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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM 10-Q
____________________________________________________________
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
o    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)
____________________________________________________________
Delaware26-2025616
(State or other jurisdiction
of incorporation or organization)
(IRS Employer
Identification No.)
3675 Market Street, Suite 200
Philadelphia, PA
19104
(Address of principal executive offices)(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 classTrading
Symbol(s)
Name of exchange
on which registered
Common Stock, $0.001 par value per shareCARMThe 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 x No o
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 x No o
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 fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyo
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 6, 2023, the registrant had 40,356,806 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 sub-study of our ongoing Phase 1 clinical trial utilizing CT-0508 in combination with pembrolizumab;
the timing and conduct of our pre-clinical 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;
our ability to replicate in later clinical trials positive results found in pre-clinical 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, CT-1119 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 health epidemics, pandemics or other contagious outbreaks (including any resurgence of the COVID-19 pandemic) 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 completion 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;
political and economic developments; and
such other matters as discussed on our Annual Report on Form 10-K for the year ended December 31, 2022, Exhibit 99.3 to our Current Report on Form 8/K dated March 7, 2023, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023, and this Quarterly Report, including Part II, Item 1A, “Risk Factors”.
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
i

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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.
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
iii

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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CARISMA THERAPEUTICS INC.
Unaudited Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$83,132 $24,194 
Marketable securities11,005 27,802 
Prepaid expenses and other assets3,428 2,596 
Total current assets97,565 54,592 
Property and equipment, net7,379 8,628 
Right of use assets – operating leases1,664 4,822 
Restricted cash30  
Deferred financing costs146 4,111 
Total assets$106,784 $72,153 
Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable$2,409 $1,728 
Accrued expenses7,026 10,361 
Deferred revenue1,185 2,459 
Operating lease liabilities856 3,437 
Finance lease liabilities532 1,162 
Other current liabilities943 523 
Total current liabilities12,951 19,670 
Deferred revenue45,000 45,000 
Convertible promissory note 33,717 
Derivative liability 5,739 
Operating lease liabilities891 976 
Finance lease liabilities468 872 
Other long-term liabilities1,176 1,041 
Total liabilities60,486 107,015 
Commitments and contingencies (Note 5)
Convertible preferred stock 107,808 
Stockholders’ equity (deficit):
Common stock $0.001 par value, 350,000,000 shares authorized, 40,304,436 and 2,217,737 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
40 2 
Additional paid-in capital270,029 1,197 
Accumulated other comprehensive income (loss)373 (41)
Accumulated deficit(224,144)(158,223)
Total Carisma Therapeutics Inc. stockholders’ equity (deficit)46,298 (157,065)
Noncontrolling interests 14,395 
Total stockholders’ equity (deficit)46,298 (142,670)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)$106,784 $72,153 
See accompanying notes to unaudited interim consolidated financial statements.
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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
September 30,
Nine Months Ended
September 30,
2023202220232022
Collaboration revenues$3,827 $2,578 $10,630 $6,103 
Operating expenses:
Research and development19,551 15,557 54,710 38,536 
General and administrative6,620 3,772 22,201 8,407 
Total operating expenses26,171 19,329 76,911 46,943 
Operating loss(22,344)(16,751)(66,281)(40,840)
Change in fair value of derivative liability (668)(84)(1,369)
Interest income (expense), net941 (908)641 (2,278)
Pre-tax loss(21,403)(18,327)(65,724)(44,487)
Income tax expense  (197) 
Net loss$(21,403)$(18,327)$(65,921)$(44,487)
Share information:
Net loss per share of common stock, basic and diluted$(0.53)$(8.37)$(2.11)$(21.14)
Weighted-average shares of common stock outstanding, basic and diluted40,285,8582,189,26531,209,9042,104,105
Comprehensive loss
Net loss$(21,403)$(18,327)$(65,921)$(44,487)
Unrealized gain (loss) on marketable securities108 37 414 (160)
Comprehensive loss$(21,295)$(18,290)$(65,507)$(44,647)

See accompanying notes to unaudited interim consolidated financial statements.
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CARISMA THERAPEUTICS INC.
Unaudited Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
Convertible preferred stockStockholders’ Equity (Deficit)
SharesAmountCommon stockAdditional
paid-in
capital
Accumulated
other
comprehensive
income (loss)
Accumulated
deficit
Noncontrolling
interests
Total
SharesAmount
Balance, December 31, 20228,700,885$107,808 2,217,737$2 $1,197 $(41)$(158,223)$14,395 $(142,670)
Stock-based compensation— — 265 — — — 265 
Unrealized gain on marketable securities— — — 177 — — 177 
Issuance of common stock for cash in pre-closing financing— 3,730,6084 30,636 — — — 30,640 
Issuance of common stock upon settlement of convertible promissory note, accrued interest, and related derivative liability— 5,059,3385 42,442 — — — 42,447 
Issuance of common stock to Sesen Bio shareholders in reverse capitalization— 10,374,27210 72,034 — — — 72,044 
Conversion of convertible preferred stock and non-controlling interests to common stock(8,700,885)(107,808)18,872,71119 122,185 — — (14,395)107,809 
Net loss— — — — — (24,642)— (24,642)
Balance at March 31, 2023$ 40,254,666$40 $268,759 $136 $(182,865)$ $86,070 
Exercise of stock options14,910 52 52
Stock-based compensation— — — 330 — — — 330 
Unrealized gain on marketable securities— — — — 129 — — 129 
Net loss— — — — — (19,876)— (19,876)
Balance, June 30, 2023$ 40,269,576$40 $269,141 $265 $(202,741)$ $66,705 
Exercise of stock options— — 34,860 — 40 — — — 40
Stock-based compensation— — — — 848 — — — 848
Unrealized gain on marketable securities— — — — — 108 — — 108
Net loss— — — — — — (21,403)— (21,403)
Balance, September 30, 2023$ 40,304,436$40 $270,029 $373 $(224,144)$ $46,298 
Balance, December 31, 20218,700,885$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 at March 31, 20228,700,885$107,808 2,061,644$2 $905 $(158)$(108,309)$14,395 $(93,165)
Stock-based compensation— — 58— — — 58 
Unrealized loss on marketable securities— — — (39)— — (39)
Net loss— — — — (14,848)— (14,848)
Balance, June 30, 20228,700,885107,8082,061,6442963(197)(123,157)14,395(107,994)
Exercise of stock options— — 128,364 — 88 — — — 88
Stock-based compensation— — — — 88 — — — 88
Unrealized gain of investments— — — — — 37 — — 37
Net loss— — — — — — (18,327)— (18,327)
Balance, September 30, 20228,700,885$107,808 2,190,008$2 $1,139 $(160)$(141,484)$14,395 $(126,108)
See accompanying notes to unaudited interim consolidated financial statements.
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CARISMA THERAPEUTICS INC.
Unaudited Consolidated Statement of Cash Flows (in thousands)
Nine Months Ended
September 30,
20232022
Cash flows from operating activities:
Net loss$(65,921)$(44,487)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization expense2,115 1,188 
Stock-based compensation expense1,443 235 
Reduction in the operating right of use assets4,066 2,895 
Amortization of debt discount1,283 1,995 
Change in fair value of derivative liability84 1,369 
Accretion on marketable securities(741) 
Non-cash interest expense117 176 
Changes in operating assets and liabilities:
Prepaid expenses and other assets484 (1,055)
Accounts payable372 1,794 
Accrued expenses(3,534)4,526 
Deferred revenue(1,274)46,230 
Operating lease liabilities(3,574)(2,882)
Net cash (used in) provided by operating activities(65,080)11,984 
Cash flows from investing activities:
Purchase of marketable securities(34,460)(84,028)
Proceeds from the sale of marketable securities97,000 42,000 
Purchases of property and equipment(571)(4,341)
Net cash provided by (used in) investing activities61,969 (46,369)
Cash flows from financing activities:
Cash, cash equivalents and restricted cash acquired in connection with the reverse recapitalization37,903  
Payment of reverse recapitalization finance costs(5,814) 
Proceeds from the issuance of common stock in pre-closing financing30,640  
Payment of principal related to finance lease liabilities(1,151)(766)
Proceeds from failed sale-leaseback arrangement1,183 505 
Payment of finance liability from failed sale-leaseback arrangement(628)(50)
Payment of deferred financing costs(146) 
Proceeds from issuance of convertible promissory note 35,000 
Proceeds from the exercise of stock options92 88 
Net cash provided by financing activities62,079 34,777 
Net increase in cash, cash equivalents and restricted cash58,968 392 
Cash, cash equivalents and restricted cash at beginning of the period24,194 28,551 
Cash, cash equivalents and restricted cash at end of the period$83,162 $28,943 
Supplemental disclosures of cash flow information:
Cash paid for interest$283 $50 
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 $ 
Unrealized gain (loss) on marketable securities$414 $(160)
Right-of-use assets obtained in exchange for new operating lease liabilities$908 $6,437 
Right-of-use assets obtained in exchange for new financing lease liabilities$ $2,471 
Allocation of debt proceeds to derivative liability$ $3,820 
Property and equipment in accounts payable$295 $90 
See accompanying notes to unaudited interim consolidated financial statements.
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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 allogeneic and 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, 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 United States Food and Drug Administration (FDA). CT-0508 is currently being studied in a multi-center open label Phase 1 clinical trial in the United States (U.S.). This ongoing first-in-human study evaluates the safety, tolerability and manufacturing feasibility of CT-0508 along with several customary exploratory secondary endpoints. 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. In addition to the first group of patients in this study, the Company initiated a second group to evaluate bolus dosing of patients and the Company presented data from five patients in the second group in the third quarter of 2023. Consistent with results from group 1 of the trial, CT-0508 has been generally well-tolerated after infusion with no dose-limiting toxicities to date, was successfully manufactured using macrophages obtained from heavily pre-treated, advanced solid tumor patients and has shown high CAR expression, viability, and purity. While the results from this early clinical trial data are both preliminary and limited, the Company believes the combined group 1 and group 2 results support the previously presented preliminary results from this trial indicating that CT-0508 can potentially be detected within the tumor microenvironment (TME) and induce anti-tumor adaptive immunity. The second group remains open for enrollment and up to four additional patients may be enrolled. 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 pre-clinical 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 presenting data from this sub-study in the first half of 2024.

The Company's second product candidate, CT-0525, which also is intended to treat solid tumors that overexpress HER2, is in pre-clinical development and utilizes a novel approach to CAR-M therapy that engineers 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. This process enables a single day manufacturing process, enables the ability to manufacture up to ten billion cells from a single apheresis, and leverages an automated, closed-system manufacturing process. In addition, CAR-Mono has the potential to improve upon the potential anti-tumor effect of a CAR-Macrophage. By increasing the cell yield, the CAR-Mono approach enables a larger dose than a CAR-Macrophage. In addition, CT-0525 has the potential for improved persistence and trafficking, all observed pre-clinically. The increased cell yield and the improved persistence and trafficking may improve tumor control. The Company recently submitted an Investigational New Drug Application (IND) to the FDA for CT-0525. Subject to regulatory feedback, the Company expects to treat the 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
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
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). In the fourth quarter of 2023, the Company presented pre-clinical data from this collaboration demonstrating that CAR-M can be directly produced in vivo, successfully redirecting endogenous myeloid cells against tumor-associated antigens using mRNA/LNP. Additionally, the data demonstrated feasibility, tolerability and early efficacy of in vivo CAR-M against metastatic solid tumors.

The Company is also expanding its pipeline to include additional tumor targets, encompassing diverse solid tumor indications with significant unmet medical needs. CT-1119 is a mesothelin-targeted CAR-Mono that the Company plans to evaluate in patients with advanced mesothelin-positive solid tumors, including lung cancer, mesothelioma, pancreatic cancer, ovarian cancer, and others. The Company has selected a clinical candidate for CT-1119, which will incorporate two key enhancements: a next-generation CAR that, as demonstrated in pre-clinical studies, leads to a significant increase in tumor killing and cytokine release, and the incorporation of SIRPa knockdown to overcome the CD47 immune checkpoint. SIRPalpha knockdown is achieved using the Company’s proprietary intronic shRNA platform which enables CAR delivery and gene knockdown using a single vector. The Company is targeting an IND of CT-1119 in 2025.
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 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 4, 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 $224.1 million as of September 30, 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 $94.1 million as of September 30, 2023 are sufficient to sustain planned operations into the first quarter of 2025.
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
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
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 is 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 unaudited 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 September 30, 2023 and its results of operations for the three and nine months ended September 30, 2023 and 2022. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The unaudited interim consolidated financial statements, presented herein, 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
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
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.
The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:
(in thousands)Fair value measurement at reporting date using
(Level 1)(Level 2) (Level 3)
September 30, 2023
Assets:
Cash equivalents – money markets accounts$68,575 $ $ 
Marketable securities – U.S. Treasuries$11,005 $ $ 
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 September 30, 2023:
Amortized
cost
Gross
unrealized
gain
Fair value
Available-for-sale marketable securities
U.S. Treasury securities$10,632 $373 $11,005 
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):
(in thousands)Nine Months Ended September 30,
20232022
Balance at the beginning of the period$5,739 $ 
Balance at issuance 3,820 
Change in fair value84 1,369 
Derecognition upon conversion of convertible promissory note(5,823) 
Balance at the end of the period$ $5,189 
During the nine months ended September 30, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3.
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
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 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:
September 30,
20232022
Convertible preferred stock and exchangeable shares9,936,148
Stock options6,515,3453,426,929
Conversion of convertible promissory note3,206,707
6,515,34516,569,784
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.
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
The following table shows the net assets acquired in the Merger (in thousands):
March 7, 2023
Cash and cash equivalents$37,873 
Marketable securities44,588
Prepaid expenses and other assets1,316
Restricted cash30
Accounts payable and accrued expenses(3,499)
Total net assets acquired80,308
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.

(5)    Accrued Expenses
Accrued expenses consisted of the following (in thousands):
September 30,December 31,
20232022
Research and development$3,555 $4,326 
Professional fees1,186 2,100 
Compensation and related expenses1,792 2,809 
Taxes197  
Other296  
Interest 1,126 
$7,026 $10,361 
(6)    Commitments and Contingencies
Leases
The Company has operating leases for its laboratory 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 laboratory 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 laboratory 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 September 30, 2023, the Company had a $2.1 million financing liability recorded in other current liabilities and other long-term liabilities on the unaudited consolidated balance sheets.
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
The elements of the lease costs were as follows (in thousands):
Nine Months Ended September 30,
20232022
Operating lease cost$4,322 $3,331 
Finance lease cost:
Amortization of lease assets890 264 
Interest on lease liabilities117 50 
Total finance lease cost1,007 314 
Total lease cost$5,329 $3,645 
Lease term and discount rate information related to leases was as follows:
September 30,
20232022
Weighted-average remaining lease term (in years)
Operating leases3.62.0
Finance leases1.82.4
Weighted-average discount rate
Operating leases10.0 %9.3 %
Finance leases9.0 %9.0 %
Supplemental cash flow information was as follows (in thousands):
Nine Months Ended
September 30,
20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used in operating leases$4,028 $3,319 
Operating cash used in finance leases$117 $50 
Financing cash used in finance leases$1,151 $766 
Future maturities of lease liabilities were as follows as of September 30, 2023 (in thousands):
Operating
Leases
Finance
Leases
Fiscal year ending:
2023 (remaining three months)$622 $150 
2024403 600 
2025219 338 
2026226 — 
2027233 — 
Thereafter423 — 
Total future minimum payments2,126 1,088 
Less imputed interest(379)(88)
Present value of lease liabilities$1,747 $1,000 
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
Licensing and Sponsored Research Agreements
Under a license agreement with The Trustees of the University of Pennsylvania (Penn), entered into in November 2017 (Penn License Agreement), 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 paying to manufacture the product, the Company will also 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 estimable and probable of being incurred as of September 30, 2023, resulting in $0.2 million of claim expenses incurred during the nine months ended September 30, 2023.
(7)    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 nine months ended September 30, 2023: (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.
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
On June 6, 2023, the Company's stockholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock, $0.001 par value, from 100,000,000 shares to 350,000,000 shares.
(8)    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. On June 6, 2023, the Company’s stockholders approved an amendment and restatement of the Company’s 2014 Plan, which amendment and restatement had previously been adopted by the Company’s board of directors, subject to stockholder approval. As of September 30, 2023, approximately 4.5 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 and (ii) restate and integrate all prior amendments thereto. As of September 30, 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 table summarizes stock option activity for the nine months ended September 30, 2023:
OptionsWeighted
average
exercise
price
Weighted
average
remaining
contractual
term (years)
Aggregate
Intrinsic
Value (in
thousands)
Outstanding as of December 31, 20223,356,937$1.01 
Sesen Bio options assumed in the Merger765,22327.94 
Exercised(49,770)1.72 $190 
Granted2,805,1527.14 
Forfeited (87,275)4.70 
Expired(274,922)23.52 
Outstanding as of September 30, 20236,515,345$6.28 7.30$10,191 
Exercisable as of September 30, 20233,038,911$6.71 5.06$8,068 
Vested and expected to vest at September 30, 20236,515,345$6.28 7.30$10,191 
The weighted-average grant-date per share fair values of options granted during the nine months ended September 30, 2023 and 2022 were $4.42 and $1.46, respectively. The fair values in the nine months ended September 30, 2023 and 2022 were estimated using the Black-Scholes option-pricing model based on the following assumptions:
Nine Months Ended September 30,
20232022
Risk-free interest rate
2.92% - 4.03%
2.40% - 3.05%
Expected term6 years6 years
Expected volatility
57.77% - 65.00%
54.54% - 56.50%
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 September 30,Nine Months Ended September 30,
2023202220232022
Research and development$418 $45 $452 $122 
General and administrative430 43 991 113 
$848 $88 $1,443 $235 
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 September 30, 2023 was $11.7 million and will be expensed over a weighted-average period of 3.8 years.
(9)    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
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
to Section 174 of the Internal Revenue Code (the Code). 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 entered into with Moderna in 2022 (the Moderna License Agreement), for tax purposes in advance of GAAP recognition. The Company may have limitations on utilization of net operating losses and tax credits under TCJA and/or Sections 382 and 383 of the Code. These requirements would temporarily increase the Company’s U.S. federal and state cash tax payments and reduce cash flows in 2023.
(10)    Related-Party Transactions
The Company has outstanding licensing and scientific research agreements with Penn, a significant shareholder (Note 5). The Company recognized $0.3 million and $1.0 million of research and development expenses for the three months ended September 30, 2023 and 2022, respectively, related to the Penn License Agreement. The Company recognized $0.6 million and $1.4 million of research and development expenses for the nine months ended September 30, 2023 and 2022, respectively, related to the Penn License Agreement.
The Company has a collaboration and license agreement with Moderna, a significant shareholder (Note 10).
(11)    Moderna Collaboration and License Agreement
In January 2022, the Company entered into the 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 2 performance obligations comprised of (i) research and development services and (ii) option rights.
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
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 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 up-front and nonrefundable 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 September 30, 2023 and 2022, the Company recognized $3.8 million and $2.6 million, respectively, of research and development services as collaboration revenues as the Company is the principal in providing such services. During the nine months ended September 30, 2023 and 2022, the Company recognized $10.6 million and $6.1 million, respectively, of research and development services as collaboration revenues. The Company recognized $20.4 million of collaboration revenues since inception of the Moderna License Agreement through September 30, 2023. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied as of September 30, 2023 (in thousands):
Transaction
price unsatisfied
Performance obligations:
Research and development$52,333 
Option rights45,000 
Total performance obligations$97,333 
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 sheets. 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 sheets.
The following table summarizes the changes in deferred revenue (in thousands):
Nine Months Ended September 30,
20232022
Balance at the beginning of the period $47,459 $ 
Deferral of revenue9,356 52,333 
Recognition of unearned revenue(10,630)(6,103)
Balance at the end of the period$46,185 $46,230 
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.
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CARISMA THERAPEUTICS INC.
Notes to the Interim Consolidated Financial Statements
(12)    Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through November 9, 2023, the issuance date of these unaudited interim consolidated financial statements, and has not identified any requiring disclosure except as noted below.
In October 2023, the Company exercised its renewal option to extend the term of two operating leases through May 2024 which represents an additional commitment of $2.2 million.
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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 clinical phase and the potential for multiple clinical and pre-clinical 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 recognize specific tumor-associated antigens on the surface of tumor cells and 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 endpoints. 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. In addition to the first group of patients in this study, we initiated a second group to evaluate bolus dosing of patients and we presented data from five patients in the second group in the third quarter 2023. Consistent with results from group 1 of the trial, CT-0508 has been generally well-tolerated after infusion with no dose-limiting toxicities to date, was successfully manufactured using macrophages obtained from heavily pre-treated, advanced solid tumor patients and has shown high CAR expression, viability, and purity. While the results from this early clinical trial data are both preliminary and limited, we believe the combined group 1 and group 2 results support the previously presented preliminary results from this trial indicating that CT-0508 can potentially be detected within the tumor microenvironment, or TME, and induce anti-tumor adaptive immunity. The second group remains open for enrollment and up to four additional patients may be enrolled. 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 pre-clinical 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 presenting data from this sub-study in the first half of 2024.

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Our second product candidate, CT-0525, which also is intended to treat solid tumors that overexpress HER2, is in pre-clinical development and utilizes a novel approach to CAR-M therapy that engineers 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. This process enables a single day manufacturing process, enables the ability to manufacture up to ten billion cells from a single apheresis, and leverages an automated, closed-system manufacturing process. In addition, CAR-Mono has the potential to improve upon the potential anti-tumor effect of a CAR-Macrophage. By increasing the cell yield, the CAR-Mono approach enables a larger dose than a CAR-Macrophage. In addition, CT-0525 has the potential for improved persistence and trafficking, all observed pre-clinically. The increased cell yield and the improved persistence and trafficking may improve tumor control. We recently submitted an Investigational New Drug Application, or IND, to the FDA for CT-0525. We have begun clinical readiness activities and, subject to regulatory feedback, we expect to 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 five 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 Moderna License Agreement, as further discussed below, 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. In the fourth quarter of 2023, we presented pre-clinical data from this collaboration demonstrating that CAR-M can be directly produced in vivo, successfully redirecting endogenous myeloid cells against tumor-associated antigens using mRNA/LNP. Additionally, the data demonstrated feasibility, tolerability and early efficacy of in vivo CAR-M against metastatic solid tumors.

We are also expanding our pipeline to include additional tumor targets, encompassing diverse solid tumor indications with significant unmet medical needs. CT-1119 is a mesothelin-targeted CAR Mono that we plan to evaluate in patients with advanced mesothelin-positive solid tumors, including lung cancer, mesothelioma, pancreatic cancer, ovarian cancer, and others. We have selected a clinical candidate for CT-1119, which will incorporate two key enhancements: a next-generation CAR that, as demonstrated in pre-clinical studies, leads to a significant increase in tumor killing and cytokine release, and the incorporation of SIRPa knockdown to overcome the CD47 immune checkpoint. SIRPalpha knockdown is achieved using our proprietary intronic shRNA platform which enables CAR delivery and gene knockdown using a single vector. We are targeting an IND of CT-1119 in 2025.

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. Pre-clinical proof of concept for Carisma's engineered platform in liver fibrosis is expected in first half of 2024.
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 began to manufacture CT-0508.
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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 $65.9 million and $44.5 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had $94.1 million in cash, cash equivalents and marketable securities and an accumulated deficit of $224.1 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.
As of September 30, 2023, we have 40,304,436 shares of common stock issued and outstanding. 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
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development of therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases and auto-immune diseases. The first five 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.
During the research term of the Moderna License Agreement, we granted Moderna an exclusive worldwide royalty free license to our 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, we will grant Moderna an exclusive worldwide, sublicensable royalty bearing license to develop, manufacture and commercialize the product candidate.
Under the terms of the Moderna License Agreement, we received a $45.0 million up-front and nonrefundable 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. 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, 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 repay the cost of certain development, regulatory and commercial milestone payments and certain royalty payments we owe to the University of Pennsylvania as 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. 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.
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 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 Expenses
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;
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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 CT-0525 and 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, CT-0525 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, CT-0525 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, CT-0525 and any other product candidates the Company 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, CT-0525 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 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 Expenses
General and administrative expenses consist 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
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and maintenance, and costs not otherwise included in research and development expenses, 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 expenses 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 Section 174 of the Code. In addition, we are required to recognize tax revenue of $45.0 million in 2023, related to cash received under the Moderna License Agreement in 2022, for tax purposes in advance of GAAP recognition. We may have limitations on utilization of net operating losses and tax credits under TCJA and/or Sections 382 and 383 of the Code. These requirements would 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.
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
Three Months Ended
September 30,
20232022
Collaboration revenues$3,827 $2,578 
Operating expenses:
Research and development19,551 15,557 
General and administrative6,620 3,772 
Total operating expenses26,171 19,329 
Operating loss(22,344)(16,751)
Change in fair value of derivative liability— (668)
Interest income (expense), net941 (908)
Pre-tax loss(21,403)(18,327)
Income tax expense— — 
Net loss$(21,403)$(18,327)
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Collaboration Revenues
Collaboration revenues were $3.8 million and $2.6 million for the three months ended September 30, 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.
Research and Development Expenses
We track outsourced development, outsourced personnel costs and other external research and development costs of our CT-0508, CT-0525, and CT-1119 programs. 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 September 30, 2023 and 2022 (in thousands):
Three Months Ended
September 30,
20232022
CT-0508$3,094 $3,308 
CT-05252,894— 
CT-1119285— 
Personnel costs, including stock-based compensation5,2264,064
Other clinical and pre-clinical development expenses1,4231,528
Facilities and other expenses6,6296,657
Total research and development expenses$19,551 $15,557 
Research and development expenses for the three months ended September 30, 2023 were $19.6 million, compared to $15.6 million for the three months ended September 30, 2022. The increase of $4.0 million was primarily due to an increase of $2.9 million increase in direct costs associated with the pre-clinical development of CT-0525, a $1.2 million increase in personnel costs due to growth in research and development employee headcount, and a $0.3 million increase in direct costs associated with the pre-clinical development related to CT-1119, partially offset by a $0.2 million decrease in direct costs associated with CT-0508 and a $0.1 million decrease of other clinical and pre-clinical development expenses associated with tracking CT-0525 and CT-1119 separately.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended
September 30,
20232022
Personnel costs, including stock-based compensation$2,255 $819 
Legal and professional fees3,172 2,618 
Facilities and supplies574 127 
Other expenses619 208 
Total general and administrative expenses$6,620 $3,772 
General and administrative expenses for the three months ended September 30, 2023 were $6.6 million, compared to $3.8 million for the three months ended September 30, 2022. The increase of $2.8 million was attributable to a $1.4 million increase of higher personnel costs as a result of an increase in headcount, a $0.4 million increase in facilities and supplies due to an increase in office expenditures, a $0.6 million increase in legal and professional fees in support of our patent portfolio and expanding infrastructure, as well as a $0.4 million increase in other expenses due to an increase in travel expenses and subscriptions.
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Interest Income (Expense), net
We recognized $0.9 million in interest income (expense), net for the three months ended September 30, 2023, which was attributable primarily to interest income on our cash and cash equivalents and marketable securities.
We recognized $(0.9) million in interest income (expense), net for the three months ended September 30, 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 $0.7 million non-cash charge for the three months ended September 30, 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 expected the accrued settlement event to occur. We had no such change in fair value of the derivative liability for the three months ended September 30, 2023 because the promissory note was converted in March 2023 in connection with the Merger.

Comparison of the Nine Months Ended September 30, 2023 and 2022
Nine Months Ended
September 30,
20232022
Collaboration revenues$10,630 $6,103 
Operating expenses:
Research and development54,710 38,536 
General and administrative22,201 8,407 
Total operating expenses76,911 46,943 
Operating loss(66,281)(40,840)
Change in fair value of derivative liability(84)(1,369)
Interest income (expense), net641 (2,278)
Pre-tax loss(65,724)(44,487)
Income tax expense(197)— 
Net loss$(65,921)$(44,487)
Collaboration Revenues
Collaboration revenues were $10.6 million and $6.1 million for the nine months ended September 30, 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.
