SAB Biotherapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the section titled “Risk Factors,” our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors.” Please also refer to the section titled “Special Note Regarding Forward Looking Statements.”

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report” or “Form 10-Q”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act of 1934, as amended (the "Exchange Act"), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements involved known and unknown risks, relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. In addition, historic results, including but not limited to those related to IND enabling GLP safety/toxicology of SAB-142; and Phase 1 & Phase 2a results of SAB-176; do not guarantee that future research or trials will suggest the same conclusions, nor that historic results referred to herein will be interpreted in the same manner due to future preclinical and clinical trial results or otherwise. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the sections entitled “Risk Factors” in this Quarterly Report, our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and other periodic reports filed with the Securities and Exchange Commission (the “SEC”) and available at https://www.sec.gov/. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as expressly required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Company Overview

We are a clinical-stage biopharmaceutical company focused on the development of human polyclonal immunotherapeutic antibodies, or hIgG, to address immune system disorders and infectious diseases. Our antibodies are both target-specific and polyclonal, meaning they are comprised of multiple hIgGs and can bind to multiple sites on specific immunogens, making them ideally suited to address the complexities associated with many immune-mediated disorders. Our lead candidate, SAB-142 is a human ATG focused on preventing or delaying the progression of T1D. We recently initiated a Phase 1 trial of SAB-142 to establish its safety and pharmacokinetic profiles in human subjects.

In addition to SAB-142, we also have clinical stage assets targeting infectious diseases that have significant mortality and morbidity in the general population and in high-risk patients. To date, we have conducted seven clinical trials, including Phase 1, Phase 2 and Phase 3, totaling more than 700 individuals dosed with our proprietary hIgGs. In May of 2023, we received Fast Track Designation and Breakthrough Therapy Designation from the U.S. Food and Drug Administration (the “FDA”) Center for Biologics Evaluation and Research (“CBER”) for our SAB-176 immunoglobulin targeting multiple strains of influenza based upon positive clinical data from a Phase 2a trial.

More broadly, we believe that our proprietary platform, referred to as DiversitAb,™ holds the potential to generate additional novel therapeutic candidates to expand our pipeline. DiversitAb,™ utilizes the human immune response to generate the optimal repertoire of IgGs for drug targets of interest. We believe it is the only technology capable of producing disease-targeted, hIgG in large quantities without the need for human plasma donors. We have optimized genetic engineering in the development of transchromosomic cattle, or Tc Bovine, which produce hIgGs. Our engineering of the DiversitAb production system drives IgG1 production across our pipeline. As our lead program SAB-142 advances, we intend to expand our pipeline in complimentary indications through strategic utilization of our platform.

Recent Developments

SAB provided a clinical trial progress update on September 9, 2024 at the European Association for the Study of Diabetes Annual Meeting. The update confirmed that SAB-142 has completed Phase 1 enrollment of all planned cohorts in healthy volunteers and is progressing to enroll patients with type 1 diabetes in the last cohort of the study. Further, the target dose of SAB-142 2.5mg/kg is complete with no observation of serum sickness.

SAB has elected to add a T1D patient cohort to establish safety, tolerability, pharmacokinetic and immunogenicity profile of SAB-142 in patients with T1D prior to initiation of an upcoming Phase II SAFEGUARD study in patients with new-onset T1D.

SAB-142 believes that it remains on track for a topline Phase 1 data readout by the end of the year.

Corporate Strategy

We are focused on developing product candidates for disease targets where a differentiated approach has the greatest potential to be either first-in-class against novel targets or best-in-class against complex targets to treat diseases with significant unmet medical needs, including immune and autoimmune disorders including T1D. Our business strategy is focused on SAB-142 as a first-in-class, human, multi-target antibody treatment designed to provide superior efficacy and safety in delaying the onset or progression of T1D.

DiversitAb,™ represents the first technology of its kind to produce large-scale human high-titer and high-avidity antibodies across multiple modalities.

Leveraging our proprietary production system will help us advance a robust pipeline of differentiated hIgG-based therapies for the treatment of immune system disorders and infectious diseases. Our hIgGs have been safely demonstrated up through Phase 3 clinical trials with a patient safety database that includes over 700 patients who were safely administered our hIgG therapeutics.

