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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024
OR
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☐ |
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: 001-39527
PRELUDE THERAPEUTICS INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
|
|
Delaware |
81-1384762 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
175 Innovation Boulevard Wilmington, Delaware |
19805 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (302) 467-1280
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, par value $0.0001 per share |
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PRLD |
|
Nasdaq Global Select Market |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☒ |
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Smaller reporting company |
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☒ |
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Emerging growth company |
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☒ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 1, 2024, the registrant had 54,929,567 shares of voting and non-voting common stock, $0.0001 par value per share, outstanding.
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PRELUDE THERAPEUTICS INCORPORATED
BALANCE SHEETS
(UNAUDITED)
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|
|
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|
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(in thousands, except share data) |
|
March 31,
2024 |
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|
December 31,
2023 |
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Assets |
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|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,707 |
|
|
$ |
25,291 |
|
Marketable securities |
|
|
177,217 |
|
|
|
207,644 |
|
Prepaid expenses and other current assets |
|
|
3,442 |
|
|
|
2,654 |
|
Total current assets |
|
|
205,366 |
|
|
|
235,589 |
|
Restricted cash |
|
|
4,044 |
|
|
|
4,044 |
|
Property and equipment, net |
|
|
7,294 |
|
|
|
7,325 |
|
Right-of-use asset |
|
|
30,107 |
|
|
|
30,412 |
|
Other assets |
|
|
295 |
|
|
|
295 |
|
Total assets |
|
$ |
247,106 |
|
|
$ |
277,665 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
5,308 |
|
|
$ |
4,580 |
|
Accrued expenses and other current liabilities |
|
|
10,147 |
|
|
|
15,768 |
|
Operating lease liability |
|
|
2,188 |
|
|
|
1,481 |
|
Total current liabilities |
|
|
17,643 |
|
|
|
21,829 |
|
Other liabilities |
|
|
3,277 |
|
|
|
3,339 |
|
Operating lease liability |
|
|
15,452 |
|
|
|
15,407 |
|
Total liabilities |
|
|
36,372 |
|
|
|
40,575 |
|
Commitments (Note 8) |
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|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Voting common stock, $0.0001 par value: 487,149,741 shares authorized; 42,071,505 and 42,063,995 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively |
|
|
4 |
|
|
|
4 |
|
Non-voting common stock, $0.0001 par value: 12,850,259 shares authorized; 12,850,259 shares issued and outstanding at both March 31, 2024 and December 31, 2023 |
|
|
1 |
|
|
|
1 |
|
Additional paid-in capital |
|
|
698,785 |
|
|
|
693,252 |
|
Accumulated other comprehensive (loss) income |
|
|
(235 |
) |
|
|
223 |
|
Accumulated deficit |
|
|
(487,821 |
) |
|
|
(456,390 |
) |
Total stockholders’ equity |
|
|
210,734 |
|
|
|
237,090 |
|
Total liabilities and stockholders’ equity |
|
$ |
247,106 |
|
|
$ |
277,665 |
|
See accompanying notes to unaudited interim financial statements.
PRELUDE THERAPEUTICS INCORPORATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands, except share and per share data) |
|
2024 |
|
|
2023 |
|
Operating expenses: |
|
|
|
|
|
|
Research and development |
|
$ |
27,409 |
|
|
$ |
21,834 |
|
General and administrative |
|
|
6,934 |
|
|
|
7,281 |
|
Total operating expenses |
|
|
34,343 |
|
|
|
29,115 |
|
Loss from operations |
|
|
(34,343 |
) |
|
|
(29,115 |
) |
Other income, net |
|
|
2,912 |
|
|
|
1,397 |
|
Net loss |
|
$ |
(31,431 |
) |
|
$ |
(27,718 |
) |
Per share information: |
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted |
|
$ |
(0.42 |
) |
|
$ |
(0.58 |
) |
Weighted average common shares outstanding, basic
and diluted |
|
|
75,735,954 |
|
|
|
47,737,190 |
|
Comprehensive loss: |
|
|
|
|
|
|
Net loss |
|
$ |
(31,431 |
) |
|
$ |
(27,718 |
) |
Unrealized (loss) gain on marketable securities, net of tax |
|
|
(458 |
) |
|
|
1,294 |
|
Comprehensive loss |
|
$ |
(31,889 |
) |
|
$ |
(26,424 |
) |
See accompanying notes to unaudited interim financial statements.
PRELUDE THERAPEUTICS INCORPORATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
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|
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|
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|
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Voting common stock |
|
|
Non-voting common
stock |
|
|
Additional paid-in |
|
|
Accumulated other comprehensive |
|
|
Accumulated |
|
|
|
|
(in thousands, except shares) |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
loss |
|
|
deficit |
|
|
Total |
|
Balance at January 1, 2024 |
|
|
42,063,995 |
|
|
$ |
4 |
|
|
|
12,850,259 |
|
|
$ |
1 |
|
|
$ |
693,252 |
|
|
$ |
223 |
|
|
$ |
(456,390 |
) |
|
$ |
237,090 |
|
Issuance of common stock upon exercise of stock options & vesting of RSUs, net of 4,285 shares withheld for employee taxes |
|
|
7,510 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14 |
) |
Unrealized loss on marketable securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(458 |
) |
|
|
— |
|
|
|
(458 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,547 |
|
|
|
— |
|
|
|
— |
|
|
|
5,547 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(31,431 |
) |
|
|
(31,431 |
) |
Balance at March 31, 2024 |
|
|
42,071,505 |
|
|
$ |
4 |
|
|
|
12,850,259 |
|
|
$ |
1 |
|
|
$ |
698,785 |
|
|
$ |
(235 |
) |
|
$ |
(487,821 |
) |
|
$ |
210,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting common stock |
|
|
Non-voting common stock |
|
|
Additional paid-in |
|
|
Accumulated other comprehensive |
|
|
Accumulated |
|
|
|
|
(in thousands, except shares) |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
loss |
|
|
deficit |
|
|
Total |
|
Balance at January 1, 2023 |
|
|
36,496,994 |
|
|
$ |
4 |
|
|
|
11,402,037 |
|
|
$ |
1 |
|
|
$ |
531,682 |
|
|
$ |
(1,692 |
) |
|
$ |
(334,558 |
) |
|
$ |
195,437 |
|
Issuance of common stock upon exercise of stock options & vesting of RSUs |
|
|
17,224 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
28 |
|
|
|
— |
|
|
|
— |
|
|
|
28 |
|
Unrealized gain on marketable securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,294 |
|
|
|
— |
|
|
|
1,294 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,256 |
|
|
|
— |
|
|
|
— |
|
|
|
6,256 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,718 |
) |
|
|
(27,718 |
) |
Balance at March 31, 2023 |
|
|
36,514,218 |
|
|
$ |
4 |
|
|
|
11,402,037 |
|
|
$ |
1 |
|
|
$ |
537,966 |
|
|
$ |
(398 |
) |
|
$ |
(362,276 |
) |
|
$ |
175,297 |
|
See accompanying notes to unaudited interim financial statements.
PRELUDE THERAPEUTICS INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
(in thousands) |
|
2024 |
|
|
2023 |
|
Cash flows used in operating activities: |
|
|
|
|
|
|
Net loss |
|
$ |
(31,431 |
) |
|
$ |
(27,718 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
426 |
|
|
|
278 |
|
Noncash lease expense |
|
|
414 |
|
|
|
432 |
|
Stock-based compensation |
|
|
5,547 |
|
|
|
6,256 |
|
Amortization of premium and discount on marketable securities, net |
|
|
(1,541 |
) |
|
|
(446 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
(788 |
) |
|
|
(355 |
) |
Accounts payable |
|
|
631 |
|
|
|
374 |
|
Accrued expenses and other liabilities |
|
|
(5,692 |
) |
|
|
(1,903 |
) |
Long-term prepaid expenses and other long-term assets |
|
|
— |
|
|
|
(6,610 |
) |
Operating lease liabilities |
|
|
643 |
|
|
|
(442 |
) |
Net cash used in operating activities |
|
|
(31,791 |
) |
|
|
(30,134 |
) |
Cash flows provided by investing activities: |
|
|
|
|
|
|
Purchases of marketable securities |
|
|
(5,490 |
) |
|
|
(7,191 |
) |
Proceeds from maturities of marketable securities |
|
|
37,000 |
|
|
|
26,000 |
|
Purchases of property and equipment |
|
|
(289 |
) |
|
|
(810 |
) |
Net cash provided by investing activities |
|
|
31,221 |
|
|
|
17,999 |
|
Cash flows used in financing activities: |
|
|
|
|
|
|
Payment of offering costs |
|
|
— |
|
|
|
(297 |
) |
Proceeds from the issuance of common stock in connection with the exercise of stock options |
|
|
2 |
|
|
|
28 |
|
Payment of withholding taxes related to stock-based compensation to employees |
|
|
(16 |
) |
|
|
— |
|
Net cash used in financing activities |
|
|
(14 |
) |
|
|
(269 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
(584 |
) |
|
|
(12,404 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
29,335 |
|
|
|
34,649 |
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
28,751 |
|
|
$ |
22,245 |
|
Supplemental disclosures: |
|
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
109 |
|
|
$ |
— |
|
Property and equipment in accounts payable and accrued expenses and other current liabilities |
|
$ |
269 |
|
|
$ |
21 |
|
Unrealized (loss) gain on marketable securities |
|
$ |
(458 |
) |
|
$ |
1,294 |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited interim financial statements.
PRELUDE THERAPEUTICS INCORPORATED
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. Background
Prelude Therapeutics Incorporated (the “Company”) is a clinical-stage fully integrated oncology company built on a foundation of drug discovery excellence to deliver novel precision cancer medicines to underserved patients. Since beginning operations in 2016, the Company has devoted substantially all its efforts to research and development, conducting preclinical and clinical studies, recruiting management and technical staff, administration, and raising capital.
2. Risks and liquidity
The Company faces a number of risks common to early-stage companies in the biotechnology industry. Principal among these risks are the uncertainties in the development process, development of the same or similar technological innovations by competitors, protection of proprietary technology, dependence on key personnel, compliance with government regulations and approval requirements, and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities. There can be no assurance that the Company’s research and development will be successfully completed, adequate protection for the Company’s technology will be obtained, any products developed will obtain necessary government regulatory approval, or any approved products will be commercially viable. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.
Since its inception, the Company has incurred operating losses and had an accumulated deficit of $487.8 million at March 31, 2024. The Company has no revenue to-date and devotes its efforts to research and development. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development.
The Company believes its cash, cash equivalents, and marketable securities as of March 31, 2024 will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the filing date of this Quarterly Report on Form 10-Q.
To fund its operating expenses and capital expenditure requirements after that date, the Company plans to seek additional funding through public or private equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, it could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects.
3. Summary of significant accounting policies
The summary of significant accounting policies included in the Company’s financial statements for the year ended December 31, 2023 can be found in “Note 3. Summary of significant accounting policies” of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2024. Those policies have not materially changed.
