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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to
Commission file number 001-04321
CENTESSA PHARMACEUTICALS PLC
(Exact name of registrant as specified in its charter)
England and Wales98-1612294
(State or other jurisdiction of
 incorporation or organization)
(I.R.S. Employer Identification No.)
3rd Floor
1 Ashley Road
Altrincham
Cheshire WA14 2DT
United Kingdom
(Address of principal executive offices and zip code)

+44 (0) 203 920 6789, ext. 9999
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary shares, nominal value £0.002 per share
CNTA
Nasdaq Stock Market, LLC*
American Depositary Shares, each representing one ordinary share, nominal value £0.002 per share
CNTANasdaq Stock Market, LLC
*Not for trading, but only in connection with the listing of the American Depositary Shares on 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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer  
x
Smaller reporting company
x
Emerging growth company
x
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 Act).     Yes   o     No  x

The registrant had outstanding 94,339,299 ordinary shares as of August 1, 2022.




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Summary of the Material Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks are described more fully in Item 1A - Risk Factors, and include, but are not limited to, the following:
We may not be successful in our efforts to use our differentiated asset-centric business model to build a pipeline of product candidates with commercial value.
A single or limited number of programs or product candidates may comprise a large proportion of our value.
We face challenges, risks and expenses related to the integration of the operations of our asset-centric Centessa Subsidiaries, as well as the management of the expected growth in the scale and complexity of our operations.
We, and our subsidiaries have incurred net losses since inception, and we expect to continue to incur losses for the foreseeable future and may never achieve or maintain profitability.
We will need substantial additional funds to advance development of our product candidates, and we cannot guarantee that we will have sufficient funds available in the future to develop and commercialize our current or future product candidates.
Our credit facility and payment obligations under the Note Purchase Agreement with Cocoon SA LLC, an affiliate of Oberland Capital as agent for the Purchasers, contain operating and financial covenants that restrict our business and financing activities, are subject to acceleration in specified circumstances and may adversely affect our financial position or results of operations and our ability to raise additional capital which in turn may increase our vulnerability to adverse clinical or regulatory developments or economic or business downturns or which may result in Oberland Capital taking possession of our assets and disposing of any collateral.
Our product candidates are in various stages of development, including many in preclinical stages, and may fail in development or suffer delays that materially adversely affect their commercial viability.
We may not be successful in our efforts to identify, discover, in-license or otherwise acquire additional product candidates and may fail to capitalize on programs or product candidates that may represent a greater commercial opportunity or for which there is a greater likelihood of success.
Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.
We may encounter substantial delays or challenges in the initiation, conduct or completion of our clinical trials, and the results of clinical development are uncertain.
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of our product candidates.
We may be unable to obtain U.S. or foreign regulatory approval and, as a result, unable to commercialize our product candidates.
We rely, and expect to continue to rely, on third parties to conduct our preclinical studies, clinical trials, and manufacturing activities and if these third parties perform in an unsatisfactory manner, our business could be substantially harmed.
Preclinical and clinical development is a long, expensive and uncertain process, we have terminated certain of our programs and we may terminate one or more of our current preclinical and/or clinical development programs.
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Table of Contents
Summary of the Material Risks Associated with Our Business (continued)
We could experience manufacturing problems that result in delays in our development or commercialization of our programs or otherwise harm our business.
Business interruptions resulting from the ongoing COVID-19 outbreak or similar public health crises or the Russia-Ukraine war could cause a disruption of the development of our product candidates and adversely impact our business.
If we are unable to obtain and maintain sufficient patent and other intellectual property protection for our product candidates and technology or other product candidates that may be identified, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize product candidates similar or identical to the product candidates, and our ability to successfully commercialize the product candidates and other product candidates that we may pursue may be impaired.
The patent protection we obtain for our product candidates and technology may be challenged or not sufficient enough to provide us with any competitive advantage.
A number of our programs and associated product candidates are heavily dependent on licensed intellectual property. If we were to lose our rights to licensed intellectual property, we may not be able to continue developing or commercializing our product candidates, if approved. If we breach any of the agreements under which we license the use, development and commercialization rights to our product candidates or technology from third parties or, in certain cases, we fail to meet certain development deadlines, we could lose license rights that are important to our business.
We have never commercialized a product candidate and we may lack the necessary expertise, personnel and resources to successfully commercialize any of our products that receive regulatory approval on our own or together with collaborators.
Our international operations may expose us to business, regulatory, legal, political, operational, financial, pricing and reimbursement risks associated with doing business across multiple jurisdictions outside of the United States.
We are an emerging growth company and a smaller reporting company and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make our ADSs less attractive to investors.
We have previously had material weaknesses in our internal control systems over financial reporting, which have been remediated. We may identify new material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate any new material weaknesses, we may not be able to report our financial results accurately or to prevent fraud.
If we fail to develop or maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.
While we do not believe we were a “passive foreign investment company” (“PFIC”) in 2021, there is substantial uncertainty as to whether we are or will be a PFIC in the past or in the future. If we are a PFIC, there could be material adverse U.S. federal income tax consequences to U.S. holders.
3

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TABLE OF CONTENTS
Page
Item 6.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or 10-Q, contains express or implied forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. In some cases, forward-looking statements may be identified by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “ongoing,” “aim,” “seek,” “strive,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this 10-Q are based upon information available to our management as of the date of this 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements contained in this 10-Q include, but are not limited to, statements about:
the initiation, timing, progress and results (preliminary, interim or final) of our preclinical studies and clinical trials, and our research and development programs;
our ability to advance our product candidates into, and successfully complete, clinical trials;
our reliance on the success of our product candidates and our pipeline programs;
our ability to utilize our screening platform to identify and advance additional product candidates into clinical development;
our ability to become the partner of choice to attract founder-subject matter experts with high conviction programs;
the timing or likelihood of regulatory filings and approvals;
the impact of the ongoing COVID-19 pandemic, including the impact of the delta, omicron and other variants, and the impact of the Russia-Ukraine war on our business and operations;
the commercialization of our product candidates, if approved;
our ability to develop sales and marketing capabilities;
4

