sheets as of December 31, 20212023 and 20202022

F-3

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 20212023 and 20202022

F-4

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 20212023 and 20202022

F-5

Consolidated Statements of Cash Flows for the years ended December 31, 20212023 and 20202022

F-6

Notes to Consolidated Financial Statements

F-7

 

F-1


 

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Adicet Bio, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Adicet Bio, Inc. and subsidiaries (the Company) as of December 31, 20212023 and 2020,2022, the related consolidated statements of operations, and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity, (deficit), and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

/s/ KPMG LLP

 

We have served as the Company’s auditor since 2020.

 

Boston, Massachusetts

March 15, 202219, 2024


 

 

F-2


 

Adicet Bio, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

December 31,

 

 

2021

 

 

2020

 

 

December 31,
2023

 

 

December 31,
2022

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

277,544

 

$

84,330

 

 

$

159,711

 

 

$

257,656

 

Short-term marketable debt securities

 

 

10,284

 

Accounts Receivable—related party

 

185

 

 

Prepaid expenses and other current assets

 

 

4,709

 

 

 

5,722

 

 

 

2,561

 

 

 

3,382

 

Total current assets

 

282,438

 

100,336

 

 

 

162,272

 

 

 

261,038

 

Property and equipment, net

 

14,643

 

2,790

 

 

 

26,777

 

 

 

28,710

 

Operating lease right-of-use asset

 

20,358

 

23,066

 

 

 

17,424

 

 

 

20,269

 

Goodwill

 

19,462

 

20,089

 

 

 

 

 

 

19,462

 

In-process research and development

 

 

1,190

 

Restricted cash

 

150

 

4,527

 

Long-term marketable debt securities

 

 

0

 

Other non-current assets

 

 

1,887

 

 

 

1,837

 

 

 

822

 

 

 

1,211

 

Total assets

 

$

338,938

 

 

$

153,835

 

 

$

207,295

 

 

$

330,690

 

Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

3,263

 

 

 

1,552

 

 

$

2,625

 

 

$

4,404

 

Contract liabilities—related party, current

 

4,805

 

13,980

 

Accrued and other current liabilities

 

6,682

 

5,732

 

 

 

13,441

 

 

 

12,811

 

Operating lease liability

 

 

1,567

 

 

 

1,215

 

 

 

3,221

 

 

 

2,492

 

Total current liabilities

 

16,317

 

22,479

 

 

 

19,287

 

 

 

19,707

 

Operating lease liability, net of current maturities

 

19,377

 

20,424

 

Contingent consideration liability

 

 

980

 

Deferred tax liability

 

 

125

 

Operating lease liability, net of current portion

 

 

17,703

 

 

 

18,531

 

Other non-current liabilities

 

 

115

 

 

 

 

 

 

130

 

 

 

114

 

Total liabilities

 

 

35,809

 

 

 

44,008

 

 

 

37,120

 

 

 

38,352

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of December 31, 2021 and December 31, 2020, respectively; NaN issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized as of December 31, 2021 and December 31, 2020, respectively; 39,736,914 and 19,677,249 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

 

4

 

2

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of December 31, 2023 and December 31, 2022, respectively; none issued and outstanding as of December 31, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized as of December 31, 2023 and December 31, 2022, respectively; 43,270,386 and 42,954,820 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

471,449

 

216,126

 

 

 

550,943

 

 

 

530,448

 

Accumulated deficit

 

(168,324

)

 

(106,325

)

 

 

(380,772

)

 

 

(238,114

)

Accumulated other comprehensive income

 

 

 

 

 

24

 

Total stockholders’ equity

 

 

303,129

 

 

 

109,827

 

 

 

170,175

 

 

 

292,338

 

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity

 

$

338,938

 

 

$

153,835

 

Total liabilities and stockholders’ equity

 

$

207,295

 

 

$

330,690

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-3


 

Adicet Bio, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

 

 

Year Ended December 31,

 

Year Ended December 31,

 

 

2021

 

 

2020

 

 

 

2023

 

 

2022

 

Revenue—related party

 

$

9,730

 

$

17,903

 

Revenuerelated party

 

$

 

 

$

24,990

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

48,943

 

34,334

 

 

 

106,043

 

 

 

71,246

 

General and administrative

 

 

22,220

 

 

 

22,760

 

 

 

 

26,533

 

 

 

26,295

 

Goodwill impairment

 

 

19,462

 

 

 

 

Total operating expenses

 

 

71,163

 

 

 

57,094

 

 

 

 

152,038

 

 

 

97,541

 

Loss from operations

 

(61,433

)

 

(39,191

)

 

 

 

(152,038

)

 

 

(72,551

)

Interest income

 

91

 

785

 

 

 

9,978

 

 

 

3,760

 

Interest expense

 

(176

)

 

(134

)

 

 

 

(25

)

 

 

(80

)

Other income (expense), net

 

 

(606

)

 

 

(953

)

 

Loss before income tax benefit

 

(62,124

)

 

(39,493

)

 

Income tax expense (benefit)

 

 

(125

)

 

 

(2,815

)

 

Other expense, net

 

 

(573

)

 

 

(919

)

Loss before income tax provision

 

 

(142,658

)

 

 

(69,790

)

Income tax provision

 

 

 

 

 

 

Net loss

 

$

(61,999

)

 

$

(36,678

)

 

 

$

(142,658

)

 

$

(69,790

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(2.00

)

 

$

(5.01

)

 

Weighted-average shares used in computing net loss per share
attributable to common stockholders, basic and diluted

 

 

30,952,152

 

 

 

7,319,977

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable debt securities, net of tax

 

 

(24

)

 

 

1

 

 

Total other comprehensive income (loss)

 

 

(24

)

 

 

1

 

 

Comprehensive loss

 

$

(62,023

)

 

$

(36,677

)

 

Net loss per share, basic and diluted

 

$

(3.31

)

 

$

(1.70

)

Weighted-average common shares used in computing net loss per share, basic and diluted

 

 

43,042,405

 

 

 

41,080,286

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-4


 

Adicet Bio, Inc.

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

 

 

Redeemable Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

(Deficit)

 

Balance at December 31, 2019

 

 

97,166,921

 

 

 

114,083

 

 

 

 

2,155,578

 

 

 

 

 

 

9,258

 

 

 

(69,647

)

 

 

23

 

 

 

(60,366

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

210,752

 

 

 

1

 

 

 

459

 

 

 

 

 

 

 

 

 

460

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,263

 

 

 

 

 

 

 

 

 

5,263

 

Conversion of shares of redeemable convertible preferred stock
   to shares of common stock in connection with the Merger

 

 

(97,166,921

)

 

 

(114,083

)

 

 

 

12,048,671

 

 

 

1

 

 

 

114,082

 

 

 

 

 

 

 

 

 

114,083

 

Exchange of common stock in connection with the Merger

 

 

 

 

 

 

 

 

 

5,207,695

 

 

 

 

 

 

83,516

 

 

 

 

 

 

 

 

 

83,516

 

Issuance of common stock upon accelerated vesting of restricted stock units in connection with merger

 

 

 

 

 

 

 

 

 

54,553

 

 

 

 

 

 

626

 

 

 

 

 

 

 

 

 

626

 

Conversion of redeemable convertible preferred stock
   warrants to common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,922

 

 

 

 

 

 

 

 

 

2,922

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,678

)

 

 

 

 

 

(36,678

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Balance at December 31, 2020

 

 

 

 

 

 

 

 

 

19,677,249

 

 

 

2

 

 

 

216,126

 

 

 

(106,325

)

 

 

24

 

 

 

109,827

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

1,125,339

 

 

 

 

 

 

4,688

 

 

 

 

 

 

 

 

 

4,688

 

Issuance of common stock related to financing, net of issuance costs of $823,940

 

 

 

 

 

 

 

 

 

18,916,853

 

 

 

2

 

 

 

237,995

 

 

 

 

 

 

 

 

 

237,997

 

Issuance of common stock for cashless exercise of warrants

 

 

 

 

 

 

 

 

 

1,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock resulting from Employee Stock Purchase Plan

 

 

 

 

 

 

 

 

 

15,667

 

 

 

 

 

 

129

 

 

 

 

 

 

 

 

 

129

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,511

 

 

 

 

 

 

 

 

 

12,511

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(61,999

)

 

 

 

 

 

(61,999

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

(24

)

Balance at December 31, 2021

 

 

 

 

$

 

 

 

 

39,736,914

 

 

$

4

 

 

$

471,449

 

 

$

(168,324

)

 

$

 

 

$

303,129

 

 

 

Common Stock

 

 

Additional
Paid In

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

39,736,914

 

 

 

4

 

 

 

471,449

 

 

 

(168,324

)

 

 

303,129

 

Issuance of common stock upon exercise of stock options

 

 

126,176

 

 

 

 

 

 

1,315

 

 

 

 

 

 

1,315

 

Issuance of common stock upon vesting of restricted stock

 

 

548,580

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of warrants

 

 

100,731

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld for taxes

 

 

(215,901

)

 

 

 

 

 

(3,234

)

 

 

 

 

 

(3,234

)

Purchase of common stock under Employee Stock Purchase Plan

 

 

46,597

 

 

 

 

 

 

432

 

 

 

 

 

 

432

 

Issuance of common stock pursuant to at-the-market offering, net of issuance costs of $1.6 million

 

 

2,611,723

 

 

 

 

 

 

43,360

 

 

 

 

 

 

43,360

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

17,126

 

 

 

 

 

 

17,126

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(69,790

)

 

 

(69,790

)

Balance at December 31, 2022

 

 

42,954,820

 

 

$

4

 

 

$

530,448

 

 

$

(238,114

)

 

$

292,338

 

Issuance of common stock upon exercise of stock options

 

 

946

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Issuance of common stock upon vesting of restricted stock

 

 

194,455

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld for taxes

 

 

(86,145

)

 

 

 

 

 

(150

)

 

 

 

 

 

(150

)

Purchase of common stock under Employee Stock Purchase Plan

 

 

206,310

 

 

 

 

 

 

382

 

 

 

 

 

 

382

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

20,259

 

 

 

 

 

 

20,259

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(142,658

)

 

 

(142,658

)

Balance at December 31, 2023

 

 

43,270,386

 

 

$

4

 

 

$

550,943

 

 

$

(380,772

)

 

$

170,175

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-5


 

Adicet Bio, Inc.

Consolidated Statements of Cash Flows

(in thousands)

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(61,999

)

 

$

(36,678

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,538

 

 

 

1,226

 

Noncash lease expense

 

 

2,529

 

 

 

725

 

Stock-based compensation expense

 

 

12,511

 

 

 

5,263

 

Loss on disposal of assets for lease

 

 

31

 

 

 

 

Net amortization of premiums and accretion of discounts on investments

 

 

10

 

 

 

5

 

Change in fair value of redeemable convertible preferred stock warrant liability

 

 

 

 

 

897

 

Impairment of in-process research and development

 

 

1,190

 

 

 

2,300

 

Gain on remeasurement of contingent consideration liability

 

 

(980

)

 

 

(1,900

)

Amortization of deferred debt issuance costs

 

 

175

 

 

 

134

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts Receivable—related party

 

 

(30

)

 

 

 

Prepaid expenses and other current assets

 

 

1,634

 

 

 

(3,233

)

Other non-current assets

 

 

42

 

 

 

(1,260

)

Accounts payable

 

 

1,137

 

 

 

(814

)

Contract liabilities—related party

 

 

(9,175

)

 

 

(7,903

)

Operating lease liabilities

 

 

(511

)

 

 

(859

)

Accrued and other current liabilities

 

 

855

 

 

 

787

 

Other non-current liabilities

 

 

(9

)

 

 

(242

)

Net cash used in operating activities

 

 

(51,052

)

 

 

(41,552

)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Cash and restricted cash acquired in connection with the Merger

 

 

 

 

 

64,114

 

Proceeds from sales of marketable debt securities

 

 

7,500

 

 

 

 

Purchases of marketable debt securities

 

 

 

 

 

(5,700

)

Proceeds from maturities of marketable debt securities

 

 

2,750

 

 

 

57,793

 

Purchase of property and equipment

 

 

(13,046

)

 

 

(990

)

Net cash provided by (used in) investing activities

 

 

(2,796

)

 

 

115,217

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

238,129

 

 

 

 

Proceeds from Employee Stock Purchase Plan

 

 

129

 

 

 

 

Proceeds from exercise of stock options

 

 

4,688

 

 

 

460

 

Deferred issuance costs

 

 

(261

)

 

 

(157

)

Net cash provided by financing activities

 

 

242,685

 

 

 

303

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

188,837

 

 

 

73,968

 

Cash, cash equivalents and restricted cash, at the beginning of the period

 

 

88,857

 

 

 

14,889

 

Cash, cash equivalents and restricted cash, at the end of the period

 

$

277,694

 

 

$

88,857

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

277,544

 

 

$

84,330

 

Restricted cash

 

 

150

 

 

 

4,527

 

Cash, cash equivalents and restricted cash in consolidated balance sheets

 

$

277,694

 

 

$

88,857

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

Cash paid for income taxes

 

$

43

 

 

$

3

 

Cash received for income tax refunds

 

$

2,766

 

 

$

664

 

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

 

Purchase of property and equipment included in accounts payable and accrued liabilities

 

$

651

 

 

$

115

 

Common stock offering costs included in accrued liabilities at period end

 

$

132

 

 

$

 

Right-of-use assets recognized upon adoption of Topic 842

 

$

 

 

$

1,424

 

Operating lease right-of-use asset obtained in exchange for operating lease liability

 

$

 

 

$

22,367

 

Conversion of redeemable convertible preferred stock into common stock

 

$

 

 

$

114,083

 

Conversion of redeemable convertible preferred stock warrants into common stock warrants

 

$

 

 

$

2,922

 

Fair value of net assets acquired in Merger

 

$

 

 

$

84,142

 

Adjustment to Goodwill

 

$

413

 

 

$

650

 

Issuance of redeemable convertible preferred stock warrants in connection with the Loan Agreement

 

$

 

 

$

144

 

 

 

Twelve Months Ended December 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(142,658

)

 

$

(69,790

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

6,098

 

 

 

2,575

 

Noncash lease expense

 

 

2,844

 

 

 

2,434

 

Stock-based compensation expense

 

 

20,259

 

 

 

17,126

 

Loss on disposal of property, plant, and equipment

 

 

(4

)

 

 

55

 

Goodwill impairment

 

 

19,462

 

 

 

 

Loss on disposal of lease assets

 

 

 

 

 

(1

)

Amortization of deferred debt issuance costs

 

 

30

 

 

 

92

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

926

 

 

 

1,343

 

Other non-current assets

 

 

358

 

 

 

929

 

Accounts payable

 

 

(1,683

)

 

 

1,710

 

Contract liabilities — related party

 

 

 

 

 

(4,805

)

Operating lease liability

 

 

(99

)

 

 

(2,264

)

Accrued and other current and non-current liabilities

 

 

750

 

 

 

5,831

 

Net cash used in operating activities

 

 

(93,717

)

 

 

(44,765

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,464

)

 

 

(16,782

)

Net cash used in investing activities

 

 

(4,464

)

 

 

(16,782

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock pursuant to at-the-market offering, net of issuance costs

 

 

 

 

 

43,360

 

Proceeds from exercise of stock options

 

 

4

 

 

 

1,315

 

Proceeds from Employee Stock Purchase Plan

 

 

382

 

 

 

432

 

Taxes withheld and paid related to net share settlement of equity awards

 

 

(150

)

 

 

(3,234

)

Deferred issuance costs

 

 

 

 

 

(364

)

Net cash provided by financing activities

 

 

236

 

 

 

41,509

 

Net change in cash and cash equivalents

 

 

(97,945

)

 

 

(20,038

)

Cash and cash equivalents at the beginning of period

 

 

257,656

 

 

 

277,694

 

Cash and cash equivalents, at the end of period

 

$

159,711

 

 

$

257,656

 

Supplemental cash flow information

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

279

 

 

$

565

 

Operating right-of-use assets obtained in exchange for operating lease liabilities

 

$

 

 

$

2,329

 

The accompanying notes are an integral part of these financial statements.

F-6


 

Adicet Bio, Inc.

Notes to Consolidated Financial Statements

1. Organization and Nature of the Business

Adicet Bio, Inc. (formerly resTORbio, Inc. (resTORbio)), together with its subsidiaries, (the Company) is a clinical stage biotechnology company discovering and developing allogeneic gamma delta T cell therapies for autoimmune diseases and cancer. The Company is advancing a pipeline of off-the-shelf“off-the-shelf” gamma delta T cells, engineered with chimeric antigen receptors (CARs) and T cell receptor-like antibodies, to enhance selective tumor targeting, facilitate innate and adaptive anti-tumor immune response, and improve persistence for durable activity in patients. The Company's approach to activate, engineer, and manufacture allogeneic gamma delta T cell product candidates derived from the peripheral blood cells of unrelated donors allows it to generate new product candidates in a rapid and cost efficientcost-efficient manner.

The Company was incorporated in November 2014 in Delaware. The principal executive offices are located in Boston, Massachusetts. The Company also has another office in Menlo Park, California.