Basis of presentation
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2023 found in the Company's Annual Report on Form 10-K filed with the SEC on February 15, 2024. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Use of estimates
The preparation of the unaudited interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the unaudited interim 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 the revisions are reflected in the accompanying unaudited interim financial statements in the period they are determined to be necessary. The most significant estimate relates to accrued clinical trial expenses.
Income taxes
Based upon the historical and anticipated future losses, management has determined that the deferred tax assets generated by net operating losses and research and development credits do not meet the more likely than not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of March 31, 2024 and December 31, 2023.
Cash, Cash Equivalents and Restricted cash
The Company’s cash equivalents include short-term highly liquid investments with an original maturity of 90 days or less when purchased and are carried at fair value in the accompanying balance sheets.
Restricted cash consists of a letter of credit for the benefit of the landlord in connection with the Company’s Chestnut Run Lease. See Note 8 for further details.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheet that total to the amounts shown in the statement of cash flows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
Cash and cash equivalents |
|
$ |
24,707 |
|
|
$ |
25,291 |
|
Restricted cash |
|
|
4,044 |
|
|
|
4,044 |
|
Total cash, cash equivalents, and restricted cash shown in statement of cash flows |
|
$ |
28,751 |
|
|
$ |
29,335 |
|
Marketable Securities
The Company’s marketable securities consist of investments in corporate debt securities, United States (“U.S.”) government debt securities, and agency securities that are classified as available-for-sale. The securities are carried at fair value with the unrealized gains and losses, net of tax, included in accumulated other comprehensive loss, a component of stockholders’ equity. Realized gains and losses as well as credit losses, if any, on marketable securities are included in the Company’s statements of operations. The Company classifies marketable securities that are available for use in current operations as current assets on the balance sheets.
Net Loss Per Share
Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period, including pre-funded warrants to purchase shares of common stock. The weighted-average number of shares of common stock outstanding used in the basic net loss per share calculation does not include unvested restricted stock awards as these instruments are considered contingently issuable shares until they vest. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise of securities, such as stock options, and the effect from unvested restricted stock awards and restricted stock units which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. The Company’s unvested restricted stock awards entitle the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income, it would have to use the two-class method to calculate earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the unvested restricted stock awards have no obligation to fund losses.
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2024 |
|
|
2023 |
|
Unvested restricted stock awards |
|
|
— |
|
|
|
131,468 |
|
Unvested restricted stock units |
|
|
93,125 |
|
|
|
163,750 |
|
Stock options |
|
|
14,737,740 |
|
|
|
11,868,020 |
|
Employee stock purchase plan |
|
|
50,941 |
|
|
|
51,837 |
|
|
|
|
14,881,806 |
|
|
|
12,215,075 |
|
Amounts in the above table reflect the common stock equivalents.
Recently Issued Accounting Pronouncements
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these unaudited interim financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Accounting guidance not yet adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU"), 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This ASU expands segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount for other segment items and a description of its composition, and interim disclosures of a reportable segment’s profit or loss and assets. The disclosures required under ASU 2023-07 are also required for public entities with a single reportable segment. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard but does not expect that it will have a material impact on the financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvements to Income Tax Disclosures. ASU 2023-09 requires enhanced income tax disclosures related to the rate reconciliation and income taxes paid information. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this standard but does not expect that it will have a material impact on the financial statements and related disclosures.
4. Marketable Securities
The following provides detail of the Company's marketable securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Amortized Cost |
|
|
Gross unrealized gain |
|
|
Gross unrealized loss |
|
|
Fair Value |
|
March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Agency securities |
|
$ |
10,566 |
|
|
$ |
— |
|
|
$ |
(6 |
) |
|
$ |
10,560 |
|
Corporate debt securities |
|
|
66,059 |
|
|
|
20 |
|
|
|
(90 |
) |
|
|
65,989 |
|
U.S. government securities |
|
|
100,827 |
|
|
|
— |
|
|
|
(159 |
) |
|
|
100,668 |
|
Total marketable securities |
|
$ |
177,452 |
|
|
$ |
20 |
|
|
$ |
(255 |
) |
|
$ |
177,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Agency securities |
|
$ |
10,431 |
|
|
$ |
19 |
|
|
$ |
— |
|
|
$ |
10,450 |
|
Corporate debt securities |
|
|
67,806 |
|
|
|
193 |
|
|
|
(20 |
) |
|
|
67,979 |
|
U.S. government securities |
|
|
129,184 |
|
|
|
72 |
|
|
|
(41 |
) |
|
|
129,215 |
|
Total marketable securities |
|
$ |
207,421 |
|
|
$ |
284 |
|
|
$ |
(61 |
) |
|
$ |
207,644 |
|
The Company’s marketable securities generally have contractual maturity dates of 22 months or less. As of March 31, 2024, the Company had 44 securities with a total fair market value of $166.3 million in an unrealized loss position. The Company believes any unrealized losses associated with the decline in value of its securities is temporary and is primarily related to market factors. Furthermore, the Company believes it is more likely than not that it will be able to hold its marketable securities to maturity. Therefore, the Company anticipates a full recovery of the amortized cost basis of its marketable securities at maturity and an allowance for credit losses was not recognized.
5. Fair Value of Financial Instruments
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 Company follows the provisions of ASC 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement at reporting date using |
|
(in thousands) |
|
Quoted prices
in active
markets for
identical
assets
(Level 1) |
|
|
Significant
other
observable
inputs
(Level 2) |
|
|
Significant
unobservable
inputs
(Level 3) |
|
March 31, 2024 |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
Money Market Funds |
|
$ |
23,063 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
Agency securities |
|
|
— |
|
|
|
10,560 |
|
|
|
— |
|
Corporate debt securities |
|
|
— |
|
|
|
65,989 |
|
|
|
— |
|
U.S. government securities |
|
|
— |
|
|
|
100,668 |
|
|
|
— |
|
Total marketable securities |
|
|
— |
|
|
|
177,217 |
|
|
|
— |
|
Total financial assets |
|
$ |
23,063 |
|
|
$ |
177,217 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
Money Market Funds |
|
$ |
24,369 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
Agency securities |
|
$ |
— |
|
|
$ |
10,450 |
|
|
$ |
— |
|
Corporate debt securities |
|
|
— |
|
|
|
67,979 |
|
|
|
— |
|
U.S. government securities |
|
|
— |
|
|
|
129,215 |
|
|
|
— |
|
Total marketable securities |
|
|
— |
|
|
|
207,644 |
|
|
|
— |
|
Total financial assets |
|
$ |
24,369 |
|
|
$ |
207,644 |
|
|
$ |
— |
|
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31,
2024 |
|
|
December 31,
2023 |
|
Compensation and related benefits |
|
$ |
3,640 |
|
|
$ |
9,157 |
|
Research and development |
|
|
5,707 |
|
|
|
5,666 |
|
Other |
|
|
800 |
|
|
|
945 |
|
|
|
$ |
10,147 |
|
|
$ |
15,768 |
|
7. Common Stock
The Company has two classes of common stock: “voting common stock” and “non-voting common stock.” The holders of the voting common stock are entitled to one vote for each share of voting common stock held at all meetings of stockholders. Except as otherwise required by law, the holders of non-voting common stock shall not be entitled to vote at any meetings of stockholders (or written actions in lieu of meetings) and the shares of non-voting common stock shall not be included in determining the number of shares voting or entitled to vote on any matter. Unless required by law, there shall be no cumulative voting. Any holder of non-voting common stock may elect to convert each share of non-voting common stock into one fully paid and non-assessable share of voting common stock at any time by providing written notice to the Company; provided that as a result of such conversion, such holder, together with its affiliates and any members of a Schedule 13(d) group with such holder, would not beneficially own in excess of 9.99% of the Company’s common stock immediately prior to and following such conversion, unless otherwise as expressly provided for in the Company’s restated certificate of incorporation. However, this ownership limitation may be increased (not to exceed 19.99%) or decreased to any other percentage designated by such holder of non-voting common stock upon 61 days’ notice to the Company.
Open Market Sales Agreement
In March 2023, in connection with filing a prospectus supplement to its Shelf Registration Statement, the Company entered into an Open Market Sales Agreement (the Sales Agreement) with Jefferies LLC, as the sales agent, pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering amount of up to $75.0 million. The $75.0 million of common stock that may be issued and sold pursuant to the Sales Agreement is included in the $400.0 million of securities that may be issued and sold pursuant to the Shelf Registration Statement. The Company will pay Jefferies LLC a commission rate of up to 3.0% of the aggregate gross proceeds from the sale of any shares of common stock pursuant to the Sales Agreement. At March 31, 2024, there was $75.0 million remaining under the Sales Agreement.
2023 financings
During the second quarter of 2023, the Company sold 6,761,200 shares of its common stock which comprised of (i) 5,312,978 shares of its voting common stock and (ii) 1,448,222 shares of its non-voting common stock at a price of $5.75 per share and to certain investors in lieu of common stock, the Company sold pre-funded warrants to purchase 12,895,256 shares of voting common stock at a price of $5.7499 per pre-funded warrant, resulting in gross proceeds to the Company of $113.0 million. Of the voting common stock issued, 2,264,456 shares were purchased by the Company’s underwriters in connection with a 30-day option at a price of $5.75 per share. Offering costs of $2.6 million, of which $0.3 million were previously paid and deferred, were recorded to additional paid-in capital in the accompanying balance sheets, resulting in net proceeds of $110.4 million.
During the fourth quarter of 2023, the Company sold in a private placement pre-funded warrants to purchase 7,936,759 shares of voting common stock at a price of $3.1499 per pre-funded warrant, resulting in net proceeds of $24.8 million after deducting offering costs of $0.2 million.
The purchase price per share of each pre-funded warrant represents the per share offering price for the common stock, minus the $0.0001 per share exercise price of such pre-funded warrant. As of March 31, 2024, no pre-funded warrants had been exercised.
The pre-funded warrants were classified as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. The pre-funded warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return.
The Company did not conduct any financings during the first quarter of 2024.
8. Commitments
Leases
The Company leases office and laboratory space in Wilmington, Delaware under a noncancelable lease (the “Chestnut Run Lease”). The premises include approximately 81,000 rentable square feet and has an initial term of 162 months with 3 five-year extension options and certain expansion rights. Neither the option to extend nor the expansion rights were recognized as part of the Company's measurement of the right-of-use ("ROU") asset and operating lease liability as of March 31, 2024. Under the terms of the Chestnut Run Lease, the landlord provided an allowance towards the cost of completing tenant improvements for the premises. The Company concluded that the improvements resulting from both the landlord's build-out and the tenant improvements are the landlord's assets for accounting purposes. Costs incurred by the Company related to tenant improvements in excess of the landlord's allowance were treated as prepaid rent and increased the right-of-use asset on the commencement date. The discount rate used to account for the
Company’s operating lease under ASC 842, Leases, was the Company’s estimated incremental borrowing rate on the commencement date of 15.0%. The Company's incremental borrowing rate reflects a collateralized borrowing with a similar term and amount as the Chestnut Run Lease.
Lease cost for the three months ended March 31, 2024 and 2023 was $1.1 million and $0.5 million, respectively. Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2024 and 2023 was nil and $0.5 million, respectively.
The remaining lease term of the Chestnut Run Lease is 13.2 years and future minimum annual lease payments at March 31, 2024 are as follows:
|
|
|
|
|
(in thousands) |
|
|
|
2024 (remaining) |
|
$ |
1,747 |
|
2025 |
|
|
2,746 |
|
2026 |
|
|
2,979 |
|
2027 |
|
|
3,054 |
|
2028 |
|
|
3,130 |
|
2029 |
|
|
3,209 |
|
Thereafter |
|
|
26,427 |
|
Total undiscounted lease payments |
|
|
43,292 |
|
Less imputed interest |
|
|
(25,652 |
) |
Current lease liability |
|
$ |
17,640 |
|
The Company paid a security deposit for the Chestnut Run Lease in the form of a letter of credit of $4.0 million, which is included in the accompanying balance sheet as restricted cash as of March 31, 2024. The security deposit may be reduced to $0.5 million over time in accordance with the terms of the Chestnut Run Lease.
In connection with the Company’s expansion of operations in the State of Delaware, the Company was approved for a grant from the State of Delaware in 2021 that will provide up to $5.5 million in reimbursements over three years for the development of lab space in addition to increasing jobs in Delaware to meet specific targeted levels through 2023. During the third quarter of 2022, the Company was approved for an additional grant from the State of Delaware for the development of lab space in the amount of $1.0 million. In 2022, the Company received cash of $3.4 million from the grants for the development of lab space. The Company has met the minimum requirements stated in the grant agreement in order to not be required to pay back any portion of the $3.4 million disbursed. The Company deferred the recognition of these grant funds as they relate to capitalized costs and has classified them as long-term liabilities in the accompanying balance sheet. The Company recognizes the grant funds in other income as grant income over the length of the lease term. Additionally, if the Company leaves the State of Delaware within five years of the disbursement, the Company is required to return an amount equal to the amount of grant funds disbursed on a pro-rated basis.
Employment Agreements
The Company entered into employment agreements with key personnel providing for compensation and severance in certain circumstances, as defined in the respective employment agreements.
401(k) Defined Contribution Plan
The Company sponsors a 401(k) defined‑contribution plan covering all employees. Participants are permitted to contribute up to 100% of their eligible annual pretax compensation up to an established federal limit on aggregate participant contributions. The Company provides a match of a maximum amount of 3% of the participant’s compensation. For both the three months ended March 31, 2024 and 2023, the Company made matching contributions of $0.2 million.
Research Collaboration Agreement
In 2023, the Company entered into a multi-year, multi-program agreement with AbCellera Biologics Incorporated ("AbCellera") to jointly discover, develop, and commercialize novel oncology medicines for up to five programs. Under the terms of the agreement, AbCellera will lead manufacturing activities and the Company will lead clinical development and global commercialization, subject to AbCellera’s option to co-promote any resulting commercial products in the United States. If, at any point one party in the collaboration opts-out of future co-development cost sharing, that party will be entitled to a royalty from commercialization of the collaboration target, dependent on the proportion of their co-development contributions compared to the total development costs of a target as defined within the agreement. The Company concluded that the agreement with AbCellera will be accounted for under the
scope of ASC 808, Collaborative Arrangements, as both parties will actively participate in joint operating activities and are exposed to significant risks and rewards. Under ASC 808, certain transactions between collaborative arrangement participants should follow the accounting for revenue under ASC 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer for a distinct good or service. The Company determined that co-development arrangement as defined in our agreement with AbCellera does not meet the definition of a customer as defined by ASC 606. As a result, these activities will be accounted for as research and development costs. Costs related to the AbCellera collaboration were not material for the three months ended March 31, 2024.
Other Research and Development Arrangements
The Company enters into agreements with clinical research organizations ("CROs") to assist in the performance of research and development activities. Expenditures to CROs represent a significant cost in clinical development for the Company.
9. Stock-Based Compensation
The Company has two equity incentive plans: the 2016 Equity Incentive Plan, as amended, and the 2020 Equity Incentive Plan. New awards can only be granted under the 2020 Equity Incentive Plan (the “Plan”) and as of March 31, 2024, 4,904,812 shares were available for future grants. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the Plan shall automatically increase on January 1st of each year and continuing for ten years beginning on January 1, 2021, in an amount equal to five percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the Company's board of directors or compensation committee to determine a lesser number of shares shall be added for such year. On January 1, 2024, 2,745,712 shares were added to the Plan. The Plan provides for the granting of common stock, incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors. The Company’s stock options vest based on the terms in each award agreement, generally over four-year periods with 25% of options vesting after one year and then monthly thereafter, and have a term of ten years.
The Company measures stock-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards. The Company recorded stock-based compensation expense in the following expense categories in its accompanying statements of operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
(in thousands) |
|
2024 |
|
|
2023 |
|
Research and development |
|
$ |
3,010 |
|
|
$ |
2,991 |
|
General and administrative |
|
|
2,537 |
|
|
|
3,265 |
|
|
|
$ |
5,547 |
|
|
$ |
6,256 |
|
Stock Options
The following table summarizes stock option activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares |
|
|
Weighted
average
exercise price
per share |
|
|
Weighted
average
remaining
contractual
term (years) |
|
Outstanding at January 1, 2024 |
|
|
11,898,446 |
|
|
$ |
10.60 |
|
|
|
7.77 |
|
Granted |
|
|
3,071,300 |
|
|
$ |
4.58 |
|
|
|
|
Exercised |
|
|
(1,170 |
) |
|
$ |
1.89 |
|
|
|
|
Forfeited |
|
|
(230,836 |
) |
|
$ |
15.66 |
|
|
|
|
Outstanding at March 31, 2024 |
|
|
14,737,740 |
|
|
$ |
9.27 |
|
|
|
8.02 |
|
Exercisable at March 31, 2024 |
|
|
7,001,612 |
|
|
$ |
11.15 |
|
|
|
6.93 |
|
At March 31, 2024, the aggregate intrinsic value of outstanding options and exercisable options was $6.4 million and $5.8 million, respectively.
The following table summarizes information about stock options outstanding at March 31, 2024 under the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
Range of Exercise Prices |
|
Number
Outstanding |
|
|
Weighted Average
Remaining
Contractual Life
(in years) |
|
|
Weighted
Average
Exercise
Price |
|
|
Number
Exercisable |
|
|
Weighted
Average
Exercise
Price |
|
$0.31 - $4.56 |
|
|
2,290,135 |
|
|
|
6.06 |
|
|
$ |
2.13 |
|
|
|
1,975,983 |
|
|
$ |
1.82 |
|
$4.57 - $5.00 |
|
|
4,041,027 |
|
|
|
9.51 |
|
|
|
4.65 |
|
|
|
538,800 |
|
|
|
4.82 |
|
$5.01 - $10.34 |
|
|
3,689,654 |
|
|
|
8.74 |
|
|
|
6.72 |
|
|
|
1,058,642 |
|
|
|
6.74 |
|
$10.35 - $88.98 |
|
|
4,716,924 |
|
|
|
7.12 |
|
|
|
18.68 |
|
|
|
3,428,187 |
|
|
|
18.89 |
|
|
|
|
14,737,740 |
|
|
|
|
|
|
|
|
|
7,001,612 |
|
|
|
|
The weighted-average grant date fair value of options granted was $3.40 and $5.12 per option for the three months ended March 31, 2024 and 2023, respectively. The Company recorded stock-based compensation expense of $5.3 million and $5.9 million for the three months ended March 31, 2024 and 2023, respectively, related to stock options. As of March 31, 2024, the total unrecognized compensation expense related to unvested stock option awards was $40.9 million, which the Company expects to recognize over a weighted-average period of 2.31 years.
The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, |
|
|
|
2024 |
|
|
2023 |
|
Expected volatility |
|
|
85.12 |
% |
|
|
83.55 |
% |
Risk-free interest rate |
|
|
4.14 |
% |
|
|
3.80 |
% |
Expected life (in years) |
|
|
6.07 |
|
|
|
6.05 |
|
Expected dividend yield |
|
|
— |
|
|
|
— |
|
Restricted Stock Awards and Units
The Company issues restricted stock awards (“RSA”) to employees that generally vest over a four-year period with 25% of awards vesting after one year and then monthly thereafter. Any unvested shares will be forfeited upon termination of services. The fair value of an RSA is equal to the fair market value price of the Company’s common stock on the date of grant. RSA expense is recorded on a straight-line basis over the vesting period.
The following table summarizes activity related to RSA stock-based payment awards:
|
|
|
|
|
|
|
|
|
|
|
Number of
shares |
|
|
Weighted-average
grant date fair
value |
|
Unvested balance at January 1, 2024 |
|
|
27,008 |
|
|
$ |
3.26 |
|
Vested |
|
|
(27,008 |
) |
|
$ |
3.26 |
|
Unvested balance at March 31, 2024 |
|
|
— |
|
|
$ |
— |
|
The Company recorded stock-based compensation expense of $0.1 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively, related to RSAs. As of March 31, 2024, there was no unrecognized expense related to RSAs.
The Company granted restricted stock units (“RSU”) to employees that generally vest over a four-year period with 25% of awards vesting after one year and then quarterly thereafter. Any unvested units will be forfeited upon termination of services.
The following table summarizes activity related to RSU stock-based payment awards:
|
|
|
|
|
|
|
|
|
|
|
Number of
shares |
|
|
Weighted-average
grant date fair
value |
|
Unvested balance at January 1, 2024 |
|
|
103,750 |
|
|
$ |
6.16 |
|
Vested |
|
|
(10,625 |
) |
|
$ |
6.44 |
|
Unvested balance at March 31, 2024 |
|
|
93,125 |
|
|
$ |
6.12 |
|
The Company recorded stock-based compensation expense of $0.1 million for both the three months ended March 31, 2024 and 2023, related to RSUs. At March 31, 2024, the total unrecognized expense related to the RSUs was $0.5 million, which the Company expects to recognize over 1.87 years.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the “ESPP”), which, as of March 31, 2024, had 2,168,434 shares of common stock reserved for future issuance. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year and continuing for ten years beginning in 2021, in an amount equal to one percent of the total number of shares of all classes of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the Company's board of directors or compensation committee to determine a lesser number of shares shall be added for such year. On January 1, 2024, 549,142 shares were added to the ESPP.
Under the ESPP, eligible employees can purchase the Company’s common stock through accumulated payroll deductions at such times as are established by the Company's compensation committee. Eligible employees may purchase the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock on the first day of the offering period or on the last day of the offering period. Eligible employees may contribute up to 15% of their eligible compensation. Under the ESPP, a participant may not accrue rights to purchase more than $25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding.
The ESPP is considered compensatory under the FASB stock compensation rules. Accordingly, share-based compensation expense is determined based on the option’s grant-date fair value as estimated by applying the Black Scholes option-pricing model and is recognized over the withholding period. The Company recognized share-based compensation expense of $0.1 million for each of the three months ended March 31, 2024 and 2023, related to the ESPP.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 15, 2024, or our 2023 Annual Report on Form 10-K. These forward-looking statements may include, but are not limited to, statements regarding our future results of operations and financial position, inflation and interest rate risk, a potential recession, a potential temporary federal government shutdown, business strategy, market size, potential growth opportunities, preclinical and clinical development activities, efficacy and safety profile of our product candidates, use of net proceeds from our offerings, our ability to maintain and recognize the benefits of certain designations received by product candidates, the timing and results of preclinical studies and clinical trials, commercial collaborations with third parties and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” “schedule,” and “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These statements are based upon information available to us as of the date of this Quarterly Report on Form 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. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
Overview
Prelude is a clinical-stage fully integrated oncology company built on a foundation of drug discovery excellence to deliver novel precision cancer medicines to underserved patients. By leveraging our core competencies in cancer biology and medicinal chemistry, combined with our clinical development capabilities, we have built an efficient, fully-integrated drug discovery engine and the development expertise necessary to identify compelling biological targets and create new chemical entities, or NCEs, that we advance into clinical trials. We believe our approach could result in better targeted cancer therapies. Our discovery excellence has been validated by our steady progress in creating a wholly-owned, internally developed pipeline. We also began work with our partner AbCellera on an early-stage discovery program involving potent degraders as payloads for novel antibodies targeting tumor specific antigens. Since our inception in 2016, we have received clearance from the U.S. Food and Drug Administration, or the FDA, for multiple investigational new drug applications, or INDs, and successfully advanced several programs into clinical trials. In addition, we have other differentiated proprietary programs in various stages of preclinical development.
By focusing on developing molecules using broad mechanisms that have multiple links to oncogenic driver pathways in select patients, we have developed a diverse pipeline consisting of multiple distinct programs including kinases, targeted protein degraders, and precision antibody drug conjugates. Our pipeline is designed to serve patients with high unmet medical need, where there are limited or no treatment options. We believe we can best address these diseases by developing therapies that target primary and secondary resistance mechanisms.
We have several drug candidates in clinical development and our objective is to generate proof-of-concept clinical data to guide our future regulatory pathways to approval. Our SMARCA2 molecule is a unique, first-in-class protein degrader, targeting specific patient populations. Our CDK9 inhibitor is selective and potent, with a potentially superior safety profile over first-generation CDK9 inhibitors. Our next generation CDK4/6 inhibitor is specifically designed to be brain and tissue penetrant.
Our novel, first-in-class SMARCA2 degrader compounds and our potent, highly selective and potentially best-in-class CDK9 inhibitor represent our best opportunities for demonstrating clinical proof-of-concept in 2024 and advancing into potential Phase 2/3 registration studies. In 2023, we also announced a global partnership with AbCellera Biologics Incorporated ("AbCellera") that will allow us to combine our small molecules and degraders expertise with their antibody expertise to develop precision antibody drug conjugates. We also intend to explore continued clinical development with external partners for our CDK4/6.
PRT3789 is a first-in-class, highly selective degrader of SMARCA2 protein, which along with SMARCA4 controls gene regulation through chromatin remodeling. Cancer cells with SMARCA4 mutations are dependent on SMARCA2 for their growth and survival and selectively degrading SMARCA2 induces cell death in cancer cells while sparing normal cells in preclinical models. PRT3789 has been shown to be efficacious and well tolerated in multiple preclinical models of SMARCA4 deleted/mutated cancers as monotherapy and in combination with standards of care therapies. We believe a selective SMARCA2 degrader has the potential to be of benefit in up to 10% of non-small cell lung cancer, or NSCLC, patients in the United States including many other tumor types with the SMARCA4 mutation.
Patients with SMARCA4 mutations or deletions have poor prognosis and limited treatment options. Therefore, mutated or deleted SMARCA4 cancers provide a potential biomarker to select those patients most likely to respond to treatment with a highly selective SMARCA2 degrader.
PRT3789 is currently in Phase 1 clinical development in biomarker selected SMARCA4 mutant patients. To date, PRT3789 has demonstrated selective, potent and dose dependent degradation of SMARCA2 with an acceptable safety profile. Based on PK/PD and safety data to date, the Company expects to conclude monotherapy dose escalation in the middle of 2024 and identify recommended phase 2 doses. In addition, enrollment of patients into back-fill cohorts enriched for NSCLC and SMARCA4 loss-of-function mutations is ongoing. Objectives for this first Phase 1 clinical trial are to establish the safety and tolerability profile of PRT3789 as both monotherapy and in combination with docetaxel, evaluate activity, pharmacokinetics and pharmacodynamics and determine a dose and potential indications for advancement into a registrational clinical trial. We expect to present initial data in the second half of 2024 from patients currently enrolled in the Phase 1 trial.
Our discovery team has identified a series of highly selective and orally bioavailable SMARCA2 degraders. The lead oral molecule, PRT7732, is currently in IND enabling studies and on track to enter Phase 1 clinical development in the second half of 2024. PRT7732 is structurally distinct from PRT3789 and in addition, may provide clinically meaningful differences, including potential utility in earlier lines of therapy.
As one of our first precision ADC programs, we and our partner AbCellera began work on an early-stage discovery program involving potent degraders of the SMARCA family of proteins as payloads for novel antibodies targeting tumor specific antigens. Given the potent anti-tumor activity of these molecules in pre-clinical models of cancers beyond those targeted by our SMARCA2 selective degraders, we believe that these precision ADCs have the potential to extend the therapeutic utility of this class. The partnership includes up to five precision ADC targets. Under the terms of the agreement, we and AbCellera will jointly discover, develop, and commercialize products emerging from the collaboration. AbCellera will lead manufacturing activities and we will lead clinical development and global commercialization, subject to AbCellera’s option to co-promote any resulting commercial products in the United States.
Our CDK9 candidate, PRT2527, is designed to be a potent and selective CDK9 inhibitor. We believe PRT2527 has the potential to avoid off-target toxicities, achieve substantial clinical activity and to become the best-in-class CDK9 inhibitor for hematologic malignancies.
In preclinical studies, PRT2527 was shown to reduce MCL1 and MYC protein levels and was highly active in preclinical models at well-tolerated doses. Our preclinical studies suggest that PRT2527 demonstrates high kinase selectivity and potency, providing opportunity for a wider therapeutic index compared to less selective CDK9 inhibitors, allowing for rapid development in combinations. Preclinical data demonstrated that treatment with PRT2527 depleted oncogenic drivers with short half-lives, such as MYC and MCL1, and effectively induced apoptosis. PRT2527 treatment demonstrated robust efficacy in both hematological malignancies and solid tumor models with MYC dysregulation. Dose dependent increases in exposure and target engagement were observed as evidenced by MYC and MCL1 depletion to levels associated with tumor regression in preclinical models.
PRT2527 has completed a Phase 1 multi-dose escalation study (NCT05159518) in patients with solid tumors. In this study, PRT2527 was shown to achieve high levels of target inhibition and the potential to be better tolerated than existing CDK9 inhibitors, specifically, managing neutropenia and an absence of meaningful gastrointestinal events or hepatotoxicity.
The observed dose-dependent downregulation of MYC and MCL1 mRNA expression, CDK9 transcriptional targets, was consistent with the degree of target engagement required for preclinical efficacy. As predicted by the preclinical models, 12 mg/m2 QW dosing showed optimal target inhibition and has been selected as the optimal dose. The overall safety profile observed in this study supports further development of PRT2527 in hematologic malignancies (NCT05665530). In this study, PRT2527 is advancing as monotherapy in hematological indications, such as B-cell malignancies and acute myeloid leukemia (AML), and we have initiated the combination with zanubrutinib in B-cell malignancies. We expect to complete the monotherapy dose escalation in B-cell malignancies in the middle of 2024. A second cohort of patients with AML is expected to initiate in the first half of 2024.
Our MCL1 candidate, PRT1419, was designed to be a potent and selective inhibitor of the anti-apoptotic protein, MCL1. We concluded Phase 1 development of PRT1419 and established a confirmation dose in hematological malignancies. Based on the potential to address the intended patient population with the CDK9 inhibitor which potently inhibits MCL-1, we decided to prioritize our CDK9 inhibitor, PRT2527, and to discontinue development of PRT1419.
PRT3645 is a brain and tissue penetrant molecule that potently targets CDK4/6 with a biased selectivity for CDK4. A Phase 1 multi-dose escalation clinical trial of PRT3645 has been completed. At the 2023 AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics, we presented data, showing that treatment with PRT3645 was associated with a substantial decrease in pRb and Ki67 expression, indicating a high level of target engagement at the doses evaluated. Also, PRT3645 was generally well tolerated in the initial three dose cohorts of patients with no clinically meaningful gastrointestinal, hematologic or neurological events reported to date, leveraging its enhanced selectivity profile. Having completed the dose escalation portion of the Phase 1 clinical trial of PRT3645, we intend to explore continued clinical development with external partners.
Components of Results of Operations
Since inception, we have devoted substantially all of our resources to developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. We have funded our operations primarily through the sale of convertible preferred stock, common stock and pre-funded warrants. Our net loss was $31.4 million and $27.7 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $487.8 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
Revenue
To-date, we have not recognized any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales. However, there can be no assurance as to when we will generate such revenue, if at all.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred, including:
•expenses incurred to conduct the necessary discovery-stage laboratory work, preclinical studies and clinical trials required to obtain regulatory approval;
•personnel expenses, including salaries, benefits and stock-based compensation expense for our employees engaged in research and development functions;
•costs of funding research performed by third parties, including pursuant to agreements with clinical research organizations, or CROs, that conduct our clinical trials, as well as investigative sites, consultants and CROs that conduct our preclinical and nonclinical studies;
•expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;
•fees paid to consultants who assist with research and development activities;
•expenses related to regulatory activities, including filing fees paid to regulatory agencies; and
•allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.
We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other costs which are deployed across multiple projects under development.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase significantly over the next several years as we increase personnel costs, including stock-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expense also includes corporate facility costs not otherwise included in research and development expense, including rent, utilities, depreciation and maintenance, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.
We expect that our general and administrative expense will increase in the future to support our continued research and development activities and potential commercialization efforts. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants and legal support, among other expenses. The costs associated with being a public company include expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the Securities and Exchange Commission, or SEC, insurance and investor relations costs. If any of our current or future product candidates obtains U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.
Other Income, Net
Other income, net consists primarily of interest earned on our cash equivalents and marketable securities and grant income received from the State of Delaware. We anticipate re-applying for grants from the State of Delaware from time to time as long as we maintain qualifying headcount levels.
Income Taxes
Since our inception, we have not recorded any income tax benefits for the net operating losses, or NOLs, we have incurred or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized.
Results of Operations
Comparison of the Three Months Ended March 31, 2024 and 2023
The following table sets forth our results of operations.
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Three months ended
March 31, |
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Change |
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(in thousands) |
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2024 |
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2023 |
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Operating expenses: |
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Research and development |
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$ |
27,409 |
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$ |
21,834 |
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