10-Q 1 omga-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: 001-40657

 

Omega Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

81-3247585

(State or other jurisdiction of

incorporation or organization)

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

 

 

140 First Street

Suite 501

Cambridge, MA

02141

(Address of principal executive offices)

(Zip Code)

(617) 949-4360

(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, par value $0.001 per share

 

OMGA

 

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of May 2, 2024, the registrant had 55,154,985 shares of common stock, $0.001 par value per share, outstanding.

 

 

i


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

6

Item 1.

Financial Statements (Unaudited)

6

Condensed Consolidated Balance Sheets

6

Condensed Consolidated Statements of Operations and Comprehensive Loss

7

Condensed Consolidated Statements of Stockholders’ Equity

8

Condensed Consolidated Statements of Cash Flows

9

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

93

Item 3.

Defaults Upon Senior Securities

93

Item 4.

Mine Safety Disclosures

93

Item 5.

Other Information

93

Item 6.

Exhibits

94

Signatures

95

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, the sufficiency of our cash and cash equivalents to fund our operating expenses and capital expenditure requirements, our ability to continue as a going concern, business strategy, product candidate development, prospective products, product candidate approvals, research and development activities and costs, future revenue, timing and likelihood of success of our business plans, plans and objectives of management, future results and timing of clinical trials, treatment potential of our product candidates, and the market potential of our product candidates are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important 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 the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “would” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under Part II, Item 1A. “Risk Factors” in this Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

3


 

SUMMARY RISK FACTORS

 

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

 

Our product candidates are based on a novel technology, which makes it difficult to predict the time and cost of preclinical and clinical development and of subsequently obtaining regulatory approval, if at all.
No epigenomic controllers have been approved in this potentially new class of medicines, and may never be approved as a result of efforts by others or us. mRNA drug development has substantial development and regulatory risks due to the novel and unprecedented nature of this new category of medicines.
We have a limited operating history and no history of successfully developing or commercializing any approved product candidates, which may make it difficult to evaluate the success of our business to date and to assess the prospects for our future viability.
We have incurred significant losses since inception and expect to incur significant additional losses for the foreseeable future.
We require substantial additional financing, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce, or terminate our product development.
Volatility in capital markets and general economic conditions in the United States may be a significant obstacle to raising required funds. This and other factors raise substantial doubt about the Company's ability to continue as a going concern.
We have invested, and expect to continue to invest, in research and development efforts that further enhance the OMEGA platform. Such investments may affect our operating results, and, if the return on these investments is lower or develops more slowly than we expect, our revenue and operating results may suffer.
Preclinical development is uncertain, especially for a new class of medicines such as epigenomic controllers, and therefore our preclinical programs or development candidates may be delayed, terminated, or may never advance into the clinic, any of which may have a material adverse impact on our platform or our business.
Our product candidate, OTX-2002, was cleared by the United States Food and Drug Administration to advance to clinical development. Clinical development of OTX-2002 may be delayed or terminated, and we may never obtain regulatory approval of OTX-2002, which may have a material adverse impact on our platform or our business. Furthermore, clinical development requires substantial capital investment, which we may not be able to support. We may incur unforeseen costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of OTX-2002 and our other product candidates.
Our product candidates may be associated with serious adverse events, undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.
Our ability to manufacture our epigenomic controller candidates, or EC candidates, for preclinical or clinical supply could be limited, especially with the increased demand for the manufacture of mRNA- and LNP-based therapeutics, which could adversely affect our development plans.
Our EC candidates are based on novel technology and may be complex and difficult to manufacture. We may encounter difficulties in manufacturing, product release, shelf life, testing, storage, supply chain management or shipping.
We must adapt to rapid and significant technological change and respond to introductions of new products and technologies by competitors to remain competitive.
We will rely on third parties for the foreseeable future for the manufacture and supply of materials for our research programs, preclinical studies and clinical trials and we do not have long-term contracts with many of these parties. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials, including drug supplies for combination therapy, product candidates, or any therapies that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our development or commercialization efforts.

4


 

We continue to evaluate plans to acquire and establish our own manufacturing facility and infrastructure in addition to or in lieu of relying on contract development and manufacturing organizations for the manufacture of our product candidates. Any plan to establish our own manufacturing facility and infrastructure will be costly and time-consuming and we may not be successful.
We have a limited number of suppliers for the lipid excipients used in our product candidates and certain of our suppliers are critical to our production. If we were to lose a critical supplier, it could have a material adverse effect on our ability to complete the development of our product candidates. If we obtain regulatory approval for any of our product candidates, we would need to expand the supply of lipid excipients in order to commercialize them.
We are very early in our development efforts. Most of our product candidates are in preclinical development or discovery, and we recently received FDA clearance for our IND application for OTX-2002 and have initiated the associated clinical trial. It will be many years before we commercialize a product candidate, if ever. If we are unable to advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.
If we are unable to obtain, maintain, enforce and adequately protect our intellectual property rights with respect to our technology and product candidates, or if the scope of the patent or other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.
Third parties may obtain or control intellectual property rights that may prevent or limit the development of our technology or products. Third-party claims of intellectual property infringement, misappropriation or other violation may result in substantial costs or prevent or delay our development and commercialization efforts.


 

5


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Omega Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,033

 

 

$

68,443

 

Marketable securities

 

 

 

 

 

4,986

 

Accounts receivable, due from related party

 

 

1,149

 

 

 

1,006

 

Accounts receivable

 

 

 

 

 

5,125

 

Prepaid expenses and other current assets

 

 

9,708

 

 

 

10,324

 

Total current assets

 

 

70,890

 

 

 

89,884

 

Property and equipment, net

 

 

5,013

 

 

 

5,311

 

Operating lease right-of-use assets, net

 

 

107,362

 

 

 

108,736

 

Restricted cash

 

 

341

 

 

 

341

 

Other assets

 

 

74

 

 

 

94

 

Total assets

 

$

183,680

 

 

$

204,366

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,579

 

 

$

1,620

 

Accrued expenses

 

 

4,492

 

 

 

7,914

 

Other current liabilities

 

 

2,620

 

 

 

1,972

 

Lease liabilities, current

 

 

11,989

 

 

 

