Senti Biosciences, Inc. — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2022. The company became public through a reverse recapitalization completed June 8, 2022. It is a preclinical biotechnology company developing cell and gene therapies using its gene-circuit platform; it had no approved products or product sales.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1.8 million | $1.1 million | $4.2 million | $2.0 million |
| Operating expenses | $18.9 million | $12.5 million | $54.8 million | $31.5 million |
| Operating loss | $17.1 million | $11.4 million | $50.6 million | $29.6 million |
| Net loss | $16.6 million | $11.4 million | $40.0 million | $44.4 million |
| Net loss per share, basic and diluted | $0.38 | $3.90 | $1.99 | $15.33 |
| Net cash used in operations | Not provided for quarter | Not provided for quarter | $25.9 million | $22.7 million |
Revenue consisted of contract research revenue and grant income. Q3 contract revenue was $1.5 million and grant income was $0.3 million. For the nine months, contract revenue was $3.5 million and grant income was $0.8 million. The filing does not provide a clear gross margin value.
Research and development expense rose 49% to $24.9 million for the nine months, and general and administrative expense rose 87% to $29.9 million. Management attributed the increases principally to higher personnel costs and stock-based compensation, external services, and facility costs. Nine-month stock-based compensation was $12.2 million.
At September 30, 2022, cash and cash equivalents were $114.9 million, restricted cash was $3.3 million, and total assets were $189.4 million. Total liabilities were $49.1 million; current liabilities were $15.8 million. Operating lease liabilities totaled $34.1 million. The May 2022 $5.2 million convertible note was exchanged for shares in the merger; the filing reports no remaining conventional borrowings. Accumulated deficit was $155.1 million.
Nine-month investing cash outflow was $32.8 million, entirely for property and equipment purchases, largely related to the Alameda manufacturing facility. Financing cash inflow was $117.7 million, including $112.0 million net proceeds from the merger and related PIPE financing. Cash, cash equivalents and restricted cash increased by $58.9 million to $118.2 million.
Material changes and notable items
- The merger and PIPE financing substantially increased cash and common shares outstanding; the reverse recapitalization also converted Legacy Senti preferred stock into common stock.
- Nine-month net loss improved versus 2021, despite a substantially higher operating loss, mainly because 2021 included a $14.7 million noncash loss from remeasurement of a preferred-stock tranche liability. In 2022, results included an $8.8 million noncash gain from remeasurement of the contingent earnout liability and a $1.3 million gain on extinguishment of the convertible note.
- Property and equipment, net, increased to $47.3 million from $12.4 million at year-end 2021; construction in progress was $39.5 million. The company had paid $29.3 million of a $35.5 million facility construction commitment by September 30.
- Revenue is concentrated: Customer A accounted for 86% of Q3 2022 revenue and Customer B for 14%. The company also relies on grant and collaboration revenue rather than product sales.
Outlook, risks and contingencies
Management expects substantial operating losses and negative operating cash flows as it advances preclinical programs, prepares for clinical trials, and builds manufacturing capacity. It expects to file multiple INDs starting in 2023. Management stated existing cash and cash equivalents were expected to fund operations, including clinical-trial and capital expenditure needs, for at least 12 months from the filing date; it also expects to seek additional funding and cautioned that financing may not be available on acceptable terms. The risk factors state that recurring losses and anticipated expenditures raise substantial doubt about the company’s ability to continue as a going concern.
- The company’s candidates remain preclinical and untested in humans; development, regulatory approval, efficacy, safety and commercial success are uncertain.
- Construction, commissioning and operation of the planned cGMP facility carry execution and supply risks. The Alameda lease runs to 2032; the filing lists $34.1 million of lease liabilities and $59.7 million of undiscounted lease payments before incentives and imputed interest.
- Other commitments include up to $10.0 million of BlueRock research costs over the collaboration term, approximately $1.3 million of sponsored research commitments, and annual license maintenance payments plus contingent milestones and royalties.
- A Chardan purchase agreement allows the company, at its discretion and subject to limits, to sell up to $50.0 million of common stock over 36 months. By the filing date, 100,000 shares had been sold after quarter-end for $0.4 million net proceeds. Further sales could dilute shareholders.
- The company disclosed a material weakness in internal control over financial reporting, relating to limited accounting resources, risk assessment, segregation of duties, and review controls. Remediation was underway; no material change in internal control was reported during the quarter.
- COVID-19, geopolitical and economic uncertainty, clinical and manufacturing execution, reliance on third parties, and potential future financing needs are among the risks discussed. Management reported no legal proceedings believed likely to have a material adverse effect.
Most important facts for investors to verify
- Cash runway assumptions against planned clinical, facility and operating spending, and the timing and terms of any additional financing.
- Progress and cost to complete and commission the cGMP facility, including construction commitments and tenant-improvement allowance receipts.
- Progress toward the anticipated 2023 IND filings and any changes to product-candidate timelines.
- Remediation of the disclosed material weakness and the effectiveness of financial reporting controls.
- Actual use of the Chardan facility, resulting share issuance and dilution, and the effects of stock-based compensation and contingent earnout remeasurement on reported results.
- Continuation and concentration of collaboration, grant and customer revenue, particularly dependence on Customer A.