carm-20240331

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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 March 31, 2024

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)

____________________________________________________________


Delaware			26-2025616
(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 class

Trading
Symbol(s)

Name of exchange
on which registered

Common Stock, $0.001 par value per share

CARM

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	o

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 May 7, 2024, the registrant had 41,542,744 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 pre-clinical studies and clinical trial of CT-0525 for solid tumors that overexpress human epidermal growth factor receptor 2, or HER2;

•the timing and conduct of our pre-clinical studies for fibrosis;

•our plans to conduct discovery and pre-clinical testing of the development of in vivo chimeric antigen receptor macrophage and monocyte, or CAR-M, therapeutics for up to twelve oncology targets, as well as multiple other targets and indications in connection with our collaboration with ModernaTX, Inc., or Moderna;

•expenses associated with our Phase 1 clinical trial of CT-0508 and our sub-study utilizing CT-0508 in combination with pembrolizumab;

•our ability to obtain additional financing;

•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 ability to successfully enroll patients in our Phase 1 clinical trial of CT-0525 and complete clinical trials;

•our plans to conduct discovery and pre-clinical testing of other product candidates;

•our ability to realize the anticipated benefits of our research and development programs, strategic partnerships, research and licensing programs and academic and other collaborations;

•the timing of applying for and receiving, and our ability to maintain, marketing approvals from applicable regulatory authorities for our product candidates;

•our ability to obtain and maintain intellectual property protection and regulatory exclusivity for CT-0508, CT-0525 and any other product candidates we are developing or may develop in the future;

•acceptance of CT-0525 and any other product candidates we are developing or may develop, 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 and cash equivalents;

•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 potential impact of public health epidemics or pandemics including the COVID-19 pandemic, and of global economic developments on our business, operations, strategy and goals;

•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•our competitive position;

•the impact of government laws and regulations;

•political and economic developments; and

•such other matters as discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 including Part I, Item 1A, “Risk Factors”.

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

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

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

References to “Legacy Carisma” refer to CTx Operations, Inc. (formerly CARISMA Therapeutics Inc.) and references to “Sesen Bio” refer to Sesen Bio, Inc. prior to completion of the business combination on March 7, 2023 in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of September 20, 2022, as amended, by and among the Company, Legacy Carisma and Seahawk Merger Sub, Inc., a wholly owned subsidiary of the Company, or Merger Sub, pursuant to which Merger Sub merged with and into Legacy Carisma, with Legacy Carisma continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger, or the Merger.

Pursuant to the Merger Agreement, we changed our name from “Sesen Bio, Inc.” to “Carisma Therapeutics Inc.” Following the completion of the Merger, the business conducted by us became primarily the business conducted by Legacy Carisma, which is a biopharmaceutical company dedicated to developing a differentiated and proprietary cell therapy platform focused on engineered macrophages, cells that play a crucial role in both the innate and adaptive immune response.

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CARISMA THERAPEUTICS INC.

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		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Interim Financial Statements (Unaudited).	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations and Comprehensive Loss	2
	Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	3
	Consolidated Statements of Cash Flows	4
	Notes to the Interim Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	29
Item 4.	Controls and Procedures.	29

PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings.	30
Item 1A.	Risk Factors.	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	87
Item 5.	Other Information.	84
Item 6.	Exhibits.	88

SIGNATURES		89

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)


	March 31, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	56,515	$	77,605

Prepaid expenses and other assets	4,438		2,866
Total current assets	60,953		80,471
Property and equipment, net	7,550		6,764
Right of use assets – operating leases	5,150		2,173
Deferred financing costs	142		146
Total assets	$	73,795	$	89,554

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,166	$	3,933
Accrued expenses	4,729		7,662
Deferred revenue	1,189		1,413
Operating lease liabilities	2,474		1,391
Finance lease liabilities	1,390		544
Other current liabilities	1,193		965
Total current liabilities	13,141		15,908
Deferred revenue	45,000		45,000
Operating lease liabilities	2,759		860
Finance lease liabilities	869		328
Other long-term liabilities	1,131		926
Total liabilities	62,900		63,022
Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred stock $0.001 par value, 5,000,000 shares authorized, none issued or outstanding	—		—
Common stock $0.001 par value, 350,000,000 shares authorized, 41,542,744 and 40,609,915 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively	41		40
Additional paid-in capital	274,934		271,594

Accumulated deficit	(264,080)		(245,102)


Total stockholders’ equity	10,895		26,532
Total liabilities and stockholders’ equity	$	73,795	$	89,554

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 March 31,
		2024		2023
Collaboration revenues		$	3,397	$	3,243
Operating expenses:
Research and development		17,462		16,641
General and administrative		5,445		9,574
Total operating expenses		22,907		26,215
Operating loss		(19,510)		(22,972)
Change in fair value of derivative liability		—		(84)
Interest income (expense), net		532		(1,477)
Pre-tax loss		(18,978)		(24,533)
Income tax expense		—		(109)
Net loss		$	(18,978)	$	(24,642)

Share information:
Net loss per share of common stock, basic and diluted		$	(0.46)	$	(1.93)
Weighted-average shares of common stock outstanding, basic and diluted		40,938,464		12,783,523
Comprehensive loss
Net loss		$	(18,978)	$	(24,642)
Unrealized gain on marketable securities		—		177
Comprehensive loss		$	(18,978)	$	(24,465)

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 stock			Stockholders’ Equity (Deficit)
				Common stock			Additional paid-in capital		Accumulated other comprehensive (loss) income		Accumulated deficit		Noncontrolling interests		Total
	Shares	Amount		Shares	Amount
Balance, December 31, 2023	—	$	—	40,609,915	$	40	$	271,594	$	—	$	(245,102)	$	—	$	26,532
Exercise of stock options	—	—		1,579	—		2		—		—		—		2
Stock-based compensation	—	—		—	—		1,057		—		—		—		1,057
Sale of common stock under Open Market Sales Agreement, net of issuance costs	—	—		931,250	1		2,281		—		—		—		2,282
Net loss	—	—		—	—		—		—		(18,978)		—		(18,978)
Balance at March 31, 2024	—	$	—	41,542,744	$	41	$	274,934	$	—	$	(264,080)	$	—	$	10,895










