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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-03-01 · 89 added, 64 removed, 155 unchanged (50% of the section changed)

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You should review "Item 1A, Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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 a biotechnology company committed to delivering a new class of differentiated one-time curative genetic therapies.

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.

We plan to submit an investigational new drug application with the U.S.

Food and Drug Administration in the first half of 2024.

Programs within our other areas of focus are in earlier stages of preclinical development and include:

• Liver programs:

Wilson’s disease and glycogen storage disease 1b

• Lung program:

Cystic fibrosis

• Ocular program:

Retinitis pigmentosa caused by Rhodopsin mutations.

• Neuromuscular programs:

Friedreich’s ataxia and myotonic dystrophy type 1

• Additional program:

In September 2024, we announced that we are strategically focusing our pipeline on a set of high value programs organized around the following core areas of focus:

hematology, immunology and oncology, liver, and lung.

Each program is targeting a disease with well-understood biology and a clearly defined clinical development and regulatory path and the programs are expected to provide the foundation for expansion into additional opportunities.

Each prioritized program is also intended to serve as a beachhead, in that the modularity of the Prime Editing platform is expected to allow Prime Medicine to generate follow-on candidates rapidly and efficiently.

In addition, we are identifying partnership opportunities to advance other programs.

CGD, is our most advanced blood program, and we have designated PM359 as our candidate in the treatment of this disease.

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

Our revenues to date have been generated through research collaboration and license agreements.

We recognize revenue over the expected performance period under each agreement.

We expect that our revenue for the next several years will be derived primarily from our current collaboration agreements and any additional collaborations that we may enter into in the future.

To date, we have not generated any revenue from product sales or royalties and do not expect to generate any revenue from the sale of products or royalties for the foreseeable future.

Research and Development Expenses

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These expenses include:

• 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;

• expenses incurred in connection with our Pledge to Broad Institute;

• 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;

• expenses incurred in connection with continuing our current research programs and preclinical and clinical 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 and clinical studies;

• laboratory supplies and research materials;

• 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;

• 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.

External research and development costs for any individual product candidate will be tracked upon the FDA’s clearance of the IND application for that product candidate.

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.

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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

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• interest and other income earned on our short-term investments;

• 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 Item 1.

• the change in the fair value of our short-term investment in Beam Therapeutics Inc., or Beam, a related party, in connection with the Beam Collaboration Agreement, which is discussed in greater detail in Item 1.

Business , of this Annual Report on Form 10-K.

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Research and development expenses:

Lab supplies $ 59,609 $ 30,658 $ 28,951

Personnel expenses $ 59,988 $ 51,095 $ 8,893

Research costs 41,678 59,609 (17,931)

Facility related 35,509 24,221 11,288

Professional and consultant fees 6,845 2,186 4,659

License, intellectual property fees, and other 8,060 6,135 1,925

Professional and consultant fees 5,919 6,845 (926)

Clinical expense 4,135 — 4,135

Total research and development expenses $ 155,289 $ 147,905 $ 7,384

The $7.4 million increase in research and development expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily driven by:

• $29.0 million increase in lab supplies expense due to continued discovery efforts and expansion of our research and development activities, including ongoing IND-enabling activities, and increased personnel in our R&D function;

• $19.5 million increase in personnel expense, including an increase in stock-based compensation expense of $3.5 million, and $4.7 million increase in professional and consultant fees, both driven by our increased headcount as we continue to build out our research and development function;

• $8.1 million increase in facility-related expense primarily due to the expansion and build out of our office and laboratory space.

• $11.3 million increase in facility-related expense primarily due to the expansion and build out of our laboratory space.

• $8.9 million increase in personnel expense, including an increase in stock-based compensation expense of $4.8 million, driven by the higher headcount of our research and development function as compared to the prior year;

• $4.1 million increase in clinical expenses related to PM359, our candidate to treat chronic granulomatous disease;

• $1.9 million increase in license fees for amounts due to the Broad resulting from the BMS Collaboration Agreement.

This is offset by a $17.9 million decrease in lab supplies expense as materials used in the current year for our ongoing Phase 1 clinical trial were purchased in advance in 2023.

Settlement Payment — Related Party

In January 2024, we entered into a settlement agreement with Myeloid to resolve two arbitration proceedings.

In January 2024, we entered into a settlement agreement with Myeloid Therapeutics, Inc., or Myeloid, to resolve two arbitration proceedings.

Under the terms of the agreement, the parties agreed to resolve and settle all disputes between the parties and release all claims between them relating to the parties’ license agreement and the arbitrations in exchange for our payment to Myeloid of $13.5 million, certain mutual covenants, and other consideration.

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General and administrative expenses:

Professional and consultant fees $ 17,642 $ 13,013 $ 4,629

Personnel expenses $ 26,569 $ 17,076 $ 9,493

Professional and consultant fees 13,459 17,642 (4,183)

Facility related and other 10,133 8,669 1,464

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The $6.8 million increase in general and administrative expense for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily driven by:

• $4.6 million increase in professional and consultant fees and $6.0 million increase in personnel expenses, which includes an increase in stock-based compensation expense of $3.9 million, both driven by growth in

personnel as we operate as a public company and to support our growing research and development function;

• $3.0 million increase in facility related expenses primarily due to the expansion and build out of our office space.

• $9.5 million increase in personnel expense, a majority of which was an increase in non-cash stock-based compensation expense of $7.4 million;

• $1.5 million increase in facility related and other primarily related to the ongoing build out of our facility at 60 First Street.

This was offset by a $4.2 million decrease in professional and consultant fees for legal services.

Other Income (Expense)

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(in thousands) 2024 2023 Change

Other income (expense):

Other income:

Interest income 3,522 2,811 711

Accretion (amortization) of investments $ 3,507 $ 5,677 $ (2,170)

Change in fair value of short-term investment — related party (485) (2,382) 1,897

Other income, net 41 274 (233)

Total other income (expense), net $ 6,380 $ (6,225) $ 12,605

Total other income, net $ 6,585 $ 6,380 $ 205

Accretion of investments

Accretion (amortization) of investments for each of the periods presented is a result of the price at which our investments are purchased.

If the investments are purchased at a price different from their par value, the difference is accreted, if lower than par, or amortized, if higher than par, until the investment matures or is sold.

Change in Fair Value of Related Party Short-Term Investment

For all periods presented, 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 from the start of each respective year to the end of each respective year.

Other Income (Expense), Net

For all periods presented, the amount of other income, net, net primarily consists of interest income from short-term investments.

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.

Liquidity and Capital Resources

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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 public offerings of our common stock.

To date, we have funded our operations primarily with proceeds from sales of preferred stock, public offerings of our common stock, and through payments from our collaboration partners.

As of December 31, 2024, we had cash and cash equivalents, short-term investments, and related party short-term investments of $190.4 million, excluding our restricted cash, or $204.5 million, including restricted cash.

In November 2023, we entered into an Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) under which we may, from time to time, issue and sell shares of our common stock having aggregate sales proceeds of up to $300.0 million, in a series of one or more at-the-market equity offerings (the “2023 ATM Program”).

In November 2023, we entered into an Open Market Sale Agreement SM , or the Sales Agreement, with Jefferies LLC, or Jefferies, under which we may, from time to time, issue and sell shares of our common stock having an aggregate sales proceeds of up to $300.0 million, in a series of one or more at-the-market equity offerings, or the 2023 ATM Program.

Jefferies is not required to sell any specific share amounts but acts as our sales agent, using commercially reasonable efforts consistent with its normal trading and sales practices.

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As a result of the offering, we received approximately $150.9 million in net proceeds, after deducting underwriting discounts, commissions and estimated offering costs of $10.1 million.

Going Concern

Since our inception, we have incurred substantial losses.

As of December 31, 2024, we had an accumulated deficit of $687.2 million and we expect to generate operating losses and negative operating cash flows for the foreseeable future.

As stated above, as of December 31, 2024, we maintained cash, cash equivalents, short-term investments, and related party short-term investments of $190.4 million.

In accordance with Accounting Standards Codification, or ASC, 205-40, Going Concern , or ASC 205-40, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date on which this Annual Report on Form 10-K is filed.

Based on the our cash, cash equivalents, short-term investments, and related party short-term investments as of December 31, 2024, our current and forecasted level of operations and forecasted cash flows, our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due.

Management plans to provide for capital requirements through financing or other transactions, and selling shares under our “at the market offering” program.

There can be no assurance that we will be able to raise additional capital to fund operations with terms acceptable to us, or at all.

Because certain elements of our plans to mitigate the conditions that raised substantial doubt about our ability to continue as a going concern are outside of our control, including the ability to raise capital through an equity or other financing, those elements cannot be considered probable according to ASC 205-40, and therefore cannot be considered in the evaluation of mitigating factors.

As a result, we concluded that substantial doubt exists about our ability to continue as a going concern for 12 months from the date these consolidated financial statements are issued.

The consolidated financial statements as of December 31, 2024 have been prepared under the assumption that we will continue as a going concern for the next 12 months and that contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.

Our ability to continue as a going concern is dependent upon our uncertain ability to obtain additional capital, reduce expenditures and/or execute on its business plan.

These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The following table summarizes our sources and uses of cash for each of the periods presented:

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Net cash used in operating activities $ (122,865) $ (165,412)

Net cash provided by (used in) investing activities 18,711 (47,096)

Net cash provided by (used in) investing activities 655 181,494

Net cash provided by investing activities 68,457 18,711

Net cash provided by financing activities 195,876 655

Net change in cash, cash equivalents, and restricted cash $ 141,468 $ (146,046)

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• $195.9 million net loss;

• $15.9 million change in prepaid expenses and other current assets;

• $13.5 million change in accrued settlement payment — related party;

• $6.5 million change in lease liabilities;

• $9.5 million change in prepaid and other current assets.

• $5.3 million change in accounts payable.

These were offset by:

• $70.3 million change in deferred revenue;

• $41.9 million of non-cash amounts included in net loss, which consisted primarily of stock-based compensation expense, non-cash lease expense, depreciation and amortization expense, and change in fair value of short-term investment — related party;

• $13.5 million change in accrued settlement payment — related party;

• $9.1 million change in accounts payable;

• $1.8 million change in accrued expenses and other assets.

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• $198.1 million net loss;

• $25.9 million change in accrued expenses and other current liabilities;

• $12.3 million change in lease liabilities;

• $1.7 million change in prepaid and other current assets.

• $9.5 million change in prepaid expenses and other current assets.

These were offset by:

• $30.1 million of non-cash amounts included in net loss, which primarily consisted of change in non-cash lease expense, fair value of short-term investment — related party, and stock-based compensation expense;

• $13.5 million change in accrued settlement payment — related party;

• $9.1 million change in accounts payable;

• $1.8 million change in accrued expenses and other current liabilities.

Investing Activities

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• $7.3 million of purchases of property and equipment.

Net cash used in investing activities for the year ended December 31, 2022 was driven primarily by the following:

• $30.3 million of purchases of short-term investments, net of maturities;

Net cash provided by investing activities for the year ended December 31, 2023 was driven primarily by the following:

• $27.6 million of maturities of short-term investments, net of purchases;

• $8.7 million of purchases of property and equipment.

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Net cash provided by financing activities for the year ended December 31, 2024 was driven primarily by the following:

• $185.3 million of net proceeds from the sale of our common stock in our IPO;

• $4.0 million payment of deferred offering costs.

• $132.1 million of proceeds from issuances of common stock with our February 2024 public offering;

• $38.1 million of proceeds from issuance of common stock to BMS in September 2024;

• $18.8 million of proceeds from issuance of pre-funded warrants contemporaneous with our February 2024 public offering;

• $6.0 million of proceeds received under our agreement with Cystic Fibrosis Foundation.

Funding Requirements

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For more information, see “Risk Factors—Risks Related To Our Financial Position and Need for Additional Capital.”

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 believe our existing cash, cash equivalents, and investments will be sufficient to fund our operating expenses and capital expenditure requirements into the first half of 2026.

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.

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Contractual Obligations and Other Commitments

As of December 31, 2023, we have future remaining operating lease payments of $14.6 million relating to leases we have recognized on our consolidated balance sheet.

In addition, we have one lease that has been entered into but has not yet commenced, as of December 31, 2023, for which we expect to pay approximately $208.7 million over the 10 year lease term.

Refer to Note 10, Leases, to our consolidated financial statements appearing within this Annual Report on Form 10-K for more information on our lease obligations.

Refer to Note 6, Leases, to our consolidated financial statements appearing within this Annual Report on Form 10-K for information on our lease obligations.

Under our license and collaboration agreements, we are potentially obligated to pay certain milestones, royalty fees, licensing maintenance fees, and reimbursement of patent maintenance costs.

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Stock-Based Compensation Expense

Subsequent to our IPO, we measure stock-based awards granted to employees, directors, and non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model for stock options.

We measure stock-based awards granted to employees, directors, and non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model for stock options.

Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award, using the straight-line method.

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As a result, if a different peer group is used to estimate volatility, the resulting volatility could have a material impact on our stock-based compensation expense.

Determination of the Fair Value of Our Common Stock Issued Prior to Our IPO

Prior to our IPO in October 2022, there was no public market for our common stock.

As a result, prior to our IPO, the estimated fair value of our common stock was determined by our board of directors as of the date of each option

grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of grant.

Prepaid and Accrued Research and Development Expenses

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These estimates of the expenses incurred are based on facts and circumstances known to us at that time.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could have a significant impact on reported amounts.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative

to the actual status and timing of services performed may vary and could have a significant impact on reported amounts.

If the payments made exceed the expenses incurred, the excess amount is reflected as prepaid expenses and other current assets.

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The capitalized amounts are expensed as the related goods are delivered or services are performed.

Revenues from contracts

We account for our revenue in accordance with ASC, 606, Revenue from Contracts with Customers , or ASC 606.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps at inception of the agreement or upon material modification of the agreement:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price, including variable consideration, if any;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We consider the pattern of satisfaction of the performance obligations under step (v) above to be a critical accounting estimate.

More specifically, the determination of the level of achievement of research and development service performance obligations, whose pattern of satisfaction is measured using costs incurred to date as compared to total costs incurred and expected to be incurred in the future is driven by a critical accounting estimate.

In estimating the costs expected to be incurred in the future, we use our most recent budget and long-range plan, adjusted for any pertinent information.

While this is our best estimate as of the reporting period, costs expected to be incurred in the future require management judgment as the scope and timing of research and development activities may change significantly over time.

Change in our estimate of the scope and timing of research and development services performed relative to the actual scope and timing may have a significant impact on revenue recognition.

Recently Issued and Adopted Accounting Pronouncements

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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.

The JOBS Act 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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis