What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-05-08 · 100 added, 65 removed, 153 unchanged (52% of the section changed)

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In the United States, the estimated addressable population who suffer from this condition, known as presbyopes, is 128 million, almost four times the number of individuals suffering from dry eye disease and three times the number of individuals suffering from childhood myopia, macular degeneration, diabetic retinopathy and glaucoma combined.

We believe that a once-daily pharmacological eye drop that can effectively and safely improve near vision throughout the full workday, without the need for reading glasses, will be a highly attractive commercial product with an estimated U.S.

We believe that a once-daily pharmacological eye drop that can effectively and safely improve near vision throughout the full workday, without the need for reading glasses, could be a highly attractive commercial product with an estimated U.S.

market opportunity in excess of $3 billion.

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Our lead product candidate LNZ100 is a preservative-free, single-use, once-daily eye drop containing aceclidine.

We believe our product candidate is differentiated based on rapid onset, degree and duration of near vision improvement, as well as its ability to be used across the full age range of presbyopes, from their mid-40s to well into their mid-70s, as well as the broadest refractive range.

We believe our product candidate is differentiated based on rapid onset, degree and duration of near vision improvement, its ability to be used across the full age range of presbyopes, from their mid-40s to well into their mid-70s, as well as a broad refractive range.

Aceclidine’s pupil-selective mechanism of action was demonstrated in our clinical trials where near vision improved while avoiding blurry distance vision.

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Our other product candidate LNZ101, a preservative-free eye drop containing aceclidine and brimonidine, showed similar results, including achieving primary and secondary endpoints in both CLARITY 1 and 2, but did not show superiority to LNZ100.

Based on these results, we selected LNZ100 as our lead product candidate, for which we plan to submit a New Drug Application (“NDA”) to the FDA in mid-2024 with a launch target date in the second half of 2025.

We believe that LNZ100, if approved, could be the first aceclidine-based product approved by the FDA and would then be eligible for five years of new chemical entity (“NCE”) exclusivity in the United States.

As of March 31, 2024 , we had $213.3 million of cash, cash equivalents and marketable secu rities.

We believe that our existing cash, cash equivalents and marketable securities will allow us to continue to build infrastructure and commercialize LNZ100, subject to NDA submission and FDA approval, and will be sufficient to fund the Company to positive operating cash flow subsequent to such commercial launch.

We do not expect to generate any revenues from product sales unless and until we suc cessfully complete development and obtain regulatory approval for LNZ100 .

We have incurred net losses in each year since inception, and as of March 31, 2024, we had an accumulated deficit of $111.9 million .

Based on these results, we selected LNZ100 as our lead product candidate, for which we submitted a New Drug Application (“NDA”) to FDA in August 2024 with a potential approval in mid-2025 and launch target date in the second half of 2025.

We believe that LNZ100, if approved, could be the first and only aceclidine-based product approved by the FDA and would then be eligible for five years of new chemical entity (“NCE”) exclusivity in the United States.

As of June 30, 2024 , we had $196.1 million of cash, cash equivalents and marketable secu rities.

We believe that our existing cash, cash equivalents and marketable securities as of June 30, 2024, together with the net proceeds of the July 2024 PIPE Financing, will allow us to continue to build infrastructure and commercialize LNZ100, subject to FDA approval, and will be sufficient to fund the Company to positive operating cash flow subsequent to such commercial launch.

We do not expect to generate any revenues from product sales unless and until we suc cessfully obtain regulatory approval for LNZ100 .

We have incurred net losses in each year since inception, and as of June 30, 2024 , we had an accumulated deficit of $122.1 million .

These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and operating losses as we seek approval and begin commercialization.

These costs include expenses associated with the regulatory approval process and preparation for the potential commercial launch of LNZ100, subject to FDA approval.

Additionally, we anticipate incurring expenses related to product sales, marketing and distribution, and additional costs associated with being a public company, including audit, legal, regulatory and tax-related services associated with maintaining compliance with an exchange listing and SEC requirements.

We expect to continue to incur significant expenses and operating losses as we seek FDA approval and begin commercialization.

These costs include expenses associated with the regulatory approval process and, subject to such approval, preparation for the potential commercial launch of LNZ100, subject to FDA approval.