Balance, December 31, 2022	8,700,885	$	107,808	2,217,737	$	2	$	1,197	$	(41)	$	(158,223)	$	14,395	$	(142,670)
Stock-based compensation	—	—		—	—		265		—		—		—		265
Unrealized gain on marketable securities	—	—		—	—		—		177		—		—		177
Issuance of common stock for cash in pre-closing financing	—	—		3,730,608	4		30,636		—		—		—		30,640
Issuance of common stock upon settlement of convertible promissory note, accrued interest, and related derivative liability	—	—		5,059,338	5		42,442		—		—		—		42,447
Issuance of common stock to Sesen Bio shareholders in reverse capitalization	—	—		10,374,272	10		72,034		—		—		—		72,044
Conversion of convertible preferred stock and non-controlling interests to common stock	(8,700,885)	(107,808)		18,872,711	19		122,185		—		—		(14,395)		107,809
Net loss	—	—		—	—		—		—		(24,642)		—		(24,642)
Balance at March 31, 2023	—	$	—	40,254,666	$	40	$	268,759	$	136	$	(182,865)	$	—	$	86,070

See accompanying notes to unaudited interim consolidated financial statements.

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CARISMA THERAPEUTICS INC.

Unaudited Consolidated Statement of Cash Flows (in thousands)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net loss	$	(18,978)	$	(24,642)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	1,693		705
Stock-based compensation expense	1,057		265
Reduction in the operating right of use assets	1,360		1,329
Amortization of debt discount	—		1,283
Change in fair value of derivative liability	—		84
Accretion on marketable securities	—		(163)
Write-off of property and equipment	67		—
Non-cash interest expense	236		41
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(1,572)		(1,623)
Accounts payable	(1,826)		2,823
Accrued expenses	(2,933)		(4,445)
Deferred revenue	(224)		(323)
Operating lease liabilities	(1,355)		(868)
Other long term liabilities	50		—
Net cash used in operating activities	(22,425)		(25,534)
Cash flows from investing activities:
Purchase of marketable securities	—		(34,460)
Proceeds from the sale of marketable securities	—		31,000
Purchases of property and equipment	(17)		(135)
Net cash used in investing activities	(17)		(3,595)
Cash flows from financing activities:
Cash, cash equivalents and restricted cash acquired in connection with the reverse recapitalization	—		37,903
Payment of reverse recapitalization finance costs	—		(1,742)
Proceeds from the issuance of common stock in pre-closing financing	—		30,640
Payment of principal related to finance lease liabilities	(1,319)		(106)
Proceeds from failed sale-leaseback arrangement	686		1,092
Payment of finance liability from failed sale-leaseback arrangement	(303)		(45)
Proceeds from the exercise of stock options	2		—
Sale of common stock under Open Market Sales Agreement, net of issuance costs	2,286		—
Net cash provided by financing activities	1,352		67,742
Net (decrease) increase in cash, cash equivalents and restricted cash	(21,090)		38,613
Cash, cash equivalents and restricted cash at beginning of the period	77,605		24,194
Cash, cash equivalents and restricted cash at end of the period	$	56,515	$	62,807

Supplemental disclosures of cash flow information:
Cash paid for interest	$	50	$	45
Supplemental disclosure of non-cash financing and investing activities:
Conversion of convertible preferred stock and non-controlling interests upon Merger	$	—	$	122,204
Conversion of convertible promissory note, accrued interest and derivative liability upon Merger	$	—	$	42,447

Reverse recapitalization costs in accrued expenses	$	—	$	4,071
Unrealized gain on marketable securities	$	—	$	177


Right-of-use assets obtained in exchange for new operating lease liabilities	$	4,337	$	—
Right-of-use assets obtained in exchange for new financing lease liabilities	$	2,470	$	—

Property and equipment in accounts payable	$	59	$	49

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

Overview

Carisma Therapeutics Inc., a Delaware corporation (collectively with its subsidiaries, the Company), is a clinical-stage cell therapy company focused on using the Company’s proprietary chimeric antigen receptor macrophage and monocyte (CAR-M) cell therapy 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 focus is its proprietary CAR-M cell therapy platform, which redirects macrophages against specific tumor associated antigens and enables targeted anti-tumor immunity by utilizing genetically modified myeloid cells (macrophages and monocytes) to express chimeric antigen receptors (CARs), enabling these potent innate immune cells to recognize specific tumor associated antigens on the surface of tumor cells.

In late March 2024, the Company and its board of directors approved a revised operating plan to reduce monthly operating expenses and conserve cash to begin implementation in April 2024. The plan, includes several measures such as, including prioritizing CT-0525, the Company's second product, as its lead anti-human epidermal growth factor receptor 2 (HER2) product candidate going forward, suspending the enrollment of new patients for CT-0508 in line with the clinical judgment of the clinical site principal investigator, pausing further development of CT-1119, reducing the workforce, including employees engaged in research and development and general and administration activities, and decreasing spending on other non-essential activities. The Company expects to pay the majority of the workforce reduction costs in the second quarter of 2024. The revised operating plan considers expenses pertaining to severance costs and potential termination and exit fees.

Although the Company plans to continue ongoing activities under its open label Phase 1 clinical trial of CT-0508 and its sub-study utilizing CT-0508 in combination with pembrolizumab, enrollment of new patients will be suspended in line with the clinical judgment of the clinical site principal investigator. All patients currently enrolled or in screening will continue participation per protocol through the end of study milestone and will complete all required activities. The Company has also elected to pause further development of CT-1119, a mesothelin-targeted CAR-Monocyte, pending additional financing.

Under its revised operating plan, the Company will continue to focus on its in vivo mRNA/lipid nanoparticle (LNP) CAR-M programs in partnership with ModernaTX Inc. (Moderna). The Company’s early research and development of multiple assets for the potential treatment of diseases beyond oncology, including fibrosis and other immunologic and inflammatory diseases, also remains ongoing.

