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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2024

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: 001-38663

 

Gritstone bio, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-4859534

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

5959 Horton Street, Suite 300

Emeryville, California

94608

(Address of Principal Executive Offices)

(Zip Code)

(510) 871-6100

(Registrant’s Telephone Number, Including Area Code)

 

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, $0.0001 par value per share

 

GRTS

 

The Nasdaq Stock Market LLC

 

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 6, 2024, there were 108,569,374 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

 


 

Gritstone bio, Inc.

Table of Contents

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements (unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

 

1

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

 

2

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

 

4

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

5

Item 2.

 

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

 

30

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

 

43

Item 4.

 

Controls and Procedures

 

43

 

 

 

 

 

PART II. OTHER INFORMATION

 

44

Item 1.

 

Legal Proceedings

 

44

Item 1A.

 

Risk Factors

 

44

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

Item 3.

 

Defaults Upon Senior Securities

 

44

Item 4.

 

Mine Safety Disclosures

 

44

Item 5.

 

Other Information

 

44

Item 6.

 

Exhibits

 

45

 

 

 

 

 

SIGNATURES

 

46

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Gritstone bio, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share

amounts and par value)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,395

 

 

$

62,986

 

Marketable securities

 

 

3,908

 

 

 

16,288

 

Restricted cash

 

 

1,247

 

 

 

2,299

 

Prepaid expenses and other current assets

 

 

4,303

 

 

 

5,862

 

Total current assets

 

 

51,853

 

 

 

87,435

 

Long-term restricted cash

 

 

5,290

 

 

 

5,290

 

Property and equipment, net

 

 

14,088

 

 

 

17,281

 

Lease right-of-use assets

 

 

65,057

 

 

 

66,839

 

Deposits and other long-term assets

 

 

924

 

 

 

924

 

Total assets

 

$

137,212

 

 

$

177,769

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,248

 

 

$

3,819

 

Accrued compensation

 

 

4,340

 

 

 

9,357

 

Accrued liabilities

 

 

2,141

 

 

 

1,213

 

Accrued research and development expenses

 

 

4,045

 

 

 

3,696

 

Lease liabilities, current portion

 

 

6,811

 

 

 

6,904

 

Deferred revenue, current portion

 

 

1,285

 

 

 

2,350

 

Total current liabilities

 

 

25,870

 

 

 

27,339

 

Other liabilities, noncurrent

 

 

907

 

 

 

709

 

Lease liabilities, net of current portion

 

 

56,141

 

 

 

57,727

 

Debt, noncurrent

 

 

40,330

 

 

 

40,144

 

Total liabilities

 

 

123,248

 

 

 

125,919

 

Commitments and contingencies (Notes 6, 8 and 9)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized;
   
no shares issued and outstanding at March 31, 2024 and
   December 31, 2023

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares authorized
   at March 31, 2024 and December 31, 2023;
98,114,860 and
   
97,585,415 shares issued and outstanding at March 31, 2024 and
   December 31, 2023, respectively

 

 

22

 

 

 

22

 

Additional paid-in capital

 

 

713,889

 

 

 

711,386

 

Accumulated other comprehensive (loss) gain

 

 

(1

)

 

 

3

 

Accumulated deficit

 

 

(699,946

)

 

 

(659,561

)

Total stockholders’ equity

 

 

13,964

 

 

 

51,850

 

Total liabilities and stockholders’ equity

 

$

137,212

 

 

$

177,769

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

1


 

Gritstone bio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

Collaboration and license revenues

 

$

49

 

 

$

542

 

Grant revenues

 

 

1,693

 

 

 

1,901

 

Total revenues

 

 

1,742

 

 

 

2,443

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

33,041

 

 

 

30,514

 

General and administrative

 

 

8,502

 

 

 

6,745

 

Total operating expenses

 

 

41,543

 

 

 

37,259

 

Loss from operations

 

 

(39,801

)

 

 

(34,816

)

Interest income

 

 

712

 

 

 

1,678

 

Interest expense

 

 

(1,296

)

 

 

(844

)

Net loss

 

 

(40,385

)

 

 

(33,982

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

 

(4

)

 

 

28

 

Comprehensive loss

 

$

(40,389

)

 

$

(33,954

)

Net loss per share, basic and diluted

 

$

(0.34

)

 

$

(0.30

)

Weighted-average number of shares used in
   computing net loss per share, basic and diluted

 

 

118,391,224

 

 

 

114,423,000

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

2


 

Gritstone bio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

Three Months Ended March 31, 2024:

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2023

 

 

97,585,415

 

 

$

22

 

 

$

711,386

 

 

$

3

 

 

$

(659,561

)

 

$

51,850

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Issuance of common stock upon restricted stock units vesting

 

 

508,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax payments related to shares withheld for vested restricted stock units

 

 

 

 

 

 

 

 

(788

)

 

 

 

 

 

 

 

 

(788

)

Issuance of common stock upon exercise of stock options

 

 

20,909

 

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

45

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,246

 

 

 

 

 

 

 

 

 

3,246

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,385

)

 

 

(40,385

)

Balance at March 31, 2024

 

 

98,114,860

 

 

$

22

 

 

$

713,889

 

 

$

(1

)

 

$

(699,946

)

 

$

13,964

 

Three Months Ended March 31, 2023:

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

86,894,901

 

 

$

22

 

 

$

691,910

 

 

$

(80

)

 

$

(521,071

)

 

$

170,781

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Issuance of common stock upon restricted stock units vesting

 

 

345,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax payments related to shares withheld for vested restricted stock units

 

 

 

 

 

 

 

 

(742

)

 

 

 

 

 

 

 

 

(742

)

Issuance of common stock under at the market, ("ATM") equity offering program, net of issuance costs of $58

 

 

607,853

 

 

 

 

 

 

1,902

 

 

 

 

 

 

 

 

 

1,902

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,891

 

 

 

 

 

 

 

 

 

2,891

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,982

)

 

 

(33,982

)

Balance at March 31, 2023

 

 

87,848,417

 

 

$

22

 

 

$

695,961

 

 

$

(52

)

 

$

(555,053

)

 

$

140,878

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3


 

Gritstone bio, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(40,385

)

 

$

(33,982

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,742

 

 

 

1,799

 

Net accretion of premiums and discounts on
   marketable securities

 

 

(70

)

 

 

(973

)

Amortization of debt discount and issuance costs

 

 

384

 

 

 

342

 

Stock-based compensation

 

 

3,246

 

 

 

2,891

 

Non-cash operating lease expense

 

 

3,308

 

 

 

2,243

 

Impairment of property, plant and equipment

 

 

1,483

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,559

 

 

 

134

 

Deposits and other long-term assets

 

 

 

 

 

(4,177

)

Accounts payable

 

 

3,548

 

 

 

327

 

Accrued compensation

 

 

(5,017

)

 

 

(3,518

)

Accrued and other non-current liabilities

 

 

494

 

 

 

(869

)

Accrued research and development expenses

 

 

349

 

 

 

105

 

Lease liability

 

 

(3,143

)

 

 

(2,082

)

Deferred revenue

 

 

(1,065

)

 

 

(2,330

)

Net cash used in operating activities

 

 

(33,567

)

 

 

(40,090

)

Investing activities

 

 

 

 

 

 

Purchase of marketable securities

 

 

(382

)

 

 

(15,874

)

Maturities of marketable securities

 

 

12,691

 

 

 

38,614

 

Purchase of property and equipment

 

 

(143

)

 

 

(1,567

)

Sales of marketable securities

 

 

137

 

 

 

 

Net cash provided by investing activities

 

 

12,303

 

 

 

21,173

 

Financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock under the ATM equity offering
     program

 

 

 

 

 

1,960

 

Proceeds from long-term debt, net of debt discount and issuance costs

 

 

 

 

 

9,977

 

Proceeds from issuance of common stock upon exercise of stock options, warrants, and other

 

 

45

 

 

 

 

Deferred (payments of) financing costs

 

 

426

 

 

 

(2,489

)

Payments of financing lease

 

 

(62

)

 

 

(59

)

Tax payments related to shares withheld for vested restricted stock units

 

 

(788

)

 

 

(742

)

Net cash (used in) provided by financing activities

 

 

(379

)

 

 

8,647

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(21,643

)

