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Commitments and Contingencies

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies.

Commitments and Contingencies

(5)	Commitments and Contingencies

Leases

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

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

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

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


		Three months ended March 31,
		2023			2022
Operating lease cost		$	1,433		$	465
Finance lease cost:
Amortization of lease assets			297			—
Interest on lease liabilities			45			—
Total finance lease cost			342			—
Total lease cost		$	1,775		$	465

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


		March 31,
		2023		2022
Weighted-average remaining lease term (in years)
Operating leases		2.2		2.2
Finance leases		1.9		—

Weighted-average discount rate
Operating leases		9.5	%	9.4	%
Finance leases		9.0	%	—	%

Supplemental cash flow information (in thousands):


		Three Months Ended
		March 31,
		2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used in operating leases		$	1,448		$	461
Operating cash used in finance leases		$	45		$	—
Financing cash used in finance leases		$	106		$	—

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


		Operating			Finance
		Leases			Leases
Fiscal year ending:
2023 (remaining nine months)		$	2,713		$	1,150
2024			213			600
2025			219			338
2026			226			—
2027			233			—
Thereafter			423			—
Total future minimum payments			4,027			2,088
Less imputed interest			(482)			(160)
Present value of lease liabilities		$	3,545		$	1,928

Licensing and Sponsored Research Agreements

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

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

Contingencies

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

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