We have a demonstrated regulatory pathway through each of the FDA, CBER, UK Medicines and Healthcare products Regulatory Agency (“MHRA”), and Australian Therapeutic Goods Administration (“TGA”). These organizations understand our science and are familiar with the multivalent and multitarget properties of our single vial drug products. This further streamlines our ability to develop new and novel drug products rapidly and efficiently where single target monoclonal antibodies (“mAbs”) cannot replicate or duplicate our drug product attributes.

Our Product Pipeline

SAB-142: Human Anti-Thymocyte Globulin for Type 1 Diabetes

The following table summarizes our drug candidate, SAB-142 and its existing clinical plan and proposed stages of development.

Figure 1. An overview of phased milestones for SAB-142, starting with Phase 1 study cohorts 1-5 starting end of 2023 through beginning of 2025, with Phase 1 topline results anticipated in late 2024. Phase 2 study POC/DRF is anticipated to begin in early 2025 with Phase 2 (SAFEGUARD) topline results expected at the end of 2027.

Figure 2. An overview of the SAB-142 pipeline, including potential future anticipated studies for other indications and anticipated milestones.

SAB-142 is a first-in-class, human, multi-target anti-thymocyte globulin treatment designed to provide superior efficacy and safety in delaying the onset or progression of T1D. SAB-142 is expected to reduce autoimmune β-cell destruction and delay progression or onset of T1D in patients with Stage 3 or Stage 2 T1D respectively.

In addition to potentially preserving beta cell function in early T1D patients, SAB-142 offers the potential of re-dosing when examining clinically meaningful indicators such as C-peptide levels and glycosylated hemoglobin (HbA1c), without the potential risk of inducing major immune reactions of analogous animal derived IgGs. The overall long-term safety profile of a low-dose ATG is supportive of the vision to use SAB-142 as a lifelong disease-modifying treatment without a risk of immunosuppression associated with clinically significant effects such as infections, malignancies or suppressed humoral response.

Mechanism of Action

Maintenance of the level of connecting peptide, a short 31 amino acid polypeptide that connects insulin’s A chain to its B chain in the proinsulin molecule, commonly referred to as C-peptide, is a validated surrogate endpoint for endogenous insulin production, essential for the prevention of progression of T1D. Placebo controlled trials with low-dose rabbit ATG, defined as a single dose of 2.5 milligram per kilogram (mg/kg), have shown statistically significant maintenance of C-peptide levels and thus a delay in progression of recent onset T1D.

Based on the results of a Phase 2 clinical trial conducted at the University of Florida, a single dose of rabbit ATG showed sustained benefit in T1D over a two-year period by maintaining significantly higher C-peptide levels than a placebo control. However, more than 65% of treated patients in this study acquired serum sickness due to the infusion of a non-human antibody, with symptoms that included rash, malaise, fever, and joint swelling. The symptoms often required treatment with steroids that control serum sickness but impair diabetes management and reduces the capacity to re-dose rabbit ATG when C-peptide levels begin to drop.

While the mechanism of action of our compound closely resembles rabbit ATG, SAB-142 has clear advantages that are fundamental for safe and reliable re-dosing required to delay disease progression. Data from more than 700 human subjects treated with antibodies produced by our platform support expectation of a zero serum sickness rate and zero incidence of neutralizing anti-drug antibodies (“ADA”) within the upcoming SAB-142 trials. There is an established regulatory path for T1D indications using the SAB-142 modality. We initiated the Phase 1 clinical study with the first patient dosed November 2023. Finally, our next steps will be to file a clinical trial application (“CTA”) in the European Union, and an investigational new drug (“IND”) application in the United States to expand the clinical trials to global jurisdictions.

Rabbit ATG shows therapeutic promise but offers problematic potential for adverse events that could inhibit long term disease modification and redosing; we believe those issues are resolved by SAB-142. SAB-142 represents an opportunity to offer a novel human alternative to rabbit- or equine-derived ATG IgGs with potential for safe and reliable re-dosing while avoiding the risk factors observed with currently available therapies.

Clinical Strategy

Immunological processes resulting in the breakdown of self-tolerance and gradual destruction of pancreatic beta cells by the patient’s own immune system preceding the clinical onset of disease oftentimes starts very early in patients’ lives, sometimes as early as in utero. The average age of clinical onset of T1D is 13 years old. Stage 1 is the start of T1D, marked by individuals having two or more diabetes-related autoantibodies and still normal blood sugar concentrations. In Stage 2, individuals have dysglycemia but without symptoms. Stage 3 is the time of a full clinical diagnosis. Unfortunately, when an individual is first diagnosed with clinical stage T1D, 50- 90% of pancreatic insulin-producing beta cells are already destroyed. Hence, it is critical to start therapy that preserves the remaining fully functional beta cells as soon as possible as it may provide the highest benefit throughout the patient’s lifetime.