Additionally, we anticipate incurring expenses related to product sales, marketing, manufacturing, and distribution, and additional costs associated with being a public company, including audit, legal, regulatory and tax-related services associated with maintaining compliance with an exchange listing and SEC requirements.

As a result of these and other factors, it is possible that we may require additional financing to fund our operations and planned growth.

Through the completion of the Merger, L ENZ OpCo financed its operations primarily through private placements of its common stock and convertible preferred stock.

Concurrent with the closing of the Merger on March 21, 2024, the Company completed the PIPE Financing of 3,559,565 shares for an aggregate gross purchase price of $53.5 million.

Concurrent with the closing of the Merger on March 21, 2024, the Company completed the March 2024 PIPE Financing of 3,559,565 shares of common stock for an aggregate gross purchase price of $53.5 million.

Additionally, on July 17, 2024, the Company completed a private placement (the "July 2024 PIPE Financing") with Ridgeback Capital Investment, L.P.

of 1,578,947 shares of common stock for an aggregate gross purchase price of $30.0 million.

If we are unsuccessful in generating sufficient revenue and operating cash flow from sales of LNZ100 , if ever, we may be required to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements.

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We received nonrefundable, non-creditable upfront payments totaling $15.0 million as initial consideration under the Ji Xing License during the year ended December 31, 2022.

In addition, we are also eligible to receive (i) up to $95.0 million in regulatory and sales milestone payments, (ii) tiered, escalating royalties in the range of 5% to 15% on net sales of Products in Greater China by Ji Xing, its affiliates and sublicensees, and (iii) tiered, deescalating royalties in the range of 15% to 5% of sublicensing income received by Ji Xing prior to the regulatory approval of the first Product in Greater China.

15% to 5% of sublicensing income received by Ji Xing prior to the regulatory approval of the first Product in Greater China.

The $15.0 million upfront payments allocated to that single performance obligation was recognized on execution of the Ji Xing License during the year ended December 31, 2022.

No contractual milestones were met under the Ji Xing License during the three months ended March 31, 2024 or 2023.

No contractual milestones were met under the Ji Xing License during the six months ended June 30, 2024 or 2023.

Key Trends and Factors Affecting Comparability Between Periods

• Our research and development costs increased slightly during the three months ended March 31, 2024, relative to the three months ended March 31, 2023, as our headcount increased in preparation for the potential NDA and commercial launch, pending FDA approval, while contract manufacturing expenses and clinical research expenses decreased as our Phase 3 CLARITY trials substantially completed in March 2024.

We expect our research and development costs will decrease in 2024, relative to 2023, given the completion of the CLARITY trials and subsequent wind-down over 2024.

• We expect that selling, general and administrative expenses will increase in 2024, relative to 2023, as we expand our operating activities and number of employees in connection with a potential commercial launch of LNZ100, subject to FDA approval.

• We have built a cross-functional commercial team consisting of marketing, market access and commercial operations and will continue to strategically build our sales and commercial infrastructure with capabilities designed to scale when necessary to support a commercial launch if approval is received.

These expenses increased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, and we expect such expenses to continue to increase for the foreseeable future, in connection with our shift in focus towards a potential commercial launch of LNZ100, subject to FDA approval.

• As a result of the Merger, the Company’s expenses will increase from those that we incurred in prior years as a privately held company, including as a result of costs related to (i) compliance with the rules and regulations of the SEC and those of Nasdaq, (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities, and (v) other administrative and professional services.

• Our research and development costs decreased during the three and six months ended June 30, 2024, relative to the three and six months ended June 30, 2023, primarily as a result of reduced contract manufacturing expenses and clinical research expenses related to the substantial completion of our Phase 3 CLARITY trials in March 2024.

We expect our research and development costs will continue to decrease in 2024, relative to 2023, given the completion of the CLARITY trials and subsequent wind-down over 2024.

• We expect that selling, general and administrative expenses will continue to increase in 2024, relative to 2023, as we expand our operating activities and number of employees in connection with a potential commercial launch of LNZ100, subject to FDA approval.

• We have built a cross-functional commercial team consisting of marketing and commercial operations and will continue to strategically build our sales and commercial infrastructure with capabilities designed to scale when necessary to support a commercial launch if approval is received.

These expenses increased during the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, and we expect such expenses to continue to increase for the foreseeable future, in connection with our shift in focus towards a potential commercial launch of LNZ100, subject to FDA approval.

• As a result of the Merger, the Company’s corporate general and administrative expenses have and will continue to increase from those that we incurred in prior years as a privately held company, including costs related to (i) compliance with the rules and regulations of the SEC and those of Nasdaq, (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities, and (v) other administrative and professional services.

Recent Developments

The Merger and PIPE Financing

On November 14, 2023, LENZ OpCo entered into the Merger Agreement with Graphite and Generate Merger Sub, pursuant to which LENZ OpCo merged with and into Generate Merger Sub at the closing of the Merger on March 21, 2024 , with LENZ OpCo continuing after the Merger as the surviving company and a wholly-owned subsidiary of the Company.

At the closing of the Merger, each outstanding share of LENZ OpCo capital stock was converted into the right to receive shares of Graphite common stock, par value $0.00001, as set forth in the Merger Agreement.

Upon closing of the Merger, the combined company changed its name to “LENZ Therapeutics, Inc.” and continued to be listed on the Nasdaq but commenced trading under the ticker symbol “LENZ” as of March 22, 2024.

Under the exchange ratio formula in the Merger Agreement, immediately following the closing of the Merger, the LENZ OpCo securityholders own ed approximately 65% of the outstanding shares of the combined company’s common stock on a fully-diluted basis and securityholders of Graphite as of immediately prior to the closing of the Merger owned approximately 35% of the outstanding shares of the combined company’s common stock on a fully-diluted basis (prior to giving effect to the PIPE Financing and excluding shares reserved for future grants under the 2024 Equity Incentive Plan and the 2024 Employee Stock Purchase Plan ) .

Concurrently with the execution of the Merger Agreement, Graphite entered into the Subscription Agreement with the PIPE investors, pursuant to which, immediately following the closing of the Merger, the PIPE investors subscribed for and purchased an aggregate of 3,559,565 shares of common stock at a price of $15.0299 per share for aggregate gross proceeds of approximately $53.5 million.

Phase 3 CLARITY Capstone Data and Key Opinion Leader Event

In June 2024, LENZ hosted a Key Opinion Leader ("KOL") event, highlighting capstone data from the Phase 3 CLARITY study, featuring real-world perspectives from lead investigators and prominent KOLs on the current treatment landscape for presbyopia and their perspectives on LNZ100 data from the Phase 3 CLARITY study.

The capstone data results from the CLARITY Phase 3 study highlighted:

• Robust Product Profile:

Patients treated with LNZ100 achieved near universal response with rapid onset and long duration, highlighting a potential best-in-class product profile.

• Rapid onset:

At 30 minutes, LNZ100 reported 71% and 91% of participants achieved three- and two-lines or greater improvement in CLARITY 2, respectively.

• Primary Endpoint Achievement (3 Hours):

LNZ100 reported 71% and 91% of participants achieved three- and two-lines or greater improvement in CLARITY 2, respectively.

• Long duration:

At 10 hours, LNZ100 reported 40% and 69% of participants achieved three-and two-lines or greater improvement in CLARITY 2, respectively.

• Beyond 3-lines of improvement was observed:

LNZ100 reported 84% of participants achieving at least 4 lines and 52% at least 5 lines of near vision improvement.

• Statistically significant improvement in distance vision:

41% of participants achieved 1-line or more of distance vision improvement.

• Safety profile:

LNZ100 was well-tolerated, with no serious treatment-related adverse events reported in over 30,000 patient treatment days.

Private Placement

On July 14, 2024, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) for the July 2024 PIPE Financing.

Pursuant to the Purchase Agreement, the Company agreed to sell 1,578,947 shares of the Company’s common stock at a purchase price of $19.00 per share.

The gross proceeds of the July 2024 PIPE Financing were $30.0 million.

The July 2024 PIPE Financing closed on July 17, 2024.

Basis of Presentation

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and (iv) allocated facility-related costs.

We track research and development costs collectively for LNZ100 or LNZ101 because expenses incurred are interrelated and disaggregation would not be meaningful.

Costs for certain activities, such as manufacturing, nonclinical studies and clinical trials are generally recognized based on the evaluation of the progress of completion of specific tasks using information and data provided by our vendors and collaborators.

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Selling, general and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, business development, sales and marketing, human resources, and other corporate functions.

Other general and administrative expenses include professional fees for legal, auditing, tax and business consulting services, insurance costs, intellectual property and patent costs, facility costs and travel costs.

Other selling, general and administrative expenses include professional fees for legal, auditing, tax and business consulting services, marketing and advertising costs, insurance costs, intellectual property and patent costs, facility costs and travel costs.

Other Income (Expense), Net

Other income (expense), net consists of the change in fair value of preferred stock warrants liability and interest income earned on cash, cash equivalents, and short-term investments.

Other income (expense), net consists of the change in fair value of preferred stock warrants liability, interest income earned on cash, cash equivalents, and short-term investments, and changes in the fair value of long-term investments due to observable price changes in orderly transactions for an identical or similar investment.

Upon completion of the Merger, the preferred stock warrants became exercisable into shares of common stock and will no longer continue to be remeasured at each reporting date.

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

Comparison of the Three Months Ended June 30, 2024 and 2023

The following table presents the results of operations for the periods indicated (amounts in thousands, except percentages):

Three Months Ended

Three Months Ended June 30,

2024 2023 $ Change % Change

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Selling, general and administrative 7,407 2,320 5,087 219 %

Total other income (expense), net (560) (54) (506) 937 %

Other income (expense), net 4,098 233 3,865 1659 %

Research and Development

Substantially all of our research and development expenses incurred for the three months ended March 31, 2024 and 2023 were related to the development of LNZ100 and LNZ101, which were both included together in our INSIGHT and CLARITY trials.

Research and development expenses increased $0.2 million, or 2%, from $10.3 million for the three months ended March 31, 2023 to $10.5 million for the three months ended March 31, 2024.

The increase was primarily driven by a $0.9 million increase in employee salaries and related expenses due to increased headcount, a $0.7 million increase in nonclinical research expense, and a $0.3 million increase in contract regulatory consulting expenses, offset by decreases of $1.2 million in contract manufacturing expenses for clinical drug product manufacturing and $0.8 million in contract research expense for our clinical trials, as our Phase 3 CLARITY trials wound down during the three months ended March 31, 2024 and were substantially completed in March 2024.

Substantially all of our research and development expenses incurred for the three months ended June 30, 2024 and 2023 were related to the development of LNZ100 in our INSIGHT and CLARITY trials.

Research and development expenses decreased by $5.7 million, or 45%, from $12.6 million for the three months ended June 30, 2023 to $6.9 million for the three months ended June 30, 2024.

The decrease was primarily driven by a $9.2 million decrease in contract research expense for our clinical trials, as our Phase 3 CLARITY trials were substantially completed in March 2024, offset by a $1.0 million increase in nonclinical research expense, a $0.9 million increase in employee salaries and related expenses due to increased headcount, a $0.8 million increase in contract manufacturing expenses for clinical drug product manufacturing, and a $0.8 million increase in contract regulatory consulting expenses.

Selling, General and Administrative

Selling, general and administrative expenses increased $3.3 million, or 142%, from $2.3 million for the three months ended March 31, 2023 to $5.6 million for the three months ended March 31, 2024.

The increase was primarily driven by a $1.5 million increase in legal and other professional services (primarily related to legal fees incurred in connection with our potential NDA submission and consulting fees), a $1.0 million increase in employee salaries and related expenses due to increased headcount (including a one-time, non-cash stock-based compensation charge for acceleration of vesting of stock options as a result of the Merger), and a $0.7 million increase in sales infrastructure and marketing expenses.

Selling, general and administrative expenses increased $5.1 million, or 219%, from $2.3 million for the three months ended June 30, 2023 to $7.4 million for the three months ended June 30, 2024.

The increase was primarily driven by a $1.9 million increase in employee salaries and related expenses due to increased headcount, a $1.2 million increase in marketing and advertising expenses as we increase our pre-commercial planning initiatives for a potential commercial launch of LNZ100, subject to FDA approval, and a $1.1 million increase in legal and other professional services.

Other Income (Expense), net

Other expense, net for the three months ended March 31, 2024, was $0.6 million, compared to $0.1 million of other expense, net for the three months ended March 31, 2023.

The change was primarily driven by an increase of $1.0 million in the fair value of the preferred stock warrants liability, resulting in a non-recurring, non-cash charge at the close of the Merger, and partially offset by a $0.8 million increase in interest income.

Other income, net for the three months ended June 30, 2024, was $4.1 million, compared to $0.2 million for the three months ended June 30, 2023.

The change was primarily driven by an increase in interest income of $2.2 million due to the increase in cash equivalents and marketable securities acquired in the Merger, and an increase of $1.3 million due to changes in the fair value of the Company's equity investment without a readily determinable fair value.

Comparison of the Six Months Ended June 30, 2024 and 2023

The following table presents the results of operations for the periods indicated (amounts in thousands, except percentages):

Six Months Ended June 30,

2024 2023 $ Change % Change

Research and development $ 17,482 $ 22,964 $ (5,482) (24) %

Selling, general and administrative 12,958 4,611 8,347 181 %

Other income (expense), net 3,538 179 3,359 1877 %

Research and Development

Substantially all of our research and development expenses incurred for the six months ended June 30, 2024 and 2023 were related to the development of LNZ100 in our INSIGHT and CLARITY trials.

Research and development expenses decreased $5.5 million, or 24%, from $23.0 million for the six months ended June 30, 2023 to $17.5 million for the six months ended June 30, 2024.

The decrease was primarily driven by a $10.1 million decrease in contract research expense for our clinical trials, as our Phase 3 CLARITY trials were substantially completed in March 2024, partially offset by a $1.8 million increase in employee salaries and related expenses due to increased headcount, a $1.7 million increase in nonclinical research expense, and a $1.4 million increase in contract regulatory consulting expenses as we prepared to submit the NDA filing for LNZ100.

Selling, General and Administrative

Selling, general and administrative expenses increased $8.3 million, or 181%, from $4.6 million for the six months ended June 30, 2023 to $13.0 million for the six months ended June 30, 2024.

The increase was primarily driven by a $2.6 million increase in legal and other professional services, a $2.5 million increase in employee salaries and related expenses due to increased headcount (including a one-time, non-cash stock-based compensation charge of $0.3 million for the acceleration of vesting of stock options as a result of the Merger), a $1.9 million increase in marketing and advertising expenses as we increase our pre-commercial planning initiatives for a potential commercial launch of LNZ100, subject to FDA approval, and a $1.0 million increase in other general and administrative expenses.

Other Income (Expense), net

Other income, net for the six months ended June 30, 2024, was $3.5 million, compared to $0.2 million for the six months ended June 30, 2023.

The change was primarily driven by an increase of $3.0 million in interest income due to the increase in cash equivalents and marketable securities acquired in the Merger, and an increase of $1.3 million in the fair value of the Company's equity investment without a readily determinable fair value, partially offset by a $1.0 million increase in the fair value of the preferred stock warrants liability, resulting in a non-recurring, non-cash charge at the close of the Merger.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2024, we had $213.3 million of cash, cash equivalents and marketable securities.

We have incurred net losses in each year since inception and as of March 31, 2024, we had an accumulated deficit of $111.9 million.

Our net losses were $16.6 million and $12.7 million for the three months ended March 31, 2024 and 2023, respectively.

As of June 30, 2024, we had $196.1 million of cash, cash equivalents and marketable securities.

We have incurred net losses in each year since inception and as of June 30, 2024, we had an accumulated deficit of $122.1 million.

Our net losses were $10.3 million and $14.7 million for the three months ended June 30, 2024 and 2023, respectively, and $26.9 million and $27.4 million for the six months ended June 30, 2024 and 2023, respectively.

These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and operating losses as we seek approval and begin commercialization.

We expect to continue to incur significant expenses and operating losses as we seek approval and pursue the potential commercialization of LNZ100.

These costs include expenses associated with the regulatory approval process for LNZ100, and the preparation for the potential commercial launch of our product, subject to FDA approval.

From inception through March 31, 2024, we received funding of $13.0 million from our initial seed financing, $47.0 million from the sale of Series A Convertible Preferred Stock, $10.0 million from the sale of Series A-1 Convertible Preferred Stock, gross proceeds of $83.5 million from the sale of Series B Convertible Preferred Stock, approximately $117.8 million in cash and cash equivalents from the Merger, and approximately $53.5 million in gross cash proceeds from the PIPE investors through the PIPE Financing.

From inception through June 30, 2024, we received funding of $13.0 million from our initial seed financing, $47.0 million from the sale of Series A Convertible Preferred Stock, $10.0 million from the sale of Series A-1 Convertible Preferred Stock, gross proceeds of $83.5 million from the sale of Series B Convertible Preferred Stock, approximately $117.8 million in cash and cash equivalents from the Merger, approximately $53.5 million in gross cash proceeds from the March 2024 PIPE Financing, and $30.0 million in gross cash proceeds from the July 2024 PIPE Financing.

Funding Requirements

We believe that our existing cash, cash equivalents and marketable securities will allow us to continue to build infrastructure and commercialize LNZ100 , subject to NDA submission and FDA approval, and such funds are anticipated to fund the Company to positive operating cash flow subsequent to such commercial launch.

We believe that our cash, cash equivalents and marketable securities as of June 30, 2024, in addition to the July 2024 PIPE Financing, will allow us to continue to build infrastructure and commercialize LNZ100 , subject to FDA approval, and such funds are anticipated to fund the Company to positive operating cash flow subsequent to such commercial launch.

This belief is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than expected.

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Our future capital requirements will depend on many factors, including but not limited to:

• the results, costs, and timing of any additional clinical trials we are required to complete for LNZ100;

• the costs and timing of manufacturing for LNZ100 and commercial manufacturing if LNZ100 is approved;

• the results, costs, and timing of any additional clinical trials we are required to complete for LNZ100;

• costs associated with establishing a sales, marketing, and distribution infrastructure to commercialize LNZ100 if we obtain marketing approval;

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• costs associated with any products or technologies that we may in-license or otherwise acquire or develop.

Prior to the Merger, LENZ OpCo funded its operations primarily through the sale and issuance of convertible preferred stock and it is possible that we may require additional financing.

We intend to evaluate financing opportunities from time to time, and our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing.

We cannot assure you that additional financing will be available to us on favorable terms when required, or at all.

We cannot be assured that additional financing will be available to us on favorable terms when required, or at all.

If we raise additional funds through the issuance of equity or equity-linked securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.

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The following table summarizes our cash flows for the years presented (amounts in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash (used in) provided by:

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Net cash used in operating activities primarily results from net loss adjusted for non-cash expenses, changes in working capital components, amounts due to contract research organizations to conduct our clinical programs, manufacturing of drug product and employee-related expenditures for research and development and selling, general and administrative activities.

Cash flows from operating activities will continue to be impacted by spending to develop and pursue regulatory approval for LNZ100 and commercialization activities, if approval is obtained, and will also be impacted by our revenues from commercialization activities, if approval is obtained.

Cash flows from operating activities will continue to be impacted by spending to develop and pursue regulatory approval for LNZ100 and commercialization activities, if approval is obtained, and will also be impacted by any potential future revenues from commercialization activities.

Cash flows will also continue to be affected by other operating and general administrative activities, including operating as a public company.

For the three months ended March 31, 2024, cash used in operating activities was $23.9 million and resulted from (i) net loss of $16.6 million plus an $8.5 million decrease in accounts payable and accrued liabilities and a $0.5 million increase in operating assets, offset by (ii) $1.7 million in non-cash adjustments primarily related to the change in the fair value of preferred warrants and share-based compensation expense.

For the three months ended March 31, 2023, cash used in operating activities was $12.8 million and resulted from (i) net loss of $12.7 million, plus a $0.7 million decrease in accounts payable and accrued liabilities, offset by (ii) a $0.4 million decrease in operating assets and $0.2 million in non-cash adjustments primarily related to share-based compensation expense.

Net Cash Provided by (Used in) Investing Activities

Cash provided by investing activities for the three months ended March 31, 2024 was $18.0 million, due to proceeds from maturities of marketable securities.

Cash used in investing activities for the three months ended March 31, 2023 was immaterial.

For the six months ended June 30, 2024, cash used in operating activities was $39.7 million and resulted from net loss of $26.9 million in addition to an approximate $13.4 million cash outflow from the payment of accounts payable and accrued liabilities associated with the Merger and accrued clinical activities, offset by $1.0 million in non-cash adjustments primarily driven by share-based compensation expense and the change in the fair value of preferred warrants.

For the six months ended June 30, 2023, cash used in operating activities was $26.3 million primarily resulting from net loss of $27.4 million.

Net Cash Used in Investing Activities

Cash used in investing activities for the six months ended June 30, 2024 was $80.4 million, primarily due to $111.3 million of purchases of marketable securities, and partially offset by $31.0 million in proceeds from maturities of marketable securities.

Cash used in investing activities for the six months ended June 30, 2023 was $26.9 million, primarily due to purchases of marketable securities.

Net Cash Provided by Financing Activities

For the three months ended March 31, 2024, cash provided by financing activities was $171.3 million and includes $117.8 million in cash and cash equivalents acquired in the Merger and $53.5 million in gross cash proceeds from the PIPE Financing.

For the three months ended March 31, 2023, cash provided by financing activities was $83.2 million and consisted of $83.0 million in proceeds from the sale by LENZ OpCo of Series B Convertible Preferred Stock, and $0.2 million in net cash proceeds from the exercise of LENZ OpCo stock options.

For the six months ended June 30, 2024, cash provided by financing activities was $169.1 million and includes $117.8 million in cash and cash equivalents acquired in the Merger, $53.5 million in gross cash proceeds from the March 2024 PIPE Financing, and approximately $3.8 million in net cash proceeds from exercises of stock options.

For the six months ended June 30, 2023, cash provided by financing activities was $83.2 million and consisted of $83.0 million in proceeds from the sale by LENZ OpCo of Series B Convertible Preferred Stock, and $0.2 million in net cash proceeds from the exercise of LENZ OpCo stock options.

Material Cash Requirements from Contractual Obligations

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Rent expense is recorded on a straight-line basis.

Cash paid for rent for the three months ended March 31, 2024 and 2023 was $38,000 and $29,000, respectively.

We expect cash paid for rent to increase during the three months ended June 30, 2024 due to the lease of office space in Solana Beach, California.

See Note 6 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for details related to future lease payments as of March 31, 2024.

We also have contracts with various organizations to conduct research and development activities, including clinical trial organizations to manage clinical trial activities and manufacturing companies to manufacture the drug product used in the clinical trials.

Cash paid for rent for the six months ended June 30, 2024 and 2023 was $76,000 and $35,000, respectively.

We expect cash paid for rent to increase during the three months ended September 30, 2024 due to the lease of office space in Solana Beach, California.

See Note 6 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for details related to future lease payments as of June 30, 2024.

We also have contracts with various organizations to conduct research and development activities, including clinical trial organizations to manage regulatory and any remaining clinical trial activities, and manufacturing companies to manufacture the drug product used in the regulatory process and clinical trials.

The scope of the services under these research and development contracts can be modified and the contracts cancelled by us upon written notice.

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We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur.

Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant.

volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant.

Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized.

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Additionally, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period, or (iii) if we affirmatively and irrevocably opt out of the extended transition period provided by the JOBS Act.

We are also a “smaller reporting company” because the market value of Graphite’s stock held by non-affiliates was less than $700 million as of June 30, 2023 and its annual revenue was less than $100 million during the fiscal year ended December 31, 2023.

Prior to the Merger, Graphite elected to use, and we intend to continue to use, this extended transition period for complying with certain or new or revised accounting standards until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of Graphite's initial public offering (i.e., December 31, 2026), (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period, or (iii) if we affirmatively and irrevocably opt out of the extended transition period provided by the JOBS Act.

We are also a “smaller reporting company” because the market value of our stock held by non-affiliates was less than $700 million as of June 30, 2024 and the Company's annual revenue was less than $100 million during the fiscal year ended

December 31, 2023.

We may continue to be a smaller reporting company in any given year if either (i) the market value of our stock held by non-affiliates is less than $250 million as of June 30 in the most recently completed fiscal year or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of June 30 in the most recently completed fiscal year.

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis