Artiva Biotherapeutics Inc

1. Organization,

Liquidity

and Basis of Presentation

Organization

Artiva Biotherapeutics, Inc. (the “Company”) was incorporated in the State of Delaware on February 14, 2019. The Company is a biopharmaceutical company focused on developing

off-the

shelf, allogeneic, natural killer (“NK”) cell-based therapies that are effective, safe and accessible for patients with devastating autoimmune diseases and cancers.

From its inception to June 30, 2024, the Company has devoted substantially all of its resources to organizing and staffing the Company, business planning, raising capital, establishing and engaging in collaborations, performing research and development, advancing and scaling up product candidate manufacturing, establishing cold chain delivery logistics, establishing and protecting its intellectual property portfolio, and providing general and administrative support for these activities. The Company’s operations through June 30, 2024 have been funded primarily through the issuance and sale of convertible promissory notes, convertible preferred stock and simple agreements for future equity (the “SAFEs”).

Liquidity

The Company has incurred net losses and negative cash flows from operations since inception, has a significant accumulated deficit and expects to continue to incur net losses for the foreseeable future. The Company has never generated any revenue from product sales and does not expect to generate any revenues from product sales unless and until it successfully completes development of and obtains regulatory approval for its product candidates, which will not be for several years, if ever. The Company has an accumulated deficit of $213.1 million as of June 30, 2024. During the six months ended June 30, 2024, the Company used $28.8 million of cash for operating activities. As of June 30, 2024, the Company has $34.2 million in cash and cash equivalents and $12.3 million in short-term investments. From inception through June 30, 2024, the Company has raised aggregate gross proceeds of $222.4 million to fund operations, comprised primarily from issuances of convertible promissory notes, SAFEs and private placements of convertible preferred stock.

Since inception through June 30, 2024, the

Company has also received $39.9

million in upfront and reimbursable research service payments from Merck Sharp & Dohme Corp. (“Merck”). Additionally, on July

, 2024, the Company closed on their Initial Public Offering (the “IPO”), in which the Company received aggregate net proceeds

of $161.9

million (the “IPO

Proceeds”). Management estimates that there is no substantial doubt about the Company’s ability to continue as a going concern for the one year period following the date that these unaudited condensed financial statements and accompanying notes were issued, as the IPO Proceeds together with the Company’s existing cash and cash equivalents, will be sufficient to fund planned operations at least through the end of 2026. As such, the prior substantial doubt about the

Company’s ability to continue as a going concern as discussed in the Company’s December 31, 2023 audited financial statements as included in the Company’s prospectus dated July 18, 2024 related to its IPO filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, no longer exists.

If the Company is unable to obtain additional funding before achieving sufficient profitability and positive cash flows from operations, if ever, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue plans to obtain additional funding before achieving sufficient profitability and positive cash flows from operations, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to rules and regulations of the Securities Exchange Commission for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. The results for the three and six months ended June 30, 2024 and 2023 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The unaudited condensed balance sheet as of June 30, 2024 has been derived from the financial statements as of that date but does not include all disclosures required by GAAP for complete financial statements. As all of the disclosures required by GAAP for complete financial statem

ents

are not included herein, these condensed financial statements and the notes accompanying herein should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2023 included in the Company’s prospectus dated July 18, 2024 related to its IPO filed pursuant to Rule 424(b)(4) under the Securities Act of 1933. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements as of and for the year ended December 31, 2023, included in the Company’s prospectus dated July 18, 2024 related to its IPO filed pursuant to Rule 424(b)(4) under the Securities Act of 1933. Since the date of those financial statements, there have been no changes to its significant accounting policies, except where noted below.

Use of Estimates

The preparation of condensed 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 condensed financial statements and the reported amounts of expenses during the reporting period. Accounting estimates and management judgments reflected in the condensed financial statements include: revenue recognized, the accrual of research and development expenses, common stock, stock-based compensation, SAFEs and operating lease liabilities. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions.

Short-Term Investments

Short-term investments consist of debt securities, classified as

securities and have original maturities of greater than three months. The Company has classified all

securities as current assets in the condensed balance sheets because these are considered highly liquid securities and are available for use in current operations. The Company carries these securities at fair value and reports unrealized gains and losses as a separate component of accumulated other comprehensive income. The cost of debt securities is adjusted for amortization of purchase premiums and accretion of discounts to maturity. Such amortization and accretion are included in other income in the condensed statements of operations and comprehensive loss. Realized gains and losses on sales of securities are determined using the specific identification method and recorded in other income in the condensed statements of operations and comprehensive loss.

As of June 30, 2024, and December 31, 2023, accrued interest receivables on short-term investments were $0.1

million and are included in

prepaid expenses and other current

assets

in the condensed balance sheets. The Company does not measure an allowance for credit losses for accrued interest receivables. For the purposes of identifying and measuring an impairment, accrued interest is excluded from both the fair value and amortized cost basis of the short-term investment. Uncollectible accrued interest receivables associated with an impaired debt security are reversed against interest income upon identification of the impairment. No accrued interest receivables were written off during the three and six months ended June 30, 2024 and 2023.

Restricted Cash

Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements. Restricted cash as of June 30, 2024 and December 31, 2023, was $0.3 million

consisting

of collateral for letters of credit related to the Company’s lease agreements and is included in

non-current

assets in the condensed balance sheets (see Note 11).

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting and other fees and costs relating to the Company’s IPO, are capitalized and recorded in the condensed balance sheets. As of June 30, 2024 and December 31, 2023, deferred offering costs of $2.8 million and $0 million, respectively, were recorded in the condensed balance sheets.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common stock outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities include shares of its convertible preferred stock, as well as outstanding stock options and restricted stock units under the Company’s equity incentive plan and have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

Recently Adopted Accounting Standards

In August 2020, the FASB issued ASU

No. 2020-06,

Debt—Debt with Conversion and Other Options (Subtopic

470-20)

and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU

2020-06”).

ASU

2020-06

was issued to reduce the complexity associated with accounting for certain financial instruments with characteristics of liabilities and equity. ASU

2020-06

reduces the number of accounting models for convertible

de

bt instruments and redeemable convertible preferred stock and improves the disclosures for convertible instruments and related earnings per share guidance. ASU

2020-06

also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance. For public entities that qualify as a filer with the Securities and Exchange Commission, excluding entities eligible to be smaller reporting companies, ASU

2020-06

is effective for fiscal annual periods beginning after December 15, 2021, including interim periods within those fiscal years. For nonpublic entities, ASU

2020-06

is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. ASU

2020-06

must be adopted as of the beginning of a Company’s annual fiscal year. The Company adopted this standard on January 1, 2024, and the adoption of the standard did not have a material impact on its financial statements.

3. Fair Value Measurements

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates their respective levels within the fair value hierarchy (in thousands):

The carrying amounts of all cash and cash equivalents, accounts receivable, other receivable, prepaid and other current assets, accounts payable, and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of those instruments.

Short-Term Investments

The Company’s assets with a fair value categorized as Level 2 withing the fair value hierarchy consist of commercial paper, government and government agency bonds, and corporate bonds. These assets have been initially valued at the transaction price and subsequently valued at the end of each reporting period utilizing third-party pricing services. The pricing services utilize industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable.

Simple Agreements for Future Equity

The estimated fair value of the SAFEs (see Note 7) is determined based on the aggregated, probability-weighted average of the outcomes of certain scenarios, including: (i) equity financing, with conversion of the SAFEs into a number of shares of convertible preferred stock at the lower of the post-money valuation cap price of $48.25 and the discount price (the lowest price of the standard convertible preferred stock sold in the equity financing multiplied by the specified discount rate of 85%); (ii) liquidity event (change of control, direct listing, or an initial public offering,) with mandatory conversion to common stock at the lower of post-money valuation cap price of $48.25 and discount price (price of the common stock multiplied by the discount rate of 85%); and (iii) dissolution event, with SAFE holders automatically entitled to receive cash payments equal to the purchase amount, prior to and in preference to any distribution of any assets or surplus funds to the holders of convertible preferred and common stock. On May 29, 2024, the Company executed an amendment to the SAFEs (the “SAFE Amendment”). The SAFE Amendment amended the definition of liquidity event to exclude an initial public offering and amended the definition of the discount price under an initial public offering to the lower of (a) the price per share of common stock sold to the public by the underwriters in the initial public offering multiplied by the discount rate of 85% or (b) the post-money valuation cap price of $48.25. The combined value of the probability-weighted average of those outcomes is then discounted back to each reporting period in which the SAFEs are outstanding, in each case based on a risk-adjusted discount rate estimated based on the implied interest rate using the changes in observed interest rates of corporate debt that the Company believes is appropriate for those probability-adjusted cash flows.

Fair value measurements associated with SAFEs were determined based on significant inputs not observable in the market, which represent Level 3 measurements within the fair value hierarchy. Increases and decreases in the fair value of the SAFEs can result from updates to assumptions such as expected timing and probability of a qualified financing event, or changes in discount rates, among other assumptions. Based on management’s assessment of the valuation of the SAFEs, performed by the Company’s third-party valuation specialists, none of the changes in the fair value of those instruments were due to changes in the Company’s own credit risk for the reporting periods presented. Judgement is used in determining these assumptions as of the initial valuation date and at each subsequent reporting period. Changes or updates to assumptions could have a material impact on the reported fair value, and the change in fair value of SAFEs and the results of operations in any given period.

The following

tables summarize

the significant inputs not observable in the market upon which the fair value measurements associated with the SAFEs were determined:

The following table summarizes the changes in fair value associated with Level 3 financial instruments held during the periods presented (in thousands):

There were no transfers to or from Level 3 during any of the periods presented.

4. Cash, Cash Equivalents and Short-term Investments

It is the Company’s policy to mitigate credit risk in its financial assets by maintaining a well-diversified portfolio that limits the amount of exposure as to maturity and investment type. All of the Company’s

investments had a maturity date of less than one year as of June 30, 2024.

The following table summarizes the Company’s cash, cash equivalents and short-term investments for each of the periods presented (in thousands):

As of June 30, 2024, the Company did

no

t have any short-term investments with gross unrealized losses. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their

amortized

cost basis. As of June 30, 2024, no allowance for credit losses was recorded.

5. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

The Company recognized $0.6 million and $1.2 million in depreciation expense for the three and six months ended June 30, 2024, respectively, and $0.5 million and $1.1 million in depreciation expense for the three and six months ended June 30, 2023, respectively.

6. Accrued

Expenses

Accrued expenses consist of the following (in thousands):

7. Simple Agreement for Future Equity

During 2023, the Company entered into SAFEs with various existing investors and related parties with aggregate gross proceeds of $24.4 million. The SAFEs granted investors with rights to participate in a future equity financing. The SAFEs have no maturity dates and bear no interest. Upon an equity financing, the SAFEs will automatically convert into the type of stock issued in the financing at a per share conversion price equal to the greater of (i) the purchase amount of the SAFEs divided by the post-money valuation cap price of $48.25 per share, or (ii) the purchase amount of the SAFEs divided by the 85% per share price paid by investors in the financing. Upon an initial public offering, the SAFEs will automatically convert into shares of common stock equal to the purchase amount of the SAFE divided by the discount price (the lower of (a) the price per share of common stock sold to the public by the underwriters in the initial public offering multiplied by the discount rate of 85% or (b) the post-money valuation cap price of $48.25 per share). Other conversion events include liquidity events (a change of control or direct listing). Upon a liquidity event, each investor will automatically be entitled to receive a portion of proceeds equal to the greater of (i) the purchase amounts of the SAFEs, or (ii) the amount payable in the number of common shares equal to the purchase amount of the SAFEs divided by the 85% per share price. Upon a dissolution event and to the extent sufficient funds are available, the holders of SAFEs shall be entitled to receive cash payments equal to the purchase amount, prior to and in preference to any distribution of any assets or surplus funds to the holders of convertible preferred and

common stock

.