Research and Development Expenses
We track outsourced development, outsourced personnel costs and other external research and development costs of our CT-0508, CT-0525, and CT-1119 programs. We do not track internal research and development costs on a program-by-
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program basis. The following table summarizes our research and development expenses for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine Months Ended
September 30,
20232022
CT-0508$8,680 $8,044 
CT-05256,108 — 
CT-1119763 — 
Personnel costs, including stock-based compensation15,241 11,178 
Other clinical and pre-clinical development expenses4,403 3,541 
Facilities and other expenses19,515 15,773 
Total research and development expenses$54,710 $38,536 
Research and development expenses for the nine months ended September 30, 2023 were $54.7 million, compared to $38.5 million for the nine months ended September 30, 2022. The increase of $16.2 million was primarily due to a $6.1 million increase in direct costs associated with pre-clinical development of CT-0525, a $4.1 million increase in personnel costs due to growth in research and development employee headcount, a $3.7 million increase in our facilities and other expenses resulting from increased laboratory space and laboratory supplies from expanded clinical and pre-clinical work, a $0.9 million increase due to costs associated with growth and expansion of pre-clinical activities towards submission of an IND for of CT-0525, a $0.8 million increase in direct costs associated with the pre-clinical development related to CT-1119, and a $0.6 million increase in direct costs associated with CT-0508.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine Months Ended
September 30,
20232022
Personnel costs, including stock-based compensation$10,178 $2,080 
Legal and professional fees9,218 5,209 
Facilities and supplies847 471 
Other expenses1,958 647 
Total general and administrative expenses$22,201 $8,407 
General and administrative expenses for the nine months ended September 30, 2023 were $22.2 million, compared to $8.4 million for the nine months ended September 30, 2022. The increase of $13.8 million was attributable to $3.4 million of severance costs associated with the Merger, a $4.7 million of higher personnel costs as a result of an increase in headcount, a $4.0 million increase in legal and professional fees in support of our patent portfolio and expanding infrastructure, a $1.3 million increase in other expenses due to an increase in public relation and travel expenditures, and a $0.4 million increase in facilities and supplies due to an increase in office expenditures.
Interest Income (Expense), net
We recognized $0.6 million in interest income (expense), net for the nine months ended September 30, 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 $2.7 million.
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We recognized $(2.3) million in interest income (expense), net for the nine months ended September 30, 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 nine months ended September 30, 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 $1.4 million non-cash charge for the nine months ended September 30, 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 expected the accrued settlement event to occur.
Income Tax Expense
We recorded $0.2 million of income tax expense for the nine months ended September 30, 2023 based on projected taxable income for the year ending December 31, 2023. We had no such income tax expense for the nine months ended September 30, 2022.
Liquidity and Capital Resources
Sources of Liquidity

As of September 30, 2023, we had $94.1 million in cash, cash equivalents and marketable securities and an accumulated deficit of $224.1 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 Moderna License Agreement we anticipate receiving $73.9 million over the life of the contract for expected research and development services to be performed by Carisma, inclusive of passthrough costs, to be billed quarterly. Through September 30, 2023, we have generated $20.4 million of collaboration revenues related to research and development services. 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.

On April 17, 2023, we filed a universal shelf registration statement on Form S-3, which was declared effective on May 2, 2023, or the Registration Statement. Under the Registration Statement, we may offer and sell up to $300.0 million of a variety of securities, including debt securities, common stock, preferred stock, depositary shares, subscription rights, warrants and units from time to time in one or more offerings at prices and on terms to be determined at the time of the offering. On May 12, 2023, we entered into an Amended and Restated Open Market Sale AgreementSM, or the Sale Agreement, with Jefferies LLC, as sales agent, pursuant to which we may offer and sell shares of our common stock with
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an aggregate offering price of up to $100.0 million under an “at-the-market" offering program. To date, we have not sold any securities pursuant to the Sale Agreement.
Cash Flows
The following table shows a summary of our cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine Months Ended
September 30,
20232022
Cash (used in) provided by
Operating activities$(65,080)$11,984 
Investing activities61,969 (46,369)
Financing activities62,079 34,777 
Net change in cash, cash equivalents and restricted cash$58,968 $392 
Cash Flows from Operating Activities
During the nine months ended September 30, 2023, we used $65.1 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $65.9 million that was offset by $8.4 million of non-cash charges related to depreciation and amortization expense, stock-based compensation, reductions in the operating right of use, or ROU assets, amortization of the debt discount on the convertible promissory note, change in fair value of the derivative liability, accretion on marketable securities, and non-cash interest on the finance lease liability and a $7.5 million net change in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.
During the nine months ended September 30, 2022, we provided $12.0 million of net cash in operating activities. Cash provided by our operating activities reflected our net loss of $44.5 million that was offset by $7.9 million of non-cash charges related to depreciation and amortization expense, stock-based compensation, reductions in the operating ROU assets, amortization of the debt discount on the convertible promissory note, change in fair value of the derivative liability, non-cash interest on the finance liability from the failed sale-leaseback and the accretion on marketable securities, and a $48.6 million net change in our operating assets and liabilities which was primarily attributable to the $45.0 million upfront nonrefundable payment received from Moderna pursuant to the Moderna License Agreement.
Cash Flows from Investing Activities
During the nine months ended September 30, 2023, we received $62.0 million of net cash from investing activities. Cash provided by investing activities reflected $97.0 million of proceeds from the sale of marketable securities, partially offset by purchases of marketable securities of $34.5 million and the purchase of property and equipment of $0.6 million.
During the nine months ended September 30, 2022, we used $46.4 million of net cash in investing activities. Cash used in investing activities reflected purchases of marketable securities of $84.0 million and $4.3 million of purchases of property and equipment, partially offset by $42.0 million of proceeds from the sale of marketable securities.
Cash Flows from Financing Activities
During the nine months ended September 30, 2023, we received $62.1 million of net cash from financing activities, primarily attributable to the $37.9 million in the cash and cash equivalents acquired in connection with the Merger and $30.6 million in proceeds from the issuance of common stock in pre-closing financing, partially offset by $5.8 million in payments of financing costs.
During the nine months ended September 30, 2022, we received $34.8 million of net cash from financing activities primarily attributable to the $35.0 million in proceeds from convertible promissory note, partially offset by $0.8 million in payments made on financing leases.
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Funding Requirements
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 continue our product development efforts. As of September 30, 2023, we had cash, cash equivalents and marketable securities of $94.1 million. We believe that we have cash, cash equivalents and marketable securities sufficient to sustain our operating expenses and capital expenditure requirements into the first quarter of 2025.
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our pre-clinical activities and clinical trials. 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. In addition, we expect to incur additional costs associated with operating as a public company. Accordingly, 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 on our own. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and distract us from discovery and product development efforts.
Our future capital requirements will depend on many factors, including:
the progress, costs and results of our ongoing clinical trial of CT-0508 and other planned and future clinical trials;
the scope, progress, costs and results of pre-clinical testing and clinical trials of CT-0508 for additional combinations, targets and indications;
the number of and development requirements for additional indications for CT-0508 or for any other product candidates;
the success of our collaborations with Moderna or others;
our ability to scale up our manufacturing processes and capabilities to support clinical trials of CT-0508 and other product candidates we are developing and develop in the future;
the costs, timing and outcome of regulatory review of CT-0508, CT-0525 and other product candidates we are developing and may develop in the future;
potential changes in the regulatory environment and enforcement rules;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;
the payment of license fees and other costs of our technology license arrangements;
the progress, costs and results of our ongoing pre-clinical studies of CT-0525, CT-1119 and other planned and future pre-clinical studies;
the costs and timing of future commercialization activities, including product manufacturing, sales, marketing and distribution, for CT-0508, CT-0525 and other product candidates we are developing and may develop in the future for which we may receive marketing approval;
our ability to obtain and maintain acceptance of any approved products by patients, the medical community and third-party payors;
the amount and timing of revenue, if any, received from commercial sales of CT-0508 and any other product candidates we are developing or develop in the future for which we receive marketing approval;
potential changes in pharmaceutical pricing and reimbursement infrastructure;
the availability of raw materials for use in production of our product candidates;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims; and
the extent to which we in-license or acquire additional technologies or product candidates.
Identifying potential product candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. We will not generate commercial revenues unless and until we can achieve sales of products, which we do not anticipate for a number of years, if at all. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all, and may be impacted by the economic climate and market conditions. For example, market volatility resulting
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from general U.S. or global economic or market conditions, including related to any health epidemics, pandemics or other contagious outbreaks (including any resurgence of the COVID-19 pandemic), could also adversely impact our ability to access capital as and when needed.
Alternatively, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.
Until such time, if ever, we can generate substantial revenues from product sales, we expect to finance our cash needs through a combination of public and private equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect your rights as a holder of our common stock. Debt financing and preferred equity financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our operations and ability to take specific actions, such as incurring additional debt, making acquisitions, engaging in acquisition, Merger or collaboration transactions, selling or licensing our assets, making capital expenditures, redeeming our stock, making certain investments, declaring dividends or other operating restrictions that could adversely impact our ability to conduct business.
If we raise funds through additional collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, discovery programs or product candidates, grant licenses on terms that may not be favorable to us or grant rights to develop and market product candidates that we would otherwise prefer to develop and market on our own, any of which may have a material adverse effect on our business, operating results and prospects. 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 on our own.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments at September 30, 2023 (in thousands):
TotalLess
than
1 Year
1 to 3
Years
4 to 5
Years
More
than
5 Years
Contractual obligations:     
Operating lease commitments(1)
$2,126 $970 $442 $469 $245 
Finance lease commitments1,088 600 488 — — 
Manufacturing commitments(2)
4,250 1,000 3,000 250 — 
Total contractual obligations$7,464 $2,570 $3,930 $719 $245 
(1)Reflects obligations pursuant to our office and laboratory leases in Philadelphia, Pennsylvania.
(2)Reflects obligations pursuant to a manufacturing and supply agreement pursuant to which we will pay $1.0 million per calendar year, payable in quarterly payments, for reserved capacity starting on the date on which the manufacturing site is declared ready to produce CT-0508 as determined by us.
The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Our contracts with CMOs, CROs and other third parties for the manufacture of our product candidates and to support pre-clinical research studies and clinical testing are generally cancelable by us upon prior notice and do not contain any minimum purchase commitments. Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation are not included in the table above as the amount and timing of such payments are not known.
The table above does not include any potential milestone or royalty payments that we may be required to make under our license agreement with Penn (as defined below) and under licensing agreements with other third parties not considered
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material. We excluded these milestone and royalty payments given that the timing and likelihood of any such payments cannot be reasonably estimated at this time.
University of Pennsylvania License
In November 2017, we entered into a license agreement with The Trustees of the University of Pennsylvania (Penn) for certain intellectual property licenses, which was amended in February 2018, January 2019, March 2020 and June 2021. We are responsible for paying Penn an annual license maintenance fee in the low tens of thousands of dollars, payable until our first payment of a royalty. We may be required to pay Penn up to $10.9 million per product in development and regulatory milestone payments, up to $30.0 million per product in commercial milestone payments, and up to an additional $1.7 million in development and regulatory milestone payments for the first CAR-M product directed to mesothelin. While the agreement remains in effect, we are required to pay Penn low- to mid-single digit percentage tiered royalties on annual net sales of licensed products, which may be subject to reductions. Penn is guaranteed a minimum royalty payment amount in the low hundreds of thousands of dollars for each year after the first commercial sale of a licensed product. We must also pay Penn a percentage in the mid-single digits to low double digits of certain types of income we receive from sublicensees. In addition, we are required to pay Penn an annual alliance management fee in the low tens of thousands of dollars, ending after several years, unless we provide funding to Penn for research and development activities that extend beyond a specified date, in which case we will continue to owe the alliance management fee for each year in which we continue to fund such activities. We also paid Penn an upfront fee in the low hundreds of thousands of dollars for the license to the patents related to the mesothelin binder that is incorporated into the CAR design for our mesothelin product candidate. We are responsible for a pro rata share of costs relating to the prosecution and maintenance of the licensed patents.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited interim consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our unaudited interim consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our unaudited interim consolidated financial statements. We base our estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
During the three and nine months ended September 30, 2023, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which was filed as Exhibit 99.5 to our Current Report on Form 8-K/A filed with the SEC on April 4, 2023.
Recent Accounting Pronouncements
See Note 3 to our unaudited interim consolidated financial statements found in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. Our interest-earning assets consist of cash, cash equivalents and marketable securities. Interest income earned on these assets was $2.7 million and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively. Our interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three months ended September 30, 2023 and 2022.
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Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and our principal financial officer have evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2023. The term “disclosure controls and procedures,” as defined in the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting
No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. As of the date of this Quarterly Report on Form 10-Q, we were not a party to any material legal matters or claims.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors set forth below, as well as the other information in this Quarterly Report on Form 10-Q, including our financial statements and the related notes and the section of this Quarterly Report on Form 10-Q titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to purchase our securities. The risks and uncertainties we describe below and in the documents mentioned above are not the only ones we face. Additional risks and uncertainties not presently known to us could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our securities, and the occurrence of any of these risks might cause you to lose all or part of your investment.
Summary of Risk Factors
We have incurred significant losses since our inception. We expect to continue to incur significant expenses and operating losses for the foreseeable future and may never achieve or maintain profitability.
We have never generated revenue from product sales and may never achieve or maintain profitability.
We are heavily dependent on the success of our lead product candidate, CT-0508, and our follow on HER2 product candidate, CT-0525, which will both require significant clinical testing before we can seek marketing approval and potentially generate commercial sales. If CT-0508 or CT-0525 do not receive marketing approval or are not successfully commercialized, or if there is significant delay in doing so, our business will be harmed.
We will need substantial additional funding for our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our discovery or product development programs or commercialization efforts.
Cell therapy is a rapidly evolving area of science, and the approach we are taking to discover and develop product candidates by utilizing genetically modified macrophages is novel and may never lead to approved or marketable products.
Even if any of our product candidates receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, and the market opportunity for any of our product candidates, if approved, may be smaller than we estimate.
We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, which may prevent or delay our ability to seek or obtain marketing approval for or commercialize our product candidates or otherwise harm our business. If we are not able to maintain these third-party relationships or if these arrangements are terminated, we may have to alter our development and commercialization plans and our business could be adversely affected.
If we are unable to obtain, maintain and enforce patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected and we may not be able to compete effectively in our market.
The regulatory approval process of the FDA is lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain marketing approval for our product candidates, our business will be substantially harmed.
The market price of our common stock may be volatile, and the market price of our common stock may drop in the future.
We incur and will continue to incur additional costs and increased demands upon management as a result of complying with the laws and regulations affecting public companies.
If at some point we are no longer a “smaller reporting company” or otherwise no longer qualify for applicable exemptions, we will be subject to additional laws and regulations affecting public companies that will increase our costs and the demands on management and could harm our operating results.
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Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception. We expect to continue to incur significant expenses and operating losses for the foreseeable future and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net losses were $21.4 million and $18.3 million for the three months ended September 30, 2023 and 2022, respectively. 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 and convertible debt financing. We have devoted substantially all of our financial resources and efforts to pursuing discovery, research and development of our product candidates. We are still in the early stages of development of our lead product candidate, CT-0508, and initiated our first clinical trial in 2021.
We expect to continue to incur significant expenses and operating losses for the foreseeable future, including costs associated with operating as a public company. We anticipate that our expenses will increase substantially if and as we:
enhance the capabilities of our CAR-M platform;
conduct our ongoing Phase 1 clinical trial of CT-0508;
conduct our sub-study of our ongoing Phase 1 clinical trial utilizing CT-0508 in combination with pembrolizumab;
develop other CT-0508 combination studies;
advance CT-0508 for additional indications or any other product candidate into clinical development;
prepare for, initiate and conduct a planned clinical trial of CT-0525 for solid tumors that overexpress HER2;
prepare for, initiate and conduct a planned clinical trial of CT-1119 for advanced mesothelin-positive solid tumors;
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;
conduct discovery and pre-clinical testing of our autologous cell therapy pipeline to gather information to apply to the development of off-the-shelf engineered macrophage therapeutics;
develop iPSC-derived iCAR-M, and other macrophage therapies;
develop in vivo reprogrammed LNP/mRNA CAR-M therapies for cancer;
develop viral vectors to effectively engineer human monocytes and macrophages, including the Vpx lentiviral vector and our Ad5f35 vector;
conduct discovery and pre-clinical testing of our other product candidates;
seek marketing approval for CT-0508 or any other product candidate if we successfully complete clinical trials;
scale up our external manufacturing capabilities and capabilities to support clinical trials of CT-0508 or any other of our product candidates and for commercialization of any product candidate for which we may obtain marketing approval;
establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval;
in-license or acquire additional technologies or product candidates;
make any payments under our existing or future strategic collaboration agreements, global exclusive rights licensing agreements or sponsored research agreements, including with Moderna, University of Pennsylvania and New York University;
maintain, expand, enforce and protect our intellectual property portfolio;
hire additional clinical, regulatory, manufacturing, quality control, development and scientific personnel; and
add operational, financial and management information systems and personnel, including personnel to support our discovery, product development and planned future commercialization efforts and our operations as a public company.
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. Our expenses could increase beyond our expectations if, among other things:
we are required by regulatory authorities in the United States, Europe or other jurisdictions to perform trials or studies in addition to, or different than, those that we currently expect;
there are any delays in establishing appropriate manufacturing arrangements for or completing the development of any of our product candidates; or
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there are any third-party challenges to our intellectual property or our needs to defend against any intellectual property-related claim.
Even if we obtain marketing approval for and are successful in commercializing one or more of our product candidates, we expect to incur substantial additional discovery and product development and other expenditures to develop and market additional product candidates or to expand the approved indications of any marketed product. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.
We have never generated revenue from product sales and may never achieve or maintain profitability.
We recently initiated clinical development of our lead product candidate, CT-0508, and are in the pre-clinical testing stages for our other product candidates. We expect that it will be a number of years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must succeed in completing development of, obtaining marketing approval for and eventually commercializing, one or more products that generate significant revenue. The ability to achieve this success will require us to be effective in a range of challenging activities, including completing clinical development of CT-0508, completing discovery, pre-clinical testing and clinical development of CT-0508 in the combination setting and for additional indications, timely filing and receiving acceptance of our Investigational New Drug applications, or INDs, in order to commence our planned or future clinical trials, including for CT-0525 and CT-1119, successfully enrolling subjects in, and completing, our ongoing and planned clinical trials, scaling up our manufacturing processes and capabilities to support clinical trials of CT-0508 or of other product candidates, obtaining marketing approval for CT-0508 or any other product candidates, manufacturing, marketing and selling any products for which we may obtain marketing approval and maintaining a continued acceptable safety profile of our products following approval. We may never succeed in these activities and, even if we do, we may never generate revenues that are significant enough to achieve profitability.
Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our discovery and product development efforts, diversify our pipeline of product candidates or even continue our operations.
We are heavily dependent on the success of our lead product candidate, CT-0508, and our follow on HER2 product candidate, CT-0525, which will both require significant clinical testing before we can seek marketing approval and potentially generate commercial sales. If CT-0508 or CT-0525 do not receive marketing approval or are not successfully commercialized, or if there is significant delay in doing so, our business will be harmed.
We initiated our first clinical trial in 2021, have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures for the foreseeable future will be devoted to CT-0508 and related combination sub-studies of the synergistic potential and utility of CT-0508, including the recently initiated sub-study of our ongoing Phase 1 clinical trial utilizing CT-0508 in combination with pembrolizumab. Our business currently depends heavily on the successful development, marketing approval and commercialization of CT-0508, and the success of related combination sub-studies. We cannot be certain that CT-0508 or any combination therapy involving CT-0508 will achieve success in ongoing or future clinical trials, receive marketing approval or be successfully commercialized. We are also currently in the pre-clinical stage for another product candidate, CT-0525, which is also intended to treat solid tumors that overexpress HER2. By leveraging our discovery engine and preliminary clinical data from our Phase 1 clinical trial of CT-0508, we are building upon our CAR-M platform to create next-generation therapeutics that may increase potential efficacy and patient access.
If we were required to discontinue development of CT-0508 or CT-0525, or if CT-0508 or CT-0525, do not receive marketing approval for one or more of the indications we pursue, fail to achieve significant market acceptance, or fail to receive adequate reimbursement, we may be delayed by many years in our ability to achieve profitability, if ever, and may not be able to generate sufficient revenue to continue our business.
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We will need substantial additional funding for our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our discovery or product development programs or commercialization efforts.
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, advance our discovery programs and continue our product development efforts. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our pre-clinical activities and clinical trials. 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 will incur additional costs associated with operating as a public company. Accordingly, 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.
Our future capital requirements will depend on many factors, including:
the progress, costs and results of our ongoing clinical trial of CT-0508 and other planned and future clinical trials;
the scope, progress, costs and results of pre-clinical testing and clinical trials of CT-0508 for additional combinations, targets and indications;
the number of and development requirements for additional indications for CT-0508 or for any other product candidates;
the success of our collaborations with Moderna or others;
our ability to scale up our manufacturing processes and capabilities to support clinical trials of CT-0508 and other product candidates we are developing and develop in the future;
the costs, timing and outcome of regulatory review of CT-0508 and other product candidates we are developing and may develop in the future;
potential changes in the regulatory environment and enforcement rules;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;
the payment of license fees and other costs of our technology license arrangements;
the costs and timing of future commercialization activities, including product manufacturing, sales, marketing and distribution, for CT-0508 and other product candidates we are developing and may develop in the future for which we may receive marketing approval;
our ability to obtain and maintain acceptance of any approved products by patients, the medical community and third-party payors;
the amount and timing of revenue, if any, received from commercial sales of CT-0508 and any other product candidates we are developing or develop in the future for which we receive marketing approval;
potential changes in pharmaceutical pricing and reimbursement infrastructure;
the availability of raw materials for use in production of our product candidates;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims; and
the extent to which we in-license or acquire additional technologies or product candidates.
As of September 30, 2023, we had cash, cash equivalents and marketable securities of $94.1 million. We believe that we have cash, cash equivalents and marketable securities sufficient to sustain our operating expenses and capital expenditure requirements into the first quarter of 2025. However, we have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us. In addition, changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. As a result, we could deplete our capital resources sooner than we currently expect. In addition, because the successful development of CT-0508, CT-0525, CT-1119, and any combination studies or other product candidates that we pursue 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 candidate.
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Identifying potential product candidates and conducting pre-clinical and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. We will not generate commercial revenues unless and until we can achieve sales of products, which we do not anticipate for a number of years, if at all. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all, and we may be impacted by the economic climate and market conditions. For example, market volatility resulting from general U.S. or global economic or market conditions, including related to any health epidemics, pandemics or other contagious outbreaks (including any resurgence of the COVID-19 pandemic), could also adversely impact our ability to access capital as and when needed. Alternatively, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We were formed as Carma Therapeutics LLC, a Pennsylvania limited liability company, in April 2016 and converted to a Delaware corporation in May 2017. In connection with the Merger, CARISMA Therapeutics Inc. merged with and into a wholly-owned subsidiary of Sesen Bio and was renamed “CTx Operations, Inc.” Sesen Bio's name was changed to “Carisma Therapeutics Inc.” Following the completion of the Merger, the business conducted by the public company became primarily the business conducted by us. We are a clinical-stage cell therapy company with a limited operating history. Cell therapy product development is a highly speculative undertaking and involves a substantial degree of risk. Our operations prior to the Merger 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. Our prospects must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by companies in their early stages of operations. We have not yet demonstrated our ability to successfully develop any product candidate, obtain marketing approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing, obtaining marketing approval for and commercializing products.
In addition, as our business grows, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown obstacles. We will need to transition at some point from a company with a discovery and pre-clinical and clinical focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
As we continue to build our business, we expect our financial condition and operating results to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
Changes in tax law may adversely affect us or our investors.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. It cannot be predicted whether, when, in what form or with what effective dates tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in our or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law. Prospective investors should consult their tax advisors regarding the potential consequences of changes in tax law on our business and on the ownership and disposition of our common stock.
Our ability to use our net operating loss carryforwards, or NOLs, and research and development tax credit carryforwards to offset future taxable income may be subject to certain limitations.
Prior to the Merger, we had a history of cumulative losses and anticipate that we will continue to incur significant losses in the foreseeable future. As a result, we do not know whether or when we will generate taxable income necessary to utilize our NOLs or research and development tax credit carryforwards. As of December 31, 2022, Legacy Carisma had federal,
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state and local NOLs of $94.2 million, $94.2 million and $74.3 million, respectively, and federal research and development tax credit carryforwards totaling $5.6 million.
In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in our equity ownership by certain stockholders over a three-year period, is subject to limitations on our ability to utilize our pre-change NOLs and research and development tax credit carryforwards to offset future taxable income. We have not conducted a study to assess whether any such ownership changes have occurred. We may have experienced such ownership changes in the past and may experience such ownership changes in the future (which may be outside our control). As a result, if and to the extent we earn net taxable income, our ability to use our pre-change NOLs and research and development tax credit carryforwards to offset such taxable income may be subject to limitations.
Risks Related to Our Discovery Programs and Research and Development of Our Product Candidates
Cell therapy is a rapidly evolving area of science, and the approach we are taking to discover and develop product candidates by utilizing genetically modified macrophages is novel and may never lead to approved or marketable products.
Cell therapy has yet to be broadly applied to solid tumors, inflammatory disease, fibrotic disease or neurodegeneration. The discovery, research and development of engineered macrophages to treat disease is an emerging field and our CAR-M platform, which is the first CAR-M to be evaluated in a human clinical trial, is a relatively new technology. Our future success depends on the successful development of this novel therapeutic approach. The scientific evidence to support the feasibility of developing product candidates based on these discoveries is both preliminary and limited. We have only preliminary results from our Phase 1 clinical trial of CT-0508 and expect clinical data updates in the next 18 months. As such, there may be adverse effects or limited favorable results from treatment with any of our current or future product candidates that we cannot predict at this time.
Our success also depends on our successful application of our proprietary macrophage engineering platform in the combination setting and to other indications by reprogramming the target specificity of our CAR-M cell product and developing product candidates against a plethora of tumor associated antigens, including in therapeutic areas beyond oncology. However, our macrophage engineering platform may not allow us to generate new INDs to expand our pipeline on our anticipated timeline or in a cost-efficient manner or at all, which could cause the potential value of our business to decline and materially harm our business prospects.
As a result of these factors, it is more difficult for us to predict the time and cost of product candidate development, and we cannot predict whether the application of macrophage engineering platform will result in the development and marketing approval of any products. Any development problems we experience in the future related to our macrophage engineering platform or any of our discovery programs may cause significant delays or unanticipated costs or may prevent the development of a commercially viable product. Any of these factors may prevent us from completing our clinical trials or pre-clinical studies or commercializing any product candidates we may develop on a timely or profitable basis, if at all.
We are early in our development efforts. If we are unable to commercialize our product candidates or experiences significant delays in doing so, our business will be materially harmed.
We are early in our development efforts. We initiated our first Phase 1 clinical trial of CT-0508 in 2021 and initiated a sub-study of CT-0508 in combination with pembrolizumab in an ongoing Phase 1 clinical trial and expect to receive initial data in the second half of 2023. We recently submitted an IND to the FDA for CT-0525 and we are targeting an IND of CT-1119 in 2025.
Our ability to generate revenues from product sales, which we do not expect will occur for a number of years, if ever, will depend heavily on the successful development, marketing approval and eventual commercialization of CT-0508, including in the combination setting, or one or more of our other product candidates, which may never occur. The success of CT-0508, CT-0525 and our other product candidates will depend on many factors, including the following:
successfully completing pre-clinical studies;
successfully initiating future clinical trials;
successfully enrolling patients in and completing clinical trials;
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scaling up manufacturing processes and capabilities to support clinical trials of CT-0508, CT-0525 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, CT-0525 and any other product candidates we are 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, CT-0525 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.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business. As a company, we have limited experience in clinical development, having only recently advanced CT-0508 into an early-stage clinical trial. Any predictions about the future success or viability of CT-0508, CT-0525 or any product candidates we are developing or may develop in the future may not be as accurate as they could be if we had a history of conducting clinical trials.
Drug development involves a lengthy and expensive process, with an uncertain outcome. The results of pre-clinical studies and early clinical trials may not be predictive of future results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of CT-0508 or our other product candidates.

We initiated our first clinical trial of CT-0508 in 2021, a sub-study to evaluate CT-0508 in combination with pembrolizumab in 2023 and our other product candidates are in pre-clinical development. The risk of failure for CT-0508 and our other product candidates is high. It is impossible to predict when or if CT-0508 or any of our other product candidates will prove effective or safe in humans or will receive marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of a product candidate, we must complete pre-clinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of such product candidate in humans. Clinical trials may fail to demonstrate that CT-0508 or any of our other product candidates are safe for humans and effective for indicated uses. Even if the clinical trials are successful, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application.
Before we can commence clinical trials for a product candidate, we must complete extensive pre-clinical testing and studies, manufacturing process development studies, and analytical development studies that support our planned INDs and other applications to regulatory authorities in the United States or similar applications in other jurisdictions. We cannot be certain of the timely completion or outcome of our pre-clinical testing and studies and cannot predi