10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 12, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to ______
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 5, 2022, the registrant had
Summary of Risk Factors
Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this Form 10-Q. These risks include, but are not limited to, the following:
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We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. |
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Our limited operating history may make it difficult for you to evaluate the performance of our business to date and to assess our future viability. |
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We have never generated revenue from product sales, may never generate any revenue from product sales and may never become profitable. |
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We will need substantial additional funding. If we are unable to raise capital when needed on acceptable terms, or at all, we would be forced to delay, reduce, or terminate our research and product development programs, future commercialization efforts or other operations. |
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We face risks related to health epidemics, pandemics and other widespread outbreaks of contagious disease, including the ongoing and evolving COVID-19 pandemic, which could significantly disrupt our operations, impact our financial results or otherwise adversely impact our business. |
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We are very early in our development efforts. Other than GPH101, which is in early clinical development, all of our product candidates are still in preclinical development or earlier stages and it will be many years before we or our collaborators commercialize a product candidate, if ever. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed. |
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Our gene editing technology is not approved for human therapeutic use. The approaches we are taking to discover and develop novel therapeutics may never lead to marketable products. |
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If serious adverse events, undesirable side effects, or unexpected characteristics are identified with respect to our product candidates, we may need to abandon or limit our clinical development or commercialization of those product candidates. |
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We face significant competition in an environment of rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer, less expensive or more advanced or effective than ours, which may harm our financial condition and our ability to successfully market or commercialize our product candidates. |
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Adverse events or side effects involving genetic medicines and gene editing in particular, as well as adverse public perception of these approaches, may negatively impact regulatory approval of, and/or demand for, our potential products, if approved. |
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We contract with third parties for the manufacture of materials for our research programs, preclinical studies and ongoing Phase 1/2 clinical trial of GPH101 and expect to continue to do so for future clinical trials and for commercialization of our product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials, product candidates, or any products that we may develop and commercialize, or that such supply will not be available to us at an acceptable quality, cost or timelines, which could delay, prevent, or impair our development or commercialization efforts. |
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If we are unable to obtain and maintain patent and other intellectual property protection for any product candidates we develop and for our gene editing platform technology, or if the scope of the patent and other intellectual property 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 product candidates, and our gene editing platform technology may be adversely affected. |
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Our rights to develop and commercialize our gene editing platform technology and product candidates are subject, in part, to the terms and conditions of licenses granted to us by others, and we may lose rights to these licenses if we fail to comply with the applicable license terms or otherwise incur significant expenses to comply with our obligations under such licenses. |
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The intellectual property landscape around gene editing technology is highly dynamic, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and may prevent, delay or otherwise interfere with our product discovery and development efforts. |
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Our owned and in-licensed patents and other intellectual property may be subject to priority disputes or inventorship disputes or we may be subject to claims that we have infringed, misappropriated or otherwise violated the intellectual property of a third party and similar proceedings. If we or our licensors are unsuccessful in any of these proceedings, we may be required to obtain licenses from third parties, which may not be available on commercially reasonable terms or at all, or to cease the development, manufacture, and commercialization of one or more of our product candidates, which could have a material adverse impact on our business. |
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”), including its section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, 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 in this Form 10-Q may include, but are not limited to, statements about:
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the success, cost and timing of our product development activities and clinical trials of our lead product candidates, GPH101 and GPH102, including the initiation and progress of, and results from, our Phase 1/2 clinical trial of GPH101 and whether the clinical trial will support the intended uses for treatment of sickle cell disease, and future clinical trials of these and any of our other product candidates; |
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the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates; |
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the timing and likelihood of, and our ability to obtain and maintain, regulatory clearance of our Investigational New Drug (“IND”) applications for and regulatory approval of our product candidates; |
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our ability and the ability of third-party suppliers upon which we rely to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture; |
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estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for or ability to obtain additional funding before we can expect to generate any revenue from product sales; |
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our ability to compete with companies currently marketing or engaged in the development and commercialization of precision gene repair therapies or other treatments for disease indications that our product candidates are intended to address; |
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our ability to establish or maintain licenses, collaborations, partnerships or strategic relationships; |
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our ability to create and maintain a pipeline of product candidates; |
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our ability to advance any product candidate into, and successfully complete clinical trials; |
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our ability to obtain and maintain intellectual property protection for our current and future product candidates, the duration of such protection and our ability to operate our business without infringing on the intellectual property rights of others; |
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our ability to retain and recruit key personnel; |
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our expectations regarding use of our cash and cash equivalents, including the proceeds from our initial public offering; |
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our financial performance; |
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our competitive position and the development of and projections relating to our competitors or our industry, including in gene editing and gene therapy; |
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the impact of the ongoing COVID-19 pandemic on our business or operations; |
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the impact of laws and regulations in the United States and foreign countries on various aspects of our operations, including our regulatory and clinical strategy; and |
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our expectations regarding the time during which we will be an emerging growth company under the JOBS Act. |
In some cases, forward-looking statements can be identified by terminology such as “will,” “may,” “should,” “could,” “expects,” “intends,” “plans,” “aims,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these 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 entitled “Risk Factors” and elsewhere in this Form 10-Q. 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 expressed or implied by the forward-looking statements. No forward-looking statement is a promise or a guarantee of future performance.
The forward-looking statements in this Form 10-Q represent our views as of the date of this Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so 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 Form 10-Q.
This Form 10-Q may include statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties. 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. We have not independently verified the information contained in such sources.
We use various trademarks and trade names in our business, including without limitation our corporate name and logo. All other trademarks or trade names referred to in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
Table of Contents
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Page |
PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (Unaudited) |
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1 |
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2 |
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Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) |
3 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
31 |
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Item 4. |
31 |
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PART II. |
32 |
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Item 1. |
32 |
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Item 1A. |
32 |
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Item 2. |
78 |
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Item 3. |
78 |
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Item 4. |
78 |
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Item 5. |
78 |
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Item 6. |
79 |
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80 |
i
Graphite Bio, Inc.
Condensed Balance Sheets
(in thousands, except share and per share data)
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March 31, 2022 |
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December 31, 2021 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Investments in marketable securities, current |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash, non-current |
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Investments in marketable securities, non-current |
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— |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Accrued research costs |
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Accrued expenses and other current liabilities |
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Operating lease liabilities, current |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Total liabilities |
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Commitments and contingencies (Note 6) |
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Stockholders’ equity: |
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Preferred stock, $ 2022 and December 31, 2021; and 31, 2022 and December 31, 2021 |
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Common stock, $ 2022 and December 31, 2021; March 31, 2022 and December 31, 2021 |
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Additional paid-in-capital |
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Accumulated other comprehensive loss |
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( |
) |
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— |
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Accumulated deficit |
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( |
) |
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( |
) |
Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
1
Graphite Bio, Inc.
Condensed Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
(unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
) |
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( |
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Other income (expense), net: |
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Other income, net |
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— |
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Change in fair value of the Series A redeemable convertible preferred stock tranche liability |
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— |
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( |
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Total other income (expense), net |
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( |
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Net loss attributable to common stockholders |
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$ |
( |
) |
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$ |
( |
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Unrealized loss on investments |
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( |
) |
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— |
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Net loss and comprehensive loss |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders—basic and diluted |
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$ |
( |
) |
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$ |
( |
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Weighted-average shares used in computing net loss per share—basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed financial statements
2
Graphite Bio, Inc.
Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(unaudited)
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Accumulated |
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Redeemable Convertible Preferred Stock |
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Additional |
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Other |
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Total |
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Series A |
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Series B |
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Common Stock |
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Paid in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balance at December 31, 2021 |
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— |
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— |
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— |
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— |
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$ |
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$ |
— |
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$ |
( |
) |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Vesting of early exercised stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Unrealized loss on investment |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2022 |
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— |
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$ |
— |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
3
Graphite Bio, Inc.
Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(unaudited)
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Accumulated |
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Redeemable Convertible Preferred Stock |
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Common |
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Additional |
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Other |
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Total |
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Series A |
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Series B |
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Stock |
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Paid in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Deficit |
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Balance at December 31, 2020 |
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$ |
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— |
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$ |
— |
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$ |
— |
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$ |
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$ |
— |
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$ |
( |
) |
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$ |
( |
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Issuance of Series A redeemable convertible preferred stock for cash, net of issuance costs of $ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of Series B redeemable convertible preferred stock for cash, net of issuance costs of $ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Common stock shares issued upon early exercise of options |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Vesting of early exercised stock options |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Reclassification of tranche liability upon settlement |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
Graphite Bio, Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
|
|
Three Months Ended |
|
|||||||
|
|
March 31, |
|
|||||||
|
|
2022 |
|
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|
2021 |
|
|||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Adjustments to reconcile net loss to net cash used in operations: |
|
|
|
|
|
|
|
|
|
|
Net amortization of premiums and discounts on marketable securities |
|
|
|
|
|
|
|
|
— |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
Noncash lease expense |
|
|
|
|
|
|
|
|
— |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
Change in fair value of the Series A redeemable convertible preferred stock tranche liability |
|
|
|
— |
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets and other assets |
|
|
|
( |
) |
|
|
|
( |
) |
Accounts payable |
|
|
|
|
|
|
|
|
|
|
Accrued compensation |
|
|
|
( |
) |
|
|
|
( |
) |
Accrued research costs |
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities and other liabilities |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
|
|
( |
) |
|
|
|
— |
|
Net cash used in operating activities |
|
|
|
( |
) |
|
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
|
( |
) |
|
|
|
( |
) |
Purchases of investments in marketable securities |
|
|
|
( |
) |
|
|
|
— |
|
Net cash used in investing activities |
|
|
|
( |
) |
|
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs |
|
|
|
— |
|
|
|
|
|
|
Payment of deferred offering costs |
|
|
|
— |
|
|
|
|
( |
) |
Proceeds from issuance of common stock upon exercise of stock options |
|
|
|
— |
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
— |
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
|
( |
) |
|
|
|
|
|
Cash, cash equivalents and restricted cash, at beginning of period |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, at end of period |
|
$ |
|
|
|
|
$ |
|
|
|
Reconciliation of cash, cash equivalents and restricted cash to statement of financial position: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash in statement of financial position |
|
$ |
|
|
|
|
$ |
|
|
|
Supplemental disclosures of non-cash investing and financing information: |
|
|
|
|
|
|
|
|
|
|
Issuance costs of redeemable convertible preferred stock in accrued expenses and accounts payable |
|
$ |
|
— |
|
|
$ |
|
|
|
Purchases of property and equipment included in accounts payable |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
Settlement of redeemable convertible preferred stock tranche liability |
|
$ |
|
— |
|
|
$ |
|
( |
) |
Deferred offering costs included in accounts payable and accrued expenses |
|
$ |
|
— |
|
|
$ |
|
( |
) |
Vesting of early exercised stock options |
|
$ |
|
|
|
|
$ |
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
5
Graphite Bio, Inc.
Notes to Condensed Financial Statements
(unaudited)
1. |
Description of Business, Organization and Liquidity |
Organization and Business
Graphite Bio, Inc. (the “Company”) is a clinical-stage, next-generation gene editing company harnessing the power of high-efficiency precision gene repair to develop a new class of therapies to potentially cure a wide range of serious and life-threatening diseases. The Company is pioneering a precision gene editing approach to achieve one of medicine’s most elusive goals: to precisely “find & replace” any gene in the genome. The Company’s next-generation gene editing platform, called UltraHDR™, is designed to precisely correct mutations, replace entire disease-causing genes with functional genes, or insert new genes into predetermined, safe locations. The Company’s lead product candidate GPH101 is a highly differentiated approach with the potential to directly correct the mutation that causes sickle cell disease (SCD) and restore adult hemoglobin (HgbA) expression. On November 17, 2021, the Company announced the enrollment of the first patient in the Company’s Phase 1/2 clinical trial of GPH101. The Company expects to report initial proof-of-concept data in 2023.
From its inception in 2017, the Company’s primary activities have been to perform research and development, undertake preclinical studies and enable manufacturing activities in support of its product development efforts, organize and staff the Company, establish its intellectual property portfolio, and raise capital to support and expand such activities.
The Company was incorporated in Ontario, Canada in June 2017 as Longbow Therapeutics Inc., and was reincorporated in the State of Delaware in October 2019. In February 2020, the Company changed its name to Integral Medicines, Inc., and again in August 2020, changed the name to Graphite Bio, Inc. Research and development of the Company’s initial technology ceased at the end of 2018, and the Company did not have any significant operations or any research and development activities in 2019. In March 2020, the Company identified new gene editing technology which the Company sought to further develop, and the Company licensed the related intellectual property rights from The Board of Trustees of the Leland Stanford Junior University (“Stanford”) in December 2020 (Note 6).
Reverse Stock Split
Initial Public Offering
On June 24, 2021, the Company’s registration statement on Form S-1 relating to its initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on the Nasdaq Global Market on June 25, 2021. The IPO closed on
Liquidity Matters
The Company has incurred significant operating losses since inception and has primarily relied on private equity and convertible debt financings to fund its operations. As of March 31, 2022, the Company had an accumulated deficit of $
6
Coronavirus Pandemic
In March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (“COVID-19”) outbreak a pandemic. The ongoing COVID-19 pandemic may continue to affect the Company’s ability to initiate and complete preclinical studies, delay the initiation of its planned clinical trials or future clinical trials or the progress or completion of its ongoing clinical trials, impede regulatory activities, disrupt the supply chain and the manufacture or shipment of drug substances and finished drug products for its product candidates for use in its clinical trials, impair testing, monitoring, data collection and analysis and other related activities, or have other adverse effects on the Company’s business, financial condition, results of operations and prospects. In addition, the pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on the Company’s business and operations and its ability to raise additional funds to support its operations.
While certain measures have been relaxed in certain parts of the world as increasing numbers of people have received COVID-19 vaccines, others have remained in place with some areas continuing to experience renewed outbreaks and surges in infection rates. The extent to which such measures are removed or new measures are put in place will depend upon how the pandemic evolves, as well as the distribution of available vaccines, the rates at which they are administered and the emergence of new variants of the virus. The Company is following, and will continue to follow, recommendations from the U.S. Centers for Disease Control and Prevention as well as federal, state, and local governments regarding working-from-home practices for non-essential employees as well as return-to-work policies and procedures. The Company expects to continue to take actions as may be required or recommended by government authorities or as the Company determines are in the best interests of its employees and other business partners in light of the pandemic.
The recent surge of the COVID-19 Omicron variant, which began around the same time that the Company’s Phase 1/2 clinical trial of GPH101 initially opened for enrollment, has impacted trial enrollment and site operations, including resourcing and staffing, resulting in a delay in timelines to anticipated data. In particular, the treatment of the first patient in the Phase 1/2 clinical trial was delayed due to a prospective participant becoming infected with COVID-19. The impact of the COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the pandemic, including new variants of the virus, its impact on the Company’s clinical trial enrollment, trial sites, contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other third parties with whom it does business, its impact on regulatory authorities and the Company’s key scientific and management personnel, progress of vaccination and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets or the overall economy are impacted for an extended period, the Company’s business may be materially adversely affected.
2. Summary of Significant Accounting Policies
Basis of Presentation
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Certain amounts in accrued expenses reported in the Company's prior year condensed statement of cash flows have been reclassified as accrued research costs to conform to the current year presentation.
Unaudited Interim Condensed Financial Statements
The interim condensed balance sheet as of March 31, 2022 and the condensed statements of operations and comprehensive loss and changes in redeemable convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2022 and 2021 and the condensed statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of March 31, 2022 and its results of operations and cash flows for the three months ended March 31, 2022 and 2021. The financial data and the other financial information disclosed in these notes to the financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. These condensed financial statements should be read in conjunction with the Company's audited financial statements and the related notes thereto for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K filed with the SEC.
7
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed financial statements for the three months ended March 31, 2022 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 year ended December 31, 2021, except as noted below and within the "Adopted and Recently Issued Accounting Pronouncements" section.
Use of Estimates
The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates estimates and assumptions, including but not limited to those related to the fair value of the marketable securities, the fair value of redeemable convertible preferred stock and common stock, stock-based compensation expense, accruals for research and development costs, lease assets and liabilities, the valuation of deferred tax assets, and uncertain income tax positions. Management bases its estimates on historical experience and on various other assumptions that are believed to be 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. Actual results may differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of purchase to be cash equivalents. As of March 31, 2022 and December 31, 2021, cash and cash equivalents consisted of cash, money market funds, and commercial paper.
Restricted Cash
Restricted cash of $
Marketable Securities
The Company’s marketable securities are accounted for as available-for-sale and recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive gain (loss).
The Company reviews its investment portfolio to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Operating Leases
The Company accounts for its operating leases by recording right-of-use assets and lease liabilities on the Company’s balance sheets in accordance with Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”). Right-of-use assets represent the Company’s right to use an underlying asset over the lease term and include any lease payments made prior to the lease commencement date and are reduced by lease incentives. Lease liabilities represent the present value of the total lease payments over the lease term, calculated using the Company’s incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. The Company recognizes options to extend a lease when it is reasonably certain that it will exercise such extension. The Company does not recognize options to terminate a lease when it is reasonably certain that it will not exercise such early termination options. Lease expense is recognized on a straight-line basis over the expected lease term.
Adopted and Recently Issued Accounting Pronouncements
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Thus, the Company has elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) the Company is no longer an emerging growth company or (ii) the Company affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. However as described below, the Company early adopted certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies to the extent early adoption is permitted.
In June 2016, the FASB issued ASU 2016-13, Credit Losses. The FASB also issued amendments and the initial ASU, and all updates are included herein as the Credit Losses standard or Topic 326. The new standard updates the guidance for measuring and
8
recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. As a result of adoption, the Company would present these financial assets, which includes available-for-sale debt securities, at the net amount it expects to collect. The amendment also requires that the Company records credit losses related to its available-for-sale debt securities as an allowance through net income rather than reducing the carrying amount under the historical, other-than-temporary-impairment model. With certain exceptions, the guidance is applied using a modified retrospective approach by reflecting adjustments through a cumulative-effect impact to retained earnings as of the beginning of the fiscal year of adoption. The Company early adopted the new standard under the modified retrospective approach as of
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The Company adopted this standard as of
3. Fair Value Measurements
Assets and liabilities recorded at fair value on a recurring basis in the condensed balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.
The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 — Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3 — Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. An assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. The Company recognizes transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs.
As of March 31, 2022 and December 31, 2021, Level 1 securities consist of U.S. Treasury and money market funds, for which the carrying amounts are based on the quoted market prices in active markets.
As of March 31, 2022, Level 2 securities consist of highly rated commercial paper, for which fair value is determined through the use of models or other valuation methodologies. As of March 31, 2022, the Company had an immaterial amount of unrealized gains on its Level 2 securities.
During the periods presented, the Company did not have any Level 3 securities.
9
The following tables set forth the financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2022 and December 31, 2021 (in thousands):
|
|
March 31, 2022 |
|
|||||||||||||
|
|
Total Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|