Prelude Therapeutics Inc 10-Q

Item 1. Financial Statements. PRELUDE THERAPEUTICS INCORPORATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data) September 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 234,792 $ 18,879 Prepaid expenses and other current assets 3,269 1,345 Total current assets 238,061 20,224 Property and equipment, net 1,620 1,647 Total assets $ 239,681 $ 21,871 Liabilities, convertible preferred stock and stockholders’ equity (deficit) Current liabilities: Capital lease obligation $ — $ 258 Accounts payable 5,074 1,974 Accrued expenses and other current liabilities 6,285 2,603 Total current liabilities 11,359 4,835 Other liabilities 15 5 Total liabilities 11,374 4,840 Convertible preferred stock, $0.0001 par value: Series A convertible preferred stock: No shares and 13,574,008 shares authorized at September 30, 2020 and December 31, 2019, respectively; no shares and 11,736,119 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively — 36,595 Series B convertible preferred stock: No shares and 18,500,000 shares authorized at September 30, 2020 and December 31, 2019; No shares and 7,628,846 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively — 29,848 Series C convertible preferred stock: no shares authorized, issued or outstanding at September 30, 2020 and December 31, 2019 — — Total convertible preferred stock — 66,443 Commitments Stockholders’ equity (deficit): Voting common stock, $0.0001 par value: 487,149,741 and 42,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; 32,593,010 and 3,161,653 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 3 — Non-voting common stock, $0.0001 par value; 12,850,259 and no shares authorized at September 30, 2020 and December 31, 2019, respectively; 11,110,371 and no shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 1 — Additional paid-in capital 316,479 1,085 Accumulated deficit (88,176 ) (50,497 ) Total stockholders’ equity (deficit) 228,307 (49,412 ) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 239,681 $ 21,871 See accompanying notes to unaudited interim financial statements. 1 PRELUDE THERAPEUTICS INCORPORATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except share and per share data) 2020 2019 2020 2019 Operating expenses: Research and development $ 15,293 $ 5,490 $ 33,605 $ 15,430 General and administrative 2,851 1,394 5,712 2,584 Total operating expenses 18,144 6,884 39,317 18,014 Loss from operations (18,144 ) (6,884 ) (39,317 ) (18,014 ) Other income, net 1,384 150 1,638 483 Net loss $ (16,760 ) $ (6,734 ) $ (37,679 ) $ (17,531 ) Per share information: Net loss per share of common stock, basic and diluted $ (5.25 ) $ (3.93 ) $ (15.83 ) $ (10.80 ) Weighted average common shares outstanding, basic and diluted 3,194,471 1,713,371 2,380,100 1,622,546 See accompanying notes to unaudited interim financial statements. 2 PRELUDE THERAPEUTICS INCORPORATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED) Convertible preferred stock Stockholders’ equity (deficit) Series A Series B Series C Voting common stock Non-voting common stock Additional paid-in Accumulated (in thousands, except shares) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount capital deficit Total Balance at January 1, 2020 11,736,119 $ 36,595 7,628,846 $ 29,848 — $ — 3,161,653 $ — — $ — $ 1,085 $ (50,497 ) $ (49,412 ) Sale of Series B convertible preferred stock, net of issuance costs of $58 — — 7,628,846 29,942 — — — — — — — — — Stock-based compensation expense, including issuance of restricted stock awards — — — — — — 432,301 — — — 362 — 362 Net loss — — — — — — — — — — — (9,511 ) (9,511 ) Balance at March 31, 2020 11,736,119 36,595 15,257,692 59,790 — — 3,593,954 — — — 1,447 (60,008 ) (58,561 ) Exercise of stock options — — — — — — 36,745 — — — 31 — 31 Stock-based compensation expense — — — — — — — — — — 627 — 627 Net loss — — — — — — — — — — — (11,408 ) (11,408 ) Balance at June 30, 2020 11,736,119 36,595 15,257,692 59,790 — — 3,630,699 — — — 2,105 (71,416 ) (69,311 ) Exercise of stock options — — — — — — 61,509 — — — 65 — 65 Sale of Series C convertible preferred stock, net of issuance costs of $174 — — — — 3,443,612 49,826 — — — — — — — Conversion of convertible preferred stock into voting and non-voting common stock upon initial public offering (11,736,119 ) (36,595 ) (15,257,692 ) (59,790 ) (3,443,612 ) (49,826 ) 19,327,052 2 11,110,371 1 146,208 — 146,211 Sale of common stock in initial public offering, net of offering costs of $2,538 — — — — — — 9,573,750 1 — — 166,629 — 166,630 Stock-based compensation expense — — — — — — — — — — 1,472 — 1,472 Net loss — — — — — — — — — — — (16,760 ) (16,760 ) Balance at September 30, 2020 — $ — — $ — — $ — 32,593,010 $ 3 11,110,371 $ 1 $ 316,479 $ (88,176 ) $ 228,307 3 Convertible preferred stock Stockholders’ deficit Series A Series B Common stock Additional paid-in Accumulated (in thousands, except shares) Shares Amount Shares Amount Shares Amount capital deficit Total Balance at January 1, 2019 11,736,119 $ 36,595 — $ — 2,380,270 $ — $ 234 $ (22,927 ) $ (22,693 ) Stock-based compensation expense — — — — — — 82 — 82 Net loss — — — — — — — (5,241 ) (5,241 ) Balance at March 31, 2019 11,736,119 36,595 — — 2,380,270 — 316 (28,168 ) (27,852 ) Exercise of stock options — — — — 3,242 — 5 — 5 Sale of Series B convertible preferred stock, net of issuance costs of $152 — — 7,628,846 29,848 — — — — — Stock-based compensation expense, including issuance of restricted stock awards — — — — 345,840 — 141 — 141 Net loss — — — — — — — (5,556 ) (5,556 ) Balance at June 30, 2019 11,736,119 36,595 7,628,846 29,848 2,729,352 — 462 (33,724 ) (33,262 ) Stock-based compensation expense, including issuance of restricted stock awards — — — — 432,301 — 297 — 297 Net loss — — — — — — — (6,734 ) (6,734 ) Balance at September 30, 2019 11,736,119 $ 36,595 7,628,846 $ 29,848 3,161,653 $ — $ 759 $ (40,458 ) $ (39,699 ) See accompanying notes to unaudited interim financial statements. 4 PRELUDE THERAPEUTICS INCORPORATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30, (in thousands) 2020 2019 Cash flows used in operating activities: Net loss $ (37,679 ) $ (17,531 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 409 254 Stock-based compensation 2,461 520 Changes in operating assets and liabilities: Prepaid expenses and other current assets (1,924 ) (344 ) Accounts payable 1,931 (76 ) Accrued expenses and other liabilities 3,472 (19 ) Net cash used in operating activities (31,330 ) (17,196 ) Cash flows used in investing activities: Purchases of property and equipment (292 ) (581 ) Net cash used in investing activities (292 ) (581 ) Cash flows provided by financing activities: Proceeds from the issuance of common stock upon initial public offering, net of offering costs 167,929 — Proceeds from the sale of Series C convertible preferred stock, net of offering costs 49,826 — Proceeds from the sale of Series B convertible preferred stock, net of offering costs 29,942 29,848 Payment of capital lease obligation (258 ) (31 ) Proceeds from the exercise of stock options 96 5 Net cash provided by financing activities 247,535 29,822 Net increase in cash and cash equivalents 215,913 12,045 Cash and cash equivalents at beginning of period 18,879 15,595 Cash and cash equivalents at end of period $ 234,792 $ 27,640 Supplemental disclosures: Property and equipment in accounts payable $ 90 $ 108 Offering costs in accrued expenses and other current liabilities $ 220 $ — Offering costs in accounts payable $ 1,079 $ — See accompanying notes to unaudited interim financial statements. 5 PRELUDE THERAPEUTICS INCORPORATED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 1. Background Prelude Therapeutics Incorporated (the “Company”) was incorporated in Delaware on February 5, 2016 and is a clinical-stage precision oncology company focused on discovering and developing small molecule therapies optimized to target the key driver mechanisms in cancers with high unmet need. Since beginning operations, the Company has devoted substantially all its efforts to research and development, conducting preclinical and clinical studies, recruiting management and technical staff, administration, and raising capital. In September 2020, the Company closed its initial public offering (“IPO”) in which the Company issued and sold 9,573,750 shares of its common stock at a public offering price of $19.00 per share for net proceeds of $166.6 million after deducting underwriting discounts, commissions and other offering expenses paid or to be paid. Subsequent to the closing of the IPO, there were no shares of convertible preferred stock outstanding. In connection with the closing of the IPO, the Company amended and restated its Fifth Amended and Restated Certificate of Incorporation to change the authorized capital stock to 500,000,000 shares designated as common stock (of which 12,850,259 shares are non-voting common stock) and 10,000,000 shares designated as preferred stock, all with a par value of $0.0001 per share. 2. Risks and liquidity The Company is subject to a number of risks common to early-stage companies in the biotechnology industry. Principal among these risks are the uncertainties in the development process, development of the same or similar technological innovations by competitors, protection of proprietary technology, dependence on key personnel, compliance with government regulations and approval requirements, and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval, or that any approved products will be commercially viable. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and contractors. Since its inception, the Company has incurred operating losses and has an accumulated deficit of $88.2 million at September 30, 2020. The Company has no revenue to date and devotes its efforts to research and development. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development. The Company believes that its cash and cash equivalents as of September 30, 2020, which includes the net proceeds of approximately $166.6 million from the IPO of the Company’s common stock completed in September 2020, will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2022. To fund its operating expenses and capital expenditure requirements after that date, the Company plans to seek additional funding through public or private equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects. On March 10, 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic. There is significant uncertainty as to the likely effects of this disease which may, among other things, materially impact the Company’s planned clinical trials. This pandemic or outbreak could result in difficulty securing clinical trial site locations, CROs, and/or trial monitors and other critical vendors and consultants supporting the trial. In addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact the Company’s ability to enroll patients. These situations, or others associated with COVID-19, could cause delays in the Company’s clinical trial plans and could increase expected costs, all of which could have a material adverse effect on the Company’s business and its financial condition. At the current time, the Company is unable to quantify the potential effects of this pandemic on its future financial statements. 6 PRELUDE THERAPEUTICS INCORPORATED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 3. Summary of significant accounting policies The summary of significant accounting policies included in the Company’s financial statements for the year ended December 31, 2019 can be found in “Note 3. Summary of significant accounting policies” of the Company’s prospectus filed with the Securities and Exchange Commission (the “SEC”) on September 25, 2020 (the “Prospectus”). Those policies have not materially changed, except as set forth below. Basis of presentation The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2019 found in the Prospectus filed with the SEC on September 25, 2020. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). On September 18, 2020, the Company’s board of directors and stockholders approved a 1.1566-to-one reverse stock split of the Company’s issued and outstanding shares of common stock and convertible preferred stock. All share and per share amounts in the unaudited interim financial statements and notes hereto have been retrospectively adjusted for all periods presented to give effect to the reverse stock split. The completion of the IPO, as described above, impacts the comparability of certain amounts to the corresponding prior year period, including earnings per share. Use of estimates The preparation of the unaudited interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the unaudited interim financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of the revisions are reflected in the accompanying unaudited interim financial statements in the period they are determined to be necessary. Prior to the IPO, significant areas that required management’s estimates included the fair value of the Company’s common stock, stock-based compensation assumptions and accrued clinical trial expenses. Subsequent to the IPO, the most significant estimate relates to accrued clinical trial expenses. Income taxes Based upon the historical and anticipated future losses, management has determined that the deferred tax assets generated by net operating losses and research and development credits do not meet the more likely than not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of September 30, 2020 and December 31, 2019. Net Loss Per Share Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. The weighted-average number of shares of common stock outstanding used in the basic net loss per share calculation does not include unvested restricted stock awards as these instruments are considered contingently issuable shares until they vest. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti- 7 PRELUDE THERAPEUTICS INCORPORATED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS dilutive. The Company’s convertible preferred stock and unvested restricted stock entitles the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income, it would have to use the two-class method to calculate earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock and unvested restricted stock have no obligation to fund losses. The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive: September 30, 2020 2019 Series A convertible preferred stock — 11,736,119 Series B convertible preferred stock — 7,628,846 Unvested restricted stock awards 1,312,024 1,394,056 Stock options 6,649,882 2,189,333 7,961,906 22,948,354 Amounts in the above table reflect the common stock equivalents. Recently Issued Accounting Pronouncements Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these unaudited interim financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases , which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The standard is effective for the Company beginning January 1, 2022, with early adoption permitted. The Company is currently evaluating the expected impact that the standard will have on its financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which changes the fair value measurement disclosure requirements of ASC Topic 820, Fair Value Measurement (“ASC 820”). The goal of the ASU is to improve the effectiveness of ASC 820’s disclosure requirements. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods therein. The adoption of this standard on January 1, 2020 did not have a material impact on the Company’s unaudited interim financial statements. 4. Fair Value of Financial Instruments Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The Company follows the provisions of ASC 820, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories: • Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. 8 PRELUDE THERAPEUTICS INCORPORATED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS • Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities. • Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis: Fair value measurement at reporting date using (in thousands) Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) September 30, 2020: Assets: Cash equivalents (Money Market Funds) $ 233,364 $ — $ — December 31, 2019: Assets: Cash equivalents (Money Market Funds) $ 18,779 $ — $ — 5. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: (in thousands) September 30, 2020 December 31, 2019 Compensation and related benefits $ 2,099 $ 1,631 Research and development 3,763 658 Offering costs 220 — Professional services and other 203 314 $ 6,285 $ 2,603 6. Convertible Preferred Stock and Common Stock Preferred Stock Financings In August 2020, the Company’s existing Convertible Preferred Stock investors as well as a new investor purchased 3,443,612 shares of Series C at a price of $14.5197 per share for net proceeds of approximately $49.8 million. In March 2020, the Company’s Series B investors exercised their Future Tranche Right and purchased 7,628,846 shares of Series B for net proceeds of approximately $29.9 million. Initial Public Offering In September 2020, the Company completed its IPO in which the Company sold 9,573,750 shares of its common stock at a public offering price of $19.00 per share. The Company received net proceeds of $166.6 million after deducting underwriting discounts, commissions, and other offering expenses paid by the Company. In addition, immediately prior to the closing of the IPO on September 29, 2020, (i) all of the Company’s outstanding shares of convertible preferred stock converted into an aggregate of 30,437,423 shares of common stock (of which, 11,110,371 shares are non-voting common stock) and (ii) the Company filed an amended and restated certificate of incorporation to, among other things, increase the number of authorized shares of common stock to 500,000,000. 9 PRELUDE THERAPEUTICS INCORPORATED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS Common Stock The Company has two classes of common stock; “voting common stock” and “non-voting common stock.” The holders of the voting common stock are entitled to one vote for each share of voting common stock held at all meetings of stockholders. Except as otherwise required by law, the holders of non-voting common stock shall not be entitled to vote at any meetings of stockholders (or written actions in lieu of meetings) and the shares of non-voting common stock shall not be included in determining the number of shares voting or entitled to vote on any matter. Unless required by law, there shall be no cumulative voting. Any holder of non-voting common stock may elect to convert each share of non-voting common stock into one fully paid and non-assessable share of voting common stock at any time by providing written notice to the Company; provided that as a result of such conversion, such holder, together with its affiliates and any members of a Schedule 13(d) group with such holder, would not beneficially own in excess of 9.99% of the Company’s common stock immediately prior to and following such conversion, unless otherwise as expressly provided for in the Company’s restated certificate of incorporation. However, this ownership limitation may be increased (not to exceed 19.99%) or decreased to any other percentage designated by such holder of non-voting common stock upon 61 days’ notice to the Company. 7. Stock-Based Compensation The Company has two equity incentive plans: the 2016 Equity Incentive Plan, as amended, and the 2020 Equity Incentive Plan. New awards can only be granted under the 2020 Equity Incentive Plan (the “Plan”). The total number of shares initially authorized under the Plan was 4,680,000. Of this amount, 4,677,407 shares were available for future grants as of September 30, 2020. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the Plan shall automatically increase on January 1st of each year, commencing on January 1, 2021 and continuing for ten years, in an amount equal to five percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the board of directors or compensation committee to determine a lesser number of shares shall be added for such year. The Plan provides for the granting of common stock, incentive stock options, nonqualified stock options, restricted stock awards, and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors. The Company’s stock options vest based on the terms in each award agreement, generally over four-year periods with 25% of options vesting after 1 year and then monthly thereafter, and have a term of ten years. In September 2020, the Company also adopted the 2020 Employee Stock Purchase Plan (the “ESPP”), which includes 520,000 shares of common stock reserved for future issuance. No shares have been issued from the ESPP as of September 30, 2020. The Company measures stock-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards. The Company recorded stock-based compensation expense in the following expense categories in its accompanying statements of operations: Three Months Ended September 30, Nine Months September 30, (in thousands) 2020 2019 2020 2019 Research and development $ 630 $ 135 $ 1,047 $ 250 General and administrative 842 162 1,414 270 $ 1,472 $ 297 $ 2,461 $ 520 10 PRELUDE THERAPEUTICS INCORPORATED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS Stock Options The following table summarizes stock option activity for the periods indicated: Number of shares Weighted average exercise price per share Weighted average remaining contractual term (years) Outstanding at January 1, 2020 2,269,742 $ 1.66 9.20 Granted 4,594,130 $ 9.38 Exercised (98,254 ) $ 0.98 Forfeited (115,736 ) $ 1.37 Outstanding at September 30, 2020 6,649,882 $ 7.00 9.40 Exercisable at September 30, 2020 783,236 $ 1.64 8.40 At September 30, 2020, the aggregate intrinsic value of outstanding options and exercisable options was $153.7 million and $22.3 million, respectively. The following table summarizes information about stock options outstanding at September 30, 2020 under the Plan: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $0.31 - $1.02 253,931 7.43 $ 0.98 162,037 $ 0.96 $1.43 - $1.89 3,259,095 9.05 1.85 619,998 1.79 $12.85 - $19.00 3,136,856 9.92 12.86 1,201 12.85 6,649,882 783,236 The weighted-average grant date fair value of options granted was $8.44 and $1.40 per share for the nine months ended September 30, 2020 and 2019, respectively. The aggregate intrinsic value of options exercised was $2.9 million for the nine months ended September 30, 2020. The Company recorded stock-based compensation expense of $1.2 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, related to stock options. The Company recorded stock-based compensation expense of $1.9 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively, related to stock options. As of September 30, 2020, the total unrecognized compensation expense related to unvested stock option awards was $39.1 million, which the Company expects to recognize over a weighted-average period of 3.74 years. The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below: Nine months ended September 30, 2020 2019 Expected volatility 115.09 % 91.60 % Risk-free interest rate 0.42 % 1.88 % Expected life (in years) 6.25 6.25 Expected dividend yield — — Restricted Stock Awards The Company issues restricted stock awards (“RSA”) to employees that generally vest over a four-year period with 25% of awards vesting after one year and then monthly thereafter. Any unvested shares will be forfeited upon termination of services. The fair value of an RSA is equal to the fair market value price of the Company’s common stock on the date of grant. RSA expense is amortized straight-line over the vesting period. 11 PRELUDE THERAPEUTICS INCORPORATED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS The following table summarizes activity related to RSA stock-based payment awards: Number of shares Weighted-average grant date fair value Unvested balance at January 1, 2020 1,335,349 $ 1.42 Granted 432,301 $ 3.26 Vested (455,626 ) $ 1.40 Unvested balance at September 30, 2020 1,312,024 $ 2.03 The Company recorded stock-based compensation expense of $0.3 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, related to RSAs. The Company recorded stock-based compensation expense of $0.6 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively, related to RSAs. As of September 30, 2020, the total unrecognized expense related to all RSAs was $2.4 million, which the Company expects to recognize over a weighted-average period of 2.94 years. 8. Subsequent Events On November 1, 2020, the Company entered into a Second Amended and Restated Entrepreneur Client License Agreement (the “Amendment”) with Delaware Innovation Space, Inc. (“DISI”) to amend the Amended and Restated Entrepreneur Client License Agreement dated June 1, 2020 (the “Original Agreement”) relating to the Company’s office and laboratory space in Wilmington, Delaware. The Amendment provides for the expansion of the premises by approximately 8,800 rentable square feet (the “Expansion Space”). Upon inclusion of the Expansion Space, the Company will license approximately 19,800 rentable square feet of office space (the “Premises”) from DISI (the “License”). Pursuant to the Amendment, the initial term of the License is twenty-six months commencing on November 1, 2020 and terminating on December 31, 2022 (the “Initial Term”). The total base license fee for the Premises through the Initial Term is expected to be $3.0 million (the “License Fee”). The Company has an option to renew the License for twelve months commencing on January 1, 2023 at a monthly renewal license fee increased by 5.0% for a total of $1.4 million payable during the renewal term. Pursuant to the Amendment, the Company was granted a right of first offer (the “ROFO”) in connection with certain licensable additional space on the Premises that becomes vacant prior to October 31, 2021 (“Available ROFO Space”). If the Company exercises its ROFO, the Company will pay to DISI an increased monthly license fee not to exceed $0.2 million per month at any time during the Initial Term. As consideration for the ROFO, the Company paid DISI a one-time payment of $0.2 million. 12