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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

 For the quarterly period ended March 31, 2023

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 Number: 001-36296

Carisma Therapeutics Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

    

26-2025616

(State or other jurisdiction
of incorporation or organization)

 

(IRS Employer
Identification No.)

 

 

 


3675 Market Street, Suite 200
Philadelphia, PA

(Address of principal executive offices)

 

19104

(Zip Code)

 

Registrant’s telephone number, including area code: (267) 491-6422

(Former Name or Former Address, if Changed Since Last Report)

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

 

    

 

    

 

Title of each class

 

Trading
Symbol(s)

 

Name of exchange
on which registered

Common Stock, $0.001 par value per share

 

CARM

 

The Nasdaq Stock Market LLC

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 10, 2023, the registrant had 40,254,666 shares of common stock, $0.001 par value per share, outstanding.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q may include, but are not limited to, statements about:

the timing and conduct of our ongoing Phase 1 clinical trial of CT-0508 and our planned clinical trial utilizing CT-0508 in combination with pembrolizumab;
the timing and conduct of our preclinical studies and planned clinical trial of CT-0525 for solid tumors that overexpress HER2;
the timing and conduct of our planned clinical trial of CT-1119 for advanced mesothelin-positive solid tumors;
the timing and conduct of our planned clinical trial of CT-0729 for prostate-specific membrane antigen positive castrate resistant prostate cancer;
our ability to replicate in later clinical trials positive results found in preclinical studies and early- stage clinical trials of our product candidates;
our plans to conduct discovery and pre-clinical testing of the development of in vivo CAR-M therapeutics for up to twelve oncology targets, as well as multiple other targets and indications;
our ability to successfully enroll patients in and complete clinical trials;
our plans to conduct discovery and pre-clinical testing of other product candidates;
our ability to realize the anticipated benefits of our research and development programs, strategic partnerships, research and licensing programs and academic and other collaborations;
the timing of applying for and receiving, and our ability to maintain, marketing approvals from applicable regulatory authorities for our product candidates;
our ability to obtain and maintain intellectual property protection and regulatory exclusivity for CT-0508, CT-0525 and any other product candidates we are developing or may develop in the future;
acceptance of CT-0508, CT-0525 and any other product candidates, if and when approved, by patients, the medical community and third-party payors;
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and short-term investments;
the potential advantages of our product candidates;
our estimates regarding the potential market opportunity for our product candidates;
our commercialization and manufacturing capabilities and strategy;
the impact of COVID-19 on our business and operations;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our competitive position;
the impact of government laws and regulations;
our ability to recognize the benefits of our merger, or the Merger, with Sesen Bio, Inc., or Sesen Bio, and the effect the completion of the Merger will have on our business relationships, operating results and business generally;
the receipt of any payments under the contingent value rights issued to our stockholders in connection with the closing of the Merger, the realization of value for Sesen Bio legacy assets and the amount and timing of distributions to be made to our stockholders, if any; and
political and economic developments.

In some cases, forward-looking statements can be identified by terminology such as “ “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those expressed or implied by the forward-looking statements. No forward-looking statement is a promise or a guarantee of future performance.

i

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You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to the “Company,” “Carisma,” “we,” “us,” and “our” refer to Carisma Therapeutics Inc. (formerly Sesen Bio, Inc.) and its consolidated subsidiaries.

References to “Legacy Carisma” refer to CTx Operations, Inc. (formerly CARISMA Therapeutics Inc.) and references to “Sesen Bio” refer to Sesen Bio, Inc. prior to completion of the Merger.

ii

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CARISMA THERAPEUTICS INC.

TABLE OF CONTENTS

   

   

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited).

1

Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

1

Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022

2

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2023 and 2022

3

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

4

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

26

Item 4.

Controls and Procedures.

26

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings.

28

Item 1A.

Risk Factors.

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

80

Item 6.

Exhibits.

81

SIGNATURES

83

iii

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CARISMA THERAPEUTICS INC.

Unaudited Consolidated Balance Sheets

(in thousands, except share and per share data)

    

March 31, 2023

    

December 31, 2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

62,777

$

24,194

Marketable securities

 

76,190

 

27,802

Prepaid expenses and other assets

 

5,535

 

2,596

Total current assets

 

144,502

 

54,592

Property and equipment, net

 

8,107

 

8,628

Right of use assets – operating leases

 

3,493

 

4,822

Restricted cash

 

30

 

Deferred financing costs

 

 

4,111

Total assets

$

156,132

$

72,153

Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)

 

 

Current liabilities:

 

 

Accounts payable

$

4,614

$

1,728

Accrued expenses

 

10,187

 

10,361

Deferred revenue

 

2,136

 

2,459

Operating lease liabilities

 

2,597

 

3,437

Finance lease liabilities

1,188

1,162

Other current liabilities

755

523

Total current liabilities

21,477

19,670

Deferred revenue

 

45,000

 

45,000

Convertible promissory note

 

 

33,717

Derivative liability

 

 

5,739

Operating lease liabilities

948

 

976

Finance lease liabilities

 

740

 

872

Other long-term liabilities

1,897

1,041

Total liabilities

 

70,062

 

107,015

Commitments and contingencies (Note 5)

Convertible preferred stock

107,808

Stockholders’ equity (deficit):

 

 

Common stock $0.001 par value, 100,000,000 shares authorized, 40,254,666 and 2,217,737 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

40

 

2

Additional paid-in capital

 

268,759

 

1,197

Accumulated other comprehensive income (loss)

 

136

 

(41)

Accumulated deficit

 

(182,865)

 

(158,223)

Total Carisma Therapeutics Inc. stockholders’ equity (deficit)

86,070

(157,065)

Noncontrolling interests

14,395

Total stockholders’ equity (deficit)

 

86,070

 

(142,670)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

$

156,132

$

72,153

See accompanying notes to unaudited interim consolidated financial statements.

1

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CARISMA THERAPEUTICS INC.

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

    

Three Months Ended

March 31, 

2023

    

2022

Collaboration revenues

$

3,243

$

822

Operating expenses:

Research and development

16,641

8,767

General and administrative

9,574

2,211

Total operating expenses

26,215

10,978

Operating loss

(22,972)

(10,156)

Change in fair value of derivative liability

(84)

(557)

Interest (expense) income, net

(1,477)

(599)

Pre-tax loss

(24,533)

(11,312)

Income tax expense

(109)

Net loss

$

(24,642)

$

(11,312)

Share information:

Net loss per share of common stock, basic and diluted

$

(1.93)

$

(5.49)

Weighted-average shares of common stock outstanding, basic and diluted

12,783,523

2,059,986

Comprehensive loss

Net loss

$

(24,642)

$

(11,312)

Unrealized gain (loss) on marketable securities

177

(158)

Comprehensive loss

$

(24,465)

$

(11,470)

See accompanying notes to unaudited interim consolidated financial statements.

2

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CARISMA THERAPEUTICS INC.