Pipeline

Using its proprietary macrophage and monocyte cell therapy platform, the Company is developing a pipeline of product candidates with an initial focus on advancing multiple ex vivo autologous and in vivo CAR-M therapies for the treatment of solid tumors. The Company is also pursuing early research and development of multiple assets for the potential treatment of diseases beyond oncology, including fibrosis and other immunologic and inflammatory diseases. The Company's ex vivo oncology, fibrosis, and immunology programs are wholly owned. Additionally, under a collaboration agreement (the Moderna License Agreement), with Moderna (Note 11), the Company is developing in vivo CAR-M therapies utilizing Moderna's mRNA/LNP technology.

The Company's second product, which the Company has prioritized as its lead product candidate, CT-0525, a CAR-Monocyte intended to treat solid tumors that over-express HER2, 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 CAR-Monocyte approach utilizes a single day manufacturing process, which enables the manufacture of up to ten billion cells from a single apheresis, and leverages an automated, closed-system manufacturing process. In addition, the CAR-Monocyte approach has the potential to improve upon the potential anti-tumor effect of a CAR-Macrophage. By increasing the cell yield, a CAR-Monocyte enables a larger dose than a CAR-Macrophage. In addition, CAR-Monocyte has the potential for improved persistence and trafficking, which were observed in pre-clinical studies. The Company believes that the increased cell yield, and the improved persistence and trafficking may improve tumor control. In November 2023,

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

the Company received United States Food and Drug Administration (FDA) clearance of its investigational new drug application (IND) for CT-0525.

In addition to CT-0525, the Company’s first product candidate to enter clinical development, CT-0508, is the first CAR-Macrophage to be evaluated in a human clinical trial and is intended to treat solid tumors that over-express HER2, a protein that is over-expressed on the surface of a variety of solid tumors, including breast cancer, gastric cancer, esophageal cancer, salivary gland cancer, and numerous others. CT-0508 has been granted “Fast Track” status for the treatment of patients with HER2 over-expressing solid tumors by the FDA. CT-0508 is currently being studied in a multi-center open label Phase 1 clinical trial in the United States. This ongoing first-in-human study evaluates the safety, tolerability, and manufacturing feasibility of CT-0508 along with several customary exploratory secondary endpoints.

In addition to the development of ex vivo CAR-M cell therapies, the Company is developing in vivo CAR-M cell 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 Moderna (Note 11). 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 pre-clinical data demonstrated feasibility, tolerability, and early efficacy of in vivo CAR-M against metastatic solid tumors. In December 2023, the Company announced the nomination of the collaboration's first lead candidate, which will target an antigen present on a solid tumor with significant unmet medical need.

In addition to acting as a first line of defense in the innate immune system, macrophages and monocytes 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 the Company's macrophage and monocyte engineering platform, the Company is pursuing early research and development of multiple assets for the potential treatment of diseases beyond oncology, including fibrosis and other immunologic and inflammatory diseases. In the second quarter of 2024, the Company achieved preclinical proof of concept in its liver fibrosis program, demonstrating the anti-fibrotic potential of engineered macrophages in two liver fibrosis models. The Company expects to nominate a development candidate in the first quarter of 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, Inc. (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.

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.

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

(2) Development-Stage Risks and Liquidity

The accompanying unaudited interim consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred losses and negative cash flows from operations since inception and has an accumulated deficit of $264.1 million as of March 31, 2024. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales from its product candidates currently in development. As of March 31, 2024, the Company had $56.5 million in cash and cash equivalents. Absent any other action, the Company would have required additional liquidity to continue its operations over the next 12 months, which would have raised substantial doubt about its ability to continue as a going concern. As discussed in Note 1, in late March 2024, the Company and its board of directors approved a revised operating plan that suspends certain development programs, reduces its workforce and decreases other non-essential activities to extend the Company’s cash runway. The Company projects this revised operating plan will alleviate the substantial doubt that has been raised by significantly decreasing expenses, thereby reducing ongoing liquidity needs to enable the continuation of operations for at least 12 months from the issuance date of these unaudited interim consolidated financial statements.

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

(3) Summary of Significant Accounting Policies

Interim Financial Statements

The summary of significant accounting policies is included in the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2023 found in the Annual Report filed on Form 10-K filed with the SEC on April 1, 2024.

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 unaudited interim consolidated financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2024 and its results of operations for the three months ended March 31, 2024 and 2023. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023 found in the Annual Report filed on Form 10-K filed with the SEC on April 1, 2024.

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.

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

Significant areas that require management’s estimates include the 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.

Fair Value Measurements

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

•Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

•Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

•Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

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)
March 31, 2024
Assets:
Cash equivalents – money markets accounts	$	52,752	$	—	$	—

December 31, 2023
Assets:
Cash equivalents – money markets accounts	$	62,999	$	—	$	—

During the three months ended March 31, 2024 and 2023, there were no transfers between Level 1, Level 2 and Level 3.

Concentration of credit risk

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

Segment information

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

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

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:


	March 31,
	2024	2023
Stock options	8,210,547	4,184,047

Recently issued accounting pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the effect of this pronouncement on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which expands the disclosures required for income taxes. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this pronouncement on its disclosures.

(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. 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.

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


	March 7, 2023
Cash and cash equivalents	$	37,873
Marketable securities	44,588
Prepaid expenses and other assets	1,316
Restricted cash	30
Accounts payable and accrued expenses	(3,499)
Total net assets acquired	80,308
Less: Transaction costs	(8,264)
Total net assets acquired less transaction costs	$	72,044

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

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

(5) Prepaid Expenses and other assets

Prepaid expenses and other assets consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Research and development	$	1,232	$	278
Insurance	887		402
Deposits	1,548		891
Other	771		1,295
	$	4,438	$	2,866

(6) Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Research and development	$	3,165	$	3,131
Professional fees	669		1,366
Compensation and related expenses	881		3,100

Other	14		65

	$	4,729	$	7,662

(7) 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 2024 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 2026. Effective February 2024, the Company renewed an existing operating lease with an end date through 2026. In April 2024, in connection with the revised operating plan, the Company communicated a termination notice to the lessor of the operating lease. The termination is effective as of August 2024.

