Prelude Therapeutics Inc 10-Q

Item 1. Financial Statements. PRELUDE THERAPEUTICS INCORPORATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data) September 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 61,424 $ 218,309 Marketable securities 259,441 — Prepaid expenses and other current assets 5,032 2,500 Total current assets 325,897 220,809 Property and equipment, net 3,213 2,480 Right-of-use asset 2,107 — Deferred offering costs — 301 Total assets $ 331,217 $ 223,590 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 11,062 $ 3,920 Accrued expenses and other current liabilities 6,765 7,455 Operating lease liability 1,836 — Total current liabilities 19,663 11,375 Other liabilities — 32 Operating lease liability 312 — Total liabilities 19,975 11,407 Commitments (Note 8) Stockholders’ equity: Voting common stock, $ 0.0001 par value: 487,149,741 shares authorized; 35,789,759 and 32,595,301 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 4 3 Non-voting common stock, $ 0.0001 par value; 12,850,259 shares authorized; 11,402,037 and 11,110,371 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 1 1 Additional paid-in capital 497,691 319,605 Accumulated other comprehensive income (loss) ( 176 ) — Accumulated deficit ( 186,278 ) ( 107,426 ) Total stockholders’ equity 311,242 212,183 Total liabilities and stockholders’ equity $ 331,217 $ 223,590 See accompanying notes to unaudited interim financial statements. 1 PRELUDE THERAPEUTICS INCORPORATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except share and per share data) 2021 2020 2021 2020 Operating expenses: Research and development $ 22,721 $ 15,293 $ 61,600 $ 33,605 General and administrative 8,115 2,851 19,125 5,712 Total operating expenses 30,836 18,144 80,725 39,317 Loss from operations ( 30,836 ) ( 18,144 ) ( 80,725 ) ( 39,317 ) Other income, net 149 1,384 1,873 1,638 Net loss $ ( 30,687 ) $ ( 16,760 ) $ ( 78,852 ) $ ( 37,679 ) Per share information: Net loss per share of common stock, basic and diluted $ ( 0.66 ) $ ( 5.25 ) $ ( 1.72 ) $ ( 15.83 ) Weighted average common shares outstanding, basic and diluted 46,330,794 3,194,471 45,841,049 2,380,100 Comprehensive loss Net loss $ ( 30,687 ) $ ( 16,760 ) $ ( 78,852 ) $ ( 37,679 ) Unrealized gain (loss) on marketable securities, net of tax ( 176 ) — ( 176 ) — Comprehensive loss $ ( 30,863 ) $ ( 16,760 ) $ ( 79,028 ) $ ( 37,679 ) See accompanying notes to unaudited interim financial statements. 2 PRELUDE THERAPEUTICS INCORPORATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED) Stockholders’ equity (deficit) Voting common stock Non-voting common stock Accumulated Other (in thousands, except shares) Shares Amount Shares Amount Additional paid-in capital Comprehensive Income (Loss) Accumulated deficit Total Balance at January 1, 2021 32,595,301 $ 3 11,110,371 $ 1 $ 319,605 $ — $ ( 107,426 ) $ 212,183 Exercise of stock options 210,274 — — — 386 — — 386 Sale of common stock, net of offering costs of $ 739 2,583,334 1 291,666 — 161,411 — — 161,412 Stock-based compensation expense — — — — 3,886 — — 3,886 Net loss — — — — — — ( 21,300 ) ( 21,300 ) Balance at March 31,2021 35,388,909 $ 4 11,402,037 $ 1 $ 485,288 $ — $ ( 128,726 ) $ 356,567 Exercise of stock options 247,786 — — — 422 — — 422 Stock-based compensation expense — — — — 4,237 — — 4,237 Net loss — — — — — — ( 26,865 ) ( 26,865 ) Balance at June 30,2021 35,636,695 $ 4 11,402,037 $ 1 $ 489,947 $ — $ ( 155,591 ) $ 334,361 Exercise of stock options 153,064 — — — 711 — — 711 Unrealized gain (loss) on marketable securities — — — — — ( 176 ) — ( 176 ) Stock-based compensation expense — — — — 7,033 — — 7,033 Net loss — — — — — — ( 30,687 ) ( 30,687 ) Balance at September 30,2021 35,789,759 $ 4 11,402,037 $ 1 $ 497,691 $ ( 176 ) $ ( 186,278 ) $ 311,242 See accompanying notes to unaudited interim financial statements. 3 PRELUDE THERAPEUTICS INCORPORATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) (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 offering costs of $ 58 — — 7,628,846 29,942 — — — — — — — — — Stock-based compensation expense, including issuance of RSAs — — — — — — 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 offering 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, including issuance of restricted stock awards — — — — — — — — — — 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 See accompanying notes to unaudited interim financial statements. 4 PRELUDE THERAPEUTICS INCORPORATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30, (in thousands) 2021 2020 Cash flows used in operating activities: Net loss $ ( 78,852 ) $ ( 37,679 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 625 409 Noncash lease expense 928 — Stock-based compensation 15,156 2,461 Amortization of premium and discount on marketable securities, net 356 — Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 2,532 ) ( 1,924 ) Accounts payable 7,834 1,931 Accrued expenses and other liabilities ( 393 ) 3,472 Operating lease liabilities ( 951 ) — Net cash used in operating activities ( 57,829 ) ( 31,330 ) Cash flows used in investing activities: Purchases of marketable securities ( 259,973 ) — Purchases of property and equipment ( 2,026 ) ( 292 ) Net cash used in investing activities ( 261,999 ) ( 292 ) 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 common stock, net of offering costs 161,424 — 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 Payment of capital lease obligation — ( 258 ) Proceeds from the exercise of stock options 1,519 96 Net cash provided by financing activities 162,943 247,535 Net (decrease) increase in cash and cash equivalents ( 156,885 ) 215,913 Cash and cash equivalents at beginning of period 218,309 18,879 Cash and cash equivalents at end of period $ 61,424 $ 234,792 Supplemental disclosures: Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 567 $ — Property and equipment in accounts payable $ 97 $ 90 Unrealized gain (loss) on marketable securities $ ( 176 ) $ — Offering costs in accounts payable $ — $ 1,079 Offering costs in accrued expenses and other current liabilities $ — $ 220 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. 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 $ 186.3 million at September 30, 2021. 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, cash equivalents, and marketable securities as of September 30, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2023. 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 and emerging variants 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 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, 2020 can be found in “Note 3. Summary of significant accounting policies” of the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2021. 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 months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020 found in the Form 10-K filed with the SEC on March 16, 2021. 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”). Use of estimates The preparation of the unaudited interim financial statements in conformity with 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. 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, 2021 and December 31, 2020. Marketable Securities The Company’s marketable securities consist of investments in corporate debt securities and commercial paper that are classified as available-for-sale. The securities are carried at fair value with the unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss), a component of stockholders’ equity (deficit). Realized gains and losses and declines in value determined to be other than temporary are included in the Company's statements of operations. The Company classifies marketable securities that are available for use in current operations as current assets on the balance sheets. 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 stock options and convertible preferred stock, and the effect from unvested restricted stock awards 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-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. 7 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, 2021 2020 Unvested restricted stock awards 717,698 1,312,024 Unvested restricted stock units 25,000 — Stock options 8,091,689 6,649,882 Employee stock purchase plan 8,742 — 8,843,129 7,961,906 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. Recently Adopted Accounting Pronouncements On January 1, 2021 , the Company adopted ASC 842 issued by the FASB in February 2016, which was subsequently supplemented by clarifying guidance to improve financial reporting of leasing transactions. The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements. The Company adopted the new standard using the modified retrospective transition method utilizing the optional transition method and elected the package of practical expedients. Accordingly, prior periods were not restated to reflect the adopted standard. In accordance with the guidance in ASC 842 , components of a lease should be split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). The Company has elected the practical expedient to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component only . Upon adoption, the Company recorded a right of use asset of $ 2.5 million and corresponding operating lease liabilities of $ 2.5 million, with an offset to accrued expenses and other current liabilities of approximately $ 64,000 to eliminate deferred rent on the balance sheets. At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise. The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. The Company may enter into leases with an initial term of 12 months or less (“Short-Term Leases”). For Short-Term Leases, the Company records the rent expense on a straight-line basis and does not record the leases on the balance sheet. The Company entered into a short-term lease in June 2021 and elected the short-term lease exemption that allows the Company to record the rent expense on a straight-line basis and does not require the recognition of a right-of-use asset or corresponding operating lease liability. Refer to Note 8 for the Company’s lease disclosures. After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement and (ii) the right-of-use lease asset based on the re-measured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received, and any initial direct costs incurred are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term. The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows for the nine months ended September 30, 2021. 8 Accounting guidance not yet adopted In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ” which has subsequently been amended by ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11, and ASU No. 2020-03 (“ASU 2016-03”). This guidance replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 and must be adopted using a modified retrospective approach, with certain exceptions. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures. 4. Marketable Securities The following is a summary of the Company’s marketable securities as of September 30, 2021. The Company did not have any marketable securities as of December 31, 2020. (in thousands) Amortized Cost Gross unrealized gain Gross unrealized loss Fair Value Marketable securities Corporate debt securities $ 193,322 $ 30 $ ( 205 ) $ 193,147 Commercial paper 66,295 4 ( 5 ) 66,294 $ 259,617 $ 34 $ ( 210 ) $ 259,441 The Company’s marketable securities generally have contractual maturity dates of between four and 21 months. 5. 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. • 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). 9 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, 2021: Assets: Cash equivalents (Money Market Funds) $ 57,580 $ — $ — Marketable securities Corporate debt securities — 193,147 — Commercial paper — 66,294 — Total $ 57,580 $ 259,441 $ — December 31, 2020: Assets: Cash equivalents (Money Market Funds) $ 217,072 $ — $ — 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: (in thousands) September 30, 2021 December 31, 2020 Compensation and related benefits $ 3,508 $ 3,614 Research and development 2,687 3,421 Other 570 420 $ 6,765 $ 7,455 7. Common Stock Common Stock Offering In January 2021, the Company sold 2,875,000 shares of its common stock at a public offering price of $ 60.00 per share. The Company received net proceeds of $ 161.4 million after deducting underwriting discounts, commissions, and other offering expenses paid by the Company. 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. 10 8 . Commitments Leases The Company leases office and laboratory space in Wilmington, Delaware under a noncancelable lease (the “Lease”), which expires in December 2022, which was amended during the third quarter of 2021 to include additional office and laboratory space to accommodate the Company’s growth. The Company has an option to renew the Lease for an additional 1 -year period. This option to extend was not recognized as part of the Company’s measurement of the right-of-use asset and operating lease liability as of September 30, 2021 . The discount rate used to account for the Company’s operating lease under ASC 842 is the Company’s estimated incremental borrowing rate of 10.0 %. In June 2021, the Company entered into a 12 -month noncancelable lease, which commenced on July 1, 2021 and will expir e on June 30, 2022 and has remaining lease payments of approximately $ 0.1 million and $ 0.2 million in 2021 and 2022, respectively. The Company adopted the short-term lease election as afforded by ASC 842 and did no t recognize a right-of-use asset and operating lease liability related to this short-term lease. Rent expense for the three months ended September 30, 2021 and 2020 was $ 0.5 million and $ 0.3 million, respectively. Rent expense for the nine months ended September 30, 2021 and 2020 was $ 1.2 million and $ 0.8 million, respectively . Future minimum annual lease payments under the L ease at September 30, 2021 is as follows: (in thousands) 2021 (remaining) $ 459 2022 1,836 Total undiscounted lease payments 2,295 Less imputed interest ( 147 ) Current and noncurrent lease liability $ 2,148 Employment Agreements The Company entered into employment agreements with key personnel providing for compensation and severance in certain circumstances, as defined in the respective employment agreements. 401(k) Defined Contribution Plan The Company sponsors a 401(k) defined‑contribution plan covering all employees. Participants are permitted to contribute up to 100 % of their eligible annual pretax compensation up to an established federal limit on aggregate participant contributions. The Company provides a safe harbor match with a maximum amount of 3 % of the participant’s compensation. During the three and nine months ended September 30, 2021, the Company made matching contributions of $ 0.1 million and $ 0.4 million, respectively . Research Collaboration Agreement In September 2021, the Company entered into a research collaboration agreement estimated to last for approximately one year (the “Darwin Health Agreement”) with Darwin Health, Inc. (“DarwinHealth”). Under the terms of the Darwin Health Agreement, DarwinHealth will utilize their drug discovery technologies and certified methodologies in precision oncology to advance and accelerate clinical development for certain of the Company’s programs across a broad range of tumor subtypes. The Company will pay DarwinHealth a total of $ 3.0 million in three equal installments over the one-year term (the “Research Term”) to fund the research and, if the Company adopts any of DarwinHealth’s development ideas, the Company will be responsible for the development, manufacturing, and commercialization of any such products. In addition to research funding, DarwinHealth is eligible to receive future research, development and regulatory milestones of up to $ 3.0 million for each product candidate and is also eligible to receive tiered royalties in the low single digits on net sales of each product developed using DarwinHealth’s development technologies or methods. However, within eighteen-months following the Research Term, the Company, in its sole discretion, may notify DarwinHealth that it will not utilize its development ideas and will be entitled to receive a refund of $ 0.5 million. Other Research and Development Arrangements The Company enters into agreements with contract research organizations (“CROs”) to assist in the performance of research and development activities. Expenditures to CROs will represent a significant cost in clinical development for the Company. 11 9. 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”) and as of September 30, 2021, 4,782,468 shares were available for future grants. 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 . 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 Ended September 30, (in thousands) 2021 2020 2021 2020 Research and development $ 3,262 $ 630 $ 7,305 $ 1,047 General and administrative 3,771 842 7,851 1,414 $ 7,033 $ 1,472 $ 15,156 $ 2,461 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, 2021 6,839,091 $ 8.46 9.17 Granted 2,228,869 $ 33.82 Exercised ( 611,124 ) $ 2.49 Forfeited ( 365,147 ) $ 21.68 Outstanding at September 30, 2021 8,091,689 $ 15.30 8.82 Exercisable at September 30, 2021 2,094,067 $ 6.10 8.27 At September 30, 2021, the aggregate intrinsic value of outstanding options and exercisable options was $ 139.3 million and $ 52.8 million, respectively. The following table summarizes information about stock options outstanding at September 30, 2021 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 - $7.37 2,938,521 8.00 $ 1.81 1,306,386 $ 1.76 $7.38 - $15.93 2,842,233 8.92 12.85 775,853 12.85 $15.94 - $88.98 2,310,935 9.73 35.46 11,828 42.61 8,091,689 2,094,067 The weighted-average grant date fair value of options granted was $ 24.88 and $ 8.44 per share for the nine months ended September 30, 2021 and 2020, respectively. The aggregate intrinsic value of options exercised was $ 22.8 million for the nine months ended September 30, 2021. The Company recorded stock-based compensation expense of $ 6.7 million and $ 1.2 million for the three months ended September 30, 2021 and 2020, respectively, related to stock options. The Company recorded stock-based compensation 12 expense of $ 14.4 million and $ 1.9 million for the nine months ended September 30, 2021 and 2020 , respectively, related to stock options. As of September 30, 2021 , the total unrecognized compensation expense related to unvested stock option awards was $ 83.1 million, which the Company expects to recognize over a weighted-average period of 3.22 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, 2021 2020 Expected volatility 88.50 % 115.09 % Risk-free interest rate 0.87 % 0.42 % Expected life (in years) 6.03 6.25 Expected dividend yield — — Restricted Stock Awards and Units 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 recorded on a straight-line basis over the vesting period. 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, 2021 1,214,778 $ 2.09 Vested ( 497,080 ) $ 1.89 Unvested balance at September 30, 2021 717,698 $ 2.24 The Company recorded stock-based compensation expense of $ 0.3 million and $ 0.3 million for the three months ended September 30, 2021 and 2020, respectively, related to RSAs. The Company recorded stock-based compensation expense of $ 0.7 million and $ 0.6 million for the nine months ended September 30, 2021 and 2020, respectively, related to RSAs. As of September 30, 2021, the total unrecognized expense related to all RSAs was $ 1.6 million, which the Company expects to recognize over a weighted-average period of 2.05 years. During the nine months ended September 30, 2021, the Company granted 25,000 restricted stock units (“RSU”) to an employee that vest over a four-year period with 25 % of awards vesting after one year and then quarterly thereafter. Any unvested units will be forfeited upon termination of services. The Company recorded stock-based compensation expense of $ 0.1 million for the three and nine months ended September 30, 2021, respectively, related to RSUs. At September 30, 2021 the total unrecognized expense related to the RSUs was $ 0.8 million, which the Company expects to recognize over 3.70 years. Employee Stock Purchase Plan The Company has an Employee Stock Purchase Plan (the “ESPP”), which, as of September 30, 2021, had 957,056 shares of common stock reserved for future issuance. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year and continuing for ten years beginning in 2021, in an amount equal to one percent of the total number of shares of all classes 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 in any particular year. No shares have been issued from the ESPP as of September 30, 2021. Under the ESPP, eligible employees can purchase the Company’s common stock through accumulated payroll deductions at such times as are established by the compensation committee. Eligible employees may purchase the Company’s common stock at 85 % of the lower of the fair market value of the Company’s common stock on the first day of the offering period or on the last day of the offering period. Eligible employees may contribute up to 15 % of their eligible compensation. Under the ESPP, a participant may not accrue rights to purchase more than $ 25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding. 13 The ESPP is considered compensatory under the FASB stock compensation rules. Accordingly, share-based compensation expense is determined based on the option’s grant-date fair value as estimated by applying the Black Scholes option-pricing model and is recognized over the withholding period. The Company recognized share-based compensation expense of $ 0.1 million for the three and nine months ended September 30, 2021, respectively, related to the ESPP. 14