Unaudited Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share data)

Convertible preferred stock

Stockholders’ Equity (Deficit)

Accumulated

Additional

other

Common stock

paid-in 

comprehensive

Accumulated

Noncontrolling

     

Shares

     

Amount

   

   

Shares

    

Amount

    

capital

    

income (loss)

    

deficit

     

interests

     

Total

Balance, December 31, 2022

8,700,885

$

107,808

2,217,737

$

2

$

1,197

$

(41)

$

(158,223)

$

14,395

$

(142,670)

Stock-based compensation

265

265

Unrealized gain on marketable securities

177

177

Issuance of common stock for cash in pre-closing financing

3,730,608

4

30,636

30,640

Issuance of common stock upon settlement of convertible promissory note, accrued interest, and related derivative liability

5,059,338

5

42,442

42,447

Issuance of common stock to Sesen Bio shareholders in reverse capitalization

10,374,272

10

72,034

72,044

Conversion of convertible preferred stock and non-controlling interests to common stock

(8,700,885)

(107,808)

18,872,711

19

122,185

(14,395)

107,809

Net Loss

(24,642)

(24,642)

Balance, March 31, 2023

$

40,254,666

$

40

$

268,759

$

136

$

(182,865)

$

$

86,070

Balance, December 31, 2021

8,700,885

$

107,808

2,059,072

$

2

$

816

$

$

(96,997)

$

14,395

$

(81,784)

Exercise of stock options

2,572

Stock-based compensation

89

89

Unrealized loss on marketable securities

(158)

(158)

Net loss

(11,312)

(11,312)

Balance, March 31, 2022

8,700,885

$

107,808

2,061,644

$

2

$

905

$

(158)

$

(108,309)

$

14,395

$

(93,165)

See accompanying notes to unaudited interim consolidated financial statements.

3

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CARISMA THERAPEUTICS INC.

Unaudited Consolidated Statement of Cash Flows

(in thousands)

    

Three Months Ended

March 31, 

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(24,642)

$

(11,312)

Adjustment to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization expense

705

218

Stock-based compensation expense

265

89

Reduction in the operating right of use assets

1,329

381

Amortization of debt discount

1,283

623

Change in fair value of derivative liability

84

557

Accretion on marketable securities

(163)

Non-cash interest expense

41

59

Changes in operating assets and liabilities:

Prepaid expenses and other assets

(1,623)

(1,607)

Accounts payable

2,823

2,612

Accrued expenses

(4,445)

(2,259)

Deferred revenue

(323)

45,619

Operating lease liabilities

(868)

(376)

Net cash (used in) provided by operating activities

(25,534)

34,604

Cash flows from investing activities:

Purchase of marketable securities

(34,460)

(63,244)

Proceeds from the sale of marketable securities

31,000

Purchases of property and equipment

(135)

(1,007)

Net cash used in investing activities

(3,595)

(64,251)

Cash flows from financing activities:

Cash, cash equivalents and restricted cash acquired in connection with the reverse recapitalization

37,903

Payment of reverse recapitalization finance costs

(1,742)

Proceeds from the issuance of common stock in pre-closing financing

30,640

Payment of principal related to finance lease liabilities

(106)

Proceeds from failed sale-leaseback arrangement

1,092

Payment of finance liability from failed sale-leaseback arrangement

(45)

Proceeds from issuance of convertible promissory note

35,000

Net cash provided by financing activities

67,742

35,000

Net increase in cash and cash equivalents

38,613

 

5,353

Cash, cash equivalents and restricted cash at beginning of the period

24,194

28,551

Cash, cash equivalents and restricted cash at end of the period

$

62,807

$

33,904

Supplemental disclosures of cash flow information:

Cash paid for interest

$

45

$

Supplemental disclosure of non-cash financing and investing activities:

Conversion of convertible preferred stock and non-controlling interests upon Merger

$

122,204

$

Conversion of convertible promissory note, accrued interest and derivative liability upon Merger

$

42,447

$

Reverse recapitalization costs in accrued expenses

$

4,071

$

Unrealized gain (loss) on marketable securities

$

177

$

(158)

Right-of-use assets obtained in exchange for new operating lease liabilities

$

$

3,072

Allocation of debt proceeds to derivative liability

$

$

3,820

Property and equipment in accounts payable

$

49

$

103

See accompanying notes to unaudited interim consolidated financial statements.

4

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

(1)

Background

Carisma Therapeutics Inc., a Delaware Corporation (collectively with its subsidiaries, the Company), is a clinical-stage cell therapy company focused on utilizing the Company’s proprietary macrophage and monocyte cell engineering platform to develop transformative immunotherapies to treat cancer and other serious diseases. The Company has created a comprehensive cell therapy platform to enable the therapeutic use of engineered macrophages and monocytes, which belong to a subgroup of white blood cells called myeloid cells. The Company’s initial focus is its proprietary Chimeric Antigen Receptor Macrophage (CAR-M) cell therapy platform, which redirects macrophages against specific tumor associated antigens and enables targeted anti-tumor immunity by utilizing genetically modifying myeloid cells (macrophages and monocytes) to express chimeric antigen receptors (CARs), enabling the potent innate immune cells to recognize specific tumor associated antigens on the surface of tumor cells. The Company’s initial product candidates, CT-0508 and CT-0525 are ex vivo autologous cell therapy product candidates, wherein immune cells from blood drawn from a patient are engineered outside of the body and reinfused into the same patient. The Company also has research programs to develop in vivo cell therapy macrophage products.

The Company’s lead product candidate, CT-0508, is the first CAR-M to be evaluated in a human clinical trial and is intended to treat solid tumors that overexpress HER2. CT-0508 is currently being studied in a multi-center open label Phase 1 clinical trial in the U.S. This ongoing first-in-human study evaluates the safety, tolerability and manufacturing feasibility of CT-0508. The Company has completed enrollment of the first group of patients in this trial, with nine patients having been successfully dosed over a five-day dosing schedule. In November 2022, the Company presented preliminary clinical results from the first group of patients. CT-0508 was successfully manufactured using macrophages obtained from heavily pre-treated, advanced solid tumor patients and has shown high CAR expression, viability, and purity. In addition, CT-0508 has been generally well-tolerated after infusion with no dose-limiting toxicities reported to date from the nine patients enrolled in the first group. While the results from this early clinical trial data are both preliminary and limited, the Company believes the results indicate that CT-0508 can be detected within the tumor microenvironment (TME), lead to remodeling and activation of the TME, and potentially induce anti-tumor adaptive immunity. In addition to the first group of patients in this study, the Company initiated a second group to evaluate bolus dosing of patients and anticipate data from this group in the second half of 2023. The Company has also initiated several additional sub studies evaluating CT-0508 in the clinical setting. In addition to monotherapy treatment, the Company has observed synergistic potential of CT-0508 with a PD1 blocking T-cell checkpoint inhibitor in multiple preclinical models. As a result of those studies and the preliminary results from group 1 in the Company’s clinical trial, the Company initiated a sub study to evaluate at least nine patients with the co-administration of CT-0508 and pembrolizumab in the first quarter of 2023. The Company anticipates the initial data from this sub study in the second half of 2023.

The Company’s second product candidate, CT-0525, is also intended to treat solid tumors that overexpress HER2, is in preclinical development and is advancing to an IND filing. CT-0525 utilizes a novel approach to CAR-M therapy to accelerate the manufacturing process, increase the cell yield, and improve upon the potential anti-tumor effect by engineering patients’ monocytes directly, without ex vivo differentiation into macrophages, as the Company currently does for CT-0508. The Company refers to this CAR-Monocyte approach as CAR-Mono. By increasing the cell yield, the CAR-Mono approach enables a larger potential dose and improved trafficking, which may improve tumor control. The CAR-Mono approach reduces manufacturing time and leverages an automated, closed-system manufacturing process. CT-0525 is the Company’s first CAR-Mono product candidate and is currently in the pre-clinical process development stage. The Company expects to submit an IND to the U.S. Food and Drug Administration (FDA) for CT-0525 in the second half of 2023, initiate clinical development shortly thereafter, and treat the Company’s first patient in the first half of 2024.

Beyond CT-0508 and CT-0525, the Company has a broad pipeline of cell therapy assets in various stages of pre-clinical development. In addition to the development of ex vivo CAR-M cell therapies, the Company is developing in vivo CAR-M gene therapies, wherein immune cells are directly engineered within the patient’s body. To advance the Company’s in vivo CAR-M therapeutics, the Company established a strategic collaboration with ModernaTX Inc. (Moderna) (Note 10).