Adicet Bio, Inc. (when referred to prior to the Merger (as defined below), (Formermerger, Former Adicet)) was incorporated in November 2014 in Delaware and was headquartered in Menlo Park, CA. Adicet Bio Israel Ltd. (formerly Applied Immune Technologies Ltd.) (Adicet Israel) is a wholly owned subsidiary of Former Adicet and is located in Haifa, Israel. Adicet Israel was founded in 2006. During 2019, Former Adicet consolidated its operations, including research and development activities, in the United States and as a result substantially reduced its operations in Israel.

Merger with resTORbio

Prior toDelaware. On September 15, 2020, the Company was a clinical-stage biopharmaceutical company known as resTORbio that had historically focused on developing innovative medicines that target the biology of aging, to prevent or treat age-related diseases with the potential to extend healthy lifespans. On April 28, 2020, resTORbio entered into a definitive Merger Agreement with Former Adicet. Under the terms of the Merger Agreement, Former Adicet agreedcompleted a merger (Merger) with resTORbio, pursuant to mergewhich Former Adicet merged with a wholly owned subsidiary of resTORbio in an all-stock transaction with Former Adicet surviving as a wholly owned subsidiary of resTORbio and changing its name to “Adicet Therapeutics, Inc.” (such transactions, the Merger). Under the exchange ratio formula in the Merger Agreement, immediately following the Effective Time of the Merger, the securityholders of Former Adicet as of immediately prior to the Effective Time of the Merger owned approximately 75% of the outstanding shares of the Company’s common stock on a fully-diluted basis and securityholders of resTORbio as of immediately prior to the Effective Time of the Merger owned approximately 25% of the outstanding shares of the Company’s common stock on a fully-diluted basis (in each case excluding equity incentives available for grant).

The Company concluded that the transaction represented a business combination pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations. Further, Former Adicet was determined to be the accounting acquirer based upon the terms of the Merger and other factors including: (i) Former Adicet’s securityholders own approximately 75% of the voting rights of the combined company (on a fully-diluted basis excluding equity incentives available for grant); (ii) Former Adicet designated a majority (five of seven) of the initial members of the Board of Directors of the combined company; and (iii) the terms of the exchange of equity interests based on the exchange ratio at the announcement of the Merger factored in an implied premium to resTORbio’s stockholders. The composition of senior management of the combined company was determined to be a neutral factor in the accounting acquirer determination, as the combined company will leverage the expertise of the senior management of both companies. Accordingly, the reported operating results prior to the business combination are those of Former Adicet.

On September 15, 2020, the Company completed the Merger pursuant to the Merger Agreement (the Effective Time)(Adicet Therapeutics). In connection with the Merger, and immediately prior to the Effective Time, resTORbio effected a reverse stock split of its common stock at a ratio of 1-for-7 (the Reverse Stock Split). Also, in connection with the Merger, the Company changed its name from “resTORbio, Inc.” to “Adicet Bio, Inc.” (the Name Change), Former Adicet changed its name from “Adicet Bio, Inc.” to “Adicet Therapeutics, Inc.” and the business conducted by the Company became primarily the business, which was previously conducted by Former Adicet, which is a biotechnology company discovering and developing allogeneic gamma delta T cell therapies for cancer and other diseases.

At the Effective Time, each outstanding share of Former Adicet capital stock was converted into the right to receive 0.1240 (the Exchange Ratio) shares ofThe Company’s common stock, as set forthprincipal executive offices are located in the Merger Agreement.Boston, Massachusetts. The Exchange Ratio was determined based on the total number of outstanding shares of Company’s common stock and Former Adicet capital stock, each on a fully diluted basis, and the respective valuations of Former Adicet and resTORbio at the time of execution of the Merger Agreement. In connection with the Merger, the Company also assumed certain outstanding Former Adicet warrants and Former Adicet stock options under Former Adicet’s 2015 Stock Incentive Plan (the 2015 Adicet Stock Incentive Plan) and Former Adicet’s 2014 Share Option Plan (the 2014 Share Option Plan and, together with the 2015 Adicet Stock Incentive Plan, the Former Adicet Plans), with such stock options and warrants henceforth representing the right to purchase a number of shares of Company’s common stock equal to the Exchange Ratio multiplied by the number of shares of Former Adicet’shas offices in Redwood City, California.

F-7


Adicet Bio Inc.

Notes to Consolidated Financial Statements

capital stock previously represented by such stock options and warrants, as applicable, withIsrael Ltd. (formerly Applied Immune Technologies Ltd.) (Adicet Israel) is a proportionate adjustment in exercise price.

Immediately following the Effective Time, there were approximately 19,589,828 shareswholly owned subsidiary of the Company’s common stock outstanding (post Reverse Stock Split), withCompany and is located in Haifa, Israel. Adicet Israel was founded in 2006. During 2019, the former equity holders of Former Adicet holding approximately 75% ofCompany consolidated its operations, including research and development activities, in the outstanding shares of Company’s common stock onUnited States and as a fully-diluted basis and the former equity holders of resTORbio holding approximately 25% of the outstanding shares of Company’s common stock on a fully-diluted basis (in each case excluding equity incentives available for grant).

Please refer to Note 3 “Business Combinations” for further discussions of the Merger.result, substantially reduced its operations in Israel.

Liquidity

The Company has incurred significant net operating losses and negative cash flows from operations since inception and hadhas an accumulated deficit of $168.3380.8 million as of December 31, 2021.2023. The Company has historically financed its operations primarily through a collaboration and licensing arrangement, thepublic and private placementplacements of equity securities and debt, and cash received in the Merger.Merger with resTORbio. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from product sales. Management expects operating losses and negative cash flows to continue for the foreseeable future, until such time, if ever, that it can generate significant sales of its product candidates currently in development.

In FebruaryOn March 12, 2021, the Company completedentered into a Capital On Demand™ Sales Agreement (the Sales Agreement) with JonesTrading Institutional Services LLC, as sales agent, to provide for the offering, issuance and sale of up to an aggregate amount of $75.0 million of shares of common stock from time to time in “at-the-market” (ATM) offerings under a registration statement on Form S-3 (File No. 333-254193) (2021 Shelf Registration Statement) filed with the U.S. Securities and Exchange Commission (the SEC), which was declared effective on March 30, 2021. In August 2022, pursuant to the Sales Agreement and subject to the limitations thereof, the Company sold an aggregate of 2,611,723 shares of common stock at $17.23 per share resulting in net proceeds to the Company of $43.4 million after deducting sales agent commissions and expenses. In November 2022, the Company filed a new prospectus supplement to the 2021 Shelf Registration Statement for the offer and sale of up to $100.0 million of shares of common stock from time to time through the sales agent, which includes the $30.0 million of shares of common stock not sold under the original prospectus and up to an additional $70.0 million of shares of common stock (the ATM Program). During the year ended December 31, 2023, no shares were sold under the ATM Program.

Subsequent to December 31, 2023, the Company raised aggregate net proceeds of approximately $19.3 million through its ATM Program and approximately $91.8 million through an underwritten public offering of (the Offering). Refer to Note 19. Subsequent Events for additional details on these financings subsequent to December 31, 2023.10,575,513 shares of its common stock at a public offering price of $13.00 per share. The Company received net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses of approximately $128.8 million. In connection with the offering, the Company also entered into a stock purchase agreement with certain existing investors to purchase 1,153,840 shares of its common stock for $15.0 million at a price per share equal to the public offering price, with an initial closing for certain investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors.

In December 2021, the Company closed an underwritten public offering, or the December 2021 Follow-On Offering, of 7,187,500 shares of its common stock at a public offering price of $14.00 per share. The Company received net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses of approximately $94.2 million.

The Company expects that its cash and cash equivalents, balances as of December 31, 2021, includingtogether with the gross proceeds it received in February 2021 and December 2021 from its underwritten public offeringsraised subsequent to year-end through our ATM Program and the proceeds received from a stock purchase agreement with certain existing investors,Offering, will be sufficient to fund its forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the issuance of these annual consolidated financial statements.

All of the Company’s revenue to date ishas been generated from the Regeneron Agreement, which is a collaboration and license agreement with Regeneron.Regeneron Pharmaceuticals Inc, (Regeneron). The Company does not expect to generate any significant product revenue until it obtains regulatory approval of and commercializecommercializes any of the Company’s product candidates or enterenters into additional collaborative agreements with third parties, and it does not know when, or if, either will occur. The Company expects to continue to incur significant losses for the foreseeable future, and it expects the losses to increase as the Company continues the development of, and seekseeks regulatory approvals for, its product candidates and beginbegins to commercialize any approved products. The Company is subject to all of the risks typically related to the development of new product candidates, including, but not limited to, raising additional capital, development by its competitors of new technological innovations, risk of failure in preclinical and clinical

F-7


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

studies, safety and efficacy of its product candidates in clinical trials, the risk of relying on external parties such as contract research organizations (CROs) and contract development and manufacturing organizations (CMOs)(CDMOs), the regulatory approval process, market acceptance of the Company’s products once approved, lack of marketing and sales history, dependence on key personnel and protection of proprietary technology and it may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect its business.

Until such time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of equity, debt financings, collaborative or other arrangements with corporate or other sources of financing. Adequate funding may not be available to the Company on acceptable terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and the Company’s ability to pursue its business strategies. Although the Company continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

F-8


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America (United States GAAP or GAAP).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The United States dollar is the functional and reporting currency of the Company and its subsidiaries.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Such estimates include the valuation of the intangible assets acquired in business combinations, redeemable convertible preferred stock warrant liability, redeemable convertible preferred stock tranche liability, the Technion Research and Development Foundation liability (TRDF Liability), contingent consideration liability for contingent value right (CVR), deferred tax assets, useful lives of property and equipment, accruals for research and development activities, revenue recognition and stock-based compensation and the Company’s incremental borrowing rate. Actual results could differ from those estimates.

Contingent Consideration Liability (CVR)

The estimated fair value of the CVR, initially measured and recorded on the acquisition date, is considered to be a Level 3 instrument. The contingent consideration liability is recorded at fair value at the end of each reporting period with changes in estimated fair values recorded in research and development expenses in the consolidated statements of operations and comprehensive loss. During the second quarter of 2021, the Company performed a re-measurement of the fair value of the CVR liability and adjusted the liability to zero. This resulted in a $1.0 million gain in research and development expense in the statements of operations and comprehensive loss for the year ended December 31, 2021.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in a business combination. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below the carrying value.

Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company has determined that it operates in a single operating segment and has a single reporting unit.

Prior to performing the impairment test, the Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit was less than the carrying amount. If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, then the Company would perform a quantitative impairment test.

The quantitative impairment test involves comparing the fair value of the reporting unit to the carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. The Company performed an annualinterim test for goodwill impairment in the fourththird quarter of the fiscal year ended December 31, 20212023 and determined that goodwill was 0t impaired. For additional information regarding this assessment, refer to Note 16. Goodwill to our consolidated financial statements.

F-9F-8


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

Intangible Assets

In connection with the Merger, the Company acquired certain IPR&D assets, which were classified as indefinite-lived intangible assets. Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires and have not been completed at the acquisition date. The fair value of IPR&D acquired in a business combination is recorded on the Company’s consolidated balance sheets at the acquisition-date fair value and is determined by estimating the costs to develop the technology into commercially viable products, estimating the resulting revenue from the products, and discounting the projected net cash flows to present value. IPR&D is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party. The Company performed a review for impairment of IPR&D during the second quarter of the year ended December 31, 2021 and recognized an impairment charge of $1.2 million, which was recorded as research and development expenses in the consolidated statement of operations and comprehensive loss.

Segments

The Company operates and manages its business as 1one reportable and operating segment, which is the business of research and development of allogeneic immunotherapiesgamma delta T cell therapies for cancerautoimmune diseases and other diseases.cancer. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, and marketable debt securities.equivalents. The Company’s cash and cash equivalents are held at two financial institutions in the United StatesU.S. and one financial institution in Israel and such amounts may, at times, exceed insured limits. The Company invests its cash equivalents and marketable debt securities in money market funds United States government securities, commercial paper, corporate bonds, and asset-backedtreasury securities. The Company limits its credit risk associated with cash equivalents and marketable debt securities by placing them with banks and institutions it believes are highly creditworthy and in highly rated investments. The Company has not experienced any losses on its deposits of cash and cash equivalents and marketable debt securities to date.

The Company has 1one customer, Regeneron, which represents 100% of the Company’s total revenue during the yearsyear ended December 31, 2021 and 2020 and outstanding accounts receivable as of2022 (see Note 8). The Company did not have any revenue for the year ended December 31, 2021 (see Note 10).2023.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials, and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.

The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from product sales.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies.

The current COVID-19 (coronavirus) pandemic, which is impacting worldwide economic activity, poses risk that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which the coronavirus impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. COVID-19 may impact the timing of regulatory approval of the INDs for clinical trials, the enrollment of any clinical trials that are

F-10


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

approved, the availability of clinical trial materials and regulatory approval and commercialization of our products. COVID-19 may also impact the Company’s ability to access capital, which could negatively impact short-term and long-term liquidity.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with maturities of three months or less from the purchase date to be cash equivalents. As of December 31, 20212023 and 2020,2022, cash and cash equivalents consist of cash deposited with banks, and investments in money market funds with maturities of three months or less from the date of purchase.

Marketable Debt Securities

Marketable debt securities are investments in marketable debt securities with maturities greater than three months at the time of purchase. The Company determines the appropriate classification of its investments in marketable debt securities at the time of purchase, and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable debt securities as available-for-sale. The Company classifies highly liquid securities with maturities beyond 12 months as long-term marketable debt securities in the consolidated balance sheet. These securities are carried at fair value as determined based upon quoted market prices or pricing models for similarovernight treasury securities. Unrealized gains and losses, if any, are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the consolidated statements of operations and comprehensive loss. Realized gains and losses, if any, on available-for-sale securities are included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. The Company did not have any outstanding marketable debt securities as of December 31, 2021 and did not identify any of its marketable debt securities as other-than-temporarily impaired as of December 31, 2020.

Restricted Cash

Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements. Restricted cash for years ended December 31, 2021 and 2020 consists of collateral for letters of credit issued in connection with real estate leases (see Note 12).

Fair Value of Financial Instruments

The carrying amounts of certain financial instruments of the Company, including cash equivalents, restricted cash,accounts receivable, accounts payable and accrued and other current liabilities approximate fair value due to their relatively short maturities. The Company’s marketable debt securities and CVR liability are carried at fair value (see Notes 4 and 5).

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets, generally three years. Leasehold improvements are amortized using the straight-line method over the shorterlesser of the assets’ estimated useful lives or the remaining term of the lease. Maintenance and repairs are charged to operations as incurred. When assets are retired or otherwise disposed of, the cost and

F-9


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss in the period realized.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability is measured by comparison of the carrying amount of the asset or asset group to the future net cash flows which the asset or asset group is expected to generate. If such asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. There has beenThe Company performed a long-lived asset impairment test in conjunction with its goodwill impairment test in the third quarter of 2023 and concluded that there was 0no suchimpairment of long-lived assets. There was also no impairment of long-lived assets duringfor the yearsyear ended December 31, 2021 and 2020.2022.

Revenue Recognition

Under ASC 606, Revenue from Contracts with Customers (ASC 606), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive

F-11


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps as prescribed by ASC 606:

(i)
identify the contract(s) with a customer;
(ii)
identify the performance obligations in the contract;
(iii)
determine the transaction price;
(iv)
allocate the transaction price to the performance obligations in the contract; and
(v)
recognize revenue when (or as) the Company satisfies a performance obligation.

A contract with a customer exists when (i) the Company enters into a legally enforceable contract with a customer that defines each party’s rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company identifies the goods or services promised and determines the performance obligations by assessing whether each promised good or service is distinct. Goods or services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

All of the Company’s revenues for the year ended December 31, 2022 are derived through a license and collaboration agreement with Regeneron (see Note 10)8). The Company did not have any revenue for the year ended December 31, 2023.

For revenue recognition purposes, the Company determines the term of its license or collaboration agreements by evaluating the period during which present and enforceable rights and obligations exist. This determination is impacted by the existence of substantive termination penalties, among other factors.

The Company recognizes revenue under the Company’s license or collaboration agreements that are within the scope of ASC 606. These agreements include promises related to licenses to intellectual property and research and development services. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. Accordingly, the transaction price is generally comprised of a fixed fee due at contract inception and at specified future dates, variable consideration in the form of milestone payments due upon the achievement of specified events and tiered royalties earned when customers recognize net sales of licensed products. The Company measures the transaction price based on the amount of consideration to which it expects to be

F-10


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

entitled in exchange for transferring the promised goods and/or services to the customer. The Company utilizes the “most likely amount” method to estimate the amount of variable consideration to which it will be entitled for the contract. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates whether the associated event is considered most likely to be achieved and estimates the amount to be included in the transaction price.

Payments or reimbursements for the Company’s research and development efforts where such efforts are considered part of or a single performance obligation are recognized over time using a measure of progress that best reflects the Company’s performance in satisfying the obligation.