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the pricing, coverage and reimbursement of our product candidates, if approved;
the implementation of our business model, strategic plans for our business, product candidates and technology;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;
cost associated with prosecuting and maintaining our intellectual property and with defending intellectual property infringement, product liability and other claims;
legal and regulatory development in the United States, the European Union, the United Kingdom and other jurisdictions;
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
the potential benefits of strategic collaboration agreements and our ability to negotiate and enter into strategic arrangements;
our ability to identify collaboration opportunities and to establish and maintain collaborations;
our ability to obtain additional funding;
our ability to fulfill our obligations under the Note Purchase Agreement, as amended, with Oberland Capital;
the rate and degree of market acceptance of any approved products;
developments relating to our competitors and our industry, including competing therapies and our ability to respond to such developments;
our ability to effectively manage our anticipated growth;
our ability to attract and retain qualified employees and key personnel;
our expectations regarding the period during which we qualify as a smaller reporting company and as an emerging growth company under the JOBS Act;
statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance;
our expected use of proceeds of our IPO;
the future trading price of the ADSs and impact of securities analysts’ reports on these prices; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”
You should refer to the section titled “Item 1A. Risk Factors” in this 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot be assured that the forward-looking statements in this 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, these statements should not be regarded as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this 10-Q and the documents that we reference in this 10-Q and have filed as exhibits to this 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Centessa Pharmaceuticals plc (Successor)
Consolidated Balance Sheets
(unaudited)
(amounts in thousands except share and per share data)
June 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$484,161 $595,082 
Tax incentive receivable18,942 15,392 
Prepaid expenses and other current assets16,395 18,300 
Total current assets
519,498 628,774 
Property and equipment, net905 162 
Other, net648 699 
Total assets
$521,051 $629,635 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$8,229 $8,065 
Accrued expenses and other current liabilities25,340 16,573 
Total current liabilities33,569 24,638 
Long term debt67,400 75,700 
Contingent value rights 37,700 
Other, net43 43 
Total liabilities
101,012 138,081 
Commitments and contingencies (Note 6)
Shareholders’ equity:
Ordinary shares: £0.002 nominal value: 152,500,000 shares authorized, 94,271,917 issued and outstanding at June 30, 2022; 152,500,000 shares authorized, 89,988,228 issued and outstanding at December 31, 2021
263 252 
Additional paid-in capital925,730 876,267 
Accumulated other comprehensive (loss) income(1,142)688 
Accumulated deficit(504,812)(385,653)
Total shareholders' equity
420,039 491,554 
Total liabilities and shareholders' equity
$521,051 $629,635 


The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
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Table of Contents
Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Consolidated and Combined Statements of Operations and Comprehensive Loss
(unaudited)
(amounts in thousands except share and per share data)
SuccessorPredecessor
Three months ended June 30, 2022Three months ended June 30, 2021Six months ended June 30, 2022Period from
January 30, 2021
through
June 30, 2021
Period from
January 1, 2021
through
January 29,
2021
Operating expenses:
Research and development$53,651 $18,134 $90,504 $28,276 $662 
General and administrative14,763 11,841 29,148 17,436 121 
Change in fair value of contingent value rights 11,312 1,980 11,312  
Acquired in-process research and development   220,454  
Loss from operations(68,414)(41,287)(121,632)(277,478)(783)
Interest (expense) income, net(1,628)27 (3,024)35 (9)
Amortization of debt discount    (37)
Other income (expense), net5,359 (191)5,555 (2,699) 
Loss before income taxes(64,683)(41,451)(119,101)(280,142)(829)
Income taxes(22) 58   
Net loss(64,661)(41,451)(119,159)(280,142)(829)
Other comprehensive loss:
Foreign currency translation adjustment(1,124)1,094 (1,830)3,315 107 
Total comprehensive loss$(65,785)$(40,357)$(120,989)$(276,827)$(722)
Net loss per ordinary share - basic and diluted$(0.69)$(0.65)$(1.29)$(4.89)
Weighted average ordinary shares outstanding - basic and diluted94,109,089 63,516,656 92,317,172 57,309,693 


The accompanying notes are an integral part of these unaudited interim consolidated and combined financial statements.
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Centessa Pharmaceuticals plc (Successor)
Consolidated Statements of Shareholders' Equity
(unaudited)
(amounts in thousands except share data)
Series A PreferredOrdinary SharesAdditional
paid-in
capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance at April 1, 2022 $ 94,021,968 $262 $920,058 $(18)$(440,151)$480,151 
Stock option exercises— — 18,213 — 70 — — 70 
Vesting of ordinary shares— — 231,736 1 (1)— —  
Share-based compensation expense— — — — 5,603 — — 5,603 
Foreign currency translation adjustments— — — — — (1,124)— (1,124)
Net loss— — — — — — (64,661)(64,661)
Balance at June 30, 2022
 $ 94,271,917 $263 $925,730 $(1,142)$(504,812)$420,039 
Balance at April 1, 202122,840,902 $247,847 48,083,517 $133 $271,796 $2,131 $(243,273)$278,634 
Conversion of Series A convertible preferred shares into ordinary shares(22,840,902)(247,847)22,840,902 65 247,782 — —  
Sale of ordinary shares in connection with initial public offering, net of issuance costs of $8.8 million
— — 16,500,000 47 298,030 — — 298,077 
Sale of ordinary shares in connection with underwriters exercise of option to purchase— — 2,475,000 7 46,052 — — 46,059 
Stock-based compensation expense— — — — 3,229 — — 3,229 
Foreign currency translation adjustments— — — — — 1,094 — 1,094 
Net loss— — — — — — (41,451)(41,451)
Balance at June 30, 2021 $ 89,899,419 $252 $866,889 $3,225 $(284,724)$585,642 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
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Centessa Pharmaceuticals plc (Successor)
Consolidated Statements of Shareholders' Equity
(unaudited)
(amounts in thousands except share data)
Series A PreferredOrdinary SharesAdditional
paid-in
capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
SharesAmountSharesAmount
Balance at January 1, 2022 $ 89,988,228 $252 $876,267 $688 $(385,653)$491,554 
Issuance of ordinary shares to settle
   outstanding contingent value rights, net
— — 3,938,423 10 37,738 — — 37,748 
Stock option exercises— — 77,754 — 405 — — 405 
Vesting of ordinary shares— — 267,512 1 (1)— —  
Share-based compensation expense— — — — 11,321 — — 11,321 
Foreign currency translation adjustments— — — — — (1,830)— (1,830)
Net loss— — — — — — (119,159)(119,159)
Balance at June 30, 2022
 $ 94,271,917 $263 $925,730 $(1,142)$(504,812)$420,039 
Balance at January 30, 2021 $ 7,500,000 $21 $ $(90)$(4,582)$(4,651)
Sale of Series A convertible preferred shares, net of issuance costs of $3.4 million
22,272,721 241,597 — — — — — 241,597 
Issuance of Series A convertible preferred shares upon conversion of debt568,181 6,250 — — — — — 6,250 
Acquisition of Centessa Subsidiaries— — 44,758,079 123 262,575 — — 262,698 
Forgiveness of convertible term loan— — — — 6,199 — — 6,199 
Repurchase of ordinary shares concurrent with acquisition of Centessa Subsidiaries— — (4,450,000)(12)— — — (12)
Sale of ordinary shares in connection with IPO, net of issuance costs of $8.8 million
— — 16,500,000 47 298,030 — — 298,077 
Sale of ordinary shares in connection with underwriters exercise of option to purchase— — 2,475,000 7 46,052 — — 46,059 
Conversion of Series A convertible preferred shares into ordinary shares(22,840,902)(247,847)22,840,902 65 247,782 — —  
Stock option exercises— — 50,000 — 292 — — 292 
Share-based compensation expense— — — — 5,960 — — 5,960 
Vesting of ordinary shares— — 225,438 1 (1)— —  
Foreign currency translation adjustments— — — — — 3,315 — 3,315 
Net loss— — — — — — (280,142)(280,142)
Balance at June 30, 2021 $ 89,899,419 $252 $866,889 $3,225 $(284,724)$585,642 
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
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Centessa Predecessor Group (Predecessor)
Combined Statement of Convertible Preferred Shares and Combined Deficit
(unaudited)
(amounts in thousands except share data)
Convertible Preferred SharesCombined
Deficit
Series ASeries BSeries Seed
SharesAmountSharesAmountSharesAmount
Balance at January 1, 20214,337,282 $13,329 1,111,923 $10,840 1,100,000 $1,352 $(22,423)
Foreign currency translation adjustments— — — — — — 107 
Net loss— — — — — — (829)
Balance at January 29, 20214,337,282 $13,329 1,111,923 $10,840 1,100,000 $1,352 $(23,145)



The accompanying notes are an integral part of these unaudited interim combined financial statements.
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Consolidated and Combined Statements of Cash Flows
(unaudited)
(amounts in thousands)
SuccessorPredecessor
Six months ended June 30, 2022Period from
January 30, 2021
through June 30,
2021
Period from
January 1, 2021
through
January 29, 2021
Cash flows from operating activities:
Net loss$(119,159)$(280,142)$(829)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in-process research and development220,454
Share-based compensation expense11,3215,960
Depreciation and amortization609
Change in fair value of financial instruments(6,320)11,312
Changes in operating assets and liabilities:
Tax incentive receivable(5,300)(5,187)74
Prepaid expenses and other assets872(4,783)681
Accounts payable6232,159(358)
Accrued expenses and other liabilities7,9574,706(589)
Other, net52(28)
Net cash used in operating activities(109,894)(45,512)(1,049)
 
Cash flows from investing activities:
Cash acquired upon acquisition of Centessa Subsidiaries68,038
Cash paid to acquire in-process research and development(4,596)
Purchase of property and equipment(469)(74)
Net cash (used in) provided by investing activities(469)63,368
Cash flows from financing activities:
Proceeds from option exercises405292
Debt issuance costs(261)
Proceeds from the sale of preferred shares, net of issuance costs241,597
Proceeds from the sale of ordinary shares in connection with initial public offering, net of issuance costs paid in cash345,833
Other, net(12)
Net cash provided by financing activities144587,710
Effect of exchange rate on cash and cash equivalents(702)3,22880
Net (decrease) increase in cash and cash equivalents(110,921)608,794(969)
Cash and cash equivalents at beginning of period595,0824,9657,227
Cash and cash equivalents at end of period$484,161$613,759$6,258
Supplemental disclosure:
Interest paid$3,153$$
Income taxes paid$862$$
Non-cash investing and financing activities:
Issuance of ordinary shares to settle outstanding contingent value rights$39,680$$
Issuance of ordinary shares upon acquisition of Centessa Subsidiaries$$262,698$
Issuance of contingent value rights upon acquisition of Centessa Subsidiaries$$22,618
Issuance of Series A convertible preferred shares upon conversion of debt$$6,250$
Forgiveness of convertible term loan$$6,199$
Unpaid initial public offering issuance costs at June 30, 2021$$1,697$
The accompanying notes are an integral part of these unaudited interim consolidated and combined financial statements.
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
1. Organization and Description of Business
Centessa Pharmaceuticals plc (“Centessa” or “the Company”) is a clinical-stage pharmaceutical company with a Research & Development (“R&D”) innovation engine that aims to discover, develop and ultimately deliver impactful medicines to patients. Centessa was incorporated on October 26, 2020 as a limited liability company under the laws of England and Wales. In connection with the IPO, we re-registered Centessa Pharmaceuticals Limited as an English public limited company and renamed it as Centessa Pharmaceuticals plc.
In January 2021, the management and equity holders of ApcinteX Limited, Capella Biosciences Limited, Inexia Limited, Janpix Limited, LockBody Therapeutics Ltd, Morphogen-IX Limited, Orexia Limited, Palladio Biosciences, Inc., PearlRiver Bio GmbH, Pega-One S.A.S., and Z Factor Limited (together, the “Centessa Subsidiaries”), contributed the Centessa Subsidiaries to Centessa, in a share for share exchange, after which these companies became wholly-owned subsidiaries of Centessa.
As the Company had no significant operations prior to the contribution of the Centessa Subsidiaries, and the registrant was required to present two years of historical financial statements in its prospectus filed with the SEC on June 2, 2021, the Company’s management (“Management”) sought to identify a predecessor, for which it could include audited historical financial statements, to satisfy the filing requirement. As such, Management sought to identify the predecessor from the population of portfolio companies, which would represent a sizable portion of the historical results of the entities later contributed to Centessa.
Entities affiliated with Medicxi manage multiple investment funds, including – Medicxi Ventures I LP, Medicxi Growth I LP, and Medicxi Secondary I LP. In addition, entities affiliated with Medicxi act as sub advisors to Index Ventures Life VI (Jersey) Limited which advises the managing general partner of Index Ventures Life VI (Jersey), L.P. (all funds collectively are referred to as the “Funds”). Management determined the companies owned by Index Ventures Life VI (Jersey), LP individually represent some of the earliest investments by the Funds. These companies (together, the “Centessa Predecessor Group” or the “Group”) are:
Z Factor Limited (“Z Factor”)
LockBody Therapeutics Ltd (“LockBody”)
Morphogen-IX Limited (“Morphogen-IX”)
As the above entities that comprise the Centessa Predecessor Group were historically under the common control of Index Ventures Life VI (Jersey), LP, the financial statements of the Group are being presented on a combined basis and are denoted as “Predecessor” within these unaudited interim financial statements.
Subsequent to the contribution of the Centessa Subsidiaries to Centessa, the financial activities of Centessa and all Centessa Subsidiaries are being presented on a consolidated basis and are denoted as “Successor” within these unaudited interim financial statements.
Initial Public Offering
In June 2021, the Company completed an initial public offering (“IPO”) of its ordinary shares through the sale and issuance of 16,500,000 American Depositary Shares (“ADSs”), at an initial price of $20.00 per ADS. Each ADS represents one ordinary share with a nominal value of £0.002 per ordinary share. Following the close of the IPO, the underwriters fully exercised their option to purchase an additional 2,475,000 ADSs at the initial public offering price of $20.00 per ADS. The Company received aggregate net proceeds of $344.1 million in connection with the IPO and subsequent exercise of the underwriter’s options after deducting underwriting discounts, commissions and other offering expenses paid or to be paid.
Risks and Liquidity
The Company is subject to risks common to other life science companies in various stages of development including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing and compliance with government regulations,
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
in the markets in which the Company is seeking approvals, including U.S. Food and Drug Administration (“FDA”) regulations. If the Company does not successfully advance its programs, including the Centessa Subsidiaries’ programs, into and through human clinical trials and/or enter into collaborations for its programs and commercialize any of its product candidates, it may be unable to produce product revenue or achieve profitability.
The Company has incurred losses and negative cash flows from operations since inception and the Company had an accumulated deficit of $(504.8) million as of June 30, 2022. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of the product candidates currently in development. Substantial additional capital will be needed by the Company to fund its operations and to develop its product candidates.
The Company expects its existing cash and cash equivalents as of June 30, 2022 of $484.2 million will be sufficient to fund its expected operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of these unaudited interim financial statements.
Global Pandemic – COVID-19
On March 10, 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic. The Company is continuing to proactively monitor the ongoing COVID-19 global pandemic, to assess the potential impact on the business, and to seek to avoid any unnecessary potential delays to the Company’s programs. As of June 30, 2022, the clinical programs and research activities remain largely on track, with some modest delays in clinical trial enrollment rates and supply chain activities. While we are unable to fully quantify the potential effects of this pandemic on our future operations, including potential delays to our preclinical and clinical programs, management continues to evaluate and to seek to mitigate risks. The safety and well-being of employees, patients and partners remains our highest priority.
2. Summary of Significant Accounting Policies
References to the combined financial statements of the Centessa Predecessor Group refer to three of the eleven direct acquired Centessa Subsidiaries that were deemed to represent the predecessor entity prior to the Company’s acquisition of the Centessa Subsidiaries in January 2021. The Centessa Predecessor Group includes the combined financial information of Z Factor, Morphogen-IX and LockBody. The successor includes the consolidated financial information of Centessa and all Centessa Subsidiaries subsequent to the acquisition.
Accordingly, the accompanying unaudited interim consolidated and combined financial statements are presented in accordance with Securities and Exchange Commission (“SEC”) requirements for predecessor and successor financial statements, which include the financial results of both the Company and the Centessa Predecessor Group. The results of operations contained in the unaudited interim consolidated and combined financial statements include the Centessa Predecessor Group’s combined financial results for the period from January 1, 2021 through January 29, 2021 and the Company (Successor)’s consolidated financial results for the three months ended June 30, 2022 and June 30, 2021 as well as for the six months ended June 30, 2022 and for period from January 30, 2021 through June 30, 2021. The unaudited interim consolidated balance sheet presents the consolidated financial position of the Company on June 30, 2022.
The accompanying unaudited interim consolidated and combined financial statements should be read in conjunction with the annual audited consolidated and combined financial statements of Centessa Pharmaceuticals plc (Successor) and the Centessa Predecessor Group (Predecessor) and related notes as of and for the year ended December 31, 2021 which can be found in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”). The Summary of Significant Accounting Policies included in the Company’s annual financial statements have not materially changed, except as set forth below.
Basis of Presentation and Consolidation/Combination
The accompanying unaudited interim consolidated and combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) promulgated by the Financial Accounting Standards Board (“FASB”).
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
In the opinion of management, the accompanying unaudited interim consolidated and combined financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly:

the Company’s financial position as of June 30, 2022 and as of December 31, 2021;
the Company’s results of operations for the three months and six months ended June 30, 2022, for the three months ended June 30, 2021 and the period from January 30, 2021 through June 30, 2021;
the Company’s cash flows for the six months ended June 30, 2022 and the period from January 30, 2021 through June 30, 2021; and
the Predecessor’s results of operations and cash flows for the period from January 1, 2021 through January 29, 2021.

Operating results for the Company for the three months and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year. The unaudited interim consolidated and combined financial statements, presented herein, do not contain all of the required disclosures under U.S. GAAP for annual financial statements. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2021 as reported in the 2021 Annual Report have been omitted. Therefore, these unaudited interim consolidated and combined financial statements should be read in conjunction with the annual audited consolidated and combined financial statements and related notes for Centessa Pharmaceuticals plc (Successor) and the Centessa Predecessor Group found in the Form 10-K filed with the SEC.
The Company’s unaudited interim consolidated financial statements include the accounts of Centessa Pharmaceuticals plc, its wholly-owned subsidiary, Centessa Pharmaceuticals, Inc. and the wholly-owned Centessa Subsidiaries. The Centessa Predecessor Group’s unaudited interim combined financial statements included the accounts of Z Factor, Morphogen-IX and LockBody. All intercompany accounts and transactions have been eliminated in consolidation and combination.
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications had no effect on previously reported net loss or comprehensive loss.
Use of Estimates
The preparation of unaudited interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited interim consolidated and combined financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited interim consolidated and combined financial statements in the period they are determined to be necessary. Significant areas that require management’s estimates include share-based compensation assumptions, note purchase agreement assumptions, and accrued research and development expenses.
Property and Equipment, net
Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets. Property and equipment includes computer equipment, which has a useful life of three years, as well as leasehold improvements, which have a useful life of the lesser of the lease term or their useful life. The costs of maintenance and repairs are expensed as incurred. Improvements and betterment that add new functionality or extend the useful life of the asset are capitalized. Depreciation expense was $60 thousand for the six-month period ending June 30, 2022 and $9 thousand for the period from January 30, 2021 through June 30, 2021.
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
Note Purchase Agreement
In October 2021, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Oberland Capital Management LLC (“Oberland Capital”). Under the terms of the Note Purchase Agreement, Oberland Capital will purchase up to $300.0 million of 6-year, interest-only (initial interest rate is 8.0% per annum), senior secured notes (the “Notes”) from the Company including $75.0 million, funded on October 4, 2021, $125.0 million available within 24 months at the Company’s option, and $100.0 million available to fund Mergers and Acquisitions (“M&A”), in-licensing, or other strategic transactions, at the option of the Company and Oberland Capital. In addition to interest payments on the principal, the Company is obligated to pay a milestone payment upon the Company’s first product to obtain regulatory approval and was obligated to pay revenue participation payments, starting on the date of the first commercial sale of lixivaptan. Since the Company’s discontinuation of the development of lixivaptan for the treatment of ADPKD, the revenue participation payment is no longer achievable.

The Company evaluated the Notes and determined that the Notes include embedded derivatives that would otherwise require bifurcation as derivative liabilities. Neither the debt instrument nor any embedded features are required to be classified as equity. Therefore, the hybrid financial instrument comprised of the debt host and the embedded derivative liability may be accounted for under the fair value option. The Company elected to carry the Notes at fair value, and the debt instrument is outside the scope of ASC 480, Distinguishing Liabilities from Equity, and thus will be classified as a liability under ASC 470, Debt, in the Company’s financial statements. As the Company has elected to account for the Notes under the fair value option, debt issuance costs were immediately expensed.
The fair value of the Note Purchase Agreement represents the present value of estimated future payments, including interest, principal as well as estimated payments that are contingent upon the achievement of specified milestones. The fair value of the Notes is based on the cumulative probability of the various estimated payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving the milestones, anticipated timelines, probability and timing of an early redemption of all obligations under the Note Purchase Agreement and the discount rate. Any changes in the fair value of the liability in each reporting period are recognized in the consolidated statement of operations and comprehensive loss until it is settled.
Net Loss Per Ordinary Share
Basic loss per ordinary share is computed by dividing net loss by the aggregate weighted-average number of ordinary shares outstanding. Diluted loss per ordinary share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred shares, stock options, unvested restricted ordinary shares and convertible debt which would result in the issuance of incremental ordinary shares. For diluted net loss per ordinary share, the weighted-average number of ordinary shares is the same for basic net loss per ordinary share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average ordinary shares outstanding for the following periods, as they would be anti-dilutive.

Six Months Ended
June 30, 2022
Period from
January 30, 2021
through June 30,
2021
Unvested ordinary shares715,432 988,342 
Stock options15,521,324 10,530,410 
16,236,756 11,518,752 
Recently Adopted Accounting Pronouncements
On January 1, 2022, the Company adopted ASU No. 2016-02, Leases (“ASC 842”), which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. As of January 1, 2022, the Company was not party to any significant leases and therefore the adoption of this standard did not have a significant impact as of this adoption date. As permitted in the standards, the Company intends to reflect the adoption of ASC
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
842 in its annual report on Form 10-K for the year ended December 31, 2022, and in interim periods within the fiscal year ended December 31, 2023.
On February 7, 2022, the Company entered into a 10-year office lease (the “Boston Lease”) for its new corporate headquarters in Boston, Massachusetts. The Boston Lease contains 18,922 square feet with a fixed annual rent of approximately $1.6 million in 2023, with escalation to approximately $1.9 million in Year 10. The Company may, at its discretion, extend the Boston Lease for one extension term of five years. The Company will recognize an operating lease right-of-use asset and lease liability for this facility upon lease commencement, expected in early 2023 after the construction of the leased space.
3. Fair Value Measurement
Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, prepaid expense and accounts payable, are shown at cost, which approximates fair value due to the short-term nature of these instruments.
The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements to be classified and disclosed in one of the following three categories:
Level 1:    Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:    Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.
Level 3:    Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis (amounts in thousands):
Fair value measurement at reporting date using
Quoted prices
in active markets for
identical assets
(Level 1)
Significant
other
observable inputs (Level 2)
Significant
unobservable inputs
(Level 3)
June 30, 2022
Liabilities
Note Purchase Agreement$ $ $67,400 
December 31, 2021
Liabilities
Contingent Value Rights$ $ $37,700 
Note Purchase Agreement$ $ $75,700 
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
The reconciliation of the redemption feature measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (amounts in thousands):
Contingent Value RightsNote Purchase Agreement
Balance at January 1, 2022
$37,700 $75,700 
Change in fair value1,980 (8,300)
Settlement(39,680) 
Balance at June 30, 2022
$ $67,400 
The fair value of the Note Purchase Agreement represents the present value of estimated future payments, including interest, principal as well as estimated payments that are contingent upon the achievement of specified milestones. The fair value of the notes is based on the cumulative probability of the various estimated payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving the milestones, anticipated timelines, probability and timing of an early redemption of all obligations under the agreement and discount rate. Any changes in the fair value of the liability are recognized in the consolidated statement of operations and comprehensive loss until it is settled. For the six months ended June 30, 2022, the Company recorded an unrealized gain of $8.3 million for the estimated change in fair value of the Note Purchase Agreement, which was recorded in Other Income (Expense), net in the consolidated statement of operations and comprehensive loss. The unrealized gain was primarily the result of an increase in the discount rate due to a higher risk free rate and an increase in credit spreads.
On February 18, 2022, the Company commenced dosing in its Phase 3 clinical trial evaluating lixivaptan as a potential treatment for Autosomal Dominant Polycystic Kidney Disease (“ADPKD”). Such event was the milestone trigger for payment of contingent value rights originally issued to the former shareholders and option holders of the Company’s subsidiary, Palladio Biosciences, Inc., in connection with its acquisition by Centessa in January 2021. The contingent value rights entitled such holders to a number of ordinary shares of the Company (including in the form of ADSs) in an aggregate amount of approximately $39.7 million based on the Volume Weighted Average Price of the Company’s ADSs over the five day trading period ending on the date of the milestone trigger. The aggregate number of ordinary shares, issued as ADSs, in satisfaction of such contingent value rights, to the former shareholders and option holders of Palladio Biosciences, Inc was 3,938,423. The number of ADSs issued to employee recipients reflected in this figure is net of tax withholding, which the Company satisfied with cash payments to tax authorities. The ADSs were issued in exchange for the previously-issued contingent value rights of the Company. The Company recognized a remaining adjustment of fair value (a charge of $2.0 million) in its consolidated statement of operations and comprehensive loss in its first quarter of 2022.
4. Balance Sheet Components
Prepaid expenses and other current assets consist of the following (amounts in thousands):
Successor
June 30,
2022
December 31,
2021
Research and development expenses$6,116 $11,224 
Insurance related expenses6,279 4,661 
Value added tax receivable2,856 1,422 
Other1,144 993 
$16,395 $18,300 
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Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
Accrued expenses and other current liabilities consist of the following (amounts in thousands):
Successor
June 30,
2022
December 31,
2021
Research and development expenses$16,718 $9,323 
Personnel related expenses6,068 4,865 
Professional fees2,332 1,514 
Income tax liability 769 
Other222 102 
$25,340 $16,573 
Property and equipment, net consisted of the following (amounts in thousands):
Successor
June 30,
2022
December 31,
2021
Computer equipment$425 $196 
Other, primarily construction in progress574  
Property and equipment, at cost999 196 
Less: Accumulated depreciation(94)(34)
Property and equipment, net$905 $162 
5. Debt
In October 2021, the Company entered into a Note Purchase Agreement with Oberland Capital Management LLC (“Oberland Capital”). Under the terms of the Note Purchase Agreement, Oberland Capital will purchase up to $300.0 million of 6-year, interest-only, senior secured notes (the “Notes”) from the Company including $75.0 million, funded on October 4, 2021, $125.0 million available within 24 months at the Company’s option, and $100.0 million available to fund Mergers and Acquisitions (“M&A”), in-licensing, or other strategic transactions, at the option of the Company and Oberland Capital. In addition to interest payments on the principal, the Company is obligated to pay a one-time milestone payment upon the Company’s first product to obtain regulatory approval.
The Notes will mature on the six-year anniversary of the First Purchase Date, unless earlier accelerated under the terms of the Note Purchase Agreement. At maturity, the Company must repay the outstanding principal amount of the Notes, together with any accrued and unpaid interest thereon and other outstanding obligations thereunder. Interest is payable quarterly during the term of the Notes at a rate per annum equal to the sum of (a) the greater of (i) LIBOR (which may be subject to replacement as contemplated by the Note Purchase Agreement) and (ii) 0.25% and (b) 7.75% (which percentage is subject to adjustment as described in the Note Purchase Agreement); provided that the interest rate shall never be less than 8.00%. The interest rate of the Notes during the second quarter of 2022 was 8.72% per annum.
On February 11, 2022, Centessa Pharmaceuticals plc, as issuer, and certain of the Company’s wholly owned subsidiaries, as guarantors (the “Guarantors”), entered into an Amendment to the Note Purchase Agreement (the “Amendment”) with Three Peaks Capital Solutions Aggregator Fund (the “Purchaser”), and Cocoon SA LLC (the “Purchaser Agent”), an affiliate of Oberland Capital Management LLC, as agent for the Purchaser to modify the Note Purchase Agreement (the “Note Purchase Agreement”), dated as of October 1, 2021 by and among the Company, the Guarantors, the Purchaser and the Purchaser Agent.
Under the terms of the Amendment, the Company acknowledged the existence of certain Events of Default, including the delivery by the Company of a landlord consent after the required delivery date of October 31, 2021 and the entry by a subsidiary of the Company into a Research Collaboration and License Agreement without the prior consent of Purchaser Agent; as well as other non-financial, administrative-related defaults. Under the Note Purchase Agreement, Events of Default may entitle the lenders to default interest, penalties and the ability to terminate the facility and to accelerate repayment of any outstanding loans in full. Pursuant to the Amendment, the lenders agreed to waive such Events of Default.
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Table of Contents
Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
Pursuant to the Amendment, the Purchaser and the Purchaser Agent have also agreed to waive the requirement to obtain the consent of a certain licensee and waive certain of the insurance requirements contained in the Note Purchase Agreement. The Amendment also provides that the Company is required to maintain a cash balance in an amount equal to 75% of the aggregate outstanding principal amount of all issued Notes, as defined in the Note Purchase Agreement, that have been issued on and from February 11, 2022. Also pursuant to the Amendment, the date for the Third Purchase Date, as defined in the Note Purchase Agreement, and the Commitment Termination Date were extended to December 31, 2023. The Amendment also provides that upon the sale of any of the Company’s or any of its subsidiary’s assets, if the Purchaser Agent elects to have the Company repurchase the notes, such repurchase amounts will be subject to a $100 million deductible such that the Purchaser Agent will not collect any repurchase amounts until $100 million has been received by the Company from such sale event. In addition, the reduced payment cap that is triggered by the Purchaser Agent opting into a repayment in the event of an asset sale, extends to the second loan tranche, if drawn. The effectiveness of the Amendment is subject to certain conditions precedent and conditions subsequent.
6. Commitments and Contingencies
Commitments
As of June 30, 2022, the Company had non-cancellable commitments for purchase of clinical materials, contract manufacturing, maintenance, and committed funding of up to $34.7 million, of which the Company expects to pay $32.3 million within one year and $2.4 million over one to four years. The amount and timing of these payments vary depending on the rate of progress of development. Future clinical trial expenses have not been included within the purchase commitments because they are contingent on enrollment in clinical trials and the activities required to be performed by the clinical sites.
On February 7, 2022, the Company entered into a 10-year office lease for its new corporate headquarters in Boston, Massachusetts, which required the issuance of a letter of credit of $0.7 million. The fixed annual rent will be approximately $1.6 million in 2023 and will escalate each subsequent year to approximately $1.9 million in Year 10. The Company expects to have a right of use of the office space in early 2023.
Licensing and Collaborative Arrangements
As of June 30, 2022, the Company had no milestone obligations recorded on its balance sheet under its license and collaborative arrangements. Included in research and development expenses in the Company’s consolidated statement of operations and comprehensive loss for the three months ended June 30, 2022 was aggregate incurred expenses of $0.7 million, reflecting the amortization of upfront costs. For the six months ended June 30, 2022, aggregate incurred expenses were $1.5 million. The Company does not expect payments related to its licensing arrangements in 2022 to be material to the Company’s consolidated financial statements.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated.
Litigation
The Company is not a party to any litigation as of June 30, 2022, that, if determined adversely, would have a material adverse effect on its business and operations.
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Table of Contents
Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
7. Share-based Compensation
The Company and the Centessa Predecessor Group recorded share-based compensation expense in the following expense categories in the unaudited interim consolidated and combined statements of operations and comprehensive loss (amounts in thousands):
SuccessorPredecessor
Three Months Ended
June 30, 2022
Three Months Ended
June 30, 2021
Six Months Ended
June 30, 2022
Period from January 30, 2021 through
June 30, 2021
Period from January 1, 2021 through
January 29, 2021
Research and development$2,654 $924 $5,487 $2,041 $ 
General and administrative2,949 2,305 5,834 3,919  
$5,603 $3,229 $11,321 $5,960 $ 
Centessa Pharmaceuticals plc (Successor) Stock Options
The following table summarizes stock option activity for the six months ended June 30, 2022:
Number of SharesWeighted-Average Exercise Price Per ShareWeighted-Average Remaining Contractual Term
Balance at January 1, 202211,730,382 $8.07 9.2 years
Granted4,164,884 $9.05 
Exercised(77,754)$5.21 
Forfeited(296,188)$7.35 
Balance at June 30, 2022
15,521,324 $8.37 9.0 years
Exercisable at June 30, 2022
3,799,656 $6.89 8.7 years
Vested and expected to vest at June 30, 2022
15,521,324 
The weighted-average grant date fair value of options granted was $6.05 per share for the six months ended June 30, 2022. As of June 30, 2022, the total unrecognized compensation expense related to unvested stock option awards was $60.5 million, which the Company expects to recognize over a weighted-average period of 3.1 years.
Based on the trading price of $4.87 per ADS, which is the closing price as of June 30, 2022, the aggregate intrinsic value of options as of June 30, 2022 was $0.6 million, of which $0.5 million is related to vested options.
During the three months ended June 30, 2022, the fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:
Expected term6.0 years
Expected stock price volatility75.9 %
Risk-free interest rate1.9 %
Expected dividend yield0 %
The Company uses the Black-Scholes option pricing model to value its stock option awards. The expected life of the stock options is estimated using the “simplified method,” as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting period and the contractual term of the option. For share price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair
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Table of Contents
Centessa Pharmaceuticals plc (Successor) and Centessa Predecessor Group (Predecessor)
Notes to the Unaudited Interim Consolidated and Combined Financial Statements
value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected life of the option. Forfeitures of stock options are recognized in the period the forfeiture occurs.
Restricted Share Awards
The following table summarizes ordinary share activity for the six months ended June 30, 2022:
Number of Shares
Unvested at January 1, 2022982,944 
Vested(267,512)
Unvested at June 30, 2022
715,432 
As of June 30, 2022, the total unrecognized compensation expense related to unvested ordinary shares was $12.4 million, which the Company expects to recognize over a weighted-average period of 2.9 years.

8. Related Party Transactions
Master Services agreements with drug discovery companies affiliated with David Grainger
Certain Centessa subsidiaries entered into Master Services agreements with certain drug discovery companies affiliated with David Grainger, who was appointed as the Company’s Chief Innovation Officer in October 2021. These companies include RxCelerate Limited, RxBiologics Limited and The Foundry (Cambridge) Limited, of which David Grainger is a director and shareholder. The Company and the Centessa Predecessor Group incurred research and development costs associated with these contracts as follows in the consolidated and combined statements of operations and comprehensive loss (amounts in thousands):
SuccessorPredecessor
Three Months Ended
June 30, 2022
Three Months Ended
June 30, 2021
Six Months Ended
June 30, 2022
Period from January 30, 2021 through
June 30, 2021
Period from January 1, 2021 through
January 29, 2021
Research and development$1,420 $2,425 $3,119 $3,551 $418 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited interim consolidated and combined financial statements and related notes thereto, included elsewhere herein and the audited financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operation, all of which are contained in our Annual Report on Form 10-K (the “2021 Annual Report”) filed with the SEC. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts, including statements regarding our future results of operations and financial position, business strategy, current and prospective products, product approvals, research and development costs, current and prospective collaborations, timing and likelihood of success, plans and objectives of management for future operations and future results of current and anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties, assumptions and other important 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 the forward-looking statements.
Overview and Format of Presentation
Centessa Pharmaceuticals plc was formed in October 2020 with the purpose of bringing impactful new medicines to patients by combining the primary strengths of the asset-centric venture capital model with the benefits of diversification and scale typically attributed to traditional large R&D organizations. Medicxi formed Centessa with a view to ultimately acquiring several pre-revenue, development stage biotech companies, each of which was either controlled by and/or invested in by a fund affiliated with Medicxi or Index Ventures. On January 29, 2021, we acquired 11 biotechnology companies as direct subsidiaries (together referred to as the “Centessa Subsidiaries”) and simultaneously closed a Series A funding round of $250 million. Prior to the acquisition, our activities were limited mainly to engaging advisors and recruitment efforts. We commenced active operations after the consummation of the acquisitions.
In June 2021, we completed an initial public offering (“IPO”) of the ordinary shares through the sale and issuance of 16,500,000 American Depositary Shares (“ADSs”), at an initial price of $20.00 per ADS. Each ADS represents one ordinary share with a nominal value of £0.002 per ordinary share. Following the close of the IPO, the underwriters fully exercised their option to purchase an additional 2,475,000 ADSs at the initial public offering price of $20.00 per ADS.
We operate as a clinical-stage pharmaceutical company with a Research & Development (“R&D”) innovation engine that aims to discover, develop and ultimately deliver impactful medicines to patients. Our model seeks to minimize infrastructure investment and fixed costs by incorporating extensive outsourced resources into our research and development model to optimize deployment of funds for discovery and development. We are led by a management team with extensive R&D experience from leading biotech and pharmaceutical companies. Our management team provides direct guidance to rapidly advance our programs from research through all stages of development through the integrated one-team structure of our operating model. The management team is also responsible for judicious capital and resource allocation decisions for discovery and development efforts across the portfolio and aims to expeditiously evaluate and potentially terminate programs when the data do not support advancing a program.
Our programs span discovery-stage to late-stage development and cover a range of high-value indications in rare diseases and immuno-oncology. Our management team continuously evaluates our asset portfolio. We currently have registrational trials planned for SerpinPC in Hemophilia B (“HB”) this year, and ongoing development activities related to our clinical, preclinical and earlier stage programs including LB101 in solid tumors, MGX292 in pulmonary arterial hypertension (“PAH”), orexin agonists in narcolepsy, CBS001 in inflammatory / fibrotic diseases and CBS004 in autoimmune conditions. We aim to pursue programs we believe could be first-in-class / best-in-class in areas of significant unmet need. Where appropriate, we are also pursuing opportunities for agile, lean and potentially rapid development, including orphan drug designation, fast track designation, and other regulatory and developmental avenues. Based on our internal epidemiological-based market models, we believe each of our current programs, if approved, has the potential to compete in multi-billion dollar markets.

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Recent Updates
We have decided to discontinue development of ZF874 for the treatment of Alpha-1 Antitrypsin Deficiency (“AATD”) following a recent report of an adverse event (AE) involving elevated liver enzymes (alanine aminotransferase (“ALT”) and aspartate aminotransferase (“AST”)) in a PiMZ subject dosed with 5 mg/kg BID of ZF874 in our Phase 1 study. ZF874 was being developed as a pharmacological chaperone designed to rescue the folding of the Z variant of alpha-1-antitrypsin (“A1AT”) for the treatment of AATD. In November 2021, we reported that elevated liver enzymes were observed in a subject dosed with 15 mg/kg BID of ZF874 in the first cohort of patients within Part B of the Phase 1 study. Based on the results of the Phase 1 study observed to date, we have concluded that ZF874 is unlikely to achieve the desired target product profile. We continue to believe that the pharmacological chaperone approach has the potential to address both the lung and liver manifestations of AATD, and we are analyzing data from the Phase 1 study to help inform potential future development plans for our back-up compounds.
In June 2022, we presented the first preclinical data for LB101 (PDL1xCD47), at the 2022 American Society of Clinical Oncology (“ASCO”) Annual Meeting. In vivo data in a MC38 hPD-L1+ syngeneic mouse model demonstrated significantly improved efficacy with durable responses for single-agent LB101 (26 of 32 tumors eradicated across two doses) compared to isotype control IgG (0 of 16) and atezolizumab (4 of 32 across two doses). In rechallenge experiments, none of the mice from groups with prior LB101-induced regressions exhibited tumor growth compared to all naïve mice which rapidly established tumors. At equimolar doses to atezolizumab, LB101 exhibited no anemia, weight-loss or overt toxicity. In vitro data demonstrated PD-L1 binding in the locked form and CD47 binding with strongly enhanced antibody-dependent cellular phagocytosis (ADCP) in the unlocked form. We expect to initiate clinical trials with LB101 following a planned Investigational New Drug (IND) application submission late this year. Additional LockBody molecules, such as LB201 (PD-L1xCD3), are being progressed toward candidate selection expected in early 2023.
Recently, we successfully defended one of our in-licensed European patents related to MGX292 in an opposition proceeding before the European Patent Office (“EPO”). The opposed patent claims cover the use of MGX292 in the treatment of a vascular or respiratory disease, including pulmonary arterial hypertension. During the oral proceedings the Opposition Division of the EPO upheld the granted claims. The decision of the Opposition Division is appealable.
In June 2022, we announced the discontinuation of development of lixivaptan for Autosomal Dominant Polycystic Kidney Disease (“ADPKD”), including both the Phase 3 ACTION Study and the open-label ALERT Study, a program being advanced by Palladio Biosciences, Inc. (“Palladio”). The decision was based on a thorough reassessment of the commercial potential of lixivaptan as a potential best-in-class therapy for patients with ADPKD, and the incremental development challenges and associated costs, following an observation of ALT and AST elevations in one subject in the ALERT Study. The subject, who had previously experienced ALT elevations with tolvaptan on two occasions (maximum ALT elevation of 2.2x the ULN), was observed to have an ALT elevation of 3.3x the ULN and an AST elevation 3.2XULN on day 104 after first dose of lixivaptan. Lixivaptan dosing was stopped. Subsequently, and upon elevation of ALT to 5.7x the ULN, the subject was hospitalized and then discharged the following day. The subject has had no other signs or symptoms, no other implicated drugs, and no lab evidence of viral or autoimmune hepatitis. No alternative plausible causes have been identified for the subject’s abnormal ALT and AST findings. Protocol processes were followed and the subject remained under close monitoring until the ALT and AST returned to normal levels. We continue to wind down both the clinical studies and the operations of Palladio.
During the first half of 2022, we announced plans to discontinue all programs being advanced by PearlRiver Bio and Janpix Limited and wind down their operations. We continue to evaluate strategic options including potential divestment for imgatuzumab, an anti-EGFR mAb, and wind down operations of PearlRiver Bio and Janpix Limited.
In April 2022, we commenced dosing CBS001, a high affinity anti-LIGHT monoclonal antibody, in a Phase 1 study. The Phase 1 study is a double-blind, randomized, placebo-controlled study to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and immunogenicity of single- and multiple-ascending doses of intravenously administered CBS001 in healthy volunteers.
In February 2022, we completed pre-IND interactions with the FDA for SerpinPC in Hemophilia B. The FDA considered these to be very consistent with an end of Phase 2 meeting, and based on the FDA feedback, we are proceeding with a streamlined, integrated registrational development plan for SerpinPC in Hemophilia B with fewer than 200 total subjects. If results based on this plan are positive, we intend to seek marketing approval in adults and adolescents with Hemophilia B, with and without inhibitors, as the initial indication. As we are preparing to enter registrational trials sooner than previously anticipated, we are working with the FDA on our plans to accelerate product process development and qualification activities.
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COVID-19 Update
The Company is continuing to proactively monitor the ongoing COVID-19 global pandemic, including the mutating Omicron variants, to assess the potential impact on our business, and to seek to avoid any unnecessary potential delays to our programs. At this time, the clinical programs and research activities remain largely on track, with some modest delays in clinical trial enrollment rates and supply chain activities for investigational clinical trial material. While we are unable to fully quantify the potential effects of this pandemic on our future operations, including any further delays to our preclinical and clinical programs, management continues to evaluate and to seek to mitigate risks. The safety and well-being of employees, patients and partners remains our highest priority.
Liquidity and Capital Resources
As of June 30, 2022, we had cash and cash equivalents of $484.2 million. Since inception, Centessa has devoted substantially all of its resources to acquiring and developing product and technology rights, conducting research and development in its discovery and enabling stages, in its clinical and preclinical trials and raising capital. The Company has incurred recurring losses and negative cash flows from operations since inception and has funded operations primarily through the sale and issuance of its equity securities. The ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of current or future product candidates. The Company expects to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with ongoing development activities related to the portfolio of programs as Centessa advances the preclinical and clinical development of product candidates; performs research activities as Centessa seeks to discover and develop additional programs and product candidates; carries out maintenance, expansion enforcement, defense, and protection of its intellectual property portfolio; and hires additional research and development, clinical and commercial personnel. Further, inflation may affect our use of capital resources by increasing our cost of labor, research, manufacturing and clinical trial expenses. Based on continued refinement of our operating model and development plans, including the impact of the recent termination of our lixivaptan and ZF874 programs, the Company expects the cash and cash equivalents as of June 30, 2022 of $484.2 million, to fund its operations into 2026 without drawing on the remaining available tranches under the Note Purchase Agreement with Oberland Capital (as defined below).
Components of Results of Operations
Subsequent to the contribution of the Centessa Subsidiaries to Centessa, the financial activities of Centessa and all Centessa Subsidiaries are being presented on a consolidated basis and are denoted as “Successor” within management’s discussion and analysis of the financial statements. The historical financial condition and results of operations for the periods presented may not be comparable due to the difference in basis of accounting for the Centessa Predecessor Group and Centessa Pharmaceuticals plc (previously Centessa Pharmaceuticals Limited). Prior to the acquisition of the Centessa Subsidiaries on January 29, 2021, the Centessa Predecessor Group consisted of three of the acquired companies (Z Factor Limited, LockBody Therapeutics Ltd and Morphogen-IX Limited). Following the acquisition of the Centessa Subsidiaries, Centessa Pharmaceuticals plc consisted of 20 legal entities, inclusive of the parent company and all indirect subsidiaries