In addition to the currently approved and ongoing Phase 1, we plan to bring this program to IND and CTA filings with global regulatory authorities by the mid-2024. As there are unmet medical needs globally for disease-modifying treatments of T1D, we plan to work with global health authorities and file clinical trial applications and clinical trial notifications in other countries to have a global footprint and reach patients with T1D worldwide. We anticipate topline results by the end of 2024. Topline data will include the safety data to support re-dosing along with proof of biological activity. Topline data will further enable global Phase 2 clinical proof of concept and dose-range finding trials in adults and even more importantly, in adolescent T1D population, another critical milestone for 2024 as T1D onset most often occurs in pediatric and adolescent patient populations.

SAB-176: Human Anti-Influenza Globulin for High-Risk Influenza

SAB-176 represents a comprehensive approach to treatment and prophylaxis (PreP and PEP) of high-risk patients with influenza as a broadly neutralizing -human polyclonal immunoglobulin therapeutic with several anti-viral mechanisms. SAB-176 was evaluated in an ascending dose, double-blind, randomized, placebo-controlled Phase 1 safety trial in 27 healthy volunteers in 2020. The FDA allowed us to initiate a Phase 1 trial in healthy adults based on the safety profile in the preclinical data set. A Safety Review Committee (“SRC”) monitored adverse events after each cohort was infused and recommended that each later cohort could be infused with the next highest dose according to the study protocol. Although anticipated adverse events were noted among the SAB-176 and placebo participants, no drug related serious adverse events (“SAEs”) were identified by the SRC.

In March 2024, SAB announced that the Navy Medical Research Command (“NMRC”) would be moving forward with a safety and tolerability study to evaluate SAB-176 pursuant to the Cooperative Research and Development Agreement governing the relationship between SAB and the NMRC, with funding for the study provided by the Henry Jackson Foundation.

Key Factors Affecting Our Results of Operations and Future Performance

We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described throughout our analysis within Components of Results of Operations below, each of which presents growth opportunities for our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described in the section captioned “Part I, Item 1A, Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and supplemented with revised or additional risk factors in our Quarterly Reports on Form 10-Q, including any such risks included in “Part II, Item 1A, Risk Factors” herein.

Components of Results of Operations

Revenue

Our revenue has historically been generated through grants from government and other (non-government) organizations. We currently have no commercially approved products.

Grant revenue is recognized for the period that the research and development services occur, as qualifying expenses are incurred or conditions of the grants are met. We concluded that payments received under these grants represent conditional, nonreciprocal contributions, as described in ASC 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606, Revenue from Contracts with Customers, as the organizations providing the grants do not meet the definition of a customer. Expenses for grants are tracked by using a project code specific to the grant, and the employees also track hours worked by using the project code.

Government grants

There was no revenue recognized from government grants for the three months ended September 30, 2024 and total revenue recognized from government grants was approximately $1.2 million for the nine months ended September 30, 2024, and $1.3 million and $1.9 million for the three and nine months ended September 30, 2023, respectively.

The National Institute of Health – National Institute of Allergy and Infectious Disease (“NIH-NIAID”) and Geneva Foundation grants, totaling approximately $4.2 million, were completed as of June 30, 2023. No grant income was recognized for these grants in the three and nine months ended September 30, 2024. The Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense Enabling Biotechnologies (“JPEO”) Rapid Response Contract (the “JPEO Rapid Response Contract”), initially awarded for up to $25 million and later expanded to $203.6 million, was terminated in 2022 (the “JPEO Rapid Response Contract Termination”). A final settlement was reached with the US Department of Defense (the “DoD”) in January 2023. Approximately $1.2 million in deferred grant income was recognized for the JPEO Rapid Response Contract in the nine months ended September 30, 2024. A remaining $115 thousand is expected to be recognized as wind-down activities are completed, subject to potential adjustments from negotiations with third-party vendors.

See Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements for further information about our established revenue recognition process and Note 4, Revenue, to our condensed consolidated financial statemetns for further information about revenue recognized from government grants for the three and nine months ended September 30, 2024 and 2023.

Operating Expenses

Research and Development Expenses

Research and development expenses primarily consist of salaries, benefits, incentive compensation, stock-based compensation, laboratory supplies and materials for employees and contractors engaged in research and product development, licensing fees to use certain technology in our research and development projects, fees paid to consultants and various entities that perform certain research and testing on our behalf. Research and development expenses are tracked by target/project code. Indirect general and administrative costs are allocated based upon a percentage of direct costs. We expense all research and development costs in the period in which they are incurred.

Research and development activities consist of discovery research for our platform development and the indications we are working on. For SAB-142, Avance Clinical PTY, Ltd (“Avance”), acts as the contract research organization (“CRO”) overseeing our Phase 1 safety study. This study started in December 2023 and the terms of that agreement are subject to confidentiality and the status of the agreement is that it is current. For the three and nine months ended September 30, 2024 and 2023, we continued to incur costs to advance our progress towards commercialization of SAB-142. We expect to continue to incur substantial research and development expenses as we conduct discovery research to enhance our platform and work on our indications. We expect to hire additional employees and continue research and development and manufacturing activities. As a result, we expect that our research and development expenses will continue to increase in future periods and vary from period to period.

Major components within our research and development expenses are salaries and benefits (laboratory & farm), laboratory supplies, animal care, contract manufacturing, clinical trial expense, outside laboratory services, project consulting, and facility expenses. Our platform allows us to work on multiple projects with the same resources, as the research and development process of each product is very similar (with minimal differences in the manufacturing process).

Research and development expenses by component for the three and nine months ended September 30, 2024 and 2023:

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General and Administrative Expenses

General and administrative expenses primarily consist of salaries, benefits, and stock-based compensation costs for employees in our executive, accounting and finance, project management, corporate development, office administration, legal and human resources functions as well as professional services fees, such as consulting, audit, tax and legal fees, general corporate costs and allocated overhead expenses. General and administrative expenses also include rent and facilities expenses allocated based upon total direct costs. We expect that our general and administrative expenses will continue to increase in future periods, primarily due to increased headcount to support anticipated growth in the business and due to incremental costs associated with operating as a public company. These costs include expenses related to compliance with rules and regulations applicable to companies listed on a securities exchange, reporting obligations pursuant to SEC and stock exchange listing standards, public relations, insurance, and professional services. Additionally, we anticipate incurring expenses related to the remediation of material weaknesses in our internal control over financial reporting, which involve implementing new processes and engaging with a third-party firm. We expect these expenses to vary from period to period in absolute terms and as a percentage of revenue.

Nonoperating (Expense) Income

Gain (loss) on change in fair value of warrant liabilities

Gain (loss) on change in fair value of warrant liabilities consists of the changes in the fair value of the warrant liabilities.

Other Income (expense)

Other income primarily consists of income associated with the refundable portion of Australian research and development tax credits and dividend income from non-interest bearing short-term investments.

Interest income

Interest income consists of interest earned on our investments in debt securities, cash, and cash equivalents.

Interest expense

Interest expense consists primarily of interest related to abated rent and insurance financing.

Results of Operations

The following tables set forth our results of operations for the three months ended September 30, 2024 and 2023:

The following tables set forth our results of operations for the nine months ended September 30, 2024 and 2023:

Comparison of the three and nine months ended September 30, 2024 and 2023

Revenue

Revenue decreased by approximately $1.3 million, or 100.0%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to the JPEO Rapid Response Contract Termination. There was no revenue for the three months ended September 30, 2024, as compared to $413 thousand for supplies and $855 thousand for contract manufacturing, for the three months ended September 30, 2023.

Revenue decreased by $0.7 million, or 37.6%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to the JPEO Rapid Response Contract Termination. Included in revenues for the nine months ended September 30, 2024, are closeout activities and charges of $1.2 million due to outside services for laboratory supply disposal, as compared to $0.5 million for supplies, $0.1 million for labor, and $1.4 million for contract manufacturing for the nine months ended September 30, 2023.

As a result of the JPEO Rapid Response Contract Termination, we expect future revenues to be lower as our primary pipeline development target of Type 1 diabetes remains independently financed as we explore potential partnerships, co-development opportunities, and licensing arrangements.

