Prime Medicine, Inc. 10-Q

Item 1. Financial Statements (unaudited) PRIME MEDICINE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) March 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 94,162 $ 41,574 Short-term investments 109,943 74,639 Short-term investment — related party 6,618 5,452 Prepaid expenses 4,203 19,057 Other current assets 2,728 2,254 Total current assets 217,654 142,976 Property and equipment, net 23,926 22,659 Operating lease right-of-use assets 55,528 13,941 Restricted cash 13,496 13,496 Other assets 779 779 Total assets $ 311,383 $ 193,851 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 10,078 $ 19,537 Accrued expenses and other current liabilities (1) 7,612 14,110 Accrued settlement payment — related party — 13,500 Operating lease liability 6,751 9,276 Total current liabilities 24,441 56,423 Operating lease liability, net of current 37,042 4,357 Non current deferred tax liability 134 — Research and development funding liability 6,000 — Total liabilities 67,617 60,780 Commitments and contingencies Stockholders’ equity Common stock, par value of $ 0.00001 per share; 775,000,000 shares authorized; 120,021,274 and 97,377,121 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 2 2 Additional paid-in capital 780,950 624,414 Accumulated other comprehensive loss ( 95 ) ( 15 ) Accumulated deficit ( 537,091 ) ( 491,330 ) Total stockholders’ equity 243,766 $ 133,071 Total liabilities and stockholders’ equity $ 311,383 $ 193,851 (1) Includes related party amount of $ 0.3 million as of December 31, 2023 . The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 PRIME MEDICINE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) Three Months Ended March 31, (in thousands, except share and per share amounts) 2024 2023 Collaboration revenue $ 591 $ — Operating expenses: Research and development (1) 37,774 30,880 General and administrative 11,158 9,153 Total operating expenses 48,932 40,033 Loss from operations ( 48,341 ) ( 40,033 ) Other income: Change in fair value of short-term investment — related party 1,166 ( 1,701 ) Other income, net 1,548 2,135 Total other income, net 2,714 434 Net loss before income taxes ( 45,627 ) ( 39,599 ) (Provision for) benefit from income taxes ( 134 ) 202 Net loss attributable to common stockholders $ ( 45,761 ) $ ( 39,397 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.44 ) $ ( 0.44 ) Weighted-average common shares outstanding, basic and diluted 104,466,178 89,064,895 Comprehensive loss: Net loss $ ( 45,761 ) $ ( 39,397 ) Change in unrealized loss on investments, net of tax ( 80 ) 179 Comprehensive loss $ ( 45,841 ) $ ( 39,218 ) (1) Includes related party amount of $ 0.3 million for the three months ended March 31, 2023. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 PRIME MEDICINE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Losses Accumulated Deficit Total Stockholders' Equity (in thousands, except share amounts) Shares Amount Balance as of December 31, 2023 97,377,121 $ 2 $ 624,414 $ ( 15 ) $ ( 491,330 ) $ 133,071 Issuance of common stock from public offering, net of issuance costs of $ 8.9 million 22,560,001 — 132,055 — — 132,055 Issuance of pre-funded warrants, net of issuance costs of $ 1.2 million — — 18,800 — — 18,800 Issuances of common under ESPP 74,488 — 436 — — 436 Issuance of common stock upon exercise of stock options 9,664 — 36 — — 36 Stock-based compensation expense — — 5,209 — — 5,209 Change in unrealized loss on investments, net of tax — — — ( 80 ) — ( 80 ) Net loss — — — — ( 45,761 ) ( 45,761 ) Balance as of March 31, 2024 120,021,274 $ 2 $ 780,950 $ ( 95 ) $ ( 537,091 ) $ 243,766 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 PRIME MEDICINE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Losses Accumulated Deficit Total Stockholders' Equity (in thousands, except share amounts) Shares Amount Balance as of December 31, 2022 97,209,213 $ 2 $ 609,849 $ ( 384 ) $ ( 293,197 ) $ 316,270 Issuance of common stock upon exercise of stock options 18,596 — 68 — — 68 Stock-based compensation expense — — 1,681 — — 1,681 Change in unrealized loss on investments, net of tax — — — 179 — 179 Net loss — — — — ( 39,397 ) ( 39,397 ) Balance as of March 31, 2023 97,227,809 2 611,598 ( 205 ) ( 332,594 ) 278,801 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 PRIME MEDICINE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (in thousands) 2024 2023 Cash flows used in operating activities: Net loss $ ( 45,761 ) $ ( 39,397 ) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation expense 5,209 1,681 Non cash lease expense 3,348 2,831 Depreciation expense 1,315 1,052 Change in fair value of short-term investment — related party ( 1,166 ) 1,701 Amortization of premiums and discount on short-term investments ( 675 ) ( 611 ) Deferred income taxes 134 ( 202 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 2,794 ) ( 1,285 ) Accounts payable ( 5,880 ) ( 504 ) Accrued expenses and other current liabilities ( 4,475 ) ( 4,046 ) Accrued settlement payment — related party ( 13,500 ) — Lease liabilities ( 3,462 ) ( 2,781 ) Net cash used in operating activities ( 67,707 ) ( 41,561 ) Cash flows used in investing activities: Maturities of investments 72,500 35,000 Purchases of investments ( 107,208 ) ( 45,666 ) Purchases of property and equipment ( 2,324 ) ( 1,999 ) Net cash used in investing activities ( 37,032 ) ( 12,665 ) Cash flows provided by financing activities: Proceeds from follow-on offering, net of issuance costs 132,055 — Proceeds from issuance of pre-funded warrants, net of issuance costs 18,800 — Proceeds from research and development funding liability 6,000 — Proceeds from ESPP offerings 436 — Net proceeds from stock option exercises 36 68 Net cash provided by financing activities 157,327 68 Net change in cash, cash equivalents, and restricted cash 52,588 ( 54,158 ) Cash, cash equivalents, and restricted cash at beginning of period 55,070 201,116 Cash, cash equivalents, and restricted cash at end of period $ 107,658 $ 146,958 Reconciliation of cash, cash equivalents and restricted cash: Cash, cash equivalents, and restricted cash at end of period $ 107,658 $ 146,958 Less: restricted cash 13,496 13,496 Total cash, and cash equivalents $ 94,162 $ 133,462 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 9 PRIME MEDICINE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (in thousands) 2024 2023 Supplemental cash flow information: Right-of-use assets obtained in exchange for new operating lease liabilities $ 44,935 $ — Supplemental disclosure of non-cash investing and financing activities: Purchases of property and equipment included in accounts payable and accrued expenses $ 833 $ 2,603 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 10 PRIME MEDICINE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of the Business and Basis of Presentation Prime Medicine, Inc., together with its consolidated subsidiary (the “Company”) is a biotechnology company committed to delivering a new class of differentiated one-time curative genetic therapies to address the widest spectrum of diseases. The Company is deploying Prime Editing technology, which it believe is a versatile, precise, and efficient gene editing technology. The Company was incorporated in the State of Delaware in September 2019. Its principal offices are in Cambridge, Massachusetts. Liquidity and Capital Resources Since its inception, the Company has devoted substantially all of its resources to building its Prime editing platform and advancing development of its portfolio of programs, establishing and protecting its intellectual property, conducting research and development activities, organizing and staffing the company, business planning, raising capital and providing general and administrative support for these operations. To date, the Company has funded its operations primarily with proceeds from sales of preferred stock and from public offerings of its common stock. In February 2024, the Company issued and sold 22,560,001 shares of its common stock, including 3,360,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 6.25 per share. Further, in lieu of common stock to certain investors, the Company sold pre-funded warrants to purchase 3,200,005 shares of common stock at a public offering price of $ 6.24999 per pre-funded warrant, which represents the per share public offering price of each share of common stock less the $ 0.00001 per share exercise price for each pre-funded warrant. As a result of the offering, the Company received approximately $ 150.9 million in net proceeds, after deducting underwriting discounts, commissions and estimated offering costs of $ 10.1 million. Risks and Uncertainties The Company is subject to risks and uncertainties common to early stage companies in the biotechnology industry, including, but not limited to, completing preclinical studies and clinical trials, obtaining regulatory approval for product candidates, market acceptance of products, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, reliance on third-party organizations, protection of proprietary technology, compliance with government regulations, and the ability to raise additional capital to fund operations. The Company’s product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. Since its inception, the Company has incurred substantial losses and, as of March 31, 2024, the Company had an accumulated deficit of $ 537.1 million. The Company expects to generate operating losses and negative operating cash flows for the foreseeable future. The Company expects that its cash, cash equivalents, and investments as of March 31, 2024 of $ 210.7 million will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these financial statements. The Company will need to raise additional capital to support its continuing operations and to pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may be unable to raise additional capital or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a 11 negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so. Basis of Presentation The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying condensed consolidated financial statements of Prime Medicine, Inc. are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2024, the results of its operations for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023, and its cash flows for the three months ended March 31, 2024 and 2023. The financial data and other information disclosed in these notes related to the three months ended March 31, 2024 and 2023 are also unaudited. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period. The condensed consolidated balance sheet data as of December 31, 2023 was derived from our audited financial statements, but does not include all disclosures required by U.S. GAAP. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2023, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2024. 2. Summary of Significant Accounting Policies The Company’s significant accounting policies are disclosed in Note 2, Summary of significant accounting policies , in the audited consolidated financial statements for the year ended December 31, 2023, and notes thereto, included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 1, 2024. Since the date of those financial statements, there have been no material changes to its significant accounting policies, except as noted below. Use of Estimates The preparation of the Company’s condensed consolidated 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 the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected within these condensed consolidated financial statements include, but are not limited to the valuation of the Company’s common stock and stock-based awards, and the valuation of the related party forward contract liability. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ materially from those estimates or assumptions. Warrants Management assesses warrants under ASC 480, Distinguishing Liabilities from Equity to determine whether they should be classified as equity or liability. If the classification is determined to be equity, proceeds received for the warrants are recorded as an increase to additional paid-in capital in the condensed consolidated balance sheets. If classified as a liability, the Company records the warrant as a liability on its consolidated balance sheet and remeasures this liability to fair value at each reporting date and recognizes changes in the fair value of the warrant 12 liability as a component of other expense in the condensed consolidated statements of operations and comprehensive loss. Recently Issued Accounting Pronouncements Not Yet Adopted Accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption . 3. Fair Value Measurements and Investments The following tables present the Company’s fair value hierarchy for its assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair value: As of March 31, 2024: (in thousands) Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ — $ 47,915 $ — $ 47,915 U.S. Treasury and government securities — 35,854 — 35,854 Corporate debt securities — 9,932 — 9,932 Short-term investments: U.S. Treasury and government securities — 74,656 — 74,656 Corporate debt securities — 35,287 — 35,287 Related party short-term investment: Beam equity securities 6,618 — — 6,618 Total cash equivalents and investments $ 6,618 $ 203,644 $ — $ 210,262 As of December 31, 2023: (in thousands) Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ — $ 24,209 $ — $ 24,209 Short-term investment: U.S. Treasury and government securities — 74,639 — 74,639 Related party short-term investment: Beam equity securities 5,452 — — 5,452 Total cash equivalents and investments $ 5,452 $ 98,848 $ — $ 104,300 The Company classifies its U.S. Treasury securities as short-term based on each instrument’s underlying contractual maturity date. The fair value of the Company’s U.S. Treasury securities and money market funds are classified as Level 2 because they are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency and U.S. Treasury securities. 13 Investments in Debt Securities Unrealized gains and losses of investments in debt securities consisted of the following: As of March 31, 2024: (in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Short-term investments in debt securities: U.S. Treasury and government securities $ 74,697 $ — $ ( 41 ) $ 74,656 Corporate debt securities 35,329 — ( 42 ) 35,287 Total short-term investments in debt securities $ 110,026 $ — $ ( 83 ) $ 109,943 As of December 31, 2023: (in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Short-term investments: U.S. Treasury and government securities $ 74,654 $ 7 $ ( 22 ) $ 74,639 Total short-term investments in debt securities $ 74,654 $ 7 $ ( 22 ) $ 74,639 The contractual maturities of the Company’s investments in debt securities held were as follows: (in thousands) March 31, 2024 December 31, 2023 Due within one year $ 109,943 $ 74,639 Marketable securities in unrealized loss positions consisted of the following: As of March 31, 2024: (in thousands, except number of securities) Number of Securities Fair Value Gross Unrealized Losses Investments in continuous loss position for less than 12 months: U.S. Treasury and government securities 15 $ 72,156 $ ( 41 ) Corporate debt securities 19 $ 35,287 $ ( 42 ) Based on factors such as historical experience, market data, issuer-specific factors, and current economic conditions, the Company did not record an allowance for credit losses as of March 31, 2024 related to these investments. Further, given the lack of significant change in the credit risk, the Company does not consider these investments to be impaired. 14 4. Property and Equipment, Net Property and equipment, net consisted of the following: (in thousands) March 31, 2024 December 31, 2023 Property and equipment: Laboratory equipment $ 24,672 $ 23,873 Leasehold improvement 579 579 Furniture and Fixture 1,042 278 Computer hardware and software 724 11 Construction in progress 5,708 5,402 Total property and equipment 32,725 30,143 Less: Accumulated depreciation ( 8,799 ) ( 7,484 ) Total property and equipment, net $ 23,926 $ 22,659 Depreciation expense related to property and equipment is as follows: Three Months Ended March 31, (in thousands) 2024 2023 Depreciation Expense $ 1,315 $ 1,052 5. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: (in thousands) March 31, 2024 December 31, 2023 Accrued expenses and other current liabilities Accrued employee compensation and benefits $ 3,062 $ 8,270 Lab-related supplies and services 2,441 1,962 Accrued professional fees 1,138 2,273 Other 971 1,605 Total accrued expenses and other current liabilities $ 7,612 $ 14,110 6. Leases The Company leases office and laboratory space under various non-cancelable operating leases. The Company’s significant lease agreements are disclosed in Note 9, Leases , in the audited consolidated financial statements for the year ended December 31, 2023, and notes thereto, included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 1, 2024. Since the date of those financial statements, there have been no changes to the Company’s significant agreements except as described below. 60 First Street, Cambridge, Massachusetts Lease In November 2021, the Company entered into a lease for three floors of office and laboratory space in Cambridge, Massachusetts, with rent commencing in March 2024, subject to any credits pursuant to the terms of the lease. Also subject to any credits pursuant to the terms of the lease, the Company expects to pay up to approximately $ 208.7 million over the initial non-cancelable term of the lease of ten years , and the Company has an option to extend the lease for an additional period of ten years with the rent during the extension term being the then fair market rent. The Company secured the lease with a $ 13.1 million security deposit, which was recorded as restricted cash on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023. 15 Accounting Considerations The Company determined that the lease contained three separate lease components each of which represents a right of use that the Company can benefit from on its own and none which are neither highly dependent nor highly related to each other. The Company allocated the consideration among the three lease components based on their relative fair market value. In accordance with ASC 842, Leases, the lease commenced for one of the lease components in March 2024 and the Company recorded a right-of-use asset of $ 44.9 million, and a corresponding lease liability of $ 33.6 million on the lease commencement date; this includes a reclass of $ 11.3 million from prepaid expenses to right-of-use asset related to build out costs which were determined to be owned by the lessor. As the exercise of the option to extend the lease term was not reasonably certain, the Company will recognize lease expense for this lease component through February 2034. The lease commencement for the other two lease components is expected to occur in 2025. Any consideration paid to lease components for which the lease has not commenced are recorded as prepaid expense on the condensed consolidated balance sheets. The table below reconciles the undiscounted future annual lease payments to the total operating lease liabilities recorded in the condensed consolidated balance sheet as of March 31, 2024 : (in thousands) Undiscounted Amounts Undiscounted lease payments: Remaining in 2024 $ 5,868 2025 18,584 2026 21,339 2027 20,812 2028 20,853 Thereafter 118,079 Total undiscounted lease payments 205,535 Less: payments related to leases not commenced ( 129,866 ) Less: imputed interest ( 31,876 ) Total operating lease liability $ 43,793 7. Stockholder’s Equity Common Stock Under the Company’s Third Amended and Restated of Certificate of Incorporation, the Company’s common stock had a par value of $ 0.0001 and each share of common stock entitles the holder to one vote on all matters submitted to the stockholders for a vote. The holders of common stock are entitled to receive dividends, if any, as declared by the Company’s Board of Directors (the “Board of Directors”). As previously discussed, in February 2024, the Company issued and sold 22,560,001 shares of its common stock, including 3,360,000 shares pursuant to the exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 6.25 per share. Pre-funded Warrants As discussed in Note 1, Nature of the Business and Basis of Presentation , in February 2024, the Company sold pre-funded warrants to purchase 3,200,005 shares of common stock at a public offering price of $ 6.24999 per pre-funded warrant, which represents the per share public offering price of each share of common stock less the $ 0.00001 per share exercise price for each pre-funded warrant. Subject to certain requirements, the pre-funded 16 warrants can be exercised by the holder at anytime. As of March 31, 2024, there have not been any exercises of the pre-funded warrants. The pre-funded warrants meet the definition of an equity instrument under ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity , and funds received were recorded as an increase in additional paid-in capital in the condensed consolidated balance sheets. Funds received upon exercise of warrants will be recorded as common stock in the condensed consolidated balance sheets as the exercise price represents the par value of the underlying common stock. At-The-Market Equity Program In November 2023, the Company entered into Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC, acting as the Company’s agent and/or principal (the “Sales Agent”), with respect to an “at the market offering” program under which the Company may, from time to time, at its sole discretion, issue and sell shares of its common stock having an aggregate offering price of up to $ 300.0 million through the Sales Agent. As of March 31, 2024, there have been no sales of common stock pursuant to the Sales Agreement. 8. Stock-Based Compensation 2019 Equity Incentive Plan The Company’s 2019 Stock Option and Grant Plan (the “2019 Plan”) provides for the Company to grant incentive stock options (“ISO”), non-qualified stock options, unrestricted stock awards, restricted stock awards (“RSA”) and other stock-based awards (collectively, the “Awards”) to the officers, employees, consultants and other key persons of the Company. The 2019 Plan was administered by the Board of Directors, or at the discretion of the Board of Directors, by a committee of the Board of Directors. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated. In October 2022, in connection with the closing of the Company’s initial public offering (“IPO”), the Board of Directors determined that no further awards would be granted under the 2019 Plan. 2022 Stock Option and Incentive Plan On February 9, 2022, the Board of Directors adopted, and on October 10, 2022, the Company’s stockholders approved, the 2022 Stock Option and Incentive Plan (the “2022 Plan”), which became effective on October 18, 2022. The 2022 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors, and consultants. The 2022 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The shares of common stock underlying any awards under the 2022 Plan and the 2019 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire, or are otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2022 Plan. The number of shares reserved and available for issuance under the 2022 Plan increased on January 1, 2023 and will increase on each January 1 hereafter, by five percent of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Compensation Committee. On January 1, 2023, the annual increase resulted in an additional 4,868,856 shares authorized being added to the 2022 Plan. As of March 31, 2024, the Company had 21,290,494 shares reserved under the 2022 Plan and the 2019 Plan, and 9,088,040 shares available for issuance under the 2022 ESPP. 2022 Employee Stock Purchase Plan On February 9, 2022, the Board of Directors adopted, and on October 10, 2022, the Company’s stockholders approved, the 2022 Employee Stock Purchase Plan (the “2022 ESPP”), which became effective on October 18, 2022. 17 The number of shares of common stock that may be issued under the 2022 ESPP cumulatively increased beginning on January 1, 2023 and shall increase on each January 1 hereafter through January 1, 2032, by the least of (i) 971,350 shares of common stock, (ii) one percent of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such number of shares of common stock as determined by the administrator of the 2022 ESPP. There was no annual increase for the 2022 ESPP on January 1, 2024. As of March 31, 2024, the Company had 1,868,212 shares available for issuance under the 2022 Plan. During the three months ended March 31, 2024, the Company issued 74,488 shares of the Company’s common stock under the 2022 ESPP. Stock Options The following table summarizes the Company’s stock option activity for the three months ended March 31, 2024: Number of Shares Weighted-Average Exercise Price Outstanding at December 31, 2023 7,641,863 $ 9.79 Granted 3,898,410 8.23 Exercised ( 9,664 ) 3.73 Cancelled or forfeited ( 139,885 ) 11.59 Outstanding at March 31, 2024 11,390,724 $ 9.24 Options vested and exercisable at March 31, 2024 2,838,246 $ 7.64 Options vested and expected to vest at March 31, 2024 11,390,724 $ 9.24 As of March 31, 2024, there was $ 57.5 million of total unrecognized compensation cost related to time-based unvested stock options the Company expects to recognize such amount over a remaining weighted-average period of 2.8 years. Performance-Based Stock Options The following table summarizes the Company’s performance-based stock option activity for the three months ended March 31, 2024: Number of Shares Weighted-Average Grant Date Fair Value Outstanding at December 31, 2023 411,730 $ 6.65 Granted 400,000 8.32 Exercised — — Cancelled or forfeited — — Outstanding at March 31, 2024 811,730 $ 7.47 Vested and exercisable at March 31, 2024 131,882 $ 5.34 As of March 31, 2024, there was $ 4.7 million of total unrecognized compensation cost related to performance-based stock options. Restricted Common Stock Awards The Company awarded restricted common stock to employees and non-employees under its 2019 Plan. The vesting of these restricted stock awards are time-based or performance-based. 18 Time-Based Restricted Common Stock The following table summarizes the Company’s time-based restricted common stock activity for the three months ended March 31, 2024 : Number of Shares Weighted-Average Grant-Date Fair Value Outstanding at December 31, 2023 903,227 $ 0.17 Issued — — Vested ( 329,833 ) 0.14 Repurchased — — Outstanding at March 31, 2024 573,394 $ 0.19 As of March 31, 2024, there was $ 0.1 million of total unrecognized compensation cost related to unvested ti me-based restricted common stock which the Company expects to recognize over a weighted-average period of 0.5 years. Performance-Based Restricted Common Stock The following table summarizes the Company’s performance-based restricted common stock activity for the three months ended March 31, 2024 : Number of Shares Weighted-Average Grant-Date Fair Value Outstanding at December 31, 2023 3,832,769 $ 0.07 Issued — — Vested — — Repurchased — — Outstanding at March 31, 2024 3,832,769 $ 0.07 As of March 31, 2024, there was $ 0.3 million of total unrecognized compensation cost related to unvested performance-based restricted common stock. Stock-Based Compensation The following table below summarizes the classification of the Company’s stock-based compensation expense related to stock options and restricted common stock awards in the condensed consolidated statements of operations and comprehensive loss: Three Months Ended March 31, (in thousands) 2024 2023 Stock-based compensation expense: Research and development $ 2,725 $ 1,170 General and administrative 2,484 511 Total stock-based compensation expense $ 5,209 $ 1,681 9. Significant Agreements The Company’s significant agreements are disclosed in Note 11, License and Collaboration Agreements , in the audited consolidated financial statements for the year ended December 31, 2023, and notes thereto, included in the 19 Company’s Annual Report on Form 10-K that was filed with the SEC on March 1, 2024. Since the date of those financial statements, there have been no changes to the Company’s significant agreements. 10. Net Loss per Share Basic and diluted net loss per common share attributable to common stockholders was calculated as follows: Three Months Ended March 31, (in thousands, except share and per share amounts) 2024 2023 Numerator: Net loss attributable to common stockholders $ ( 45,761 ) $ ( 39,397 ) Denominator: Weighted-average common shares outstanding, basic and diluted 104,466,178 89,064,895 Net loss per share attributable to common stockholders, basic and diluted $ ( 0.44 ) $ ( 0.44 ) Diluted net loss per share available to common stockholders was computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, preferred stock, unvested restricted stock and stock options to purchase common stock were considered common stock equivalents but had been excluded from the calculation of diluted net loss per share available to common stockholders as their effect was anti-dilutive. In periods in which the Company reports a net loss available to common stockholders, diluted net loss per share available to common stockholders is the same as basic net loss per share available to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The following common stock equivalents were excluded from the calculation of diluted net loss per share applicable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: As of March 31, 2024 2023 Anti-dilutive common stock equivalents: Options to purchase common stock 11,522,606 6,945,214 Unvested restricted common stock 4,406,163 7,530,495 Total anti-dilutive common stock equivalents: 15,928,769 14,475,709 11. Related Party Transactions Consulting Agreement with David Liu Pursuant to a consulting agreement with David Liu, for the three months ended March 31, 2024 and 2023, the Company made payments of $ 37,500 in each period for scientific consulting and other expenses. As of March 31, 2024 and December 31, 2023, there were no amounts included within accounts payable or accrued expenses. Myeloid Therapeutics In December 2021, the Company and Myeloid entered into the Myeloid Collaboration Agreement and Myeloid Subscription Agreement during which time the Company and Myeloid had one common board member, who is also an affiliate of Newpath, one of the Company’s holders of common stock. In 2023, the Company terminated the Myeloid Collaboration Agreement. In January 2024, the Company and Myeloid entered into a settlement agreement resolving two arbitration proceedings, which are described in Note 10, Licenses and Collaboration Agreements. Under the terms of the settlement agreement, the parties agreed to resolve and settle all disputes between the parties and release all claims between them relating to the License Agreement and the arbitrations in exchange for the Company's payment to Myeloid of $ 13.5 million, certain mutual covenants, and other consideration. The settlement was accrued on the 20 Company’s consolidated balance sheet as of December 31, 2023 and paid during the three months ended March 31, 2024. As of March 31, 2024, there were no amounts included within accounts payable or accrued expenses. Advisory Services Agreement with Jeffrey Marrazzo In February 2024, the Company entered into an advisory services agreement (“Marrazzo Agreement”) with Jeffrey Marrazzo, a member of the Board of Directors. Under the Marrazzo Agreement, Mr. Marrazzo agreed to provide certain professional services to the Company separate from and in addition to his service as a Board member. For his services, the Company agreed to pay Mr. Marrazzo an annual fee of $ 50,000 per year in addition to the grant of an option to purchase 250,000 shares of the Company's common stock, which has a grant date fair value of $ 1.5 million. The term of the Marrazzo Agreement runs through February 2025 and may be terminated or extended by mutual written agreement. If the Company terminates the Marrazzo Agreement without "Cause," the administrator of the 2022 Plan will accelerate the vesting of the option such that the pro rata portion of the option will vest and be immediately exercisable. 21 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 1, 2024. As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions, or projections, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2023. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview We are a biotechnology company committed to delivering a new class of differentiated one-time curative genetic therapies to address the widest spectrum of diseases. We are deploying Prime Editing technology, which we believe is a versatile, precise, and efficient gene editing technology. To maximize the potential of our Prime Editing technology, we have built a diversified portfolio of investigational therapeutic programs organized around core areas of focus: hematology and immunology, liver, lung, ocular, and neuromuscular. We are advancing additional programs as potential partnership opportunities. Chronic granulomatous disease is our most advanced blood program, and we have designated PM359 as our development candidate. In April 2024, we announced that the U.S. Food and Drug Administration cleared our investigational new drug application for PM359 for the treatment of chronic granulomatous disease, enabling us to initiate our global Phase 1/2 clinical trial in the United States. The Phase 1/2 clinical trial is a multinational, first-in-human trial designed to assess the safety, biological activity and preliminary efficacy of PM359 in adult and pediatric study participants. We believe our Prime Editing programs are well-positioned to leverage the clinical, regulatory, and manufacturing advancements made to date across gene therapy, gene editing, and delivery modalities to accelerate progression to clinical trials and potential approval. Components of Our Results of Operations Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred in connection with the development and research of our immediate target indications and our differentiation target indications. These expenses include: • personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in manufacturing, research and development functions; • expenses incurred in connection with continuing our current research programs and preclinical development of any product candidates we may identify, including under agreements with third parties, such as consultants and contractors; • the cost of developing and validating our manufacturing process for use in our preclinical studies and future clinical trials; • laboratory supplies and research materials; 22 • facilities, depreciation and other expenses related to research and development activities, which include direct or allocated expenses for rent and maintenance of facilities, and utilities; • the cost allocated to acquire in-process research and development, with no alternative future use associated with asset acquisitions or transactions to license intellectual property, such as our Broad License Agreement; and • expenses incurred in connection with our Pledge to Broad Institute; We expense all research and development costs in the periods in which they are incurred. Most of our research and development expenses have been related to early stage development activities. In the future, external research and development costs for any individual product candidate will be tracked commencing upon product candidate nomination. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified. Upfront and milestone payments made are accrued for and expensed when the achievement of the milestone is probable up to the point of regulatory approval. Milestone payments made upon regulatory approval will be capitalized and amortized over the remaining useful life of the related product. We expect our research and development expenses to continue to increase substantially for the foreseeable future with our planned research and development activities related to developing any future product candidates, including investments in manufacturing, as we advance any product candidates we may identify and begin to conduct clinical trials. General and Administrative Expenses General and administrative expenses consist of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patents and corporate matters; professional fees paid for accounting, auditing, consulting and tax service; insurance costs; office and information technology costs; and facilities, depreciation and other general and administrative expenses, which include direct or allocated expenses for rent and maintenance of facilities and utilities. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support research and development activities; increased accounting, legal, insurance, and investor and public relations costs as we continue to operate as a public company; and additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities. Other Income (Expense) Other income (expense), net primarily consists of interest and other income earned on our short-term investments and the change in the fair value of our short-term investment in Beam Therapeutics Inc. (“Beam”), a related party, in connection with the Beam Collaboration Agreement, which is discussed in greater detail in Note 11, License and Collaboration Agreements , to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023. 23 Results of Operations — Comparison of the Three Months Ended March 31, 2024 and 2023 Operating Expenses Research and Development Expenses Three Months Ended March 31, (in thousands) 2024 2023 Change Research and development expenses: Personnel expenses $ 15,007 $ 11,194 $ 3,813 Lab supplies 11,619 10,864 755 Facility related and other 7,334 5,304 2,030 License, intellectual property fees, and other 1,675 1,875 (200) Professional and consultant fees 1,592 1,643 (51) Clinical expense 547 — 547 Total research and development expenses $ 37,774 $ 30,880 $ 6,894 The $6.9 million increase in research and development expense for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily driven by: • $3.8 million increase in personnel expense, including an increase in stock-based compensation expense of $1.6 million, driven by our increased headcount as we continue to build out our research and development function; and • $2.0 million increase in facility-related expense primarily due to the expansion and build out of our laboratory space. General and Administrative Expenses Three Months Ended March 31, (in thousands) 2024 2023 Change General and administrative expenses: Personnel expenses $ 5,884 $ 3,065 $ 2,819 Professional and consultant fees 3,110 3,969 (859) Facility related and other 2,164 2,119 45 Total general and administrative expenses $ 11,158 $ 9,153 $ 2,005 The $2.0 million increase in general and administrative expense for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 is primarily driven by $2.8 million increase in personnel expense, including an increase in stock-based compensation expense of $2.0 million, driven by growth in personnel as we operate as a public company and to support our growing research and development function. 24 Other Income (Expense) Three Months Ended March 31, (in thousands) 2024 2023 Change Other income: Change in fair value of short-term investment — related party $ 1,166 $ (1,701) $ 2,867 Other income, net 1,548 2,135 (587) Total other income, net $ 2,714 $ 434 $ 2,280 Change in Fair Value of Related Party Short-Term Investment The change in fair value of related party short-term investment for each of the periods presented is a result of Beam’s stock price movement. Other Income, Net Other income, net for the three months ended March 31, 2024 primarily consists of interest income from the Company’s short-term investments. Liquidity and Capital Resources Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we commence the clinical development of our programs and continue our platform development and early-stage research activities. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from sales of preferred stock and from our public offerings. As of March 31, 2024, we had cash, cash equivalents, and investments of $210.7 million, excluding our restricted cash, or $224.2 million, including restricted cash. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Three Months Ended March 31, (in thousands) 2024 2023 Net change in cash, cash equivalents and restricted cash: Net cash used in operating activities $ (67,707) $ (41,561) Net cash used in investing activities (37,032) (12,665) Net cash provided by financing activities 157,327 68 Net change in cash, cash equivalents, and restricted cash $ 52,588 $ (54,158) Operating Activities Net cash used in operating activities for the three months ended March 31, 2024 was driven primarily by the following uses of cash: • $45.8 million net loss; • $13.5 million change in accrued settlement payment — related party; • $5.9 million change in accounts payable; • $4.5 million change in accrued expenses and other current liabilities; and 25 • $3.5 million change in lease liabilities; and • $2.8 million change in prepaid and other current assets. These were offset by $8.2 million of non-cash amounts included in net loss, which primarily consisted of stock-based compensation expense, non-cash lease expense, depreciation and amortization expense, and change in fair value of short-term investment — related party. Net cash used in operating activities for the three months ended March 31, 2023 was driven primarily by the following uses of cash: • $39.4 million net loss; • $4.0 million change in accrued expenses and other current liabilities; • $2.8 million change in lease liabilities; and • $1.3 million change in prepaid and other current assets. These were offset by $6.5 million of non-cash amounts included in net loss, which primarily consisted of change in fair value of short-term investment — related party, non-cash lease expense, and stock-based compensation expense. Investing Activities Net cash used in investing activities for the three months ended March 31, 2024 was driven primarily by the following uses of cash: • $34.7 million of purchases of marketable securities, net of maturities; offset by • $2.3 million of purchases of property and equipment. Net cash used in investing activities for the three months ended March 31, 2023 was driven primarily by the following: • $10.7 million of purchases of marketable securities, net of maturities; and • $2.0 million of purchases of property and equipment. Financing Activities Net cash provided by financing activities for the three months ended March 31, 2024 was driven primarily by the following: • $132.1 million of Proceeds from issuances of common stock in the our February 2024 public offering; • $18.8 million of proceeds from issuance of pre-funded warrants contemporaneous with our February 2024 public offering; and • $6.0 million of proceeds received under our agreement with Cystic Fibrosis Foundation. Funding Requirements To date, we have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete preclinical and clinical development of, receive regulatory approval for, and commercialize a product candidate and we do not know when, or if at all, that will occur. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and studies and initiate clinical trials. In addition, if we obtain regulatory approval for any product candidates, we expect to incur significant expenses related to product sales, marketing, and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Further, we 26 have incurred, and expect to continue to incur, costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on the factors set out above. For more information, refer to the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, and the “Risk Factors” section of subsequent Quarterly Reports on Form 10-Q. We believe our existing cash, cash equivalents, and investments will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2025. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We expect that we will require additional funding to: • continue our current research development activities; • identify product candidates; • initiate preclinical testing and clinical trials for our future product candidates we identify; • develop, maintain, expand and protect our intellectual property portfolio; • further develop our Prime Editing platform; and • hire additional research, clinical and scientific personnel. If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize ourselves. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of private and public equity offerings, debt financings, additional collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, or distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, any future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate 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. Contractual Obligations and Other Commitments We enter into contracts in the normal course of business with contract organizations and other vendors to assist in the performance of our research and development activities, and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancellable contracts and not included in the table of contractual obligations and commitments. During the three months ended March 31, 2024, except for the minimum lease commitments disclosed in Note 7, Leases , to the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there were no significant changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023. 27 Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses incurred during the reporting periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities recorded revenues and expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies and significant judgements described under Management’s Discussion and Analysis of Critical Accounting Policies and Significant Judgments and Estimates which are included in our Annual Report on Form 10-K for the year ended December 31, 2023. Recently Issued and Adopted Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies , to our audited financial statements for the year ended December 31, 2023, and notes thereto, included in the Company’s Annual Report on Form 10-K. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. As a result of this election, our condensed consolidated financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.