Upfront payments are recorded as contract liabilities upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligation under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

F-12


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from its collaboration arrangement.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including payroll and related expenses, costs for CMOs,CDMOs, costs for CROs, materials, supplies, depreciation on and maintenance of research equipment, consulting costs, and the allocated portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, information technology costs and general support services. All costs associated with research and development are expensed within the consolidated statements of operations and comprehensive loss as incurred.

Costs incurred in obtaining technology licenses are charged to research and development expense as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.

Accrued CRO, CMO,CDMO, and Research and Development Expenses

The Company has entered into various agreements with CMOsCDMOs and CROs. The Company’s research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced are included in accrued and other current liabilities on the consolidated balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to CMOsCDMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets on the consolidated balance sheets until the services are rendered. Through December 31, 20212023 there had been no material adjustments to the Company’s prior period estimates of accrued research and development expenses.

Leases

Effective January 1, 2020, the Company adoptedConsistent with ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), using the modified retrospective approach through a cumulative-effect adjustment as of the adoption date, with prior periods unchanged and presented in accordance with the guidance in Topic 840, Leases (Topic 840).

Consistent with ASU 2016-02, the Company determines if an arrangement is a lease, or contains a lease, at inception. Leases with a term greater than 12 months are recognized on the balance sheet as Right-of-Use (ROU) assets and current and long-term operating lease liabilities, as applicable. The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plan to renew its leases no less than on a quarterly basis. In addition, the Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants.

In accordance with ASU 2016-02, the ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate (IBR), which is the estimated rate the Company would be required to pay for a fully collateralized borrowing equal to the total lease payments over the term of the lease, to determine the present value of future

F-11


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

minimum lease payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASU 2016-02, the Company does not combine lease and non-lease components. Variable lease payments are expenses as incurred.

Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Fair Value of Common Stock

Prior to the Merger the fair value of the Company’s common stock was determined by its Board of Directors with input from management and third-party valuation specialists. The Company’s approach to estimate the fair value of the Company’s common stock is consistent with the methods outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation

F-13


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

of Privately-Held-Company Equity Securities Issued as Compensation. Determining the best estimated fair value of the Company’s common stock requires significant judgement and management considers several factors, including the Company’s stage of development, equity market conditions affecting comparable public companies, significant milestones and progress of research and development efforts. Subsequent to the Merger, the fair value of the Company’s common stock is determined based on its closing market price.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. Option valuation models, including the Black-Scholes option-pricing model, require the input of several assumptions. Changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award. For awards that have a performance condition, the Company recognizes compensation expense based on its assessment of the probability that the performance condition will be achieved, using an accelerated attribution model, over the explicit or implicit service period.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and for operating loss and tax credit carryforwards. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company’s deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce deferred tax assets if it is determined that it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings results, expectations of future taxable income, carryforward periods available and other relevant factors. The Company records changes in the required valuation allowance in the period that the determination is made.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available as of the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, the Company does not recognize a tax benefit in the consolidated financial statements. The Company records interest and penalties related to uncertain tax positions, if applicable, as a component of income tax expense (benefit).

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. The other comprehensive loss disclosed in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31, 2021 and 2020 consists of changes in unrealized gains and losses on marketable debt securities.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. The Company’s potentially dilutive shares, which include outstanding stock options, Employee Stock Purchase Plan (ESPP) awards and unvested restricted stock units (RSUs), and shares issuable upon conversion of the Convertible Notes, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available to common

F-14


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in undistributed earnings as if all income (loss) for the period had been distributed. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss is attributed entirely to common stockholders. Since the

F-12


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

Subsequent Events Considerations

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure, other than as disclosed in these notes to the consolidated financial statements. SeeRefer to Note 21 for further information.17. Subsequent Events.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB under its ASC or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-15, Intangibles–Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15). The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the update requiresentities in a hosting arrangement that is a service contract to follow the guidance in ASC 350-40, Internal-Use Software (ASC 350-40) to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized under ASC 350-40, such as training costs and certain data conversion costs, also cannot be capitalized for a hosting arrangement that is a service contract. Therefore, an entity in a hosting arrangement that is a service contract determines which project stage an implementation activity relates to. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. ASU 2018-15 also requires entities to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. ASU 2018-15 was effective for public entities for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For nonpublic entities, ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period. The Company adopted ASU 2018-15 beginning January 1, 2021. The adoption of ASU 2018-15 resulted in an immaterial amount of assets recorded on the Company's balance sheet.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606 (ASU 2018-18), which is intended to clarify the circumstances under which certain transactions in collaborative arrangements should be accounted for under the revenue recognition standard. Certain transactions between collaboration arrangement participants should be accounted for as revenue under ASC Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2020. Early adoption is permitted. The Company adopted ASU 2018-18 beginning January 1, 2021. The adoption of this standard did not have a material impact on the Company's financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplify various aspects related to the accounting for income taxes. This ASU removes exceptions to the general principles in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. For public companies, this ASU is effective for interim and annual reporting periods beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company adopted ASU 2019-12 beginning January 1, 2021 on a prospective basis. The adoption of this standard did not have a material impact on the Company's financial statements and related disclosures

F-15


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (ASU 2020-04). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning an interim period that includes or is subsequent to March 12, 2020, or prospectively from the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company may elect to apply ASU 2020-04 as its contracts referenced in London Interbank Offered Rate (LIBOR) are impacted by reference rate reform. The Company adopted ASU 2020-04 beginning January 1, 2021. The adoption of this standard did not have a material impact on the Company's financial statements and related disclosures.


Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. For public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, adoption is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For SEC filers that are eligible to be smaller reporting companies, and for all other entities, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluatingadopted ASU 2016-13 in the impact the adoptionfirst quarter of this ASU will have2023. The impact on its consolidated financial statements and related disclosures.disclosures was not material.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance for accelerated filingSEC filers that are eligible to be smaller reporting companies became effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and all other entities should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted ASU 2017-04 in the first quarter of 2023. The impact on its consolidated financial statements and related disclosures was not material.


Accounting Pronouncements Not Yet Adopted

In September 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740):Improvements to Income Tax Disclosures, which enhances the transparency and usefulness of income tax disclosures. This amendment requires public issuers to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income, or loss, by the applicable statutory income tax rate. Additionally, this amendment requires issuers to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes as well as the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). For SEC filers, this ASU is effective for fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact the adoption ofthat this ASU will have on its consolidated financial statements and related disclosures.

In July 2021, FASB issued ASU No. 2021-05, Lease (Topic 842), Lessors - Certain Leases with Variable Lease Payments (ASU 2021-05). ASU 2021-05 amends the lease classification requirements for lessors when classifying and accounting for a lease with variable lease payments that do not depend on a reference rate index or a rate. The update provides criteria, that if met, the lease would be classified and accounted for as an operating lease. ASU 2021-05 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this ASU on the Company's consolidated financial statements, but does not believe the adoption of this standard will have a material impact on the Company's consolidated financial statements.

3. Business Combination

On September 15, 2020, Former Adicet completed its merger with resTORbio. Based on the Exchange Ratio of 0.1240, immediately following the Merger, resTORbio stockholders and holders of resTORbio restricted stock units and options to acquire resTORbio common stock owned approximately 25.0% of the outstanding capital stock of the combined company on a fully diluted basis, and Former Adicet stockholders, holders of options or warrants to acquire Former Adicet capital stock owned approximately 75.0% of the outstanding capital stock of the combined company on a fully diluted basis.

resTORbio’s stockholders continued to own and hold their existing shares of the Company’s common stock (after giving effect to the 1-for-7 reverse stock split). Pursuant to the terms of the Merger, the vesting of all outstanding resTORbio stock options was accelerated in full as of immediately prior to the Effective Time. All out-of-the-money resTORbio stock options were cancelled for no consideration. All in-the-money resTORbio stock options remained outstanding after the completion of the Merger in accordance with their terms. For accounting purposes, the Company assumed 81,370 in-the-money resTORbio stock options after giving effect to reverse stock split. In addition, 91,309 unvested resTORbio restricted stock units outstanding

F-16


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

and unsettled, after giving effect to reverse stock split, as of immediately prior to the Effective Time of the Merger, were accelerated in full and the holders of such restricted stock units received 54,553 shares of the Company’s common stock (after reduction by the number of shares of resTORbio common stock necessary to satisfy applicable tax withholding obligations at the maximum statutory rate). The fair value of these modified stock options and restricted stock units attributable to pre-combination services was recorded as a component of consideration transferred and the fair value of these modified stock options and restricted stock units attributable to post-combination services was recognized as stock compensation expense in the Company’s consolidated statements of operations and comprehensive loss.

At the closing of the Merger, all shares of Former Adicet common stock and Former Adicet redeemable convertible preferred stock then outstanding were converted to Former Adicet’s common stock under their original terms and were then exchanged for the Company’s common stock.

In connection with the Merger, the Company entered into a Contingent Value Rights Agreement (the CVR Agreement) with Computershare Inc. and Computershare Trust Company, N.A. as joint rights agent. Per the terms of the Merger, each holder of resTORbio common stock as of immediately prior to the completion of the Merger is entitled to 1 contractual contingent value right, subject to and in accordance with the terms and conditions of the CVR Agreement, for each share of resTORbio common stock held by such holder as of immediately prior to the Effective Time. The CVR holders were entitled to receive net proceeds from the commercialization, if any, from a third-party commercial partner of RTB101, resTORbio’s small molecule product candidate that is a potent inhibitor of target of rapamycin complex 1 (TORC1), for a COVID-19 related indication.

The total purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed of resTORbio based on their fair values as of the completion of the Merger, with the excess allocated to goodwill. The purchase price is calculated based on the fair value of resTORbio common stock that the resTORbio stockholders owned as of the closing date of the Merger because, with no active trading market for shares of Former Adicet, the fair value of the resTORbio’s common stock represented a more reliable measure of the fair value of consideration transferred in the Merger. The following summarizes the purchase price in the Merger (in thousands, except share and per share amounts):

Fair value of common stock shares of the combined company
   owned by resTORbio stockholders (1)

 

$

84,142

 

Fair value of contingent consideration liability with respect to CVR (2)

 

 

2,880

 

Purchase price

 

$

87,022

 

(1)
Represents the share consideration of the combined company that the resTORbio stockholders own as of the closing of the Merger calculated as follows:

Number of shares of the combined company owned by resTORbio
   stockholders (a)

 

 

5,207,695

 

Multiplied by the fair value per share of resTORbio common
   stock (b)

 

$

16.59

 

Acquisition date fair value of resTORbio

 

 

86,396

 

Estimated fair value of modified stock options and restricted stock units attributable to pre-combination services (3)

 

 

626

 

Less: portion of the fair value to be distributed as CVR (c)

 

 

(2,880

)

Fair value of shares of the combined company owned by resTORbio
   stockholders

 

$

84,142

 

a.
Represents the number of shares of common stock of the combined company that the resTORbio stockholders owned as of the closing of the Merger. This amount is calculated as 5,207,695 shares (post-reverse stock split) of resTORbio common stock outstanding as of September 15, 2020.
b.
The fair value of shares of the combined company owned by resTORbio stockholders is based on the closing price of resTORbio common stock on September 14, 2020.
c.
The fair value of resTORbio common stock was further adjusted to remove the estimated fair value of the CVR embedded within the closing price, as each holder of resTORbio stock received one contractual CVR immediately prior to the Merger.
(2)
Each holder of resTORbio common stock as of immediately prior to the completion of the Merger was entitled to one CVR issued by resTORbio, subject to and in accordance with the terms and conditions of the CVR Agreement, for each share of resTORbio common stock held by such holder as of immediately prior to the Effective Time of the Merger.
(3)
Based on the capitalization of resTORbio as of September 15, 2020, 91,309 outstanding unvested resTORbio restricted stock units were accelerated in connection with the Merger and holders of the restricted stock units were issued approximately 54,553 shares of resTORbio

F-17


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

common stock on a net settlement basis. Similarly, in connection with the Merger, vesting of outstanding resTORbio stock options was accelerated in full and the stock options that were not in the in-the-money on the close of the Merger were canceled, resulting in approximately 81,370 surviving stock options. The acquisition date fair value of these modified resTORbio restricted stock units and resTORbio stock options attributable to the pre-combination services is included in the estimated purchase price.

The Merger was accounted for as a business combination which requires that assets acquired, and liabilities assumed be recognized at their fair value as of the acquisition date. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value the assets acquired and liabilities assumed on the acquisition date, its estimates and assumptions are subject to refinement. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations.

The following summarizes the allocation of the purchase price to the net tangible and intangible assets acquired (in thousands):

 

 

As of
December 31, 2020

 

 

Measurement Period Adjustments

 

 

Final Purchase
Price Allocation

 

Net assets acquired:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,869

 

 

$

 

 

$

63,869

 

Prepaid expenses and other current assets

 

 

3,059

 

 

 

615

 

 

 

3,674

 

Property and equipment

 

 

318

 

 

 

 

 

 

318

 

IPR&D

 

 

3,490

 

 

 

 

 

 

3,490

 

Restricted cash

 

 

245

 

 

 

 

 

 

245

 

Accounts payable

 

 

(1,316

)

 

 

12

 

 

 

(1,304

)

Accrued and other current liabilities

 

 

(2,365

)

 

 

 

 

 

(2,365

)

Other liabilities

 

 

0

 

 

 

 

 

 

 

Deferred tax liability

 

 

(367

)

 

 

 

 

 

(367

)

Goodwill

 

 

20,089

 

 

 

(627

)

 

 

19,462

 

Purchase price

 

$

87,022

 

 

$

 

 

$

87,022

 

The goodwill of $19.5 million is not tax deductible and represents the excess of the consideration paid over the fair value of assets acquired and liabilities assumed. Goodwill is mainly attributable to the enhanced value of the combined company, as reflected in the increase in market value of the resTORbio common shares following the announcement of the Merger with Former Adicet.

The fair value of acquired IPR&D is related to the research and development of RTB101 for a COVID-19 related indication and was conducted pursuant to resTORbio's license agreement with Novartis (see Note 11). The RTB101 compound IPR&D project was valued using an income approach, specifically a projected discounted cash flow method, adjusted for the probability of technical success (PTS). The projected discounted cash flow models used to estimate the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:

Estimates of potential cash flows to be generated by the project and resulting asset, which was developed utilizing estimates of total patient population, market penetration rates, demand risk adjustment factors, and product pricing;
Estimates regarding the timing of and the expected costs of goods sold, research and development expenses, selling, general and administrative expenses to advance the clinical programs to commercialization, cash flow adjustments and partner profit split;
The projected cash flows were then adjusted using PTS factors that were selected considering both the current state of clinical development and the nature of the proposed indication, (i.e., respiratory therapeutics); and
Finally, the resulting probability adjusted cash flows were discounted to a present value using a risk-adjusted discount rate, developed considering the market risk present in the forecast and the size of the asset.

This IPR&D intangible asset is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party. Upon the review of impairment indicators of IPR&D during the second quarter of 2021, the Company concluded that the IPR&D was fully

F-18


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

impaired and recorded an impairment charge within research and development expenses in the consolidated statement of operations and comprehensive loss for the remaining balance of the IPR&D intangible asset June 30, 2021. The Company recognized IPR&D impairment charges of $2.3 million, $0.5 million, and $0.7 million for the quarters ended as of December 31, 2020, March 31, 2021, and June 30, 2021. On July 29, 2021, the Company sent Novartis a termination notice. Termination will automatically take effect as of 60 days from the date of delivery of the termination notice to Novartis, but in no event later than October 1, 2021 without any further notice or action required of either Novartis or the Company.

The contingent consideration for the CVR was valued using an income approach, leveraging the probability adjusted discounted cash flow used in the valuation of the IPR&D and then deducting the administrative fee to be retained by the combined company and other permitted deductions in order to arrive at the net cash expected to be paid out to the CVR holders. The probability adjusted cash flow includes significant estimates and assumptions pertaining to commercialization events and cash consideration received by the Company for the grant of rights to commercialize RTB101 during the term of the CVR Agreement (as discussed above). These cash flows were then discounted to present value using the same discount rate applied in the valuation of the IPR&D.

Transaction costs for the Merger were $7.1 million for the year ended December 31, 2020 and were expensed as incurred in general and administrative expenses in the consolidated statements of operations and comprehensive loss.

The following tables present changes in the Company's IPR&D and CVR since the Merger (in thousands):

 

 

Acquisition Date
Fair value as of
September 15, 2020

 

 

Change in
Fair value

 

 

As of
December 31,
2020

 

 

Change in
Fair value

 

 

As of
December 31,
2021

 

In-process research and development

 

$

3,490

 

 

$

(2,300

)

 

$

1,190

 

 

$

(1,190

)

 

$

 

Contingent Value Rights

 

$

2,880

 

 

$

(1,900

)

 

$

980

 

 

$

(980

)

 

$

 

4. Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three level of inputs that may be used to measure fair value, as follows:

Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

F-13


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

December 31, 2021

 

 

December 31, 2023

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

147,071

 

 

$

 

 

$

 

 

$

147,071

 

Treasury securities (1) (2)

 

$

115,143

 

 

$

 

 

$

 

 

$

115,143

 

Total fair value of assets

 

$

147,071

 

 

$

 

 

$

 

 

$

147,071

 

 

$

115,143

 

 

$

 

 

$

 

 

$

115,143

 

 

F-19


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

63,817

 

 

$

 

 

$

 

 

$

63,817

 

Marketable debt securities (2)

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

 

 

 

 

7,522

 

 

 

 

 

 

7,522

 

Corporate debt securities

 

 

 

 

 

1,762

 

 

 

 

 

 

1,762

 

Commercial paper

 

 

 

 

 

1,000

 

 

 

 

 

 

1,000

 

Marketable debt securities

 

 

 

 

 

10,284

 

 

 

 

 

 

10,284

 

Total fair value of assets

 

$

63,817

 

 

$

10,284

 

 

$

 

 

$

74,101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

 

$

 

 

$

980

 

 

$

980

 

Total fair value of liabilities

 

$

 

 

$

 

 

$

980

 

 

$

980

 

 

 

December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1) (3)

 

$

75,701

 

 

$

 

 

$

 

 

$

75,701

 

Total fair value of assets

 

$

75,701

 

 

$

 

 

$

 

 

$

75,701

 

 

(1)
Included in cash and cash equivalents in the consolidated balance sheetssheets.
(2)
Included in short-term marketable debtTreasury securities inare included within Level 1 of the consolidated balance sheets.fair value hierarchy because they are actively traded and valued using quoted market prices.

(3)
Money market funds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Corporate debt securities, commercial paper and asset-backed securities are classified within Level 2 of the fair value hierarchy as they take into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

As part of the acquisition of resTORbio, the Company entered into a CVR Agreement and recorded the fair value of the CVR as part of consideration transferred. The Company considers the contingent consideration liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy. In June 2021, the Company determined the possibility of any commercialization events for RTB101 was close to zero (see Note 3). As a result, the fair value of the CVR liability was adjusted to 0. On October 27, 2021, the Company provided a Termination Notice under the CVR Agreement to the joint rights agents to terminate its obligations under the CVR Agreement, effective immediately.

5. Marketable Debt Securities

The following tables summarize the Company’s marketable debt securities (in thousands):

 

 

December 31, 2020

 

 

 

Amortized
Cost

 

 

Unrealized
Losses

 

 

Unrealized
Gains

 

 

Fair
Value

 

Asset-backed securities

 

$

7,507

 

 

$

0

 

 

$

15

 

 

$

7,522

 

Corporate debt securities

 

 

1,754

 

 

 

0

 

 

 

8

 

 

 

1,762

 

Commercial paper

 

 

999

 

 

 

 

 

 

1

 

 

 

1,000

 

Total

 

$

10,260

 

 

$

0

 

 

$

24

 

 

$

10,284

 

 

The following table summarizes the classification of the Company’s marketable debt securities in the consolidated balance sheets (in thousands):

 

 

December 31,

 

 

 

2021

 

 

2020

 

Short-term marketable debt securities

 

$

0

 

 

$

10,284

 

Long-term marketable debt securities

 

 

 

 

 

0

 

Total

 

$

0

 

 

$

10,284

 

F-20


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

6.4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Prepaid Insurance

 

$

1,884

 

 

$

1,443

 

Prepayments to CRO's

 

 

1,658

 

 

 

420

 

Prepaid Maintenance

 

 

1,021

 

 

 

761

 

Prepayments to CMO's

 

 

115

 

 

 

135

 

Other current assets

 

 

2

 

 

 

229

 

Tax receivable

 

 

0

 

 

 

2,711

 

Interest receivable

 

 

29

 

 

 

23

 

Total

 

$

4,709

 

 

$

5,722

 

 

 

December 31,
2023

 

 

December 31,
2022

 

Prepaid insurance

 

$

1,014

 

 

$

1,251

 

Prepaid software subscription and licensing fees

 

 

582

 

 

 

529

 

Prepaid maintenance

 

 

373

 

 

 

295

 

Prepaid professional services

 

 

82

 

 

 

44

 

Prepayments to CROs and CDMOs

 

 

53

 

 

 

492

 

Interest receivable

 

 

 

 

 

435

 

Other prepaid expenses and current assets

 

 

457

 

 

 

336

 

Total prepaid expenses and other current assets

 

$

2,561

 

 

$

3,382

 

 

7.F-14


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

5. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

 

 

 

 

As of December 31,

 

 

Useful life
(in years)

 

December 31,
2023

 

 

December 31,
2022

 

 

Useful life (years)

 

2021

 

 

2020

 

Leasehold improvements

 

Lesser of useful life or lease term

 

$

26,643

 

 

$

19,959

 

Laboratory equipment

 

3

 

$

5,502

 

$

4,350

 

 

3

 

 

13,165

 

 

 

7,503

 

Leasehold improvements

 

Lesser of useful life
or lease term

 

1,614

 

1,427

 

Furniture and fixtures

 

3

 

303

 

524

 

 

3

 

 

951

 

 

 

184

 

Software

 

3

 

 

411

 

 

 

353

 

Construction in progress

 

 

13,014

 

1,090

 

 

 

 

265

 

 

 

9,292

 

Computer equipment

 

3

 

216

 

93

 

 

3

 

 

189

 

 

 

172

 

Software

 

3

 

 

320

 

 

 

170

 

 

 

 

20,969

 

7,654

 

Property and equipment, gross

 

 

 

 

41,624

 

 

 

37,463

 

Less: Accumulated depreciation and
amortization

 

 

 

 

(6,326

)

 

 

(4,864

)

 

 

 

 

(14,847

)

 

 

(8,753

)

Property and equipment, net

 

 

 

$

14,643

 

 

$

2,790

 

 

 

 

$

26,777

 

 

$

28,710

 

 

Depreciation and amortization expense for each of the years ended December 31, 2021 and 2020 was $1.5 million and $1.2 million, respectively. All of the Company’s property and equipment as of December 31, 20212023 and 20202022 is located in the U.S. Depreciation and amortization expense for the years ended December 31, 2023 and 2022 was $6.1 million and $2.6 million, respectively. The increase in expense is primarily due to the completion and subsequent depreciation of the Company's good manufacturing practice (GMP) cell processing and vector manufacturing suite at the Company's office in Redwood City, California (1000 Bridge Parkway) which was completed in February 2023.

Construction in progress has increaseddecreased by $11.99.0 million dueduring the year ended December 31, 2023, compared to building construction relatedthe balance at December 31, 2022, due to the Company's leased space in Redwood City. Construction in process will continue to increase through the first half of 2022, until completion of construction.the Company's GMP cell processing and vector manufacturing suite in February 2023. The remaining $0.3 million in construction in progress as of December 31, 2023 is primarily related to lab and computer equipment not yet placed into service.

8.6. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (in thousands):

 

 

December 31

 

 

2021

 

 

2020

 

 

December 31,
2023

 

 

December 31,
2022

 

Accrued compensation

 

$

4,020

 

$

3,833

 

 

$

6,514

 

 

$

5,703

 

Accrued CMO costs

 

1,077

 

244

 

Accrued CDMO costs

 

 

5,679

 

 

 

4,390

 

Accrued professional services

 

546

 

363

 

 

 

625

 

 

 

1,356

 

Accrued research and development expenses

 

504

 

65

 

Accrued other research and development expenses

 

 

354

 

 

 

674

 

Accrued CRO costs

 

 

257

 

 

 

657

 

Accrued other liabilities

 

503

 

272

 

 

 

12

 

 

 

31

 

Accrued CRO costs

 

 

32

 

 

 

955

 

Total

 

$

6,682

 

 

$

5,732

 

Total accrued and other liabilities

 

$

13,441

 

 

$

12,811

 

 

9.7. Term Loan

On April 28, 2020, the Company entered into a Loan and Security Agreement (the Loan Agreement) as amended on July 8, 2020, September 14, 2020, September 15, 2020, October 21, 2021, December 2, 2022 (the 2022 Loan Amendment) and May 30, 2023 with Banc of California (formerly known as Pacific Western Bank (PacWest) for a term loan not exceeding $12.0 million (the Loan Agreement)Bank) to finance leasehold improvements for the facilities in Redwood

F-21


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

City, CA and other purposes permitted under the Loan Agreement, with an interest rate equal toAgreement. Under the greater of 0.25% above the Prime Rate (as defined in the Loan Agreement) or 5.00%. The Loan Agreement granted to Pacific Western Bank a security interest on substantially all of the Company’s assets other than intellectual property to secure the performance of the Company’s obligations under the Loan Agreement, and contains a variety of affirmative and negative covenants, including required financial reporting, limitations on certain dispositions of assets or distributions, limitations on the incurrence of additional debt or liens and other customary requirements. As of December 31, 2021, the Company was in compliance with such covenants.

Pursuant to the Loan Agreement in April 2020, the Company may request to draw upon the term loan at any time through the date eighteen months after the date of the Loan Agreement (Availability End Date), which was October 28, 2021. No amounts were drawn under the Loan Agreement through the Availability End Date.

On October 21, 2021 the Company amended the Loan Agreement with PacWest (the Loan Amendment) under which PacWestamendment, Banc of California will provide one or more Term Loans (as defined in the 2021 Loan Amendment), as well as Non-Formula Ancillary Services which shall not exceed $5.5 million in the aggregate. Non-Formula Ancillary Services are defined as automated clearinghouse transactions, corporate credit card services, letters of credit, or other treasury management services. The aggregate sum of the outstanding Term Loans and Non-Formula Ancillary Services shall at no time exceed $15.0 million, which each Term Loan to be in an amount of not less than $1.0$1.0 million. As of December 31, 2021,

On March 13, 2023, the Company had outstanding Non-Formula Ancillary Servicesand Banc of California executed a letter agreeing that, notwithstanding the covenants included in the 2022 Loan Amendment, until June 30, 2023 (i) the Company and its subsidiaries will not be required to maintain the lesser of $4.4200 million. Accordingly, asmillion or seventy percent (70%) of December 31, 2021,its combined balances in demand deposit accounts, money

F-15


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

market funds and/or insured cash sweep (ICS) accounts with Banc of California and (ii) the Company has $must maintain its combined balances at Banc of California or its affiliates, including Pacific Western Asset Management (the Letter).10.6

million available underOn May 30, 2023, the Term Loan.Company further amended its Loan Agreement with Banc of California (the 2023 Loan Amendment). Pursuant to the 2023 Loan Amendment, the interest rate forCompany must maintain the Term Loans shall be set at an annual rate equal to the greaterlesser of (i) 0.25% above$35.0 million or (ii) all of the Prime Rate thenCompany’s combined balances in effectdemand deposit accounts, money market accounts, and/or insured cash sweep accounts with Banc of California. If the Company’s total cash and (ii) 4.25%.investments drop to less than $35.0 million, the 2023 Loan Amendment permits the Company to maintain cash and/or investments in one or more accounts outside of Banc of California up to a total of $2.5 million.

As of December 31, 2021,2023, the deferred debt issuance costs wereCompany has $0.112.7 million available under the Loan Agreement. Additionally, as of December 31, 2023, the Company is in compliance with such covenants as stated in the 2023 Loan Amendment and are included in other non-current assets onhad no indebtedness outstanding under the Company’s consolidated balance sheets.Loan Agreement.

10. Regeneron License and Collaboration Arrangement8. Third Party Agreements

Agreement TermsRegeneron

On July 29, 2016, the Company entered into a license and collaboration agreement with Regeneron, which was amended in April 2019, with such amendment becoming effective in connection with Regeneron’s investment in the Company’s Series B redeemable convertible preferred stock private placement transaction in July 2019 (as amended, the Regeneron Agreement).

Agreement StructureFinancial Terms.. The Regeneron Agreement has two principal components: (a) a research collaboration component under which the parties will research, develop, and commercialize next-generation engineered gamma delta immune cell therapeutics (ICPs), namely engineered gamma delta immune cells with CARs and TCRs directed to disease-specific cell surface antigens, which includes the grant of certain licenses to intellectual property between the two parties, and (b) for a certain period following the effective date, a license to the Company to use certain of Regeneron’s proprietary mice to develop and commercialize ICPs generated by the Company, with certain limitations relating to targets under the Regeneron Agreement.

Research Collaboration. Research activities under the collaboration are governed by research plans, which include the strategy, goals, activities, and responsibilities of the parties with respect to a target. The Company is primarily responsible for generating, validating, and optimizing ICPs, developing processes for manufacture of ICPs, and certain preclinical and clinical manufacturing activities for ICPs; Regeneron’s key responsibility is generating, validating, and optimizing CARs and TCRs that bind to the applicable target. The parties have formed a joint research committee to monitor and govern the research and development efforts during the research program term.

Rights to Research Targets. Under the terms of the collaboration, the parties will conduct research on mutually agreed upon targets. Regeneron may obtain exclusive rights for the targets that it chooses in accordance with the target selection mechanism set forth in the Regeneron Agreement, and the Company similarly may obtain exclusive rights for targets it chooses in accordance with such target selection mechanism. The Company has the right to develop and commercialize ICPs to the first collaboration target to come out of the research program. On January 28, 2022, the Company received a payment of $20.0 million from Regeneron for exercise of its option to license exclusive rights to ADI-002 and Regeneron potentially has additional options to other ICP targets under the Regeneron Agreement. Pursuant to the Agreement with Regeneron, the Company had the right to elect to co-fund ADI-002's future development costs. The Company did not elect its option. For those targets it does not have an option to license, Regeneron has a right of first negotiation for up to two targets. Regeneron has the right to terminate the research program in its entirety (a) for convenience on six months prior written notice given at any time after December 31, 2019, or (b) following a change of control (as defined in the Regeneron Agreement) of the Company. The parties mutually agreed to their first product declaration criteria for collaboration ICP, CD20, in 2018.

Rights to Company-Developed Targets. Regeneron has an exclusive license to use targeting moieties generated by the Company by its use of Regeneron’s proprietary mice to develop and commercialize non-ICPs.

F-22


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Exclusivity. During the five-year target selection period that expired in July 2021, the Company may not directly or indirectly research, develop, manufacture or commercialize an ICP, or grant a license to do the foregoing, except pursuant to the agreement. For so long as either party is researching or developing an ICP to a target under the research program, neither party may research, develop, manufacture or commercialize any other ICP to such target, or grant a license to do the foregoing. And for so long as a party is researching, developing or commercializing an ICP to target that is licensed to it (and royalty bearing) under the agreement, neither party may research, develop, manufacture or commercialize any other ICP to such target, or grant a license to permit another party to do the foregoing. These exclusivity obligations are limited to engineered gamma delta immune cells to targets reasonably considered to have therapeutic relevance in oncology. The Regeneron Agreement includes certain exceptions to the exclusivity obligations of the parties, including with respect to targets that are rejected by one party in the target selection process, as well as protections in the event of a change of control of a party where the acquirer has a competing program.

Co-Funding and Profit Sharing. The Company has an option to co-fund specified portions of the future development costs for, and to co-promote, ICPs to a target for which Regeneron has exercised an option, and to participate in the profits for such target. The Company has the right to exercise this right in various geographic regions, including on a worldwide basis. In the event the Company exercises such right, the parties will share further development costs and profits proportionally to their co-funding percentages.

Financial Terms. The Company received a non-refundable upfront payment of $25.0 million from Regeneron upon execution of the Regeneron Agreement and has received an aggregate of $20.0 million of additional payments for research funding from Regeneron as of December 31, 2021.2023. In addition, Regeneron may have to pay the Company additional amounts in the future consisting of up to an aggregate of $80.0 million of option exercise fees, for a certain number of collaboration ICPs, as specified in the Regeneron Agreement. Per the terms of the agreement, Regeneron must also pay the Company high single digit royalties as a percentage of net sales for ICPsimmune cell products (ICPs) to targets for which it has exclusive rights, and low single digit royalties as a percentage of net sales on any non-ICP product comprising a targeting moiety generated by the Company through the use of Regeneron’s proprietary mice. The Company must pay Regeneron mid-single to low double digit, but less than teens, of royalties as a percentage of net sales of ICPs to targets for which the Company has exercised exclusive rights, and low to mid-single digit of royalties as a percentage of net sales of targeting moieties generated from the Company’s license to use Regeneron’s proprietary mice. Royalties are payable until the longer of the expiration or invalidity of the licensed patent rights or twelve (12) years from first commercial sale.

Other Terms. The Regeneron Agreement contains customary representations, warranties and covenants by the Company and Regeneron and includes (i) an obligation of the Company to use commercially reasonable efforts to develop and commercialize at least one product based on a collaboration ICP that is not an optioned collaboration ICP for each collaboration target and (ii) an obligation of Regeneron to use commercially reasonable efforts to develop and commercialize at least one product based on an optioned collaboration ICP for each collaboration target. The Company and Regeneron are required to indemnify the other party against all losses and expenses related to breaches of its representations, warranties and covenants under the Regeneron Agreement.

Term and Termination. The term of the Regeneron Agreement expires, on a product-by-product basis, on the expiration of the obligation to pay No royalties for such product. The Regeneron Agreement is subject to early termination by either party upon uncured material breach by the other party. The licenses to develop and commercialize an ICP to a target that one party has exclusively licensed may be terminated by such party for convenience.

Equity Investments. In connection with its collaboration, Regeneron and the Company entered into a side letter pursuant to which, among other matters, Regeneron was granted certain stockholder rights and investment rights in connection with the Company’s next equity financing that met certain criteria and in connection with an initial public offering by the Company. Regeneron exercised its investment right and purchased approximately $10.0 million of the Company’s Series B redeemable convertible preferred stock in a private placement transaction in July 2019. The remaining obligations under the side letter agreement terminated immediately prior to the Effective Time of the Merger.

Revenue Recognition

The Company identified the following material promises under the Regeneron Agreement: (1) a research license, (2) a collaboration invention license, (3) a trademark license, (4) research and development services during the research term, (5) manufacturing services to manufacture collaboration ICPs for the research programs, (6) participation in the joint research committee, and (7) information sharing during the research term. The Company considered that the licenses grantedhave been earned or paid under the Regeneron Agreement are not capable of being distinct and are not distinct fromthrough December 31, 2023.

On January 28, 2022, Regeneron exercised its option to license the research and development and manufacturing services withinexclusive, worldwide rights to ADI-002, an allogeneic gamma delta CAR T cell therapy directed against Glypican-3, pursuant to the contextRegeneron Agreement. In conjunction with the exercise of the option, Regeneron Agreement, because 1) such licenses arepaid an exercise fee of $20.0 million to the Company on January 28, 2022, and the Company completed the transfer of the associated license rights to Regeneron during the first quarter of 2022. The $20.0 million option exercise fee, plus $5.0 million of revenue recognized relating to the combined performance obligation, resulted in an aggregate of $25.0 million recorded as revenue for the research and development effortyear ended December 31, 2022. The Company's obligations under the combined performance obligation were completed during the research term, unless year ended December 31, 2022.

Regeneron exercisesis responsible, at its option undersole cost, for all development, manufacturing and commercialization of ADI-002 and must pay the Company high single digit royalties as a percentage of any net sales of ADI-002 for a period commencing on the first commercial sale until the longer of (i) the expiration or invalidity of the licensed patent rights or (ii) a low double digit amount of years from first commercial sale.

As of December 31, 2023 and 2022, there were no contract assets related to the Regeneron Agreement, 2) the research and development services significantly increase the utility of such licenses, and 3) research and development services require collaboration ICPs being manufactured. Specifically,Agreement. The following tables present changes in the Company’s granted licenses can only provide benefit to Regeneron in combination withcontract liabilities for the Company’s researchyears ended December 31, 2023 and development and manufacturing services to discover the collaboration ICPs. Similarly, the participation in the joint research committee and information sharing are not capable of being distinct and are not distinct from2022 (in thousands):

F-23

Twelve Months Ended December 31, 2023

Balance at
Beginning
of Period

Deductions

Balance at
End of Period

Contract liability

$

$

$

F-16


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

the research and development and manufacturing services within the context of the agreement, because the participation in the joint research committee is for monitoring and governing of the research and development efforts and the information sharing is for sharing results of such research and development efforts. Therefore, all of the promises above are combined into a single performance obligation.

The Company also evaluated whether the option provided to Regeneron represents a material right that would require separate deferral and recognition. The option exercise will provide Regeneron with a development and commercial license to develop and commercialize the optioned collaboration ICPs. The Company concluded that the $25.0 million upfront payment to the Company was not negotiated to provide incremental discount for the future option fees payable upon Regeneron’s exercise of the option.

Regeneron could decide not to exercise the option at its own discretion. The exercise of the option by Regeneron is not certain and is dependent on many factors, such as progress made on the specific option-eligible collaboration ICP, Regeneron’s overall assessment of commercial feasibility of the further research, development and commercialization of the Option products, availability and cost of alternative programs and products. The option provides Regeneron with a license for intellectual property that will be improved from the inception of the Regeneron Agreement. In addition, the option fee is significant compared to the sum total of the upfront payment and research funding fees in the original Regeneron Agreement. Therefore, the Company determined that the option provided to Regeneron does not represent a material right and that any potential exercise of the option should be accounted as a separate contract. Hence, upon the option exercise by Regeneron the option fee would be allocated to the development and commercial license which would be the only performance obligation in that separate contract and recognized as revenue when control of the license rights is transferred to Regeneron.

For revenue recognition purposes, the Company determined that the duration of the contract is the same as the research term of five years beginning on the execution of the Regeneron Agreement on July 29, 2016. The contract duration is defined as the period during which parties to the contract have present and enforceable rights and obligations. For revenue recognition purposes, the five-year term has been extended to the first quarter of 2022 due to additional time required to complete the performance obligation under the Regeneron Agreement. The Company determined that Regeneron faces significant in-substance penalties were it to terminate the Regeneron Agreement prior to the end of the research term.

At contract inception, the Company determined the transaction price of the Regeneron Agreement to be $55.0 million, consisting of the $25.0 million upfront payment and the aggregate research funding fees of $30.0 million payable over the research term. In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. Per the terms of the original Regeneron Agreement prior to the amendment effective from July 2019, the research funding fees of $30.0 million were payable merely due to the passage of time and therefore did not represent a variable consideration. After the amendment became effective in July 2019, $20.0 million of these fees became contingent upon meeting certain development and regulatory milestones. Therefore, the Company concluded that after the amendment such potential payments became variable consideration. The receipt of the variable consideration was subject to substantial uncertainty and was therefore excluded from the transaction price upon the effective date of the amendment. Accordingly, the transaction price was reduced to $35.0 million in July 2019. The Company re-evaluates the transaction price if there is a significant change in facts and circumstances at least at the end of each reporting period. The Company increased the transaction price by $10.0 million in June 2020 to $45.0 million when it achieved the milestone for the selection of a clinical candidate to the second collaboration target under the Regeneron Agreement, resulting in the recognition of an additional $5.0 million in revenue during the three months ended June 30, 2020.

The Company also considered the existence of any significant financing component within the Regeneron Agreement given its upfront payment structure. Based upon this assessment, the Company concluded that the up-front payment was provided for valid business reasons and not for the purpose of providing financing. The reason for the initial advance payment at the beginning of the contract is not to provide financing to the Company, but to ensure Regeneron’s commitment to the contract and to provide assurance that the customer will perform its obligations under the contract. Accordingly, the Company has concluded that the upfront payment structure of the Regeneron Agreement does not result in the existence of a significant financing component.

The royalty payments will be recognized when the related sales occur as they were determined to relate predominantly to the intellectual property licenses granted to Regeneron and therefore have also been excluded from the transaction price.

The Company has determined that the combined performance obligation is satisfied over time. ASC 606 requires the Company to select a single revenue recognition method for the performance obligation that depicts the Company’s performance in transferring control of the services. Accordingly, the Company utilizes a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. The Company believes this is the best measure of progress because it reflects how the Company transfers its performance obligation to Regeneron. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. These costs consist primarily of internal full-time equivalent effort and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its

F-24


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Twelve Months Ended December 31, 2022

 

Balance at
Beginning
of Period

 

 

Deductions
(1)

 

 

Balance at
End of Period

 

Contract liability

 

$

4,805

 

 

$

(4,805

)

 

$

 

 

performance obligations over the research term of five years. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

The following table presents changes in the Company’s contract liabilities (in thousands):

Year ended December 31, 2021

 

Balance at beginning
of period

 

 

Additions

 

 

Additions (Deductions) (1)

 

 

Balance at
end of
period

 

Contract liability

 

$

13,980

 

 

$

 

 

$

(9,175

)

 

$

4,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2020

 

Balance at beginning
of period

 

 

Additions

 

 

Additions (Deductions) (1)

 

 

Balance at
end of
period

 

Contract asset

 

$

 

 

$

10,000

 

 

$

(10,000

)

 

$

 

Contract liability

 

$

21,883

 

 

$

10,000

 

 

$

(17,903

)

 

$

13,980

 

(1)

Deductions to contract liabilities relate to deferred revenue recognized as revenue during the reporting period.

As of December 31, 2021, contract liabilities related to the Regeneron Agreement of $4.8 million was comprised of the $25.0 million upfront payment, $10.0 million in total research funding fees for fiscal years 2017 and 2018, and $10.0 million for achievement of the milestone for the selection of a clinical candidate for the second collaboration target in June 2020, less $40.2 million of cumulative license and collaboration revenue recognized from the inception of the Regeneron Agreement as of December 31, 2021 and will be recognized as the combined performance obligation is satisfied.Twist Bioscience

As of December 31, 2020, contract liabilities related to the Regeneron Agreement of $14.0 million was comprised of the $25.0 million upfront payment, $10.0 million in total research funding fees for fiscal years 2017 and 2018, and $10 million for achievement of the milestone for the selection of a clinical candidate to the second collaboration target in June 2020, less $31.0 million of cumulative license and collaboration revenue recognized from the inception of the Regeneron Agreement as of December 31, 2020.

For the years ended December 31,In March 2021, and 2020, the Company recognized $9.2 million and $17.9 million of license and collaboration revenue, respectively, from amounts included in the contract liability balances at the beginning of the period. There were no costs to obtain or fulfill the contract that meet the criteria to be capitalized.

11. License, Funding and Other Agreements Related to the CVR

Contingent Value Rights Agreement

As discussed in Note 3, in connection with the Merger, the Company entered into the CVRan Antibody Discovery Agreement (the Twist Agreement) with Computershare Inc. and Computershare Trust Company, N.A. as joint rights agent. The CVR holders are entitled to receive net proceeds from the commercialization, if any, received from a third-party commercial partner of RTB101 for a COVID-19 related indication. The total fees and expenses of the Company’s clinical trials for a COVID-19 related indication of RTB101 is limited to $3.0 million under the CVR Agreement. Through October 31, 2020, the Company’s total accumulated spend was $1.1 million of expenses. In November 2020, management terminated the nursing home study due to slow enrollment and as a consequence lowered the probability of finding a partner due to the delay in time to commercialization of RTB101. In February 2021, management terminated the National Institute on Aging study of RTB101 for COVID-19 post-exposure prophylaxis in adults age 65 years and older due to poor enrollment. In March 2021, management estimated that the probability of finding a partner should be further reduced. As a result, the fair value of the CVR liability was decreased by $0.4 million to $0.6 million. In June 2021, the Company determined the possibility of any commercialization events for RTB101 was close to zero (see Note 3). As a result, the fair value of the CVR liability was adjusted to 0.

On October 27, 2021, the Company provided a Termination Notice under the CVR Agreement to the joint rights agent to terminate its obligations under the CVR Agreement, effective immediately.

Novartis License Agreement

On March 23, 2017, resTORbio entered into an exclusive license agreement with Novartis International Pharmaceutical Ltd. (Novartis)Twist Bioscience Corporation (Twist). Under the agreement, Novartis granted resTORbio anterms of the Twist Agreement, Twist will utilize its proprietary platform technology to assist the Company with the discovery of novel antibodies related to target antigens selected by the Company. The Company maintains the sole and exclusive field-restricted, worldwide license,rights to certain

F-25


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

intellectual property rights owned or controlled by Novartis, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 in combination with everolimus in a fixed dose combination. The exclusive fieldany program antibodies discovered under the Twist Agreement and has the right to patent, assign, license agreement is foror transfer any work product under the treatment, prevention and diagnosis of disease and other conditions in all indications in humans and animals.

agreement. Furthermore, the Company has the right to sublicense its rights to program antibodies to third parties. The agreement may be terminated by either party upon a material breach of obligation by the other party that is not cured with 60 days after written notice. resTORbioCompany may terminate the agreement in its entirety or on a product-by-product or country-by-country basisTwist Agreement at any time, with or without cause, with 60 days’ priorupon a specified period advance written notice.

As considerationPer the terms of the agreement, the Company will pay Twist an upfront, non-refundable project initiation fee, a technology access fee, as well as a project fee for each project entered into under the license, resTORbio is required toagreement. Additionally, the Company will pay up to an aggregate of $4.3 million upon the satisfaction of clinical milestones, up to an aggregate of $24 million upon the satisfaction offees for development and regulatory milestones forin the first indication approved,tens of millions of dollars and up to an aggregate of $18 million upon the satisfaction of regulatory milestones for the second indication approved. In addition, resTORbio is required to pay up to an aggregate of $125 million upon the satisfaction of commercial milestones, basedlow single digit royalties on the amount of annual net sales. resTORbio is also required to pay tiered royalties ranging from a mid-single digit percentage to a low-teen digit percentage on annual net sales of products. These royalty obligations last on a product-by-product and country-by-country basis untilto Twist for programs initiated under the latest of (i)agreement. In November 2022, the expiration ofCompany entered into an amendment to the last valid claim of a Novartis patent covering a subject product, (ii)Twist Agreement (the Twist Amendment). The Twist Amendment updates the expiration of any regulatory exclusivity forlanguage associated with Twist's audit rights as well as the subject product in a country, or (iii) the 10th anniversary of the first commercial sale in the country, and are subject to a reduction after the expiration of the last valid claim of a Novartis patent or the introduction of a generic equivalent of a product in a country.amounts associated with technology access fees.

On July 27, 2021, the Company sent Novartis a termination notice. Termination automatically took effect on September 25, 2021, 60 days from the date of delivery of the termination notice to Novartis, without further notice of action required of either Novartis or the Company.

National Institute of Health

In May 2019, resTORbio was awarded a 5-year grant for up to $1.5 million from the NIH to study RTB101 and the regulation of antiviral immunity in the elderly. resTORbio is entitled to use the award solely to conduct the research and is solely responsible for commencing and conducting the research and will furnish periodic progress updates to the NIH throughout the term of the award. After completing the research, resTORbio must provide the NIH with a formal report describing the work performed and the results of the research.

For funds received under the NIH funding agreement, resTORbio recognizes a reduction in research and development expenses in an amount equal to the qualifying expenses incurred in each period up to the amount funded by the NIH. Qualifying expenses incurred by resTORbio in advance of funding by the NIH are recorded in the consolidated balance sheets as other current assets. For the year ended December 31, 2021, $0.4 million qualifying expenses have been incurred and $0.5 million have been funded by the NIH. The difference in the amount incurred by the Company and funded by the NIH was due to timing of requesting reimbursements from the NIH. On a cumulative basis as of December 31, 2021,2023, the Company has incurred and expensed $1.31.0 million has been incurredrelated to project initiation fees, technology access fees and $1.3 million has been funded by the NIH.projects fees as research and development expense related to this agreement.

12.9. Commitments and Contingencies

Operating Leases

The Company leases office and laboratory space in Menlo Park, CA, Redwood City, CA,California, and Boston, MA. AsMassachusetts.

Redwood City

In 2018, Adicet Therapeutics executed a non-cancelable lease agreement, as amended in 2022, pursuant to which the Company leases office and laboratory facility at 1000 Bridge Parkway and a portion of December 31, 2021, except as described below, there have been 1200 Bridge Parkway in Redwood City, California (the Redwood City Lease).0 material changes in lease obligation from those disclosed in Note 12 to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

On June 25, 2021, the CompanyJanuary 9, 2023, Adicet Therapeutics entered into a third lease amendment with Westport Office Park, LLC (the Third Amendment). The Third Amendment further amends the Redwood City Lease and increases the tenant improvement allowance as of January 1, 2023 by an additional $3.0 million. The Company fully utilized the allowance for the continued buildout of office and laboratory space at 1000 Bridge Parkway in 2023. Per the terms of this amendment, to the Menlo Park lease to extendthis additional allowance will be repaid through equal monthly payments of principal amortization and interest on a monthly basis over the term of the lease from March 31, 2022at an interest rate of eight percent (8%) per annum. The Company received the allowance on February 21, 2023 and increased the operating lease liability accordingly.

On August 7, 2023, Adicet Therapeutics entered into a fourth lease amendment with Westport Office Park, LLC (the Fourth Amendment). The Fourth Amendment amends the period over which the tenant improvement allowance received in the Third Amendment will be amortized and identifies the monthly amortization payable by the Company.

On September 1, 2023, Adicet Therapeutics amended its letter of credit with Westport Office Park, LLC. The amendment reduced the amount of the letter of credit associated with 1000 Bridge Parkway by $2.1 million resulting in an updated letter of credit amount of $2.1 million.

Boston

F-17


Adicet Bio, Inc.

Notes to June 30, 2022 and replace the previously leased premises (known as 173 and 175-177 Jefferson Drive) with another nearby premises (known as 235 Constitution Drive).Consolidated Financial Statements

 The lease commenced on

July 15, 2021 and expires on June 30, 2022. In connection with these changes,2018, the Company will incur monthly rent payments ranging from $87,286 to $89,904, increasing overentered into a lease agreement, as amended in 2019, for office space at 500 Boylston St, Boston, Massachusetts (500 Boylston Lease). Under the remaining termterms of the lease. Given the lease is short-term in nature,500 Boylston Lease, the Company is usingwas permitted to assign, sublease or transfer this lease, with the practical expedient forconsent of the lease and has not recorded a right of use asset or lease liability. Therefore, the Company will recognize rent expense on a straight-line basis over the lease term.landlord.

On July 19, 2021, the Company entered into a Sublease (the Sublease Agreement)sublease agreement with RFS OPCO LLC (Sublessee), whereby the Company agreed to sublease to Sublessee all of the 9,501 rentable square feet of office space in Boston, MA, currently leased by the Company pursuant to the Company’s lease with 500 Boylston & 222 Berkeley Owner (DE) LLC, dated January 8, 2018, as amended (the Master Lease). The term of the sublease started on September 1, 2021 and ends on July 30,

F-26


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

2026. The aggregate base rent due to the Company under the Sublease is approximately $3.5 million starting October 1, 2021. The Company records sublease income as a reduction of lease expense. Upon execution of the Sublease Agreement, the Company received a cash security deposit of $0.1 million from the Subleasee which is recorded as other non-current liabilities in the consolidated balance sheets.St. The expected undiscounted cash flows to be received from the sublease as of December 31, 20212023 is as follows (in thousands):

 

 

 

 

 

December 31,
2023

 

2022

 

657

 

2023

 

671

 

2024

 

685

 

 

 

722

 

2025

 

699

 

 

 

736

 

2026

 

 

416

 

 

 

438

 

2027 and thereafter

 

 

 

Total

 

$

3,128

 

 

$

1,896

 

The Company recognized rent expense, net of sublease income, of $4.34.0 million and $0.93.9 million for the years ended December 31, 20212023 and 2020,2022, respectively.

Further, the Company remains liable for the remaining lease payments under the 500 Boylston Lease, totaling $1.7 million, which is included in the future minimum lease payments table below.

The future minimum lease payments under all non-cancelable operating lease obligations as of December 31, 2023 were as follows (in thousands):

 

 

December 31,
2023

 

2024

 

 

5,015

 

2025

 

 

4,662

 

2026

 

 

4,009

 

2027 and thereafter

 

 

12,090

 

Total undiscounted lease payments

 

 

25,776

 

Less: imputed interest

 

 

4,852

 

Total operating lease liability

 

 

20,924

 

Less: current portion

 

 

3,221

 

Operating lease liability, net of current maturities

 

$

17,703

 

The IBR and the remaining lease terms of our facilities and their weighted average IBR and remaining terms are as follows as of December 31, 2021:2023:

Lease Locations

 

IBR

 

Remaining Terms
(in years)

 

Redwood City, CA (1000 Bridge Parkway)

 

6.90%

 

 

6.20

 

Redwood City, CA (1200 Bridge Parkway)

 

6.80%

 

 

1.50

 

Boston, MA

 

9.30%

 

 

2.60

 

Weighted Average

 

7.10%

 

 

5.70

 

F-18


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

Lease Locations

 

IBR

 

Remaining Terms
(in years)

Redwood City, CA

 

6.90%

 

8.2

Boston, MA

 

9.30%

 

4.6

Menlo Park, CA

 

6.80%

 

0.5

Weighted Average

 

7.20%

 

7.7

The following table contains a summary ofpresents the operating lease costs recognized under ASC 842cost and other information pertainingrelated to the Company’s operating leaseslease right-of-use assets, net and operating lease liabilities for the yearsyear ended December 31, 2021 and 2020:2023 (in thousands):

 

Twelve Months Ended December 31,

 

 

 

2023

 

 

2022

 

Lease Cost

 

 

 

 

 

 

Operating lease cost

 

$

4,510

 

 

$

4,508

 

Short-term lease cost

 

 

195

 

 

 

133

 

Sublease income

 

 

(714

)

 

 

(704

)

Total lease cost

 

$

3,991

 

 

$

3,937

 

Other Information

 

 

 

 

 

 

Operating cash flows used for lease liabilities

$

(99

)

 

$

2,264

 

Weighted-average remaining lease term - operating leases

 

 

5.7

 

 

 

6.5

 

Weighted-average discount rate - operating leases

 

 

7.1

%

 

 

7.1

%

 

 

 

December 31

 

 

 

2021

 

2020

 

Lease Cost

 

(in thousands)

 

(in thousands)

 

Operating lease cost

 

$

4,282

 

$

894

 

Short-term lease cost

 

 

235

 

 

56

 

Variable lease cost

 

 

0

 

 

0

 

Sublease Income

 

 

(223

)

 

 

Total lease cost

 

$

4,294

 

$

950

 

Other Information

 

 

 

 

 

Operating cash flows used for lease liabilities

 

$

511

 

$

859

 

Operating lease right of use asset obtained in exchange of operating lease liability

 

$

 

$

22,367

 

As of December 31, 2021,2023, operating right-of-use assets were $20.417.4 million and operating lease liabilities were $20.9 million. The Company has no material finance leases.The maturities of the operating lease liabilities as of December 31, 2021 were as follows (in thousands):

2022

 

 

2,933

 

2023

 

 

3,428

 

2024

 

 

3,525

 

2025

 

 

3,625

 

2026 and thereafter

 

 

13,747

 

Total undiscounted lease payments

 

 

27,258

 

Less: imputed interest

 

 

6,314

 

Total operating lease liability

 

 

20,944

 

Less: current portion

 

 

1,567

 

Operating lease liability, net of current maturities

 

$

19,377

 

F-27


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

The Company maintains letters of credit of $4.1 million, $0.22.1 million and $0.2 million in connection with the Company’s office leases in Redwood City, CA Menlo Park, CA, and Boston, MA, respectively. As of December 31, 2021, the cash amount associated with the Menlo Park Lease is recorded as restricted cash on the consolidated balance sheet. As of December 31, 2020, all cash amounts are recorded as restricted cash on the consolidated balance sheet.

Indemnification Agreements

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ liability insurance.

Legal Proceedings

In connection with the Merger, 7 lawsuits were filed against the Company, its directors, Former Adicet, and/or Merger Sub. which were either dismissed or settled for of $0.2 million in the fourth quarter of 2020.

13.10. Stockholders' Equity

Common Stock

The Company’s Certificate of Incorporation, as amended, authorized the Company to issue 150,000,000 shares of $0.0001 par value common stock as of December 31, 2023.

Common stockholders are entitled to dividends if and when declared by the Board of Directors of the Company subject to the prior rights of the preferred stockholders. As of December 31, 2021 and 2020, 2023, no dividends on common stock had been declared by the Board of Directors.

In February 2021, the Company completed an underwritten public offering of 10,575,513 shares of its common stock at a public offering price of $13.00 per share. The Company received net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses of approximately $128.8 million.

In connection with the February 2021 offering, the Company also entered into a stock purchase agreement with certain existing investors to purchase 1,153,840 shares of our common stock for $15.0 million at a price per share equal to the public offering price, with an initial closing for investors held simultaneously with the closing of the offering and a subsequent closing for certain additional investors.

In December 2021, the Company closed an underwritten public offering, or the December 2021 Follow-On Offering, of 7,187,500 shares of its common stock at a public offering price of $14.00 per share. The Company received net proceeds from the offering, after deducting underwriting discounts and commissions and offering expenses of approximately $94.2 million.

The Company has the following shares of common stock reserved for future issuance:

 

 

December 31,

 

 

December 31,
2023

 

 

December 31,
2022

 

 

2021

 

 

2020

 

Stock options available for future grant

 

1,961,338

 

1,739,621

 

Stock options and restricted stock units available for future grant

 

 

2,473,485

 

 

 

2,871,705

 

Stock options issued and outstanding

 

3,875,317

 

3,706,945

 

 

 

9,383,105

 

 

 

6,203,020

 

Unvested restricted stock units

 

771,660

 

0

 

 

 

454,200

 

 

 

197,580

 

Common stock warrants issued and outstanding

 

 

220,890

 

 

 

226,191

 

Total common stock reserved

 

 

6,829,205

 

 

 

5,672,757

 

 

 

12,310,790

 

 

 

9,272,305

 

Warrants to Purchase Shares of Common Stock

In February 2021, PacWest exercised 5,301 warrants, which resulted in the net issuance was 1,806 shares of common stock.

The following provides a roll forward of outstanding warrants:F-19

F-28


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

 

 

Number of
Warrants

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Contractual
Term (Years)

 

Outstanding and exercisable warrants to purchase
   preferred shares as of December 31, 2020

 

 

226,191

 

 

$

11.3177

 

 

 

5.66

 

Issued

 

 

0

 

 

 

 

 

 

 

Exercised

 

 

(5,301

)

 

 

 

 

 

 

Outstanding and exercisable warrants to purchase
   common stock as of December 31, 2021

 

 

220,890

 

 

$

11.3177

 

 

 

4.66

 

As of December 31, 2021, the Company's outstanding warrants to purchase shares of common stock consisted of the following:


Issuance Date

 

Number of
Shares of
Common
Stock Issuable

 

 

Exercise
Price

 

 

Classification

 

Expiration Date

September 15, 2020

 

 

101,610

 

 

$

11.3177

 

 

Equity

 

July 25, 2026

September 15, 2020

 

 

30,924

 

 

$

11.3177

 

 

Equity

 

August 21, 2026

September 15, 2020

 

 

77,312

 

 

$

11.3177

 

 

Equity

 

September 19, 2026

September 15, 2020

 

 

11,044

 

 

$

11.3177

 

 

Equity

 

September 26, 2026

 

 

 

220,890

 

 

 

 

 

 

 

 

14. At-the-Market (ATM) Offering

On December 1, 2020, the Company entered into a Sales Agreement (the 2020 Sales Agreement) with Evercore Group L.L.C. and H.C. Wainwright & Co., LLC (collectively, the Agents), pursuant to which the Company may sell, from time to time, at its option, up to an aggregate of $50.0 million of shares of the Company’s common stock, through the Agents, as its sales agents. No sales of Shares have been made under the 2020 Sales Agreement. The ATM offering was terminated in February 2021.

On March 12, 2021, the Company entered into a Sales Agreement (the 2021 Sales Agreement) withJonesTrading Institutional Services (the Agent), pursuant to which the Company could sell, from time to time, at its option, up to an aggregate of $75.0 million of shares of its common stock, through the Agent, as its sales agent. No shares were sold under the 2021 Sales Agreement as of December 31, 2021.

15.11. Stock-Based Compensation

Stock-based Compensation Expense

The following table presents stock-based compensation expense as reflected in the Company's consolidated statements of operations and comprehensive loss (in thousands):

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

Research and development

 

$

4,759

 

 

$

1,674

 

General and administrative

 

 

7,752

 

 

 

3,589

 

Total stock-based compensation

 

$

12,511

 

 

$

5,263

 

F-29


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

Summary of Plans

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Research and development

 

$

9,143

 

 

$

7,225

 

General and administrative

 

 

11,116

 

 

 

9,901

 

Total stock-based compensation

 

$

20,259

 

 

$

17,126

 

The Plans are administeredfollowing table presents stock-based compensation expense by the Boardtype of Directors or, at the discretion of the Board of Directors, by a committee of the Board of Directors. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of the stock option may not be greater than ten years. Incentive stock options granted to employees and restricted stock awards granted to employees, officers, members of the Board of Directors, advisors, and consultants of the Company typically vest over four years. Non-statutory options granted to employees, officers, members of the Board of Directors, advisors, and consultants of the Company typically vest over three or four years. Shares that are expired, terminated, surrendered or canceled under the Plans without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.(in thousands):

The 2017 Plan and 2018 Plan

In 2017, resTORbio adopted the 2017 Plan. In connection with resTORbio’s initial public offering completed in January 2018, the resTORbio Board adopted and resTORbio’s stockholders approved the 2018 Plan. The 2018 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2019, by 4% of the outstanding number of shares of resTORbio’s common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Board. On April 27, 2021, the stockholders approved an amendment and restatement of the 2018 Stock Option and Incentive Plan, to, among other things, increase the aggregate number of shares authorized for issuance under the 2018 Plan by 1,500,000 shares, plus on January 1, 2022 and each January 1, thereafter, the number of shares authorized for issuance shall be increased by the lesser of 5% of the number of shares of Common Stock issued and outstanding on the immediately preceding December 31, or such lesser number as determined by the compensation committee. On January 1, 2022, the number of shares reserved and available for issuance under the 2018 Plan automatically increased by 1,986,845 shares of Common Stock equal to 5% of the number of shares of Common Stock issued and outstanding on December 31, 2021.

Since the date of effectiveness of the 2018 Plan, resTORbio has not and the Company will not grant any further awards under the 2017 Plan. However, any shares of common stock subject to awards under the 2017 Plan that expire, terminate, or otherwise are surrendered, canceled, forfeited or repurchased without having been fully exercised or resulting in any common stock being issued will become available for issuance under the 2018 Plan. As of December 31, 2021, there are no outstanding options under the 2017 Plan.

As of December 31, 2021, the number of shares of common stock available for grant under the 2017 and 2018 Plan is 1,683,999. As of December 31, 2021, an aggregate of 2,574,170 shares of common stock were issuable upon the exercise of outstanding stock options under the 2017 Plan and 2018 Plans at a weighted average exercise price of $15.10 per share. In addition to this amount, as of December 31, 2021, 771,660 shares of common stock were issuable upon the vesting of 6,410 performance stock units (PSUs) granted in May 2021, 205,250 RSUs granted in August 2021, and 560,000 RSUs and PSUs granted in October 2021.

The 2014 Plan and 2015 Plan

As of December 31, 2021, the number of shares of common stock available for grant under the 2014 and 2015 Plan is 277,339.As of December 31, 2021, an aggregate of 915,657 shares of common stock were issuable upon the exercise of outstanding stock options under the 2015 plan at a weighted average exercise price of $11.46 per share and an aggregate of 22,987 shares of common stock were issuable upon the exercise of outstanding stock options under the 2014 Plan at a weighted average exercise price of $1.61 per share.

Since the date of effectiveness of the Merger, the Company has not and will not grant any further awards under the 2014 Plan.

2018 Employee Stock Purchase Plan

The 2018 ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2019 and increasing each January 1 thereafter through January 1, 2028, by the least of (i) 1% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31; (ii) 77,703 shares or (iii) such number of shares as determined by the ESPP administrator.

On January 1, 2020, as a result of the foregoing evergreen provision, the number of shares of common stock available for issuance under the 2018 ESPP automatically increased from 79,369 to 131,432 shares. On January 1, 2021, as a result of the

F-30


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

foregoing evergreen provision, the number of shares of common stock available for issuance under the 2018 ESPP automatically increased from 131,432 to 524,775. During the 2021 Annual Meeting of the stockholders held on April 27, 2021, the stockholders approved an amendment and restatement of the Company's 2018 ESPP. As a result, the Company increased the shares available for issuance under the 2018 ESPP to 524,775 shares.

For the year ended December 31, 2021 the Company issued a total of 15,667 shares under the 2018 ESPP. Expense related to the issuance of such shares was less than $0.1 million. NaN shares were issued under the 2018 ESPP during the year ended December 31, 2020.

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Stock options

 

$

18,060

 

 

$

14,054

 

Restricted stock units (including performance-based RSUs)

 

 

2,023

 

 

 

2,878

 

Employee Stock Purchase Plan

 

 

176

 

 

 

194

 

Total

 

$

20,259

 

 

$

17,126

 

Stock Options

A summary of stock option activity for the year ended December 31, 2023 is set forth below (in thousands, except share and per share data):

 

 

Number of
Shares
Underlying
Outstanding
Options

 

 

Weighted
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Term
(in years)

 

 

Aggregate
Intrinsic
Value
(in thousands)

 

Outstanding, December 31, 2022

 

 

6,203,020

 

 

$

14.44

 

 

 

8.4

 

 

$

780

 

Options granted

 

 

4,293,442

 

 

$

5.36

 

 

 

 

 

 

 

Options exercised

 

 

(946

)

 

$

4.76

 

 

 

 

 

 

 

Options forfeited or cancelled

 

 

(1,112,411

)

 

$

10.59

 

 

 

 

 

 

 

Outstanding, December 31, 2023

 

 

9,383,105

 

 

$

10.64

 

 

 

8.2

 

 

$

45

 

Options exercisable, December 31, 2023

 

 

3,984,821

 

 

$

13.65

 

 

 

7.4

 

 

$

6

 

Vested and expected to vest, December 31, 2023

 

 

9,383,105

 

 

$

10.64

 

 

 

8.2

 

 

$

45

 

The assumptions used in the Black Scholes Model to calculate stock-based compensation are as follows:

 

Outstanding Awards

 

 

 

 

 

 

 

 

Number of
Shares
Underlying
Outstanding
Options

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual
Term (in years)

 

 

Aggregate
Intrinsic
Value

 

Outstanding, December 31, 2020

 

3,706,945

 

 

$

10.90

 

 

 

7.98

 

 

$

15,126

 

Options authorized

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

2,161,472

 

 

$

14.37

 

 

 

 

 

 

 

Options exercised

 

(1,125,339

)

 

$

4.17

 

 

 

 

 

 

 

Options forfeited or cancelled

 

(867,761

)

 

$

14.06

 

 

 

 

 

 

 

Outstanding, December 31, 2021

 

3,875,317

 

 

$

14.08

 

 

 

8.85

 

 

$

13,212

 

Options exercisable December 31, 2021

 

991,847

 

 

$

13.42

 

 

 

8.46

 

 

$

4,033

 

Vested and expected to vest, December 31, 2021

 

3,875,317

 

 

$

14.08

 

 

 

8.85

 

 

$

13,212

 

 

 

Year Ended December 31,

 

 

2023

 

2022

Fair value of common stock

 

$1.32 - $9.15

 

$8.94 - $19.97

Expected term (years)

 

5.5 - 6.1 years

 

5.5 - 6.1 years

Volatility

 

83.25% - 92.87%

 

77.4% - 81.7%

Risk free rates

 

3.5% - 4.86%

 

1.6% - 4.22%

Dividend rate

 

0.0%

 

0.0%

 

The fair value of each stock option was estimated at the date of grant using a Black-Scholes option-pricing model using the following assumptions:

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

Expected volatility

 

77.2% - 79.8%

 

 

72.6% - 96.3%

 

Risk-free interest rate

 

0.1% - 1.4%

 

 

0.1% - 1.7%

 

Dividend yield

 

 

0

 

 

 

0

 

Expected term

 

0.90 - 6.08 years

 

 

1.00 - 6.08 years

 

F-20


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

The assumptions are as follows:

Expected volatility. The Company has limited trading history. As such, the expected volatility was determined by examining the historical volatilities for comparable publicly traded companies within the biotechnology and pharmaceutical industry using an average of historical volatilities of the Company’s industry peers.
Risk-free interest rate. The risk-free interest rate is based on the United States Treasury yield with a maturity equal to the expected term of the option in effect at the time of grant.
Dividend yield. The expected dividend is assumed to be zero as dividends have never been paid and there are no current plans to pay dividends on common stock.
Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The expected term is calculated using the simplified method which is used when there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term.

The Company will continue to use judgment in evaluating the expected volatility, risk-free interest rates, dividend yield and expected term, utilized for stock-based compensation on a prospective basis.

F-31


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options that were in-the-money at December 31, 20212023 and 2020.2022. The aggregate intrinsic value of stock options exercised during the years ended on December 31, 20212023 and 20202022 was less than $10.10.1 million and $2.51.0 million, respectively.

The total fair value of options that vested during the years ended December 31, 20212023 and 20202022 was $2.317.9 million and $2.413.4 million, respectively. The options granted during the years ended December 31, 20212023 and 20202022 had a weighted-average per share grant-date fair value of $9.683.94 per share and $9$.9610.07 per share, respectively.

As of December 31, 2021,2023, the total unrecognized stock-based compensation expense related to unvested stock options was $24.831.7 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.8 2.3years.

Restricted Stock Units

The following table presents a summary of the Company's RSU activity and related information:

 

 

Number of Units Outstanding

 

 

Weighted-
Average
Grant Date Fair Value

 

Outstanding, December 31, 2020

 

 

0

 

 

 

 

RSUs granted (including performance-based RSUs)

 

 

777,160

 

 

$

7.84

 

RSUs Vested

 

 

0

 

 

 

 

RSUs forfeited

 

 

(5,500

)

 

$

7.12

 

Outstanding, December 31, 2021

 

 

771,660

 

 

$

7.85

 

In May 2021, the Company granted 6,410 RSUs with service and performance conditions to an employee, none of which vested during the year ending December 31, 2021. Vesting of these awards is contingent on the occurrence of certain milestone events and fulfilment of any remaining service condition. As a result, the related compensation cost is recognized as an expense when achievement of the milestone is considered probable. The expense recognizedinformation for these awards is based on the grant date fair value of the Company's common stock multiplied by the number of units granted. The Company recognized less than $0.1 million of related expense during the year ended December 31, 2021.2023 is set forth below:

 

 

Number of Units Outstanding

 

 

Weighted Average
Grant Date Fair Value

 

Outstanding, December 31, 2022

 

 

197,580

 

 

$

7.80

 

RSUs granted

 

 

513,700

 

 

$

7.47

 

RSUs vested

 

 

(194,455

)

 

$

7.43

 

RSUs forfeited

 

 

(62,625

)

 

$

7.07

 

Outstanding, December 31, 2023

 

 

454,200

 

 

$

7.69

 

In October 2021, theThe Company granted 560,000513,700 RSUs with service and performance conditions to certain employees, none of which vested duringRSU's in the year ended December 31, 2021. Vesting of these awards is contingent on the occurrence of certain milestone events and fulfilment of any remaining service condition. As a result, the related compensation cost is recognized as an expense when achievement of the milestone is considered probable. The expense recognized for these awards is based on the grant date fair value of the Company's common stock multiplied by the number of units granted.2023. The Company recognized $did 1.6no million of related expense duringt grant any RSU's in the year ended December 31, 2021.

2022. The weighted-average grant date fair value of RSUs granted during the year ended December 31, 20212023 was $7.847.69. There was no RSU activity during the year ended December 31, 2020. Additionally, no RSUs vested during the year ended December 31, 2021.

As of December 31, 2021,2023, there was approximately $4.12.4 million of unrecognized compensation cost related to unvested RSUs that the Company expects to recognize over a remaining weighted-average period of approximately 1.3 2.1years.

Option repricing

On August 8, 2023, the board of directors approved a stock option repricing (the Option Repricing) to be effective on August 14, 2023 (the Effective Date) in accordance with the terms of the Company’s 2015 Stock Incentive Plan and 2018 Plan (together, the Plans). Pursuant to the Option Repricing, and subject to a one year cliff period, the exercise price of each stock

The following table presents stock-based compensation expense by type of award (in thousands):F-21

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

Stock Options

 

 

10,511

 

 

 

5,263

 

Restricted stock units (including performance-based RSUs)

 

 

1,944

 

 

 

 

Employee Stock Purchase Plan

 

 

56

 

 

 

 

Total

 

$

12,511

 

 

$

5,263

 

F-32


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

option previously granted under the Plans, totaling 6,431,910 options, was amended to reduce the exercise price of such options to $2.14 per share, the closing price of the Company’s common stock on the Nasdaq Global Market on the Effective Date. Under the terms of the Option Repricing, a repriced option will revert to its original exercise price if, prior to the one year anniversary of the Effective Date, (a) the option holder’s employment is terminated by the Company with cause or by the option holder or (b) the option is exercised.

The repriced options otherwise retained their existing terms and conditions as set forth in the Plans and applicable award agreements. The stock option modification resulted in an incremental compensation cost of approximately $4.6 million, which was calculated based on the difference between the fair value of the stock options before the repricing and the fair value as of the Effective Date, using the Black-Scholes option-pricing model. Of the incremental compensation cost, $1.3 million was recognized in the year ended December 31, 2023, and the remaining amount, less any employee terminations, will be recognized on the straight-line basis over the remaining vesting period of the repriced options. The incremental cost is included in general and administrative expense and research and development expense on the consolidated statements of operations.

In addition, as of the Effective Date, the Company issued 1,418,042 options to purchase shares of common stock under the 2018 Plan to eligible employees who held inducement awards as of August 8, 2023. These new options were issued to eligible employees because their inducement awards granted under Nasdaq Listing Rule 5635(c)(4) are not eligible for repricing. The prior inducement awards remain outstanding under their original terms.

 

16.12. Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

 

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(61,999

)

 

$

(36,678

)

Denominator:

 

 

 

 

 

 

Weighted-average shares used in computing net loss
   per share attributable to common stockholders,
   basic and diluted

 

 

30,952,152

 

 

 

7,319,977

 

Net loss per share attributable to common stockholders,
   basic and diluted

 

$

(2.00

)

 

$

(5.01

)

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Net loss - basic and diluted

 

$

(142,658

)

 

$

(69,790

)

Weighted-average shares used in computing net loss per share, basic and diluted

 

 

43,042,405

 

 

 

41,080,286

 

Net loss per share, basic and diluted

 

 

(3.31

)

 

 

(1.70

)

 

The Company's potentially dilutive shares as of December 31, 2023 and 2022, which include outstanding stock options and unvested RSUs, and unexercised warrants to purchase common stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

 

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:

 

 

December 31,

 

 

As of December 31,

 

 

2021

 

 

2020

 

 

2023

 

 

2022

 

Options to purchase common stock

 

3,875,317

 

3,706,945

 

 

 

9,383,105

 

 

 

6,203,020

 

Unvested Restricted Stock Awards

 

771,660

 

0

 

Common stock warrants

 

 

220,890

 

 

 

226,191

 

Unvested restricted stock units

 

 

454,200

 

 

 

197,580

 

Total

 

 

4,867,867

 

 

 

3,933,136

 

 

 

9,837,305

 

 

 

6,400,600

 

 

17.F-22


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

13. Income Taxes

The components of the provision for (benefit from) income taxes are as follows (in thousands):

 

Years Ended December 31,

 

 

December 31,

 

 

2021

 

 

2020

 

 

2023

 

 

2022

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

0

 

$

(2,678

)

 

$

 

 

$

 

State

 

0

 

 

 

105

 

 

 

 

 

 

 

Foreign

 

 

0

 

 

 

0

 

 

 

 

 

 

 

Total current

 

0

 

(2,573

)

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

(125

)

 

(242

)

 

 

 

 

 

 

State

 

0

 

0

 

 

 

 

 

 

 

Foreign

 

 

0

 

 

 

0

 

 

 

 

 

 

 

Total deferred

 

 

(125

)

 

 

(242

)

 

 

 

 

 

 

Provision for (benefit from) income taxes

 

$

(125

)

 

$

(2,815

)

 

$

 

 

$

 

There was

Income tax benefit of $0.1no millionincome tax expense nor benefit for the yearyears ended December 31, 2021 is primarily due to the adjustment in deferred tax liability arising from the impairment charge of $1.2 million of acquired IPR&D. In contrast, the income tax benefit of $2.8 million for the year ended December 31, 2020 was primarily due to a the recognition of a net operating loss carryback under the Coronavirus Aid, Relief,2023 and Economic Security Act (CARES Act) which was enacted on March 27, 2020 in response to the COVID-19 pandemic.2022.

For the rate table below the (provision for) benefit from income taxes differ from the amount expected by applying the federal statutory rate to the loss before taxes as follows:

F-33


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

2021

 

 

2020

 

 

2023

 

 

2022

 

Federal statutory income tax rate

 

21.0

%

 

21.0

%

 

 

21.0

%

 

 

21.0

%

Tax credits

 

 

 

 

 

(2.5

)%

State income taxes

 

 

(8.3

)%

 

 

8.5

%

Change in valuation allowance

 

 

(7.0

)%

 

 

(23.2

)%

162m limitation

 

 

 

 

 

(1.5

)%

Stock-based compensation

 

 

(2.7

)%

 

 

(2.3

)%

Goodwill Impairment

 

 

(2.9

)%

 

 

 

Other permanent differences

 

(1.9

)%

 

(0.5

)%

 

 

(0.1

)%

 

 

(0.2

)%

State income taxes

 

6.9

%

 

6.1

%

Federal benefit from NOL carryback

 

0.0

%

 

6.7

%

Change in valuation allowance

 

(24.8

)%

 

(25.8

)%

Change in fair value of redeemable convertible preferred stock tranche liability and TRDF liability

 

0.0

%

 

(0.5

)%

Stock-based compensation

 

 

(1.0

)%

 

 

0.1

%

Provision for income taxes

 

 

0.2

%

 

 

7.1

%

 

 

(0.0

)%

 

 

(0.0

)%

The tax effects of temporary differences and carryforwards of the deferred tax assets are presented below (in thousands):

 

 

December 31,

 

 

 

2023

 

 

2022

 

Deferred Tax Assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

65,601

 

 

$

68,499

 

Operating lease right-of-use asset liability

 

 

4,414

 

 

 

5,641

 

Deferred revenue

 

 

 

 

 

 

Stock-based compensation

 

 

2,285

 

 

 

1,846

 

Intangible assets

 

 

704

 

 

 

1,060

 

Fixed assets

 

 

768

 

 

 

574

 

Accruals and reserves

 

 

1,074

 

 

 

1,480

 

Sec 174 Capitalized R&D

 

 

27,871

 

 

 

15,803

 

Research and development credit carryforwards

 

 

 

 

 

26

 

Tax credits

 

 

28

 

 

 

 

Gross deferred tax assets

 

 

102,745

 

 

 

94,928

 

Less: Valuation allowance

 

 

(99,069

)

 

 

(89,490

)

Deferred tax assets, net of valuation allowance

 

 

3,676

 

 

 

5,439

 

Deferred tax liabilities:

 

 

 

 

 

 

Fixed assets

 

 

 

 

 

 

Basis Difference IPR&D

 

 

 

 

 

 

Operating lease right-of-use asset

 

 

(3,676

)

 

 

(5,439

)

Net deferred tax assets

 

$

 

 

$

 

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Deferred Tax Assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$

67,675

 

 

$

51,796

 

Operating lease right-of-use asset liability

 

 

5,504

 

 

 

5,686

 

Deferred revenue

 

 

1,263

 

 

 

2,857

 

Stock-based compensation

 

 

1,726

 

 

 

1,750

 

Intangible assets

 

 

1,081

 

 

 

1,195

 

Fixed assets

 

 

196

 

 

 

0

 

Accruals and reserves

 

 

1,042

 

 

 

654

 

Research and development credit carryforwards

 

 

26

 

 

 

26

 

Gross deferred tax assets

 

 

78,513

 

 

 

63,964

 

Less: Valuation allowance

 

 

(73,163

)

 

 

(57,715

)

Deferred tax assets, net of valuation allowance

 

 

5,350

 

 

 

6,249

 

Deferred tax liabilities:

 

 

 

 

 

 

Fixed assets

 

 

0

 

 

 

0

 

Basis Difference IPR&D

 

 

0

 

 

 

(313

)

Operating lease right-of-use asset

 

 

(5,350

)

 

 

(6,061

)

Net deferred tax assets

 

$

0

 

 

$

(125

)

F-23


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

On September 15, 2020 Adicet Bio and resTORbio completed the Merger upon which Adicet Bio became the parent company of the consolidated group. The Merger did not create a step up in basis for tax basis of the asset as it was considered a tax-free merger. The above deferred tax table includes deferred related to resTORbio.

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. IRC Section 174, as modified by the Tax Cuts and Jobs Act of 2017, no longer permit an immediate deduction for research and development expenditures in the tax year that such costs are incurred. As a result the Company capitalized such costs in its 2023 income tax provision, resulting in an increase in deferred tax assets.

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance increased by $15.59.6 million and by $16.3 million during 2021the years ended December 31, 2023 and $2022, respectively.37.9 million during 2020.

As of December 31, 2021,2023, the Company had net operating loss carryforwards of $271.6294.8 million, $143.512.1 million, and $17.116.1 million to reduce future taxable income, if any, for federal, state and foreign income tax purposes, respectively. Of the federal net operating loss carryforwards, $7.67.5 million will begin to expire in 2036 if not utilized, and $264.0287.3 million can be carried forward indefinitely. The state carryforwards will begin to expire in 2035.

F-34


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

The Company also had approximately $1.811.3 million of federal and $1.56.4 million of California research and development tax credit carryforwards available to offset future taxable income as of December 31, 2021.2023. The federal credits begin to expire in 2041 and the California research credits can be carried forward indefinitely.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year periodperiod.. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced aan ownership change, of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the valuelimitation. As of the Company’s stock at the time ofDecember 31, 2023, the ownership change by the applicable long-term tax-exempt rate, and then couldanalysis has not been completed, however no material tax attributes are expected to be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwardslimited for full use before utilization. Further, until a study is completed and any limitation is known, no liability related to uncertain tax positions is recorded in the consolidated financial statements. The Company does not expect its unrecognized tax benefit balance to change materially over the next 12 months.their respective carryforward periods expires.

The Company files income tax returns in the United States federal jurisdiction, California, Massachusetts New York and Israel. The tax years 20152016 to 20212023 remains open to United States federal and state examination to the extent of the utilization of net operating loss and credit carryovers. Additionally, the Company is currently undergoing an audit with California’s Franchise Tax Board (FTB) regarding the apportionment of revenue for the tax year 2017 and may be obligated to make future payments to the state related to this tax year depending on the outcome of the examination. The Company is evaluating the FTB's proposal and assessing its course of action.

As of December 31, 2021,2023, the Company had unrecognized tax benefits of $0.8 million related to the transfer of certain intellectual property from its Israeli subsidiary. In addition, as of December 31, 2021,2023, the Company had unrecognized tax benefits of $3.217.7 million related to the federal and state research and development credits as a result of no formal research credit study performed.

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

Balance at the beginning of the year

 

$

9,759

 

 

$

4,040

 

Adjustment based on tax positions related to prior year

 

 

5

 

 

 

(2

)

Adjustment based on tax positions related to current year

 

 

8,698

 

 

 

5,721

 

Balance at the end of the year

 

$

18,462

 

 

$

9,759

 

 

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

Balance at the beginning of the year

 

$

797

 

 

$

797

 

Adjustment based on tax positions related to current year

 

 

3,243

 

 

 

0

 

Balance at the end of the year

 

$

4,040

 

 

$

797

 

F-24


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

The Company recognizes interest expense and penalties related to the above unrecognized tax benefits within income tax expense (benefit). Management determined that no accrual for interest and penalties was required as of December 31, 2021.2023.

18.14. Related Party Transactions

As of December 31, 2023, Regeneron owned 883,568 shares of the Company’s common stock. Regeneron became a related party in July 2019 as a result of Series B redeemable convertible preferred stock financing which was subsequently converted into common stock. For the year ended December 31, 2023, the Company recorded no revenue from the Regeneron Agreement. See Note 8 for a discussion of the Regeneron Agreement.

15. Defined Contribution Plan

The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all full-time United States employees. Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. During the yearyears ended December 31, 20212023 and 2022, the Company made aggregate matching contributions of $0.3 million. The Company did 0t make contributions to the 401(k) plan during 2020.

19. Related Party Transactions

As of December 31, 2021, Regeneron owned 883,568 shares of the Company's common stock. Regeneron became a related party in July 2019 as a result of Series B redeemable convertible preferred stock financing. Upon closing the Merger, 7,125,552 shares of the redeemable convertible preferred stock converted into 883,568 shares of the Company’s common stock. For the years ended December 31, 2021 and 2020, the Company recorded revenue related to the Regeneron Agreement of $9.71.2 million and $17.90.8 million, respectively.

16. Goodwill

In connection with the annual goodwill impairment analysis performed during the fourth quarter of 2022, the Company determined that the fair value of its sole reporting unit exceeded its book value, and therefore no goodwill impairment charge was recorded in 2022. During the first and second quarters of 2023, the Company concluded that no events or changes in circumstances had occurred that indicated goodwill was more likely than not impaired.

During the third quarter of 2023, the Company experienced a significant decline in its stock price. As of December 31, 2021,September 30, 2023, the Company’s stock price declined 44% from its closing stock price on June 30, 2023, and the decline in stock price was sustained. The Company determined that this decline in stock price and market capitalization of the Company constituted a substantive change in circumstances that would more likely than not reduce the fair value of the Company’s single reporting unit below its carrying amount. Accordingly, the Company tested its goodwill for impairment as of September 30, 2023 (the Interim Testing Date).

In determining the fair value of the Company’s sole reporting unit for the interim impairment analysis as of the Interim Testing Date, the Company used a market-based approach, and the primary input in this approach was a quoted market price in an active market. To determine the estimated fair value of the Company’s single reporting unit, the Company calculated its market capitalization based on its stock price. Based on the Company’s interim impairment analysis as of the Interim Testing Date, the carrying value of the Company’s single reporting unit exceeded its fair value. Accordingly, step two of the goodwill impairment test was performed. In performing step two of the goodwill impairment test, the Company utilized observable inputs and concluded that an impairment charge was necessary for the full amount of goodwill. As a result of the step two evaluation, the Company recorded less thana goodwill impairment charge of $0.219.5 million in accounts receivable and has deferred revenueduring the three month period ended September 30, 2023. This impairment charge reduced the balance of goodwill to $4.80 million related to the Regeneron Agreement (See Note 10).

20.17. Subsequent Events

Regeneron OptionATM Program

F-35In January 2024, 6,350,000 shares of common stock were issued in a series of sales in accordance with the ATM Program, at an average price of $3.13 per share for aggregate net proceeds of approximately $19.3 million, after deducting sales agent commissions, but before deducting any expenses related to such sales.

Underwritten Public Offering

On January 22, 2024, Adicet entered into an Underwriting Agreement (the Underwriting Agreement) with Jefferies LLC and Guggenheim Securities, LLC (the Underwriters) related to an underwritten public offering (the Offering) of 27,054,667 shares (the Shares) of common stock of the Company, par value $0.0001 per share (the Common Stock), and, in lieu of Common Stock to an investor, pre-funded warrants (the Pre-Funded Warrants) to purchase 8,445,333 shares of Common Stock (the Warrant Shares). The Shares were sold at a public offering price of $2.40 per share and the Pre-Funded Warrants were sold at a public offering price of $2.3999 per underlying share, which represents the per share public offering price of each share of common stock minus the $0.0001 per share exercise price for each pre-funded warrant. The purchase price paid by the

F-25


Adicet Bio, Inc.

Notes to Consolidated Financial Statements

 

Underwriters to the Company was $2.256 per Share and $2.2559 per Pre-Funded Warrant, representing a discount to the Underwriters of 6.0%. In addition, the Company granted the Underwriters an option exercisable for 30 days from the date of the Underwriting Agreement to purchase, at the public offering price less underwriting discounts and commissions, up to an additional 5,325,000 shares of Common Stock. On January 28, 2022, Regeneron23, 2024, the Underwriters exercised itsthis option to licensein full. The Company received net proceeds from the exclusive, worldwide rights to ADI-002, an allogeneic gamma delta chimeric antigen receptor (CAR) T cell therapy directed against Glypican-3, pursuant toOffering, after deducting the Regeneron Agreement.
In conjunction with
underwriting discount and commissions and other estimated offering expenses, of approximately $
91.8 million. The Company may receive nominal proceeds, if any, from the exercise of the Option, Regeneron paid an exercise fee of $20.0 million to the Company on January 28, 2022.Pre-Funded Warrants.

Pursuant to the Regeneron Agreement, upon Regeneron’s exercise of the option, the Company had a specified period of time to elect to co-fund ADI-002’s future development costs, and to participate in any potential profits with Regeneron up to a specified co-funding percentage in various geographic regions, including on a worldwide basis (Co-Funding Option). Adicet elected not to exercise its Co-Funding Option for ADI-002. Accordingly, Regeneron is responsible, at its sole cost, for all development, manufacturing and commercialization of ADI-002 and must pay the Company high single digit royalties as a percentage of any net sales of ADI-002 for a period commencing on the first commercial sale until the longer of (i) the expiration or invalidity of the licensed patent rights or (ii) a low double digit amount of years from first commercial sale.F-26

F-36


 

EXHIBIT INDEX

 

Exhibit

Number

 

Description of Exhibit

 

 

 

   3.1

 

Third Amended and Restated Certificate of Incorporation of the Registrant (as currently in effect) (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on January 30, 2018).

 

 

 

   3.2

 

Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of resTORbio, Inc. related to the Reverse Stock Split, dated September 15, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

   3.3

 

Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of resTORbio, Inc. related to the Name Change, dated September 15, 2020 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

   3.4

 

Amended and Restated Bylaws of the Registrant (as currently in effect) (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on January 30, 2018).

 

 

 

   4.1

 

Description of Securities (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 12, 2020).

 

 

 

   4.2

 

Amended and Restated Investors’ Rights Agreement, dated as of November 29, 2017, among the Registrant and the other parties thereto (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-1 (File No. 333-222373) filed with the SEC on December 29, 2017).

 

 

 

  4.3*4.3

 

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 15, 2022).

  4.4

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on January 24, 2024).

 

 

 

  10.1

 

Stock Purchase Agreement, dated February 12, 2021, by and among the Registrant and the Investors named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 8-K, as amended (File No. 001-38359) filed with the SEC on February 16, 2021).

  10.2

Loan and Security Agreement, dated as of April 28, 2020, by and between Pacific West BankBanc of California, Inc. and Adicet Therapeutics, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.310.2

 

First Amendment to Loan and Security Agreement, dated as of July 8, 2020, by and between Pacific West BankBanc of California, Inc. and Adicet Therapeutics, Inc. (incorporated by reference to Exhibit 10.32 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.410.3

 

Second Amendment to Loan and Security Agreement, dated as of September 14, 2020, by and between Pacific West BankBanc of California, Inc. and Adicet Therapeutics, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.510.4

 

Third Amendment to Loan and Security Agreement, dated as of September 15, 2020, by and between Pacific West BankBanc of California, Inc. and Adicet Therapeutics, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.6+10.5

Change Order No. 1, dated September 23, 2021, by and between Adicet Therapeutics, Inc. and CP Enterprises, Inc. d/b/a CP Construction (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on March 24, 2022).

  10.6

Change Order No. 2, dated March 18, 2022, by and between Adicet Therapeutics, Inc. and CP Enterprises, Inc. d/b/a CP Construction (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on March 24, 2022).

  10.7

Change Order No. 3, dated March 18, 2022, by and between Adicet Therapeutics, Inc. and CP Enterprises, Inc. d/b/a CP Construction (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on March 24, 2022).

  10.8

Second Amendment to Lease, dated as of June 16, 2022, between Adicet Therapeutics, Inc. as Tenant, and Westport Office Park, LLC, as Landlord (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on June 21, 2022).


  10.9+

Antibody Discovery Agreement, dated as of March 23, 2021, by and between the Registrant and Twist Bioscience Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359) filed with the SEC on November 8, 2022).

  10.10+

First Amendment to Antibody Discovery Agreement, dated as of November 8, 2022, by and between the Registrant and Twist Bioscience Corporation (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 15, 2023).

  10.11+

 

Fourth Amendment to Loan and Security Agreement, dated as of October 21, 2021, between Adicet Therapeutics, Inc. and Pacific Western BankBanc of California, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on October 25, 2021).

 

 

 

  10.710.12

 

FormFifth Amendment to Loan and Security Agreement, dated as of Warrant to Purchase Common Stock issued to Beech Hill Securities, dated September 15, 2020December 2, 2022, between Adicet Therapeutics, Inc. and Banc of California, Inc. (incorporated by reference to Exhibit 10.510.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020)December 8, 2022).

 

 

 

  10.8

Warrant to Purchase Common Stock issued to PacWest Bancorp, dated September 15, 2020 (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

  10.910.13

 

Unconditional Secured Guaranty, dated September 15, 2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

105


  10.10+10.14+

 

Affirmation and Amendment of Guaranty, dated as of October 21, 2021, between the Registrant and Pacific Western BankBanc of California, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on October 25, 2021).

 

 

 

  10.11*#10.15#

 

Second Amended and Restated 2018 Stock Option and Incentive Plan and forms of award agreements thereunder.thereunder (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on June 5, 2023).

 

 

 

  10.12#10.16#

 

2017 Stock Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018).

 

 

 

  10.13#10.17#

 

Adicet Therapeutics, Inc. 2015 Stock Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.14*#10.18#

 

Amended and Restated 2018 Employee Stock Purchase Plan.Plan (incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 15, 2022).

 

 

 

  10.15*#10.19#

 

Adicet Bio, Inc. 2022 Inducement Plan and forms of award agreements thereunder.thereunder (incorporated by reference to Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 15, 2022).

 

 

 

  10.16*#10.20#

 

First Amendment to the 2022 Inducement Plan (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form of Employment Agreement.10-K (File No. 001-38359) filed with the SEC on March 15, 2023).

 

 

 

  10.17*10.21#

Form of Employment Agreement (incorporated by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 15, 2022).

  10.22

 

Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.officers (incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 15, 2022).

 

 

 

  10.18*#10.23#

 

Amended and Restated Non-Employee Director Compensation Policy.Policy (incorporated by reference to Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359) filed with the SEC on May 9, 2023).

 

 

 

  10.19*#10.24#

 

Amended and Restated Senior Executive Cash Incentive Bonus Plan.Plan (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 15, 2022).

 

 

 

  10.2010.25

 

Lease Agreement, dated as of October 31, 2018, by and between Adicet Therapeutics,Bio, Inc. as Tenant, and Westport Office Park, LLC as Landlord (incorporated by reference to Exhibit 10.23 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.2110.26

 

First Amendment to Lease, dated as of December 30, 2020, by and between Adicet Therapeutics, Inc. as Tenant, and Westport Office Park, LLC as Landlord (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on January 5, 2021).

 

 

 


  10.2210.27

Third Amendment to Lease, dated as of January 9, 2023, by and between Adicet Therapeutics, Inc. as Tenant, and Westport Office Park, LLC as Landlord (incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 15, 2023).

  10.28

 

Office Lease Agreement, dated as of January 8, 2018, by and between the RegistrantresTORbio, Inc. and 500 Boylston and 222 Berkeley Owner (DE) LLC (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1, as amended, (File No. 333-222373) filed with the SEC on January 16, 2018).

 

 

 

  10.2310.29

 

First Amendment to Office Lease, dated as of April 1, 2019, by and between the RegistrantresTORbio, Inc. and 500 Boylston and 222 Berkeley Owner (DE) LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359) filed with the SEC on May 15, 2019).

 

 

 

  10.2410.30

 

Sublease Agreement, dated as of July 19, 2021, by and between the RegistrantAdicet Bio, Inc. and RFS Opco LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on July 26,23, 2021).

 

 

 

  10.25

Third Amendment to Business Park Lease, dated as of June 25, 2021, between the Registrant and Facebook, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on July 1, 2021).

  10.26

Second Amendment to Business Park Lease, dated as of October 19, 2020, between the Registrant and Facebook, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on July 1, 2021).

  10.27

Amendment to Business Park Lease, dated as of September 2019, between Adicet Therapeutics, Inc. and David D. Bohannon Organization (incorporated by reference to Exhibit 10.25 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

  10.28

Business Park Lease, dated as of September 30, 2015, by and between Adicet Therapeutics, Inc. and David D. Bohannon Organization (incorporated by reference to Exhibit 10.24 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

  10.2910.31

 

Standard Form of Agreement between Owner and Contractor Where the Basis for Payment is a Stipulated Sum, effective as of April 2, 2021, by and between Adicet Therapeutics, Inc., as Owner, and CP Enterprises, Inc. d/b/a CP Construction, as Contractor (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on April 9, 2021).

 

 

 

106


  10.30+10.32+

 

Amended and Restated License Agreement, dated as of May 21, 2014, by and between Technion Research and Development Foundation Ltd., acting on behalf of itself and the Technion-Israel Institute of Technology, and Adicet Therapeutics, Inc. as successor in interest to Applied Immune Technology, Ltd. (incorporated by reference to Exhibit 10.27 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.31+10.33+

 

Amendment No. 1 to Amended and Restated License Agreement, dated as of June 30, 2015, by and between Technion Research and Development Foundation Ltd., acting on behalf of itself and the Technion-Israel Institute of Technology, and Applied Immune Technology, Ltd. (incorporated by reference to Exhibit 10.28 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.32+10.34+

 

Amendment No. 2 to Amended and Restated License Agreement, dated as of January 13, 2016, by and between Technion Research and Development Foundation Ltd., Applied Immune Technology, Ltd., and Adicet Therapeutics, Inc. (incorporated by reference to Exhibit 10.29 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.33+10.35+

 

License and Collaboration Agreement, dated as of July 29, 2016, by and between Adicet Therapeutics,Bio, Inc. and Regeneron Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.30 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

 

 

 

  10.34+10.36+

 

Amendment No. 1 to License and Collaboration Agreement, dated as of April 24, 2019, by and between Adicet Therapeutics,Bio, Inc. and Regeneron Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.31 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on September 16, 2020).

  10.37

Sixth Amendment to Loan and Security Agreement, dated as of May 30, 2023, by and between Banc of California, Inc. and Adicet Therapeutics, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38359) filed with the SEC on June 5, 2023).

  10.38

Fourth Amendment to Lease, dated as of August 7, 2023, by and between Adicet Therapeutics, Inc. as Tenant, and Westport Office Park, LLC as Landlord (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38359) filed with the SEC on August 9, 2023).

  10.39*+

Membership Agreements, dated January 19, 2024 and March 12, 2024, by and between the Registrant and Industrious Bos 131 Dartmouth Street LLC.

  19.1*

Adicet Bio, Inc. Insider Trading Policy.

 

 

 

  21.1

 

Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-38359) filed with the SEC on March 12, 2021).

 

 

 

  23.1*

 

Consent of KPMG LLP, independent registered public accounting firm.


  24.1*

Power of Attorney (included on signature page).

 

 

 

  31.1*

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1**

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  97.1#*

Adicet Bio, Inc. Compensation Recovery Policy.

101.INS*

 

Inline XBRL Instance Document

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104*

 

Cover Page Interactive Data File

 

* Filed herewith.

+ Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10) of Regulation S-K.

# Indicates a management contract or any compensatory plan, contract or arrangement.

** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

107Item 16. 10-K Summary


Not applicable.

 


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Adicet Bio, Inc.

 

 

 

Date: March 15, 202219, 2024

By:

/s/ Chen Schor

 

 

Chen Schor

President, Chief Executive Officer and Director

(Principal Executive Officer)

 

 

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints Chen Schor and Nick Harvey, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Chen Schor

 

 

 

 

Chen Schor

 

President, Chief Executive Officer and Director (principal executive officer)

 

March 15, 202219, 2024

/s/ Nick Harvey

 

 

 

 

Nick Harvey

 

Chief Financial Officer (principal financial officer and principal accounting officer)

 

March 15, 202219, 2024

/s/ Jeffrey Chodakewitz

 

 

 

 

Jeffrey Chodakewitz, M.D.

 

Director

 

March 15, 202219, 2024

/s/ Steve Dubin

 

 

 

 

Steve Dubin

 

Director

 

March 15, 202219, 2024

/s/ Carl L. Gordon

 

 

 

 

Carl L. Gordon, Ph.D.

 

Director

 

March 15, 202219, 2024

/s/ Aya Jakobovits

 

 

 

 

Aya Jakobovits, Ph.D.

 

Director

 

March 15, 202219, 2024

/s/ Michael Kauffman

 

 

 

 

Michael Kauffman, M.D., Ph.D

 

Director

 

March 15, 202219, 2024

/s/ Bastiano SannaKatie Peng

 

 

 

 

Bastiano Sanna, Ph.D.Katie Peng

 

Director

 

March 15, 202219, 2024

/s/ Andrew Sinclair

 

 

 

 

Andrew Sinclair, Ph.D.

 

Director

 

March 15, 202219, 2024

 

108