Research and Development

Research and development expenses increased by $3.8 million, or 94.8%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to increases in outside lab services (year-over-year increase of $1.3 million, 595.8%, salaries and benefits (year-over-year increase of $1.1 million, 49.5%), overhead (year-over-year increase of $0.1 million, 16.8%), project consulting (year-over-year increase of $0.2 million, 300.5%), clinical trial costs (year-over-year increase of $1.3 million, 475.4%), laboratory supplies (year-over-year increase of $0.2 million, 67.7%), offset by a decrease in contract manufacturing (year-over-year decrease of $0.4 million, 100.0%).

Research and development expenses increased by $10.4 million, or 85.0%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to increases in outside lab services (year-over-year increase of $4.0 million, 739.0%), salaries and benefits (year-over-year increase of $2.5 million, 41.5%), an out-of-period adjustment of $0.9 million of amortization expense, overhead (year-over-year increase of $0.5 million, 11.9%), project consulting (year-over-year increase of $0.4 million, 82.6%), clinical trial costs (year-over-year increase of $2.5 million, (814.2%), laboratory supplies (year-over-year increase of $0.3 million, 11.8%) offset by a decrease in animal care (year-over-year decrease of $0.4 million, 58.3%) and contract manufacturing (year-over-year decrease of $0.4 million, 100.0%).

General and Administrative

General and administrative expenses increased by $908 thousand, or 35.3%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to salaries and benefits (year-over-year increase of $883 thousand, 68.3%), project consulting (year-over-year increase of $159 thousand, 3.3%), human resources, legal, and other administrative support fees relating to IT (year-over-year increase of $15 thousand, 4.0%), offset by a decrease in insurance costs (year-over-year decrease of $149 thousand, 31.7%). We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We anticipate incurring expenses related to the remediation of material weaknesses in our internal control over financial reporting, which involve implementing new processes and engaging with a third-party firm.

General and administrative expenses increased by $2.6 million, or 29.1%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to salaries and benefits (year-over-year increase of $2.6 million, 72.3%), project consulting (year-over-year increase of $0.3 million, 36.7%), and other immaterial administrative support fees relating to IT and human resources, offset by a decrease in insurance costs (year-over-year decrease of $0.4 million, 29.8%). We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We anticipate incurring expenses related to the remediation of material weaknesses in our internal control over financial reporting, which involve implementing new processes and engaging with a third-party firm.

Non-operating Income

Total non-operating income increased by $0.5 million, or 175.7% in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to the other income attributable to the Australian research and development tax credit (year-over-year increase of $0.6 million) and dividend income received from non-interest bearing short-term investments (year-over-year increase of $0.1 million), offset by the change in fair value of warrant liabilities (year-over-year decrease of $0.2 million, 96.5%),

Total non-operating income increased by $9.3 million, or 918,690.41% in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to the change in fair value of warrant liabilities (year-over-year increase of $7.8 million, 8,097.5%), and Australian research and development tax credit (year-over-year increase of $1.2 million) and income received from non-interest bearing short-term investments (year-over-year increase of $0.3 million).

Interest Expense

Interest expense in the three months ended September 30, 2024 was consistent with interest expense in the three months ended September 30, 2023, with the added interest expense on the 8% Unsecured Convertible Note in the current fiscal period offset by lower interest expenses associated with our finance leases in the same period of the prior year.

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Interest expense in the nine months ended September 30, 2024 was consistent with interest expense in the nine months ended September 30, 2023, with the added interest expense on the 8% Unsecured Convertible Note in the current fiscal period offset by lower interest expenses associated with our finance leases in the same period of the prior year.

Interest Income

Interest income increased by $0.3 million, or 1829.6%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to interest earned on our investments in debt securities, along with higher interest earning cash and cash equivalent balances.

Interest income increased by $1.0 million, or 1,039.14%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2024, primarily due to interest earned on our investments in debt securities, and higher interest earning cash, and cash equivalent balances.

Liquidity and Capital Resources

As of September 30, 2024 and December 31, 2023, we had $30.4 million and $56.6 million, respectively, of cash, cash equivalents, and investments.

We intend to continue to invest in our business and, as a result, may incur operating losses in future periods. We expect to continue to invest in research and development efforts towards expanding our capabilities and expertise along our platform and the primary pipeline development targets we are working on, as well as building our business development team and marketing our solutions to partners in support of the growth of the business.

We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin commercialization of our products. As a result, we will require additional capital to fund our operations in order to support our long-term plans.

We have incurred operating losses for the past several years. While we intend to continue to keep operating expenses at a reduced level there can be no assurance that our current level of operating expenses will not increase or that other uses of cash will not be necessary. Based on our current level of operating expenses, existing resources will not be sufficient to cover operating cash needs through the twelve months following the date these financials are made available for issuance. We intend to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate our assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.

Sources of Liquidity

Since our inception, we have financed our operations primarily from revenue in the form of government grants and from equity financings.

Notes payable

8% Unsecured Convertible Note

Pursuant to the fourth amendment to our lease with Sanford Health, we agreed to a period of abated rent (the “Abated Rent”) from October 1, 2022 to September 30, 2023. In exchange for the Abated Rent, effective as of October 1, 2022, we issued to Sanford Health an 8% unsecured, convertible promissory note (the “8% Unsecured Convertible Note”).

Pursuant to the 8% Unsecured Convertible Note, we shall pay the sum of approximately $542 thousand (the “Principal”) plus accrued and unpaid interest thereon on September 30, 2024 (the “Maturity Date”). Simple interest shall accrue on the outstanding Principal from and after the date of the 8% Unsecured Convertible Note and shall be payable on the Maturity Date. The Company repaid the Principal of $542 thousand and total accrued interest of $87 thousand during the three months ended September 30, 2024. We incurred approximately $32 thousand and $36 thousand of interest expense for the three and nine months ended September 30, 2024 and 2023, respectively, related to the 8% Unsecured Convertible Note.

Insurance Financing Note

We obtained financing for certain Director & Officer liability insurance policy premiums. The agreement assigns First Insurance Funding (“Lender”) a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies including (a) all returned or unearned premiums, (b) all additional cash contributions or collateral amounts assessed by the insurance companies in relation to the financed policies and financed by Lender, (c) any credits generated by the financed policies, (d) dividend payments, and (e) loss payments which reduce unearned premiums. If any circumstances exist in which premiums related to any Financed Policy could become fully earned in the event of loss, Lender shall be named a loss-payee with respect to such policy.

The total premiums, taxes and fees financed is approximately $765 thousand with an annual interest rate of 7.96%. In consideration of the premium payment by Lender to the insurance companies or the Agent or Broker (as such terms are defined in the agreement with Lender), we unconditionally promise to pay Lender the amount financed plus interest and other charges permitted under the agreement. We paid the insurance financing note through installment payments with the last payment for the current note being September 22, 2024. We recognized no insurance financing note payable in its condensed consolidated balance sheet as of September 30, 2024 and recognized approximately $509 thousand of insurance financing note payable in its condensed consolidated balance sheet as of December 31, 2023. We incurred less than $1 thousand of interest expense related to the insurance financing note for the three months ended September 30, 2024 and 2023 and approximately $13 thousand and $13 thousand for the nine months ended September 30, 2024 and 2023, respectively.

Please refer to Note 9, Notes Payable, to our condensed consolidated unaudited financial statements for additional information on our debt.

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023:

Operating Activities

Net cash used in operating activities increased by $13.1 million in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to an increase in cash used in operating activities related to change in our operating assets and liabilities of $3.2 million and an increase in our net loss adjusted for non-cash items of $9.9 million. Year-over-year changes in cash used by operating activities is explained by shifts in the working capital balances as we continue to invest in the development of our lead product candidate, SAB-142.

Investing Activities

Net cash used by investing activities increased by $21.2 million in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to an increase in purchases, sales and maturities of investment securities.

Financing Activities

Net cash used by financing activities increased by $0.5 million in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due payments of our convertible note and insurance financing agreement along with an increase in deferred issuance costs.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with third parties, including CROs.

As of September 30, 2024, there were no material changes outside of the ordinary course of business to our commitments and contractual obligations.

Income Taxes

Due to current and prior year losses we do not expect to have any Income Tax Provision.

We continue to record a valuation allowance on its net deferred tax assets. The valuation increased by approximately $6.8 million during the nine months ended September 30, 2024. We have not recognized any reserves for uncertain tax positions.