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 unaudited interim consolidated balance sheets. The ongoing lease payments are recorded as reductions to the finance liability and interest expense. As of March 31, 2024, the Company had a $2.3 million financing liability recorded in other current liabilities and other long-term liabilities on the unaudited interim 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):


	Three Months Ended March 31,
	2024		2023
Operating lease cost	$	1,469	$	1,433
Finance lease cost:
Amortization of lease assets	1,298		297
Interest on lease liabilities	236		45
Total finance lease cost	1,534		342
Variable lease cost	472		750
Total lease cost	$	3,475	$	2,525

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


	March 31,
	2024		2023
Weighted-average remaining lease term (in years)
Operating leases	2.3		2.2
Finance leases	1.5		1.9

Weighted-average discount rate
Operating leases	9.3	%	9.5	%
Finance leases	9.0	%	9.0	%

Supplemental cash flow information was as follows (in thousands):


	Three Months Ended March 31,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used in operating leases	$	1,463	$	1,448
Operating cash used in finance leases	$	236	$	45
Financing cash used in finance leases	$	1,319	$	106

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

Future maturities of lease liabilities were as follows as of March 31, 2024 (in thousands):


	Operating Leases		Finance Leases
Fiscal year ending:
2024 (remaining nine months)	$	2,195	$	1,153
2025	2,628		1,261
2026	427		20
2027	232		—
2028	240		—
Thereafter	184		—
Total future minimum payments	5,906		2,434
Less imputed interest	(673)		(175)
Present value of lease liabilities	$	5,233	$	2,259

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 $25,000. 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. No such loss contingencies were probable nor reasonably estimable as of March 31, 2024.

(8) Stockholders’ Equity

On March 7, 2023, in connection with the closing of the Merger, the following is reflected on the unaudited interim consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 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

(9) 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. The 2014 Plan provides for increases to the number of shares reserved for issuance thereunder each January, 1 equal to 4% of the total shares of the Company's common stock outstanding as of immediately preceding December 31, unless a lesser amount is stipulated by the Company's board of directors. Accordingly, 1,624,397 shares were added to the reserve as of January 1, 2024. As of March 31, 2024, approximately 4.3 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 March 31, 2024, 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 three months ended March 31, 2024:


	Options	Weighted average exercise price		Weighted average remaining contractual term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2023	6,023,370	$	3.94
Exercised	(1,579)	1.42			$	2
Granted	2,226,000	2.10
Forfeited	(37,244)	5.58

Outstanding as of March 31, 2024	8,210,547	$	3.43	8.20	$	4,241
Exercisable as of March 31, 2024	2,737,710	$	1.24	6.00	$	3,443
Vested and expected to vest at March 31, 2024	8,210,547	$	3.43	8.20	$	4,241

The weighted-average grant-date per share fair values of options granted during the three months ended March 31, 2024 and 2023 were $1.72 and $2.64, respectively. The fair values in the three months ended March 31, 2024 and 2023 were estimated using the Black-Scholes option-pricing model based on the following assumptions:


	Three Months Ended March 31,
	2024	2023
Risk-free interest rate	3.77% - 3.89%	2.92% - 4.03%
Expected term	6 years	6 years
Expected volatility	103.39% - 105.96%	57.77% - 62.65%
Expected dividend yield	—	—

Stock-Based Compensation Expense

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


	Three Months Ended March 31,
		2024		2023
Research and development		$	436	$	10
General and administrative		621		255
		$	1,057	$	265

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 during three months ended March 31, 2023. Compensation cost for awards not vested as of March 31, 2024 was $13.9 million and will be expensed over a weighted-average period of 3.2 years.

(10) Related-Party Transactions

The Company has outstanding licensing and scientific research agreements with Penn, a significant stockholder as of March 31, 2023 (Note 7). As of December 31, 2023, Penn was no longer a significant stockholder. The Company recognized $0.4 million of research and development expenses for the three months ended March 31, 2023 related to the Penn License Agreement.

The Company has a collaboration and license agreement with Moderna, a significant stockholder (Note 11).

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

(11) Moderna Collaboration and License Agreement

In January 2022, the Company entered into the Moderna License Agreement, which provides for a broad strategic collaboration to discover, develop and commercialize in vivo engineered CAR-M therapeutics for up to twelve oncology programs. Under the Moderna License Agreement, the Company and Moderna initiate research programs during a research term, focused on the discovery and research of products directed to biological targets. Moderna’s mRNA platform builds on continuous advances in basic and applied mRNA science, delivery technology and manufacturing, and has allowed the development of therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases and auto-immune diseases. Moderna has the right to designate up to twelve research targets as development targets. The first five research targets have been designated and all programs are currently in the discovery phase. Moderna funds the cost of the Company's activities in accordance with an agreed research budget. 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 representatives from the Company and Moderna and with Moderna having final decision-making authority, subject to specified limitations.

During the term of the Moderna License Agreement, the Company and its affiliates are subject to various exclusivity obligations under which the Company is not permitted to research, develop or commercialize particular products outside of the collaboration, including products for use as in vivo therapies in the field of oncology, products directed to any target included in the collaboration, or products containing a polypeptide provided by the Company to Moderna in connection with a research program that are directed to any development target. Additionally, 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.

Under the terms of the Moderna License Agreement, Moderna made an upfront non-refundable payment of $45.0 million to the Company. 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. 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). The Company is also eligible to receive tiered mid-to-high single digit royalties of net sales of any products that are commercialized under the agreement, which may be, subject to reductions. In addition, Moderna has agreed to cover the cost the Company incurs for certain milestone payments and royalties that the Company owes as a licensor under one of its intellectual property in-license agreements with Penn, which is sublicensed to Moderna under the Moderna License Agreement. Moderna may deduct these royalties in part from any royalties owed to the Company. 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.