Reverse Merger with Sesen Bio

On March 7, 2023, the Company (formerly publicly-held Sesen Bio, Inc.) consummated a merger with CTx Operations, Inc. (formerly privately-held CARISMA Therapeutics Inc.) (Legacy Carisma) pursuant to an Agreement and Plan of Merger and Reorganization, as amended (the Merger Agreement), by and among the Company, Legacy Carisma and Seahawk Merger Sub, Inc. (Merger Sub), a Delaware corporation and wholly-owned subsidiary of the Company. The Merger Agreement provided for the merger of Merger Sub with and into Legacy Carisma, with Legacy Carisma continuing as a wholly-owned subsidiary of the Company and the surviving

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

corporation of the merger (the Merger). Pursuant to the Merger Agreement, the Company changed its name from “Sesen Bio, Inc.” to “Carisma Therapeutics Inc.” At the closing of the Merger, (a) each then outstanding share of Legacy Carisma common stock and convertible preferred stock (including shares of Legacy Carisma common stock issued in connection with the pre-closing financing transaction described below) were converted into shares of Sesen Bio common stock at an exchange ratio of 1.8994 shares of Sesen Bio for each share of Legacy Carisma (the Exchange Ratio), and (b) each then outstanding stock option to purchase Legacy Carisma common stock was assumed by Sesen Bio, with necessary adjustments to reflect the Exchange Ratio.

Except as otherwise indicated, references herein to “Carisma,” the “Company,” or the “Combined Company,” refer to Carisma Therapeutics Inc. on a post-Merger basis, and references to “Legacy Carisma” refer to the business of privately-held CARISMA Therapeutics Inc. prior to the completion of the Merger. References to “Sesen Bio” refer to Sesen Bio, Inc. prior to the completion of the Merger.

Following the Merger, the shareholders of Legacy Carisma held 74.2% of the Combined Company, and the shareholders of Sesen Bio held 25.8% of the Combined Company.

Basis of Presentation and Exchange Ratio

As discussed in Note 3, the Merger was accounted for as reverse capitalization under which the historical financial statements of the Company prior to the Merger are Legacy Carisma. All common stock, per share and related information presented in the consolidated financial statements and notes prior to the Merger has been retroactively adjusted to reflect the Exchange Ratio.

(2)

Development-Stage Risks and Liquidity

The Company has incurred losses since inception and has an accumulated deficit of $182.9 million as of March 31, 2023. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales from its product candidates currently in development. Management believes that cash, cash equivalents and marketable securities of $139.0 million as of March 31, 2023 are sufficient to sustain planned operations through the end of 2024.

The Company is subject to those risks associated with any specialty biotechnology company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.

(3)

Summary of Significant Accounting Policies

Interim Financial Statements

The summary of significant accounting policies included in the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2022 filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K/A filed with the SEC on April 4, 2023.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). Any references in these notes to applicable guidance is meant to refer to GAAP as found in Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) promulgated by the Financial Accounting Standards Board (FASB).

The accompanying unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. In the opinion of management, the accompanying interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the consolidated financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2023 and its results of operations for the three months ended March 31, 2023 and 2022. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The interim consolidated financial statements, presented herein,

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

do not contain all of the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes as of and for the year ended December 31, 2022 filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K/A filed with the SEC on April 4, 2023.

Use of Estimates

The preparation of unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.

Significant areas that require management’s estimates include the fair value of the Company’s common stock and the derivative liability prior to the Merger, stock-based compensation assumptions, the estimated useful lives of property and equipment, and accrued research and development expenses.

Fair Value of Financial Instruments

Management believes that the carrying amounts of the Company’s financial instruments, including cash equivalents and accounts payable, approximate fair value due to the short-term nature of those instruments. The Company considered the carrying value of its convertible promissory note (Note 6) as of December 31, 2022 to approximate fair value due to its short-term nature. The derivative liability was recorded at its estimated fair value prior to its derecognition in March 2023 upon conversion of the associated convertible promissory notes.

Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:

Fair value measurement at reporting date using

(in thousands)

    

(Level 1)

    

(Level 2)

    

(Level 3)

March 31, 2023:

  

  

  

Assets:

 

  

 

  

 

  

Cash equivalents – money markets accounts

$

7,002

$

$

Marketable securities – U.S. Treasuries

$

76,190

$

$

December 31, 2022:

 

  

 

  

 

  

Assets:

 

  

 

  

 

  

Cash equivalents – money markets accounts

$

7,794

$

$

Marketable securities – U.S. Treasuries

$

27,802

$

$

Liability:

 

  

 

  

 

  

Derivative liability – redemption feature on convertible promissory note

$

$

$

5,739

The following is a summary of the Company’s marketable securities as of March 31, 2023:

    

    

Gross

    

Amortized

unrealized

cost

gain

Fair value

Available-for-sale marketable securities

 

  

 

  

 

  

U.S. Treasury securities

$

76,054

$

136

$

76,190

The table presented below is a summary of the changes in fair value of the Company’s derivative liability associated with the redemption feature of the Company’s convertible promissory note (Level 3 measurement):

    

Three Months Ended March 31,

(in thousands)

    

2023

    

2022

Balance at the beginning of the period

$

5,739

$

Balance at issuance

 

 

3,820

Change in fair value

 

84

 

557

Derecognition upon conversion of convertible promissory note

 

(5,823)

 

Balance at the end of the period

$

$

4,377

During the three months ended March 31, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash and cash equivalents.

Segment information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment.

Net loss per share

Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

conversion of securities, such as convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, potentially dilutive securities are not included in the calculation as their impact is anti-dilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

March 31,

    

2023

    

2022

Convertible preferred stock and exchangeable shares

 

9,936,148

Stock options

4,184,047

 

3,553,288

Conversion of convertible promissory note

 

3,258,151

4,184,047

 

16,747,587

Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This standard is effective for fiscal years beginning after December 15, 2022. The Company adopted the guidance using a modified retrospective approach as of January 1, 2023 which resulted in no cumulative-effect adjustment to accumulated deficit and did not have a material impact on the Company’s consolidated financial statements.

(4)

Merger with Sesen Bio

On March 7, 2023, Legacy Carisma completed the Merger with Sesen Bio as discussed in Note 1. The Merger was accounted for as a reverse recapitalization under GAAP because the primary assets of Sesen Bio were cash, cash equivalents and marketable securities. For financial reporting purposes Legacy Carisma was determined to be the accounting acquirer based upon the terms of the Merger and other factors, including: (i) Legacy Carisma stockholders own approximately 74.2% of the Combined Company, (ii) Legacy Carisma holds the majority (six of seven) of board seats of the Combined Company and (iii) Legacy Carisma management holds all key positions of management. Accordingly, the Merger was treated as the equivalent of Legacy Carisma issuing stock to acquire the net assets of Sesen Bio. As a result of the Merger, the net assets of Sesen Bio were recorded at their acquisition-date fair value in the consolidated financial statements and the reported operating results prior to the Merger are those of Legacy Carisma. Immediately after the Merger, there were 40,254,666 shares of the Company’s common stock outstanding.

The following table shows the net assets acquired in the Merger (in thousands):

    

March 7, 2023

Cash and cash equivalents

$

37,873

Marketable securities

 

44,588

Prepaid expenses and other assets

 

1,316

Restricted cash

 

30

Accounts payable and accrued expenses

 

(3,499)

Total net assets acquired

 

80,308

Less: Transaction costs

 

(8,264)

Total net assets acquired less transaction costs

$

72,044

Subsequent to March 7, 2023, the Company paid $4.6 million of severance and personnel costs related to Sesen Bio.

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

(5)

Commitments and Contingencies

Leases

The Company has operating leases for its lab and office space in Philadelphia, Pennsylvania. The Company’s operating leases have term end dates ranging from 2023 to 2029. The Company also has obligations under an arrangement for the use of certain lab equipment that are classified as finance leases that commenced in 2022 and have end dates ranging from 2024 to 2025.

The Company’s operating and finance lease right-of-use (ROU) assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. The Company is responsible for payment of certain real estate taxes, insurance and other expenses on certain of its leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU assets and lease liability. The Company accounts for non-lease components, such as maintenance, separately from lease components.

The Company carries lab equipment from failed sale leasebacks, as property and equipment, net on the accompanying consolidated balance sheets. The ongoing lease payments are recorded as reductions to the finance liability and interest expense. As of March 31, 2023, the Company had a $2.7 million financing liability recorded in other current liabilities and other long-term liabilities on the unaudited consolidated balance sheet.

The elements of the lease costs were as follows (in thousands):

Three months ended March 31,

    

2023

    

2022

Operating lease cost

$

1,433

$

465

Finance lease cost:

 

  

 

  

Amortization of lease assets

 

297

 

Interest on lease liabilities

 

45

 

Total finance lease cost

 

342

 

Total lease cost

$

1,775

$

465

Lease term and discount rate information related to leases was as follows:

March 31,

 

    

2023

    

2022

 

Weighted-average remaining lease term (in years)

 

  

 

  

Operating leases

 

2.2

 

2.2

Finance leases

 

1.9

 

Weighted-average discount rate

 

  

 

  

Operating leases

 

9.5

%  

9.4

%

Finance leases

 

9.0

%  

%

Supplemental cash flow information (in thousands):

Three Months Ended

March 31,

    

2023

    

2022

Cash paid for amounts included in the measurement of lease liabilities:

  

  

Operating cash used in operating leases

$

1,448

$

461

Operating cash used in finance leases

$

45

$

Financing cash used in finance leases

$

106

$

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

Future maturities of lease liabilities were as follows as of March 31, 2023 (in thousands):

    

Operating 

    

Finance 

Leases

Leases

Fiscal year ending:

 

  

 

  

2023 (remaining nine months)

$

2,713

$

1,150

2024

 

213

 

600

2025

 

219

 

338

2026

 

226

 

2027

 

233

 

Thereafter

 

423

 

Total future minimum payments

 

4,027

 

2,088

Less imputed interest

 

(482)

 

(160)

Present value of lease liabilities

$

3,545

$

1,928

Licensing and Sponsored Research Agreements

Under a license agreement (Penn License Agreement) with The Trustees of the University of Pennsylvania (Penn), the Company is required to make annual payments of $10,000 through 2021 and $25,000 in annual payments thereafter. Penn is eligible to receive up to $10.9 million per product in development upon the achievement of certain clinical, regulatory and commercial milestone events. There are additional milestone payments required to be paid of up to $30.0 million per product in commercial milestones, and up to an additional $1.7 million in development and regulatory milestone payments for the first CAR-M product directed to mesothelin. Additionally, the Company is obligated to pay Penn single-digit royalties based on its net sales.

In March 2023, the Company entered into a manufacturing and supply agreement (Novartis Agreement) with Novartis Pharmaceuticals Corporation (Novartis) for the manufacturing of the Company’s CT-0508 product candidate. The Novartis Agreement is for five years and shall renew automatically for additional one-year periods unless and until terminated by either party.  In addition, to purchasing of the manufacturing of the product, the Company will pay $1.0 million per calendar year, payable in quarterly payments, for reserved capacity starting on the date on which the Novartis site is declared ready to produce CT-0508 as determined by the Company. In the event of termination without cause by the Company, a termination fee equal to $4.0 million will be payable by Carisma to Novartis which pursuant to the terms of the agreement can be credited in full against amounts due for a substitute product.

Contingencies

Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

On February 3, 2023, a purported stockholder filed a complaint in the United States District Court for the District of Delaware against Sesen Bio and its board of directors, captioned Plumley v. Sesen Bio, Inc., et al., Case No. 1:23-cv-00131 (D. Del.) (“the Plumley Complaint”). The Plumley Complaint asserts claims under Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder for allegedly false and misleading statements in the proxy statement/prospectus filed as part of the Registration Statement in connection with the Merger and under Section 20(a) of the Exchange Act for alleged “control person” liability with respect to such allegedly false and misleading statements and seeks, among other relief, an order enjoining the Merger and an award for plaintiffs’ fees and costs. On February 7, 2023, another purported stockholder filed a complaint in the United States District Court for the Southern District of New York against Sesen Bio and its board of directors, captioned Franchi v. Sesen Bio, Inc., et al., 1:23-cv-01041 (S.D.N.Y.) (“the Franchi Complaint”). The Franchi Complaint contains substantially similar allegations and claims and seeks substantially similar relief as the Plumley Complaint. Additionally, on February 9, 2023, another purported stockholder filed a complaint in the United States District Court for the Southern District of New York against Sesen Bio and its board of directors, captioned Menzer v. Sesen Bio, Inc., et al., 23-cv-01119 (S.D.N.Y.) (“the Menzer Complaint”). The Menzer Complaint contains substantially similar allegations and claims and seeks substantially similar relief as the Plumley Complaint and the Franchi Complaint. In April 2023, the Company executed a confidential fee agreement to resolve the stockholders’ claim for attorney’s fees and expenses in connection with the Plumley Complaint, Franchi Complaint, and Menzer Complaint. The amount of the confidential fee agreement was reasonably estimated and probable to be incurred as of March 31, 2023, resulting in a $0.2 million accrued settlement as of March 31, 2023.

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

(6)

Stockholders’ Equity

On March 7, 2023 in connection with the closing of the Merger, the following is reflected on the consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2023 and 2022: (i) the sale of 3,730,608 shares of common stock in a pre-closing funding at $8.21 per share for total proceeds of $30.6 million, (ii) the issuance of 5,059,338 shares of common stock upon the settlement of the Company’s $35.0 million convertible promissory note, accrued interest and related derivative liability, (iii) the conversion of convertible preferred stock and exchangeable shares previously presented as noncontrolling interests into 18,872,711 shares of common stock, (iv) the issuance of 10,374,272 shares of common stock to Sesen Bio stockholders as consideration for the Merger.

(7)

Stock-based Compensation

2017 Stock Incentive Plan

Legacy Carisma adopted the CARISMA Therapeutics Inc. 2017 Stock Incentive Plan, as amended (the Legacy Carisma Plan), that provided for the grant of incentive stock options to employees, directors, and consultants. The maximum term of options granted under the Legacy Carisma Plan was ten years, and stock options typically vested over a four-year period. The Company’s stock options vest based on the terms in the awards agreements and generally vest over four years. Upon completion of the Merger, the Company assumed the Legacy Carisma Plan and the outstanding and unexercised options issued thereunder, and ceased granting awards under the Legacy Carisma Plan.

2014 Stock Incentive Plan

The Sesen Bio, Inc. Amended and Restated 2014 Stock Incentive Plan, as amended (the Sesen Bio 2014 Plan), provides for the grant of incentive and non-qualified stock options, restricted stock awards and restricted stock units, stock appreciation rights and other stock-based awards to the Company’s employees, officers, directors, consultants, and advisors, with amounts and terms of grants determined by the Company’s board of directors at the time of grant.

Stock options outstanding under the Sesen Bio 2014 Plan generally vest over a four-year period at the rate of 25% of the grant vesting on the first anniversary of the date of grant and 6.25% of the grant vesting at the end of each successive three-month period thereafter. Stock options granted under the Sesen Bio 2014 Plan are exercisable for a period of ten years from the date of grant.