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have experienced net losses, negative cash flows from operations and, as of September 30, 2024, and had an accumulated deficit of $112.8 million. We anticipate we will continue to generate losses for the foreseeable future and expect the losses to increase as we continue the development of, or seek regulatory approvals for, product candidates, and begin commercialization of products. As a result, we will require additional capital to fund operations in order to support our long-term plans.

We will need to raise additional capital to fund our operations, continue to execute our strategy, and continue as a going concern. In the future, we may seek additional funding through a combination of equity or debt financings, or other third-party financing, collaborative, or other funding arrangements. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount, liquidate assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.

We currently expect that our cash, cash equivalents, and short-term investments of $30.4 million as of September 30, 2024 will not be sufficient to fund our operating expenses and capital requirements for more than 12 months from the date the financial statements are issued. These conditions raise substantial doubt about our ability to continue as a going concern.

Off-Balance Sheet Arrangements

We did not have, for the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

We have prepared our condensed consolidated financial statements in accordance with U.S. GAAP. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

Our most critical accounting estimates and assumptions are included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 29, 2024 and our most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 filed with the SEC on August 8, 2024. There have been no significant changes to our critical accounting policies during the three months ended September 30, 2024. See Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements for further details.

JOBS Act Accounting Election

The Jumpstart Our Business Startups (“JOBS”) Act, enacted in April 2012, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have and intend to continue to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards, for an emerging growth company under Section 107 of the JOBS Act.

We may use these provisions until the last day of our fiscal year in which the fifth anniversary of the completion of our initial public offering occurred. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.235 billion, or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

We have elected to take advantage of certain of the reduced disclosure obligations in this Form 10-Q and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than the information you receive from other public companies in which you hold stock.

The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, until those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which we will adopt the recently issued accounting standard.

Concentration of Credit Risk

We received 100% of our total revenue through grants from government organizations for the three and nine months ended September 30, 2024, respectively and the three and nine months ended September 30, 2023, respectively. To date, no receivables have been written off.

Interest Rate Risk

As of September 30, 2024 and December 31, 2023, we had cash, cash equivalents, U.S. treasury securities, investments in exchange traded mutual funds, and money market funds of $30.4 million and $56.6 million, respectively, all of which was maintained in bank accounts, money market funds, mutual funds, and U.S. treasury securities. Our primary exposure to market risk is to interest income volatility, which is affected by changes in the general level of interest rates. A 10% change in the market interest rates would not have a material effect on our business, financial condition, or results of operations.

Foreign Currency Risk

We conduct materially all of our business in U.S. dollars. We do not have any foreign currency or other derivative financial instruments. Our primary exposure to changes in foreign currency exchange rates relates mainly to SAB Australia. We do not currently hedge our foreign currency exchange rate risk. As of September 30, 2024 and December 31, 2023, our liabilities denominated in foreign currencies were not material. Accordingly, we do not believe a 10% increase or decrease in current exchange rates would have a material effect on our financial results.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under 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, 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 as of September 30, 2024, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2024. Management has concluded that there is a material weakness in the design and operating effectiveness of the Company’s control environment surrounding insufficient documentation of the formalized processes and procedures that are critical to the accomplishment of financial reporting objectives.

Plan for Remediation of Material Weakness

We continue to work to strengthen our internal control over financial reporting and are committed to ensuring that such controls are designed and operating effectively. We are implementing process and control improvements to address the above material weakness as follows:

• We have engaged with a third party firm to perform a complete risk assessment and provide advisory services for our required documented control attributes and necessary remediation efforts. We have made significant progress in these collective efforts, and are substantially complete as of September 30, 2024. We plan to finish our necessary control testing and evidence documentation requirements by the end of 2024. We expect to be in a position to fully remediate the previously identified control procedure documentation issues prior to the filing of our Annual Report on Form 10-K for the year ended December 31, 2024.
• We have completed our process of implementing a contract management platform. This will integrate functions governing the initiation, authorization, and execution of contracts with enhancements for our existing contract review control. This

tool will now improve the ability of the finance organization to review new and renewed contracts for potential financial reporting implications.

We are committed to continuing to improve our internal control processes related to these matters and will continue to review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address deficiencies or modify certain of the remediation measures described above.

Changes in Internal Control Over Financial Reporting

There were no changes, except for the remediation efforts described above, in our internal control over financial reporting that occurred during the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 29, 2024, which we strongly encourage you to review (the “2023 Annual Report”). There have been no material changes from the risk factors described in our 2023 Annual Report.