10-Q 1 trda-20230930.htm 10-Q trda-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 001-40969
____________________________
ENTRADA THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
____________________________
Delaware81-3983399
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
One Design Center Place
Suite 17-500
Boston, MA
02210
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (857) 520-9158
_________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareTRDA
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 x No o
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyxEmerging growth companyx
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 31, 2023, the registrant had 33,368,078 shares of common stock, $0.0001 par value per share, outstanding.
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TABLE OF CONTENTS
Page
We own various U.S. federal trademark applications and unregistered trademarks, including our company name and logo, that we use in connection with the operation of our business. This Quarterly Report on Form 10-Q (Quarterly Report) may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Quarterly Report is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this Quarterly Report may appear without the ®, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner of these trademarks, service marks and trade names will not assert, to the fullest extent under applicable law, its rights.
From time to time, we may use our website to distribute material information. Our financial and other material information is routinely posted to and accessible on the Investors Relations section of our website, available at www.entradatx.com. Investors are encouraged to review the Investors Relations section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website is not incorporated into, and does not form a part of, this Quarterly Report.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (Quarterly Report) contains express or implied forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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), that are based on our management’s belief and assumptions and on information currently available to our management. These statements relate to future events or our future operational or 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. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:
the initiation, timing, progress, results and costs of conducting our research and development programs, our current and future preclinical studies, and our current and future clinical trials, 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 current and future programs;
the ability of our preclinical studies and clinical trials to demonstrate safety and efficacy of our therapeutic candidates, and other positive results;
the beneficial characteristics, and the potential safety, efficacy and therapeutic effects of our therapeutic candidates;
the timing, scope and likelihood of regulatory filings and approvals, including timing of Investigational New Drug (IND) applications and final U.S. Food and Drug Administration (FDA) or foreign equivalent approval of our current therapeutic candidates or any future therapeutic candidates;
the timing or content of any update regarding our regulatory filings;
the ability to leverage our proprietary EEV Platform to efficiently develop additional therapeutic candidates, including by applying learnings from one program to other programs and from one indication to our other indications;
our estimates of the number of patients that we will enroll and our ability to initiate, recruit and enroll patients in and conduct and successfully complete clinical trials at the pace that we project;
the costs of manufacturing and our ability to scale-up our manufacturing and processing approaches to appropriately address our anticipated commercial needs, which will require significant resources;
our ability to establish or maintain collaborations or strategic relationships and the ability and willingness of our third-party strategic collaborators to undertake research and development activities relating to our current or future therapeutic candidates and discovery programs;
our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions we have entered into or may enter into in the future;
the potential benefits of our technologies and programs, including those with strategic partners;
our ability to obtain funding for our operations necessary to complete further development and commercialization of our therapeutic candidates;
our ability to take advantage of expedited regulatory pathways for our therapeutic candidates;
our ability to obtain and maintain regulatory approval of our therapeutic candidates;
the implementation of our business model, and strategic plans for our business, therapeutic candidates, and technology;
the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates and other therapeutic candidates we may develop, including the extensions of existing patent terms where available, the validity of intellectual property;
rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;
the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;
our financial performance and estimates of our future expenses, revenues, capital requirements, use of our cash reserves, and our needs for additional financing;
future agreements with third parties in connection with the development and commercialization of our therapeutic candidates and any other approved product;
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the rate and degree of market acceptance and the size and growth potential of the markets for our therapeutic candidates, and our ability to serve those markets;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
our ability to produce our therapeutic candidates with advantages in turnaround times or manufacturing cost;
our competitive position and the success of competing therapies that are or may become available;
our need for and ability to attract and retain key scientific, management and other personnel and to identify, hire and retain additional qualified professionals;
our expectations regarding the period during which we will remain an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act);
our anticipated use of our existing resources;
the expected timing, progress and success of our collaboration with Vertex, including any future payments we may receive under our collaboration and license agreements, as well as our ability to identify and enter into future license agreements and collaborations;
our beliefs and expectations regarding milestone, royalty or other payments that could be due to third parties under existing agreements;
disruptions and instability in the banking industry and other parts of the financial service sector;
the impact of global economic and political developments on our business, including rising inflation and capital market disruptions, the current conflicts in Ukraine and the Middle East, economic sanctions and economic slowdowns or recessions that may result from such developments which could harm our research and development efforts as well as the value of our common stock and our ability to access capital markets; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”
In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “seek,” “predict,” “future,” “project,” “potential,” “continue,” “target,” "contemplate," "possible," "can," or the negative of these terms or other comparable terminology, and similar expressions, although not all forward-looking statements contain these identifying words. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this Quarterly Report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with the Securities and Exchange Commission (the SEC) thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this Quarterly Report represent our views as of the date of this Quarterly Report. We do not undertake any obligation to publicly update any forward-looking statement except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.
This Quarterly Report also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as 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. All of the market data used in this Quarterly Report involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research, and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
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This Quarterly Report contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed as exhibits to this Quarterly Report. Unless the context otherwise requires, reference in this Quarterly Report to the terms “Entrada,” “Entrada Therapeutics,” “the Company,” “we,” “us,” “our,” and similar designations refer to Entrada Therapeutics, Inc. and, where appropriate, our wholly-owned subsidiary.

5

SUMMARY OF MATERIAL AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to numerous risks and uncertainties and are subject to change based on various factors, including those highlighted in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q (Quarterly Report). These risks include, but are not limited to, the following:
We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We may never generate any revenue from product sales or become profitable or, if we achieve profitability, we may not be able to sustain it.
We will require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our development programs, commercialization efforts or other operations.
We are early in our development efforts and as a result it will be years before we commercialize a therapeutic candidate, if ever. If we are unable to identify and advance therapeutic candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them, or experience significant delays in doing so, our business will be materially harmed.
The U.S. Food and Drug Administration (FDA) has placed the Investigational New Drug (IND) application for ENTR-601-44 for the potential treatment of Duchenne muscular dystrophy on clinical hold. Should our response to the clinical hold in the United States not be satisfactory to the FDA, the clinical hold may not be lifted on a timely basis, or at all.
Our business is highly dependent on the clinical advancement of our programs and modalities and is especially dependent on the success of our lead Endosomal Escape Vehicle (EEV) therapeutic candidates, ENTR-601-44, ENTR-601-45, ENTR-601-50 and our partnered candidate ENTR-701. Delay or failure to advance programs or modalities, including ENTR-601-44, ENTR-601-45, ENTR-601-50 and ENTR-701 could adversely impact our business.
Our EEV therapeutic candidates are based on a novel therapeutic approach, which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all.
Preclinical and clinical development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical studies are not necessarily predictive of the results of later preclinical studies and any clinical trials of our therapeutic candidates. We have not completed the testing of any of our therapeutic candidates in clinical trials and our therapeutic candidates may not have favorable results in clinical trials, if any, or receive regulatory approval on a timely basis, if at all.
Substantial delays in the commencement of our planned clinical trials or the enrollment or completion of our current or planned clinical trials, or failure to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities could prevent us from commercializing any therapeutic candidates we determine to develop on a timely basis, if at all.
Our approach to the discovery and development of therapeutic candidates based on our EEV platform (EEV Platform) is unproven, and we do not know whether we will be able to develop any products of commercial value, or if competing technological approaches will limit the commercial value of our therapeutic candidates or render our EEV Platform obsolete.
We rely, and expect to continue to rely, on third parties to conduct some or all aspects of our product manufacturing, research and preclinical and clinical testing, and these third parties may not perform satisfactorily or, dedicate adequate resources to meet our needs, or may be unable to acquire the necessary supplies to perform successfully.
We have and may in the future enter into collaborations, licenses and other similar arrangements with third parties for the research, development and commercialization of certain of the therapeutic candidates we may develop, including our collaboration with Vertex Pharmaceuticals Incorporated (Vertex). If any such arrangements are not successful, we may not be able to capitalize on the market potential of those therapeutic candidates.
We face significant competition, and if our competitors develop technologies or therapeutic candidates more rapidly than we do or their technologies are more effective, our business and our ability to develop and successfully commercialize products may be adversely affected.
We expect to expand our development and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
While we will attempt to diversify our risks by developing one or more programs in each modality, there are risks that are unique to each modality and risks that are applicable across modalities. These risks may impair our ability
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to advance one or more of our programs in clinical development, obtain regulatory approval, or ultimately commercialize our programs, or cause us to experience significant delays in doing so, any of which may materially harm our business.
If we or our collaborators are unable to obtain and maintain patent protection for our EEV Platform, therapeutic development programs and other proprietary technologies we develop, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our therapeutic programs and other proprietary technologies we may develop may be adversely affected.
Our future success depends on our ability to retain key employees and to attract, retain and motivate qualified personnel.
The market price of our common stock may be volatile, and investors could lose all or part of their investment.
Volatility in capital markets may affect our ability to access new capital, which may harm our liquidity, limit our ability to grow our business, pursue acquisitions or improve our operating infrastructure and restrict our ability to compete in our markets.
Unstable market and economic conditions may have adverse consequences for our business, financial condition and stock price.
The material and other risks summarized above should be read together with the text of the full risk factors and in the other information set forth in this Quarterly Report, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission (the SEC). If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.
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PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
ENTRADA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(unaudited)
September 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$51,882$45,157
Marketable securities301,696143,555
Collaboration receivable5,025
Prepaid expenses and other current assets24,44021,163
Total current assets383,043209,875
Property and equipment, net11,0427,681
Restricted cash3,9503,950
Right-of-use assets, operating leases84,01725,340
Other non-current assets2,9815,210
Total assets$485,033$252,056
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$752$5,990
Accrued expenses and other current liabilities9,5997,576
Operating lease obligations, current portion6,6428,406
Deferred revenue, current portion148,440
Total current liabilities165,43321,972
Operating lease obligations, net of current portion62,43117,530
Deferred revenue, net of current portion10,506
Total liabilities238,37039,502
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, par value $0.0001; 150,000,000 shares authorized; 33,361,365 shares issued and 33,340,216 shares outstanding as of September 30, 2023 and 31,448,508 shares issued and 31,394,767 shares outstanding as of December 31, 2022
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Additional paid‑in capital432,582402,893
Accumulated other comprehensive loss(496)(2,057)
Accumulated deficit(185,426)(188,285)
Total stockholders’ equity246,663212,554
Total liabilities and stockholders’ equity$485,033$252,056
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ENTRADA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Collaboration revenue$43,735$$87,165$
Operating expenses:
Research and development22,19118,95871,59350,924
General and administrative7,5326,97823,63920,745
Total operating expenses29,72325,93695,23271,669
Income (loss) from operations
14,012(25,936)(8,067)(71,669)
Other income:
Interest and other income4,05179910,9261,682
Total other income4,05179910,9261,682
Income (loss) before benefit from income taxes
18,063(25,137)2,859(69,987)
Benefit from income taxes
17,398   
Net income (loss)
35,461$(25,137)$2,859 $(69,987)
Net income (loss) per share, basic
$1.07$(0.80)$0.09 $(2.24)
Net income (loss) per share, diluted
$1.02$(0.80)$0.08 $(2.24)
Weighted‑average common shares outstanding, basic
33,281,28731,298,05232,942,95831,273,612
Weighted‑average common shares outstanding, diluted
34,775,45131,298,05234,289,41131,273,612
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities509(482)1,561(2,747)
Total other comprehensive gain (loss)509(482)1,561(2,747)
Total comprehensive income (loss)
$35,970$(25,619)$4,420 $(72,734)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ENTRADA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(unaudited)
Common StockAdditional
Paid‑in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balances at December 31, 202131,224,336 $3 $392,384 $ $(93,669)$298,718 
Issuance of common stock upon exercise of stock options24,891 — 50 — — 50 
Vesting of early exercised options15,224 — 35 — — 35 
Stock-based compensation— — 1,794 — — 1,794 
Other comprehensive loss— — — (1,535)— (1,535)
Net loss— — — — (21,671)(21,671)
Balances at March 31, 2022
31,264,451 $3 $394,263 $(1,535)$(115,340)$277,391 
Issuance of common stock upon exercise of stock options5,259 — 11 — — 11 
Vesting of early exercised options14,738 — 34 — — 34 
Stock-based compensation— — 2,512 — — 2,512 
Other comprehensive loss— — — (730)— (730)
Net loss— — — — (23,179)(23,179)
Balances at June 30, 2022
31,284,448 $3 $396,820 $(2,265)$(138,519)$256,039 
Issuance of common stock upon exercise of stock options26,868 $— $60 $— $— $60 
Vesting of early exercised options14,057 $— $33 $— $— $33 
Stock-based compensation— $— $2,707 $— $— $2,707 
Other comprehensive loss— $— $— $(482)$— $(482)
Net loss— $— $— $— $(25,137)$(25,137)
Balances at September 30, 2022
31,325,373 $3 $399,620 $(2,747)$(163,656)$233,220 
The accompanying notes are an integral part of these condensed consolidated financial statements.

