Senti Biosciences, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The company became publicly listed following completion of its merger with Dynamics Special Purpose Corp. on June 8, 2022; the transaction was accounted for as a reverse recapitalization. Unless otherwise noted, amounts below are in U.S. dollars.
Business context
Senti is a preclinical biotechnology company developing cell and gene therapies using its synthetic biology gene-circuit platform. Its candidates, including SENTI-202, SENTI-301 and SENTI-401, had not entered clinical trials. The company reported no product-sales revenue; reported revenue came from research collaborations and grants.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $1.36 million, versus $0.79 million in 2021 | $2.46 million, versus $0.87 million in 2021 |
| Research and development | $9.25 million, versus $5.24 million | $16.85 million, versus $10.14 million |
| General and administrative | $13.88 million, versus $4.55 million | $19.14 million, versus $8.87 million |
| Operating loss | $21.77 million, versus $9.00 million | $33.53 million, versus $18.14 million |
| Net loss | $11.55 million, versus $12.01 million | $23.36 million, versus $33.01 million |
| Basic and diluted loss per share | $0.86, versus $4.13 | $2.80, versus $11.45 |
At June 30, cash and cash equivalents were $139.8 million; including restricted cash, total cash was $143.1 million. Total assets were $202.4 million, total liabilities $48.1 million, and stockholders’ equity $154.3 million. The company reported no outstanding convertible preferred stock after the merger and no conventional borrowings on the balance sheet. Operating lease liabilities totaled $30.9 million; undiscounted lease payments were $60.4 million.
For the first six months, operating cash outflow was $15.8 million, capital expenditures were $18.6 million, and financing provided $118.2 million. Financing included $112.5 million of net merger and PIPE proceeds. The company’s reported operating cash outflow does not include the separate investing outflow for facility construction and equipment.
Material changes and unusual items
- Revenue rose year over year, largely reflecting the Spark collaboration and SBIR grant income. Revenue remained small relative to operating expenses.
- Operating expenses increased substantially. Management attributed R&D growth to personnel, external services and facility costs; G&A growth was driven mainly by personnel costs and stock-based compensation.
- Net loss was lower than the prior-year period despite a larger operating loss. Q2 2022 included an $8.9 million non-cash gain from revaluing the merger earnout liability and a $1.3 million gain on extinguishment of the Bayer convertible note. These items improved reported net income relative to operating results.
- Stock-based compensation was $9.9 million for the first half, including $8.3 million in G&A and $1.6 million in R&D. Unrecognized compensation was approximately $32.1 million at June 30.
- The merger and PIPE financing substantially increased cash and converted Legacy Senti preferred stock into common stock. The company issued 43.4 million common shares at June 30; 43,386,900 shares were outstanding as of August 8.
Outlook, risks and contingencies
- Management expected existing cash and cash equivalents to fund operations, clinical-trial expenses and capital expenditures for at least 12 months from the filing date. It also stated that additional funding will be needed to support its longer-term development strategy; future financing may be unavailable or dilutive.
- The company expected operating losses, negative operating cash flows, R&D and manufacturing costs to increase as it advances preclinical work, prepares for clinical trials and builds manufacturing capacity. It expected to begin filing multiple INDs starting in 2023.
- The Alameda cGMP facility was under construction. The filing describes a $35.5 million construction purchase commitment, of which $17.9 million had been paid by June 30, and a tenant-improvement allowance of up to $17.5 million, with $8.1 million received by that date. Facility completion, commissioning and manufacturing scale-up remain important execution risks.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern because of recurring losses and the need for additional financing, while also stating that post-merger cash was expected to cover at least 12 months. These statements concern different time horizons and should be read together.
- Other key risks include the preclinical status and unproven nature of the platform, clinical and regulatory uncertainty, reliance on third parties and collaborators, manufacturing and supply-chain challenges, and potential COVID-19 effects. The company reported a material weakness in internal control over financial reporting involving inadequate finance resources, risk assessment, segregation of duties and review controls; remediation was in progress.
- The company had up to 2.0 million contingent earnout shares tied to share-price milestones of $15 and $20. The liability was valued using Level 3 estimates and recognized a non-cash gain when remeasured. The filing states no legal proceeding was expected to have a material adverse effect.
Investor facts to verify
- Cash runway assumptions, forecast spending and the timing, amount and terms of any additional financing.
- Progress and costs for SENTI-202, SENTI-301 and other candidates, including whether IND filings can begin as expected in 2023.
- Construction and commissioning milestones, remaining facility costs, tenant-improvement reimbursements and manufacturing readiness.
- How much future reported loss may reflect recurring operating costs versus stock-based compensation and non-cash fair-value changes.
- Remediation of the disclosed material weakness and the effectiveness of financial reporting controls.
- Potential dilution from stock awards, the annual plan share reserve increase, contingent earnout shares and future fundraising.