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

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CARISMA THERAPEUTICS INC.

Notes to the Interim Consolidated Financial Statements

over this period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation.

The transaction price of $45.0 million 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 March 31, 2024 and 2023, the Company recognized $3.4 million and $3.2 million, respectively, of research and development services as collaboration revenues. The Company recognized $28.2 million of collaboration revenues since inception of the Moderna License Agreement through March 31, 2024. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied as of March 31, 2024 (in thousands):


	Transaction price unsatisfied
Performance obligations:
Research and development	$	45,786
Option rights	45,000
Total performance obligations	$	90,786

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 unaudited interim 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 unaudited interim consolidated balance sheets.

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


	Three Months Ended March 31,
	2024		2023
Balance at the beginning of the period	$	46,413	$	47,459
Deferral of revenue	3,173		2,920
Recognition of unearned revenue	(3,397)		(3,243)
Balance at the end of the period	$	46,189	$	47,136

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.

(12) Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through May 9, 2024, the issuance date of these unaudited interim consolidated financial statements, and has not identified any additional items that have not previously been mentioned elsewhere requiring disclosure.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited interim consolidated financial statements and the related notes appearing elsewhere in 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, 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 using our proprietary CAR-M cell therapy 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. Our focus is our proprietary CAR-M cell therapy platform, which redirects macrophages against specific tumor associated antigens and enables targeted anti-tumor immunity by utilizing genetically modified myeloid cells (macrophages and monocytes) to express CARs, enabling these potent innate immune cells to recognize specific tumor associated antigens on the surface of tumor cells.

Our second product, which we have prioritized as our lead anti-HER2 product candidate, CT-0525, utilizes a novel approach to CAR-M therapy that engineers patients’ monocytes directly, without ex vivo differentiation into macrophages. In November 2023, we received FDA clearance of our IND for CT-0525. We expect to treat the first patient in the second quarter of 2024 and to report initial data from the study by the end of 2024. We believe that CT-0525 has favorable attributes compared to our initial clinical stage product candidate, CT-0508, and that the CAR-Monocyte approach has the potential to improve upon the potential anti-tumor effect of a CAR-Macrophage.

In addition to CT-0525, our first product candidate to enter clinical development, CT-0508, is the first CAR-Macrophage to be evaluated in a human clinical trial and is intended to treat solid tumors that over-express HER2, a protein that is over-expressed on the surface of a variety of solid tumors, including breast cancer, gastric cancer, esophageal cancer, salivary gland cancer, and numerous others. CT-0508 is currently being studied in a multi-center open label Phase 1 clinical trial in the United States. This ongoing first-in-human study evaluates the safety, tolerability, and manufacturing feasibility of CT-0508 along with several customary exploratory secondary endpoints.

In late March 2024, following a strategic review of our operating plan for 2024 and future periods, we approved a revised operating plan intended to balance value creation and expense management with our available cash resources. The objective of our revised operating plan is to focus our clinical development efforts on high potential value programs with meaningful near-term milestones and eliminate non-essential expenses and headcount to extend our cash runway. Under this plan, we intend to focus our ex vivo oncology clinical development efforts on our lead product candidate CT-0525, a CAR-Monocyte intended to treat solid tumors that over-express HER2.

Although we plan to continue ongoing activities under our open label Phase 1 clinical trial of CT-0508 and our sub-study utilizing CT-0508 in combination with pembrolizumab, enrollment of new patients will be suspended in line with the clinical judgment of the clinical site principal investigator. All patients currently enrolled or in screening will continue participation per protocol through the end of study milestone and will complete all required activities. We have also elected to pause further development of CT-1119, a mesothelin-targeted CAR-Monocyte, pending additional financing.

Under our revised operating plan, we will continue to focus on its in vivo mRNA/LNP CAR-M programs in partnership with Moderna. Our early research and development of multiple assets for the potential treatment of diseases beyond oncology, including fibrosis and other immunologic and inflammatory diseases, also remains ongoing.

We plan to pursue additional financing and collaboration opportunities to support development of our product candidates and other research and development programs and will continue to re-assess our expense allocation.

Our Pipeline

Using our proprietary macrophage and monocyte cell therapy platform, we are developing a pipeline of product candidates, with an initial focus on advancing ex vivo autologous and in vivo CAR-M therapies for the treatment of solid tumors. We are also pursuing early research and development of multiple assets for the potential treatment of diseases beyond

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oncology, including fibrosis and other immunologic and inflammatory diseases. Our ex vivo oncology, fibrosis, and immunology programs are wholly owned. Additionally, under the Moderna License Agreement with Moderna, we are developing in vivo CAR-M therapies utilizing Moderna's mRNA/LNP technology. 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, in addition to future research funding and the opportunity for milestone payments and royalties.

Our lead product candidate, CT-0525, a CAR-Monocyte intended to treat solid tumors that over-express HER2, 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. The CAR-Monocyte approach utilizes a single day manufacturing process, which enables the manufacture of up to ten billion cells from a single apheresis, and leverages an automated, closed-system manufacturing process. In addition, the CAR-Monocyte approach has the potential to improve upon the potential anti-tumor effect of a CAR-Macrophage. By increasing the cell yield, a CAR-Monocyte enables a larger dose than a CAR-Macrophage. In addition, CAR-Monocyte has the potential for improved persistence and trafficking, which were observed in pre-clinical studies. We believe that the increased cell yield, and the improved persistence and trafficking may improve tumor control. In November 2023, we received FDA clearance of our IND for CT-0525 and we expect to treat the first patient in the second quarter of 2024 and to report initial data from the study by year-end 2024.

In addition to the development of ex vivo CAR-M cell therapies, we are developing in vivo CAR-M cell therapies, wherein immune cells are directly engineered within the patient’s body. To advance our in vivo CAR-M therapeutics, we established the Moderna License Agreement. 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 pre-clinical data demonstrated feasibility, tolerability, and early efficacy of in vivo CAR-M against metastatic solid tumors. In December 2023, we announced the nomination of the collaboration's first lead candidate, which will target an antigen present on a solid tumor with significant unmet medical need.

In addition to acting as a first line of defense in the innate immune system, macrophages and monocytes 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 engineering platform, we are pursuing early research and development of multiple assets for the potential treatment of diseases beyond oncology, including fibrosis and other immunologic and inflammatory diseases. In the second quarter of 2024, we achieved preclinical proof of concept in our liver fibrosis program, demonstrating the anti-fibrotic potential of engineered macrophages in two liver fibrosis models. We expect to nominate a development candidate in the first quarter of 2025.

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.

Financial Operations

Our net losses were $19.0 million and $24.6 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had $56.5 million in cash and cash equivalents and an accumulated deficit of $264.1 million. We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we conduct our clinical trial of CT-0525, complete our ongoing clinical trial of CT-0508 with respect to patients currently enrolled or in screening and advance our discovery programs and continue our product development efforts. If we obtain marketing approval for CT-0525 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. We believe our revised operating plan approved in March 2024 by our board of directors will facilitate cost control to support further development of our product candidates and other research and development programs.

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As of March 31, 2024, we had 41,542,744 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 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 additional capital or obtain adequate funds on acceptable terms, we may be required to further 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. However, 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. Considering the anticipated benefits of our revised operating plan, we believe that we have cash and cash equivalents sufficient to sustain our operating expenses and capital expenditure requirements into the third quarter of 2025.

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 mRNA/LNP 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 the 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. Moderna’s mRNA platform builds on continuous advances in basic and applied mRNA science, delivery technology and manufacturing, and has allowed the development of therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases and auto-immune diseases. Moderna has the right to designate up to 12 research targets as development targets. The first five research targets have been nominated and all programs are currently in the discovery phase. Moderna funds the cost of our activities in accordance with an agreed research budget.

Moderna has the right to designate up to 12 research targets as development targets during a specified development target nomination period upon payment of a development target designation milestone payment. Moderna can replace development targets with research targets during a specified period of time. If Moderna exercises its right to designate a development target, Moderna will have a worldwide, exclusive license under patents and know-how controlled by us to develop and commercialize products directed to the applicable development target, subject to certain diligence obligations.

The collaboration is managed by a 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.

Commencing a specified time after the effective date of the Moderna License Agreement, Moderna will have the right to nominate targets relating to diseases outside the field of oncology for inclusion in research programs in specified circumstances. Such right is subject to the same exclusions as Moderna’s right to nominate other targets for inclusion in research programs.

During the term of the Moderna License Agreement, we and our affiliates are subject to various exclusivity obligations under which we are not permitted to research, develop or commercialize particular products outside of the collaboration, including products for use as in vivo therapies in the field of oncology, products directed to any target included in the

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collaboration, or products containing a polypeptide provided by us to Moderna in connection with a research program that are directed to any development target.

Under the terms of the Moderna License Agreement, we received a $45.0 million up-front cash payment. Assuming Moderna develops and commercializes 12 products, each directed to a different development target, we are also eligible to receive up to between $247.0 million and $253.0 million per product in development target designation, development, regulatory and commercial milestone payments. Moderna also will reimburse us for all costs incurred in connection with our 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 tiered mid-to-high single digit royalties on net product sales, which may be subject to reductions. Moderna has also agreed to cover the cost of certain milestone payments and royalties we owe to Penn, 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 us or Moderna.

Cost Reduction Measures

We have recently implemented a revised operating plan to reduce our monthly operating expenses and conserve cash. The plan, which we have begun to implement in the second quarter of 2024, includes several measures such as prioritizing CT-0525 as our lead anti-HER2 product candidate going forward, suspending the enrollment of new patients for CT-0508 in line with the clinical judgment of the clinical site principal investigator, pausing further development of CT-1119, reducing our workforce by 39 full-time employees (representing approximately 37% of our total workforce), including employees engaged in research and development and general and administration activities, and decreasing spending on other non-essential activities.

We believe these changes will provide operating efficiencies for us to continue to support our product development programs as well as any potential collaborations or other strategic relationships we may enter into. We have incurred $1.6 million in connection with the reduction in workforce, which primarily represents one-time employee termination benefits directly associated with the workforce reduction. We expect to pay the majority of these reduction in workforce amounts in the second quarter of 2024.

Financial Operations Overview

Collaboration 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 decrease in 2024 as we have begun to implement our revised operating plan, including a reduction in workforce, prioritization of CT-0525 and a pause in development of CT-1119. We expect that our expenses will increase again in future years as we continue to advance our clinical trials and potentially progress additional 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-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-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-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-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 decrease in 2024, as we have begun to implement our revised operating plan, including reducing our workforce and decreasing expenses related to non-essential activities. In addition, our 2023 expenses included a significant amount of non-recurring costs related to the Merger that are described below. We expect that our expenses will increase again in future years as we continue to incur costs associated with being a public company.

Interest Income (Expense), Net

Interest income consists of interest earned on our excess cash. 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

Since inception, we have incurred significant net losses. We have provided a valuation allowance against the full amount of our deferred tax assets since, in our opinion, based upon our historical and anticipated future losses, it is more likely than not that the benefits will not be realized. As of March 31, 2024, we remained in a full valuation allowance position.

The utilization of our net operating loss carryforwards or NOLs may be subject to a substantial annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue of 1986, or the Code, respectively, as well as similar state provisions. We have recorded a valuation allowance on all of our deferred tax assets, including deferred tax assets related to NOLs.

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Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023 (in thousands)


	Three Months Ended March 31,
	2024		2023
Collaboration revenues	$	3,397	$	3,243
Operating expenses:
Research and development	17,462		16,641
General and administrative	5,445		9,574
Total operating expenses	22,907		26,215
Operating loss	(19,510)		(22,972)
Change in fair value of derivative liability	—		(84)
Interest income (expense), net	532		(1,477)
Pre-tax loss	(18,978)		(24,533)
Income tax expense	—		(109)
Net loss	$	(18,978)	$	(24,642)

Collaboration Revenues

Collaboration revenues were $3.4 million and $3.2 million for the three months ended March 31, 2024 and 2023, respectively. The increase was related to the research and development activities completed under the Moderna License Agreement.

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 March 31, 2024 and 2023 (in thousands):


	Three Months Ended March 31,
	2024		2023
CT-0508 (1)	$	1,150	$	1,832
CT-0525	2,416		1,675
CT-1119 (1)	406		—
Personnel costs, including stock-based compensation	5,827		4,954
Other clinical and pre-clinical development expenses	1,471		1,622
Facilities and other expenses	6,192		6,558
Total research and development expenses	$	17,462	$	16,641

(1) Although we plan to continue ongoing activities under our open label Phase 1 clinical trial of CT-0508 and our sub-study utilizing CT-0508 in combination with pembrolizumab, enrollment of new patients will be suspended in line with the clinical judgment of the clinical site principal investigator. All patients currently enrolled or in screening will continue participation per protocol through the end of study milestone and will complete all required activities. We have also elected to pause further development of CT-1119, a mesothelin-targeted CAR-Monocyte, pending additional financing.

Research and development expenses for the three months ended March 31, 2024 were $17.5 million, compared to $16.6 million for the three months ended March 31, 2023. The increase of $0.8 million was primarily due to a $0.9 million increase in personnel costs due to increased stock-based compensation and payroll, $0.7 million increase in direct costs associated with pre-clinical development of CT-0525, a $0.4 million increase in direct costs associated with the pre-clinical

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development related to CT-1119, partially offset by a $0.7 million decrease in direct costs associated with CT-0508, a $0.4 million decrease in our facilities and other expenses associated with a decrease in sponsored research agreement fees, and a $0.1 million decrease in costs associated with a reduction in pass through studies.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2024 and 2023 (in thousands):


	Three Months Ended March 31,
	2024		2023
Personnel costs, including stock-based compensation (1)	$	2,451	$	5,976
Professional fees	2,201		2,904
Facilities and supplies	230		109
Insurance, taxes, and fees	222		204
Other expenses	341		381
Total general and administrative expenses	$	5,445	$	9,574

(1) In late March 2024, we approved a revised operating plan to reduce monthly operating expenses and conserve cash, which we began implementing in April 2024.

General and administrative expenses for the three months ended March 31, 2024 were $5.4 million, compared to $9.6 million for the three months ended March 31, 2023. The decrease of $4.1 million was attributable to a $3.5 million decrease in personnel costs including severance and related costs resulting from the Merger offset by an increase in salaries and stock-based compensation, and a $0.7 million decrease in professional fees as a result of non-recurring legal costs associated with the Merger.

Interest Income (Expense), Net

We recognized $0.5 million in interest income (expense), net for the three months ended March 31, 2024, which was attributable to interest earned on excess cash.

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

Change in Fair Value of Derivative Liability

We recognized a $0.1 million non-cash charge for the three months ended March 31, 2023, for the increase in fair value of the derivative liability associated with the redemption feature of the convertible promissory note with Moderna, which was attributable to the timing in which we expected the accrued settlement event to occur.

Income Tax Expense

We recorded $0.1 million of income tax expense for the three months ended March 31, 2023 based on projected taxable income for the year ended December 31, 2023. We had no such income tax expense for the three months ended March 31, 2024.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2024, we had $56.5 million in cash and cash equivalents and an accumulated deficit of $264.1 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

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tax credits and convertible debt financing. Under the Moderna License Agreement we anticipate receiving $73.9 million over the term of the contract for expected research and development services to be performed by us, inclusive of pass-through costs, to be billed quarterly. Through March 31, 2024, we have generated $28.2 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 an aggregate offering price of up to $100.0 million under an “at-the-market" offering program. As of March 31, 2024, we have sold 1,157,783 shares for gross proceeds of $3.0 million.

Cash Flows

The following table shows a summary of our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):


	Three Months Ended March 31,
	2024		2023
Cash (used in) provided by
Operating activities	$	(22,425)	$	(25,534)
Investing activities	(17)		(3,595)
Financing activities	1,352		67,742
Net change in cash, cash equivalents and restricted cash	$	(21,090)	$	38,613

Cash Flows from Operating Activities

During the three months ended March 31, 2024, we used $22.4 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $19.0 million and $4.4 million of non-cash charges related to depreciation and amortization expense, stock-based compensation, reductions in the operating right of use, or ROU assets, and non-cash interest on the finance lease liability and a $7.9 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 three months ended March 31, 2023, we used $25.5 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $24.6 million that was offset by $3.5 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, accretion on marketable securities, and non-cash interest on the finance liability from the failed sale-leaseback and a $4.4 million net change in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Cash Flows from Investing Activities

During the three months ended March 31, 2024, cash from investing activities reflected purchases of property and equipment.

During the three months ended March 31, 2023, we used $3.6 million of net cash in investing activities. Cash used in investing activities reflected purchases of marketable securities of $34.5 million and the purchase of property and equipment of $0.1 million, partially offset by $31.0 million of proceeds from the sale of marketable securities.

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Cash Flows from Financing Activities

During the three months ended March 31, 2024, we received $1.4 million of net cash from financing activities, primarily attributable to $2.3 million from the sale of common stock in connection with the Sale Agreement and $0.7 million in proceeds from failed-sale leaseback arrangements, partially offset by $0.3 million in payments of finance liability from failed-sale leaseback arrangements, and $1.3 million in payments of principal related to finance lease liabilities.

During the three months ended March 31, 2023, we received $67.7 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 $1.7 million in payments of financing costs.

Funding Requirements

We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we conduct our planned clinical trial of CT-0525 advance our discovery programs and continue our product development efforts. As of March 31, 2024, we had cash and cash equivalents of $56.5 million. We believe that the revised operating plan approved in March 2024 by our board of directors will reduce our spending such that our liquidity is sufficient to sustain our operating expenses and capital expenditure requirements into the third quarter of 2025. We have based our estimate regarding the sufficiency of our cash resources on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us.

We expect our expenses to increase substantially over time 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-0525 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 continue to incur 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 additional capital or obtain adequate funds when needed or on acceptable terms, we may be required to further 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-0525 and other planned and future clinical trials;

•the scope, progress, costs and results of pre-clinical testing and clinical trials of CT-0525 for additional combinations, targets and indications;

•the number of and development requirements for additional indications for CT-0525 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-0525 and other product candidates we are developing and develop in the future;

•the costs, timing and outcome of regulatory review of 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 costs and timing of future commercialization activities, including product manufacturing, sales, marketing and distribution, for 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-0525 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;

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•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 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 further 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 March 31, 2024 (in thousands):


	Total		Less than 1 Year		1 to 3 Years		4 to 5 Years		More than 5 Years
Contractual obligations:
Operating lease commitments(1)	$	5,906	$	2,846	$	2,461	$	476	$	123
Finance lease commitments	2,434		1,537		897		—		—
Manufacturing commitments(2)	4,000		1,000		3,000		—		—
Total contractual obligations	$	12,340	$	5,383	$	6,358	$	476	$	123

(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. In the event of termination without cause by us, our

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future commitments will cease and a termination fee equal to $4.0 million will be payable by us to Novartis which, pursuant to the terms of the agreement, can be credited in full against amounts due for a substitute product.

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 and under licensing agreements with other third parties not considered 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.

Penn License

In November 2017, we entered into a license agreement with 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 of $25,000, 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 months ended March 31, 2024, 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” in our Annual Report on Form 10-K filed with the SEC on April 1, 2024.

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.

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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 $0.8 million and $0.4 million for the three months ended March 31, 2024 and 2023, 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 March 31, 2024 and 2023.

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 March 31, 2024. 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 March 31, 2024, 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 March 31, 2024 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 will need substantial additional funding for our continuing operations. 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.

•We have never generated revenue from product sales and may never achieve or maintain profitability.

•Our reduction in force undertaken to extend our cash runway and focus our resources on our prioritized research and development programs might not achieve our intended outcome.

•We are heavily dependent on the success of our lead product candidate, CT-0525, which will require significant clinical testing before we can seek marketing approval and potentially generate commercial sales. If CT-0525 does not receive marketing approval or is 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 additional capital when needed or on acceptable terms, we could be forced to further 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.

•We have and may in the future curtail, pause, delay or cease development of a product candidate at any stage of pre-clinical or clinical development based on a variety of factors, including our judgments regarding costs or timing of further development, probability of success of clinical development, regulatory requirements, commercial potential, relative benefits and costs compared to other product candidates in our portfolio, and our overall corporate strategy.

•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.

•We rely, and expect to continue to rely, on third parties to conduct our manufacturing of our drug substance and drug product, and those third parties may not perform satisfactorily, including failing to meet deadlines to provide adequate drug product for our clinical trials. This may prevent or delay our ability to complete our clinical trials and to seek or obtain marketing approval for or commercialize our product candidates or otherwise harm our

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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.

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 $19.0 million and $24.6 million for the three months ended March 31, 2024 and 2023, 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 early clinical development of our product candidates. We are in the early-stages of development of our lead product candidate, CT-0525, and expect to treat the first patient in the second quarter of 2024.

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 a planned clinical trial of CT-0525 for solid tumors that over-express HER2;

•conduct our ongoing Phase 1 clinical trial of CT-0508 with respect to patients currently enrolled or in screening;

•conduct our sub-study of our ongoing Phase 1 clinical trial utilizing CT-0508 in combination with pembrolizumab with respect to patients currently enrolled or in screening;

•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 CAR-M, and other macrophage therapies;

•develop in vivo reprogrammed mRNA/LNP 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, including those in our fibrosis program;

•seek marketing approval for CT-0525 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-0525 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, Penn and NYU;

•maintain, expand, enforce and protect our intellectual property portfolio;

•hire additional clinical, regulatory, manufacturing, quality control, development and scientific personnel; and

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•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.

•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

•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-0525. Other than completing remaining activities under our ongoing Phase 1 clinical trial of CT-0508 with respect to patients currently enrolled or in screening, we 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-0525, completing discovery, pre-clinical testing and clinical development of CT-0525 in the combination setting and for additional indications, timely filing and receiving acceptance of our IND applications, in order to commence our planned or future clinical trials, 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-0525 or of other product candidates, obtaining marketing approval for CT-0525 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-0525, which will require significant clinical testing before we can seek marketing approval and potentially generate commercial sales. If CT-0525 does not receive marketing approval or is not successfully commercialized, or if there is significant delay in doing so, our business will be harmed.

We initiated our first clinical trial in 2020, 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-0525 and related combination sub-studies, including CT-0525 in combination with pembrolizumab. Our business currently depends heavily on the successful development, marketing approval and commercialization of CT-0525, and the success of related combination sub-studies. We cannot be certain that CT-0525 or any combination therapy involving CT-0525 will achieve success in ongoing or future clinical trials, receive marketing approval or be successfully commercialized.

If we were required to discontinue development of CT-0525, or if CT-0525 does 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,

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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.

We will need substantial additional funding for our continuing operations. If we are unable to raise additional capital on acceptable terms, we could be forced to further 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-0525 and pursue related combination strategies, prepare for, initiate and conduct clinical trials of other product candidates, advance our discovery programs and continue our product development efforts. We expect our expenses to increase substantially over time 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-0525 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 additional capital or obtain adequate funds on acceptable terms, we may be required to further 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 clinical trials of CT-0525 and other planned and future clinical trials;

•the costs of our clinical trials of CT-0508 with respect to patients currently enrolled or in screening;

•the scope, progress, costs and results of pre-clinical testing and clinical trials of CT-0525 for additional combinations, targets and indications;

•the scope, progress, costs and results of pre-clinical testing of product candidates in our fibrosis program;