Fulcrum Therapeutics, Inc. 10-Q

Item 1. Financial Statements. Fulcrum Therapeutics, Inc. Consolidated Balance Sheets (In thousands, except share and per share amounts) (Unaudited) June 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 56,779 $ 57,052 Marketable securities 68,771 55,862 Accounts receivable — 2,000 Unbilled accounts receivable 657 531 Prepaid expenses and other current assets 2,304 4,065 Total current assets 128,511 119,510 Property and equipment, net 7,745 8,397 Restricted cash 1,092 1,092 Other assets 531 578 Total assets $ 137,879 $ 129,577 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 4,498 $ 4,079 Accrued expenses and other current liabilities 7,643 7,267 Deferred lease incentive, current portion 469 469 Deferred revenue, current portion 9,900 14,910 Total current liabilities 22,510 26,725 Deferred rent, excluding current portion 1,662 1,649 Deferred lease incentive, excluding current portion 2,817 3,051 Deferred revenue, excluding current portion — 2,971 Total liabilities 26,989 34,396 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding — — Common stock, $ 0.001 par value; 200,000,000 shares authorized; 32,706,863 and 28,067,402 shares issued as of June 30, 2021 and December 31, 2020, respectively; 32,659,740 and 27,941,566 shares outstanding as of June 30, 2021 and December 31, 2020, respectively 33 28 Treasury stock, at cost; 21 shares as of June 30, 2021 and no shares as of December 31, 2020 — — Additional paid-in capital 369,133 316,775 Accumulated other comprehensive loss ( 9 ) ( 2 ) Accumulated deficit ( 258,267 ) ( 221,620 ) Total stockholders’ equity 110,890 95,181 Total liabilities and stockholders’ equity $ 137,879 $ 129,577 The accompanying notes are an integral part of these financial statements. 1 Fulcrum Therapeutics, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Collaboration revenue $ 4,381 $ 2,000 $ 9,170 $ 2,750 Operating expenses: Research and development 17,378 12,775 33,712 27,257 General and administrative 6,685 5,149 12,183 10,213 Total operating expenses 24,063 17,924 45,895 37,470 Loss from operations ( 19,682 ) ( 15,924 ) ( 36,725 ) ( 34,720 ) Other income, net 34 239 78 583 Net loss $ ( 19,648 ) $ ( 15,685 ) $ ( 36,647 ) $ ( 34,137 ) Net loss per share, basic and diluted $ ( 0.60 ) $ ( 0.66 ) $ ( 1.14 ) $ ( 1.47 ) Weighted-average common shares outstanding, basic and diluted 32,636 23,854 32,076 23,287 Comprehensive loss: Net loss $ ( 19,648 ) $ ( 15,685 ) $ ( 36,647 ) $ ( 34,137 ) Other comprehensive (loss) gain: Unrealized (loss) gain on marketable securities ( 5 ) 134 ( 7 ) 81 Total other comprehensive (loss) gain ( 5 ) 134 ( 7 ) 81 Comprehensive loss $ ( 19,653 ) $ ( 15,551 ) $ ( 36,654 ) $ ( 34,056 ) The accompanying notes are an integral part of these financial statements. 2 Fulcrum Therapeutics, Inc. Consolidated Statements of Stockholders’ Equity (In thousands, except share amounts) (Unaudited) Common Stock Treasury Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Gain (Loss) Deficit Equity Balance at December 31, 2019 22,654,444 $ 23 — $ — $ 237,931 $ — $ ( 150,801 ) $ 87,153 Issuance of common stock under employee benefit plans 36,472 — — — 286 — — 286 Vesting of restricted stock awards 102,221 — — — 4 — — 4 Repurchase of unvested restricted stock awards — — 8,787 — — — — — Retirement of treasury shares — — ( 8,787 ) — — — — — Stock-based compensation expense — — — — 1,693 — — 1,693 Unrealized loss on marketable securities — — — — — ( 53 ) — ( 53 ) Net loss — — — — — — ( 18,452 ) ( 18,452 ) Balance at March 31, 2020 22,793,137 $ 23 — $ — $ 239,914 $ ( 53 ) $ ( 169,253 ) $ 70,631 Issuance of common stock in connection with private placement, net of placement agent fees and offering costs 4,029,411 4 — — 64,313 — — $ 64,317 Issuance of common stock under employee benefit plans 70,904 — — — 525 — — 525 Vesting of restricted stock awards 330,344 — — — 5 — — 5 Repurchase of unvested restricted stock awards — — 10,642 — — — — — Retirement of treasury shares — — ( 10,642 ) — — — — — Stock-based compensation expense — — — — 2,204 — — 2,204 Unrealized gain on marketable securities — — — — — 134 — 134 Net loss — — — — — — ( 15,685 ) ( 15,685 ) Balance at June 30, 2020 27,223,796 $ 27 — $ — $ 306,961 $ 81 $ ( 184,938 ) $ 122,131 Balance at December 31, 2020 27,941,566 28 — — 316,775 ( 2 ) ( 221,620 ) 95,181 Issuance of common stock in connection with follow-on offering, net of issuance costs 4,600,000 5 — — 47,402 — — 47,407 Issuance of common stock under employee benefit plans 11,888 — — — 93 — — 93 Vesting of restricted stock awards 40,982 — — — 1 — — 1 Repurchase of unvested restricted stock awards — — 1,836 — — — — — Retirement of treasury shares — — ( 1,836 ) — — — — — Stock-based compensation expense — — — — 2,073 — — 2,073 Unrealized loss on marketable securities — — — — — ( 2 ) — ( 2 ) Net loss — — — — — — ( 16,999 ) ( 16,999 ) Balance at March 31, 2021 32,594,436 $ 33 — $ — $ 366,344 $ ( 4 ) $ ( 238,619 ) $ 127,754 Issuance of common stock under employee benefit plans 30,008 — — — 242 — — 242 Vesting of restricted stock awards 35,296 — — — 1 — — 1 Repurchase of unvested restricted stock awards — — 2,435 — — — — — Retirement of treasury shares — — ( 2,414 ) — — — — — Stock-based compensation expense — — — — 2,546 — — 2,546 Unrealized loss on marketable securities — — — — — ( 5 ) — ( 5 ) Net loss — — — — — — ( 19,648 ) ( 19,648 ) Balance at June 30, 2021 32,659,740 $ 33 21 $ — $ 369,133 $ ( 9 ) $ ( 258,267 ) $ 110,890 The accompanying notes are an integral part of these financial statements. 3 Fulcrum Therapeutics, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, 2021 2020 Operating activities Net loss $ ( 36,647 ) $ ( 34,137 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 1,275 1,092 Stock-based compensation expense 4,619 3,897 Net amortization of premiums and discounts on marketable securities 195 ( 86 ) Changes in operating assets and liabilities: Accounts receivable 2,000 — Unbilled accounts receivable ( 126 ) ( 755 ) Prepaid expenses and other current assets 1,773 1,079 Other assets 47 ( 17 ) Accounts payable 622 1,436 Accrued expenses and other liabilities 397 9 Deferred revenue ( 7,981 ) ( 1,669 ) Deferred rent and deferred lease incentive ( 221 ) ( 174 ) Net cash used in operating activities $ ( 34,047 ) $ ( 29,325 ) Investing activities Purchases of marketable securities ( 51,785 ) ( 72,653 ) Maturities of marketable securities 38,673 16,800 Purchases of property and equipment ( 827 ) ( 777 ) Net cash used in investing activities ( 13,939 ) ( 56,630 ) Financing activities Payment of initial public offering costs — ( 193 ) Proceeds from issuance of common stock in connection with private placement, net of placement agent fees and offering costs — 64,368 Proceeds from issuance of common stock in connection with follow-on offering, net of issuance costs 47,407 — Principal payments on capital lease obligations ( 18 ) ( 24 ) Proceeds from issuance of common stock under benefit plans, net 324 809 Net cash provided by financing activities 47,713 64,960 Net decrease in cash, cash equivalents and restricted cash ( 273 ) ( 20,995 ) Cash, cash equivalents, and restricted cash, beginning of period 58,144 97,805 Cash, cash equivalents, and restricted cash, end of period $ 57,871 $ 76,810 Supplemental cash flow information Cash paid for interest $ — $ 1 Non-cash investing and financing activities: Property and equipment purchases unpaid at end of period $ 59 $ 54 Public offering costs unpaid at end of period $ — $ 158 The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of each of the periods shown above: June 30, 2021 June 30, 2020 Cash and cash equivalents $ 56,779 $ 75,718 Restricted cash 1,092 1,092 Total cash, cash equivalents, and restricted cash $ 57,871 $ 76,810 The accompanying notes are an integral part of these financial statements. 