On March 7, 2023, the Company amended and restated the Sesen Bio 2014 Plan to (i) change the name of the plan to the Carisma Therapeutics Inc. 2014 Amended and Restated Stock Incentive Plan (the 2014 Plan) and (ii) adopt a new form of stock option agreement and a new form of restricted stock unit agreement for the grant of options and restricted stock units under the 2014 Plan. As of March 31, 2023, approximately 6.2 million shares of common stock remained available for issuance.

2014 Employee Stock Purchase Plan

The Sesen Bio 2014 Employee Stock Purchase Plan (the Sesen Bio 2014 ESPP) provides employees with the opportunity to purchase shares of common stock at a 15% discount to the market price through payroll deductions or lump sum cash investments. The purpose of the Sesen Bio 2014 ESPP is to enhance employee interest in the success and progress of the Company by encouraging employee ownership of common stock. On March 7, 2023, the Company amended and restated the Sesen Bio 2014 ESPP to (i) change the name of the plan to Carisma Therapeutics Inc. 2014 Employee Stock Purchase Plan (the 2014 ESPP) and (ii) restate and integrate all prior amendments thereto. As of March 31, 2023, 0.2 million shares of common stock remained available for issuance.

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

The following is a summarizes of stock option activity for the three months ended March 31, 2023:

    

    

    

Weighted 

    

Weighted 

average 

Aggregate 

average 

remaining 

Intrinsic 

exercise 

contractual 

Value (in 

Options

price

term (years)

thousands)

Outstanding as of December 31, 2022

 

3,356,937

$

1.01

 

  

 

  

Sesen Bio options assumed in the Merger

 

765,223

 

27.94

 

  

 

  

Exercised

Granted

 

144,352

 

5.64

 

  

 

  

Forfeited

 

(82,427)

 

1.46

 

  

 

  

Expired

 

(38)

 

1.46

 

  

 

  

Outstanding as of March 31, 2023

 

4,184,047

$

6.11

 

5.9

$

6,798

Exercisable as of March 31, 2023

 

3,015,084

$

5.58

 

3.6

$

5,057

Vested and expected to vest at March 31, 2023

 

4,184,047

$

6.11

 

5.9

$

6,798

The weighted-average grant-date per share fair values of options granted during the three months ended March 31, 2023 and 2022 were $2.64 and $0.75, respectively. The fair values in the three months ended March 31, 2023 and 2022 were estimated using the Black-Scholes option-pricing model based on the following assumptions:

Three Months Ended March 31,

 

    

2023

    

2022

 

Risk-free interest rate

 

2.92% - 4.03%

 

2.40% - 2.41

%

Expected term

 

6 years

 

6 years

Expected volatility

 

57.77% - 62.65

%  

54.54% - 54.58

%

Expected dividend yield

 

 

Stock-Based Compensation Expense

The Company recorded stock-based compensation expense in the following expense categories in its accompanying unaudited consolidated statements of operations:

Three months ended March 31,

    

2023

    

2022

Research and development

$

10

$

41

General and administrative

 

255

 

48

$

265

$

89

The Company recognized stock-based compensation expense of $0.2 million related to the modification of Sesen Bio options assumed in connection with the Merger. Compensation cost for awards not vested as of March 31, 2023 was $1.1 million and will be expensed over a weighted-average period of 2.3 years.

(8)

Income Taxes

Based on taxable income projections for 2023, the Company expects to have federal and state income tax liabilities for the year. For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 (TCJA) eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the U.S. and 15 years for research activities performed outside the U.S. pursuant to Internal Revenue Code Section 174. In addition, the Company is required to recognize tax revenue of $45.0 million in 2023, related to cash received under the collaboration and license agreement with Moderna in 2022, for tax purposes in advance of GAAP recognition. The Company also expects limitations on utilization of net operating losses and tax credits under TCJA and/or IRC Sections 382 and 383. These requirements temporarily increase the Company’s U.S. federal and state cash tax payments and reduces cash flows in 2023.

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

(9)

Related-Party Transactions

The Company has outstanding licensing and scientific research agreements with Penn, a significant shareholder (Note 5). The Company recognized $0.4 million and $0.2 million of research and development expense for the three months ended March 31, 2023 and 2022, respectively, related to the Penn License Agreement.

The Company’s collaboration and license agreement is with Moderna, a significant shareholder (Note 10). The Company recognized revenue of $3.2 million and $0.8 million for the three months ended March 31, 2023 and 2022, respectively, related to the Moderna License Agreement.

(10)    Moderna Collaboration and License Agreement

In January 2022, the Company entered into a Collaboration and License Agreement with Moderna (Moderna License Agreement), to develop and commercialize in vivo engineered CAR-M therapeutics for different forms of cancer. The Moderna License Agreement allows Moderna to develop and commercialize product candidates for up to twelve research targets. The Company is responsible for discovering and optimizing development candidates, and Moderna is responsible for the clinical development thereafter. Pursuant to the Moderna License Agreement, the Company and Moderna formed a joint steering committee (JSC) that is responsible for the coordination and oversight of all research activities to which the Company is responsible for providing. The JSC is comprised of three representatives each from the Company and Moderna and with Moderna having final decision-making authority, subject to customary exclusions.

During the research term of the Moderna License Agreement, the Company has granted Moderna an exclusive worldwide royalty free license to the Company’s intellectual property associated with the product candidates that permits Moderna to conduct its research and development activities. Upon Moderna’s election of a development target (and payment of a related development target designation milestone) for commencement of pre-clinical development of a product candidate, the Company will grant Moderna an exclusive worldwide, sublicensable royalty bearing license to develop, manufacture and commercialize the product candidate.

Upon execution of the Moderna License Agreement, Moderna made an upfront non-refundable payment of $45.0 million to the Company. Moderna also will reimburse the Company for all costs incurred by the Company in connection with its research and development activities under the Moderna License Agreement plus a reasonable margin for the respective services performed (with a minimum commitment to reimburse $10.0 million in research and development costs over the first three years from execution of the Moderna License Agreement). In addition, assuming Moderna develops and commercializes 12 products, each directed to a different development target, the Company is eligible to receive up to between $247.0 million and $253.0 million per product in development target designation, development, regulatory and commercial milestone payments. The Company is also eligible to receive tiered mid-to-high single digit royalties of net product sales, subject to adjustment. In addition, Moderna will repay the Company for certain development, regulatory and commercial milestone payments and certain royalty payments pursuant to the Company’s license agreement with the University of Pennsylvania. The Moderna License Agreement terminates on a product-by-product basis upon the latest of expiration of the applicable product patents, expiration of regulatory exclusivity and the tenth anniversary of first commercial sale, unless terminated earlier by the Company or Moderna.

At commencement, the Company identified several potential performance obligations within the Moderna License Agreement, including research and development services on research targets, option rights held by Moderna, a non-exclusive royalty-free license to use the Company’s intellectual property to conduct research and development activities and participation on the JSC. The Company determined that there were two performance obligations comprised of (i) research and development services and (ii) option rights.

For the research and development services, the stand-alone selling price was determined considering the expected passthrough costs and cost of the research and development services and a reasonable margin for the respective services. The material rights from the option rights were valued based on the estimated discount at which the option is priced and the Company’s estimated probability of the options’ exercise as of the time of the agreement. The transaction price allocated to research and development services is recognized as collaboration revenues as the research and development services are provided to satisfy the underlying obligation related to the research

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

and development target. The transfer of control occurs over this period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation.

The transaction price allocated to the options rights, which are considered material rights, will be recognized in the period that Moderna elects to exercise or elects to not exercise its option right to license and commercialize the underlying research and development target.

The Company included the $45.0 million upfront payment and $73.9 million of variable consideration for expected research and development services to be performed during the five-year contract term, inclusive of passthrough costs, in the transaction price as of the outset of the arrangement. During the three months ended March 31, 2023, the Company recognized $3.2 million of research and development services as collaboration revenues as the Company is the principal in providing such services. The Company recognized $13.1 million of collaboration revenues since inception of the Moderna License Agreement through March 31, 2023. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied as of March 31, 2023 (in thousands):

    

Transaction 

price unsatisfied

Performance obligations:

 

  

Research and development

$

61,376

Option rights

 

45,000

Total performance obligations

$

106,376

Amounts due to the Company for satisfying the revenue recognition criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as accounts receivable in the Company’s consolidated balance sheet. Contract liabilities consist of amounts received prior to satisfying the revenue recognition criteria, which are recorded as deferred revenue in the Company’s consolidated balance sheet.

The following table summarizes the changes in deferred revenue (in thousands):

Three months ended March 31,

    

2023

    

2022

Balance at the beginning of the period

$

47,459

$

Deferral of revenue

 

2,920

 

46,441

Recognition of unearned revenue

 

(3,243)

 

(822)

Balance at the end of the period

$

47,136

$

45,619

The current portion of deferred revenue represents advanced payments received from Moderna for costs expected to be incurred by the Company within the next twelve months. The noncurrent portion of deferred revenue represents the $45.0 million upfront, non-refundable and non-creditable payment allocated to customer option right which is not expected to be recognized within the next 12 months.

(11)

Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through May 11, 2023, the issuance date of these unaudited interim consolidated financial statements and has not identified any requiring disclosure.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited consolidated financial statements and the related notes appearing elsewhere this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, in Exhibit 99.3 to our Current Report on Form 8/K dated March 7, 2023 and in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated by these forward-looking statements.

Overview

We are a clinical stage cell therapy company focused on utilizing our proprietary macrophage and monocyte cell engineering platform to develop transformative immunotherapies to treat cancer and other serious diseases. We have created a comprehensive cell therapy platform to enable the therapeutic use of engineered macrophages and monocytes, which belong to a subgroup of white blood cells called myeloid cells. Macrophages and monocytes are part of the innate immune system and can detect and degrade harmful substances through a process referred to as phagocytosis, in which the harmful substance is engulfed and destroyed and in turn leads to the activation of a broad immune response. With our lead product candidate from our proprietary Chimeric Antigen Receptor Macrophage, or CAR-M, cell therapy platform in the clinic and the potential for multiple clinical and preclinical data updates over the next 18 months, we believe that we are poised to deliver on the potential of our platform and to expand the opportunity for effective gene delivery, tunable phenotypes, multiple payloads and applications in oncology and beyond.

Our platform harnesses the powerful immunologic functions of macrophages against cancer, through our proprietary CAR-M platform technology. Chimeric antigen receptors, or CARs, are synthetically engineered receptors that are designed to bestow immune cells with the ability to target specific antigens on the surface of cancer cells. By introducing CARs into macrophage and monocyte cells, we aim to redirect their potent innate immune functions against cancer. Our CAR-M platform technology incorporates proprietary tumor targeting constructs, vectors to deliver CARs to macrophages and monocytes and novel manufacturing processes. Our CAR-M therapeutics are designed to infiltrate the solid tumor microenvironment, kill cancer cells via targeted phagocytosis, and activate other immune cells, such as T-cells, to initiate a robust anti-tumor immune response. Our initial product candidates, CT-0508 and CT-0525, are ex vivo autologous cell therapy product candidates, wherein immune cells from blood drawn from a patient are engineered outside of the body and reinfused into the same patient. We also have research programs to develop allogeneic and in vivo cell therapy macrophage products.

Our lead product candidate CT-0508, is the first CAR-M to be evaluated in a human clinical trial and is intended to treat solid tumors that overexpress HER2, a protein that is overexpressed on the surface of a variety of solid tumors, including breast cancer, gastric cancer, esophageal cancer, salivary gland cancer, and numerous others. It has been granted “Fast Track” status for the treatment of patients with HER2 overexpressing solid tumors by the FDA. CT-0508 is currently being studied in a multi-center open label Phase 1 clinical trial in the U.S. This ongoing first-in-human study primarily evaluates the safety, tolerability and manufacturing feasibility of CT-0508 along with several customary exploratory secondary end points. We have completed enrollment of the first group of patients in this trial, with nine patients having been successfully dosed over a five-day dosing schedule. In November 2022, we presented preliminary clinical results from the first group of patients. CT-0508 was successfully manufactured using macrophages obtained from heavily pre-treated, advanced solid tumor patients and has shown high CAR expression, viability, and purity. In addition, CT-0508 has been generally well-tolerated after infusion with no dose-limiting toxicities reported to date from the nine patients enrolled in the first group. While the results from this early clinical trial data are both preliminary and limited, we believe the results indicate that CT-0508 can be detected within the tumor microenvironment, or TME, lead to remodeling and activation of the TME, and potentially induce anti-tumor adaptive immunity. In addition to the first group of patients in this study, we have initiated a second group to evaluate bolus dosing of patients and anticipate data from this group in the second half of 2023. We have also initiated several additional sub studies evaluating CT-0508 in the clinical setting. In addition to monotherapy treatment, we have observed synergistic potential of CT-0508 with a PD1 blocking T-cell checkpoint inhibitor in multiple preclinical models. As a result of those studies and the preliminary results from group 1 in our clinical trial, we initiated a sub study to evaluate at least nine patients with the co-administration of CT-0508 and pembrolizumab in the first quarter of 2023. We anticipate the initial data from this sub study in the second half of 2023.

Our second product candidate, CT-0525, is also intended to treat solid tumors that overexpress HER2, is in preclinical development and is advancing to an IND filing. CT-0525 utilizes a novel approach to CAR-M therapy to accelerate the manufacturing process, increase the cell yield, and improve upon the potential anti-tumor effect by engineering patients’ monocytes directly, without ex vivo differentiation into macrophages, as we currently do for CT-0508. We refer to this CAR-Monocyte approach as CAR-Mono. By increasing the cell yield, the CAR-Mono approach enables a larger potential dose and improved trafficking, which may improve tumor

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control. The CAR-Mono approach reduces manufacturing time and leverages an automated, closed-system manufacturing process. CT-0525 is our first CAR-Mono product candidate and is currently in the pre-clinical process development stage. We expect to submit an IND to the FDA for CT-0525 in the second half of 2023, initiate clinical development shortly thereafter, and treat our first patient in the first half of 2024.

Beyond CT-0508 and CT-0525, we have a broad pipeline of cell therapy assets in various stages of pre-clinical development. In addition to the development of ex vivo CAR-M cell therapies, we are also developing in vivo CAR-M gene therapies, wherein immune cells are directly engineered within the patient’s body. To advance our in vivo CAR-M therapeutics, we established a strategic collaboration with Moderna TX Inc., or Moderna, focused on the development and potential commercialization of up to 12 product candidates, of which four have already been nominated. In collaboration with Moderna, we have established an approach that uses Moderna’s LNP/mRNA technology, together with our CAR-M platform technology, to create novel in vivo oncology gene therapies. We believe this approach has the potential to enable a series of off-the-shelf product candidates to target a patient’s own myeloid cells against cancer cells directly within their body. As part of the agreement with Moderna, we received a $45.0 million up-front cash payment and an investment by Moderna in the form of a $35.0 million convertible promissory note, which converted into shares of common stock in connection with the consummation of the merger with Sesen Bio, or the Merger, in addition to future research funding and the opportunity for milestone payments and royalties.

