10-Q 1 fulc-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38978

 

FULCRUM THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-4839948

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

26 Landsdowne Street
Cambridge, Massachusetts

02139

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (617) 651-8851

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.001 per share

 

FULC

 

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 2, 2022, the registrant had 40,848,212 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," “outlook,” "plan," "potential," "predict," "project," "should," "target," "would," and the negative version of these words and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and include, among other things:

 

our ongoing clinical trials of losmapimod and FTX-6058;
the impact of the ongoing COVID-19 pandemic on our business and operations, including our clinical trials and development plans, as well as our future financial results;
the initiation, timing, progress and results of our drug target discovery screening programs;
the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;
our plans to develop and, if approved, subsequently commercialize losmapimod, FTX-6058 and any other product candidates, including in combination with other drugs and therapies;
the timing of and our ability to submit applications for, and obtain and maintain regulatory approvals for losmapimod, FTX-6058 and any other product candidates;
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents, and marketable securities;
the potential advantages of our product candidates;
the rate and degree of market acceptance and clinical utility of our products, if our product candidates are approved;
our estimates regarding the potential market opportunity for our product candidates;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position;
the progress and results of our collaborations with Acceleron Pharma Inc., or Acceleron, a wholly-owned subsidiary of Merck & Co., Inc., or Merck, and MyoKardia, Inc., or MyoKardia, a wholly-owned subsidiary of Bristol-Myers Squibb Company;
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
our estimates regarding expenses, future revenue, timing of any future revenue, capital requirements and needs for additional financing;
the impact of government laws and regulations;
our competitive position;
developments relating to our competitors and our industry;
our ability to maintain and establish collaborations or obtain additional funding; and
our expectations regarding the time during which we will be an emerging growth company or a smaller reporting company as defined under the federal securities laws.

i


 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the "Risk Factors" section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

SUMMARY RISK FACTORS

Our business is subject to a number of risks that if realized could materially affect our business, financial condition, results of operations, cash flows and access to liquidity. These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report on Form 10-Q. Our principal risks include the following:

We have incurred significant losses since our inception. Our net loss was $80.8 million for the year ended December 31, 2021 and $25.9 million for the three months ended March 31, 2022. We expect to incur losses over the next several years and may never achieve or maintain profitability. As of March 31, 2022, we had an accumulated deficit of $328.4 million.
We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts. We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we continue our clinical trials of losmapimod and FTX-6058 and continue research and development and initiate additional clinical trials of, and seek regulatory approval for, these and other product candidates.
We are early in our development efforts, and we only have two product candidates in clinical trials. If we are unable to commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.
We may not be successful in our efforts to use FulcrumSeek, our proprietary product engine to build a pipeline of product candidates. A key element of our strategy is to use FulcrumSeek to identify and validate cellular drug targets that can potentially modulate gene expression to address the root cause of genetically-defined rare diseases, with an initial focus on identifying small molecules specific to the identified cellular target.
Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. The results of preclinical studies and early clinical trials may not be predictive of future results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Because we are developing some of our product candidates for the treatment of diseases in which there is limited clinical experience and, in some cases, using new endpoints or methodologies, the U.S. Food and Drug Administration, or FDA, or other regulatory authorities may not consider the endpoints of our clinical trials to predict or provide clinically meaningful results.
The ongoing COVID-19 pandemic has and may continue to affect our ability to initiate and complete current or future preclinical studies or clinical trials, disrupt regulatory activities or have other adverse effects on our business and operations. In addition, this pandemic may continue to adversely impact economies worldwide, which could result in adverse effects on our business and operations.
If serious adverse events or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

ii


 

We rely, and expect to continue to rely, on contract manufacturing organizations, or CMOs, to manufacture our product candidates. If we are unable to enter into such arrangements as expected or if such organizations do not meet our supply requirements, development and/or commercialization of our product candidates may be delayed.
We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, which may harm our business.
We have entered into, and may in the future enter into, collaborations with third parties for the discovery, development or commercialization of product candidates, including our collaborations with Acceleron and MyoKardia. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates and our business could be adversely affected.
If we are unable to obtain, maintain, enforce and protect patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.
If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.

 

iii


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

1

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

2

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

3

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

4

 

Notes to Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76

 

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “Fulcrum,” “Fulcrum Therapeutics,” “the Company,” “we,” “us,” “our” and similar references refer to Fulcrum Therapeutics, Inc. together with its consolidated subsidiary. The Fulcrum Therapeutics logo, FulcrumSeek and other trademarks or service marks of Fulcrum Therapeutics, Inc. appearing in this Quarterly Report on Form 10-Q are the property of Fulcrum Therapeutics, Inc. This Quarterly Report on Form 10-Q also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing herein are the property of their respective holders.

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Fulcrum Therapeutics, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,313

 

 

$

35,412

 

Marketable securities

 

 

161,799

 

 

 

182,750

 

Accounts receivable

 

 

 

 

 

2,500

 

Unbilled accounts receivable

 

 

802

 

 

 

1,137

 

Prepaid expenses and other current assets

 

 

4,150

 

 

 

4,199

 

Total current assets

 

 

200,064

 

 

 

225,998

 

Property and equipment, net

 

 

7,888

 

 

 

7,368

 

Operating lease right-of-use assets

 

 

10,388

 

 

 

 

Restricted cash

 

 

1,092

 

 

 

1,092

 

Other assets

 

 

816

 

 

 

542

 

Total assets

 

$

220,248

 

 

$

235,000

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,003

 

 

$

4,788

 

Accrued expenses and other current liabilities

 

 

6,939

 

 

 

9,231

 

Deferred revenue, current portion

 

 

2,920

 

 

 

4,711

 

Operating lease liability, current

 

 

2,426

 

 

 

 

Deferred lease incentive, current portion

 

 

 

 

 

469

 

Total current liabilities

 

 

18,288

 

 

 

19,199

 

Operating lease liability, excluding current portion

 

 

12,800

 

 

 

 

Deferred rent, excluding current portion

 

 

 

 

 

1,680

 

Deferred lease incentive, excluding current portion

 

 

 

 

 

2,582

 

Total liabilities

 

 

31,088

 

 

 

23,461

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized; 40,684,025 and 40,636,398 shares issued as of March 31, 2022 and December 31, 2021, respectively; 40,683,605 and 40,626,224 shares outstanding as of March 31, 2022 and December 31, 2021, respectively

 

 

41

 

 

 

41

 

Treasury stock, at cost; no shares as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

518,604

 

 

 

514,362

 

Accumulated other comprehensive loss

 

 

(1,090

)

 

 

(397

)

Accumulated deficit

 

 

(328,395

)

 

 

(302,467

)

Total stockholders’ equity

 

 

189,160

 

 

 

211,539

 

Total liabilities and stockholders’ equity

 

$

220,248

 

 

$

235,000

 

 

The accompanying notes are an integral part of these financial statements.

1


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Collaboration revenue

 

$

2,592

 

 

$

4,789

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

17,831

 

 

 

16,334

 

General and administrative

 

 

10,759

 

 

 

5,498

 

Total operating expenses

 

 

28,590

 

 

 

21,832

 

Loss from operations

 

 

(25,998

)

 

 

(17,043

)

Other income, net

 

 

70

 

 

 

44

 

Net loss

 

$

(25,928

)

 

$

(16,999

)

Net loss per share, basic and diluted

 

$

(0.64

)

 

$

(0.54

)

Weighted-average common shares outstanding, basic and diluted

 

 

40,644

 

 

 

31,510

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(25,928

)

 

$

(16,999

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

(693

)

 

 

(2

)

Total other comprehensive loss

 

 

(693

)

 

 

(2

)

Comprehensive loss

 

$

(26,621

)

 

$

(17,001

)

 

The accompanying notes are an integral part of these financial statements.

2


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

 

27,941,566

 

 

 

28

 

 

 

 

 

 

 

 

 

316,775

 

 

 

(2

)

 

 

(221,620

)

 

 

95,181

 

Issuance of common stock in connection with public offering, net of issuance costs

 

 

4,600,000

 

 

 

5

 

 

 

 

 

 

 

 

 

47,402

 

 

 

 

 

 

 

 

 

47,407

 

Issuance of common stock under employee benefit plans

 

 

11,888

 

 

 

 

 

 

 

 

 

 

 

 

93

 

 

 

 

 

 

 

 

 

93

 

Vesting of restricted stock awards

 

 

40,982

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Repurchase of unvested restricted stock awards

 

 

 

 

 

 

 

 

1,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

(1,836

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,073

 

 

 

 

 

 

 

 

 

2,073

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,999

)

 

 

(16,999

)

Balance at March 31, 2021

 

 

32,594,436

 

 

$

33

 

 

 

 

 

$

 

 

$

366,344

 

 

$

(4

)

 

$

(238,619

)

 

$

127,754

 

Balance at December 31, 2021

 

 

40,626,224

 

 

 

41

 

 

 

 

 

 

 

 

 

514,362

 

 

 

(397

)

 

 

(302,467

)

 

 

211,539

 

Issuance of common stock under employee benefit plans

 

 

47,627

 

 

 

 

 

 

 

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 

395

 

Vesting of restricted stock awards

 

 

9,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,847

 

 

 

 

 

 

 

 

 

3,847

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(693

)

 

 

 

 

 

(693

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,928

)

 

 

(25,928

)

Balance at March 31, 2022

 

 

40,683,605

 

 

$

41

 

 

 

 

 

$

 

 

$

518,604

 

 

$

(1,090

)

 

$

(328,395

)

 

$

189,160

 

 

The accompanying notes are an integral part of these financial statements.

 

3


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(25,928

)

 

$

(16,999

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation expense

 

 

536

 

 

 

603

 

Stock-based compensation expense

 

 

3,847

 

 

 

2,073

 

Net amortization of premiums and discounts on marketable securities

 

 

353

 

 

 

74

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

2,500

 

 

 

2,000

 

Unbilled accounts receivable

 

 

335

 

 

 

(1

)

Prepaid expenses and other current assets

 

 

96

 

 

 

1,466

 

Operating lease assets and liabilities

 

 

107

 

 

 

(103

)

Other assets

 

 

(274

)

 

 

15

 

Accounts payable

 

 

509

 

 

 

920

 

Accrued expenses and other liabilities

 

 

(2,397

)

 

 

(2,016

)

Deferred revenue

 

 

(1,790

)

 

 

(4,258

)

Net cash used in operating activities

 

$

(22,106

)

 

$

(16,226

)

Investing activities

 

 

 

 

 

 

Purchases of marketable securities

 

 

(4,990

)

 

 

(2,997

)

Maturities of marketable securities

 

 

24,895

 

 

 

15,674

 

Purchases of property and equipment

 

 

(246

)

 

 

(262

)

Net cash provided by investing activities

 

 

19,659

 

 

 

12,415

 

Financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock in connection with follow-on offering, net of issuance costs

 

 

 

 

 

47,424

 

Principal payments on capital lease obligations

 

 

 

 

 

(13

)

Proceeds from issuance of common stock under benefit plans, net

 

 

348

 

 

 

93

 

Net cash provided by financing activities

 

 

348

 

 

 

47,504

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(2,099

)

 

 

43,693

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

36,504

 

 

 

58,144

 

Cash, cash equivalents, and restricted cash, end of period

 

$

34,405

 

 

$

101,837

 

Supplemental cash flow information

 

 

 

 

 

 

Cash paid for operating lease liabilities

 

$

597

 

 

$

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Property and equipment purchases unpaid at end of period

 

$

847

 

 

$

40

 

Issuance of common stock receivable

 

$

47

 

 

$

 

Offering costs unpaid at end of period

 

$

 

 

$

18

 

 

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of each of the periods shown above:

 

 

 

March 31,
2022

 

 

March 31,
2021

 

Cash and cash equivalents

 

$

33,313

 

 

$

100,745

 

Restricted cash

 

 

1,092

 

 

 

1,092

 

Total cash, cash equivalents, and restricted cash

 

$

34,405

 

 

$

101,837

 

 

The accompanying notes are an integral part of these financial statements.

4


 

Fulcrum Therapeutics, Inc.

Notes to Consolidated Financial Statements

1. Nature of the Business and Basis of Presentation

Fulcrum Therapeutics, Inc. (the “Company” or “Fulcrum”) was incorporated in Delaware on August 18, 2015. The Company is focused on improving the lives of patients with genetically-defined rare diseases in areas of high unmet medical need.

The Company is subject to a number of risks similar to other companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, dependence on key personnel, protection of proprietary technology, reliance on third party organizations, risks of obtaining regulatory approval for any product candidate that it may develop, development by competitors of technological innovations, compliance with government regulations, and the need to obtain additional financing. 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 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.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“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 consolidated financial statements and footnotes to the financial statements have been prepared on the same basis as the most recently audited annual consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of March 31, 2022 and the results of its operations and its cash flows for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2021 (the “Annual Report on Form 10-K”).

Sales of Common Stock

On January 22, 2021, the Company completed a public offering of its common stock and issued and sold 4,600,000 shares of common stock at a public offering price of $11.00 per share, resulting in net proceeds of $47.4 million after deducting underwriting discounts and commissions and offering expenses.

On August 16, 2021, the Company completed a public offering of its common stock and issued and sold 7,590,000 shares of common stock at a public offering price of $19.00 per share, resulting in net proceeds of $135.5 million after deducting underwriting discounts and commissions and offering expenses.

5


 

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception and has primarily funded its operations with proceeds from the sale of shares of common stock in public offerings, a private placement, and an "at-the-market" offering program, through issuances of convertible preferred stock, and from upfront payments received from the collaboration and license agreements with Acceleron Pharma Inc. (“Acceleron”), a wholly-owned subsidiary of Merck & Co., Inc., and MyoKardia, Inc. (“MyoKardia”), a wholly owned subsidiary of Bristol Myers Squibb Company. As of March 31, 2022, the Company had an accumulated deficit of $328.4 million. The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to expand its research and development efforts. The Company expects to finance its future cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

The Company expects that its cash, cash equivalents, and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the date of issuance of these financial statements. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. As a result, the Company could deplete its capital resources sooner than it currently expects. If the Company is unable to raise additional funds through equity or debt financings when needed, it may be required to delay, limit, reduce or terminate development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fulcrum Therapeutics Securities Corp., which is a Massachusetts subsidiary created to buy, sell, and hold securities. All intercompany transactions and balances have been eliminated.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying consolidated financial statements are described in the Company’s audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2022, except as noted below with respect to the Company’s accounting policies related to leases.

Leases

Effective January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). For contracts entered into on or after the effective date, at the inception of a contract, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than twelve months are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable. The Company does not recognize leases with terms of twelve months or less on the balance sheet. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew the lease.

Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset or (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria.

6


 

For all operating leases, a lease liability and corresponding right-of-use asset are recognized. The lease liability represents the present value of the lease payments over the expected remaining lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. To estimate the Company’s incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating and yield curve analysis, since the Company does not have a rating agency-based credit rating. The right-of-use asset represents the right to use the leased asset for the lease term. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred if any, less any lease incentives received.

Lease payments included in the measurement of the lease liability comprise (i) the fixed noncancelable lease payments, (ii) payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and (iii) payments for early termination options unless it is reasonably certain the lease will not be terminated early. Lease expense for operating leases consists of the lease payments plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that are not included in the initial lease liability and lease payments incurred in the period for any leases with an initial term of 12 months or less. The Company accounts for lease and non-lease components together as a single lease component.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amount of expenses during the reported periods. Estimates inherent in the preparation of these consolidated financial statements include, but are not limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions 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 could differ from those estimates or assumptions.

Off-Balance Sheet Risk and Concentrations of Credit Risk

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, and restricted cash. The Company’s cash, cash equivalents, and restricted cash are deposited in accounts at large financial institutions. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash, cash equivalents and restricted cash are held. The Company maintains its cash equivalents in U.S. Treasury securities and money market funds that invest in U.S. Treasury securities. The Company’s marketable securities primarily consist of U.S. Treasury securities, corporate bonds, and commercial paper, and potentially subject the Company to concentrations of credit risk. The Company has adopted an investment policy that limits the amounts the Company may invest in any one type of investment. The Company has not experienced any credit losses and does not believe it is exposed to any significant credit risk on these funds.

7


 

Recent Accounting Pronouncements—To Be Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial position and results of operations.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The new standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial position and results of operations.

Recent Accounting Pronouncements—Adopted

In February 2016, the FASB ASU 2016-02, as amended by various subsequently issued ASUs. The standard requires lessees to recognize an operating lease with a term greater than one year on their balance sheets as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. Lessees are required to classify leases as either finance or operating leases. If the lease is effectively a financed-purchase by the lessee, it is classified as a financing lease, otherwise it is classified as an operating lease. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which permits entities to continue applying legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year that the entity adopts the new leasing standard. Under this transition method, the cumulative effect of initially applying ASU 2016-02, as amended, is recognized as an adjustment to the opening balance of retained earnings or accumulated deficit at the beginning of the annual reporting period that includes the date of initial application.

Accordingly, the Company adopted the new standard effective January 1, 2022 using the transition method permitted by ASU 2016-02, as amended. In adopting the new standard, the Company elected to utilize certain available expedients by electing the transition package of practical expedients permitted within ASU 2016-02, which allow the Company to not reassess previous accounting conclusions around whether arrangements are, or contain, leases, the classification of existing or expired leases, and the treatment of previous initial direct costs that would qualify for capitalization under the new standard. The Company elected to apply the practical expedient to not separate lease and non-lease components for new and modified leases. The Company also made an accounting policy election to exclude leases with an initial term of twelve months or less from the balance sheet.

Upon the adoption of ASU 2016-02, as amended, the Company removed its legacy deferred rent balances that were previously recorded under ASC 840 and established an operating lease right-of-use asset of $10.8 million, an operating lease liability, current of $2.2 million and an operating lease liability, net of current portion of $13.4 million, all relating to the Company’s existing operating leases for office and laboratory space. The following table presents a summary of the amount by which each financial statement line item was affected by the adoption of ASU 2016-02, as amended (in thousands):

 

 

 

January 1, 2022

 

 

 

Prior to the Adoption of ASU 2016, as Amended

 

 

Effect of Adoption

 

 

Subsequent to the Adoption of ASU 2016-20, as Amended

 

 

 

(in thousands, except per share data)

 

Operating lease right of use asset

 

$

 

 

$

10,815

 

 

 

10,815

 

Operating lease liability, current

 

 

 

 

 

2,173

 

 

 

2,173

 

Accrued expenses and other current liabilities

 

 

9,231

 

 

 

(50

)

 

 

9,181

 

Deferred lease incentive, current portion

 

 

469

 

 

 

(469

)

 

 

 

Operating lease liability, net of current portion

 

 

 

 

 

13,423

 

 

 

13,423

 

Deferred rent, excluding current portion

 

 

1,680

 

 

 

(1,680

)

 

 

 

Deferred lease incentive, excluding current portion

 

 

2,582

 

 

 

(2,582

)

 

 

 

 

8


 

The adoption of ASU 2016-02, as amended, did not have a material impact on the consolidated statements of operations and comprehensive loss or the consolidated statement of cash flows for the three months ended March 31, 2022. See Note 12, “Commitments and Contingencies”, for further information on the application of ASU 2016-02, as amended, to the Company’s operating lease for its existing operating leases for office and laboratory space.

3. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the fair value hierarchy classification of such fair values as of March 31, 2022 and December 31, 2021 (in thousands):

 

 

 

Fair Value Measurements at
March 31, 2022

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

21,815

 

 

$

21,815

 

 

$

 

 

$

 

U.S. Treasury securities

 

 

11,498

 

 

 

11,498

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

4,990