4 Fulcrum Therapeutics, Inc. Notes to Consolidated Financial Statements 1. Nature of the Business and Basis of Presentation Fulcrum Therapeutics, Inc. (the “Company” or “Fulcrum”) was incorporated in Delaware on August 18, 2015. The Company is focused on improving the lives of patients with genetically defined rare diseases in areas of high unmet medical need. The Company is subject to a number of risks similar to other companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, dependence on key personnel, protection of proprietary technology, reliance on third party organizations, risks of obtaining regulatory approval for any product candidate that it may develop, development by competitors of technological innovations, compliance with government regulations, and the need to obtain additional financing. 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. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. Basis of Presentation The accompanying 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 consolidated financial statements and footnotes to the financial statements have been prepared on the same basis as the most recently audited annual consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2021 and the results of its operations and its cash flows for the three and six months ended June 30, 2021 and 2020. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2021 (the “Annual Report on Form 10-K”). Sales of Common Stock On July 22, 2019, the Company completed an initial public offering (“IPO”) of its common stock and issued and sold 4,500,000 shares of common stock at a public offering price of $ 16.00 per share, resulting in net proceeds of $ 63.9 million after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all 112,500,000 shares of outstanding preferred stock automatically converted into 16,071,418 shares of common stock. On June 9, 2020, the Company issued and sold 4,029,411 shares of common stock to investors in a private placement at a price of $ 17.00 per share, resulting in net proceeds of $ 64.3 million after deducting offering costs. On August 11, 2020, the Company entered into an Equity Distribution Agreement with Piper Sandler & Co. (“Piper Sandler”), as sales agent, pursuant to which the Company may offer and sell shares of its common stock with an aggregate offering price of up to $ 75.0 million under an “at-the-market” offering program (the “ATM Offering”). The Equity Distribution Agreement provides that Piper Sandler will be entitled to a sales commission equal to 3.0 % of the gross sales price per share of all shares sold under the ATM Offering. From the initiation of the ATM Offering through June 30, 2021 , the Company has issued and sold 550,000 shares under the ATM Offering, resulting in aggregate net proceeds of $ 5.7 million after deducting issuance costs of $ 0.2 million. On January 22, 2021, the Company completed a public offering of its common stock and issued and sold 4,600,000 shares of common stock at a public offering price of $ 11.00 per share, resulting in net proceeds of $ 47.4 million after deducting underwriting discounts and commissions and offering expenses. 5 Liquidity The Company has incurred recurring losses and negative cash flows from operations since inception and has primarily funded its operations with proceeds from the sale of shares of common stock in public offerings, a private placement, and the ATM Offering, through issuances of convertible preferred stock, and from upfront payments received from the collaboration and license agreements with Acceleron Pharma Inc. (“Acceleron”), and MyoKardia, Inc. (“MyoKardia”), a wholly owned subsidiary of Bristol Myers Squibb Company. As of June 30, 2021, the Company had an accumulated deficit of $ 258.3 million. The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to expand its research and development efforts. The Company expects to finance its future cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. The Company expects that its cash, cash equivalents, and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of issuance of these financial statements. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. As a result, the Company could deplete its capital resources sooner than it currently expects. If the Company is unable to raise additional funds through equity or debt financings when needed, it may be required to delay, limit, reduce or terminate development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself. 2. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fulcrum Therapeutics Securities Corp., which is a Massachusetts subsidiary created to buy, sell, and hold securities. All intercompany transactions and balances have been eliminated. Summary of Significant Accounting Policies The significant accounting policies and estimates used in the preparation of the accompanying consolidated financial statements are described in the Company’s audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K . There have been no material changes in the Company’s significant accounting policies during the six months ended June 30, 2021. Use of Estimates The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amount of expenses during the reported periods. Estimates inherent in the preparation of these consolidated financial statements include, but are not limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions 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 could differ from those estimates or assumptions. Off-Balance Sheet Risk and Concentrations of Credit Risk The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, and restricted cash. The Company’s cash, cash equivalents, and restricted cash are deposited in accounts at large financial institutions. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash, cash equivalents and restricted cash are held. The Company maintains its cash equivalents in corporate bonds, commercial paper, and money market funds that invest in U.S. Treasury securities. The Company’s marketable securities primarily consist of corporate bonds and commercial paper, and potentially subject the Company to concentrations of credit risk. The Company has adopted an investment policy that limits the amounts the Company may invest in any one type of investment. The Company has not experienced any credit losses and does not believe it is exposed to any significant credit risk on these funds. 6 Recent Accounting Pronouncements—To Be Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as amended by various subsequently issued ASUs. The standard requires lessees to recognize an operating lease with a term greater than one year on their balance sheets as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. Lessees are required to classify leases as either finance or operating leases. If the lease is effectively a financed-purchase by the lessee, it is classified as a financing lease, otherwise it is classified as an operating lease. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , which permits entities to continue applying legacy guidance in ASC 840, Leases , including its disclosure requirements, in the comparative periods presented in the year that the entity adopts the new leasing standard. In November 2019, the FASB deferred the effective date of ASU 2016-02, as amended, for private companies to fiscal years beginning after December 15, 2020. In June 2020, the FASB further deferred the effective date of ASU 2016-02, as amended, for private companies to fiscal years beginning after December 15, 2021. The new standard will become effective for the Company on January 1, 2022. The Company will apply the transition method permitted by ASU 2016-02, as amended. The Company is currently evaluating the effect that adoption of the standard is expected to have on the Company’s consolidated financial statements and related disclosures. The Company expects to take advantage of certain available expedients by electing the transition package of practical expedients permitted within ASU 2016-02, which allows the Company to not reassess previous accounting conclusions around whether arrangements are, or contain, leases, the classification of leases, and the treatment of initial direct costs. The Company also expects to make an accounting policy election to exclude leases with an initial term of twelve months or less from the balance sheet. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial position and results of operations. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes . The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The new standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial position and results of operations. 3. Fair Value Measurements The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the fair value hierarchy classification of such fair values as of June 30, 2021 and December 31, 2020 (in thousands): Fair Value Measurements at June 30, 2021 Total Level 1 Level 2 Level 3 Cash equivalents: Money market funds $ 46,879 $ 46,879 $ — $ — Corporate bonds 1,301 — 1,301 — Commercial paper 8,599 — 8,599 — Marketable securities: Corporate bonds 22,744 — 22,744 — Commercial paper 46,027 — 46,027 — Total $ 125,550 $ 46,879 $ 78,671 $ — 7 Fair Value Measurements at December 31, 2020 Total Level 1 Level 2 Level 3 Cash equivalents: Money market funds $ 57,052 $ 57,052 $ — $ — Marketable securities: Corporate bonds 23,339 — 23,339 — Commercial paper 32,523 — 32,523 — Total $ 112,914 $ 57,052 $ 55,862 $ — There were no transfers between fair value levels during the three and six months ended June 30, 2021. 4. Cash Equivalents and Marketable Securities Cash equivalents and marketable securities consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands): Fair Value Measurements at June 30, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash equivalents: Money market funds $ 46,879 $ — $ — $ 46,879 Corporate bonds 1,301 — — 1,301 Commercial paper 8,599 — — 8,599 Total cash equivalents 56,779 — — 56,779 Marketable securities: Corporate bonds 22,748 1 ( 5 ) 22,744 Commercial paper 46,032 3 ( 8 ) 46,027 Total marketable securities 68,780 4 ( 13 ) 68,771 Total cash equivalents and marketable securities $ 125,559 $ 4 $ ( 13 ) $ 125,550 Fair Value Measurements at December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash equivalents: Money market funds $ 57,052 $ — $ — $ 57,052 Total cash equivalents 57,052 — — 57,052 Marketable securities: Corporate bonds 23,341 2 ( 4 ) 23,339 Commercial paper 32,523 — — 32,523 Total marketable securities 55,864 2 ( 4 ) 55,862 Total cash equivalents and marketable securities $ 112,916 $ 2 $ ( 4 ) $ 112,914 There were no sales of marketable securities during the three and six months ended June 30, 2021. As of June 30, 2021, the aggregate fair value of securities that were in an unrealized loss position for less than twelve months was $ 48.0 million. The Company determined that it did no t hold any securities with any other-than-temporary impairment as of June 30, 2021. As of June 30, 2021, the remaining contractual maturity of all of the Company’s marketable securities is less than one year. As of June 30, 2021, the Company did not intend to sell, and would not be more likely than not required to sell, the securities in an unrealized loss position before recovery of their amortized cost bases. 8 5. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): June 30, 2021 December 31, 2020 Lab equipment $ 7,319 $ 6,877 Furniture and fixtures 594 594 Computer equipment 373 373 Software 199 199 Leasehold improvements 6,210 6,210 Construction in process 261 262 Total property and equipment 14,956 14,515 Less: accumulated depreciation ( 7,211 ) ( 6,118 ) Property and equipment, net $ 7,745 $ 8,397 Depreciation expense for the three months ended June 30, 2021 and 2020 was $ 0.7 million and $ 0.6 million, respectively. Depreciation expense for the six months ended June 30, 2021 and 2020 was $ 1.3 million and $ 1.1 million, respectively. 6. Additional Balance Sheet Detail Prepaid expenses and other current assets consisted of the following (in thousands): June 30, 2021 December 31, 2020 Prepaid expenses $ 2,028 $ 3,668 Prepaid sign-on bonuses subject to vesting provisions 99 147 Interest income receivable 166 176 Other 11 74 Total prepaid expenses and other current assets $ 2,304 $ 4,065 Accrued expenses and other current liabilities consisted of the following (in thousands): June 30, 2021 December 31, 2020 External research and development $ 4,958 $ 4,082 Payroll and benefits 1,972 2,928 Professional services 669 196 Capital lease obligation, current portion — 17 Restricted stock liability, current portion 2 6 Other 42 38 Total accrued expenses and other current liabilities $ 7,643 $ 7,267 7. Preferred Stock As of June 30, 2021 and December 31, 2020, 5,000,000 shares of undesignated preferred stock were authorized. No shares of preferred stock were issued or outstanding as of June 30, 2021 and December 31, 2020. No dividends have been declared since inception. 8. Common Stock As of June 30, 2021 and December 31, 2020, 200,000,000 shares of common stock, $ 0.001 par value per share, were authorized. 9 Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders . Common stockholders are not entitled to receive dividends, unless declared by the Company’s board of directors, subject to the preferential dividend rights of any preferred stock then outstanding. No dividends have been declared or paid by the Company since its inception. As of June 30, 2021 and December 31, 2020, the Company has reserved for future issuance the following number of shares of common stock: June 30, 2021 December 31, 2020 Shares reserved for exercises of outstanding stock options 4,674,037 2,962,347 Shares reserved for future issuance under the 2019 Stock Incentive Plan 1,116,934 1,728,616 Shares reserved for future issuance under the 2019 Employee Stock Purchase Plan 729,900 465,999 6,520,871 5,156,962 9. Stock-based Compensation Expense 2016 Stock Incentive Plan In July 2016, the Company adopted the 2016 Stock Incentive Plan (the “2016 Plan”), which provided for the grant of restricted stock awards, restricted stock units, incentive stock options, non-statutory stock options, and other stock-based awards to the Company’s eligible employees, officers, directors, consultants, and advisors. As of the effective date of the 2019 Stock Incentive Plan (the “2019 Plan”), and as of June 30, 2021, no shares remained available for future issuance under the 2016 Plan. Any options or awards outstanding under the 2016 Plan remain outstanding and effective. 2019 Stock Incentive Plan On July 2, 2019, the Company’s stockholders approved the 2019 Plan, which became effective on July 17, 2019. The 2019 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards to the Company’s officers, employees, directors, consultants and advisors. The number of shares initially reserved for issuance under the 2019 Plan was 2,017,142 shares, plus the shares of common stock remaining available for issuance under the 2016 Plan as of July 17, 2019. The number of shares reserved will be annually increased on January 1, 2020 and each January 1 thereafter through January 1, 2029 by the least of (i) 2,000,000 shares, (ii) 4 % of the number of shares of the Company’s common stock outstanding on the first day of each such year or (iii) an amount determined by the Company’s board of directors. On January 1, 2021, the number of shares reserved for issuance under the 2019 Plan was increased by 1,122,696 shares. As of June 30, 2021, there were 1,116,934 shares available for future issuance under the 2019 Plan. The shares of common stock underlying any awards that expire, terminate, or are otherwise surrendered, cancelled, forfeited or repurchased by the Company under the 2016 Plan or the 2019 Plan will be added back to the shares of common stock available for issuance under the 2019 Plan. As of July 17, 2019, no further awards will be made under the 2016 Plan. Restricted Stock The Company may repurchase unvested shares at the original purchase price if employees or non-employees are terminated or cease their employment or service relationship with the Company. Shares of common stock repurchased from employees and non-employees are shares held in the Company’s treasury (“Treasury Shares”). The board of directors may, at its discretion, authorize that the Treasury Shares be returned to the pool of authorized but unissued common stock. The shares of common stock underlying restricted stock awards typically vest over a four-year period. The shares of common stock are recorded in stockholders’ equity as they vest. 10 The following table summarizes the Company’s restricted stock activity under the 2019 Plan and 2016 Plan during the six months ended June 30, 2021: Number of Shares Weighted Average Grant Date Fair Value Unvested at December 31, 2020 82,978 $ 3.19 Granted — — Vested ( 47,706 ) 3.11 Repurchased ( 2,435 ) 3.22 Unvested at June 30, 2021 32,837 $ 3.30 Stock Options Stock options granted by the Company typically vest over a four-year period and have a ten year contractual term. Shares issued upon the exercise of stock options are issued from the Company’s pool of authorized but unissued common stock. The following table summarizes the Company’s stock option activity under the 2019 Plan and 2016 Plan during the six months ended June 30, 2021: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at December 31, 2020 2,962,347 $ 11.57 8.55 $ 5,767,895 Granted 1,943,687 11.89 Exercised ( 25,123 ) 7.76 Cancelled ( 206,874 ) 12.69 Outstanding at June 30, 2021 4,674,037 $ 11.67 8.72 $ 3,954,866 Exercisable at June 30, 2021 1,260,910 $ 11.10 7.81 $ 1,937,737 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock as of the balance sheet date for those options that had exercise prices lower than the fair value of the Company’s common stock. The weighted average grant date fair value of stock options granted in the three and six months ended June 30, 2021 was $ 7.71 per share and $ 8.60 per share, respectively. The weighted average grant date fair value of stock options granted in the three and six months ended June 30, 2020 was $ 9.76 per share and $ 10.94 per share, respectively. The total intrinsic value of stock options exercised during the three and six months ended June 30, 2021 was less than $ 0.1 million and $ 0.1 million, respectively. The total intrinsic value of stock options exercised during the three and six months ended June 30, 2020 was $ 0.8 million and $ 1.1 million, respectively . The fair value of stock options granted during the three and six months ended June 30, 2021 and 2020 under the 2019 Plan has been calculated on the date of grant using the following weighted average assumptions: Three Months Ended June 30, 2021 Three Months Ended June 30, 2020 Six Months Ended June 30, 2021 Six Months Ended June 30, 2020 Risk-free interest rate 1.0 % 0.4 % 0.9 % 1.5 % Expected dividend yield 0.0 % 0.0 % 0.0 % 0.0 % Expected term (years) 6.0 5.7 6.0 6.0 Expected stock price volatility 86.9 % 77.2 % 86.2 % 75.7 % 11 Grants Outside of the 2016 Plan and the 2019 Plan The following table summarizes the Company’s restricted stock activity outside of the 2019 Plan and 2016 Plan during the six months ended June 30, 2021: Number of Shares Weighted Average Grant Date Fair Value Unvested at December 31, 2020 42,858 $ 2.93 Granted — — Vested ( 28,572 ) 2.93 Repurchased — — Unvested at June 30, 2021 14,286 $ 2.93 The aggregate intrinsic value of all restricted stock awards that vested during the three months ended June 30, 2021 and 2020 was $ 0.4 million and $ 6.0 million, respectively. The aggregate intrinsic value of all restricted stock awards that vested during the six months ended June 30, 2021 and 2020 was $ 0.9 million and $ 7.6 million, respectively. Stock-based Compensation Expense The total compensation cost recognized in the statements of operations associated with all stock-based compensation awards granted by the Company is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 General and administrative $ 1,562 $ 1,018 $ 2,846 $ 1,953 Research and development 984 1,186 1,773 1,944 Total stock-based compensation expense $ 2,546 $ 2,204 $ 4,619 $ 3,897 As of June 30, 2021, the Company had an aggregate of $ 26.1 million of unrecognized stock-based compensation expense, which is expected to be recognized over a weighted average period of 2.86 years. 2019 Employee Stock Purchase Plan On July 2, 2019, the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective on July 17, 2019. A total of 252,142 shares of common stock were initially reserved for issuance under the ESPP. In addition, the number of shares of common stock reserved under the ESPP is annually increased on January 1, 2020, and each January 1 thereafter through January 1, 2029, by the least of (i) 428,571 shares of common stock, (ii) 1 % of the number of shares of the Company’s common stock outstanding on the first day of each such year or (iii) an amount determined by the Company’s board of directors. On January 1, 2021, the number of shares reserved for issuance under the 2019 ESPP was increased by 280,674 shares. As of June 30, 2021, there were 729,900 shares available for future issuance under the ESPP. 10. Collaboration and License Agreements Acceleron Collaboration Agreement On December 20, 2019, the Company entered into the Acceleron Collaboration Agreement to identify biological targets to modulate specific pathways associated with a targeted indication within the pulmonary disease space (the “Indication”). Under the terms of the Acceleron Collaboration Agreement, the Company granted Acceleron an exclusive worldwide license under certain intellectual property rights to make, have made, use, sell, have sold, import, export, distribute and have distributed, market, have marketed, promote, have promoted, or otherwise exploit molecules and products directed against or expressing certain biological targets identified by the Company for the treatment, prophylaxis, or diagnosis of the Indication. 12 Pursuant to a mutually agreed research plan, the Company will perform assay screening and related research activities to identify and validate potential biological targets for further research in order to support the development, manufacture and commercialization of product candidates by Acceleron. Upon completion of the research activities, the Company will deliver a data package to Acceleron with respect to the biological targets identified by the Company in the conduct of the research activities for the treatment, prophylaxis, or diagnosis of the Indication. As provided for under the exclusive worldwide license that was conveyed at the inception of the arrangement , Acceleron ha s the right to designate a specified number of the biological targets identified by the Company for Acceleron’s research, development, manufacture and commercialization of products or molecules directed to such targets for the treatment, prophylaxis, or diagnosis of the Indication (the “Targets”). If Acceleron does not designate any Targets during the designated period, then the Acceleron Collaboration Agreement will automatically terminate. If Acceleron designates one or more Targets, then Acceleron will be obligated to use commercially reasonable efforts to seek regulatory approval for one product directed to a Target in certain specified countries. Upon receipt of regulatory approval for any product directed to a Target, Acceleron must use commercially reasonable efforts to commercialize such product in certain specified countries. Acceleron may also request that the Company perform medicinal chemistry services related to the generation and optimization of molecules directed against or expressing biological targets for the treatment, prophylaxis, or diagnosis of the Indication beyond the scope of the research plan. If the Company agrees to provide such medicinal chemistry services, the Company and Acceleron will negotiate to determine the scope, timeline and budget for such medicinal chemistry services. The Company received a non-refundable upfront payment of $ 10.0 million in December 2019 upon the execution of the Acceleron Collaboration Agreement. The Company is entitled to research milestone payments of up to $ 18.5 million in the aggregate upon achievement of specified research milestones, development milestone payments of up to $ 202.5 million in the aggregate upon achievement of specified clinical and regulatory milestones, and sales milestones payments of up to $ 217.5 million in the aggregate upon the achievement of certain aggregate annual worldwide net sales milestones for certain products directed to a Target that have achieved such milestones. To date, the Company has achieved $ 2.0 million of specified research milestones. In addition, the Company is entitled to tiered royalties ranging from a mid single-digit percentage to a low double-digit percentage on Acceleron’s annual worldwide net sales of products directed to any Target, subject to reduction in specified circumstances. The Company is also entitled to receive reimbursement from Acceleron for research costs incurred under the research plan, including internal and external costs. The Acceleron Collaboration Agreement continues on a country-by-country and Target-by-Target basis until the last to expire royalty term for a product directed to such Target, at which time the Acceleron Collaboration Agreement expires with respect to such Target in such country. Either party has the right to terminate the Acceleron Collaboration Agreement if the other party has materially breached in the performance of its obligations under the contract and such breach has not been cured within the applicable cure period. Acceleron also has the right to terminate the Acceleron Collaboration Agreement for convenience in its entirety or on a Target-by-Target and, if the Company performs medicinal chemistry services, on a molecule-by-molecule basis with respect to any molecule directed against a Target. While the Company is performing the research activities pursuant to the research plan and for a specified period thereafter, the Company may not research, develop, manufacture, commercialize, use, or otherwise exploit any compound or product for the treatment, prophylaxis, or diagnosis of the Indication other than for Acceleron. While the Company is performing the research activities pursuant to the research plan and for a specified period thereafter, other than for Acceleron, the Company may not research, develop, manufacture, commercialize, use, or otherwise exploit any compound or product for the treatment, prophylaxis, or diagnosis of the Indication that is directed against certain specified biological targets identified by the Company in the performance of the research activities. Accounting Analysis Identification of the Contract The Company assessed the Acceleron Collaboration Agreement and concluded that it represents a contract with a customer within the scope of ASC 606. Identification of the Promises and Performance Obligations The Company determined that the Acceleron Collaboration Agreement contains the following promises: (i) an exclusive worldwide license under certain intellectual property rights, including rights to a specified number of biological targets identified by the Company for the treatment, prophylaxis, or diagnosis of a targeted indication within the pulmonary disease space that was conveyed at the inception of the arrangement (the “License”), (ii) research services to identify and validate potential biological targets (the “Research Services”), and (iii) participation in the joint steering committee (the “JSC”). 13 The Company assessed the above promises and concluded that the License is not capable of being distinct from the Research Services given that the License has limited value without the performance of the Research Services and the Research Services can only be performed by the Company due to their specialized nature . Therefore, the Company has concluded that the License and the Research Services represent a single combined performance obligation. The Company also assessed the participation on the JSC and concluded that the promise is quantitatively and qualitatively immaterial in the context of the Acceleron Collaboration Agreement. Accordingly, the Company has disregarded its participation on the JSC as a performance obligation. The potential medicinal chemistry services were not identified as a promised good or service because the Company is under no obligation to provide those services. Determination of the Transaction Price The Company received a non-refundable upfront payment of $ 10.0 million upon the execution of the Acceleron Collaboration Agreement, which the Company included in the transaction price. In December 2020, the Company achieved $ 2.0 million of specified research milestones associated with the Acceleron Collaboration Agreement, which were previously constrained due to the significant uncertainty regarding whether such research milestones would be achieved. The Company included this amount in the transaction price as of December 31, 2020. Based on the continued uncertainty associated with the achievement of any of the remaining research and development milestone payments that the Company is eligible to receive, the Company has constrained the variable consideration associated with those remaining milestone payments and excluded them from the transaction price. As part of its evaluation of constraining the remaining research and development milestones, the Company considered numerous factors, including the fact that the achievement of the research and development milestones are contingent upon the results of the underlying research and development activities and are thus outside of the control of the Company. The Company also included in the transaction price the expected amount of costs to be reimbursed for the Research Services. The Company reassesses the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjusts its estimate of the transaction price. There was no change in the amount of variable consideration constrained during the three and six months ended June 30, 2021. Any consideration related to sales milestone payments (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Acceleron and therefore are recognized at the later of when the related sales occur or the performance obligation is satisfied. Allocation of the Transaction Price to Performance Obligations As noted above, the Company has identified a single performance obligation associated with the Acceleron Collaboration Agreement. Therefore, the Company will allocate the entire amount of the transaction price to the identified single performance obligation. Recognition of Revenue The Company recognizes revenue related to the Acceleron Collaboration Agreement over time as the Research Services are rendered. The Company has concluded that an input method is a representative depiction of the transfer of services under the Acceleron Collaboration Agreement. The method of measuring progress towards the delivery of the services incorporates actual cumulative internal and external costs incurred relative to total internal and external costs expected to be incurred to satisfy the performance obligation. The period over which total costs are estimated reflects the Company’s estimate of the period over which it will perform the Research Services. Changes in estimates of total internal and external costs expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment. During the three and six months ended June 30, 2021, the Company recognized $ 2.3 million and $ 4.9 million, respectively, of collaboration revenue associated with the Acceleron Collaboration Agreement, which includes $ 1.7 million and $ 3.8 million, respectively, of revenue recognized that was included in deferred revenue as of December 31, 2020. During the three and six months ended June 30, 2020, the Company recognized $ 2.0 million and $ 2.8 million, respectively, of collaboration revenue under the Acceleron Collaboration Agreement. As of June 30, 2021 and December 31, 2020, the Company recorded deferred revenue of $ 4.0 million and $ 7.9 million, respectively, associated with the Acceleron Collaboration Agreement, which is classified as either current or net of current portion in the accompanying consolidated balance sheets based on the period over which the revenue is expected to be recognized. The aggregate deferred revenue balance represents the aggregate amount of the transaction price allocated to the 14 performance obligations that are unsatisfied as of June 30, 2021 and December 31, 2020 , respectively . As of June 30, 2021 , the Company had received $ 2.7 million of cost reimbursement payments under the Acceleron Collaboration Agreement and $ 2.0 million associated with the achievement of specified research milestones. As of December 31, 2020 , the Company had received $ 1.7 million of cost reimbursement payments, and no milestone or royalty payments under the Acceleron Collaboration Agreement. As of June 30, 2021 , the Company had recorded no accounts receivable under the Acceleron Collaboration Agreement. As of December 31, 2020 , the Company recorded accounts receivable of $ 2.0 million associated with the achievement of specified research milestones in December 2020. As of June 30, 2021 , the Company recorded unbilled accounts receivable of $ 0.6 million related to reimbursable r esearch and development costs under the Acceleron Collaboration Agreement for activities performed during the three months ended June 30, 2021 . As of December 31, 2020 , the Company recorded unbilled accounts receivable of $ 0.5 million related to reimbursable research and development costs under the Acceleron Collaboration Agreement for activities performed during the three months ended December 31, 2020 . MyoKardia Collaboration Agreement On July 20, 2020, the Company entered into the MyoKardia Collaboration Agreement, pursuant to which the Company granted to MyoKardia an exclusive worldwide license under certain intellectual property rights to research, develop, make, have made, use, have used, sell, have sold, offer for sale, have offered for sale, import, have imported, export, have exported, distribute, have distributed, market, have marketed, promote, have promoted, or otherwise exploit products directed against certain biological targets identified by the Company that are capable of modulating up to a certain number of genes of interest with relevance to certain genetically defined cardiomyopathies. Pursuant to a mutually agreed research plan, the Company will perform assay screening and related research activities to identify and validate up to a specified number of potential cardiomyopathy gene targets (“Identified Targets”) for further research, development, manufacture and commercialization by MyoKardia. The Company and MyoKardia will work together to determine how best to advance at each stage of the research activities under the research plan and to identify which of the Identified Targets, if any, meet the criteria set forth in the research plan (the “Cardiomyopathy Target Candidates”). Upon completion of the research plan, the parties will work together to prepare a final data package and MyoKardia may designate certain Cardiomyopathy Target Candidates for MyoKardia’s further exploitation under the MyoKardia Collaboration Agreement (the “Cardiomyopathy Targets”). If MyoKardia does not designate any Cardiomyopathy Targets during the designated period, then the MyoKardia Collaboration Agreement will automatically terminate. If MyoKardia designates one or more Cardiomyopathy Targets, then MyoKardia will be obligated to use commercially reasonable efforts to seek regulatory approval for and to commercialize one product directed against an Identified Target in certain specified countries. During the period in which the Company is performing the research activities pursuant to the research plan (the “Research Term”) and for a specified period beyond the Research Term if MyoKardia designates a Cardiomyopathy Target, the Company may only use the data generated from such research activities for MyoKardia in accordance with the MyoKardia Collaboration Agreement. During the Research Term and for a specified period thereafter, the Company may not research, develop, manufacture, commercialize, use, or otherwise exploit any compound or product (a) that is a Compound or Product under the MyoKardia Collaboration Agreement that is directed against the Cardiomyopathy Target Candidates for the treatment, prophylaxis, or diagnosis of any indication or (b) for the treatment of any genetically defined cardiomyopathies shown to be related to certain specified genes of interest that are modulated by the Cardiomyopathy Targets. Under the MyoKardia Collaboration Agreement, MyoKardia made a $ 10.0 million upfront payment and a $ 2.5 million payment as prepaid research funding to the Company in July 2020. MyoKardia will also reimburse the Company for the costs of the research activities not covered by the prepaid research funding, up to a maximum amount of total research funding (including the prepaid research funding). Upon the achievement of specified preclinical, development and sales milestones, the Company will be entitled to preclinical milestone payments, development milestone payments and sales milestone payments of up to $ 298.5 million in the aggregate per target for certain Identified Targets, and of up to $ 150.0 million in the aggregate per target for certain other Identified Targets. MyoKardia will also pay the Company tiered royalties ranging from a mid single-digit percentage to a low double-digit percentage based on MyoKardia’s, and any of its affiliates’ and sublicensees’, annual worldwide net sales of products under the MyoKardia Collaboration Agreement directed against any Identified Target. The royalties are payable on a product-by-product basis during a specified royalty term, and may be reduced in specified circumstances. The MyoKardia Collaboration Agreement continues on a country-by-country and product-by-product basis until the last to expire royalty term for a product, at which time the MyoKardia Collaboration Agreement expires with respect to such product in such country. Either party has the right to terminate the MyoKardia Collaboration Agreement if the other party has materially breached in the performance of its obligations under the MyoKardia Collaboration Agreement and such breach has not been cured within the applicable cure period. MyoKardia also has the right to terminate the MyoKardia Collaboration Agreement for convenience in its entirety or on a target-by-target, product-by-product or molecule-by-molecule basis. 15 Accounting Analysis Identification of the Contract The Company assessed the MyoKardia Collaboration Agreement and concluded that it represents a contract with a customer within the scope of ASC 606. Identification of the Promises and Performance Obligations The Company determined that the MyoKardia Collaboration Agreement contains the following promises: (i) an exclusive worldwide license under certain intellectual property rights, including rights to a specified number of potential cardiomyopathy gene targets identified by the Company for further research, development, manufacture and commercialization for the treatment, prophylaxis, or diagnosis of certain genetically defined cardiomyopathies that was conveyed at the inception of the arrangement (the “MyoKardia License”), (ii) research services to identify and validate potential biological targets (the “MyoKardia Research Services”), and (iii) participation in the joint steering committee (the “MyoKardia JSC”). The Company assessed the above promises and concluded that the MyoKardia License is not capable of being distinct from the MyoKardia Research Services given that the MyoKardia License has limited value without the performance of the MyoKardia Research Services and the MyoKardia Research Services can only be performed by the Company due to their specialized nature. Therefore, the Company has concluded that the MyoKardia License and the MyoKardia Research Services represent a single combined performance obligation. The Company also assessed the participation on the MyoKardia JSC and concluded that the promise is quantitatively and qualitatively immaterial in the context of the MyoKardia Collaboration Agreement. Accordingly, the Company has disregarded its participation on the MyoKardia JSC as a performance obligation. Determination of the Transaction Price The Company received a non-refundable upfront payment of $ 10.0 million, which the Company included in the transaction price. Based on the uncertainty associated with the achievement of any preclinical and development milestone payments that the Company is eligible to receive, the Company has constrained the variable consideration associated with those milestone payments and excluded them from the transaction price. As part of its evaluation of constraining the preclinical and development milestones, the Company considered numerous factors, including the fact that the achievement of the preclinical and development milestones are contingent upon the results of the underlying preclinical and development activities and are thus outside of the control of the Company. The Company also included in the transaction price the expected amount of costs to be reimbursed for the MyoKardia Research Services, which includes the $ 2.5 million prepaid research funding payment that the Company received in the third quarter of 2020. The Company reassesses the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjusts its estimate of the transaction price. There was no change in the amount of variable consideration constrained during the three and six months ended June 30, 2021. Any consideration related to sales milestone payments (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to MyoKardia and therefore are recognized at the later of when the related sales occur or the performance obligation is satisfied. Allocation of the Transaction Price to Performance Obligations As noted above, the Company has identified a single performance obligation associated with the MyoKardia Collaboration Agreement. Therefore, the Company will allocate the entire amount of the transaction price to the identified single performance obligation. 16 Recognition of Revenue The Company recognizes revenue related to the MyoKardia Collaboration Agreement over time as the MyoKardia Research Services are rendered. The Company has concluded that an input method is a representative depiction of the transfer of services under the MyoKardia Collaboration Agreement. The method of measuring progress towards the delivery of the services incorporates actual cumulative internal and external costs incurred relative to total internal and external costs expected to be incurred to satisfy the performance obligation. The period over which total costs are estimated reflects the Company’s estimate of the period over which it will perform the MyoKardia Research Services. Changes in estimates of total internal and external costs expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment. During the three and six months ended June 30, 2021, the Company recognized $ 2.0 million and $ 4.2 million, respectively, of collaboration revenue associated with the MyoKardia Collaboration Agreement, all of which was included in deferred revenue as of December 31, 2020. During the three and six months ended June 30, 2020, the Company did no t recognize any revenue under the MyoKardia Collaboration Agreement as it had not yet entered into the MyoKardia Collaboration Agreement. As of June 30, 2021 and December 31, 2020, the Company recorded $ 5.9 million and $ 10.0 million, respectively, of deferred revenue associated with the MyoKardia Collaboration Agreement, which is classified as either current or net of current portion in the accompanying consolidated balance sheets based on the period over which the revenue is expected to be recognized. The aggregate deferred revenue balance represents the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as of June 30, 2021. As of June 30, 2021, t he Company had not received any milestone, royalty, or cost reimbursement payments under the MyoKardia Collaboration Agreement, other than the $2.5 million payment as prepaid research funding in July 2020 . As of June 30, 2021, the Company has recorded unbilled accounts receivable of $ 0.1 million related to reimbursable MyoKardia Research Services costs under the MyoKardia Collaboration Agreement for activities performed during the three months ended June 30, 2021. As of December 31, 2020, the Company recorded no unbilled accounts receivable under the MyoKardia Collaboration Agreement. 11. Right of Reference and License Agreement In February 2019, the Company entered into the right of reference and license agreement, as amended (the “GSK Agreement”), with subsidiaries of GlaxoSmithKline plc (collectively referred to as “GSK”), pursuant to which the Company has been granted an exclusive worldwide license to develop and commercialize losmapimod. Under the GSK Agreement, the Company also acquired reference rights to relevant regulatory and manufacturing documents and GSK’s existing supply of losmapimod drug substance and product. The Company also has the right to sublicense its rights under the license agreement, subject to certain conditions. The Company is obligated to use commercially reasonable efforts to develop and commercialize losmapimod at its sole cost. The Company is also responsible for costs related to the filing and maintenance of the licensed patent rights. Under the GSK Agreement, the Company issued 12,500,000 shares of Series B Preferred Stock to GSK. In addition, the Company may owe GSK up to $ 37.5 million in certain specified clinical and regulatory milestones, including $ 2.5 million previously achieved and paid during the third quarter of 2019, and up to $ 60.0 million in certain specified sales milestones. The Company has agreed to pay tiered royalties on annual net sales of losmapimod that range from mid single-digit percentages to a low double-digit, but less than teens, percentage. The royalties are payable on a product-by-product and country-by-country basis, and may be reduced in specified circumstances. The GSK Agreement may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, the GSK Agreement will continue in effect until the expiration of the Company’s royalty obligations, which expire on a country-by-country basis on the later of (i) ten years after the first commercial sale in the country or (ii) approval of a generic version of losmapimod by the applicable regulatory agency. The Company will recognize clinical and regulatory milestone payments when the underlying contingency is resolved and the consideration is paid or becomes payable. The milestone payments will be capitalized or expensed depending on the nature of the associated asset as of the date of recognition. The Company will record sales milestone payments and royalties as additional expense of the related product sales in the period in which the corresponding sales occur. 12. Commitments and Contingencies Operating Leases In November 2017, the Company entered into a lease agreement for its current corporate headquarters for approximately 28,731 square feet of office and laboratory space in Cambridge, Massachusetts. The lease has a total commitment of $ 25.1 million over the ten year term, and includes escalating rent payments. The lease agreement requires the Company to either pay a security deposit or maintain a letter of credit of $ 1.1 million. The Company maintains a letter of credit for this lease and has recorded the cash held to secure the letter of credit as restricted cash on the consolidated balance sheet as of June 30, 2021 and December 31, 2020. Rent 17 expense associated with this lease for each of the three months ended June 30, 2021 and 2020 was approximately $ 0.5 million. Rent expense associated with this lease for each of the six months ended June 30, 2021 and 2020 was approximately $ 1.0 million. The future minimum lease payments associated with the lease for the Company’s current headquarters as of June 30, 2021, are as follows (in thousands): 2021 (1) $ 1,193 2022 2,424 2023 2,497 2024 2,572 2025 2,649 Thereafter 6,966 Total minimum lease payments $ 18,301 (1) Amounts are for the six months ending December 31, 2021. Other Agreements The Company has agreements with third parties in the normal course of business under which it can license certain developed technologies. If the Company exercises its rights to license the technologies, it may be subject to additional fees and milestone payments. As of June 30, 2021, the Company has not exercised its rights to license such technologies. Indemnification Agreements In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters arising out of the relationship between such parties and the Company. In addition, the Company has entered into indemnification agreements with members of its board of directors and senior management that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations as of June 30, 2021 or December 31, 2020. Legal Proceedings The Company is not currently a party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses the costs related to its legal proceedings as they are incurred. No such costs have been incurred during the three and six months ended June 30, 2021 and 2020. 13. Defined Contribution Plan The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the “ 401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants the option to elect to defer a portion of their annual compensation on a pretax basis. As currently established, the Company is not required to make and has not made any contributions to the 401(k) Plan. 18 14. Net Loss per Share The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Outstanding stock options 4,674,037 2,809,596 4,674,037 2,809,596 Unvested restricted stock awards 47,123 229,076 47,123 229,076 Total 4,721,160 3,038,672 4,721,160 3,038,672 19