10-Q 1 kymr-20240331.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, 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: 001-39460

 

KYMERA THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-2992166

(State or other jurisdiction of

incorporation or organization)

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

 

 

500 North Beacon Street, 4th Floor

Watertown, Massachusetts

02472

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (857) 285-5300

 

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 $0.0001 per share

 

KYMR

 

The 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 April 26, 2024, the registrant had 61,358,262 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Summary of the Material and Other Risks Associated with Our Business

We are a biopharmaceutical company with a limited operating history and have not generated any revenue to date from drug sales, and may never become profitable.
We have incurred significant operating losses in recent periods and anticipate that we will incur continued losses for the foreseeable future.
We will need to raise substantial additional funding. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, scale back or discontinue some of our product candidate development programs or future commercialization efforts.
We are very early in our development efforts and our IRAK4, STAT3 and MDM2 programs are still in early clinical development. If we are unable to advance them through the clinic for safety or efficacy reasons or commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.
We cannot be certain of the timely completion or outcome of our preclinical testing, including our STAT6 and TYK2 programs. In addition, the results of preclinical studies may not be predictive of the results of clinical trials and the results of any early-stage clinical trials we commence may not be predictive of the results of later-stage clinical trials.
Our approach to the discovery and development of product candidates based on our PegasusTM platform is novel and unproven, which makes it difficult to predict the time, cost of development, and likelihood of successfully developing any products.
Business interruptions resulting from any pandemic or similar public health crises could cause a disruption to our supply chain or the development of our product candidates and adversely impact our business.
We may not be successful in our efforts to identify or discover additional product candidates or we may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
If we experience delays or difficulties in the initiation or enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
Our current or future product candidates may cause adverse or other undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Even if we receive regulatory approval for any of our current or future product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.
We rely, and expect to continue to rely, on third parties to conduct our ongoing and planned clinical trials for our current and future product candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain marketing approval for or commercialize our current and potential future product candidates and our business could be substantially harmed.
If we are unable to obtain and maintain patent and other intellectual property protection for our technology and product candidates or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology and drugs may be impaired.

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. These statements are not guarantees of future results or performance and involve substantial risks and uncertainties. Forward-looking statements in this Quarterly Report include, but are not limited to, express or implied statements about:

the initiation, timing, progress, results, and cost of our research and development programs, and our current and future preclinical and future clinical studies, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
our ability to continue to construct PegasusTM, our drug discovery platform, and to enable a rational and effective drug discovery and development engine;
the timing and the success of preclinical development efforts for STAT6 and TYK2 and clinical studies under our IRAK4, STAT3 and MDM2 programs;
our plans to submit investigational new drug applications to the U.S. Food and Drug Administration, or FDA for current and future product candidates;
the subsequent initiation of planned clinical trials;
our ability to identify research priorities and apply a risk-mitigated strategy to efficiently discover and develop product candidates, including by applying learnings from one program to other programs and from one modality to our other modalities;
our potential ability to manufacture our drug substances, delivery vehicles, and product candidates for preclinical use, for clinical trials and on a larger scale for commercial use, if approved;
the ability and willingness of our third-party strategic collaborators to continue research and development activities relating to our development candidates and product candidates;
our ability to obtain funding for our operations necessary to complete further development and commercialization of our product candidates;
our ability to obtain and maintain regulatory approval of our product candidates;
our ability to commercialize our products, if approved;
the pricing and reimbursement of our product candidates, if approved;
the implementation of our business model, and strategic plans for our business, product candidates, and technology;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
estimates of our future expenses, revenues, capital requirements, and our needs for additional financing;
the potential benefits of strategic collaboration agreements, our ability to enter into strategic collaborations or arrangements, and our ability to attract collaborators with development, regulatory and commercialization expertise;
future agreements with third parties in connection with the commercialization of product candidates and any other approved product;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
our financial performance;
the rate and degree of market acceptance of our product candidates;
regulatory developments in the United States and foreign countries;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

ii


 

our ability to produce our products or product candidates with advantages in turnaround times or manufacturing cost;
the success of competing therapies that are or may become available;
our ability to attract and retain key scientific or management personnel;
the impact of laws and regulations;
developments relating to our competitors and our industry;
the effect of any pandemics, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events and with respect to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

All of our forward-looking statements are as of the date of this Quarterly Report only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report that modify or impact any of the forward-looking statements contained in this Quarterly Report will be deemed to modify or supersede such statements in this Quarterly Report.

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

iii


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

Condensed Consolidated Statements of Cash Flows

4

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

77

Item 6.

Exhibits

78

Signatures

79

 

iv


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

KYMERA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)

(Unaudited)

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

93,510

 

 

$

109,966

 

Marketable securities (Note 4)

 

 

427,034

 

 

 

264,915

 

Accounts receivable

 

 

 

 

 

15,000

 

Contract assets

 

 

2,030

 

 

 

3,762

 

Prepaid expenses and other current assets

 

 

14,679

 

 

 

11,674

 

Total current assets

 

$

537,253

 

 

$

405,317

 

Marketable securities, non-current (Note 4)

 

 

224,390

 

 

 

61,434

 

Property and equipment, net (Note 6)

 

 

49,336

 

 

 

48,134

 

Right-of-use assets, operating leases

 

 

49,329

 

 

 

52,945

 

Other non-current assets

 

 

2,118

 

 

 

2,118

 

Restricted cash

 

 

5,825

 

 

 

5,811

 

Total assets

 

$

868,251

 

 

$

575,759

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,812

 

 

$

7,075

 

Accrued expenses (Note 8)

 

 

15,997

 

 

 

33,864

 

Deferred revenue

 

 

22,613

 

 

 

37,883

 

Operating lease liabilities

 

 

8,757

 

 

 

5,068

 

Finance lease liabilities

 

 

1,133

 

 

 

1,277

 

Other current liabilities

 

 

824

 

 

 

524

 

Total current liabilities

 

$

56,136

 

 

$

85,691

 

Non-current liabilities

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

23,781

 

 

 

16,768

 

Operating lease liabilities, net of current portion

 

 

75,975

 

 

 

77,028

 

Finance lease liabilities, net of current portion

 

 

1,156

 

 

 

1,301

 

Total liabilities

 

$

157,048

 

 

$

180,788

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000,000 shares authorized at March 31, 2024 and December 31, 2023, 61,353,146 and 55,585,305 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

1,292,283

 

 

 

926,269

 

Accumulated deficit

 

 

(579,309

)

 

 

(530,752

)

Accumulated other comprehensive loss

 

 

(1,777

)

 

 

(552

)

Total stockholders’ equity

 

 

711,203

 

 

 

394,971

 

Total liabilities and stockholders’ equity

 

$

868,251

 

 

$

575,759

 

 

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

1


 

KYMERA THERAPEUTICS, INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three months ended March 31, 2024 and 2023

(In thousands, except for share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

 

2024

 

 

2023

 

 

Collaboration Revenue

 

$

10,287

 

 

$

9,466

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

$

48,819

 

 

$

42,227

 

 

General and administrative

 

 

14,374

 

 

 

12,565

 

 

Impairment of long-lived assets

 

 

4,925

 

 

 

 

 

Total operating expenses

 

 

68,118

 

 

 

54,792

 

 

Loss from operations

 

 

(57,831

)

 

 

(45,326

)

 

Other income (expense):

 

 

 

 

 

 

 

Interest and other income

 

 

9,343

 

 

 

4,453

 

 

Interest and other expense

 

 

(69

)

 

 

(55

)

 

Total other income:

 

 

9,274

 

 

 

4,398

 

 

Net loss

 

$

(48,557

)

 

$

(40,928

)

 

Other comprehensive loss:

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

(1,225

)

 

 

1,911

 

 

Total comprehensive loss

 

$

(49,782

)

 

$

(39,017

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(48,557

)

 

$

(40,928

)

 

Net loss per share, basic and diluted

 

$

(0.69

)

 

$

(0.70

)

 

Weighted average common stock outstanding, basic and diluted

 

 

70,770,320

 

 

 

58,187,038

 

 

 

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

2


 

KYMERA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2024 and 2023

(In thousands, except for share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Gain/(Loss)

 

 

Equity

 

Balance at December 31, 2022

 

55,039,380

 

 

$

6

 

 

$

878,884

 

 

$

(383,790

)

 

$

(4,949

)

 

$

490,151

 

Exercise of stock options

 

208,705

 

 

 

 

 

 

1,486

 

 

 

 

 

 

 

 

 

1,486

 

Vesting restricted stock

 

28,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

9,385

 

 

 

 

 

 

 

 

 

9,385

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

1,911

 

 

 

1,911

 

Net Loss

 

 

 

 

 

 

 

 

 

 

(40,928

)

 

 

 

 

 

(40,928

)

Balance at March 31, 2023

 

55,276,226

 

 

$

6

 

 

$

889,755

 

 

$

(424,718

)

 

$

(3,038

)

 

$

462,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

55,585,305

 

 

$

6

 

 

$

926,269

 

 

$

(530,752

)

 

$

(552

)

 

$

394,971

 

Issuance of common stock and accompanying pre-funded warrants from public offering, net of issuance costs of $14.9 million

 

3,884,158

 

 

 

 

 

 

301,373

 

 

 

 

 

 

 

 

 

301,373

 

Issuance of common stock through at-the market sales agreement, net of issuance costs of $1.2 million

 

1,519,453

 

 

 

 

 

$

48,740

 

 

 

 

 

 

 

 

 

48,740

 

Exercise of stock options

 

281,021

 

 

 

 

 

 

3,933

 

 

 

 

 

 

 

 

 

3,933

 

Vesting restricted stock

 

83,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

11,968

 

 

 

 

 

 

 

 

 

11,968

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,225

)

 

 

(1,225

)

Net loss

 

 

 

 

 

 

 

 

 

 

(48,557

)

 

 

 

 

 

(48,557

)

Balance at March 31, 2024

 

61,353,146

 

 

$

6

 

 

$

1,292,283

 

 

$

(579,309

)

 

$

(1,777

)

 

$

711,203

 

 

 

 

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

 

3


 

KYMERA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2024 and 2023

(In thousands)

(Unaudited)

 

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(48,557

)

 

$

(40,928

)

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

 

 

 

 

 

 

Stock-based compensation expense

 

 

11,968

 

 

 

9,385

 

Lease Impairment Charge

 

 

4,925

 

 

 

 

Depreciation and amortization

 

 

1,461

 

 

 

879

 

Premiums and discounts on available-for-sale marketable securities

 

 

(3,072

)

 

 

(1,326

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(3,005

)

 

 

(1,641

)

Accounts Receivable

 

 

15,000

 

 

 

 

Contract asset

 

 

1,732

 

 

 

(783

)

Accounts payable

 

 

75

 

 

 

2,217

 

Accrued expenses and other current liabilities

 

 

(15,394

)

 

 

(10,037

)

Deferred revenue

 

 

(8,257

)

 

 

(6,145

)

Operating lease right-of-use assets

 

 

619

 

 

 

1,138

 

Operating lease liabilities

 

 

2,636

 

 

 

2,915

 

Other assets and liabilities

 

 

278

 

 

 

358

 

Net cash used in operating activities

 

$

(39,591

)

 

$

(43,968

)

Investing activities

 

 

 

 

 

 

Purchase of property and equipment, net

 

 

(7,402

)

 

 

(4,009

)

Purchases of investments

 

 

(422,704

)

 

 

(61,835

)

Maturities of investments

 

 

99,499

 

 

 

90,428

 

Net cash provided by investing activities

 

$

(330,607

)

 

$

24,584

 

Financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock and accompanying pre-funded
warrants from public offering, net of underwriting discounts and issuance costs

 

 

301,373

 

 

 

 

Proceeds from issuance of common stock through at-the market sales agreement,
net of issuance costs

 

 

48,740

 

 

 

 

Proceeds from stock option exercises

 

 

3,933

 

 

 

1,486

 

Payments on finance leases

 

 

(290

)

 

 

(327

)

Net cash provided by financing activities

 

$

353,756

 

 

$

1,159

 

Net increase in cash, cash equivalents and restricted cash

 

 

(16,442

)

 

 

(18,225

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

115,777

 

 

 

74,524

 

Cash, cash equivalents and restricted cash at end of period

 

$

99,335

 

 

$

56,299

 

Supplemental disclosure of cash flow activities

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

-

 

 

$

48,833

 

Cash paid for interest

 

 

49

 

 

 

52

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

1,205

 

 

$

1,100

 

 

 

 

 

 

 

 

 

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,

 

 

 

2024

 

 

2023

 

Cash and cash equivalents

 

$

93,510

 

 

$

50,152

 

Restricted cash

 

 

5,825

 

 

 

6,147

 

Total cash, cash equivalents, and restricted cash

 

$

99,335

 

 

$

56,299

 

 

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

4


 

KYMERA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

Kymera Therapeutics, Inc., together with its subsidiary Kymera Securities Corporation, is referred to on a consolidated basis as the “Company”. The Company is a biopharmaceutical company focused on discovering and developing small molecule therapeutics that selectively degrade disease-causing proteins by harnessing the body’s own natural cellular process, a method known as targeted protein degradation. The Company has devoted its efforts principally to research and development since formation. The Company has not yet completed product development, filed for or obtained regulatory approvals for any products, nor verified the market acceptance and demand for such products. As a result, the Company is subject to a number of risks common to emerging companies in the biotech industry. Principal among these risks are the uncertainties of the product discovery and development process, dependence on key individuals, development of the same or similar technological innovations by the Company’s competitors, protection of proprietary technology, compliance with government regulations and approval requirements, the Company’s ability to access capital and uncertainty of market acceptance of products.

The Company has historical net losses and anticipates that it will continue to incur losses for the foreseeable future and had an accumulated deficit of $579.3 million as of March 31, 2024. The Company has funded these losses principally through issuance of preferred stock, convertible notes, common stock, including its initial public offering and concurrent private placement completed in August 2020 (“IPO”), follow-on offering and concurrent private placement completed in July 2021 (“2021 Follow-on”) offering, August 2022 Private Investment in Public Equity (“PIPE”) offering, follow-on offering completed in January 2024 ("2024 Follow-on"), sales under our Sales agreement with Cowen, and from cash proceeds received in connection with the Company’s collaboration agreements with Vertex Pharmaceuticals Incorporated (“Vertex”) and Genzyme Corporation (“Sanofi”) (see Note 5). The Company expects to continue to incur operating losses and negative cash flows until such time as it generates a level of revenue that is sufficient to support its cost structure.

As of March 31, 2024, the Company had cash, cash equivalents and marketable securities of $744.9 million. The Company believes these cash, cash equivalents and marketable securities will be sufficient to fund its operations and capital expenditure requirements through at least twelve months from the issuance of these condensed consolidated financial statements.

The Company expects to finance the future research and development costs of its product portfolio with its existing cash, cash equivalents and marketable securities, or through strategic financing opportunities that could include, but are not limited to future offerings of its equity, collaboration agreements, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders. If the Company fails to obtain additional future capital, it may be unable to complete its planned preclinical studies and clinical trials.

Private Investment in Public Equity “PIPE” offering

On August 18, 2022, the Company and certain accredited investors entered into a securities purchase agreement pursuant to which the Company agreed to sell and issue to such investors in a private placement (i) an aggregate of 2,769,228 shares of the Company’s common stock at a purchase price of $26.00 per share, and (ii) 3,000,000 pre-funded warrants to purchase common stock, at a purchase price of $25.9999 per Pre-Funded Warrant. The Pre-Funded Warrants will have an exercise price of $0.0001 per share of common stock. The offering closed on August 22, 2022, resulting in net proceeds of $149.8 million after offering expenses.

2024 Follow-on Public Offering

On January 9, 2024, the Company completed a follow-on offering of its common stock and, in lieu of common stock to certain investors, pre-funded warrants to purchase shares of its common stock. The Company issued and sold 3,884,158 shares of common stock, including full exercise of the underwriters’ over-allotment option to purchase an additional 1,633,663 shares, at a public offering price of $25.25 per share. Additionally, in lieu of common stock to certain investors, the Company issued and sold pre-funded warrants to purchase 8,640,594 shares of its common stock at a public offering price of $25.2499 per pre-funded warrant, which represents the per share public offering price of each share of common stock less the $0.0001 per share exercise price for each pre-funded warrant. The aggregate gross proceeds before deducting underwriting discounts and commissions, and other estimated offering expenses payable by the Company were approximately $316.2 million.

 

5


 

Pre-funded warrants

In connection with certain offerings mentioned above the Company has issued pre-funded warrants to purchase common stock in lieu of common stock. As the pre-funded warrants are indexed to the Company’s common stock (and otherwise meet the requirements to be classified in equity), the Company recorded the consideration received from the issuance of the pre-funded warrants as additional paid-in capital on the Company’s consolidated balance sheets. The pre-funded warrants are exercisable at any time. The holders of Pre-Funded Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to such exercise. The holders of Pre-Funded Warrants may increase or decrease such percentages not in excess of 19.99% by providing at least 61 days’ prior notice to the Company.

During the three months ended March 31, 2024, no pre-funded warrants were exercised. As of March 31, 2024, there were 11,640,594 pre-funded warrants outstanding.

2. Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note, and elsewhere in the accompanying condensed consolidated financial statements and notes.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Kymera Securities Corporation. All intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as found in the Accounting Standards Codification (“ASC”), Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed 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, 2023 included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 22, 2024.

 

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2023, and, in the opinion of management, reflect all adjustments necessary, all of which were normal and recurring, for the fair statement of the Company’s financial position as of March 31, 2024, and the results of operations and cash flows for the three months ended March 31, 2024 and 2023. The results for the three months ended March 31, 2024 are not necessarily indicative of the results for the year ended December 31, 2024 or for any future period.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2024 are consistent with those discussed in Note 2 to the consolidated financial statements in the 2023 Annual Report on Form 10-K.

6


 

3. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

Fair Value Measurements at
March 31, 2024:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

50,248

 

 

$

 

 

$

 

 

$

50,248

 

US treasuries

 

 

19,928

 

 

 

 

 

 

 

 

 

19,928

 

Corporate bonds

 

 

19,666

 

 

 

 

 

 

 

 

 

19,666

 

Marketable securities, current

 

 

 

 

 

 

 

 

 

 

 

 

US treasuries

 

 

167,206

 

 

 

 

 

 

 

 

 

167,206

 

US government agencies

 

 

 

 

 

106,672

 

 

 

 

 

 

106,672

 

Corporate bonds

 

 

 

 

 

153,157

 

 

 

 

 

 

153,157

 

Marketable securities, non-current

 

 

 

 

 

 

 

 

 

 

 

 

US treasuries

 

 

20,365

 

 

 

 

 

 

 

 

 

20,365

 

US government agencies

 

 

 

 

 

36,278

 

 

 

 

 

 

36,278

 

Corporate bonds

 

 

 

 

 

167,746

 

 

 

 

 

 

167,746

 

Restricted cash

 

 

5,825

 

 

 

 

 

 

 

 

 

5,825

 

Total

 

$

283,238

 

 

$

463,853

 

 

$

 

 

$

747,091

 

 

 

 

Fair Value Measurements at
December 31, 2023:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

78,010

 

 

$

 

 

$

 

 

$

78,010

 

US treasuries

 

 

27,985

 

 

 

 

 

 

 

 

 

27,985

 

Commercial Paper

 

 

997

 

 

 

 

 

 

 

 

 

997

 

Marketable securities, current

 

 

 

 

 

 

 

 

 

 

 

 

US treasuries

 

 

23,253

 

 

 

 

 

 

 

 

 

23,253

 

US government agencies

 

 

 

 

 

114,384

 

 

 

 

 

 

114,384

 

Corporate bonds

 

 

 

 

 

127,278

 

 

 

 

 

 

127,278

 

Marketable securities, non-current

 

 

 

 

 

 

 

 

 

 

 

 

US treasuries

 

 

 

 

 

 

 

 

 

 

 

-

 

US government agencies

 

 

 

 

 

28,307

 

 

 

 

 

 

28,307

 

Corporate bonds

 

 

 

 

 

33,127

 

 

 

 

 

 

33,127

 

Restricted cash

 

 

5,811

 

 

 

 

 

 

 

 

 

5,811

 

Total

 

$

136,056

 

 

$

303,096

 

 

$

 

 

$

439,152

 

 

During the three months ended March 31, 2024 and the year ended December 31, 2023, there were no transfers in or out of Level 3.

 

7


 

 

4. Marketable Securities

The following tables summarize the available-for-sale debt securities held at March 31, 2024 and December 31, 2023 (in thousands):

Description

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

US treasury securities

 

$

187,847

 

 

$

 

 

$

(277

)

 

$

187,570

 

US government agencies

 

 

143,361

 

 

 

12

 

 

 

(423

)

 

 

142,950

 

Corporate securities

 

 

321,978

 

 

 

10

 

 

 

(1,084

)

 

 

320,904

 

Total

 

$

653,186

 

 

$

22

 

 

$

(1,784

)

 

$

651,424

 

 

Description

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Fair
Value

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

US treasury securities

 

$

23,361

 

 

$

5

 

 

$

(113

)

 

$

23,253

 

US government agencies

 

 

142,948

 

 

 

48

 

 

 

(305

)

 

 

142,691

 

Corporate securities

 

 

160,598

 

 

 

113

 

 

 

(306

)

 

 

160,405

 

Total

 

$

326,907

 

 

$

166

 

 

$

(724

)

 

$

326,349

 

 

As of March 31, 2024, the Company held 113 securities that had been in an unrealized loss position for less than 12 months with an aggregate fair value of $467.4 million. As of December 31, 2023, the Company held 109 securities that had been in an unrealized loss position for less than 12 months with an aggregate fair value of $229.7 million. As of March 31, 2024, the Company held 39 securities that had been in an unrealized loss position for greater than 12 months with an aggregate fair value of $81.5 million. As of December 31, 2023, the Company held 16 securities that had been in an unrealized loss position for greater than 12 months with an aggregate fair value of $36.6 million.

 

As of March 31, 2024 the Company had 140 securities with a fair value of $427.0 million with a contractual maturity of less than 12 months and 61 securities with a fair value of $224.4 million with a contractual maturity of greater than 12 months. As of December 31, 2023 the Company had 124 securities with a fair value of $264.9 million with a contractual maturity of less than 12 months and 27 securities with a fair value of $61.4 million with a contractual maturity of greater than 12 months.

 

The Company is required to determine whether a decline in the fair value below the amortized cost basis of available-for-sale securities is due to credit-related factors. At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are the result of credit losses. Impairment is assessed at the individual security level. Factors considered in determining whether a loss resulted from a credit loss or other factors include the Company’s intent and ability to hold the investment until the recovery of its amortized cost basis, the extent to which the fair value is less than the amortized cost basis, the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, any historical failure of the issuer to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, any adverse legal or regulatory events affecting the issuer or issuer’s industry, and any significant deterioration in economic conditions.

 

Unrealized losses on available-for-sale securities presented in the previous table have not been recognized in the condensed consolidated statements of operations because the securities are high credit quality, investment grade securities that the Company does not intend to sell and will not be required to sell prior to their anticipated recovery, and the decline in fair value is attributable to factors other than credit losses. Based on its evaluation, the Company determined it does not have any credit losses related to its available-for-sale securities as of March 31, 2024 and December 31, 2023.

 

8


 

 

5. Collaborations

Sanofi Agreement

Agreement Terms

On July 7, 2020, the Company entered into a collaboration agreement, or the Sanofi Agreement, with Sanofi, to co-develop drug candidates directed to two biological targets. Under the Sanofi Agreement, the Company granted to Sanofi a worldwide exclusive license to develop, manufacture and commercialize certain lead compounds generated during the collaboration directed against IRAK4, or Collaboration Target 1, and one additional undisclosed target in an undisclosed field of use, or Collaboration Target 2. Such license is exercisable on a collaboration target-by-collaboration target basis only after specified milestones. For compounds directed against IRAK4, the field of use includes diagnosis, treatment, cure, mitigation or prevention of any diseases, disorders or conditions, excluding oncology and immuno-oncology.

Pursuant to the Sanofi Agreement, the Company is responsible for discovery and preclinical research and conducting a Phase 1 clinical trial for at least one degrader directed against IRAK4 plus up to three backup degraders. With respect to both targets, Sanofi is responsible for development, manufacturing, and commercialization of product candidates after a specified development milestone occurs with respect to each collaboration candidate.

In addition, pursuant to the Sanofi Agreement, Sanofi will grant to the Company an exclusive option, or Opt-In Right, exercisable on a collaboration target-by-collaboration target basis that will include the right to (i) to fund 50% of the United States development costs for collaboration products directed against such target in the applicable field of use and (ii) share equally in the net profits and net losses of commercializing collaboration products directed against such target in the applicable field of use in the United States. In addition, if the Company exercises the Opt-In Right, Sanofi will grant to the Company an exclusive option, applicable to each collaboration target, which upon exercise will allow the Company to conduct certain co-promotion activities in the field in the United States.

 

The Sanofi Agreement, unless earlier terminated, will expire on a product-by-product basis on the date of expiration of all payment obligations under the Sanofi Agreement with respect to such product. The Company or Sanofi may terminate the agreement upon the other party’s material breach or insolvency or for certain patent challenges. In addition, Sanofi may terminate the Sanofi Agreement for convenience or for a material safety event upon advance prior written notice, and the Company may terminate the Sanofi Agreement with respect to any collaboration candidate if, following Sanofi’s assumption of responsibility for the development, commercialization or manufacturing of collaboration candidates with respect to a particular target, Sanofi ceases to exploit any collaboration candidates directed to such target for a specified period.

In consideration for the exclusive licenses granted to Sanofi under the Sanofi Agreement, Sanofi paid to the Company an upfront payment of $150.0 million. The Company will also be reimbursed for certain research activities for a certain backup degrader under the IRAK4 program as well as contract manufacturing costs for the lead KT-474 program, unless certain criteria are not met for an initial IRAK4 degrader. In addition to the upfront payment and the reimbursements, the Company is eligible to receive certain development milestone payments of up to $1.48 billion in the aggregate, of which more than $1.0 billion relates to the IRAK4 program, upon the achievement of certain developmental or regulatory events. The Company will be eligible to receive certain commercial milestone payments up to $700.0 million in the aggregate, of which $400.0 million relates to the IRAK4 program, which are payable upon the achievement of certain net sales thresholds. The Company will be eligible to receive tiered royalties for each program on net sales ranging from the high-single digits to high teens, subject to low-single digits upward adjustments in certain circumstances.

On November 15, 2022, we entered into an Amended and Restated Collaboration and License Agreement with Sanofi, or the Amended Sanofi Agreement, which amended the Original Sanofi Agreement to revise certain research terms and responsibilities set forth under the Original Sanofi Agreement. The Amended Sanofi Agreement also specifies details around the timing and number of Phase 2 trials required under the terms of the collaboration. The Amended Sanofi Agreement became effective on December 5, 2022.

Additionally with respect to Sanofi, on December 2, 2022, Sanofi provided the Company with written notice of its intention to advance the collaboration target 1 candidate, KT-474, into Phase 2 clinical trials. In the fourth quarter of 2023, the Company achieved two milestones of $40.0 million and $15.0 million relating to the dosing of the first patient in the Phase 2 clinical trial for the first and second indications, respectively.

In September 2023, the Company and Sanofi mutually agreed to cease activities related to Collaboration Target 2.

9


 

Accounting Treatment

The Company analyzed the discovery and pre-clinical research activities as well as the exclusive license grants under the Sanofi Agreement and concluded that the arrangement was indicative of a vendor-customer relationship and would be accounted for under ASC 606.

The Company identified the following material promises under the arrangement: (1) research services for Collaboration Target 1, (2) research license for Collaboration Target 1, (3) exclusive license for Collaboration Target 1, (4) research services for Collaboration Target 2, (5) research license for Collaboration Target 2, (6) exclusive license for Collaboration Target 2, (7) option to extend the research term, and (8) optional research services during the development period.

The Company determined that Collaboration Targets 1 and 2 are distinct from each other. The research associated with degraders directed to each target is at different stages and the licensed field, should development activities be successful, are different from each other. As such, all promises associated with each target are considered distinct from promises associated with the other target.

The research and development services for each collaboration target were determined not to be distinct from the research license and the exclusive license and have been combined into a single performance obligation for each collaboration target. That is, two performance obligations were identified, the combined research services, research license and exclusive license for Collaboration Target 1 and the combined research services, research license and exclusive license for Collaboration Target 2. The exclusive license for each target is not distinct from the pre-clinical and clinical research and development services under the Sanofi Agreement, primarily due to the highly specialized nature of the research and novel technology involved with developing protein degraders – the pre-clinical activities and studies and first phase 1 clinical trial could not be conducted by another party in the manner required.

The option to extend the research term and optional research services during the development period were evaluated as material rights. The fees associated with each option are at or above the standalone selling price. As such, the underlying options are not performance obligations and fees associated with each option are excluded from the transaction price until the underlying option is exercised.

The Company determined the total transaction price to be $150.0 million, which consists solely of the upfront payment. All milestone payments and option payments are constrained as the achievement of such milestones are contingent upon the success of the underlying research and development activities and are generally outside the control of the Company. The reimbursement of costs for the IRAK4 backup degrader is also treated as constrained variable consideration as the criteria for reimbursement may not always be met, under which circumstances the Company would be responsible for the costs related to the backup degrader. Upon becoming unconstrained, the reimbursement consideration will be added to the transaction price and allocated to Collaboration Target 1.

The Company allocated the upfront payment to each performance obligation based on the relative standalone selling price, as follows:

Collaboration Target 1: $120.0 million
Collaboration Target 2: $30.0 million

The Company determined the allocation of the $150.0 million transaction price between Collaboration Target 1 and Collaboration Target 2 based on the value of the research and development for the programs from projected research and development costs for each collaboration target plus a developer’s profit and the total potential milestones for each collaboration target.

The Company recognizes revenue associated with each performance obligation as the research and development services are provided using an input method, according to costs incurred as related to the research and development activities for each individual program and the costs expected to be incurred in the future to satisfy that individual performance obligation. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying each performance obligation. The amounts received that have not yet been recognized as revenue are deferred as a contract liability on the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied. Milestone and reimbursement consideration added to the transaction price will be recognized as revenue with a cumulative catch-up upon becoming unconstrained. The performance obligation associated with Collaboration Target 1 has not been fully satisfied as of March 31, 2024. The performance obligation associated with Collaboration Target 2 has been fully satisfied. In the three months ended March 31, 2024, the Company recognized $10.3 million in revenue under the Sanofi Agreement, all of which was associated with Collaboration Target 1. In the three months ended March 31, 2023, the Company recognized $7.7 million in revenue under the Sanofi Agreement, of which $7.1 million was associated with Collaboration Target 1 and $0.6 million was associated with Collaboration Target 2. Of the $10.3 million of revenue recognized in the three months ended March 31, 2024, $8.7 million was recognized from amounts that were recorded in deferred revenue as of December 31, 2023. The aggregate amount of the transaction price allocated to the

10


 

Company’s unsatisfied performance obligations and recorded in deferred revenue at March 31, 2024 and December 31, 2023 is $46.4 million and $54.7 million, respectively. During the three months ended March 31, 2024, the Company received $3.8 million in cost reimbursement payments, and additionally received a $15.0 million milestone payment from Sanofi for dosing of the first patient in the second indication of the Phase 2 Clinical Trial which had been recorded in accounts receivable as of December 31, 2023. As of March 31, 2024, the Company recorded a contract asset for unbilled accounts receivable of $2.0 million related to reimbursable research and development costs under the Sanofi Agreement for activities performed during the first quarter of 2024 The Company will recognize the deferred revenue related to the performance obligations based on a cost input method, as described, over the remaining research term, which as a result of the amended agreement, is a maximum of approximately 2.8 years as of March 31, 2024.

Any additional consideration related to performance-based milestones will be recognized when the risk of probable reversal is resolved, at which point the Company shall adjust the transaction price determined for the agreement accordingly and recognize revenue on a cumulative-catch up basis, reallocating the revised arrangement consideration to the performance obligations. Any consideration related to sales milestone payments and royalties will be recognized when the related milestone events or sales occur and therefore are recognized at the later of when the related sales occur or the relevant performance obligation is satisfied. As part of its evaluation of constraining the milestones, the Company considered numerous factors, including the fact that the achievement of the research and development milestones are contingent upon the results of the underlying research and development activities and are thus outside of the control of the Company. In the fourth quarter of 2023, the Company achieved two development milestones relating to the dosing of the first patient in the KT-474 Phase 2 clinical trials for the first and second indications, respectively. In connection with these milestones the Company unconstrained $55.0 million of consideration in the fourth quarter of 2023. During the quarter ended March 31, 2024, the Company recognized $2.3 million of revenue from the unconstrained milestones. As of March 31, 2024, $42.6 million of the $55.0 million of consideration has been recorded as revenue, with the remaining $12.4 million recorded as deferred revenue.

Vertex Agreement

On May 9, 2019 (the “Effective Date”), the Company entered into a collaboration agreement (the “Vertex Agreement”) with Vertex to advance small molecule protein degraders against up to six targets. Under the Vertex Agreement, Vertex had the exclusive option to license the rights to the product candidates developed for the designated targets at which point Vertex would control development and commercialization. Pursuant to the Vertex Agreement, the Company was only responsible for discovery and preclinical research on the targets, and Vertex was responsible for development, manufacturing, and commercialization of the product candidates after it exercises its option to license. The initial research term of the collaboration was four (4) years, extendable for an additional one (1) year period upon mutual agreement by the parties and payment by Vertex of certain per-target fees.

The Company was eligible to receive up to $170.0 million in payments per target, including development, regulatory and commercial milestones as well as option exercise payments. In addition, Vertex was obligated to pay the Company tiered royalties on future net sales on any products that may result from the Vertex Agreement. None of the payments under the Vertex Agreement are refundable. The Company may also perform follow-on research for an optioned target upon Vertex’s request and at Vertex’s expense.

The term of the Vertex Agreement began on the Effective Date and expired upon the completion of the initial research term on May 9, 2023.

Vertex provided the Company with a non-refundable upfront payment of $50.0 million and purchased 3,059,695 shares of the Company’s Series B-1 Convertible Preferred Stock (the “Series B-1 Preferred Stock”) at $6.54 a share, pursuant to a separate, but simultaneously executed Share Purchase Agreement. The shares were purchased at a premium of $5.9 million, which was included in the transaction price and will be recognized as revenue over the period of performance. As a result of this purchase, Vertex was considered a related party. Vertex is no longer considered a related party.

Accounting Treatment

The Company analyzed the joint research activities required under the Vertex Agreement and concluded that the arrangement was indicative of a vendor-customer relationship and would be accounted for under ASC 606.

The Company identified the following material promises under the arrangement: (1) the non-exclusive, royalty-free research license; (2) the research and development services to be performed on up to six targets; and (3) the option to license each of the targets for development, manufacturing, and commercialization efforts. The research and development services were determined not to be distinct from the research and development license and have been combined into a single performance obligation. The Company determined that the option to license the targets in the future was not priced at a discount, and that the option exercise fee for each target is at or above the standalone selling price for research at this stage of development; as such, the options and the underlying licenses are excluded from the performance obligation and the option exercise fees are excluded from the transaction price until the underlying option is exercised.

11


 

As part of its evaluation of constraining the research and development milestones, the Company considered numerous factors, including the fact that the achievement of the research and development milestones is contingent upon the results of the underlying research and development activities and is thus outside of the control of the Company.

At the commencement of the arrangement, two units of accounting were identified: the issuance of 3,059,695 shares of the Series B-1 Preferred Stock and the research activities the Company will perform over the Research Term. The Company determined the total transaction price to be $55.9 million, which consists of $5.9 million attributed to the premium from the shares of Series B-1 Preferred Stock sold to Vertex and the $50.0 million upfront payment. To determine the fair value of the Series B-1 Preferred Stock issued to Vertex, the Company performed a valuation of the shares of the Company’s common and preferred stock, which took into consideration recent financings, and the Company’s recent development and future exit strategies, as well as a discount for lack of marketability.

The Company recognizes revenue associated with the performance obligation as the research and development services are provided using an input method, according to the costs incurred as related to the research and development activities on each program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The Vertex collaboration agreement expired upon completion of the initial research term in May of 2023. Accordingly, the Company fully satisfied its performance obligation and recognized all remaining deferred revenue associated with the Vertex collaboration in May 2023. No revenue was recognized during the three months ended March 31, 2024, under the Vertex Agreement. During the three months ended March 31, 2023, the Company recognized $1.8 million, under the Vertex Agreement. All $1.8 million of revenue recognized in the three months ended March 31, 2023 was recognized from amounts that were recorded in deferred revenue as of December 31, 2022. There were no unsatisfied performance obligations as of March 31, 2024. The aggregate amount of the transaction price allocated to the Company’s unsatisfied performance obligation and recorded in deferred revenue is $0 at both March 31, 2024 and December 31, 2023.

The following table presents the changes in accounts receivable, contract assets and contract liabilities for the three months ended March 31, 2024 (in thousands):

 

 

 

Balance at
December 31, 2023

 

 

Additions

 

 

Deductions

 

 

Balance at
March 31, 2024

 

Accounts receivable and contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

Billed receivables - Sanofi

 

$

15,000

 

 

$

3,762

 

 

$

(18,762

)

 

$

 

Unbilled receivables - Sanofi

 

 

3,762

 

 

 

2,030

 

 

 

(3,762

)

 

 

2,030

 

Total accounts receivable and contract assets

 

$

18,762

 

 

$

5,792

 

 

$

(22,524

)

 

$

2,030

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue - Sanofi

 

$

54,651

 

 

$

2,030

 

 

$

(10,287

)

 

$

46,394

 

Total contract liabilities

 

$

54,651

 

 

$

2,030

 

 

$

(10,287

)

 

$

46,394

 

 

 

12


 

 

6. Property and Equipment

Property and equipment consisted of the following as of March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Lab and office equipment under finance right-of-use asset

 

$

5,749

 

 

$

6,725

 

Lab equipment

 

 

7,441

 

 

 

5,098

 

Computer equipment

 

 

966

 

 

 

582

 

Furniture & fixtures

 

 

3,182

 

 

 

1,064

 

Leasehold improvements

 

 

40,084

 

 

 

7,802

 

Assets not yet in service

 

 

2,450

 

 

 

37,303

 

Total property and equipment

 

 

59,872

 

 

 

58,574

 

Less accumulated depreciation

 

 

(10,536

)

 

 

(10,440

)

Property and equipment, net

 

$

49,336

 

 

$

48,134

 

 

 

Depreciation expense for the three months ended March 31, 2024 and 2023 was $1.5 million and $0.9 million, respectively.

 

Included in property and equipment is lab and office equipment right-of-use assets under finance leases with a cost basis of $5.7 million and $6.7 million and accumulated amortization expense of $3.5 million and $4.1 million as of March 31, 2024 and December 31, 2023, respectively.

Amortization expense related to right-of-use assets during the three months ended March 31, 2024 and 2023 was $0.4 million and $0.4 million, respectively.

 

7. Leases

In October 2019, the Company entered into a noncancelable facility lease agreement (the “2019 Lease”) for 34,522 square feet of research and development and office space in Watertown, Massachusetts. The term of the 2019 Lease is 120 months and expires on March 31, 2030. The 2019 Lease has an option to be extended for an additional five years. The lease is not reasonably certain to be extended and as such the additional term is not included in the measurement of the lease. The 2019 Lease includes a rent escalation clause, and rent expense is being recorded on a straight-line basis. In accordance with the lease agreement, the Company is required to maintain a security deposit and provided a letter of credit to the landlord, which is recorded in restricted cash as of March 31, 2024 and December 31, 2023. The letter of credit totaled $1.3 million and $1.3 million as of March 31, 2024 and December 31, 2023, respectively.

In December 2021, the Company entered into a noncancelable lease (the “2021 Lease”) for 100,624 square feet of office and laboratory space in Watertown, Massachusetts, which the Company began occupying in February 2024. The 2021 Lease is subject to base rent of $0.8 million per month beginning two months after the commencement date, plus the Company’s ratable share of taxes, maintenance and other operating expenses. Base rent is subject to a 3% annual increase over the lease term of approximately 134 months following the commencement date. The Company also has two consecutive options to extend the term of the lease for five years each at then-market rates. The 2021 Lease also includes a tenant improvement allowance of approximately $20.1 million. In connection with the signing of the 2021 Lease, the Company issued a letter of credit for $4.5 million which is classified as restricted cash as of March 31, 2024 and December 31, 2023.

The 2021 Lease required the landlord to build-out the base building prior to the construction of the Company’s premises. The Company concluded the accounting commencement date occurred when the landlord completed the build-out of the base building and control passed to the Company, which occurred in early January 2023. The Company assessed the classification of the 2021 Lease at the accounting commencement date and concluded the lease should be accounted for as an operating lease. The Company recorded an operating lease liability of $48.9 million, measured as the present value of the remaining lease payments discounted using the incremental borrowing rate as of the accounting commencement date. The Company recorded an operating lease right-of-use asset of $48.9 million, measured as the present value of the remaining lease payments, net of the tenant incentives.

 

13


 

The Company concluded the improvements paid for by the landlord in connection with the tenant improvement allowance represent lessee assets and therefore recorded $17.6 million of leasehold improvements in property and equipment. The Company recorded an additional $12.1 million of leasehold improvements in excess of the tenant improvement allowance, all of which were placed in service as of March 31, 2024.

 

Upon occupancy of the 2021 Lease facility in February of 2024, the Company exited the 2019 Lease facility and is actively looking to sublease the entire facility for the remaining noncancellable lease term through March 31, 2030. These actions resulted in an impairment charge of $4.9 million in the three months ended March 31, 2024. The Company continues to evaluate the potential recovery of the ROU asset under sublease scenarios, and thus it is possible that additional impairments could be identified in future periods, and such amounts could be material.

The impairment charge reduces the carrying value of the associated ROU asset, leasehold improvements and certain furniture and fixture assets that remained in the facility to their estimated fair values. The fair values are estimated using a discounted cash flows approach based on forecasted future cash flows expected to be derived from the property based on current sublease market rent, which is considered a level 3 input in the fair value hierarchy, and other key assumptions such as future sublease market conditions and the discount rate.

The Company’s finance lease obligations consist of certain property and equipment financed through finance leases.

The components of the lease costs for the three months ended March 31, 2024 and 2023, were as follows (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Operating lease costs

 

$

2,489

 

 

$

2,521

 

Finance lease costs:

 

 

 

 

 

 

Amortization of right-to-use assets, finance leases

 

 

414

 

 

 

369

 

Interest expense for finance lease liabilities