Through our robust internal discovery engine, we are building upon our platform to enhance and expand the utility of macrophage cell and gene therapies, leading to the creation of multiple product candidates with the potential to treat cancer and other serious diseases. By replacing the targeting domain of the CAR, we can reprogram the target antigen specificity of the CAR-M cell product and develop candidates against a range of cancer indications and therapeutic areas beyond oncology. As a result, we believe the flexibility of our macrophage and monocyte cell engineering platform will allow us to generate new product candidates suitable for clinical development in a cost-efficient manner to expand our pipeline. In addition to acting as a first line of defense in the innate immune system, macrophages are found in all tissues in the body where they serve key regulatory functions such as wound healing, termination of immune responses and tissue regeneration. Using our macrophage and monocyte ex vivo and in vivo engineering platform, we are pursuing early research and development of multiple assets for the potential treatment of diseases beyond oncology, including liver fibrosis, neurodegeneration, and other immunologic and inflammatory diseases.

By investing in early platform research and accessing key enabling technologies, we are enhancing and expanding our platform capabilities and reinforcing our leadership position in the engineered macrophage field. We have developed proprietary CAR-M platform enhancements directed toward key product parameters that are important for efficacy, safety and patient access to our CAR-M therapies. We plan to apply these technology enhancements to future CAR-M product candidates. In addition to our platform, we have invested in establishing scalable clinical manufacturing capabilities to deliver on potential of our products. In the first quarter of 2023, we completed technology transfer for manufacturing HER2 targeted CAR-M cell therapies and have begun to manufacture CT-0508 at their facility.

To date, we have not yet commercialized any products or generated any revenue from product sales and have financed our operations primarily with proceeds from sales of our preferred stock, proceeds from our collaboration with Moderna, research tax credits, convertible debt financing, closing of pre-closing financing, and completion of the Merger. Our operations to date have been limited to organizing and staffing the company, business planning, capital raising, establishing and maintaining our intellectual property portfolio, building our pipeline of product candidates, conducting drug discovery activities, undertaking pre-clinical studies, manufacturing process development studies, conducting early-stage clinical trials, and providing general and administrative support for these operations. We have devoted substantially all of our financial resources and efforts to pursuing discovery, research and development of our product candidates. We only recently initiated clinical development of our lead product candidate, CT-0508, and are in the pre-clinical testing stages for our other product candidates.

Our net losses were $24.6 million and $11.3 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had $139.0 million in cash, cash equivalents and marketable securities and an accumulated deficit of $182.9 million. We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we conduct our ongoing clinical trial of CT-0508 and pursue related combination strategies, prepare for, initiate and conduct our planned clinical trials of CT-0525 and CT-1119 and advance our discovery programs and continues our product development efforts. In addition, if we obtain marketing approval for CT-0508 or any other product candidate we are developing or develop in the future, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company.

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On March 7, 2023 in connection with the closing of the Merger, we issued 29,880,394 shares of common stock to Legacy Carisma stockholders (including 5,059,338 shares issued to the holder of the convertible promissory note that was entered into concurrently with the Moderna License Agreement (as defined below) and 3,730,608 shares issued in exchange for shares sold in the pre-closing financing). Former Sesen Bio stockholders continued to hold 10,374,272 shares of our common stock, reflective of the 1-for-20 reverse stock split that was effected immediately prior to the closing of the Merger.

We will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital or obtain adequate funds when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our discovery and product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and distract from our discovery and product development efforts.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. 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 business, maintain discovery and product development efforts, diversify our pipeline of product candidates or even continue operations.

Moderna Collaboration and License Agreement

In collaboration with Moderna, we have established an approach that uses Moderna’s LNP/mRNA technology, together with our CAR-M platform technology, to create novel in vivo oncology gene therapies. We believe this approach has the potential to enable a series of off-the-shelf product candidates to target a patient’s own myeloid cells against cancer cells directly within their body.

In January 2022, Legacy Carisma and Moderna established this collaboration by entering into a Collaboration and License Agreement (Moderna License Agreement), which provides for a broad strategic collaboration with Moderna to discover, develop and commercialize in vivo engineered CAR-M therapeutics for up to 12 oncology programs. Under the Moderna License Agreement, the parties initiate research programs during a research term, focused on the discovery and research of products directed to biological targets. Either party may nominate a target for inclusion in a research program, subject to certain exclusions. We refer to a target included in a research program pursuant to designated procedures as a research target. Moderna may replace research targets pursuant to designated procedures. Moderna’s mRNA platform builds on continuous advances in basic and applied mRNA science, delivery technology and manufacturing, and has allowed the development of therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases and auto-immune diseases. The first four research targets have been nominated and all programs are currently in the discovery phase.

The collaboration is managed by a joint steering committee, or JSC, which is comprised of representatives from us and Moderna. Decisions of the JSC are made by consensus, with each party having one vote. If the JSC is unable to agree, and the parties’ executives are not able to resolve the dispute, then Moderna has final decision-making authority, subject to specified limitations.

Under the terms of the Moderna License Agreement, we received a $45.0 million up-front cash payment. Assuming Moderna develops and commercializes 12 products, each directed to a different development target, we are also eligible to receive up to between $247.0 million and $253.0 million per product in development target designation, development, regulatory and commercial milestone payments. In addition, we are eligible to receive mid to high single digit tiered royalties on net sales of any products that are commercialized under the agreement, which may be subject to reductions. Moderna has also agreed to cover the cost of certain milestone payments and royalties we owe to a licensor under one of our intellectual property in-license agreements that we are sublicensing to Moderna under the Moderna License Agreement, which royalties Moderna may deduct in part from any royalties owed to us.

Financial Operations Overview

Revenues

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future. Our revenues to date have been generated from the Moderna License Agreement. Moderna reimburses us for all costs incurred by it in connection with its research and development activities under the Moderna License Agreement plus a reasonable margin for the respective services performed. We expect that our revenue for at least the next several years will be derived primarily

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from Moderna License Agreement, other current collaboration agreements and any additional collaborations that we may enter into in the future. To date, we have not received any royalties under the Moderna License Agreement.

Research and Development Expense

Research and development expenses consist primarily of costs incurred for our research activities, including discovery efforts and the development of product candidates, and include:

·

expenses incurred to conduct the necessary pre-clinical studies and clinical trials required to obtain regulatory approval;

·

salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

·

costs of funding research performed by third parties, including pursuant to agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our pre-clinical studies and clinical trials;

·

expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing pre-clinical study and clinical trial materials;

·

costs of outside consultants, including their fees, stock-based compensation and related travel expenses;

·

the costs of laboratory supplies and acquiring materials for pre-clinical studies;

·

facility-related expenses, which include direct depreciation costs of equipment and expenses for rent and maintenance of facilities and other operating costs; and

·

third-party licensing fees.

Research and development activities are central to our business model. Product candidates in later stages of clinical development will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase significantly over the next several years as we increase personnel costs, including stock-based compensation, conduct ongoing and planned clinical trials for CT-0508, conduct research and development activities under the Moderna License Agreement and conduct other clinical and pre-clinical activities for other product candidates and prepare regulatory filings for any of our product candidates.

The successful development of our current or future product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of any product candidates. The success of CT-0508 and our other product candidates will depend on several factors, including the following:

·

successfully completing pre-clinical studies;

·

successfully initiating future clinical trials;

·

successfully enrolling patients in and completing clinical trials;

·

scaling up manufacturing processes and capabilities to support clinical trials of CT-0508 and any other product candidate;

·

applying for and receiving marketing approvals from applicable regulatory authorities;

·

obtaining and maintaining intellectual property protection and regulatory exclusivity for CT-0508 and any other product candidates it is developing or may develop in the future;

·

making arrangements with third-party manufacturers, or establishing commercial manufacturing capabilities, for both clinical and commercial supplies of our product candidates;

·

establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;

·

acceptance of CT-0508 and any other product candidates, if and when approved, by patients, the medical community and third-party payors;

·

effectively competing with other therapies;

·

obtaining and maintaining coverage, adequate pricing and adequate reimbursement from third-party payors, including government payors;

·

maintaining, enforcing, defending and protecting our rights in our intellectual property portfolio;

·

not infringing, misappropriating or otherwise violating others’ intellectual property or proprietary rights; and

·

maintaining a continued acceptable safety profile of our products following receipt of any marketing approvals.

A change in the outcome of any of these variables with respect to the development, manufacture or commercialization activities of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results

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of these trials or tests are not positive or are only modestly positive, if there are safety concerns or if we determine that the observed safety or efficacy profile would not be competitive in the marketplace, we could be required to expend significant additional financial resources and time on the completion of clinical development. Product commercialization will take several years, and we expect to spend a significant amount in development costs.

General and Administrative Expense

General and administrative expense consists primarily of personnel expenses, including salaries, benefits and stock-based compensation expense for employees in executive, finance, accounting, business development and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, and costs not otherwise included in research and development expense, legal fees related to intellectual property and corporate matters as well as fees for accounting and consulting services.

We expect that our general and administrative expense will increase in the future to support our continued research and development activities, potential commercialization efforts and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Increased costs associated with being a public company will also include expenses related to services associated with maintaining compliance with the requirements of the Nasdaq Stock Market and the Securities and Exchange Commission, or the SEC, insurance and investor relations costs. If any of our current or future product candidates obtains marketing approval, we expect that we would incur significantly increased expenses associated with sales and marketing efforts.

Interest Expense

Interest expense consisted of interest on our convertible promissory note that was entered into concurrently with the Moderna License Agreement including non-cash interest expense associated with the amortization of the debt discount. The convertible promissory note was converted into common stock upon the closing of the Merger.

Change in Fair Value of Derivative Liability

Change in fair value of the derivative liability for the redemption feature of our convertible promissory note reflected the non-cash charge for changes in the fair value of the derivative liability that was subject to re-measurement at each balance sheet date through the settlement of the convertible promissory note upon the closing of the Merger at which time the redemption feature was derecognized.

Income Taxes

For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017, or the TCJA, eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the U.S. and 15 years for research activities performed outside the U.S. pursuant to IRC Section 174. In addition, we are required to recognize tax revenue of $45.0 million in 2023, related to Moderna cash received in 2022, for tax purposes in advance of GAAP recognition. We also expect limitations on utilization of net operating losses and tax credits under TCJA and/or IRC Sections 382 and 383. These requirements temporarily increase our U.S. federal and state cash tax payments and reduces cash flows in 2023. Cash tax payments are expected to be funded from existing cash balances and cash flows from operations.

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Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

    

2023

    

2022

Collaboration revenues

$

3,243

$

822

Operating expenses:

 

  

 

  

Research and development

 

16,641

 

8,767

General and administrative

 

9,574

 

2,211

Total operating expenses

 

26,215

 

10,978

Operating loss

 

(22,972)

 

(10,156)

Change in fair value of derivative liability

 

(84)

 

(557)

Interest (expense) income, net

 

(1,477)

 

(599)

Pre-tax loss

(24,533)

(11,312)

Income tax expense

(109)

Net loss

$

(24,642)

$

(11,312)

Collaboration Revenues

Collaboration revenues were $3.2 million and $0.8 million for the three months ended March 31, 2023 and 2022, respectively. The increase was related to the research and development activities completed under the Moderna License Agreement that we executed in January 2022 with activities starting in second half of the quarter.

Research and Development Expenses

We track outsourced development, outsourced personnel costs and other external research and development costs of our CT-0508 program. We do not track internal research and development costs on a program-by-program basis. The following table summarizes our research and development expenses for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

    

2023

2022

CT-0508

 

$

1,832

$

2,327

CT-0525

 

1,675

 

Personnel costs, including stock-based compensation

 

4,954

 

3,020

Other clinical and pre-clinical development expenses

 

1,622

 

475

Facilities and other expenses

 

6,558

 

2,945

Total research and development expenses

$

16,641

$

8,767

Research and development expenses for the three months ended March 31, 2023 were $16.6 million, compared to $8.8 million for the three months ended March 31, 2022. The increase of $7.8 million was primarily due to an increase in our facilities and other expenses of $3.6 million resulting from increased lab space and lab supplies from expanded clinical and pre-clinical work, a $1.9 million increase in personnel costs due to growth in research and development employee headcount, a $1.7 million increase due to costs associated with growth and expansion of pre-clinical activities towards submission an IND for of CT-0525, and a $1.1 million increase of other clinical and pre-clinical development expenses associated with the Moderna License Agreement, partially offset by a $0.5 million decrease in direct costs associated with CT-0508.

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General and Administrative Expense

The following table summarizes our general and administrative expenses for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended

 March 31,

    

2023

2022

Personnel costs, including stock-based compensation

$

5,826

$

628

Legal and professional fees

 

2,904

 

1,340

Facilities and supplies

 

109

 

107

Other expenses

 

735

 

136

Total general and administrative expense

$

9,574

$

2,211

General and administrative expenses for the three months ended March 31, 2023 were $9.6 million, compared to $2.2 million for the three months ended March 31, 2022. The increase of $7.4 million was primarily attributable to $3.4 million of severance costs associated with the Merger, $1.8 million of higher personnel costs as a result of an increase in headcount, a $1.6 million increase in legal and professional fees in support of our patent portfolio and expanding infrastructure in preparation of operating as a public company as well as a $0.6 million increase in other expenses due to an increase in public relation expenditures.

Interest (Expense) Income, net

We recognized $1.5 million in interest (expense) income, net for the three months ended March 31, 2023, which was attributable primarily to the accelerated amortization of the debt discount as a result of the settlement of the convertible promissory note at the closing of the Merger, interest expense on the outstanding principal balance associated with the convertible promissory note issued to Moderna through March 7, 2023, offset by interest income of $0.4 million.

We recognized $0.6 million in interest (expense) income, net for the three months ended March 31, 2022, which was attributable primarily to interest expense on the outstanding principal balance associated with the convertible promissory note issued to Moderna, including non-cash interest expense associated with the amortization of the debt discount.

Change in Fair Value of Derivative Liability

We recognized a $0.1 million non-cash charge for the three months ended March 31, 2023, for the increase in fair value of the derivative liability associated with the redemption feature of the convertible promissory note with Moderna through settlement in connection with the Merger.

We recognized a $0.6 million non-cash charge for the three months ended March 31, 2022, for the increase in fair value of the derivative liability associated with the redemption feature of the convertible promissory note with Moderna, which was attributable to the timing in which we estimated the accrued settlement event to occur as of March 31, 2023.

Income Tax Expense

We recorded $0.1 million of income tax expense for the three months ended March 31, 2023 based on projected taxable income for the year ending December 31, 2023.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2023, we had $139.0 million in cash, cash equivalents and marketable securities and an accumulated deficit of $182.9 million. To date, we have not yet commercialized any products or generated any revenue from product sales and have financed operations primarily with proceeds from sales of preferred stock, proceeds from our collaboration with Moderna, research tax credits and convertible debt financing. Under the terms of the Moderna License Agreement, assuming Moderna develops and commercializes 12 products, each directed to a different development target, we are eligible to receive up to between $247.0 million and $253.0 million per product in development target designation, development, regulatory and commercial milestone payments. In addition, we are eligible to

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receive mid to high single digit tiered royalties on net sales of any products that are commercialized under the agreement, which may be subject to reductions.  In addition to the upfront $45.0 million payment received, the Moderna License Agreement includes variable consideration which we estimate to be $73.9 million over the life of the contract for expected research and development services to be performed, inclusive of passthrough costs, in the transaction price as of the outset of the arrangement to be billed quarterly. Through March 31, 2023, we have recognized $13.1 million of research and development services as collaboration revenues.

Cash Flows

The following table shows a summary of our cash flows for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended