UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
(Address of Principal Executive Offices) | (Zip Code) | ||||||||||
Registrant's telephone number, including area code: (617) 564-0013
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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, 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):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
| ☒ | Smaller reporting company | ||||||||||
Emerging growth company | |||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 8, 2022, the registrant had 97,208,342 shares of common stock, par value $0.00001 per share, outstanding.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. These statements involve substantial risks, assumptions and uncertainties. All statements, other than statements of historical fact, contained herein, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue” “could,” “estimate,” “estimate,” “expect,” “goal,” “hope,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would,” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q include statements about:
•the initiation, timing, progress and results of our research and development programs, preclinical studies and future clinical trials;
•our ability to demonstrate, and the timing of, preclinical proof-of-concept in vivo for multiple programs;
•our ability to advance any product candidates that we may identify and successfully complete any clinical studies, including the manufacture of any such product candidates;
•our ability to pursue our four strategic indication categories: immediate target indications, differentiation target indications, “blue sky” indications and “march up the chromosome” approaches;
•our ability to quickly leverage programs within our initial target indications and to progress additional programs to further develop our pipeline;
•the timing of our investigational new drug applications submissions;
•the implementation of our strategic plans for our business, programs and technology;
•the scope of protection we are able to establish and maintain for intellectual property rights covering our Prime Editing technology;
•developments related to our competitors and our industry;
•our ability to leverage the clinical, regulatory, and manufacturing advancements made by gene therapy and gene editing programs to accelerate our clinical trials and approval of product candidates;
•our ability to identify and enter into future license agreements and collaborations;
•developments related to our Prime Editing technology;
•regulatory developments in the United States and foreign countries;
•our ability to attract and retain key scientific and management personnel;
•our estimates of our expenses, capital requirements, and needs for additional financing; and
•general economic, industry and market conditions, including rising interest rates and inflation.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and these statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties. You should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q and in subsequent SEC filings, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Unless otherwise disclosed, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.
You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to our other filings with the SEC completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date hereof, and we do not assume any obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise after the date of such statements, except as required by applicable law.
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Such information is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.
SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
We are subject to numerous risks and uncertainties, including those further described below in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q, that represent challenges that we face in connection with the successful implementation of our strategy and the growth of our business. In particular, the following considerations, among others, may offset our competitive strengths or have a negative effect on our business strategy, which could materially adversely affect our business, financial conditions, results of operations, future growth prospects, or cause a decline in the price of our common stock. This summary should be read in conjunction with the “Risk Factors” section and should not be relied upon as an exhaustive summary of the material risks facing our business.
•We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
•We will need substantial additional funding. If we are unable to raise capital when needed, we will be forced to delay, reduce, eliminate, or prioritize among our research and product development programs or future commercialization efforts.
•Gene editing, including platforms such as Prime Editing, is a novel technology that is not yet clinically validated for human therapeutic use. The approach we are taking to discover and develop novel therapeutics is unproven and may never lead to marketable products. We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates.
•Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Because gene editing is novel and the regulatory landscape that will govern our potential product candidates is uncertain and may change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for our potential product candidates.
•We may enter into collaborations with collaborators and strategic partners such as Beam Therapeutics, Inc. or other third parties for the research, development, delivery, manufacturing and commercialization of Prime Editing technology and certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of our Prime Editing platform or product candidates.
•If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies.
•If we are unable to obtain and maintain patent and other intellectual property protection for any product candidates we develop and for our Prime Editing technology, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, third parties could develop and commercialize products and technology similar or identical to ours and our ability to successfully commercialize any product candidates we may develop and our Prime Editing technology may be adversely affected.
•Our in-licensed issued patent, owned and in-licensed patent applications and other intellectual property may be subject to priority, inventorship or ownership disputes and similar proceedings. If we or our licensors are unsuccessful in any of these proceedings, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms or at all, or to cease the development, manufacture and commercialization of one or more of our product candidates, which could have a material adverse impact on our business. Our licenses are subject to Broad Institute’s inclusive innovation model, pursuant to which Broad Institute retains the right, in certain circumstances, to grant to third parties (other than specified competitors of ours) licenses under the licensed patent rights that would otherwise fall within the scope of the exclusive license granted to us.
•All gene targets, which are any human genes to which a program is directed, are subject to Broad Institute’s march-in license, which means Broad Institute has the right to terminate our license to gene targets under certain conditions and could make one or more gene targets unavailable to us. However, once we initiate a program for a gene target, in accordance with the terms of such license agreement, Broad Institute loses the right to use its march-in license for such gene target, provided we continue to use commercially reasonable efforts to continue to progress such development. As such, we believe that Broad Institute cannot exercise its march-in license with respect to any of our current programs for gene targets because such programs have been initiated in accordance with the terms and requirements of such license agreement
•The intellectual property landscape around the technologies we use or plan to use, including gene editing technology, is highly dynamic, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and may prevent, delay or otherwise interfere with our product discovery and development efforts.
•We expect to expand our research, development, delivery, manufacturing, commercialization, regulatory and future sales and marketing capabilities over time, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
•We have identified a material weakness in our internal control over financial reporting. If we fail to remediate this material weakness or identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.
PRIME MEDICINE, INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
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| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
5
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
PRIME MEDICINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | ||||||||||
| (In thousands, except share and per share data) | 2022 | 2021 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Related party short-term investment | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use lease assets | |||||||||||
| Restricted cash | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities, Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Deficit | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Related party forward contract liability | |||||||||||
| Operating lease liability | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liability, net of current | |||||||||||
| Non current deferred tax liability | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 11) | |||||||||||
Series A redeemable convertible preferred stock, $ | |||||||||||
Series B convertible preferred stock, $ | |||||||||||
| Stockholders’ deficit: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ deficit | ( | ( | |||||||||
| Total liabilities, redeemable convertible and convertible preferred stock and stockholders’ deficit | $ | $ | |||||||||
6
PRIME MEDICINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands, except share and per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | $ | $ | $ | $ | |||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Change in fair value of preferred stock tranche right liability | ( | ||||||||||||||||||||||
| Change in fair value of anti-dilution obligation | ( | ||||||||||||||||||||||
| Change in fair value of related party short-term investment | ( | ( | |||||||||||||||||||||
Other income (expense), net(1) | ( | ||||||||||||||||||||||
| Total other expense, net | ( | ( | ( | ||||||||||||||||||||
| Net loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Provision for (benefit from) income taxes | ( | ( | ( | ||||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Accretion of preferred stock to redemption value | ( | ||||||||||||||||||||||
| Cumulative dividend on preferred stock | ( | ( | ( | ( | |||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average common shares outstanding, basic and diluted | |||||||||||||||||||||||
| Comprehensive loss: | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Change in unrealized (losses) gains on investments, net of tax | ( | ( | ( | ||||||||||||||||||||
| Total other comprehensive loss | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
__________________
(1)Includes no zero and $(429 ) for the nine months ended September 30, 2022 and 2021, respectively (see Note 13).
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
PRIME MEDICINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Losses | Accumulated Deficit | Total Stockholders' Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share amounts) | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of related party forward contract | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of unvested restricted common stock | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in unrealized gain on investments, net of tax | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of related party forward contract | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of unvested restricted common stock | — | — | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in unrealized gain on investments, net of tax | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of related party forward contract | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of unvested restricted common stock | — | — | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in unrealized gain on investments, net of tax | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
PRIME MEDICINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE AND CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Losses | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share amounts) | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of redeemable convertible preferred stock to redemption value | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock and settlement of the anti-dilution obligation | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series A redeemable convertible preferred stock, including the settlement of the third and fourth tranche right liability, net of issuance costs of $ | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of preferred stock tranche liability upon settlement | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of redeemable convertible preferred stock to redemption value | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series B convertible preferred stock, net of issuance costs of $ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock and settlement of the anti-dilution obligation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in unrealized gain on investments, net of tax | — | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of unvested restricted common stock | — | — | — | — | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in unrealized gain on investments, net of tax | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2021 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
9
PRIME MEDICINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (In thousands) | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Amortization of premiums and discount on short-term investments | |||||||||||
| Stock-based compensation expense | |||||||||||
| Non cash lease expense | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Loss on disposal of property and equipment | |||||||||||
| Change in fair value of preferred stock tranche right liability | |||||||||||
| Change in fair value of anti-dilution obligation | |||||||||||
| Change in fair value of related party short-term investment | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Lease liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Purchase of short-term investments | ( | ( | |||||||||
| Matured short-term investments | |||||||||||
| Payments of security deposits | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from the issuance of convertible preferred stock series A, net of issuance costs paid | |||||||||||
| Proceeds from the issuance of convertible preferred stock series B, net of issuance costs paid | |||||||||||
| Payments of deferred offering costs | ( | ||||||||||
| Net proceeds from stock option exercises | |||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | |||||||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||
| Settlement of Series A preferred stock tranche obligation | $ | $ | |||||||||
| Issuance of Series A preferred stock at a price below fair value | $ | $ | |||||||||
| Settlement of anti-dilution obligation | $ | $ | |||||||||
| Settlement of related party forward contract | $ | $ | |||||||||
| Deferred offering costs included in accounts payable and accrued expenses at period end | $ | $ | |||||||||
| Purchases of property and equipment included in accounts payable and accrued expenses at period end | $ | $ | |||||||||
| Accretion of preferred stock to redemption value | $ | $ | |||||||||
| Unrealized loss on short-term investments | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
PRIME MEDICINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Nature of the Business and Basis of Presentation
Prime Medicine, Inc., together with its consolidated subsidiary (the “Company”) is a biotechnology company committed to deliver genetic therapies to address diseases by deploying gene editing technology, Prime Editing. The company is deploying Prime Editing technology, a versatile, precise, efficient and broad gene editing technology, which is designed to make only the right edit at the right position within a gene. With the theoretical potential to repair approximately 90 percent of known disease-causing genetic mutations across many organs and cell types, medicines based on Prime Editing, if approved, could offer a one-time curative genetic therapeutic option to a broad set of patients. The Company was incorporated in the State of Delaware in September 2019.
Reverse Stock Split
On October 12, 2022, in connection with the Company’s initial public offering (“IPO”), the Company effected a 1-for-3.10880 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios of each series of the Company’s preferred stock (see Note 6). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the preferred stock conversion ratios.
Liquidity and capital resources
Since its inception, the Company has devoted substantially all of our resources to building our Prime editing platform and advancing development of our portfolio of programs, establishing and protecting our intellectual property, conducting research and development activities, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant 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 and infrastructure. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
In October 2022, the Company completed its IPO of its common stock. In connection with its IPO, the Company issued and sold 11,721,456 shares of its common stock, including 1,427,338 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $17.00 per share. As a result of the IPO, the Company received $180.3 million in net proceeds, after deducting underwriting discounts, commissions and offering costs of $19.0 million. In connection with the IPO, all outstanding shares of redeemable convertible preferred stock converted into 51,923,758 shares of the Company’s common stock.
The Company is subject to risks and uncertainties common to early stage companies in the biotechnology industry, including, but not limited to, completing preclinical studies and clinical trials, obtaining regulatory approval for product candidates, market acceptance of products, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, reliance on third-party organizations, protection of proprietary technology, compliance with government regulations, the impact of the COVID-19 pandemic, and the ability to raise additional capital to fund operations. The Company’s 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 and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Since its inception, the Company has incurred substantial losses and as of September 30, 2022, the Company had an accumulated deficit of $253.9 million. The Company expects to generate operating losses and negative
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PRIME MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
operating cash flows for the foreseeable future. The Company expects that its cash, cash equivalents, and short term investments as of September 30, 2022 of $146.7 million will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.
Basis of Presentation
The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The accompanying condensed consolidated financial statements of Prime Medicine, Inc. are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2022 and the results of its operations for the three and nine months ended September 30, 2022 and 2021, and its cash flows for the nine months ended September 30, 2022 and 2021. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2022 and 2021 are also unaudited. The results for the nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. The condensed consolidated balance sheet data as of December 31, 2021 was derived from our audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles, or U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021, and notes thereto, which are included in the Company’s final prospectus for its IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the Securities and Exchange Commission (the “SEC”) on October 21, 2022.
Impact of the COVID-19 Pandemic
2.Summary of Significant Accounting Policies
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PRIME MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the SEC on October 21, 2022. Since the date of those financial statements, there have been no material changes to its significant accounting policies.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these condensed consolidated financial statements include, but are not limited to, revenue recognition, the valuation of the Company’s common stock and stock-based awards, the valuation of preferred stock tranche right liability, the valuation of the anti-dilution obligation and the valuation of the related party forward contract liability. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ materially from those estimates or assumptions.
Restricted Cash
Restricted cash consisted of letters of credit totaling $13.5 million and $13.1 million as of September 30, 2022 and December 31, 2021, respectively, that are required to be maintained in connection with the Company’s lease arrangements. Both letters of credit are in the name of the Company’s landlords and are required to fulfill lease requirements in the event the Company should default on its lease obligations. As of both September 30, 2022 and December 31, 2021, the Company classified its restricted cash as non-current on the consolidated balance sheets based on the release dates of the restrictions.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share (“EPS”) computation. Additionally, the amended guidance requires the application of the if-converted method for calculating diluted EPS and the treasury stock method will no longer be available. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact that ASU 2020-06 will have on its condensed consolidated financial statements and related disclosures but does not currently expect that the adoption of ASU 2020-06 will have a material impact.
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PRIME MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.Fair Value Measurements
We record cash equivalents, short-term investments, preferred stock tranche right liability, anti-dilution obligation and the related party forward contract liability at fair value. ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The hierarchy consists of three levels:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):
| Fair Value Measurements at September 30, 2022: | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Short-term investment: | |||||||||||||||||||||||
| U.S. Treasury bills and government securities | |||||||||||||||||||||||
| Related party short-term investment: | |||||||||||||||||||||||
| Beam equity securities | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Fair Value Measurements at December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Short-term investment: | |||||||||||||||||||||||
| U.S. Treasury bills and government securities | |||||||||||||||||||||||
| Related party short-term investment: | |||||||||||||||||||||||
| Beam equity securities | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Related party forward contract liability | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
The Company classifies its U.S. Treasury as short-term based on each instrument’s underlying contractual maturity date. The fair value of the Company’s U.S. Treasury securities and money market funds are classified as Level 2 because they are valued using observable inputs to quoted market prices, benchmark yields, reported trades,
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PRIME MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency and U.S. Treasury securities.
The underlying securities held in the money market funds held by the Company are all government backed securities.
Short-term investments consisted of the following (in thousands):
| Fair Value Measurements at September 30, 2022 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| U.S. Treasury bills and government securities | $ | $ | ( | $ | |||||||||||||||||||
| Related party short-term investment: | |||||||||||||||||||||||
| Beam equity securities | |||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| U.S. Treasury bills and government securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Related party short-term investment: | |||||||||||||||||||||||
| Beam equity securities | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
The contractual maturities of the Company’s short-term investments in available-for-sale debt securities held were as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Due within one year | $ | $ | |||||||||
| $ | $ | ||||||||||
Valuation of Preferred Stock Tranche Right Liability
The preferred stock tranche right liability in the table above is composed of the fair value of rights to purchase Series A Preferred Stock (see Note 6). The fair value of the preferred stock tranche right liability was determined based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy. The fair value of the preferred stock tranche right liability was determined using a Black-Scholes option pricing model, which considered as inputs the estimated fair value of the preferred stocks as of each valuation date, the risk-free interest rate, volatility and estimated time to each tranche closing.
The most significant assumption in the Black-Scholes option pricing model impacting the fair value of the preferred stock tranche right liability is the fair value of the Company’s convertible preferred stock as of each measurement date. The Company determines the fair value per share of the underlying convertible preferred stock by taking into consideration the most recent sales of its convertible preferred stock, results obtained from third-party valuations and additional factors the Company deems relevant. In November 2020, the second tranche of the Series A Preferred Stock closed. The fair value of each Series A Preferred Stock was $0.73 per share upon the closing of the second tranche. As of December 31, 2020, the fair value of Series A Preferred Stock was $0.76 per share. In April 2021, the third and fourth tranches of the Series A Preferred Stock closed. Upon satisfaction of certain conditions and the closing date of the third and fourth tranches, the associated Series A preferred stock tranche right
15
PRIME MEDICINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
liability was settled. The fair value of Series A Preferred Stock was $2.31 per share upon the closing of the third and fourth tranches. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining estimated time to each tranche closing. The volatility is based on the historical volatility of publicly traded peer companies. Changes in the estimated fair value of the Company’s convertible preferred stock can have a significant impact on the fair value of the preferred stock tranche right liability.
The preferred stock tranche right liability was initially recorded at fair value upon the date of issuance of the preferred stock tranche right and is subsequently remeasured to fair value at each reporting date, and immediately prior to the closing dates of Series A preferred stock tranches. Changes in the fair value of the preferred stock tranche right liability are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the preferred stock tranche right liability were recognized until the preferred stock tranche right liability was settled in full upon the satisfaction of certain conditions in April 2021.
The following table provides a roll-forward of the aggregate fair value of the Company’s preferred stock tranche right liability, for which fair value is determined using Level 3 inputs (in thousands):
| Preferred Stock Tranche Right | |||||
| Balance as of December 31, 2020 | $ | ||||
| Change in fair value of Series A preferred stock tranche right liability | |||||
| Reclassification of Series A preferred stock tranche right liability upon settlement | |||||