What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-14 · 93 added, 95 removed, 158 unchanged (54% of the section changed)

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The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of LENZ’ consolidated results of operations and financial condition.

The discussion should be read together with the condensed consolidated financial statements and the accompanying notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements for the year ended December 31, 2023 and the related notes included in the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2024.

The discussion should be read together with the condensed consolidated financial statements and the accompanying notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements for the year ended December 31, 2023 and the related notes included in the Company’s final 424B3 prospectus filed with the SEC on September 19, 2024.

This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties.

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Unless otherwise indicated or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to “LENZ OpCo,” “LENZ,” “the Company,” “we,” “us,” “our” and other similar terms refer to the business and operations of LENZ OpCo prior to the Merger and to LENZ and its consolidated subsidiary following the Merger.

While the legal acquirer in the Merger was Graphite, for financial accounting and reporting purposes under GAAP, LENZ OpCo was the accounting acquirer and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by Graphite for LENZ OpCo’s stock) does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of LENZ OpCo in many respects.

While the legal acquirer in the Merger was Graphite, for financial accounting and reporting purposes under U.S.

GAAP, LENZ OpCo was the accounting acquirer and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by Graphite for LENZ OpCo’s stock) does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of LENZ OpCo in many respects.

Accordingly, the consolidated assets, liabilities and results of operations of LENZ OpCo became the historical consolidated financial statements of the combined company, and Graphite’s assets, liabilities and results of operations were consolidated with those of LENZ OpCo beginning on the acquisition date.

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Graphite’s assets and liabilities were measured and recognized at their fair values as of the closing of the Merger.

We are a late-stage biopharmaceutical company focused on developing and commercializing innovative therapies to improve vision.

We are a pre-commercial biopharmaceutical company focused on the development and commercialization of innovative therapies to improve vision.

Our initial focus is the treatment of presbyopia, the inevitable loss of near vision that impacts the daily lives of nearly all people over 45.

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LNZ100 has patent protection until 2039 in the United States, at a minimum, due to a robust intellectual property portfolio underpinned by issued patents.

In the safety and efficacy trials (“CLARITY 1 and 2”) of our Phase 3 study, LNZ100 achieved the primary endpoints and key secondary endpoints, with statistically significant three-lines or greater improvement in Best Corrected Distance Visual Acuity (“BCDVA”) at near, without losing one or more lines in distance visual acuity.

In the vehicle-controlled CLARITY 2 trial, the day 1 results showed (all p<0.0001):

• Rapid onset :

71% achieved three-lines or greater improvement at 30 minutes.

• Primary endpoint :

71% achieved three-lines or greater improvement at 3 hours.

• Long duration :

40% achieved three-lines or greater improvement at 10 hours.

Near vision improvement was reproducible and consistent across both CLARITY 1 and 2 throughout the four-week study periods.

LNZ100 was well-tolerated with no serious treatment-related adverse events observed in the over 30,000 treatment days including the six-week safety study period in CLARITY 1 and 2 and the six-month period in the CLARITY 3 Phase 3 long-term safety trial (collectively, the “CLARITY study”).

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 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 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 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.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all.

Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Ji Xing License and Collaboration Agreement

In April 2022, we entered into a License and Collaboration Agreement with Ji Xing Pharmaceuticals Hong Kong Limited (“Ji Xing”) granting Ji Xing an exclusive license (the “Ji Xing License”) to certain of our intellectual property rights to develop, use, import, and sell products containing LNZ100 or LNZ101 (“Products”) for the treatment of presbyopia in humans in mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan (collectively, “Greater China”).

We also granted Ji Xing (i) the right to negotiate in good faith and enter into agreements to purchase Products from us for clinical and commercial uses at cost plus a negotiated percentage and (ii) the right of first negotiation to obtain a regional license from us on other products we might develop outside of the field of presbyopia for commercialization in Greater China.

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.

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 six months ended June 30, 2024 or 2023.

Key Trends and Factors Affecting Comparability Between Periods

• 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

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.

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

Based on these results, we selected LNZ100 as our lead product candidate, for which we submitted a New Drug Application (“NDA”) to Food and Drug Administration ("FDA") in August 2024.

In October 2024, the FDA assigned a Prescription Drug User Fee Act ("PDUFA") target action date of August 8, 2025, followed by a potential commercial launch as early as fourth quarter 2025, if approved.

We believe that LNZ100 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 September 30, 2024 , we had $217.2 million of cash, cash equivalents, restricted cash, and marketable secu rities.

We believe that our existing cash, cash equivalents and marketable securities as of September 30, 2024 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 September 30, 2024 , we had an accumulated deficit of $132.4 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 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.

As a result of these and other factors, while we believe that our existing cash, cash equivalents and marketable securities as of September 30, 2024 will fund the Company to positive operating cash flow subsequent to commercial launch, if LNZ100 is approved, 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, we 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, we completed a private placement (the "July 2024 PIPE Financing") with Ridgeback Capital Investments, 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 approved, 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.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all.