ENTRADA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY - CONTINUED
(In thousands, except share amounts)
(unaudited)

Common StockAdditional
Paid‑in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balances at December 31, 2022
31,394,767 $3 $402,893 $(2,057)$(188,285)$212,554 
Issuance of common stock upon exercise of stock options18,344 — 129 — — 129 
Vesting of early exercised options10,153 — 26 — — 26 
Vesting of restricted stock units91,859 — — — — — 
Issuance of common stock in connection with the Vertex Agreement1,618,613 — 19,407 — — 19,407 
Stock‑based compensation— — 2,755 — — 2,755 
Other comprehensive income (loss)— — — 1,415 — 1,415 
Net loss— — — — (6,674)(6,674)
Balances at March 31, 2023
33,133,736 $3 $425,210 $(642)$(194,959)$229,612 
Issuance of common stock upon exercise of stock options46,175 — 257 — — 257 
Vesting of early exercised options9,468 — 25 — — 25 
Purchase of common stock under the employee stock purchase plan16,314 — 186 — — 186 
Stock‑based compensation— — 3,119 — — 3,119 
Other comprehensive income (loss)— — — (363)— (363)
Net loss— — — — (25,928)(25,928)
Balances at June 30, 2023
33,205,693 $3 $428,797 $(1,005)$(220,887)$206,908 
Issuance of common stock upon exercise of stock options80,630 $— $368 $— $— $368 
Vesting of early exercised options7,391 $— $21 $— $— $21 
Vesting of restricted stock units46,502 $— $— $— $— $— 
Stock‑based compensation— $— $3,396 $— $— $3,396 
Other comprehensive income (loss)— $— $— $509 $— $509 
Net income
— $— $— $— $35,461 $35,461 
Balances at September 30, 2023
33,340,216 $3 $432,582 $(496)$(185,426)$246,663 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ENTRADA THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
20232022
Cash flows from operating activities:
Net income (loss)
$2,859 $(69,987)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense2,1051,369
Stock‑based compensation expense9,2707,013
Net amortization of premium (accretion of discount) on marketable securities(3,780)255
Changes in operating assets and liabilities:
Collaboration receivable(5,025) 
Prepaid expenses and other current assets(3,894)(12,020)
Right-of-use assets, operating leases11,1465,609
Other non-current assets(11,754)(82)
Accounts payable(5,211)694
Accrued expenses and other current liabilities1,8576,104
Operating lease liabilities(12,703)(5,437)
Deferred revenue158,946
Net cash provided by (used in) operating activities143,816(66,482)
Cash flows from investing activities:
Purchases of property and equipment(4,638)(2,179)
Purchases of marketable securities(318,686)(221,977)
Maturities of marketable securities165,88656,714
Net cash used in investing activities(157,438)(167,442)
Cash flows from financing activities:
Proceeds from issuance of common stock in connection with the Vertex Agreement 19,407
Proceeds from exercise of stock options754121
Proceeds from issuance of common stock under the employee stock purchase plan186
Net cash provided by financing activities20,347121
Net increase (decrease) in cash, cash equivalents, and restricted cash6,725(233,803)
Cash, cash equivalents, and restricted cash at beginning of period49,107291,064
Cash, cash equivalents, and restricted cash at end of period$55,832$57,261
Supplemental cash flow disclosures:
Purchases of property and equipment included in accounts payable and accrued expenses$299$32
Right-of-use assets obtained in exchange for operating lease liabilities$77,584$
Right-of-use assets surrendered as part of lease modification$7,761$
Recognition of right-of use asset upon adoption of ASC 842$$32,991
Transfer of deposits for equipment from operating to investing cash flows$617$495
Vesting of options early exercised subject to repurchase$72$102
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ENTRADA THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Nature of the Business
Organization
Entrada Therapeutics, Inc. (Entrada or the Company) aims to transform the lives of patients by establishing Endosomal Escape Vehicle (EEVTM) therapeutics as a new class of medicines and to become the world’s foremost intracellular therapeutics company. The Company was incorporated in Delaware on September 22, 2016 and its principal offices are located in Boston, Massachusetts.
Liquidity and Capital Resources
Since its inception, the Company has devoted substantially all of its resources to its research and development efforts relating to its proprietary, highly versatile and modular EEV platform (EEV Platform), advancing development of its portfolio of programs and general and administrative support for these operations, including raising capital. The Company is subject to risks and uncertainties common to earlier stage companies in the biotechnology industry, including, but not limited to, technical risks associated with the successful research, development and manufacturing of therapeutic candidates, development 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. Therapeutic candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.
In accordance with Accounting Standards Codification (ASC) 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. Since its inception, the Company has incurred significant net losses. As of September 30, 2023, the Company had an accumulated deficit of $185.4 million. To date, the Company has funded its operations primarily through the sale of equity securities and collaboration payments. Other than the upfront collaboration payment received during the nine months ended September 30, 2023 which resulted in positive cash flows for the period ended September 30, 2023 and the recognition of revenue related to such upfront payment, the Company expects to continue to generate operating losses and negative operating cash flows for the foreseeable future.
The Company expects that its cash, cash equivalents and marketable securities of $353.6 million as of September 30, 2023 will be sufficient to fund its operations and capital expenditure requirements for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. The Company will need additional financing to support its continuing operations and pursue its business strategy and may pursue additional cash resources through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing, or other arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed or on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.
2. Summary of Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023 are consistent with those discussed in Note 2 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the SEC) on March 6, 2023 (Annual Report), except as noted immediately below.
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Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with generally accepted accounting principles in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). The condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted, as is permitted by GAAP. These condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position as of September 30, 2023, and results of operations for the interim periods ended September 30, 2023 and 2022.
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the years ended December 31, 2022 and 2021, and the notes thereto, included in the Company’s Annual Report.
Revenue Recognition
The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (ASC 808) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of Topic 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606. For those elements of the arrangement that are accounted for pursuant to Topic 606, the Company applies the five-step model described below.
To date, all revenue has been generated from the Company's Strategic Collaboration and License Agreement with Vertex, which closed in February 2023 and was amended in October 2023 (Vertex Agreement), and falls within the scope of ASC Topic 606, "Revenue from Contracts with Customers" (ASC 606), under which the Company licensed rights to ENTR-701 and performs research and development services. The terms of this arrangement includes a non-refundable upfront payment, reimbursement for research and development costs; development, regulatory, and commercial milestone payments; and royalties on net sales of licensed products.
Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

For contracts within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered separate performance obligations. The identification of material rights requires judgments related to the determination of the value of the underlying license relative to the option exercise price, including assumptions about technical feasibility and the probability of developing a candidate that would be subject to the option rights. The exercise of a material right is accounted for as a contract modification for accounting purposes.

The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to
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make judgments about the individual promised goods or services and whether such promised goods or services are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (SSP) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations may require significant judgment. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.

If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price in the period in which the Company deems the milestone to be probable. Milestone payments that are not within the Company’s control or a customer's control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.

Up-front and milestone payments are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as a collaboration receivable when the Company's right to consideration is unconditional.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied, either at a point in time or over time, and if over time recognition is based on the use of an output or input method.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires that credit losses for financial instruments measured at amortized cost be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with
14

unrealized losses, this standard requires allowances to be recorded for any credit losses instead of reducing the amortized cost of the investment. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. For Emerging Growth Companies (EGCs), such as the Company, the new standard became effective beginning January 1, 2023. This guidance did not have a material impact on the Company's condensed consolidated financial statements.
3. Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. At September 30, 2023 and December 31, 2022, cash and cash equivalents include standard checking accounts and money market account funds that invest primarily in U.S. government-backed securities and treasuries.
As of September 30, 2023 and December 31, 2022, restricted cash represents collateral provided for a letter of credit issued as a security deposit in connection with the Company’s lease of its corporate facilities located at One Design Center Place, Boston, Massachusetts. A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the statement of cash flows is as follows (in thousands):

September 30,
2023
December 31,
2022
Cash and cash equivalents$51,882 $45,157 
Restricted cash3,950 3,950 
Total cash, cash equivalents and restricted cash$55,832 $49,107 
4. Marketable Securities
The following are summaries of the Company's marketable securities at September 30, 2023 and December 31, 2022 (in thousands).
September 30, 2023Amortized CostUnrealized GainsUnrealized LossesFair Value
U.S. government agency securities and treasuries$250,310 $3 $(310)$250,003 
Corporate debt securities48,885  (177)48,708 
Total securities with a maturity of one year or less$299,195 $3 $(487)$298,711 
U.S. government agency securities and treasuries2,997  (12)2,985 
Corporate debt securities    
Total securities with a maturity of more than one year$2,997 $ $(12)$2,985 
Total available-for-sale securities$302,192 $3 $(499)$301,696 
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December 31, 2022Amortized CostUnrealized GainsUnrealized LossesFair Value
U.S. government agency securities and treasuries$100,555 $ $(1,159)$99,396 
Corporate debt securities41,615  (774)40,841 
Total securities with a maturity of one year or less$142,170 $ $(1,933)$140,237 
U.S. government agency securities and treasuries    
Corporate debt securities3,442  (124)3,318 
Total securities with a maturity of more than one year$3,442 $ $(124)$3,318 
Total available-for-sale securities$145,612 $ $(2,057)$143,555 

As of September 30, 2023, the Company had 44 marketable securities with a total fair market value of $248.6 million in an unrealized loss position. All of the Company’s investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive loss. The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classifies all securities as available for sale.

The Company believes that any unrealized losses associated with the decline in value of its securities are temporary and believes that it is more likely than not that it will be able to hold its debt securities to maturity and that there was no material change in the credit risk of the above instruments since January 1, 2023. Therefore, the Company anticipates a full recovery of the amortized cost basis of its debt securities at maturity and no allowance for credit losses was recognized.

As of September 30, 2023 and December 31, 2022, $1.2 million and $0.6 million, respectively, of accrued interest receivable was included in prepaid expenses and other current assets.

5. Fair Value Measurements
The following tables present the Company’s fair value hierarchy for its assets that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):
Fair Value Measurements at
September 30, 2023
Level 1Level 2Level 3Total
Cash equivalents: (1)
Money market funds$51,383$$$51,383
Marketable securities:
U.S. government agency securities and treasuries 252,988252,988
Corporate bonds48,70848,708
Total$51,383$301,696$$353,079
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Fair Value Measurements at
December 31, 2022
Level 1Level 2Level 3Total
Cash equivalents: (1)
Money market funds$44,907$$$44,907
Marketable securities:
U.S. government agency securities and treasuries$$99,396$$99,396
Corporate bonds44,15944,159
Total$44,907$143,555$$188,462
(1)The cash equivalent amounts above do not include $0.5 million and $0.3 million of cash related to checking accounts included in cash and cash equivalents as of September 30, 2023 and December 31, 2022, respectively. These amounts are excluded as no valuation is needed for cash in checking accounts.
(2)The amortized cost of debt securities classified as cash equivalents approximated fair value.
Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. The Company measures its debt securities at fair value on a recurring basis using inputs that are observable or can be corroborated by observable market data and classifies those instruments within Level 2 of the fair value hierarchy.
6. Property and Equipment, Net
Property and equipment, net consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):
September 30,
2023
December 31,
2022
Laboratory equipment$11,661$8,335
Furniture and fixtures2,201161
Computer equipment43143
Leasehold improvements1,8591,859
Construction in progress584
Total property and equipment16,15210,982
Less: accumulated depreciation(5,110)(3,301)
Property and equipment, net$11,042$7,681
Depreciation expense for the three months ended September 30, 2023 and 2022 was $0.8 million and $0.5 million, respectively. Depreciation expense for nine months ended September 30, 2023 and 2022 was $2.1 million and $1.4 million, respectively.
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7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following at September 30, 2023 and December 31, 2022 (in thousands):
September 30,
2023
December 31,
2022
Employee compensation and benefits$5,134$5,063
External research and development expenses2,7671,157
General and administrative professional service expenses754925
Other944431
Total accrued expenses and other current liabilities$9,599$7,576
8. Common Stock and Preferred Stock
Common Stock
As of September 30, 2023 and December 31, 2022, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 150,000,000 shares of common stock, par value $0.0001 per share.
In February 2023, in connection with the closing of the Vertex Agreement, the Company and Vertex also closed their Stock Purchase Agreement for the sale and issuance of 1,618,613 shares of Entrada's common stock (the “Shares”) to Vertex for an aggregate purchase price of approximately $26.3 million or $16.26 per share. See Note 13, Collaboration and License Agreements, for further discussion of the Company's accounting for the shares sold in connection with the closing of the Vertex Agreement.
In September 2023, the Company entered into a sales agreement (the Sales Agreement) with Cowen and Company, LLC, acting as the Company's agent and/or principal (the Sales Agent), with respect to an "at the market offering" program under which the Company may, from time to time, at its sole discretion, issue and sell shares of its common stock having an aggregate offering price of up to $150.0 million through the Sales Agent. During the three and nine months ended September 30, 2023, there have been no sales of common stock pursuant to the Sales Agreement.
Shares Reserved for Future Issuance
The Company has reserved the following shares of common stock for future issuance as of:
September 30,
2023
December 31,
2022
Exercise of outstanding stock options5,562,547 5,028,850 
Vesting of outstanding restricted stock1,179,305 463,964 
Future awards under the 2021 Stock Option and Incentive Plan1,707,730 1,976,758 
Future awards under the 2021 Employee Stock Purchase Plan861,286 563,115 
Total shares of authorized common stock reserved for future issuance9,310,868 8,032,687 
Preferred Stock
As of September 30, 2023 and December 31, 2022, the Company was authorized to issue 10,000,000 shares of undesignated preferred stock, par value $0.0001 per share, in one or more series and to fix the rights, preferences, privileges and restrictions thereof. As of September 30, 2023 and December 31, 2022, there were no shares of undesignated preferred stock issued or outstanding.
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9. Stock-Based Compensation
2021 Plan
The total remaining shares of common stock authorized for issuance under the 2021 Stock Option and Incentive Plan increased from 5,262,917 as of December 31, 2022 to 6,368,021 as of September 30, 2023 primarily due to the automatic annual increase provision.
2016 Plan
The total remaining shares of common stock authorized for issuance under the 2016 Stock Incentive Plan as of September 30, 2023 and December 31, 2022 were 2,081,561 shares and 2,206,655 shares, respectively.
2021 Employee Stock Purchase Plan
The total remaining shares of common stock authorized for issuance under the 2021 Employee Stock Purchase Plan (2021 ESPP) increased from 563,115 as of December 31, 2022 to 861,286 as of September 30, 2023 due to the automatic annual increase provision within the 2021 ESPP.
Stock-Based Compensation
Stock-based compensation expense recorded in the condensed consolidated statements of operations and comprehensive loss is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Research and development expenses$1,601$1,158$4,317$2,836
General and administrative expenses1,7951,5494,9534,177
Total$3,396$2,707$9,270$7,013
Stock Option Valuation
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted during the nine months ended September 30, 2023 and 2022:
September 30,
2023
September 30,
2022
Risk‑free interest rate4.09 %2.11 %
Expected volatility72 %71 %
Expected dividend yield  
Expected term (in years)6.026.04
Early Exercise of Unvested Stock Options
Shares purchased by employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding shares until those shares vest according to their respective vesting schedules. Cash received from employee exercises of unvested options is included in current liabilities on the balance sheet. Amounts recorded are reclassified to common stock and additional paid-in capital as the shares vest. Vesting can occur in the year of exercise and thereafter. There were 21,149 and 53,741 unvested shares related to early exercises of stock options as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023 and December 31, 2022, the liability associated with the unvested early exercise of stock options was $0.1 million and $0.2 million, respectively.
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Stock Options
The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2023:
Number of
Shares
Weighted‑
Average
Exercise
Price
Outstanding as of December 31, 2022
5,028,850$10.95
Granted799,14413.79
Exercised(145,149)5.20
Forfeited(120,298)15.16
Outstanding as of September 30, 2023
5,562,547$11.40
Exercisable as of September 30, 2023(1)
3,232,149$9.20
(1)This represents the number of vested and unvested options exercisable as of September 30, 2023.
The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2023 and 2022 was $9.19 per share and $7.26 per share, respectively. As of September 30, 2023, there was $23.8 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.40 years.
Restricted Stock Units
During the nine months ended September 30, 2023, restricted stock units (RSUs) were granted to employees with vesting conditions based on continued service over time. Accordingly, stock-based compensation expense for such awards is recognized using a straight-line attribution model over the vesting term of each RSU. The fair value of each RSU is based on the closing price of the Company's common stock on the date of grant.
A summary of restricted stock activity during the nine months ended September 30, 2023 is as follows:
SharesWeighted‑
Average
Grant‑Date
Fair Value
Unvested as of December 31, 2022
463,964$12.26
Granted890,647$14.22
Vested(138,361)$12.30
Forfeited(36,945)$12.27
Unvested as of September 30, 2023
1,179,305$13.74
As of September 30, 2023, there was $14.9 million of unrecognized stock-based compensation expense related to restricted stock that is expected to vest. These costs are expected to be recognized over a weighted-average remaining vesting period of 3.3 years.
10. Income Taxes
The Company records income tax expense in any interim period based on the estimated effective tax rate for the fiscal year for those tax jurisdictions in which the Company can reliably estimate the effective tax rate. The calculation of the estimated effective tax rate requires an estimate of pre-tax income by tax jurisdiction as well as total tax expense for the fiscal year. Accordingly, the annual estimated effective tax rate is subject to adjustment if there are changes to the initial estimates of total tax expense or pre-tax income.

Provision for Income Taxes

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The Company recorded income tax benefit of $17.4 million for the three months ended September 30, 2023 and $0.0 million for the nine months ended September 30, 2023. On a full year basis, the Company continues to forecast a current income tax liability largely driven by tax recognition of the Vertex Agreement upfront payment received in 2023 though the Company continues to be in a full valuation allowance. The combination of a forecasted current income tax liability as compared to a forecasted pre-tax loss results in a forecasted negative effective tax rate for the year ended December 31, 2023. Application of the negative effective tax rate to year to date pre-tax book income results in a tax benefit for the quarter limited to the amount of previously recognized tax expense. The Company expects to record a provision in the fourth quarter equal to the amount of the forecasted full year current tax liability. Any counterintuitive results during an interim period are mainly a result of the relationship of the quarterly and year to date results with the projected effective tax rate. The Company reported no income tax provision in the three and nine months ended September 30, 2022, as the Company generated a taxable loss, offset by an increase to the Company’s valuation allowance.

Despite the collaboration revenue, the Company continues to maintain a valuation allowance against all remaining deferred tax assets. The Company believes that it is more likely than not that it will not realize a future tax benefit of these attributes as the Company expects to continue to generate operating losses. Ultimate realization of any deferred tax asset is dependent on the Company’s ability to generate sufficient future taxable income in the appropriate tax jurisdiction before the expiration of carryforward periods, if any.

The Company currently anticipates that there will be no change in its unrecognized tax benefits in the next twelve months. As of September 30, 2023, the Company had no unrecognized tax benefits. The Company has not yet conducted a study of its research and development credit carryforwards. Such a study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amount is being presented as an uncertain tax position.
11. Commitments and Contingencies
The Company's commitments, including significant license agreements, are disclosed in Note 10 Commitments and Contingencies in the audited financial statements for the year ended December 31, 2022, and notes thereto, included in the Company’s Annual Report. Since the date of those financial statements, there have been no material changes to its commitments except those discussed below.
Concurrently with the Company entering into and later amending the Vertex Agreement, the Company entered into a sublicense agreement with Vertex, which was amended in October 2023 (Sublicense Agreement). Pursuant to the Sublicense Agreement, the Company granted to Vertex an exclusive sublicense under certain intellectual property licensed to the Company under the license agreement (OSIF License Agreement), dated December 14, 2018, by and between the Company and Ohio State Innovation Foundation (OSIF), as amended. See Note 10, Commitments and Contingencies, in the Company's audited financial statements for the year ended December 31, 2022 for further discussion of the OSIF License Agreement. The material terms of the Sublicense Agreement mirror those of the Vertex Agreement, and the payments described in connection with the Vertex Agreement above are in consideration for the rights granted under both the Vertex Agreement and Sublicense Agreement. Pursuant to the OSIF License Agreement, in April 2023, the Company paid OSIF a sublicense fee of $2.8 million. The sublicense fee was recorded in research and development expenses for the nine months ended September 30, 2023. No other sublicense fees were owed to OSIF as of September 30, 2023. If the Company receives any additional sublicensing consideration, it will owe additional fees to OSIF pursuant to the terms of the OSIF License Agreement.
12. Leases
The Company’s operating lease activity is comprised of non-cancelable facility leases for office and laboratory space in Boston, Massachusetts.
6 Tide Street Lease
The Company entered into an operating lease for office and laboratory space in Boston, Massachusetts in February 2020 (6 Tide Street Lease), and entered into subsequent amendments through 2023. The amendments run co-terminus with the existing lease. The Company has a total of 23,189 square feet licensed at this facility. The Company has the option to terminate the lease and amendments after November 30, 2023 without penalty. At the adoption of ASC 842, the Company concluded that it is not reasonably certain that it will exercise this option to terminate the lease early.
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In January 2023, the Company entered into an amendment to the 6 Tide Street Lease pursuant to which the Company will cease making lease payments for a portion of the leased space no later than November 30, 2023. In September 2023, the Company entered into an additional amendment to the 6 Tide Lease pursuant to which the Company surrendered a portion of the leased space and will cease making lease payments for such portion no later than November 30, 2023. The term for the remainder of the lease will end on November 30, 2025. Following the amendment, the fixed rental payment will be approximately $0.7 million per month through November 30, 2023, and $0.4 million per month after November 30, 2023. Subsequent to the amendment, the Company continues to classify the 6 Tide Street Lease as an operating lease. Upon the lease modification, the Company reassessed its incremental borrowing rate and remeasured the lease liability and right-of-use asset.
In connection with entering into the 6 Tide Street Lease, the Company paid a security deposit of $0.8 million, of which $0.4 million is recorded as a component of other non-current assets and $0.4 million is recorded as a component of other current assets as of September 30, 2023.
IDB Lease
On March 16, 2022, the Company and IDB 17-19 Drydock Limited Partnership, as landlord (Landlord), entered into a lease agreement (IDB Lease) with respect to approximately 81,229 square feet of office and laboratory space (Premises) in Boston, Massachusetts. The initial fixed rental rate is $0.5 million per month, which is for a 12 month period during which the base rent is payable for 65,000 square feet, and will increase 3% per annum thereafter for the entire 81,229 square feet leased.
The accounting commencement date occurred in April 2023 when both the Landlord's build-out and the tenant improvements were substantially completed. On the accounting commencement date, the Company recorded an operating lease right-of-use (ROU) asset of $77.6 million and a total lease liability of $63.6 million.
The IDB Lease has a term of approximately 10 years, unless earlier terminated in accordance with the terms of the IDB Lease. The Company has (i) the option to extend the IDB Lease for an additional period of five (5) years, and (ii) a right of first offer on adjacent space to the Premises, subject to the terms and conditions of the IDB Lease. As these options are not reasonably certain of occurring, they have not be included in the initial calculation of the Company's ROU asset upon lease commencement.

    Under the terms of the IDB Lease, the Landlord provided an allowance of $19.5 million toward the cost of completing tenant improvements for the Premises. In addition, the Landlord provided an additional contribution of $1.6 million toward the cost of tenant improvements to the Premises, which amount shall be repaid by the Company over the term of the IDB Lease. Such repayments are included in the maturity of the lease liability table below.
The Company concluded that the improvements resulting from both the Landlord's build-out and the tenant improvements are the Landlord's assets for accounting purposes. Costs incurred by the Company related to the tenant improvements in excess of the Landlord's allowance were reclassified from other non-current assets to right-of-use assets upon commencement of the IDB lease and will be recognized as rent expense over the remaining lease term. As of September 30, 2023, the Company had received the full tenant improvement allowance from the Landlord.
In connection with the execution of the IDB Lease, the Company executed a cash-collateralized letter of credit, which may be reduced in the future subject to reduction requirements specified in the IDB Lease therein. The cash collateralizing the letter of credit is classified as restricted cash on the Company's condensed consolidated balance sheets.
Summary of all lease costs recognized under ASC 842
The components of operating lease cost were as follows (in thousands):
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Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Operating lease cost$4,064$12,507
Variable lease cost  
Total lease cost$4,064$12,507
Supplemental information related to operating leases was as follows:
Other informationNine Months Ended September 30, 2023
Operating cash flows used for operating leases (in thousands)$14,064
Weighted average remaining lease term8.3 years
Weighted average discount rate8.13%
Future payments due under operating leases as of September 30, 2023 were as follows (in thousands):
Maturity of Lease Liability
As of September 30, 2023
2023 (excluding the nine months ended September 30, 2023)
2,206
202413,098
202513,175
20268,826
20279,083
Thereafter50,440
Total lease payments$96,827
Less: imputed interest(27,754)
Present value of operating lease liabilities$69,073
IDB Sublease
In December 2022, the Company entered into a sublease agreement to sublease a portion of the office and laboratory space leased under the IDB Lease to a third-party (subtenant). The sublease term is 3 years and the subtenant has an option to extend the lease term for 6 months. The initial fixed rental rate is approximately $0.2 million per month, and will increase 3% per annum thereafter. The sublessee is obligated to pay its ratable portion of operating expenses during the sublease term. The Company received a letter of credit of $0.5 million in place of a security deposit. As of September 30, 2023, no amounts have been drawn on the letter of credit.
The sublease accounting commencement date occurred in April 2023. During the three and nine months ended September 30, 2023, the Company recognized $0.5 million and $1.0 million, respectively, of sublease income. Such amount is recorded as a reduction to rent expense.
13. Collaboration and License Agreements
Vertex Agreement - Overview

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The Company and Vertex entered into the Vertex Agreement in February 2023, as amended in October 2023, pursuant to which the Company granted Vertex an exclusive worldwide license to research, develop, manufacture and commercialize ENTR-701, the Company’s intracellular Endosomal Escape Vehicle (EEV)-based therapeutic candidate for the treatment of myotonic dystrophy type 1 (DM1), as well as any additional EEV-based therapeutic candidates that may be identified by the Company for the potential treatment of DM1 in the course of the parties’ global research collaboration. In October 2023, the Company and Vertex amended the Strategic Collaboration and License Agreement to clarify a milestone and related payment terms.

The Vertex Agreement provides for a four-year global research collaboration under which Entrada will continue to perform preclinical development of the Company's partnered candidate ENTR-701 pursuant to the mutually agreed-upon research plan (Research Plan). The Research Plan is overseen by a Joint Research Committee (JRC) as detailed in the Vertex Agreement. Pursuant to the terms of the Vertex Agreement, the JRC may amend the research plan to include additional DM1-related research activities with a goal of identifying other EEV-based therapeutic product candidates for the potential treatment of DM1. Vertex is obligated to reimburse the Company’s research expenses incurred in performing activities under the research plan.

Pursuant to the Vertex Agreement, the Company received an upfront payment of $223.7 million, and Vertex made an equity investment of $26.3 million by purchasing 1,618,613 shares of the Company's common stock, pursuant to a separate but simultaneously executed stock purchase agreement. Under the terms of the Vertex Agreement, the Company is eligible to receive up to $485.0 million upon the achievement of certain research, development, regulatory and commercial milestones. The Company will also receive tiered royalties, from the mid to high single digits based on potential future net sales of licensed products as set forth in the Vertex Agreement. In October 2023, the Company achieved a milestone pursuant to the Vertex Agreement related to preclinical IND-enabling GLP toxicology studies of ENTR-701 that triggered a $17.5 million milestone payment, which the Company expects to receive in the fourth quarter of 2023.

The term of the Vertex Agreement will expire in its entirety upon expiration of the royalty term as set forth in the Vertex Agreement. Vertex may terminate the Vertex Agreement for convenience by providing adequate written notice to the Company. The Company may terminate the Vertex Agreement under certain specified circumstances, including in the event Vertex or any of its affiliates or sublicensees challenges directly or indirectly in a legal or administrative proceeding the patentability, enforceability, or validity of any licensed patent as set forth in the Vertex Agreement. Either party may terminate the Vertex Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party. Neither party may assign the agreement without the prior written consent of the other party, except that a party may assign its rights and obligations to an affiliate or third party that acquires all or substantially all of the business or assets to which the Vertex Agreement relates and agrees in writing to be bound by the terms of the Vertex Agreement.

Vertex Agreement - Accounting Analysis

The Company determined that the Vertex Agreement should be accounted for in accordance with ASC 606 as Vertex was deemed to be a customer. The Company assessed the promised goods and services under the Vertex Agreement in accordance with ASC 606. At inception, the Vertex Agreement included one performance obligation which was the combination of the exclusive license and the performance of the research activities for ENTR-701. The Company concluded that the license is not distinct from the research and development services for ENTR-701 during the research collaboration as Vertex cannot fully exploit the value of the license without receipt of such services. The Company also determined that Vertex's ability to engage Entrada to perform work on additional EEV-based therapeutic candidates for the potential treatment of DM1 through the JRC represented customer options. The Company concluded that these customer options do not represent a material right as these services will be reimbursed by Vertex at a price that represents standalone selling price for such services. Also pursuant to the Vertex Agreement, in the second quarter of 2023, Vertex engaged Entrada to perform work on additional EEV-based therapeutic candidates for the potential treatment of DM1. Such work is treated as a separate contract for accounting purposes and represents a separate performance obligation as the activities are distinct from the research activities for ENTR-701.

At the commencement of the arrangement, the Vertex Agreement has a fixed transaction price of $232.0 million , primarily consisting of the $223.7 million upfront fee plus a premium of $6.9 million related to the 1,618,613 shares sold to Vertex under the Stock Purchase Agreement when measured at fair value on the date of issuance. To determine the fair value of the common stock issued to Vertex, the Company utilized the fair value of the Company’s common stock as of the effective date of the Vertex Agreement and applied a discount for lack of marketability. The Company is also entitled to reimbursement of costs incurred associated with the delivery of services under the Research Plan. The Company utilized the most likely amount approach to estimate the expected cost reimbursement. The Company concluded that these amounts
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do not require a constraint and are included in the transaction price at inception. The Company considers this estimate at each reporting date and updates the estimate based on information available. In October 2023, the Company achieved a milestone related to preclinical IND-enabling GLP toxicology studies of ENTR-701, which triggered a $17.5 million payment. This milestone payment will be included in the transaction price during the fourth quarter, the quarter in which it was deemed probable upon achievement in October 2023. Additional consideration to be paid to the Company upon reaching all remaining milestones are excluded from the transaction price as they are fully constrained as the Company concluded that they are not probable of being achieved as of September 30, 2023. The Company re-evaluates the probability of achievement of development milestones and any related constraint at each period end, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue in the period of adjustment.

The transaction price at contract inception is fully allocated to the performance obligation for the combination of the exclusive license and the performance of the research activities for ENTR-701. The transaction price for the additional EEV-based therapeutic candidates performance obligation consists of the reimbursement of costs incurred associated with the delivery of services. The Company recognizes revenue associated with both performance obligations as the related research and development services are provided using an input method, according to the costs incurred as related to the respective research services and the costs expected to be incurred in the future to satisfy the performance obligations in accordance with each respective research plan. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligations. As the Company progresses towards satisfaction of performance obligations under the Vertex Agreement, the estimated costs associated with the remaining effort required to complete the performance obligations in accordance with the research plans may change, which may materially impact revenue recognition. The Company regularly evaluates and, when necessary, updates the costs associated with the remaining effort pursuant to the performance obligations under the Vertex Agreement. During the three months ended September 30, 2023, the Company made revisions to its forecasted costs that reduced its estimated costs to satisfy its remaining performance obligations. During the three months ended September 30, 2023, the revenue recorded by the Company includes a cumulative catch-up adjustment of $21.3 million as a result of such revisions to its estimated costs.

The amounts received that have not yet been recognized as revenue are deferred on the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied. The performance obligations have not been fully satisfied as of September 30, 2023.

The following table summarizes the revenue recognized in connection with the Company's performance under the Vertex Agreement during the three and nine month periods ended September 30, 2023.

Three Months Ended September 30,
Nine Months Ended June 30,
2023202220232022
Collaboration service revenue$3,940$$12,340$
Recognition of upfront payment39,79674,825
Total$43,736$$87,165$

The aggregate amount of the transaction price allocated to the Company’s unsatisfied performance obligations and recorded in deferred revenue at September 30, 2023 is $157.9 million. The Company will recognize the deferred revenue related to the research and development services based on a cost input method, over the remaining term of the research plan.

Pierrepont Agreement

In July 2023, the Company and Pierrepont Therapeutics, Inc. (Pierrepont) entered into a license agreement (the Pierrepont Agreement) to advance the development of ENTR-501, the Company’s intracellular thymidine phosphorylase enzyme replacement therapy in development for the treatment of mitochondrial neurogastrointestinal encephalomyopathy (MNGIE). The Company recognized no revenue related to this agreement for the three and nine months ended September 30, 2023 as the underlying performance obligations had not been delivered as of September 30, 2023.
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14. Net Income (Loss) per Share
The computation of basic net income (loss) per share is based on the weighted-average number of our common shares outstanding. The computation of diluted net income (loss) per share is based on the weighted-average number of our common shares outstanding and potential dilutive common shares outstanding during the period as determined by using the treasury stock method.
The following table illustrates the determination of basic and diluted net income (loss) per share for each period presented (in thousands, except share and per share date):
Three Months Ended September 30,
Nine Months Ended September 30,
2023202220232022
Numerator:
Net income (loss)
$35,461$(25,137)$2,859 $(69,987)
Denominator:
Weighted‑average common shares outstanding, basic
33,281,28731,298,05232,942,95831,273,612
Effect of dilutive securities
1,494,164 1,346,453 
Weighted‑average common shares outstanding, diluted
34,775,45131,298,05234,289,41131,273,612
Net income (loss) per share, basic
$1.07$(0.80)$0.09$(2.24)
Net income (loss) per share, diluted
$1.02$(0.80)$0.08$(2.24)
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Unvested restricted common stock11,299445,44512,198445,445
Unvested shares from early exercises67,73767,737
Stock options to purchase common stock3,480,9655,002,7303,609,3075,002,730
3,492,2645,515,9123,621,5055,515,912
15. Subsequent Events
In October 2023, the Company achieved a milestone pursuant to the Vertex Agreement related to preclinical IND-enabling GLP toxicology studies of ENTR-701 that triggered a $17.5 million milestone payment, which the Company expects to receive in the fourth quarter of 2023.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (Quarterly Report) and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the SEC) on March 6, 2023 (Annual Report). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements contained in the following discussion and analysis.
Overview
We are a biotechnology company that aims to transform the lives of patients by establishing Endosomal Escape Vehicle (EEV) therapeutics as a new class of medicines and become the world’s foremost intracellular therapeutics company. Through our proprietary, highly versatile and modular EEV platform (EEV Platform), we are building a robust development portfolio of EEV therapeutic candidates designed to enable the efficient intracellular delivery of therapeutics in various organs and tissues with an improved therapeutic index. We have initially focused on the development of EEV therapeutics for rare neuromuscular diseases, including Duchenne muscular dystrophy (DMD) and myotonic dystrophy type 1 (DM1). In our neuromuscular disease programs, we link EEVs to small strands of nucleic acids called oligonucleotides, including phosphorodiamidate morpholino oligomers (PMOs).
Our most advanced therapeutic candidate, ENTR-601-44, is being developed for patients with DMD that are exon 44 skipping amenable. On December 19, 2022, we announced that we received a clinical hold notice from the U.S. Food and Drug Administration (FDA) regarding the Investigational New Drug (IND) application for ENTR-601-44. The FDA has requested that we gather and submit additional information regarding ENTR-601-44 and we are actively working to resolve the clinical hold in the United States as quickly as possible. We expect to provide an update in the fourth quarter of 2023. Should we be delayed in submitting a response to the clinical hold in the United States or our response is not satisfactory to the FDA, the clinical hold may not be lifted on a timely basis, or at all.
On July 24, 2023, Entrada received authorization from the United Kingdom Medicines and Healthcare Products Regulatory Agency (MHRA) and Research Ethics Committee (REC) for its CTIMP (Clinical Trial of an Investigational Medicinal Product) for its planned Phase 1 clinical trial in healthy volunteers, ENTR-601-44-101. The Phase 1 clinical trial's primary objective is to evaluate the safety and tolerability of a single dose of ENTR-601-44 in healthy volunteers, with a target enrollment of approximately 40 participants. The study will also evaluate pharmacokinetics and target engagement as measured by exon skipping in the skeletal muscle, bearing in mind recent in vitro data showing that exon skipping could be ~10-40x higher in dystrophic muscle compared to healthy muscle, suggesting that healthy normal volunteer results may substantially underestimate potential potency. On September 21, 2023, we announced that the first participant has been dosed in our Phase 1 clinical trial evaluating ENTR-601-44 for the potential treatment of individuals with Duchenne muscular dystrophy who are exon 44 skipping amenable. We expect to report data from the Phase 1 clinical trial in the second half of 2024. The data from this trial is expected to inform our overall, global, clinical development strategy, including informing the ongoing planning of an anticipated multiple ascending dose study in patients. In parallel, we are committed to resolving the clinical hold in the United States and expect to provide an update in the fourth quarter of 2023.
On January 9, 2023, we announced the selection of a second clinical candidate within our Duchenne franchise, ENTR-601-45 for the potential treatment of people living with Duchenne muscular dystrophy who are exon 45 skipping amenable. We plan to submit a Clinical Trial Application (CTA)/IND application for ENTR-601-45 in the fourth quarter of 2024.
On November 7, 2023, we announced the selection of a third clinical candidate within our Duchenne franchise, ENTR-601-50 for the potential treatment of people living with Duchenne muscular dystrophy who are exon 50 skipping amenable. The selection of ENTR-501-50 is based on in vivo preclinical data demonstrating robust exon 50 skipping and
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dystrophin production across cardiac and skeletal muscle groups. We expect to report preclinical data in the first half of 2024 and plan to submit a CTA/IND application for ENTR-601-50 in 2025.
On July 31, 2023 we entered into a license agreement to advance the development of ENTR-501 with Pierrepont Therapeutics, Inc., a mitochondrial disease-focused company. ENTR-501 is an intracellular thymidine phosphorylase enzyme replacement therapy in development for the treatment of mitochondrial neurogastrointestinal encephalomyopathy (MNGIE). MNGIE is a slowly progressive, but fatal, disease characterized by elevated levels of thymidine. Preliminary preclinical studies have demonstrated that ENTR-501 reduces toxic thymidine levels below those observed in wild-type mice. Pharmacokinetic and acute and chronic toxicology studies indicated both a long circulating half-life and a favorable tolerability profile. In 2020, we made the strategic decision to focus the majority of our immediate efforts on EEV-oligonucleotide opportunities while pausing development on ENTR-501. We continue to believe that the program will have an important role to play in the future treatment of patients with MNGIE.
We have also entered into the Vertex Agreement pursuant to which we granted Vertex an exclusive worldwide license to research, develop, manufacture and commercialize ENTR-701, our intracellular EEV-based therapeutic candidate for the treatment of myotonic dystrophy type 1 (DM1) that targets expanded CUG repeats in DM1 protein kinase (DMPK) mRNA transcripts, as well as any additional EEV-based therapeutic candidates that may be identified by the Company for the potential treatment of DM1 in the course of the parties’ global research collaboration. The Vertex Agreement provides for a four-year global research collaboration under which Vertex will fund our continued preclinical development of ENTR-701, as well as the option to fund additional DM1-related research activities with a goal of identifying other EEV-based therapeutic product candidates for the potential treatment of DM1. Other than our efforts under this research collaboration, Vertex will be responsible for global development, manufacturing and commercialization of the licensed products.
On February 8, 2023, following the expiration of the waiting period and clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Entrada and Vertex closed the Vertex Agreement, and later amended the agreement in October of 2023. Under the terms of the Vertex Agreement, Entrada received $250.0 million from the Vertex agreement comprised of an upfront payment of $223.7 million and an equity investment of $26.3 million in our common stock at $16.26 per share. In October 2023, the Company achieved a milestone pursuant to the Vertex Agreement related to preclinical IND-enabling GLP toxicology studies of ENTR-701 that triggered a $17.5 million milestone payment, which the Company expects to receive in the fourth quarter of 2023.
Since our inception, we have devoted substantially all our resources to research and development efforts relating to our EEV Platform, advancing development of our portfolio of programs and general and administrative support for these operations, including raising capital. Since our inception, we have raised over $650.0 million of gross proceeds from sales of stock to leading biotechnology investors and from the Vertex Agreement.
Since inception, we have incurred significant net losses. As of September 30, 2023, we had an accumulated deficit of $185.4 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future as we advance our platform and EEV therapeutic candidates into later stages of preclinical development and, if successful, clinical development. We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more therapeutic candidates, if ever. If we obtain regulatory approval for any therapeutic candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.
Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy, as we advance therapeutic candidates through preclinical and, if successful, into clinical development, seek regulatory approval, prepare for and, if any therapeutic candidates are approved, proceed to commercialization and operate as a public company. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions.
If we are unable to obtain funding, we will be forced to delay, reduce, or eliminate some or all of our research and development programs, product portfolio expansion and ultimate commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, we may not be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
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Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we can generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of September 30, 2023, we had cash, cash equivalents and marketable securities of $353.6 million. We believe that our cash, cash equivalents and marketable securities as of September 30, 2023, together with ongoing research support and the anticipated achievement of certain milestones under the Vertex Agreement will be sufficient to extend our cash runway through 2025, supporting the Company's expansion and continued development of EEV therapeutic candidates targeting Duchenne muscular dystrophy and advance EEV-therapeutic candidates in indications beyond neuromuscular disease. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” To finance our operations beyond that point we will need to raise additional capital, which cannot be assured.
Components of Our Results of Operations
Revenue
All of our revenue to date has been derived from the Vertex Agreement. We do not expect to generate any revenue from the sale of products unless and until such time that our product candidates have advanced through clinical development and regulatory approval, if ever. If our development efforts for our therapeutic candidates are successful and result in regulatory approval or we successfully enter into collaboration or license arrangements with third parties, we may generate revenue in the future from product sales, payments from collaboration or license arrangements including those that we may enter into with third parties, or any combination thereof.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our programs. These expenses include:
personnel-related expenses, including salaries, related benefits, and stock-based compensation expense for individuals engaged in research and development functions;
expenses incurred in connection with the discovery and preclinical development of our therapeutic candidates and research programs, including under agreements with third parties, such as consultants, contractors, and CROs;
the cost of developing and validating our manufacturing process for use in our preclinical studies and clinical trials, including the cost of raw materials used in our research and development activities, and engaging with third party CMOs;
costs incurred in connection with the performance of research and development activities under the Vertex Agreement;
the cost of laboratory supplies and research materials;
the costs of payments made under third-party licensing agreements and related future payments should certain development and regulatory milestones be achieved; and
facilities, depreciation and other direct and allocated expenses, including rent and other operating costs, incurred as a result of our research and development activities.
We expense research and development costs as incurred. Non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being
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recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
Our research and development costs are primarily devoted to supporting our neuromuscular program development efforts. Our direct, external research and development expenses consist primarily of fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and intellectual property purchase agreements. We expect to track these external research and development costs on a program-by-program basis as we identify specific programs and product candidates to advance into clinical development.
We do not allocate employee costs, costs associated with our development efforts and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources and third-party consultants primarily to conduct our research and development activities as well as for managing our process development, manufacturing and clinical development activities.
Therapeutic candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our platform development efforts and planned preclinical and clinical development activities in the near term and in the future. We expect that the research and development expenses of our programs will increase in the near term as we initiate investigational new drug (CTA/IND)-enabling activities for our therapeutic candidates. Therefore, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our therapeutic candidates. The successful development of our therapeutic candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development, including the following:
the scope, timing, rate of progress and expenses of our ongoing and potential future research activities, including preclinical and CTA/IND-enabling studies, clinical trials and other research and development activities we decide to pursue;
the successful initiation, enrollment and completion of clinical trials under current good clinical practices;
the timing of filing and acceptance of INDs or comparable foreign applications that allow commencement of future clinical trials for our therapeutic candidates;
the timing and likelihood of resolution of the clinical hold on our IND application for ENTR-601-44 and initiation of a clinical trial in the United States;
whether our therapeutic candidates show safety and efficacy in our clinical trials and an acceptable risk-benefit profile in the intended populations;
our ability to hire and retain key research and development personnel;
our ability to successfully develop, obtain regulatory and marketing approvals of our therapeutic candidates for the expected indications and patient populations;
our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our therapeutic candidates are approved;
commercializing therapeutic candidates, if and when approved, whether alone or in collaboration with others;
our ability to maintain a continued acceptable safety, tolerability and efficacy profile of our therapeutic candidates following approval;
our ability to establish new licensing or collaboration arrangements to support our potential therapeutic candidates on favorable business terms;
any decisions we make to discontinue, delay or modify our programs to focus on others;
obtaining, maintaining, protecting and enforcing patent and trade secret protection and regulatory exclusivity for our therapeutic candidates;
obtaining and maintaining adequate coverage and reimbursement from third party payors; and
the effects of worldwide pandemics and health crises.
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A change in the outcome of any of these variables with respect to the development of any of our therapeutic candidates could significantly change the costs and timing associated with the development of that therapeutic candidate. We may never succeed in obtaining regulatory approval for any of our therapeutic candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, corporate and business development, human resources and other administrative functions. General and administrative expenses also include: legal fees relating to intellectual property and corporate matters; professional fees paid for accounting, auditing, consulting and tax services; insurance costs; travel expenses; information technology expenses; and facility costs not otherwise included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount and expand our facilities to support our continued research activities and development of our programs and EEV Platform. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance and investor and public relations expenses associated with operating as a public company.
Interest and Other Income (Expense)
Interest and other income (expense) consists primarily of interest earned on our invested cash equivalents and marketable securities, gains and losses on disposal of fixed assets and gains and losses on foreign currency transactions.
Income Taxes
Provision for income tax benefit (expense) recorded in any interim period is based on the estimated effective tax rate for the fiscal year for those tax jurisdictions that can be reliably estimated. Our calculation of the estimated effective tax rate requires us to estimate pre‑tax income by tax jurisdiction as well as total tax benefit (expense) for the fiscal year. Accordingly, the annual estimated effective tax rate is subject to adjustment if there are changes to the initial estimates of total tax benefit (expense) or pre‑tax income.

As part of the Tax Cuts and Jobs Act of 2017, beginning with the 2022 tax year, we are required to capitalize research and development expenses, as defined under Internal Revenue Code section 174. For expenses that are incurred for research and development in the U.S., the amounts will be amortized over 5 years, and expenses that are incurred for research and experimentation outside the United States will be amortized over 15 years. See Note 10, Income Taxes, for further discussion of our tax provision for the three and nine months ended September 30, 2023.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates from those reported in our Annual Report, except as described further in Note 2 Summary of Significant Accounting Policies in the condensed consolidated financial statements elsewhere in this Quarterly Report, which discusses a new policy regarding revenue recognition.
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Results of Operations
Comparison of the three months ended September 30, 2023 and 2022
Three Months Ended September 30,
(in thousands)20232022Change
Collaboration revenue$43,735$$43,735
Operating expenses:
Research and development22,19118,9583,233
General and administrative7,5326,978554
Total operating expenses29,72325,9363,787
Income (loss) from operations
14,012(25,936)39,948
Other income:
Interest and other income, net4,0517993,252 
Total other income, net4,0517993,252
Income (loss) before provision for income taxes
18,063(25,137)43,200
Provision for income taxes17,39817,398
Net income (loss)
$35,461$(25,137)$60,598
Collaboration Revenue

Collaboration revenue was $43.7 million for the three months ended September 30, 2023, all of which related to the Vertex Agreement. We did not record any revenue for the three months ended September 30, 2022.
Research and Development Expenses
Three Months Ended September 30, 
(in thousands)20232022 Change
External research and development expenses:
   ENTR-601-44$2,722$4,401$(1,679)
   ENTR-601-45728368360
   Collaboration services(1)
2,1553,409(1,254)
   Other preclinical and discovery programs2,3898721,517
   Other unallocated657122535
      Total external costs8,6519,172(521)
Internal costs, including personnel related13,5409,7863,754
Total research and development expenses$22,191$18,958$3,233
(1)Prior year amounts for collaboration services relate to ENTR-701.
Research and development expenses were $22.2 million for the three months ended September 30, 2023, compared to $19.0 million for the three months ended September 30, 2022. The increase of $3.2 million in research and development expenses was primarily attributable to:
an increase of $3.7 million in internal costs driven by increased headcount in our research and development function, inclusive of stock-based compensation expense of $1.6 million and $1.2 million for the three months ended September 30, 2023 and 2022, respectively, and increased facilities costs to support our expanding operations;
a decrease of $0.5 million in external costs primarily driven by a decrease in costs for ENTR-601-44 due to our clinical hold. Additionally, our partnered candidate, ENTR-701 costs decreased as we finalized certain CTA/
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IND-enabling studies. These decreases were offset by an increase in costs for other preclinical and discovery programs.
We expect that our research and development expenses will increase as we continue our current research and development activities, continue our clinical trial for ENTR-601-44, initiate new research programs, continue our preclinical development of therapeutic candidates and progress ENTR-601-45, ENTR-601-50, our partnered candidate, ENTR-701, and future product candidates, into clinical trials.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2023 were $7.5 million, compared to $7.0 million for the three months ended September 30, 2022. The increase of $0.5 million was primarily attributable to the following:
a $0.3 million increase in personnel costs, primarily a result of the increase in headcount in our general and administrative function , inclusive of stock-based compensation expense of $1.8 million and $1.5 million for the three months ended September 30, 2023 and 2022, respectively;
a $0.2 million increase in professional services costs and other expenses incurred to support our expanding operations.
Interest and Other Income, net
Total interest and other income, net was $4.1 million for the three months ended September 30, 2023, compared to $0.8 million of interest and other income for the three months ended September 30, 2022; this increase is primarily driven by higher interest rates and larger investments in debt securities.
Benefit from Income Taxes
The Company recorded an income tax benefit of $17.4 million for the three months ended September 30, 2023. On a full year basis, the Company continues to forecast a current income tax liability largely driven by tax recognition of the Vertex Agreement upfront payment received in 2023. The combination of a forecasted pre-tax book loss, a forecasted current income tax liability and a full valuation allowance results in a forecasted negative effective tax rate for the year ended December 31, 2023. For the three months ended September 30, 2023, the income tax benefit recorded was largely driven by applying the Company's forecasted negative tax rate to the current period pre-tax book income. The Company projects to recognize the remaining tax liability in the fourth quarter of 2023. The Company reported no income tax provision for the three months ended September 30, 2022.
Comparison of the nine months ended September 30, 2023 and 2022
Nine Months Ended September 30,
(in thousands)20232022Change
Collaboration revenue$87,165$$87,165
Operating expenses:
Research and development71,59350,92420,669
General and administrative23,63920,7452,894
Total operating expenses95,23271,66923,563
Income (loss) from operations
(8,067)(71,669)63,602
Other income:
Interest and other income, net10,9261,6829,244
Total other income, net10,9261,6829,244
Income (loss) before provision for income taxes
2,859(69,987)72,846
Benefit from income taxes
Net income (loss)
$2,859 $(69,987)$72,846 
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Collaboration Revenue

Collaboration revenue was $87.2 million for the nine months ended September 30, 2023, all of which related to the Vertex Agreement. We did not record any revenue for the nine months ended September 30, 2022.
Research and Development Expenses
Nine Months Ended September 30, 
(in thousands)20232022 Change
External research and development expenses:
   ENTR-601-44$8,350$11,218$(2,868)
   ENTR-601-456,0884895,599
   Collaboration services(1)
8,2869,378(1,092)
   Other preclinical and discovery programs4,6182,5492,069
   Other unallocated3,5672343,333
      Total external costs30,90923,8687,041
Internal costs, including personnel related40,68427,05613,628
Total research and development expenses$71,593$50,924$20,669
(1)Prior year amounts for collaboration services relate to ENTR-701.
Research and development expenses were $71.6 million for the nine months ended September 30, 2023, compared to $50.9 million for the nine months ended September 30, 2022. The increase of $20.7 million in research and development expenses was primarily attributable to:
an increase of $13.6 million in internal costs driven by increased headcount in our research and development function, inclusive of stock-based compensation expense of $4.3 million and $2.8 million for the nine months ended September 30, 2023 and 2022, respectively, and increased facilities costs to support our expanding operations;
an increase of $7.0 million in external costs primarily driven by the OSIF license fee and higher costs incurred as we continue to progress our ENTR-601-45 program, our ENTR-601-50 program and other preclinical and discovery programs.
We expect that our research and development expenses will increase as we continue our current research and development activities, continue our clinical trial for ENTR-601-44, initiate new research programs, continue our preclinical development of therapeutic candidates, progress ENTR-601-45, ENTR-601-50, our partnered candidate, ENTR-701, and future product candidates, into clinical trials.
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General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2023 were $23.6 million, compared to $20.7 million for the nine months ended September 30, 2022. The increase of $2.9 million was primarily attributable to the following:
a $1.5 million increase in personnel costs, primarily a result of the increase in headcount in our general and administrative function, inclusive of stock-based compensation expense of $5.0 million and $4.2 million for the nine months ended September 30, 2023 and 2022, respectively;
a $0.6 million increase in professional services costs, primarily attributable to outside consulting services to support our continued research and development activities; and
a $0.5 million increase in facility and equipment-related expenses incurred to support our expanding operations;
Interest and Other Income, net
Total interest and other income, net was $10.9 million for the nine months ended September 30, 2023, compared to $1.7 million of interest and other income for the nine months ended September 30, 2022; this increase is primarily driven by higher interest rates and larger investments in debt securities.
Benefit from Income Taxes
The Company recorded an income tax benefit of $0.0 million for the nine months ended September 30, 2023. On a full year basis, the Company continues to forecast a current income tax liability largely driven by tax recognition of the Vertex Agreement upfront payment received in 2023. The combination of a forecasted pre-tax book loss, a forecasted current income tax liability and a full valuation allowance results in a forecasted negative effective tax rate for the year ended December 31, 2023. For the nine months ended September 30, 2023, the income tax benefit recorded was largely driven by applying the Company's forecasted negative tax rate to the current period pre-tax book income. The Company projects to recognize the remaining tax liability in the fourth quarter of 2023. The Company reported no income tax provision for the nine months ended September 30, 2022.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have incurred significant net losses. As of September 30, 2023 and December 31, 2022, we had an accumulated deficit of $185.4 million and $188.3 million, respectively. We expect to incur significant expenses and operating losses for the foreseeable future as we further our platform development and advance the preclinical and, if successful, the clinical development of our programs. Since our inception, we have raised over $650 million of gross proceeds from sales of stock to leading biotechnology investors and from the Vertex Agreement. As of September 30, 2023, we had cash, cash equivalents and marketable securities of $353.6 million.
In September 2023, we entered into a sales agreement (Sales Agreement) with Cowen and Company, LLC (Cowen) under which we may, from time to time, issue and sell shares of our common stock having aggregate sales proceeds of up to $150.0 million, in a series of one or more ATM equity offerings (the “2023 ATM Program”). Cowen is not required to sell any specific share amounts but acts as the Company’s sales agent, using commercially reasonable efforts consistent with its normal trading and sales practices. Pursuant to the Sales Agreement, shares will be sold pursuant to our shelf registration statement on Form S-3 (File No. 333-268099) filed with the SEC on November 1, 2022, including the base prospectus contained therein, as declared effective by the SEC on November 7, 2022. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary. As of September 30, 2023, we have not sold any shares of common stock under the ATM program.
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Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Nine Months Ended September 30,
(in thousands)20232022
Net cash provided by / (used in) operating activities$143,816$(66,482)
Net cash used in investing activities(157,438)(167,442)
Net cash provided by financing activities20,347121
Net increase (decrease) in cash, cash equivalents, and restricted cash6,725(233,803)
Operating Activities
For the nine months ended September 30, 2023, net cash provided by operating activities was $143.8 million driven by our net income of $2.9 million, net cash provided by changes in our operating assets and liabilities of $133.4 million primarily resulting from the upfront payment received in connection with the Vertex Agreement, and non-cash items, primarily included stock-based compensation expense of $9.3 million, depreciation expense of $2.0 million, and accretion of premiums and discounts of $3.8 million.
For the nine months ended September 30, 2022, net cash used in operating activities was $66.5 million, driven by our net loss of $70.0 million, net cash used by changes in our operating assets and liabilities of $5.1 million, and adjustments for non-cash expenses relating to stock-based compensation expense of $7.0 million, depreciation expense of $1.4 million, and amortization of premiums and discounts on marketable securities of $0.2 million.
Investing Activities
Net cash used in investing activities was $157.4 million for the nine months ended September 30, 2023, consisting primarily of $318.7 million in purchases of marketable securities, partially offset by $165.9 million from the maturities of marketable securities, and $4.6 million of purchases of property and equipment.
Net cash used in investing activities was $167.4 million for the nine months ended September 30, 2022, consisting primarily of $222.0 million in purchases of marketable securities, partially offset by $56.7 million from the maturities of marketable securities, and $2.1 million from our purchases of property and equipment.
Financing Activities
Net cash provided by financing activities was $20.3 million for the nine months ended September 30, 2023, consisting of $19.4 million in net proceeds from the issuance of 1,618,613 shares in connection with the Vertex Agreement, $0.7 million in proceeds from stock option exercises, and $0.2 million from the issuance of common stock under our employee stock purchase plan.
Net cash provided by financing activities was $0.1 million for the nine months ended September 30, 2022, consisting of $0.1 million of stock option exercises.
Future Funding Requirements
We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and, if successful, the clinical development of our programs. In addition, we expect to incur additional costs associated with operating as a public company. Our operating expenses and future funding requirements are expected to increase substantially as we continue to advance our portfolio of programs. We believe that our cash, cash equivalents and marketable securities as of September 30, 2023, together with ongoing research support and the anticipated achievement of certain milestones under the Vertex Agreement will be sufficient to extend our cash runway through 2025, supporting the Company's expansion and continued development of EEV therapeutic candidates targeting Duchenne muscular dystrophy and advance EEV-therapeutic candidates in indications beyond neuromuscular disease. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
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Because of the numerous risks and uncertainties associated with research, development, and commercialization of our candidates, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including costs associated with:
the continuation of our current research programs and our preclinical development of therapeutic candidates from our current research programs;
the timing and likelihood of resolution of the clinical hold on our IND application for ENTR-601-44 as well as the initiation of a clinical trial both within and outside of the United States;
seeking to identify additional research programs and additional therapeutic candidates;
advancing our existing and future therapeutic candidates into clinical development;
initiating preclinical studies and clinical trials for any therapeutic candidates we identify and develop or expand development of existing programs into additional indications;
maintaining, expanding, enforcing, defending and protecting our intellectual property portfolio and providing reimbursement of third-party expenses related to our patent portfolio;
timing of manufacturing for our therapeutic candidates and commercial manufacturing if any therapeutic candidate is approved;
establishing and maintaining clinical and commercial supply for the development and manufacture of our therapeutic candidates;
seeking regulatory and marketing approvals for any of our therapeutic candidates that we develop, if any;
seeking to identify, establish and maintain additional collaborations and license agreements, and the success of those collaborations and license agreements;
ultimately establishing a sales, marketing and distribution infrastructure to commercialize any platforms for which we may obtain marketing approval, either by ourselves or in collaboration with others;
generating revenue from commercial sales of therapeutic candidates we may develop for which we receive marketing approval;
hiring additional personnel, including research and development, clinical and commercial personnel;
adding operational, financial and management information systems and personnel, including personnel to support our product development;
achieving sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
acquiring or in-licensing products, intellectual property, and technologies; and
the ongoing costs of operating as a public company and recent increases in inflationary rates.
Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or therapeutic candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our therapeutic candidates even if we would otherwise prefer to develop and market such therapeutic candidates ourselves.
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Contractual Obligations and Commitments
Lease Commitments
During the nine months ended September 30, 2023, other than the commencement of our IDB Lease and the amendment of our lease agreement for office space at 6 Tide Street, there were no material changes to our lease commitments from those described in Note 11, Leases, of our financial statements in our Annual Report. For additional information regarding our leased facilities, refer to Note 12, Leases, to our condensed consolidated financial statements in this Quarterly Report.
Purchase and Other Obligations
We enter into contracts in the normal course of business with CROs, third-party manufacturers, and other third parties for preclinical research studies and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancellable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation.
We have also entered into license agreements under which we are obligated to make certain payments. During the nine months ended September 30, 2023, there were no material changes to our commitments and consistencies related to our license agreements from those described in “Business—Intellectual property— License agreement with The Ohio State University” and Note 10, Commitments and Contingencies, to our financial statements in our Annual Report, with the exception of the sublicense fee that we paid OSIF upon entering into the Sublicense Agreement with Vertex. For additional information regarding our license agreements, refer to Note 11, Commitments and Contingencies, to our condensed consolidated financial statements in this Quarterly Report.
Emerging Growth Company and Smaller Reporting Company Status
We are an “emerging growth company,” (EGC), under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the Securities Act), for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities.
As an EGC, we may, and intend to, take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC:
we may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
we may avail ourselves of the exemption from providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act);
we may avail ourselves of the exemption from complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis;
we may provide reduced disclosure about our executive compensation arrangements; and
we may not require nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments.
We will remain an EGC until the earliest to occur of (i) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering (IPO), (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous rolling three-year period or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended (the Exchange Act).
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We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recently Issued Accounting Pronouncements
See Note 2 Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial and accounting officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (the SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we may become involved in litigation or other legal proceedings arising in the ordinary course of our business. While the outcome of any such proceedings cannot be predicted with certainty, as of September 30, 2023, we were not a party to any litigation or legal proceedings that, in the opinion of our management, are probable to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on our business, financial condition, results of operations and prospects because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
In evaluating the Company and our business, careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report on Form 10-Q (Quarterly Report) and in other documents that we file with the Securities and Exchange Commission (SEC). Investing in our common stock involves a high degree of risk. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose part or all of your investment. Unless otherwise indicated, reference in this section and elsewhere in this Quarterly Report to our business being adversely affected, negatively impacted or harmed will include an adverse effect on, or a negative impact or harm to, the business, reputation, financial condition, results of operations, revenue and our future prospects. The material and other risks and uncertainties summarized above and described below are not intended to be exhaustive and are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This Quarterly Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See the section titled “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to Our Limited Operating History, Financial Position and Capital Requirements
We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future. We may never generate any revenue from product sales or become profitable or, if we achieve profitability, we may not be able to sustain it.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a biopharmaceutical company with a limited operating history upon which our stockholders can evaluate our business and prospects. Most of our development programs, with the exception of ENTR-601-44, but including ENTR-601-45, ENTR-601-50, and our partnered candidate ENTR-701, are in preclinical development or in the drug discovery stage. We commenced operations in 2016, and to date, we have focused primarily on organizing and staffing our company, business planning, raising capital, developing our proprietary, highly versatile and modular Endosomal Escape Vehicle (EEV) platform (EEV Platform), identifying EEV therapeutic candidates, establishing our intellectual property portfolio and conducting research and preclinical studies. Our approach to the discovery and development of therapeutic candidates based on our EEV Platform is unproven, and we do not know whether we will be able to conduct clinical studies on any of our therapeutic candidates beyond ENTR-601-44, develop any therapeutic candidates that succeed in clinical development or produce products of commercial value. As an organization, we have not yet completed any clinical trials, obtained regulatory approvals, manufactured a clinical- or commercial-scale product, or arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products.
We have incurred significant operating losses since our inception. We do not have any products approved for sale and have not generated any product revenue since our inception. If our therapeutic candidates are not successfully developed and approved, we may never generate any significant revenue from product sales. We have incurred significant net losses since inception. As of September 30, 2023, we had an accumulated deficit of $185.4 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. All of our therapeutic candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially as we continue our development of, seek regulatory approval for and potentially commercialize any of our therapeutic candidates.
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To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our therapeutic candidates, identifying lead therapeutic candidates, discovering additional therapeutic candidates, conducting preclinical studies prior to submitting an Investigational new Drug (IND) application, obtaining clearance for INDs, obtaining regulatory approval for these therapeutic candidates and manufacturing, marketing and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may not succeed in completing necessary activities and regulatory approvals necessary to bring a product to market and, even if we do, may never generate revenues that are significant enough to achieve profitability. In addition, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable may have an adverse effect on the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our therapeutic candidates or even continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.
Our limited operating history may make it difficult to evaluate our technology and industry and predict our future performance. Though several groups have conducted or are conducting studies involving the intracellular delivery of therapeutic molecules, the relevance of those studies to the evaluation of therapeutic candidates developed using our EEV Platform may be difficult to ascertain. Our short history as an operating company and novel therapeutic approach make any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by earlier stage companies in rapidly evolving fields. Failure to address these risks successfully will cause our business to suffer. Similarly, we expect that our financial condition and operating results will fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. As a result, our stockholders should not rely upon the results of any quarterly or annual period as an indicator of future operating performance.
In addition, as an early clinical-stage company, we have encountered unforeseen expenses, difficulties, complications, delays and other known and unknown circumstances. As we advance our EEV therapeutic candidates, we will need to continue our transition from a company with a research focus to a company supporting clinical development and if successful, capable of supporting commercial activities. We may not continue to be successful in our transition.
We will require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our development programs, commercialization efforts or other operations.
The development of biopharmaceutical therapeutic candidates is capital-intensive. We expect our expenses to increase in connection with our ongoin