11,300

 

Long-term debt, current portion

 

 

4,000

 

 

 

4,000

 

Total current liabilities

 

 

24,680

 

 

 

26,806

 

Lease liabilities, non-current

 

 

97,729

 

 

 

98,243

 

Long-term debt, net

 

 

13,897

 

 

 

14,885

 

Other liabilities

 

 

6,020

 

 

 

6,416

 

Total liabilities

 

 

142,326

 

 

 

146,350

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2024 and December 31, 2023; no shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 55,154,985 and 55,144,982 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

55

 

 

 

55

 

Additional paid-in capital

 

 

396,062

 

 

 

392,609

 

Accumulated other comprehensive loss

 

 

 

 

 

(14

)

Accumulated deficit

 

 

(354,763

)

 

 

(334,634

)

Total stockholders’ equity

 

 

41,354

 

 

 

58,016

 

Total liabilities and stockholders’ equity

 

$

183,680

 

 

$

204,366

 

 

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

6


 

Omega Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Collaboration revenue

$

2,360

 

 

$

516

 

Operating expenses:

 

 

 

 

 

Research and development

 

15,415

 

 

 

20,091

 

General and administrative

 

7,396

 

 

 

6,243

 

Total operating expenses

 

22,811

 

 

 

26,334

 

Loss from operations

 

(20,451

)

 

 

(25,818

)

Other income (expense), net:

 

 

 

 

 

Interest income, net

 

331

 

 

 

682

 

Other expense, net

 

(9

)

 

 

(143

)

Total other income, net

 

322

 

 

 

539

 

Net loss

$

(20,129

)

 

$

(25,279

)

Net loss per common stock attributable to common stockholders, basic and diluted

$

(0.36

)

 

$

(0.50

)

Weighted-average common stock used in net loss per share attributable to common stockholders, basic and diluted

 

55,150,507

 

 

 

50,627,287

 

Comprehensive loss:

 

 

 

 

 

Net loss

$

(20,129

)

 

$

(25,279

)

Other comprehensive income (loss):

 

 

 

 

 

Unrealized gain on marketable securities

 

14

 

 

 

251

 

Comprehensive loss

$

(20,115

)

 

$

(25,028

)

 

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

7


 

Omega Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

PAR
VALUE

 

 

ADDITIONAL PAID-IN
CAPITAL

 

 

ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)

 

 

ACCUMULATED
DEFICIT

 

 

TOTAL
STOCKHOLDERS'
EQUITY

 

As of January 1, 2024

 

 

55,144,982

 

 

$

55

 

 

$

392,609

 

 

$

(14

)

 

$

(334,634

)

 

$

58,016

 

Issuance of common stock for options exercised

 

 

10,003

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,431

 

 

 

 

 

 

 

 

 

3,431

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,129

)

 

 

(20,129

)

As of March 31, 2024

 

 

55,154,985

 

 

$

55

 

 

$

396,062

 

 

$

 

 

$

(354,763

)

 

$

41,354

 

 

 

 

COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

PAR
VALUE

 

 

ADDITIONAL PAID-IN
CAPITAL

 

 

ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)

 

 

ACCUMULATED
DEFICIT

 

 

TOTAL
STOCKHOLDERS'
EQUITY

 

As of January 1, 2023

 

 

48,072,517

 

 

$

48

 

 

$

343,608

 

 

$

(479

)

 

$

(237,206

)

 

$

105,971

 

Issuance of common stock for registered direct offering, net of issuance costs

 

 

6,920,415

 

 

 

7

 

 

 

39,720

 

 

 

 

 

 

 

 

 

39,727

 

Issuance of common stock for options exercised

 

 

30,157

 

 

 

 

 

 

108

 

 

 

 

 

 

 

 

 

108

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

251

 

 

 

 

 

 

251

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,222

 

 

 

 

 

 

 

 

 

2,222

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,279

)

 

 

(25,279

)

As of March 31, 2023

 

 

55,023,089

 

 

$

55

 

 

$

385,658

 

 

$

(228

)

 

$

(262,485

)

 

$

123,000

 

 

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

8


 

Omega Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(20,129

)

 

$

(25,279

)

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

 

 

 

 

 

 

Depreciation

 

 

443

 

 

 

371

 

Amortization of debt issuance costs and debt discount

 

 

12

 

 

 

9

 

Amortization of operating lease right-of-use assets

 

 

1,373

 

 

 

936

 

Accretion of discounts on marketable securities

 

 

 

 

 

18

 

Change in fair value of success fee obligation

 

 

 

 

 

82

 

Stock-based compensation expense

 

 

3,431

 

 

 

2,222

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, due from related party

 

 

(143

)

 

 

143

 

Accounts receivable

 

 

5,125

 

 

 

 

Prepaid expenses and other current assets

 

 

616

 

 

 

705

 

Other assets

 

 

22

 

 

 

(99

)

Accounts payable

 

 

(36

)

 

 

156

 

Accrued expenses and other current liabilities

 

 

(1,727

)

 

 

(7,013

)

Other liabilities

 

 

(792

)

 

 

(362

)

Net cash used in operating activities

 

 

(11,805

)

 

 

(28,111

)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(535

)

 

 

 

Purchases of marketable securities

 

 

 

 

 

(19,768

)

Proceeds from maturities of marketable securities

 

 

5,000

 

 

 

41,818

 

Net cash provided by investing activities

 

 

4,465

 

 

 

22,050

 

Financing activities

 

 

 

 

 

 

Proceeds from equity offering

 

 

 

 

 

40,000

 

Payments of equity offering costs

 

 

 

 

 

(121

)

Repayment of debt

 

 

(1,000

)

 

 

 

Repayment of lease financing

 

 

(92

)

 

 

 

Proceeds from issuance of common stock under equity incentive plans

 

 

22

 

 

 

108

 

Net cash (used in) provided by financing activities

 

 

(1,070

)

 

 

39,987

 

Net change in cash, cash equivalents and restricted cash

 

 

(8,410

)

 

 

33,926

 

Cash, cash equivalents and restricted cash—beginning of period

 

 

68,784

 

 

 

70,956

 

Cash, cash equivalents and restricted cash—end of period

 

$

60,374

 

 

$

104,882

 

Reconciliation of cash, cash equivalents and restricted cash

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,033

 

 

$

104,541

 

Restricted cash

 

 

341

 

 

 

341

 

Cash, cash equivalents and restricted cash

 

$

60,374

 

 

$

104,882

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

484

 

 

$

387

 

Supplemental disclosure of noncash investing and financing activities

 

 

 

 

 

 

Equity offering costs in accounts payable

 

$

 

 

$

152

 

Purchases of property and equipment included in accounts payable and accrued
   expenses

 

$

6

 

 

$

 

 

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

9


 

Omega Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of the Business and Basis of Presentation

Organization

Omega Therapeutics, Inc. (the “Company” or “Omega”) is a clinical-stage biotechnology company pioneering the development of a new class of programmable epigenomic mRNA medicines by leveraging its OMEGA platform. The OMEGA platform harnesses the power of epigenetics, the mechanism that controls gene expression and every aspect of an organism’s life from cell genesis, growth and differentiation to cell death. The OMEGA platform enables control of fundamental epigenetic processes to correct the root cause of disease by restoring aberrant gene expression to a normal range without altering native nucleic acid sequences. The Company was incorporated in July 2016 (“inception”) as a Delaware corporation and its offices are in Cambridge, Massachusetts.

Liquidity and Going Concern

Since its inception, the Company has devoted substantially all of its resources to building its platform and advancing development of its portfolio of programs, establishing and protecting its intellectual property, conducting research and development activities, organizing and staffing the Company, business planning, raising capital and providing general and administrative support for these operations. The Company is subject to risks and uncertainties common to early clinical-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, risks related to clinical development of product candidates, developments by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

In February 2023, the Company completed a registered direct offering of common stock pursuant to which it issued and sold 6,920,415 shares of its common stock at a purchase price of $5.78 per share and secured approximately $39.7 million in net proceeds after deducting estimated offering expenses. In August 2023, the Company entered into an Open Market Sale Agreement (the “Sales Agreement”), with Jefferies LLC (“Jefferies”), as sales agent, pursuant to which the Company may, from time to time, issue and sell common stock with an aggregate value of up to $60.0 million in “at-the-market,” or ATM, offerings under our Registration Statement on Form S-3 (File No. 333-268254) filed with the SEC on November 8, 2022, which was declared effective on November 18, 2022. During the three months ended March 31, 2024, the Company did not sell any shares of common stock under the Sales Agreement.

The Company has had recurring losses since inception and incurred a loss of $20.1 million during the three months ended March 31, 2024. Net cash used in operations for the three months ended March 31, 2024 was $11.8 million. In order to ensure sufficient resources to advance its lead program and maximize near- and long-term value creation opportunities from its platform, the Company announced a strategic prioritization in March 2024. As part of this initiative, the Company streamlined the organization and optimized its research and development efforts and, as a result, the Company expects that its cash and cash equivalents of $60.0 million at March 31, 2024 will enable it to fund its operating expenses and capital expenditure requirements into the first quarter of 2025. The Company expects to continue to generate operating losses and use cash in operations for the foreseeable future. Additional funding will be necessary to fund future preclinical and clinical activities and to develop new product candidates. The Company expects to finance its future cash needs through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or other sources. Volatility in the capital markets and general economic conditions in the United States may be a significant obstacle to raising the required funds and, as a result, the Company may be unable to secure the necessary funding on acceptable terms. This raises substantial doubt about the Company's ability to continue as a going concern.

The accompanying unaudited condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the unaudited condensed financial statements have been prepared on a basis that assumes the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

10


 

 

Significant Risks and Uncertainties Related to Macroeconomic Conditions

The global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including, for example, severely diminished liquidity and credit availability, rising interest and inflation rates, crises involving banking and financial institutions, declines in consumer confidence, declines in economic growth, and uncertainty about economic stability. In addition, unstable market and economic conditions and further disruption created by international political unrest, war and terrorism may have serious adverse consequences on our business, financial condition and results of operations.

Basis of Presentation

The accompanying condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”). All amounts herein are expressed in U.S. dollars (“USD”) unless otherwise noted.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated unaudited financial statements include the accounts of Omega Therapeutics, Inc. and its wholly owned subsidiary, Omega Therapeutics Security Corporation, which is a Massachusetts subsidiary. All intercompany transactions and balances have been eliminated in consolidation.

Reclassification

The Company reclassified the related party expenses in the prior year to research and development and general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss to conform to the current year's presentation.

 

Unaudited Interim Financial Information

The accompanying condensed consolidated unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited financial statements have been prepared on the same basis as audited financial statements, except certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been consolidated or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair representation of the results for the reported periods. These condensed consolidated unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 28, 2024 (the “2023 10-K”).

The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods, or any future year or period.

Use of Estimates

The preparation of the condensed consolidated unaudited financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances.

Significant estimates and assumptions reflected in these condensed consolidated unaudited financial statements include, but are not limited to, the selection of useful lives of property and equipment, the incremental borrowing rate used in the calculation of lease liabilities, research and development accruals, certain judgments regarding revenue recognition and stock-based compensation. Actual results could differ from these estimates. Changes in estimates are reflected in reported results in the period in which they become known.

11


 

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Summary of significant accounting policies,” to the Company’s audited financial statements included in the 2023 10-K. There was no significant change of accounting policy during the three months ended March 31, 2024.

 

Recent accounting pronouncements not yet adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The new standard requires enhanced disclosures about segment information and significant segment expenses. It does not change how a public entity identifies its operating segments. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The new standard should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact on its consolidated financial statements.

In December 2023, the FASB issued 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The new standard requires public business entities to disclose information about income taxes paid, specific categories in the rate reconciliation, and additional information for reconciling items that meet a quantitative threshold. The guidance should be applied on a prospective basis. For public business entities, ASU 2023-08 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. For all other entities, the standard is effective for annual periods beginning after December 15, 2025. The Company is currently evaluating the impact on its consolidated financial statements.

3. Marketable Securities

 

The following table summarizes the Company’s marketable securities (in thousands):

 

December 31, 2023

 

Amortized cost

 

 

Gross unrealized losses

 

 

Fair value

 

Corporate debt securities

$

5,000

 

 

$

(14

)

 

$

4,986

 

As of March 31, 2024, the Company did not hold any marketable securities. All of the Company's previous marketable securities matured during the three months ended March 31, 2024.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Clinical development

 

$

5,538

 

 

$

5,168

 

Research and development

 

 

1,908

 

 

 

1,609

 

Facilities

 

 

833

 

 

 

1,242

 

Software

 

 

480

 

 

 

303

 

Insurance

 

 

457

 

 

 

716

 

Other receivables

 

 

61

 

 

 

855

 

Other

 

 

431

 

 

 

431

 

Prepaid expenses and other current assets

 

$

9,708

 

 

$

10,324

 

 

12


 

5. Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Lab equipment

 

$

7,182

 

 

$

6,633

 

Furniture and fixtures

 

 

1,636

 

 

 

1,636

 

Leasehold improvements

 

 

1,431

 

 

 

1,290

 

Computer equipment

 

 

1,226

 

 

 

1,226

 

Construction in process

 

 

42

 

 

 

588

 

Total property and equipment

 

 

11,517

 

 

 

11,373

 

Less accumulated depreciation

 

 

(6,504

)

 

 

(6,062

)

Property and equipment, net

 

$

5,013

 

 

$

5,311

 

 

Depreciation expense was $0.4 million for each of the three months ended March 31, 2024 and 2023.

6. Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Employee related expenses

 

$

1,685

 

 

$

4,482

 

Professional and consulting fees

 

 

791

 

 

 

716

 

Manufacturing costs

 

 

738

 

 

 

547

 

Research costs

 

 

691

 

 

 

1,395

 

Interest

 

 

140

 

 

 

147

 

Other

 

 

447

 

 

 

627

 

Total

 

$

4,492

 

 

$

7,914

 

 

Employee related expenses as of March 31, 2024 include $0.8 million of severance and other costs associated with the Company's cost reduction activities in the first quarter of 2024, which will be paid out in the second quarter of 2024.

 

7. Term Loan

On March 9, 2018, the Company entered into the Loan Agreement with Pacific Western Bank (“PWB”) to initially borrow $8.0 million, which was further amended on September 30, 2019 (the "First Amendment"), January 22, 2020 (the "Second Amendment"), December 30, 2020 (the “Third Amendment”), and December 20, 2021 (the "Fourth Amendment").

 

On September 22, 2023, the Company entered into another amendment to the Loan Agreement (the "Fifth Amendment"), in which PWB extended the maturity date of the loan to September 30, 2027, subject to further extension to September 30, 2028 upon receipt by the Company on or before December 31, 2024 of at least $50.0 million of cash proceeds from the sale of its equity securities and/or non-refundable upfront strategic partnership proceeds. Repayment of the loan began on September 30, 2023, with monthly principal payments of $0.3 million plus interest, along with a closing payment of $4.0 million on September 30, 2027 if the maturity date is not extended to September 30, 2028. Interest will continue to be determined at a floating annual rate equal to the greater of (i) 0.50% above the prime rate then in effect and (ii) 5.50%. The Company incurred $15 thousand of debt issuance costs, which was recorded as a direct reduction against the additional term loan and will be amortized over the life of the associated term loan as a component of interest expense using the effective interest method. The Company is required to pay a success fee of $0.1 million pursuant to the Fifth Amendment, in addition to the $0.2 million success fee obligation pursuant to the Fourth Amendment. The success fees are contingent on achieving specified liquidity events. The Company determined that the success fee obligation represented a freestanding financial instrument, and it was classified as a liability on the Company’s condensed consolidated balance sheet and initially recorded at fair value, with changes in fair value for each reporting period recognized in other expense, net in the condensed consolidated statements of operations and comprehensive loss. The fair value of such obligation is remeasured at the end of each reporting period until the liability is settled.

 

13


 

In addition, pursuant to the Fifth Amendment, the Company agreed to maintain with PWB, at all times, a balance of at least $5.0 million of unrestricted cash, subject to termination upon the Company’s prepayment of outstanding loans in an aggregate amount of at least $5.0 million or if the principal balance of the loans is less than $10.0 million.

 

Borrowings under the Loan Agreement, as amended, are collateralized by substantially all of the Company’s personal property, other than its intellectual property. There are no financial covenants associated with the Loan Agreement, as amended; however, the Company is subject to certain affirmative and negative covenants to which the Company will remain subject until maturity.

As of March 31, 2024, $4.0 million of the net carrying amount of the term loan was classified as short-term and $13.9 million was classified as long-term based on the repayment start date. The Company’s outstanding term loan balance was comprised of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Principal

 

$

18,000

 

 

$

19,000

 

Unamortized debt discount

 

 

(103

)

 

 

(115

)

Net carrying amount

 

$

17,897

 

 

$

18,885

 

 

The Company determined that the expected life of the debt was equal to the term on the term loan. The effective interest rate on the liability component ranged from 5.53% to 9.27% for the period from the date of issuance through March 31, 2024. The following table sets forth total interest expense recognized related to the term loan (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Contractual interest expense

 

$

418

 

 

$

411

 

Amortization of debt issuance costs and debt discount

 

 

12

 

 

 

9

 

Total interest expense

 

$

430

 

 

$

420

 

 

At March 31, 2024 and December 31, 2023, accrued interest on the term loan was $140 thousand and $147 thousand, respectively.

The Company is required to repay the following principal amounts in connection with its term loan (in thousands):

2024 (remaining 9 months)

 

$

3,000

 

2025

 

 

4,000

 

2026

 

 

4,000

 

2027

 

 

7,000

 

Total

 

$

18,000

 

 

8. Fair Value of Financial Instruments

The fair value of the Company’s cash and cash equivalents and restricted cash are measured through quoted market prices; the fair value of the Company's marketable securities is determined based on the pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. Other current assets, accounts payable and accrued liabilities approximate their fair values as of March 31, 2024 and December 31, 2023, due to their short-term nature. The carrying value of the Company’s debt approximates its fair value due to its variable interest rate, which approximates a market interest rate. The success fee obligation associated with the Loan Agreement, as amended, contains unobservable inputs that reflect the Company’s own assumptions in which there is little, if any, market activity at the measurement date, thus the success fee obligation is measured at its fair value on a recurring basis using unobservable inputs.

The fair value of the Company’s financial instruments is summarized in the table below (in thousands):

 

14


 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

15,609

 

 

$

 

 

$

 

 

$

15,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Success fee obligations

 

$

 

 

$

 

 

$

300

 

 

$

300

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

10,402

 

 

$

 

 

$

 

 

$

10,402

 

Corporate Debt Securities

 

 

 

 

 

4,986

 

 

 

 

 

 

4,986

 

Total

 

$

10,402

 

 

$

4,986

 

 

$

 

 

$

15,388

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Success fee obligation

 

$

 

 

$

 

 

$

300

 

 

$

300

 

 

In accordance with the Fourth and Fifth Amendments of the Loan Agreement with PWB, the Company will be required to pay success fees totaling $0.3 million upon the achievement of certain liquidity events; accordingly, the related obligation is recorded as other current liabilities on the condensed consolidated balance sheets as it is deemed more probable than not by the Company to be settled in less than one year. The fair value of the success fee obligation was determined using the probability-weighted expected return method. The key estimates and assumptions impacting the fair value included the probability of achieving a specified liquidity event, the expected timing of achieving a liquidity event and the discount rate. The fair value of the success fee obligation is remeasured at each reporting period, with changes in fair value recognized in the condensed consolidated statements of operations and comprehensive loss, until such liability was settled.

 

As of March 31, 2024, the Company determined it was 100% probable of achieving the specified liquidity events and therefore accrued the full amount of the success fee obligations. The following reflects the significant quantitative inputs used to determine the valuation of the success fee obligation as of March 31, 2024 and December 31, 2023:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Discount rate

 

 

9.0

%

 

 

9.0

%

Expected timing of achieving liquidity events (years)

 

 

0.8

 

 

 

1.0

 

Probability of achieving liquidity events

 

100%

 

 

100%

 

 

The change in fair value of the Company's success fee obligation was immaterial in the three months ended March 31, 2024.

 

9. Commitments and contingencies

 

Leases

The Company has the following operating leases for its corporate offices and lab space located in Cambridge, Massachusetts.

325 Vassar Street

In 2017, the Company entered a noncancelable operating lease agreement to lease its office space at 325 Vassar Street, Cambridge, Massachusetts, which will expire in September 2024. The Company is required to pay property taxes, insurance, and normal maintenance costs. The operating lease contains predetermined fixed escalations of minimum rentals during the lease term. In 2019 and 2020, the Company entered into sublease agreements with two related parties to sublease this office and laboratory space. Refer to Note 16, Related party transactions, for further details.

20 Acorn Park Drive

On July 13, 2020, the Company entered into a Shared Space Arrangement (the Arrangement) with Sail Biomedicines, Inc., (“Sail Bio”, also formerly known as Senda Biosciences, Inc. and Kintai Therapeutics, Inc. prior to its

15


 

merger with LARONDE, Inc.) to share one-third of Sail Bio's 69,867 square feet of leased space at 20 Acorn Park Drive, Cambridge, Massachusetts. Sail Bio is a related party as it is an affiliate of Flagship Pioneering (“Flagship”). The Arrangement commenced on August 1, 2020, with an expiration date of July 31, 2022 and two options to extend the term of the Arrangement for a period of 24 months each. The operating lease contains predetermined fixed escalations of minimum rentals during the lease term, and the Company is required to pay property taxes, insurance, and normal maintenance costs. In January 2022, the Company entered into an amendment to the Arrangement with Sail Bio to exercise the option to renew the lease through July 2023. The Company also modified certain provisions related to the extension term. The Company did not subsequently renew the lease, and the lease expired at the end of July 2023. Refer to Note 16, Related party transactions, for further details.

140 First Street (formerly known as One Charles Park)

On November 4, 2021, the Company entered into a lease with ARE-MA Region No. 94, LLC to lease an aggregate of approximately 89,246 rentable square feet of office and laboratory space located at 140 First Street, Cambridge, Massachusetts, 02142. The lease includes two phases. Phase 1 includes approximately 78,380 rentable square feet. Phase 2 includes 10,866 rentable square feet in a separate suite. In accordance with the lease agreement, the Company paid $0.8 million upon the execution of the lease, which has offset the first month's rent. Phase 1 of the lease commenced in May 2023, and Phase 2 commenced in August 2023.

On May 3, 2023, the Company entered into a first amendment to the lease to, among other things, delay the delivery date of part of the premises, increase the initial base rent by $1.00 per rentable square foot per year, and change the address. The operating lease commenced on May 1, 2023 for the fifth floor premises and August 1, 2023 for the first floor premises for accounting purposes. The lease term for each of the floor premises is fifteen years from the respective commencement date, subject to certain extension rights. The base rent for the leased space is $116.00 per square foot, subject to an annual upward adjustment of 3% of the then current rental rate, starting on the first anniversary of the first full payment of rent under the lease. The operating lease includes a tenant improvement allowance of $300 per rentable square foot that is incorporated into the base rent payments, as well as an additional improvement allowance that is required to be repaid to the landlord as additional monthly rent over the lease term at an interest rate of 8%.