8. Collaboration and License Agreements

The Company has entered into several agreements with GC Cell and related entities concerning its NK cell therapy platform and manufacturing of its core products, as described below.

Option and License Agreement with GC Cell

In September 2019, the Company entered into an option and license agreement with GC Cell Corporation (“GC Cell”), formerly Green Cross Cell Corporation, as amended in June 2020 and February 2022 (the “Core Agreement”). Under the Core Agreement, GC Cell granted the Company an exclusive, royalty-bearing license, with the right to sublicense through multiple tiers, under certain intellectual property and technology owned or controlled by GC Cell relating to

non-genetically

modified and genetically modified NK cells, and culturing, engineering, manufacturing thereof, to research, develop, manufacture, and commercialize NK cell pharmaceutical products in the Artiva Territory, which is anywhere in the world except for Asia, Australia, and New Zealand. GC Cell retained rights under the license to allow it and its affiliates to perform obligations under the Core Agreement and other agreements between the Company and them.

Under the Core Agreement, GC Cell agreed to conduct a discovery, research, preclinical development, and manufacturing program under a plan approved by a Joint Steering Committee (the “JSC”), to generate and identify product candidates for nomination as option candidates. GC Cell will bear all costs for its work under the R&D Plan, except that the Company will bear all costs for completing

IND-enabling

activities performed by GC Cell on behalf of the Company, other than certain efficacy studies.

For each product candidate determined by the JSC to be an option candidate, the Company has an exclusive option under the Core Agreement to obtain an exclusive, sublicensable license to research, develop, manufacture and commercialize such candidate in the Artiva Territory for any therapeutic, prophylactic or diagnostic uses in humans, on economic terms to be determined in good faith by the parties. GC Cell retains exclusive rights to the licensed technology in Asia, Australia, and New Zealand, though the Company has the right to request, and GC Cell has agreed to consider in good faith, inclusion of Australia, New Zealand, and/or specific countries in Asia in the Artiva Territory on a

basis. If the Company elects not to exercise the option with respect to a particular option candidate, GC Cell retains the right to continue development of such candidate. As of June 30, 2024, the Company has exercised its rights to license four option candidates,

AB-101

(AlloNK)

,

AB-201,

AB-202,

and

AB-205,

as described below.

The Company has control over and will bear the costs of the development, regulatory, manufacturing, and commercialization activities relating to the option candidates for which it has exercised its option, each a licensed product. Accordingly, the Company has certain diligence obligations and must use commercially reasonable efforts to develop and seek regulatory approval for each licensed product in at least one indication in the United States and the European Union, and following regulatory approval in a country, to commercialize such licensed product in at least one indication in such country. The Core Agreement provides that the Company has the right to engage GC Cell or its appropriate affiliate to provide research and manufacturing services for the licensed products being developed by the Company in the Artiva Territory under separately executed service agreements.

Under the Core Agreement, the Company is obligated to pay a low single-digit percentage royalty on net sales of any licensed products, the manufacture, use or sale of which is claimed by or uses any Core IP. The royalty rate is subject to reduction under certain scenarios, and royalties are payable on a

and

basis, beginning with the first commercial sale of a licensed product and continuing until the later of: (i) expiration of the

claim of the licensed patents and jointly owned patents in the country of sale; (ii) expiration of any regulatory exclusivity for a licensed product in that country; and (iii) the tenth anniversary of the first commercial sale of a licensed product in that country. The Company also has the exclusive option to extend its license to the Core IP to be worldwide with respect to products originated from the Company in exchange for a specified increase in the applicable royalty. GC Cell is also obligated to pay the Company a royalty at a rate equal to 50% of the royalty payable by the Company for such product in the Artiva Territory on net sales outside the Artiva Territory of any licensed product, the manufacture, use or sale of which is claimed by or uses any jointly owned intellectual property. As of June 30, 2024, the Company has not recognized any net sales royalties under this agreement.

AB-101

In November 2019, the Company entered into a license agreement with GC Cell for its

AB-101

product candidate, as amended in February 2022

(the “AB-101

AB-101

is the first product for which the Company exercised its option under the Core Agreement. Under the

AB-101

Agreement, GC Cell granted the Company an exclusive, royalty-bearing license in the Artiva Territory, with the right to sublicense through multiple tiers, under certain intellectual property and technology owned or controlled by GC Cell, to research, develop, manufacture, and commercialize

AB-101.

AB-101

Agreement, the Company is obligated to pay tiered royalties in the

low-mid

to high single-digit percentage range on annual net sales of any licensed

AB-101

and

AB-101

claim of the licensed patents and jointly owned patents in the country of sale; (ii) expiration of any regulatory exclusivity for a licensed product in that country; and (iii) the tenth anniversary of the first commercial sale of a licensed product in that country. The Company is also obligated to make milestone payments to GC Cell of: (1) up to $22.0 million upon the first achievement of certain development milestones; and (2) up to $55.0 million upon the first achievement of certain sales milestones. GC Cell is also obligated to pay the Company a royalty at a rate equal to 50% of the royalty payable by the Company for such product in the Artiva Territory on net sales outside the Artiva Territory of any licensed

AB-101

product, the manufacture, use or sale of which is claimed by or uses any jointly owned intellectual property. As of June 30, 2024, the Company has

not

recognized any net sales royalties or milestones under this agreement.

AB-201

In October 2020, the Company entered into a license agreement with GC Cell for its

AB-201

product candidate, as amended in February 2022

(the “AB-201

AB-201

is the second product for which the Company exercised its option under the Core Agreement. Under the

AB-201

Agreement, GC Cell granted the Company an exclusive, royalty-bearing license in the Artiva Territory, with the right to sublicense through multiple tiers, under certain intellectual property and technology owned or controlled by GC Cell, to research, develop, manufacture, and commercialize

AB-201.

AB-201

Agreement, the Company is obligated to pay tiered royalties in the mid to high single-digit percentage range on annual net sales of any licensed

AB-201

and

AB-201

claim of the licensed patents and jointly owned patents in the country of sale; (ii) expiration of any regulatory exclusivity for a licensed product in that country; and (iii) the tenth anniversary of the first commercial sale of a licensed product in that country. The Company is also obligated to make milestone payments to GC Cell of: (1) up to $25.0 million upon the first achievement of certain development milestones; and (2) up to $55.0 million upon the first achievement of certain sales milestones. GC Cell is also obligated to pay the Company a royalty at a rate equal to 50% of the royalty payable by the Company for such product in the Artiva Territory on net sales outside the Artiva Territory of any licensed

AB-201

product, the manufacture, use or sale of which is claimed by or uses any jointly owned intellectual property.

In September 2023, the Company entered an amendment to the

AB-201

Agreement (the “Amended

AB-201

Agreement”). This amendment granted back GC Cell an exclusive, royalty and milestone bearing license to all information and patents controlled by the Company that relate specifically to the research, development, manufacture and use of

AB-201,

to be used outside of the Artiva Territory. Under the Amended

AB-201

Agreement, the Company will receive tiered royalties in the low single-digit percentage range on annual GC Cell net sales of

AB-201

outside of the Artiva Territory. The royalties are payable on a

and

basis, beginning with the first commercial sale of

AB-201

outside of the Artiva Territory and continuing until the later of: (i) expiration of the

claim of the licensed patents in the country of sale; (ii) expiration of any regulatory exclusivity for a licensed product in that country; and (iii) the tenth anniversary of the first commercial sale of a licensed product in that country. The Company will also receive milestone payments upon achievement of certain development milestones, totaling

$1.8 million. In December 2023, GC Cell achieved the first regulatory milestone under the Amended

AB-201

Agreement for first IND acceptance for

AB-201

outside the Artiva Territory.

The

Company recognized $0 and $0.3 million of license and development support-related revenue during the three and six months ended June 30, 2024, respectively, in the condensed statements of operations and comprehensive loss, related to development support activities under the Amended

AB-201

Agreement. During the three and six months ended June 30, 2023, no license and development support-related revenue was recognized. As of June 30, 2024 and December 31, 2023, total accounts receivable related to the Amended

AB-201

Agreement were $0.6 million and $0.6 million, respectively.

AB-205

In December 2022, the Company entered into a license agreement with GC Cell for its

AB-205

product candidate (the

“AB-205

AB-205

is the fourth product for which the Company exercised its option under the Core Agreement. Under the

AB-205

Agreement, GC Cell granted the Company an exclusive, royalty-bearing license in the Artiva Territory, with the right to sublicense through multiple tiers, under certain intellectual property and technology owned or controlled by GC Cell, to research, develop, manufacture, and commercialize

AB-205.

AB-205

Agreement, the Company is also obligated to pay tiered royalties in the mid to high single-digit percentage range on annual net sales of any licensed

AB-205

and

AB-205

claim of the licensed patents and jointly owned patents in the country of sale; (ii) expiration of any regulatory exclusivity for a licensed product in that country; and (iii) the tenth anniversary of the first commercial sale of a licensed product in that country. Upon election by the Company to proceed with clinical development of

AB-205

(prior to which the Company may not make, use or sell

AB-205

for clinical development purposes), the Company is obligated to pay a

one-time

payment of $2.5 million to GC Cell. Thereafter, the Company is also obligated to make milestone payments to GC Cell of: (i) up to $29.5 million upon the first achievement of certain development milestones, excluding any payments for the Development Cost Share as defined in the

AB-205

Agreement; and (ii) up to $28.0 million upon the first achievement of certain sales milestones. As of June 30, 2024, the Company hasnot recognized any net sales royalties or milestones under this agreement.

In connection with the

AB-205

License Agreement, the Company recognized $0 and $0.1 million of expense reimbursements for development costs invoiced to GC Cell for the three and six months ended June 30, 2024, respectively, and $0.5 million and $0.5 million for the three and six months ended June 30, 2023, respectively. The Company did not receive any payments from GC cell during the three and six months ended June 30, 2024 and 2023. As of June 30, 2024 and December 31, 2023, the Company recorded $0.7 million and $0.6 million, respectively, in the condensed balance sheets as other receivable from GC Cell.

Research Services Agreement with GC Cell

As contemplated by the Core Agreement, in August 2020 the Company entered into the GC Cell Research Services Agreement, as amended in February 2022, under which GC Cell agreed to provide research services in support of the research and development of one or more of the products the Company has licensed from GC Cell.

The

agreement

provides that the parties will agree to specific projects as work orders under the GC Cell Research Services Agreement. Each work order shall set forth, upon terms mutually agreeable to GC Cell and the Company, the specific services to be performed by GC Cell, the timeline and schedule for the performance of the services, and the compensation to be paid by the Company to GC Cell for the provision of such services, as well as any other relevant terms and conditions (see Note 10).

Master Manufacturing Agreement with GC Cell

In March 2020, the Company entered into a Master Agreement for Manufacturing Services (the “Manufacturing Agreement”) with GC Cell, under which GC Cell agreed to manufacture specified products under individual work orders for use in the Company’s Phase 1 and Phase 2 clinical trials. Each work order will contain an estimated budget of service fees and

out-of-pocket

costs to be incurred in the performance of services under the agreement and the work order, as well as additional terms and conditions relating to the estimated budget. The Company will own all results and data generated by GC Cell under the Manufacturing Agreement (see Note 10).

Merck Exclusive License and Collaboration Agreement

In January 2021, the Company entered into the Exclusive License and Research Collaboration Agreement (the “Merck Collaboration Agreement”) with Merck for the discovery, development, manufacture and commercialization of

CAR-NK

cells that target certain solid tumor antigens. Merck paid the Company $30.0 million upfront for two target programs under the Merck Collaboration Agreement. As part of the Merck Collaboration Agreement, the Company was also eligible to receive additional payments for achieving certain development, regulatory approval and sales milestones, as well as royalties on net sales. In addition, the Company would be reimbursed for the conduct of each research program, including external research costs and manufacture and supply of clinical material for Phase 1 clinical trials.

Concurrent with entering into the Merck Collaboration Agreement, the Company also entered into an agreement with GC Cell to obtain exclusive, worldwide rights to GC Cell’s

CAR-NK

technology with respect to the licensed products and to engage GC Cell to perform services in support of the research programs (“Partnered Program License Agreement”). The Company agreed to reimburse GC Cell for research and development services as these services were provided. The Company was required to pay GC Cell 100% of regulatory milestones, sales milestones and royalty payments received by Merck relating to products in Asia, Australia and New Zealand and 50% of upfront payments, license fees, regulatory milestones, sales milestones and royalty payments received by Merck relating to products in all other territories.

In October 2023, the Merck Collaboration Agreement and development thereunder was terminated by Merck.

The Company applied ASC 808 to the Merck Collaboration Agreement and determined that the agreements were applicable to such guidance. The Company concluded that Merck represented a customer and applied relevant guidance from ASC 606 to account for the Merck Collaboration Agreement. In accordance with this guidance, the Company identified its performance obligations, including its grant of a license to Merck to certain of its intellectual property subject to certain conditions, transfer of technology, its conduct of research services, and its participation in a joint research committee. The Company determined that its grant of a license to Merck to certain of its intellectual property subject to certain conditions was not distinct from other performance obligations because such grant is dependent on the conduct and results of the research services.

Additionally, the Company determined that its conduct of research services was not distinct from other performance obligations since the research could not be conducted without also delivering the rights to the license, developed intellectual property and technology transfer. Accordingly, the Company determined that all performance obligations should be accounted for as one combined performance obligation for each target program, and that the combined performance obligation is transferred over the expected term of the conduct of the research services, which is collectively estimated to be four years, which represents the combined terms for the research programs (“Expected Research Term”).

The Company assessed the upfront,

non-refundable

and

non-creditable

payment of $30.0 million received in January 2021 and concluded that there was not a significant financing component to the Merck Collaboration Agreement.

The Company also assessed the effects of the variable consideration under the

Merck

Collaboration Agreement. Such assessment evaluated, among other things, the likelihood of receiving: (i) various clinical, regulatory and commercial milestone payments; and (ii) royalties on net sales. Based on its assessment, the Company concluded that given the substantial uncertainty related to their achievement, such variable consideration was not included in the transaction price.

In accordance with ASC 606, the Company determined that the initial transaction price under the

Merck

Collaboration Agreement equaled $58.0 million, consisting of the upfront,

non-refundable

and

non-creditable

payment of $30.0 million and the aggregate estimated research and development fees of $28.0 million. The initial transaction price was allocated evenly to each of the two product targets. The upfront payment of $30.0 million was recorded as deferred revenue, and was recognized as revenue over the Expected Research Term as the research services were the primary component of the combined performance obligations. Revenue associated with the upfront payment was recognized based on actual costs incurred as a percentage of the estimated total costs expected to be incurred over the Expected Research.

The Company assessed the payments made to GC Cell in connection with the Partnered Program License Agreement and concluded that all payments received from Merck and paid to GC Cell should be reflected within the Company’s condensed financial statements on a gross basis. The Company recognized payments from Merck as collaboration revenue as the performance obligation was satisfied over time, and payments made to GC Cell were recognized as research and development expense, as incurred.

Th

e Company recognized $0 of revenue under the Merck Collaboration Agreement during the three and six months ended June 30, 2024, and recognized $3.5 million and $4.5 million of revenue under the Merck Collaboration Agreement during the three and six months ended June 30, 2023, respectively. Over the course of the Merck Collaboration Agreement through June 30, 2024, the Company received $39.9 million in payments from Merck, of which $30.0 million related to the upfront fee, and $9.9 million related to reimbursable research services.

Affimed Collaboration Agreement

On November 1, 2022, the Company entered into a strategic collaboration agreement with Affimed GmbH, a subsidiary of Affimed N.V. (“Affimed”) for the clinical development and commercialization of a combination therapy, for any uses in humans or animals, comprising Affimed’s product consisting of an innate cell engager referred to as “AFM13” and the Company’s product containing an NK cell referred to as

AB-101

(the “Affimed Collaboration Agreement”). While the collaboration is initially limited to the United States, the parties will, upon Affimed’s request, in good faith discuss an expansion to certain other territories.

The Company has granted Affimed, with respect to the development of the combination therapy an exclusive, and with respect to the promotion of the combination therapy under the Affimed Collaboration Agreement a

non-exclusive,

non-transferable

(except to affiliates and successors in interest), royalty-free and

non-sublicensable

(with certain exceptions) license under relevant Company patents and

know-how.

Affimed has granted the Company a

non-exclusive,

non-transferable

(except to affiliates and successors in interest), royalty-free license and

non-sublicensable

(with certain exceptions) license under relevant Affimed patents and

know-how

for use in the clinical development of the combination therapy under the Affimed Collaboration Agreement.

The financial terms of the Affimed Collaboration Agreement provides that Affimed shall be responsible for all costs associated with the development of the combination therapy (including all clinical trial costs), except that Affimed and the Company shall each bear 50% of the costs and expenses incurred in connection with the performance of any confirmatory combination therapy clinical trial required by the FDA. The Company shall be solely responsible for all costs incurred by the Company for the supply of

AB-101

and

IL-2

product used in the clinical trials for the combination therapy, and for carrying out activities assigned to it under the agreed development plan. In addition, under the Affimed Collaboration Agreement, the parties agree to make payments to each other to achieve a proportion of 67%/33% (Affimed/Company) of revenues generated by both parties from commercial sales of each party’s product as part of the combination therapy.

The Company incurred $0 and $0.1 million of expense in connection with the Affimed Collaboration Agreement during the three and six months ended June 30, 2024, respectively, and $0 and $0.7 million of expense in connection with the Affimed Collaboration Agreement during the three and six months ended June 30, 2023, respectively.

9. Convertible Preferred Stock and Stockholders’ Deficit

Stockholders’ Deficit

Under the Amended and Restated Certificate of Incorporation dated April 29, 2024, the Company had a total of 67,268,142 shares of capital stock authorized for issuance, consisting of 40,248,588 shares of common stock, par value of $0.0001 per share, and 27,019,554 shares of convertible preferred stock, par value of $0.0001 per share. The Amended and Restated Certificate of Incorporation included the authorization of 84,556 shares reserved under the terms specified as part of the Company’s Pledge 1% Movement commitment, in support of its corporate social responsibility and philanthropic pursuits.

Convertible Preferred Stock

In 2020 and 2021, the Company issued 2,077,165 shares and 1,595,983 shares, respectively, of Series A convertible preferred stock at a price of $21.93 per share, resulting in aggregate gross proceeds of $70.0 million and total issuance costs of $0.4 million. The Company converted a promissory note with a fair value of $10.6 million as part of the first closing and reclassified a convertible preferred stock purchase right liability with a fair value of $23.7 million into equity as part of the second closing.

In 2021, the Company issued 2,487,237 shares of Series B convertible preferred stock at a price of $48.25 per share resulting in aggregate gross proceeds of $120.0 million and incurred $0.4 million of total issuance costs.

As of June 30, 2024, the Company’s Series A and Series B convertible preferred stock has been classified as temporary equity in the accompanying condensed balance sheets given that the holders of the convertible preferred stock could cause certain events to occur that are outside of the Company’s control whereby the Company could be obligated to redeem the convertible preferred stock. The carrying value of the convertible preferred stock is not adjusted to the redemption value until the contingent redemption events are considered to be probable of occurring.

The Company’s convertible preferred stock has the following rights, preferences and privileges:

Dividends

The Company shall not declare, pay or set aside any dividends on shares of any class of capital stock of the Company unless the holders of the Series A or Series B convertible preferred stock shall first receive, or simultaneously receive, a dividend on each outstanding share of the Series A convertible preferred stock equal to an amount as defined in the Company’s Amended and Restated Certificate of Incorporation. No such dividends have been declared or paid through June 30, 2024.

Preferences on Liquidation

The holders of the Series A convertible preferred stock are entitled to receive liquidation preferences, in the event of a change in control, at an amount per share equal to the greater of (i) the Series A original issuance price of $21.93, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable had all shares of Series A convertible preferred stock been converted into common stock. The holders of the Series B convertible preferred stock are entitled to receive liquidation preferences, in the event of a change in control, at an amount per share equal to the greater of (1) the Series B original issuance price of $48.25, plus any dividends declared but unpaid or (2) such amount per share as would have been payable had all shares of Series B convertible preferred stock been converted into common stock. Liquidation payments to the holders of the Series A and Series B convertible preferred stock have priority and are made in preference to any payments to the holders of common stock.

After full payment of the liquidation preference to the holders of the Series A and Series B convertible preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock.

Conversion Rights

The shares of Series A and Series B convertible preferred stock are convertible into an equal number of shares of common stock, at the option of the holder, subject to certain anti-dilution adjustments. The conversion rate for the convertible preferred stock is determined by dividing the original issue price by the conversion price. The conversion price is initially the original issue price, but is subject to adjustment for dividends, stock splits, and other distributions. The conversion rate at June 30, 2024, for the Series A and Series B convertible preferred stock was

1:1

.

Each share of Series A convertible preferred stock will be automatically converted into common stock at the then effective conversion rate (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the), common stock) upon: (i) the closing of the sale of common stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $75.0 million of gross proceeds to the Company; or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of 60% of the outstanding shares of Series A convertible preferred stock. Each share of Series B convertible preferred stock will be automatically converted into common stock at the then effective conversion rate (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to common stock) upon: (1) the closing of the sale of common stock to the public in a firm- commitment underwritten public offering pursuant to an effective registration statement Securities Act of 1933, as amended, resulting in at least $75.0 million of gross proceeds to the Company; or (2) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of 60% of the outstanding shares of Series B convertible preferred stock.

Redemption Rights

The holders of Series A and Series B convertible preferred stock do not have any redemption rights, except upon certain liquidation events that are outside of the Company’s control.

Voting

The holder of each share of Series A and Series B convertible preferred stock generally vote together with the shares of common stock as a single class, but also have class vote approval rights as provided by the Company’s certificate of incorporation or as required by applicable law.

Common Stock

The voting, dividend, and liquidation rights of the holders of the common stock are subject to, and qualified by, the rights, preferences and privileges of the holders of the Series A and Series B convertible preferred stock. The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders.

C

ommon

stock reserved for future issuance consisted of the following:

Stock Options

In June 2020, the Company adopted the 2020 Equity Incentive Plan (the “Plan”). The Plan provides for the grant of incentiv

e sto

ck options (“ISO”),

non-statutory

stock options (“NSO”), stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards.

The Plan was amended in December 2020, January 2021, July 2021, August 2022, and in April 2024. In April 2024

, the

Plan was amended to increase the total number of shares reserved under the Plan to 2,083,797.

Options granted under the Plan are exercisable at various dates as determined upon grant and will expire no more than 10 years from their date of grant. The exercise price of each option shall be determined by the board of directors based on the estimated fair value of the Company’s stock on the date of the option grant. The exercise price shall not be less than 100% of the fair market value of the Company’s common stock at the time the option is granted. Most option grants generally vest 25% on the first anniversary of the original vesting commencement date, with the balance vesting monthly over the remaining three years and early exercise is permitted. The vesting period generally occurs over four years unless there is a specific performance vesting trigger at which time those shares will vest when the performance trigger is probable to occur.

On April 6, 2023, the Company’s board of directors approved a stock option repricing (the “Option Repricing”) in which the exercise price of certain outstanding options to purchase shares of the Company’s common stock under the 2020 Plan was reduced to

$5.01

per share, the estimated fair value of the Company’s common stock as of December 31, 2022. The Option Repricing was intended to motivate holders of options with exercise prices in excess of the estimated fair value of the Company’s common stock to remain with the Company and work toward its success. The Option Repricing included options granted pursuant to the 2020 Plan that were held by, among others, members of the Company’s board of directors and the Company’s named executive officers.

As a result of the Option Repricing,1,168,651 shares of vested and unvested stock options outstanding as of April 6, 2023, with original exercise prices ranging from $5.14 to $51.72 per share, were repriced to an exercise price of $5.01 per share. The Option Repricing impacted

grantees and the total incremental fair value recognized as a result of the repricing was $1.5 million.

A summary of the Company’s stock option activity under the Plan is as follows:

The weighted-average grant date fair value of options granted for the six months ended June 30, 2024 and 2023, was $8.59 and $1.36 per share, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2024 and 2023, was de minimus. Upon the exercise of stock options, the Company will issue new shares of its common stock.

Restricted Stock Unit Awards

Restricted stock unit awards (“RSUs”) granted under the

Plan are subject to time-based vesting and convert to shares of common stock in accordance with the vesting schedule. RSUs are valued at the estimated fair value of the Company’s stock on the date of grant and are amortized over the requisite service period. The total number of RSUs granted represents the maximum number of RSUs eligible to vest based upon the service conditions set forth in the grant agreements. Employees forfeit unvested RSUs upon termination of employment with a corresponding reversal of expense.

During the six months ended June 30, 2024 and 2023, no RSUs were granted by the Company. As of June 30, 2024,22,514 total RSUs were outstanding.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense by condensed financial statement line item in the Company’s statement of operations and comprehensive loss (in thousands):

In 2023, the Company entered into sepa

ration

agreements with certain executives, terminating their employment and entering into consulting agreements. Under the separation agreements, service-based requirements for one of the executives were deemed satisfied for all RSUs as of the date of separation. In order for RSUs to vest, there must be a Liquidity event and the RSUs must meet the time and service-based requirement prior to the defined Liquidity Event Deadline. The Company recognized $0

in incremental compensation cost for the three and six months ended June 30, 2024,

and $0.5 million in incremental compensation cost for the three and six months ended June 30, 202

. The separation agreements also provided for extended vesting terms of certain options grants through the term of the consulting agreements.

The Company recognized $

in incremental compensation cost for the three and six months ended

Ju

ne 30, 2024, and $

and $

0.2

million in incremental compensation cost for the three and six months ended June 30, 2023, respectively.

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee and nonemployee stock option grants issued for the six months ended June 30, 2024 and 2023, were as follows:

As of June 30, 2024, the unrecognized compensation cost related to outstanding employee and nonemployee options was $9.9 million and is expected to be recognized as expense over a weighted-average period of 2.5 years. As of June 30, 2024, there wasno unrecognized compensation cost related to outstanding RSUs.

10. Related Party Transactions

GC Cell and GC Corp, subsidiaries of Green Cross Corp, are stockholders of the Company and are represented on the Company’s board of directors.

In November 2019, October 2020, March 2021, and December 2022, the Company entered into a license agreement (collectively, the “License Agreements”) with GC Cell (see Note 8). In August 2020, the Company entered into a Research and Service Agreement with GC Cell in which GC Cell is to provide mutually agreed research services in support of the research and development of one or more of the Selected Products that the Company has licensed from GC Cell under the License Agreements. The Company didnot incur any research and development expense in connection with the agreements for the three and six months ended June 30, 2024 and 2023. As of June 30, 2024 and December 31, 2023, the Company hadno accounts payable and accrued expenses in connection with the GC Cell License Agreements and Research Service Agreement.

In September 2023, the Company and GC Cell amended the

AB-201

Agreement (see Note 8). The Company recognized $0 and $0.3 million of license and development support-related revenue for the three and six months ended June 30, 2024, respectively, on its condensed statements of operations and comprehensive loss, related to GC Cell’s achievement of a defined development milestone and development support activities under the Amended

AB-201

Agreement. As of June 30, 2024 and December 31, 2023, total accounts receivable related to the Amended

AB-201

Agreement were $0.6 million and $0.6 million, respectively.

AB-205

Agreement, GC Cell agreed to reimburse the Company for Direct Costs incurred on behalf of GC Cell in accordance with the Development Plan under the

AB-205

Agreement, provided that such reimbursed costs are deemed to form part of the Direct Costs incurred and paid by GC Cell (see Note 8). Total reimbursements for development costs invoiced to GC Cell in connection with the

AB-205

Agreement were $0 and $0.1 million for the three and six months ended June 30, 2024, respectively, and $0.5 million and $0.5 million for the three and six months ended June 30, 2023, respectively. During the three and six months ended June 30, 2024 and 2023, the Company did not receive any payments from GC Cell. As of June 30, 2024 and December 31, 2023, the Company had $0.7 million and $0.6 million recorded in the condensed balance sheets as other receivable, respectively.

In March 2020, the Company entered into the Manufacturing Agreement with GC Cell, where GC Cell is to perform manufacturing services with respect to any biological or chemical product manufactured or to be manufactured for use in Phase 1 or Phase 2 clinical trials. The Company amended the Manufacturing Agreement in June 2020 to include the Company’s right to terminate the agreement at will. The Company incurred $1.2 million and $1.5 million of research and development expenses in connection with the agreement for the three and six months ended June 30, 2024, respectively, and $0.9 million and $1.8 million of research and development expenses in connection with the agreement for the three and six months ended June 30, 2023, respectively. As of June 30, 2024 and December 31, 2023, the Company had $1.1 million and $2.4 million, respectively, of accounts payable and accrued expenses in connection with the Manufacturing Agreement recorded in the condensed balance sheets.

In January 2021, concurrent with entering into the Merck Collaboration Agreement, the Company also entered into a Partnered Program License Agreement with GC Cell to obtain exclusive, worldwide rights to GC Cell’s

CAR-NK

technology with respect to the licensed products and to engage GC Cell to perform services in support of the research programs. The Company agreed to reimburse GC Cell for research and development services as these services were provided. The Company was required to pay GC Cell 100% of regulatory milestones, sales milestones and royalty payments received by Merck relating to products in Asia, Australia and New Zealand and 50% of upfront payments, license fees, regulatory milestones, sales milestones and royalty payments received by Merck relating to products in all other territories. In October 2023, the Merck Collaboration Agreement and development thereunder was terminated by Merck.

11. Commitments and Contingencies

Operating Leases

The following table presents operating rent expense and related short-term lease costs (in thousands):

Future minimum annual obligations under the Company’s operating leases with terms in excess of one year are as follows (in thousands):

As the Company’s leases do not provide an implicit rate, the Company

uses an in

cremental borrowing rate based on average discount rate were as follows:

On July 22, 2022, the Company entered into a sublease (the “Sublease Agreement”) with Origis Operating Services, LLC, (the “Sublessee”), whereby the Company agreed to sublease to Sublessee all of the 13,405 rentable square feet of office space in San Diego,

California

currently leased by the Company under the Executive Drive Lease. The sublease commenced on August 1, 2022, and has a term through December 31, 2025. The aggregate base rent is approximately $2.6 million commencing August 1, 2022. The Company records sublease income as a reduction of general and administrative expense.

The expected undiscounted cash flows to be received

from

the sublease are as follows (in thousands):

The Company recognized $0.2 million and $0.4 million of sublease income for the three and six months ended June 30, 2024, respectively and $0.2 million and $0.4 million of sublease income for the three and six months ended June 30, 2023, respectively.

12. Subsequent Events

For the purposes of the condensed financial statements as of June 30, 2024, and the three and six months then ended, the Company has evaluated the subsequent events through August 30, 2024, the date the condensed financial statements were issued.

On July 12, 2024, the Company effected a

1-for-4.386

reverse stock split of its common stock and convertible preferred stock. The par value and the authorized shares of the common stock and convertible preferred stock were not adjusted as a result of the reverse stock split. These accompanying condensed financial statements and notes to the condensed financial statements give retroactive effect to the reverse stock split for all periods presented.

On July

, 2024, the Company completed its IPO, pursuant to which it issued and sold 13,920,000 shares of common stock at a public offering price of $12.00 per share. The aggregate gross proceeds of the IPO were $167.0 million before underwriter discounts and commissions, fees, and expenses of $16.3 million, for net proceeds from the IPO of $150.7 million. In addition, the Company granted the

underwriters an option for a period

of 30 days to purchase up to 2,088,000

additional shares of common stock. On July 25, 2024, the underwriters partially exercised their

30-day

option and purchased

an additional 1,000,000

shares of the Company’s common stock at the IPO price, upon which the Company received net proceeds of approximately

$11.2

million. All underwriter discounts and commissions, fees, and expenses, including the previously deferred offering costs as disclosed previously in this Quarterly Report, will be charged to additional paid in capital as recorded against the gross proceeds.

In connection with the closing of the IPO, the Company’s outstanding convertible SAFE shares automatically converted into 2,391,418 shares of common stock, and the Company’s outstanding convertible preferred stock automatically converted into 6,160,385 shares of common stock.

In connection with the closing of the IPO, the Company’s board of directors adopted the 2024 Equity Inventive Plan (the “2024 Plan”), a successor to and continuation of the 2020 Plan (as defined in Note 9), and the 2024 Employe Stock Purchase Plan (the “2024 ESPP”). Upon the effectiveness of the 2024 Plan,4,572,025 shares of common stock were authorized for issuance which consists of (1)2,630,000 new shares of common stock, (2)115,436 shares available for issuance under the 2020 Plan, and (3) up to 1,826,589 shares of common stock subject to outstanding stock awards granted under the 2020 Plan that, on or after the 2024 Plan becomes effective, expire or otherwise terminate prior to exercise or settlement; are not issued because the stock award is settled in cash; are forfeited or repurchased because of the failure to vest; or are reacquired or withheld to satisfy a tax withholding obligation or the purchase or exercise price, if any, as such shares become available from time to time. Furthermore, upon effectiveness of the 2024 Plan, no further grants will be made under the 2020 Plan, and the 2020 Plan will automatically terminate on June 23, 2030

.

Upon the effectiveness of the 2024 ESPP,212,000 shares of common stock were authorized for issuance.