CORXEL License and Collaboration Agreement

In April 2022, we entered into a License and Collaboration Agreement with Corxel Pharmaceuticals (formerly known as Ji Xing Pharmaceuticals Hong Kong Limited) (“CORXEL”) granting CORXEL an exclusive license (the “CORXEL

License” formerly referred to as the "Ji Xing License") to certain of our intellectual property rights to develop, use, import, and sell products containing LNZ100 (“Products”) for use in the treatment of presbyopia in humans in mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan (collectively, “Greater China”).

We also granted CORXEL (i) the right to negotiate in good faith and enter into agreements to purchase Products from us for clinical and commercial uses at cost plus a negotiated percentage and (ii) the right of first negotiation to obtain a regional license from us on other products we might develop outside of the field of presbyopia for commercialization in Greater China.

We received nonrefundable, non-creditable upfront payments totaling $15.0 million as initial consideration under the CORXEL 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 CORXEL, its affiliates and sublicensees, and (iii) tiered, deescalating royalties in the range of 15% to 5% of sublicensing income received by CORXEL 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 CORXEL License during the year ended December 31, 2022.

No contractual milestones were met under the CORXEL License during the nine months ended September 30, 2024 or 2023.

On October 27, 2024, CORXEL and the Company announced positive topline data from the Phase 3 JX07001 clinical trial of LNZ100 in patients with presbyopia in China.

In this China Phase 3 safety and efficacy trial, LNZ100 achieved the primary endpoint and key secondary endpoints, with statistically significant three-lines or greater improvement in Best Corrected Distance Visual Acuity ("BCDVA") at near, without losing one-line or more in distance visual acuity.

Key Trends and Factors Affecting Comparability Between Periods

• Our research and development costs decreased during the three and nine months ended September 30, 2024, relative to the three and nine months ended September 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 of clinical activities over 2024.

• We expect that selling, general and administrative expenses will continue to increase in 2024, relative to 2023, as 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 potential commercial launch of LNZ100 as early as fourth quarter 2025, subject to FDA approval.

These expenses increased during the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023, and we expect such expenses to continue to increase for the foreseeable future.

• As a result of the Merger, the Company’s corporate general and administrative expenses have increased 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

NDA Filing and PDUFA Date

On October 21, 2024, we announced the FDA has assigned a Prescription Drug User Fee Act (PDUFA) target action date of August 8, 2025 for LNZ100.

The FDA noted that it is not planning to hold an advisory committee meeting to discuss this application.

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.

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

Pursuant to the Purchase Agreement, we agreed to sell 1,578,947 shares of our common stock, representing over 5% of the Company's outstanding common stock, at a purchase price of $19.00 per share.

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

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The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the balance sheets and statements of operations and comprehensive loss presented herein.

The following discussion and analysis are based on our audited financial statements and related notes thereto, which we have prepared in accordance with GAAP.

The following discussion and analysis are based on our audited financial statements and related notes thereto, which we have prepared in accordance with U.S.

You should read the discussion and analysis together with such audited financial statements and the related notes thereto.

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

Other Income (Expense), Net

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Results of Operations

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

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

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

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change

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Research and Development

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.

Research and development expenses incurred for the three months ended September 30, 2024 were primarily incurred to further refine the manufacturing process for LNZ100, while research and development expenses for the three months ended September 30, 2023 were substantially all related to the development of LNZ100 in our INSIGHT and CLARITY trials.

Research and development expenses decreased by $10.6 million, or 62%, to $6.5 million for the three months ended September 30, 2024 compared to $17.0 million for the three months ended September 30, 2023.

The decrease was

primarily driven by an $11.4 million decrease in contract research expense for our clinical trials, as our Phase 3 CLARITY trials were substantially completed in March 2024, and a $0.8 million decrease in nonclinical research expense, partially offset by a $1.1 million increase in non-clinical regulatory and chemistry, manufacturing, and control ("CMC") employee salaries and related expenses due to increased headcount and a $0.6 million increase in contract regulatory consulting expenses associated with the preparation and filing of our NDA for LNZ100.

Selling, General and Administrative

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.

Selling, general and administrative expenses increased $3.6 million, or 127%, to $6.5 million for the three months ended September 30, 2024 compared to $2.9 million for the three months ended September 30, 2023.

The change was primarily driven by a $1.6 million increase in employee salaries and related expenses due to a rise in headcount, a $1.0 million increase in marketing and advertising expenses as we expanded our pre-commercial planning initiatives for a potential commercial launch of LNZ100, and a $0.4 million increase in legal and other professional services.

Other Income (Expense), net

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

Other income, net for the three months ended September 30, 2024, was $2.7 million, compared to $1.0 million for the three months ended September 30, 2023.

The change was primarily driven by additional interest income earned on our cash, cash equivalents, and marketable securities of $1.7 million as a result of an overall increase in cash on-hand in 2024 over the comparative period.

Comparison of the Nine Months Ended September 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,

Nine Months Ended September 30,

2024 2023 $ Change % Change

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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.

Research and development expenses incurred for the nine months ended September 30, 2024 were primarily incurred to further refine the manufacturing process for LNZ100, while research and development expenses incurred for the nine months ended September 30, 2023 were substantially all related to the development of LNZ100 in our INSIGHT and CLARITY trials.

Research and development expenses decreased $16.0 million, or 40%, to $23.9 million for the nine months ended September 30, 2024 compared to $40.0 million for the nine months ended September 30, 2023.

The decrease was primarily driven by a $21.5 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 $2.9 million increase in employee salaries and related expenses due to increased non-clinical regulatory and CMC headcount, a $1.0 million increase in nonclinical research expense, and a $1.3 million increase in contract regulatory consulting expenses associated with the preparation and filing of our NDA 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.

Selling, general and administrative expenses increased $12.0 million, or 160%, to $19.5 million for the nine months ended September 30, 2024 compared to $7.5 million for the nine months ended September 30, 2023.

Increases in the comparative period included $4.4 million in employee salaries and related expenses due to a rise in 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), $3.4 million in marketing and advertising expenses as we expanded our pre-commercial planning initiatives for a potential commercial launch of LNZ100, subject to FDA approval, $3.0 million in legal and other professional services, and $0.6 million 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.

Other income, net for the nine months ended September 30, 2024, was $6.3 million, compared to $1.2 million for the nine months ended September 30, 2023.

The change was primarily driven by additional interest income earned on our cash, cash equivalents, and marketable securities of $4.6 million as a result of an overall increase in cash on-hand in 2024 over the

comparative period, 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 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.

As of September 30, 2024, we had $217.2 million of cash, cash equivalents, restricted cash, and marketable securities.

We have incurred net losses in each year since inception and as of September 30, 2024, we had an accumulated deficit of $132.4 million.

Our net losses were $10.2 million and $18.9 million for the three months ended September 30, 2024 and 2023, respectively, and $37.1 million and $46.3 million for the nine months ended September 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.

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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 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.

From inception through September 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 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.

We believe that our cash, cash equivalents, and marketable securities as of September 30, 2024 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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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.

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.

If we raise additional funds through the incurrence of indebtedness, then we may be subject to increased fixed payment obligations and could be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash (used in) provided by:

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Financing activities 198,949 82,611

Net increase in cash and cash equivalents $ 49,009 $ 29,976

Net increase (decrease) in cash and cash equivalents

$ 6,020 $ (1,593)

Net Cash Used in Operating Activities

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

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.

For the nine months ended September 30, 2024, cash used in operating activities was $50.3 million and resulted from a net loss of $37.1 million, in addition to an approximate $14.4 million cash outflow from the payment of accounts payable and accrued liabilities associated with the Merger and accrued clinical activities, offset by $3.2 million in non-cash adjustments primarily driven by share-based compensation expense and the change in the fair value of preferred warrants.

For the nine months ended September 30, 2023, cash used in operating activities was $39.4 million primarily resulting from a net loss of $46.3 million and partially offset by a $5.9 million increase in accounts payable and accrued liabilities.

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.

Cash used in investing activities for the nine months ended September 30, 2024 was $142.6 million, primarily due to $195.3 million of purchases of marketable securities, and partially offset by $53.0 million in proceeds from maturities of marketable securities.

Cash used in investing activities for the nine months ended September 30, 2023 was $44.8 million, primarily due to $46.3 million of purchases of marketable securities, and partially offset by $1.5 million in proceeds from maturities of marketable securities.

Net Cash Provided by Financing Activities

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.

For the nine months ended September 30, 2024, cash provided by financing activities was $198.9 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, $30.0 million in gross cash proceeds from the July 2024 PIPE Financing, and approximately $3.9 million in net cash proceeds from exercises of stock options.

For the nine months ended September 30, 2023, cash provided by financing activities was $82.6 million, primarily due to $83.0 million in proceeds from the sale by LENZ OpCo of Series B Convertible Preferred Stock.

Material Cash Requirements from Contractual Obligations

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The term of the lease is 39 months from the commencement date of July 1, 2024, ending September 30, 2027.

See Note 6 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details related to this lease.

See Note 6 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details related to our office leases.

Rent expense is recorded on a straight-line basis.

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.

Cash paid for rent for the three months ended September 30, 2024 and 2023 was $76,000 and $38,000, respectively.

We expect cash paid for rent to remain flat during the three months ended December 31, 2024 compared to the three months ended September 30, 2024.

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 September 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.

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See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information concerning certain of the specific assumptions we used in determining the value of the Series A Warrants at each reporting period.

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

Upon completion of the Merger, the Series A Warrants became exercisable into shares of our common stock and are no longer remeasured at each reporting date.

Stock-Based Compensation Expense

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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.

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.

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.

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

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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.

If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

If we are a smaller

reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

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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