On July 11, 2023, the Company entered into a Shared Space Arrangement with Apriori Bio, Inc. (“Apriori”), and on July 12, 2023, the Company entered into two Shared Space Arrangements with Metaphore Biotechnologies, Inc. (“Metaphore”) and Flagship Labs 89, Inc. (“FL Labs” and, together with Metaphore and Apriori, the “Subtenants”), pursuant to which the Company agreed to sublease an aggregate of approximately 22,500 rentable square feet of office and laboratory space located at 140 First Street, Cambridge, Massachusetts, 02141 (the “Premises”). The Company leases an aggregate of approximately 89,246 rentable square feet of office and laboratory space located at the Premises pursuant to its lease with ARE-MA Region No. 94, LLC. Metaphore, Apriori and FL Labs are affiliates of Flagship Pioneering, a significant stockholder of the Company. The term of the Sublease with Metaphore and FL Labs has commenced in August, 2023 and will end in August, 2025, and the term of the Sublease with Apriori began in September, 2023 and will end in September, 2025. The Subleases provide that the Subtenants will pay to the Company a monthly fee that is a proportionate share of the actual base rent, operating expenses and other costs for the use and occupancy of the subleased portion of the Premises charged by the Landlord under the Lease and paid by the Company. Such proportionate share will be 12.0%, 8.4% and 8.4% for Metaphore, Apriori and Labs, respectively. The total commitment for the Subtenants' share of the base rent over the term of the Subleases is $5.2 million. The Company may terminate each Sublease and require the applicable Subtenant to immediately vacate the Premises if such Subtenant causes a default under the Lease, is in default of any provision in the applicable Sublease or acts in a manner deemed by the Company, in its sole discretion, as dangerous or threatening. The Subleases contain customary covenants, obligations and indemnities in favor of either party. For the three months ended March 31, 2024, the Company received rental income of $1.0 million, which was recorded as a reduction of research and development expense and general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2024, operating lease right-of-use assets, net were $107.4 million, which were recorded separately on the Company’s condensed consolidated balance sheet. The corresponding operating lease liabilities were $109.7 million as of March 31, 2024, of which $12.0 million were recorded in current liabilities and $97.7 million were recorded in long-term liabilities on the Company’s condensed consolidated balance sheet.

The right-of-use assets represent the Company’s right to use an underlying asset during the lease term and the related lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Both the right-of-use assets and the corresponding liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate based on the interest rate from the amended Term Loan, which was fully collateralized, as well as a term matched secured market rate.

16


 

The following table summarizes the components of lease expense for the three months ended March 31, 2024 and 2023 (in thousands).

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating lease expense

 

$

3,792

 

 

$

969

 

Variable lease expense

 

 

1,085

 

 

 

215

 

Total lease expense

 

$

4,877

 

 

$

1,184

 

Variable lease expense generally includes common area maintenance, utilities and property taxes. For the three months ended March 31, 2024 and 2023, $3.6 million and $0.9 million, respectively of lease expense was recorded within research and development expenses and $1.3 million and $0.3 million, respectively was recorded within general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss.

The weighted average remaining lease term and discount rate related to the Company's leases were as follows:

 

 

 

As of

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Weighted average remaining lease term (years)

 

 

14.3

 

 

 

14.5

 

Weighted average discount rate

 

 

8.9

%

 

 

8.9

%

Supplemental cash flow information relating to the Company's leases for the three months ended March 31, 2024 and 2023 were as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

2,335

 

 

$

382

 

Operating lease assets obtained in exchange for lease liabilities

 

$

 

 

$

 

As of March 31, 2024, the estimated minimum lease payments for 140 First Street and 325 Vassar for each of the years ending December 31 were as follows (in thousands):

 

2024 (remaining 9 months)

 

$

9,538

 

2025

 

 

11,887

 

2026

 

 

12,213

 

2027

 

 

12,549

 

2028

 

 

12,895

 

Thereafter

 

 

139,503

 

Total minimum lease payments

 

 

198,585

 

Less: Imputed interest

 

 

(88,867

)

Present value of operating lease liabilities

 

$

109,718

 

Thermo Furniture Sale-Leaseback

In December 2023, the Company entered into a sale-leaseback arrangement with Thermo Fisher Financial Services, Inc. to provide $2.6 million in cash proceeds for previously acquired furniture and equipment. The term of the leaseback is 5 years, with an option to purchase the assets for $1 at the end of the term. The Company concluded the leaseback would be classified as a financing lease. Therefore, the transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. The Company will make monthly payments of $53 thousand over the term of the lease. As of March 31, 2024, $0.4 million of the financing obligation is included in current liabilities and $2.1 million is included in long-term liabilities on the Company’s condensed consolidated balance sheet. The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense and repayment of the financing liability.

 

10. License Agreements

Flagship Pioneering Innovations V, Inc.

In March 2019, the Company entered into an exclusive license agreement with Flagship Pioneering Innovations V, Inc., an affiliate of Flagship, under which the Company was granted an exclusive, worldwide, royalty-bearing, sublicensable, transferable license under specified patent rights to develop, manufacture and commercialize licensed

17


 

products (the “Flagship License”). Under the terms of the Flagship License, the Company is obligated to pay low single digit percentage royalties on net sales of licensed products by the Company. Royalties shall be paid by the Company on a country-by-country basis until expiration or abandonment of the last valid patent claim covering such licensed product in such country. The Company is also obligated to reimburse Flagship for patent prosecution costs.

The royalty payment is contingent upon sales of licensed products under the Flagship License. As such, when such expense is considered probable and estimable at the commencement of sales, the Company will account for the royalty expense as cost of sales for the amount it is obligated.

Whitehead Institute for Biomedical Research

In May 2019, the Company entered into an exclusive license agreement with the Whitehead Institute for Biomedical Research (“WIBR”), an affiliate of one of the Company’s board members, under which the Company was granted an exclusive, worldwide, royalty-bearing, sublicensable license under specified patent rights to research, make, have made, use, sell, offer to sell, lease and import products and to perform and have performed licensed processes (the “WIBR Exclusive License”). Under the terms of the WIBR Exclusive License, the Company paid a nonrefundable upfront fee of less than $0.1 million upon the commencement of the exclusive license agreement. The Company is obligated to pay WIBR annual license maintenance fees of less than $0.1 million and low single digit percentage royalties on net sales of licensed products by the Company and its affiliates and sublicensees. Additionally, the Company is required to make milestone payments of up to $1.7 million in the aggregate for each of the first three licensed products (excluding backup products) upon the achievement of specified clinical and regulatory milestones. In addition, the Company is required to pay to WIBR a percentage of the non-royalty payments that it receives from sublicensees of the WIBR Exclusive License. This percentage ranges from zero to low double-digits and will be based upon the stage of development of the licensed product at the time such sublicense is executed.

In May 2019, the Company also entered into a co-exclusive license agreement with WIBR under which the Company was granted a co-exclusive, worldwide, royalty-bearing, sublicensable license under specified patent rights to research, make, have made, use, sell, offer to sell, lease and import products and to perform and have performed licensed processes (the “WIBR Co-Exclusive License”). Under the terms of the WIBR Co-Exclusive License, the Company paid a nonrefundable upfront fee of less than $0.1 million upon the commencement of the co-exclusive license agreement. The Company is obligated to pay WIBR annual license maintenance fees of less than $0.1 million and low single digit percentage royalties on net sales of licensed products by the Company and its affiliates and sublicensees as well as low single digit percentage royalties on licensed service income received by the Company and its affiliates. Additionally, the Company is required to make milestone payments of up to $1.9 million in the aggregate for each of the first three licensed products (excluding backup products) upon the achievement of specified clinical and regulatory milestones. In addition, the Company is required to pay to WIBR annual fees of less than $0.1 million for each sublicense agreement.

For the three months ended March 31, 2024 and 2023, the Company recognized expenses of $0.2 million and $0.1 million, respectively for the license maintenance fees and milestone payments. There was no outstanding payment due to WIBR as of March 31, 2024 and December 31, 2023.

The annual maintenance fees will be recorded as an expense on an annual basis based on the stated amount for the applicable year. Upon determination that a milestone payment is probable to occur, the amount due will be recorded as research and development expense. Lastly, the royalty payments and the sublicense non-royalty payments are contingent upon sales of licensed products or execution of a sublicense agreement under the WIBR Exclusive and Co-Exclusive Licenses. As such, when such expenses are considered probable and estimable at the commencement of sales or execution of a sublicense agreement, the Company will accrue royalty expense and sublicense non-royalty payments, as applicable, for the amount the Company is obligated.

Acuitas Therapeutics, Inc.

In October 2020, the Company entered into a development and option agreement (the “Development and Option Agreement”) with Acuitas Therapeutics, Inc. (“Acuitas”). Under the terms of the Development and Option Agreement, the parties agreed to jointly develop certain products combining the Company’s gene modulating therapeutics with Acuitas' lipid nanoparticles. Additionally, in accordance with the Development and Option Agreement, the Company has options to obtain non-exclusive, worldwide, sublicensable licenses under Acuitas’ patents and know-how related to lipid nanoparticle technology (“Acuitas LNP Technology”) with respect to two specified targets (e.g., EC constructs) (“Reserved Targets”) to develop and commercialize one or more therapeutic products relating to such targets. For each option and Reserved

18


 

Target, the Company is obligated to pay an annual technology access fee and target reservation and maintenance fees collectively in the low-mid six figures until such Reserved Target is removed from the Reserved Target list or until the Company exercises an option with respect to such Reserved Target. In the event that the Company exercises the options, the Company will pay $1.5 million for the first non-exclusive license and $1.75 million for the second non-exclusive license. Under the terms of the Development and Option Agreement, the Company is also responsible for the full-time equivalent ("FTE") funding obligations, which is expected to be approximately $0.4 million per year, and reimbursements to Acuitas for certain development and material costs incurred by them.

In March 2021, the Company exercised the first option under the Development and Option Agreement and entered into a non-exclusive license agreement with Acuitas (the “Acuitas License Agreement”) under which the Company was granted a non-exclusive, worldwide, sublicensable license under the Acuitas LNP Technology to research, develop, manufacture, and commercially exploit products consisting of the Company’s gene modulating therapeutics and Acuitas’ lipid nanoparticles. In connection with the option exercise, the Company incurred an expense for the option exercise fee of $1.5 million. Under the Acuitas License Agreement, the Company is required to pay Acuitas an annual license maintenance fee in the high six figures until the Company achieves a certain development milestone. Acuitas is entitled to receive potential clinical and regulatory milestone payments of up to $18.0 million in the aggregate if the milestones are achieved. With respect to the sale of each licensed products, the Company is also obligated to pay Acuitas low single digit percentage royalties on net sales of the licensed products by the Company and its affiliates and sublicensees in a given country until the last to occur, in such country, of (i) the expiration or abandonment of all licensed patent rights covering the licensed product, (ii) expiration of any regulatory exclusivity for the licensed product, or (iii) ten years from the first commercial sale of the licensed product.

For the three months ended March 31, 2024 and 2023, the Company recorded an immaterial amount and $0.2 million of research and development expenses, respectively, consisting of technology access fees, target reservation and maintenance fees, the costs of services performed by Acuitas, material costs and reimbursable costs.

The option exercise fee under the Development and Option Agreement was recorded as research and development expense upon the Company’s exercise of the first option. Additionally, the technology access fees, target reservation and maintenance fees, expenses associated with the FTE funding obligations and reimbursements for development and material costs incurred by Acuitas are recorded as research and development expense when incurred. The annual maintenance fee will be recorded as an expense on an annual basis based on the stated amount for the applicable year. Upon determination that a milestone payment is probable to occur, the amount due will be recorded as research and development expense. There were no milestones triggered, and no milestone expense was recorded related to the Acuitas agreements for the three months ended March 31, 2024 and 2023. Lastly, the royalty payment is contingent upon sales of licensed products under the Acuitas License Agreement. As such, when such expenses are considered probable and estimable at the commencement of sales, the Company will accrue royalty expense for the amount the Company is obligated.

 

Nitto Denko Corporation

 

On October 12, 2022, the Company entered into a Collaboration and License Agreement (the "Nitto Agreement”) with Nitto Denko Corporation (“Nitto”), pursuant to which, among other things, Nitto granted the Company an exclusive, worldwide, royalty-bearing, fully transferable and fully sublicensable license under all intellectual property owned or controlled by Nitto relating to its lipid nanoparticle delivery technology.

 

Under the terms of the Nitto Agreement, the Company made an upfront cash payment of $1.0 million, and developmental milestone payments of $1.0 million to Nitto in 2022. Both payments were recorded as research and development expenses. The Company may be required to make up to $83.0 million in future payments to Nitto based upon the achievement of specified development, regulatory and sales milestones. There were no milestones triggered, and no milestone expense was recorded related to the Nitto Agreement for the three months ended March 31, 2024 and 2023. The Company is also obligated to pay to Nitto tiered, single-digit percentage royalties on a country-by-country basis based on net sales of the licensed product, subject to reduction in specified circumstances. As such, when these expenses are considered probable and estimable, the Company will accrue expense for the amount the Company is

19


 

obligated. In May 2024, the Company provided notice to terminate the Nitto Agreement. See Note 18, Subsequent Events.

 

During the three months ended March 31, 2024 and 2023, the Company recorded zero and $0.4 million of research and development expenses, respectively, consisting of material costs, costs of services performed by Nitto, and reimbursable costs.

 

11. Collaboration Agreements

PMCo

In November 2021, the Company entered into a five-year collaboration agreement with PMCo, an affiliate of Flagship, under which PMCo was granted an exclusive license covering specified patent rights of the Company’s lipid nanoparticle technology to develop one or more therapeutic products to treat diseases related to the cystic fibrosis transmembrane conductance regulator gene, like cystic fibrosis. Under the terms of the agreement, the Company will perform certain research activities in accordance with the research plan, and PMCo will be solely responsible for, at its sole cost and expense, and will have sole discretion with respect to, developing, manufacturing, seeking regulatory approval for and commercializing licensed products. The research plan funding may be adjusted upon mutual written agreement from both parties. Additionally, in the event PMCo is acquired or sold, the Company is entitled to receive a portion of the proceeds of such transaction, subject to various reductions and other amounts payable in accordance with the agreement.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, PMCo, is a customer. The Company determined that the research activities and the exclusive license granted under the collaboration agreement is considered as a single performance obligation, and therefore, the transaction price was allocated entirely to the single performance obligation. The Company recognizes revenue related to the single performance obligation over time as the underlying services are performed and/or external costs are incurred.

The total transaction price at March 31, 2024 was determined to be $7.9 million based on the current estimated required efforts to fulfill the performance obligation. This total includes an increase of $1.9 million in the fourth quarter of 2022, an increase of $2.4 million in the third quarter of 2023, and an increase of $0.1 million in the fourth quarter of 2023, all of which were agreed upon with PMCo, to the original transaction price as of the inception of the contract of $3.5 million. As of March 31, 2024, the remaining transaction price was estimated to be $1.9 million, which is expected to be recognized as revenue through 2024.

The Company recognized funded research and collaboration revenue of $1.1 million and $0.5 million in the condensed consolidated statement of operations and comprehensive loss during the three months ended March 31, 2024 and 2023, respectively. Additionally, the Company recognized an immaterial amount of current deferred revenue as of March 31, 2023 based on the period the services are expected to be performed and/or related costs to be incurred. Costs incurred associated with this collaboration agreement were recorded as research and development expenses.

Pursuant to the agreement, the Company is entitled to receive a portion of the sales proceeds in the event PMCo is acquired or sold. At the end of each reporting period, the Company evaluates the probability of occurrence of such transaction. As of March 31, 2024, the Company determined that the proceeds from such transaction was not probable of recognition.

 

Novo Nordisk

On December 31, 2023, the Company entered into a Research Collaboration Agreement with Novo Nordisk A/S ("Novo Nordisk") and Pioneering Medicines 08, Inc., an affiliate of Flagship (and with respect to certain provisions set forth in the agreement, Pioneering Medicines (NN), LLC and PM (NN) Explorations, Inc.). Under the terms of the agreement, the Company granted to Novo Nordisk an exclusive, royalty-bearing, transferable license, with the right to grant sublicenses through multiple tiers, for certain of its intellectual property to conduct research and development activities under an agreed-upon research and development plan relating to a product candidate, or program target, for the prevention, treatment or control of a cardiometabolic disease, including diabetes.

In January 2024, the Company received an upfront nonrefundable payment of $5.1 million from Novo Nordisk and expects to receive approximately $21.6 million in cost reimbursement through 2027 to fund the related research and development activities. The research plan funding may be adjusted upon mutual written agreement from all the parties. The Company is also eligible to receive development and commercial milestone payments, as well as tiered royalties on

20


 

annual net sales of a licensed product. The term of the agreement expires at the end of the royalty term, which is the later of the 10th anniversary of the first commercial sale, the expiration of the last-to-expire payment claim, or expiration of regulatory exclusivity. Upon the expiration of the royalty term for a given licensed product in a given country in the territory, the licenses granted to Novo Nordisk pursuant to the agreement under the Omega licensed intellectual property survive and become perpetual, irrevocable, fully paid-up and royalty free with respect to such licensed product in such country.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Novo Nordisk, is a customer. The Company determined that the research activities and the exclusive license granted under the collaboration agreement is considered as a single combined performance obligation as they are incapable of being distinct. The Company recognizes revenue related to the single performance obligation over time using the input method. Under the input method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation, which the Company believes best measures its progress towards satisfying the combined performance obligation. A cost-based input method of revenue recognition requires management to make estimates of costs to complete performance obligation. In making such estimates, judgment is required to evaluate assumptions related to cost estimates.

As of March 31, 2024, the total transaction price was determined to be $26.7 million based on the upfront nonrefundable payment and estimated required research and development efforts. As of March 31, 2024, the remaining transaction price was estimated to be $25.4 million, which is expected to be recognized as revenue through 2027.

 

The Company recognized funded research and collaboration revenue of $1.3 million in the condensed consolidated statement of operations and comprehensive loss during the three months ended March 31, 2024. Additionally, the Company had $2.0 million of current deferred revenue and $3.6 million of noncurrent deferred revenue as of March 31, 2024 based on the period the services are expected to be performed and/or related costs to be incurred. Costs incurred associated with this collaboration agreement were recorded as research and development expenses.

 

The Company will assess the probability of achieving the milestones and include them in the transaction price when they are deemed probable. Royalties will be recognized when the subsequent sales occur based on the sales or usage-based royalty exception.

 

ASC 606 Disclosures

 

To-date, the Company has only generated revenues from its collaboration agreements with PMCo and Novo Nordisk. During the three months ended March 31, 2024 and 2023, the Company recognized total collaboration revenue of $2.4 million and $0.5 million, respectively.

 

The following table summarizes the Company's contract assets and liabilities (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Contract assets:

 

 

 

 

 

Accounts receivable

$

1,123

 

 

$

6,131

 

Unbilled revenue

 

14

 

 

 

89

 

Contract liabilities:

 

 

 

 

 

Deferred revenue- current

 

2,004