 

 

(10,270

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

70,575

 

 

 

64,765

 

Cash, cash equivalents and restricted cash at end of period

 

$

48,932

 

 

$

54,495

 

Supplemental disclosures of non-cash investing and financing
   information

 

 

 

 

 

 

Property and equipment purchases accrued but not yet paid

 

$

22

 

 

$

407

 

Cash paid for interest on debt

 

$

858

 

 

$

436

 

Financing costs included in accrued liabilities and accounts payable

 

$

440

 

 

$

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


 

Gritstone bio, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Description of Business

Gritstone bio, Inc. (“Gritstone” or “the Company”) is a clinical stage biotechnology company that aims to develop the world's most potent vaccines. The Company was incorporated in the state of Delaware in August 2015, and is based in Emeryville, California and Boston, Massachusetts, with a manufacturing facility in Pleasanton, California. The Company operates in one segment.

Liquidity

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop drug product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. The Company had net losses of $40.4 million and $34.0 million for the three months ended March 31, 2024 and 2023, respectively. Cash used by operating activities was $33.6 million and $40.1 million during the three months ended March 31, 2024 and 2023, respectively. The Company had an accumulated deficit of $699.9 million and $659.6 million as of March 31, 2024 and December 31, 2023, respectively. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from sales of commercial products. Management expects operating losses to continue for the foreseeable future.

The Company has funded its operations to date primarily through private placements of its convertible preferred stock, common stocks and warrants, public offerings of its common stock, common warrants and pre-funded warrants, the sale of common stock under an “at the market offering,” proceeds from the Loan Agreement, proceeds received from its collaboration arrangement, and non-dilutive grants from various nonprofit and governmental organizations. As of March 31, 2024, the Company had cash, cash equivalents and marketable securities of $46.3 million. As discussed in Note 14, in April 2024 the Company completed a public offering of common stock and accompanying common warrants for which the Company received gross proceeds of $32.5 million, before deducting underwriting discounts and commissions and estimated expenses. After giving consideration to this public offering, the Company’s cash, cash equivalents and marketable securities are not sufficient to fund the Company’s planned operations for a period of 12 months from the date these condensed consolidated financial statements are issued.

To fund the Company's planned operations, the Company will need to raise additional capital. The Company intends to raise additional capital through private and public equity offerings, including its “at-the-market” offering program, debt financings, and potential future collaboration, license and development agreements. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms acceptable to the Company or at all. If the Company is unsuccessful in its efforts to raise additional capital or if sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate one or more of its development programs or its future commercialization efforts, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all. Failure to manage discretionary spending or raise additional capital, as needed, may adversely impact the Company’s ability to achieve its intended business objectives. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of the issuance of these condensed consolidated financial statements.

If the Company is unable to raise additional funds, secure a waiver or renegotiate the terms of its Loan Agreement, it expects to be in default of the minimum liquidity requirement in the third quarter of 2024. Upon such a default, the Company's existing cash, cash equivalents and marketable securities will only be sufficient to fund its operations into the third quarter of 2024. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of assets or the

5


 

amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited and are comprised of the consolidation of the Company and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.

The accompanying interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting.

The interim condensed consolidated financial statements are unaudited and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation for interim reporting. The results of operations for any interim period are not necessarily indicative of results of operations for any future period.

Certain information and footnote disclosures typically included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 5, 2024.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, determining the fair value of assets and liabilities, the fair value of right-of-use assets and lease liabilities, stock-based compensation expense, and including those related to revenue recognition, including but not limited to, transaction price and progress toward completion of performance obligation under the Company's contracts with customers. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Fair Value of Financial Instruments

U.S. GAAP establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

Fair value is established as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, an established three-tier fair value hierarchy distinguishes between the following:

Level 1 inputs are quoted prices in active markets that are accessible at the market date for identical assets or liabilities.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

6


 

Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the assets or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value instrument.

The carrying amounts reflected on the condensed consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued compensation and accrued liabilities approximate their fair values due to their short-term nature.

Debt Issuance Costs and Debt Discounts

Debt issuance costs include legal fees, accounting fees, and other direct costs incurred in connection with the execution of the Company’s debt financing. Debt discounts represent costs paid to the lenders. Debt issuance costs and debt discounts are deducted from the carrying amount of the debt liability and are amortized to interest expense over the term of the related debt using the effective interest method.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and marketable securities. Cash, cash equivalents and marketable securities are invested through banks and other financial institutions in the United States. Such deposits may be in excess of federally insured limits. The Company maintains cash equivalents and marketable securities with various high-credit-quality and capitalized financial institutions. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.

The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies, and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and marketable securities and issuers of marketable securities to the extent recorded on the condensed consolidated balance sheets. As of March 31, 2024, the Company has no off-balance sheet concentrations of credit risk.

Other Risks and Uncertainties

The Company is subject to a number of risks similar to those faced by other clinical-stage biotechnology companies, including dependence on key individuals; the need to develop commercially viable therapeutics; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its products. The Company currently depends on third-party suppliers for key materials and services used in its research and development manufacturing process and is subject to certain risks related to the loss of these third-party suppliers or their inability to supply the Company with adequate materials and services. Further, the Company is subject to broad market risks and uncertainties resulting from recent events, such as regional conflicts around the world, inflation, rising or sustained high interest rates and recession risks, market volatility, recent instability in the global financial markets, uncertainty as to the U.S. federal budget and the related potential for government shutdowns, as well as supply chain and labor shortages.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents, which consist primarily of highly liquid investments with original maturities of three (3) months or less when purchased, are stated at fair value. These assets include investments in money market funds that invest in U.S. Treasury obligations, which are stated at fair value.

The Company has issued letters of credit under certain lease agreements that have been collateralized by cash deposits for an equal amount and are recorded within short-term restricted cash and deposits and other long-term assets on the condensed consolidated balance sheets based on the term of the underlying lease. Additionally, the Company’s restricted cash includes payments received under the Coalition for Epidemic Preparedness Innovations (“CEPI”) Funding Agreement, dated as of August 14, 2021 (the “CEPI Funding Agreement”) and the Gates Foundation Grant

7


 

Agreement (see Note 9). The Company will utilize the CEPI and Gates Foundation funds as it incurs expenses for services performed under the agreements.

The following table provides a reconciliation of cash, cash equivalents and short-term and long-term restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

42,395

 

 

$

62,986

 

Restricted cash

 

 

1,247

 

 

 

2,299

 

Long-term restricted cash

 

 

5,290

 

 

 

5,290

 

Total cash, cash equivalents and restricted cash

 

$

48,932

 

 

$

70,575

 

Leases

The Company determines whether the arrangement is or contains a lease at the inception of the arrangement and if such a lease is classified as a financing lease or operating lease. The majority of the Company’s leases are classified as operating leases. Leases with a term greater than one year are included in operating lease right-of-use ("ROU Assets"), lease liabilities, current portion, and lease liabilities, net of current portion in the Company’s condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023. The Company has elected not to recognize on the condensed consolidated balance sheets leases with terms of one year or less. Lease liabilities and their corresponding ROU Assets are recorded based on the present value of lease payments over the expected lease term. In determining the net present value of lease payments, the interest rate implicit in lease contracts is typically not readily determinable. As such, the Company estimates the appropriate incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU Assets may be required for items such as initial direct costs paid or incentives received and impairment charges if the Company determines the ROU Asset is impaired.

The Company considers a lease term to be the non-cancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The Company recognizes lease expense on a straight-line basis over the expected lease term.

The Company has elected not to separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component. The lease components resulting in a ROU Asset have been recorded on the condensed consolidated balance sheets and amortized as lease expense on a straight-line basis over the lease term.

Revenue Recognition

The Company performs research and development under collaboration, license, grant, and clinical development agreements. The Company’s revenue primarily consists of collaboration and license agreements, and grant funding agreements. At contract inception, the Company analyzes a revenue arrangement to determine the appropriate accounting under U.S. GAAP. Currently, the Company’s revenue arrangements represent customer contracts within the scope of ASC Topic 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) or grant funding agreements subject to the contribution guidance in ASC Topic 958-605, Not-for-Profit Entities – Revenue Recognition (“ASC 958-605”), which applies to business entities that receive contributions within the scope of ASC 958-605.

For collaboration and license agreements, the Company analyzes to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are considered to be in the scope of the collaboration guidance and that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of the collaboration guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers guidance. Elements of collaboration arrangements that

8


 

are reflective of a vendor-customer relationship are accounted for pursuant to the revenue from contracts with customers guidance. The terms of the licensing and collaboration agreements entered into typically include payment of one or more of the following: non-refundable, up-front fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply services; and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. The core principle of the accounting for revenue from contracts with customers guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve (12) months, this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s condensed consolidated balance sheets. If the Company expects to have an unconditional right to receive consideration in the next twelve (12) months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

The Company considers the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations, based on the relative standalone selling prices. The relative selling price for each performance obligation is estimated using objective evidence if it is available. If objective evidence is not available, the Company uses its best estimate of the selling price for the performance obligation.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service is considered to be as the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation, using an appropriate input or output method based on the nature of the good or service promised to the customer.

After contract inception, the transaction price is reassessed at every period end and updated for changes, such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception.

Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling prices of identified performance obligations (which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success) and estimating the progress towards satisfaction of performance obligations.

9


 

For grant funding agreements, grant revenue is recognized during the period that the research and development services occur, as qualifying expenses are incurred. The Company concluded that payments received under these grants represent nonreciprocal contributions, as described in ASC 958, Not-for-Profit Entities, and that the grants are not within the scope of ASC 606 as the organization providing the grant does not meet the definition of a customer. Grant revenue relates primarily to the CEPI Funding Agreement and the Gates Grant Agreement (see Note 9).

Government Contract

Contracts with government agencies, including cost reimbursement agreements, are assessed to determine if the contract should be accounted for as an exchange transaction or a contribution. A government contract is accounted for as a contribution if the government agency does not receive commensurate value in return for the assets transferred. Contributions are recognized as grant revenue when there is reasonable assurance that the contribution will be received, and all attaching conditions have been complied with.

The Company receives reimbursement under its U.S. government contract that support research and development of defined projects. The contract generally provides for reimbursement of approved costs incurred under the terms of the contracts. Revenue related to the cost reimbursement provisions under the Company’s U.S. government contract is recognized as the qualified direct and indirect costs on the projects are incurred. The Company invoices under its U.S. government contract using the provisional rates in the government contract and thus is subject to future audits at the discretion of the government. The Company believes that government contract revenue for periods not yet audited has been recorded in amounts that are expected to be realized upon final audit and settlement. However, these audits could result in an adjustment to government contract revenue previously reported, which adjustments could be potentially significant. Costs incurred related to services performed under the contract are included as a component of research and development or selling, general and administrative expenses in the Company’s condensed consolidated statements of operations. The Company’s use of estimates in recording accrued liabilities for government contract activities (see “Use of Estimates” above) affects the revenue recorded from development funding and under the government contracts. Grant revenue related to the U.S. government contract relates to the BARDA Contract (see Note 9).

Income Taxes

The Company did not record income tax expense for the three months ended March 31, 2024 and 2023, respectively, as the Company expected to be in a cumulative taxable loss position in 2024 and 2023, and the net deferred tax assets are fully offset by a valuation allowance as it is not more likely than not that the benefit will be realized. As of March 31, 2024, the Company remains in a cumulative book loss position and does not have sufficient positive evidence to realize its net deferred tax assets. As such, the Company continues to maintain a full valuation allowance against its net deferred tax assets.

Effective January 1, 2022, a provision of the Tax Cuts and Jobs Act (TCJA) took effect creating a significant change to the treatment of research and experimental expenditures under Section 174 of the Internal Revenue Code (Sec. 174 expenses). Historically, businesses have had the option of deducting Sec. 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The new TCJA provision, however, eliminates this option and will require Sec. 174 expenses associated with research conducted in the United States to be capitalized and amortized over a five-year period. For expenses associated with research outside of the United States, Sec. 174 expenses will be capitalized and amortized over a 15-year period. This provision did not have a material impact on the Company's condensed consolidated financial statements.

Severance and Other Costs

Severance and other costs are comprised of employee separation costs and asset impairments. Employee separation costs principally consist of severance and stock-based compensation expense for the acceleration of stock awards.

The Company records severance charges based on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for on-going benefit arrangements, such as those documented by employment agreements, in accordance with ASC 712, Nonretirement Postemployment Benefits. Under ASC 712, liabilities for post employment benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for one-time employment benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. One-time

10


 

termination benefits are expensed at the date the entity notifies the employee. The Company recognized losses on disposal of property and equipment, which was accounted in accordance with ASC 360, Impairment of Long-Lived Assets.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASU 2020-06”). The standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the standard modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2020-06 on January 1, 2024 did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The standard improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment and contains other disclosure requirements. The purpose of the guidance is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The amendments in ASU 2023-07 are effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes-Improvements to Income Tax Disclosures, which requires greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid ("ASU 2023-09"). ASU 2023-09 is effective for the Company for the year ending December 31, 2025, although early adoption is permitted. The Company is currently evaluating the impact of the provisions of ASU 2023-09.

3. Cash Equivalents and Marketable Securities

The amortized costs, unrealized gains and losses and fair values of cash equivalents and marketable securities were as follows (in thousands):

 

 

 

March 31, 2024

 

Description

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

38,086

 

 

$

 

 

$

 

 

$

38,086

 

Total cash equivalents

 

 

38,086

 

 

 

 

 

 

 

 

 

38,086

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government treasuries

 

 

3,663

 

 

 

 

 

 

(1

)

 

 

3,662

 

Commercial paper

 

 

246

 

 

 

 

 

 

 

 

 

246

 

Total short-term marketable securities

 

 

3,909

 

 

 

 

 

 

(1

)

 

 

3,908

 

Total

 

$

41,995

 

 

$

 

 

$

(1

)

 

$

41,994

 

 

11


 

 

 

 

December 31, 2023

 

Description

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

39,243

 

 

$

 

 

$

 

 

$

39,243

 

Commercial paper

 

 

4,484

 

 

 

 

 

 

 

 

 

4,484

 

U.S. government debt securities

 

 

2,250

 

 

 

 

 

 

 

 

 

2,250

 

Total cash equivalents

 

 

45,977

 

 

 

 

 

 

 

 

 

45,977

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

3,485

 

 

 

 

 

 

 

 

 

3,485

 

Corporate debt securities

 

 

939

 

 

 

 

 

 

 

 

 

939

 

U.S. government treasuries

 

 

9,861

 

 

 

5

 

 

 

(1

)

 

 

9,865

 

U.S. government debt securities

 

 

2,000

 

 

 

 

 

 

(1

)

 

 

1,999

 

Total short-term marketable securities

 

 

16,285

 

 

 

5

 

 

 

(2

)

 

 

16,288

 

Total

 

$

62,262

 

 

$

5

 

 

$

(2

)

 

$

62,265

 

All marketable securities held as of March 31, 2024 had contractual maturities of less than one year. There have been no material realized gains or losses on marketable securities for the periods presented. As of March 31, 2024, the Company did not hold any individual securities in an unrealized loss position for 12 months or greater. The Company has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. No significant facts or circumstances have arisen to indicate that there has been any significant deterioration in the creditworthiness of the issuers of the securities held by us, thus there has been no recognition of any other-than-temporary impairment for the periods presented. The Company has not recorded an allowance for credit losses as of March 31, 2024 and December 31, 2023.

See Note 4 for further information regarding the fair value of the Company’s financial instruments.

4. Fair Value Measurements

The Company’s financial assets subject to fair value measurements on a recurring basis and the level of inputs used in such measurements were as follows (in thousands):

 

 

 

March 31, 2024

 

Description

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

38,086

 

 

$

38,086

 

 

$

 

 

$

 

Total cash equivalents

 

 

38,086

 

 

 

38,086

 

 

 

 

 

 

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government treasuries

 

 

3,662

 

 

 

3,662

 

 

 

 

 

 

 

Commercial paper

 

 

246

 

 

 

 

 

 

246

 

 

 

 

Total short-term marketable securities

 

 

3,908

 

 

 

3,662

 

 

 

246

 

 

 

 

Total

 

$

41,994

 

 

$

41,748

 

 

$

246

 

 

$

 

 

12


 

 

 

 

December 31, 2023

 

Description

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

39,243

 

 

$

39,243

 

 

$

 

 

$

 

Commercial paper

 

 

4,484

 

 

 

 

 

 

4,484

 

 

 

 

U.S. government debt securities

 

 

2,250

 

 

 

 

 

 

2,250

 

 

 

 

Total cash equivalents

 

 

45,977

 

 

 

39,243

 

 

 

6,734

 

 

 

 

Short-term marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

3,485

 

 

 

 

 

 

3,485

 

 

 

 

Corporate debt securities

 

 

939

 

 

 

 

 

 

939

 

 

 

 

U.S. government treasuries

 

 

9,865

 

 

 

9,865

 

 

 

 

 

 

 

U.S. government debt securities

 

 

1,999

 

 

 

 

 

 

1,999

 

 

 

 

Total short-term marketable securities

 

 

16,288

 

 

 

9,865

 

 

 

6,423

 

 

 

 

Total

 

$

62,265

 

 

$

49,108

 

 

$

13,157

 

 

$

 

The Company measures the fair value of money market funds and U.S. government treasuries based on quoted prices in active markets for identical securities. Commercial paper, corporate debt securities, U.S. government treasuries, and U.S. government debt securities are valued taking into consideration valuations obtained from third-party pricing services. These pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of, and broker/dealer quotes on, the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

There were no transfers between Level 1 and Level 2 during the periods presented. See Note 3 for further information regarding the amortized cost of the Company’s financial instruments.

5. Property and Equipment, Net

Property and equipment and related accumulated depreciation and amortization are as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Computer equipment and software

 

$

1,704

 

 

$

1,704

 

Furniture and fixtures

 

 

2,723

 

 

 

2,723

 

Laboratory equipment

 

 

27,659

 

 

 

29,521

 

Leasehold improvements

 

 

15,452

 

 

 

15,733

 

 

 

47,538

 

 

 

49,681

 

Less accumulated depreciation and amortization

 

 

(33,465

)

 

 

(32,415

)

Construction-in-progress

 

 

15

 

 

 

15

 

Total property and equipment, net

 

$

14,088

 

 

$

17,281

 

Depreciation and amortization expense was $1.7 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively.

6. Commitments and Contingencies

Leases

The Company leases office and laboratory space in facilities at several locations:

Emeryville Lease

The Company’s principal executive offices in Emeryville, California, consisting of office and laboratory space, are leased pursuant to a 120-month operating lease (the “Emeryville Lease”), which the Company entered into in January 2019, with the obligation to pay rent commencing in November 2019. In conjunction with signing the Emeryville Lease, the Company paid a cash security deposit of $0.6 million, which is recorded as a deposit on the

13


 

Company’s condensed consolidated balance sheet as of March 31, 2024. The Emeryville Lease includes a free rent period, an escalation clause for increased rent and a renewal provision allowing the Company to extend this lease for two additional five-year periods at the then market rental rate. The lessor provided the Company a tenant improvement allowance for a total of $4.0 million to complete the laboratory and office renovation. The Company has determined the tenant improvements to be lessee owned and therefore has recorded a $7.1 million ROU Asset and a $11.2 million lease liability on the condensed consolidated balance sheet as of March 31, 2024. The Company recorded a $7.3 million ROU Asset and a $11.6 million lease liability on the consolidated balance sheet as of December 31, 2023.

Pleasanton Leases

The Company leases office, cleanroom, and laboratory support manufacturing space in Pleasanton, California pursuant to a non-cancelable operating lease (the “Pleasanton Lease”), which the Company entered into in March 2017, with the obligation to pay rent commencing in December 2017. The Pleasanton Lease includes a free rent period, escalating rent payments and a term that expires on November 30, 2024. The Company may extend the lease term for a period of five years at the then market rental rate. The Company obtained an irrevocable letter of credit in March 2017 in the initial amount of approximately $1.0 million as a security deposit to the Pleasanton Lease, which may be drawn down by the landlord in the event the Company fails to fully and faithfully perform its obligations under the Pleasanton lease. The letter of credit may be reduced based on certain levels of cash and cash equivalents the Company holds. In October 2022, the letter of credit was reduced to a balance of $0.6 million. As of March 31, 2024, none of the irrevocable letter of credit amount had been drawn. The Pleasanton Lease further provides that the Company is obligated to pay to the landlord its proportionate share of certain basic operating costs, including taxes and operating expenses.

In connection with the Pleasanton Lease, the Company received a tenant improvement allowance of $1.2 million from the landlord for the costs associated with the design, development and construction of tenant improvements. The unamortized tenant improvement balance is recognized as a component of operating lease ROU Asset on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023.

In addition, in May 2019, the Company entered into a 64-month non-cancelable operating lease for additional office space in Pleasanton, California, with an obligation to pay rent commencing in August 2019. In January 2022, the Company amended the lease to add additional leased space and extend the lease expiration date to February 2027.

Cambridge Lease

The Company’s facility located at 40 Erie Street in Cambridge, Massachusetts is leased pursuant to a 67-month non-cancelable operating lease (as amended, the “40 Erie Lease”), which the Company entered into in February 2016, with an obligation to pay rent commencing in October 2016. The lessor provided the Company a tenant improvement allowance for a total of $2.1 million to complete the laboratory and office renovation. In September 2021, the Company executed an amendment to the 40 Erie Lease, which extends its term through April 2025 and provides for monthly base rent amounts, subject to annual increases over the term of the lease.

In conjunction with the move to the Boston facility, the Company ceased use of the 40 Erie Street facility, which triggered an impairment assessment. In connection with the impairment assessment, the Company recorded an impairment loss of $2.0 million related to the ROU Asset from the 40 Erie Lease, which is included in operating expenses on the condensed consolidated statement of operations and comprehensive loss for the year ended December 31, 2023. The Company is subject to the fixed rental fee payments for the existing lease through the remaining term until May 2025.

In conjunction with the 40 Erie Lease, as amended, the Company has paid a cash security deposit, which included amounts for the applicable last month’s rent and has been classified as part of the operating lease ROU Assets. As of March 31, 2024 and December 31, 2023, the $0.3 million security deposit for the 40 Erie lease was recorded in deposits and other long-term assets on the Company's condensed consolidated balance sheet.

Boston Lease

The Company occupies a newly built facility in Boston, Massachusetts, with office and laboratory space, pursuant to a 120-month operating lease (as amended, the “Boston Lease”), which the Company entered into in September 2021. The Boston Lease includes a free rent period, an escalation clause for increased rent and a renewal provision allowing the Company to extend the Boston Lease for two additional five-year periods at the then market

14


 

rental rate. The landlord provided the Company with a tenant improvement allowance of up to approximately $19.1 million for costs relating to the design, permitting and construction of improvements owned by the landlord. The Company incurred tenant improvement costs relating to the initial design and construction of the improvements before the commencement date which were accounted for as lease prepayments. The Company’s obligation to pay rent commenced in July 2023, subject to free rent periods of three and nine months with respect to certain premises. The Company was provided early access to the premises to install fixtures and equipment 60 days prior to the anticipated rent commencement date. The Boston Lease expires in 2033. Under the Boston Lease, the Company is obligated to pay to the landlord its proportionate share of certain basic operating costs, including taxes and operating expenses. As a security deposit under the Boston Lease, the Company provided the landlord an irrevocable letter of credit in the amount of approximately $4.6 million, which is collateralized by a restricted cash deposit of $4.7 million, and which may be reduced in the fifth and seventh years of the Boston Lease. As of March 31, 2024 and 2023, none of the irrevocable letter of credit amount had been drawn.

The Boston Lease commenced in April 2023, when the Company was provided early access to the premises and gained control over the use of the underlying assets. Upon commencement, the Company recognized an ROU Asset of $59.3 million and a lease liability of $50.9 million on the condensed consolidated balance sheet. Upon commencement, the ROU Asset includes $8.4 million of lease prepayments made before the commencement date, which are primarily related to the lessor owned tenant improvement cost.

In September 2023, the Company amended the Boston Lease, whereby the lease term commenced on July 1, 2023 and expires on June 30, 2033.

The Company’s operating leases include various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for lease transactions of this nature.

The components of lease costs, which were included in the Company's condensed consolidated statements of operations and comprehensive loss, were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Lease cost