SEC Filing | Omega Therapeutics

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number: 001-40657

Omega Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	81-3247585
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

20 Acorn Park Drive Cambridge, MA	02140
(Address of principal executive offices)	(Zip Code)

(617) 949-4360

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

OMGA

The Nasdaq Global Select Market

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

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

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

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

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

As of April 28, 2022, the registrant had 47,848,455 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	6
Item 1.	Financial Statements (Unaudited)	6
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Operations and Comprehensive Loss	7
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
Item 3.	Defaults Upon Senior Securities	91
Item 4.	Mine Safety Disclosures	91
Item 5.	Other Information	92
Item 6.	Exhibits	93
Signatures		95

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, product candidate development, prospective products, product candidate approvals, research and development activities and costs, future revenue, timing and likelihood of success of our business plans, plans and objectives of management, future results and timing of clinical trials, treatment potential of our product candidates, and the market potential of our product candidates are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

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

SUMMARY RISK FACTORS

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

•

Our product candidates are based on a novel technology, which makes it difficult to predict the time and cost of preclinical and clinical development and of subsequently obtaining regulatory approval, if at all.

•

No epigenomic controller medicines have been approved in this potentially new class of medicines, and may never be approved as a result of efforts by others or us. mRNA drug development has substantial development and regulatory risks due to the novel and unprecedented nature of this new category of medicines.

•

We have a limited operating history and no history of successfully developing or commercializing any approved product candidates, which may make it difficult to evaluate the success of our business to date and to assess the prospects for our future viability.

•

We have incurred significant losses since inception and expect to incur significant additional losses for the foreseeable future.

•

We require substantial additional financing, which may not be available on acceptable terms, or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce, or terminate our product development.

•

We have invested, and expect to continue to invest, in research and development efforts that further enhance the OMEGA Epigenomic Programming platform. Such investments may affect our operating results, and, if the return on these investments is lower or develops more slowly than we expect, our revenue and operating results may suffer.

•

Preclinical development is uncertain, especially for a new class of medicines such as epigenomic controllers, and therefore our preclinical programs or development candidates may be delayed, terminated, or may never advance into the clinic, any of which may have a material adverse impact on our platform or our business.

•

Our product candidates may be associated with serious adverse events, undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.

•

Due to increased demand for the manufacture of mRNA- and LNP-based vaccines to treat COVID-19, our ability to manufacture our Omega Epigenomic Controller candidates, or OEC candidates, for preclinical or clinical supply could be limited, which could adversely affect our development plans.

•

Our OEC candidates are based on novel technology and may be complex and difficult to manufacture. We may encounter difficulties in manufacturing, product release, shelf life, testing, storage, supply chain management or shipping.

•

We must adapt to rapid and significant technological change and respond to introductions of new products and technologies by competitors to remain competitive.

•

We will rely on third parties for the foreseeable future for the manufacture of materials for our research programs, preclinical studies and clinical trials and we do not have long-term contracts with many of these parties. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials, product candidates, or any therapies that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our development or commercialization efforts.

•

We are planning to acquire and establish our own manufacturing facility and infrastructure in addition to or in lieu of relying on contract development and manufacturing organizations for the manufacture of our product candidates, which will be costly, time-consuming, and which may not be successful.

•

We have a limited number of suppliers for the lipid excipients used in our product candidates and certain of our suppliers are critical to our production. If we were to lose a critical supplier, it could have a material adverse effect on our ability to complete the development of our product candidates. If we obtain regulatory approval for any of our product candidates, we would need to expand the supply of lipid excipients in order to commercialize them.

•

We are very early in our development efforts. All of our product candidates are in preclinical development or discovery and it will be many years before we commercialize a product candidate, if ever. If we are unable to advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

•

If we are unable to obtain, maintain, enforce and adequately protect our intellectual property rights with respect to our technology and product candidates, or if the scope of the patent or other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Omega Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)


	March 31,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	105,648		$	186,482
Marketable securities		95,149			38,845
Accounts receivable, due from related party		395			257
Prepaid expenses and other current assets		5,265			3,702
Total current assets		206,457			229,286
Property and equipment, net		3,936			3,605
Operating lease right-of-use assets, net		6,443			—
Restricted cash		341			341
Other assets		124			101
Total assets	$	217,301		$	233,333
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,051		$	2,109
Accrued expenses		9,003			9,475
Other current liabilities		372			399
Lease liabilities, current		2,129			—
Total current liabilities		13,555			11,983
Lease liabilities, non-current		2,172			—
Long-term debt, net		19,880			19,869
Other liabilities		340			853
Total liabilities		35,947			32,705
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021; no shares issued and outstanding as of March 31, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 47,840,045 and 47,793,469 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		48			48
Additional paid-in capital		336,834			335,147
Accumulated other comprehensive loss		(859	)		(62	)
Accumulated deficit		(154,669	)		(134,505	)
Total stockholders’ equity		181,354			200,628
Total liabilities and stockholders’ equity	$	217,301		$	233,333

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

Omega Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Collaboration revenue from related party	$	268		$	—
Operating expenses:
Research and development		14,191			9,748
General and administrative		5,406			2,745
Related party expense, net		630			449
Total operating expenses		20,227			12,942
Loss from operations		(19,959	)		(12,942	)
Other expense, net:
Interest expense, net		(155	)		(212	)
Change in fair value of warrant liability		—			(330	)
Other expense, net		(50	)		(4	)
Total other expense, net		(205	)		(546	)
Net loss	$	(20,164	)	$	(13,488	)
Net loss per common stock attributable to common stockholders, basic and diluted	$	(0.42	)	$	(3.00	)
Weighted-average common stock used in net loss per share attributable to common stockholders, basic and diluted		47,807,209			4,496,657
Comprehensive loss:
Net loss	$	(20,164	)	$	(13,488	)
Other comprehensive loss:
Unrealized loss on marketable securities		(797	)		—
Comprehensive loss	$	(20,961	)	$	(13,488	)

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

Omega Therapeutics, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(Unaudited)


	COMMON STOCK				ADDITIONAL								TOTAL
	SHARES		PAR VALUE		PAID-IN CAPITAL		ACCUMULATED OTHER COMPREHENSIVE LOSS			ACCUMULATED DEFICIT			STOCKHOLDERS' EQUITY
As of January 1, 2022		47,793,469	$	48	$	335,147	$	(62	)	$	(134,505	)	$	200,628
Issuance of common stock for options exercised		46,576		—		83		—			—			83
Other comprehensive loss		—		—		—		(797	)		—			(797	)
Stock-based compensation		—		—		1,604		—			—			1,604
Net loss		—		—		—		—			(20,164	)		(20,164	)
As of March 31, 2022		47,840,045	$	48	$	336,834	$	(859	)	$	(154,669	)	$	181,354


	PREFERRED STOCK - SERIES A				PREFERRED STOCK - SERIES B				PREFERRED STOCK - SERIES C				COMMON STOCK				ADDITIONAL					TOTAL
	SHARES		PAR VALUE		SHARES		PAR VALUE		SHARES		PAR VALUE		SHARES		PAR VALUE		PAID-IN CAPITAL		ACCUMULATED DEFICIT			STOCKHOLDERS’ EQUITY (DEFICIT)
As of January 1, 2021		56,775,232	$	26,708		32,399,999	$	48,517		—		—		4,465,351	$	5	$	1,592	$	(66,225	)	$	(64,628	)
Issuance of Series C redeemable convertible preferred stock, net of issuance costs of $132		—		—		—		—		41,833,328		125,368		—		—		—		—			—
Issuance of common stock for options exercised		—		—		—		—		—		—		80,460		—		45		—			45
Stock-based compensation		—		—		—		—		—		—		—		—		194		—			194
Net loss		—		—		—		—		—		—		—		—		—		(13,488	)		(13,488	)
As of March 31, 2021		56,775,232	$	26,708		32,399,999	$	48,517		41,833,328	$	125,368		4,545,811	$	5	$	1,831	$	(79,713	)	$	(77,877	)

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

Omega Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Operating activities
Net loss	$	(20,164	)	$	(13,488	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		376			302
Amortization of debt issuance costs and debt discount		12			42
Noncash lease expense		850			—
Accretion of discounts on marketable securities		314			—
Change in fair value of warrant liability		—			330
Change in fair value of success fee obligation		—			3
Stock-based compensation expense		1,604			194
Deferred rent		—			(25	)
Changes in operating assets and liabilities:
Accounts receivable due from related party		(138	)		—
Prepaid expenses and other current assets		(1,563	)		(966	)
Other assets		(2,923	)		(45	)
Accounts payable		(58	)		2,291
Accrued expenses and other current liabilities		(1,329	)		818
Other liabilities		(331	)		(5	)
Net cash used in operating activities		(23,350	)		(10,549	)
Investing activities
Purchases of property and equipment		(152	)		(48	)
Purchases of marketable securities		(57,415	)		—
Net cash used in investing activities		(57,567	)		(48	)
Financing activities
Proceeds from issuance of redeemable convertible preferred stock		—			125,500
Payments for preferred stock issuance costs		—			(132	)
Proceeds from exercise of stock options		83			45
Net cash provided by financing activities		83			125,413
Net change in cash, cash equivalents and restricted cash		(80,834	)		114,816
Cash, cash equivalents and restricted cash—beginning of period		186,823			23,292
Cash, cash equivalents and restricted cash—end of period	$	105,989		$	138,108
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	105,648		$	137,767
Restricted cash		341		341
Cash, cash equivalents and restricted cash	$	105,989		$	138,108
Supplemental disclosures of cash flow information
Cash paid for interest	$	238		$	164
Supplemental disclosure of noncash investing and financing activities
Purchase of property and equipment included in accounts payable and accrued expenses	$	555		$	416

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

Omega Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of the Business and Basis of Presentation

Organization

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

Liquidity and going concern

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

In August 2021, the Company completed its initial public offering (“IPO”) pursuant to which it issued and sold 8,300,976 shares of its common stock, including 900,976 shares pursuant to the partial exercise of the underwriters’ option to purchase additional shares, at a public offering price of $17.00 per share, for aggregate gross proceeds of $141.1 million. The Company received approximately $128.1 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

The Company expects that its cash, cash equivalents and marketable securities of $200.8 million at March 31, 2022 will enable it to fund its operating expenses and capital expenditure requirements for at least twelve months from the filing date of this Quarterly Report on Form 10-Q. However, additional funding will be necessary to fund future preclinical and clinical activities and to develop new product candidates. The Company expects to finance its future cash needs through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or other sources.

COVID-19-Related Significant Risks and Uncertainties

With the global COVID-19 pandemic continuing through the first quarter of 2022, the Company is following, and plans to continue to follow, recommendations from federal, state and local governments regarding workplace policies, practices and procedures. To provide a safe work environment for its employees, the Company has implemented various measures to promote for social distancing, encourage employees to work remotely when possible, increase sanitization of its facilities and provide personal protective equipment for its employees. The Company expects to continue incurring additional costs to ensure it adheres to the guidelines instituted by the federal, state and local governments and to provide a safe working environment to its onsite employees.

The extent to which the COVID-19 pandemic and variants of the virus impacts the Company’s business, its corporate development objectives, results of operations and financial condition, and the fair value of and market for its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements, and the effectiveness of actions taken globally to contain and treat the disease. Disruptions to the global economy, disruption of global healthcare systems, and other significant impacts of the COVID-19 pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

While the COVID-19 pandemic did not significantly impact the Company’s business or results of operations during the three months ended March 31, 2022, the length and extent of the pandemic, its consequences, and containment efforts will determine the future impact on the Company’s operations and financial condition.

Basis of Presentation

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

2. Summary of Significant Accounting Policies

Principles of consolidation

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

Unaudited Interim Financial Information

The accompanying unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited financial statements have been prepared on the same basis as audited financial statements, except certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been consolidated or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair representation of the results for the reported periods. These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 10, 2022 (the “2021 10-K”).

The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.

Use of Estimates

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

Significant estimates and assumptions reflected in these unaudited financial statements include, but are not limited to, the selection of useful lives of property and equipment, the fair values of certain financial instruments issued prior to the IPO (common stock, redeemable convertible preferred stock, and warrants), the fair value of the success fee obligation, and stock-based compensation. Actual results could differ from these estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Summary of significant accounting policies,” to the Company’s audited financial statements included in the 2021 10-K. There have been no material changes to the significant accounting policies during the three months ended March 31, 2022.

Recently Adopted Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight- line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today.

The Company adopted ASU 2016-02, and related amendments, on January 1, 2022 using the effective date transition method. As such, the adoption of ASU 2016-02 did not change the classification of any of the existing leases as of the transition date, and the prior period results are not adjusted or restated and continue to be reported in accordance with ASC Topic 840: Leases (“Topic 840”). The Company has elected a package of practical expedients, under which an entity need not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or initial direct costs for any existing leases. The Company also elected not to separate lease and non-lease components and not to recognize leases with an initial term of 12 months or less.

The Company has real estate leases for its corporate offices and lab space located in Cambridge, Massachusetts. It determines if an arrangement is a lease at contract inception. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. Lease payments are typically fixed and escalate over time. Variable payments relate to the Company’s usage or share of the lessor’s operating costs associated with the underlying asset and are recognized as incurred. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The Company uses its incremental borrowing rate to calculate the lease liability when the implicit rate is not readily determinable. Lease expense is recognized on a straight-line basis over the lease term.

Upon the adoption of this standard, the Company recorded operating lease right-of-use assets of $4.4 million and corresponding operating lease liabilities of $5.1 million as of January 1, 2022. The difference between the value of the right-of-use assets and lease liabilities is due to the reclassification of existing deferred rent and unamortized lease incentives as of January 1, 2022. The adoption of this standard did not materially impact the condensed consolidated statement of operations and comprehensive loss and statement of cash flows as of the adoption date and for the periods presented. Refer to Note 9, Commitments and contingencies, for further discussion.

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Adoption of the standard requires certain changes to be made prospectively and certain others to be made retrospectively. The Company adopted ASU 2019-12 on January 1, 2022. The adoption of this standard did not result in any material impact on the Company's financial statements.

3. Marketable Securities

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


	March 31, 2022
	Amortized cost		Gross unrealized losses			Fair value
Corporate debt securities	$	96,008	$	(859	)	$	95,149

	December 31, 2021
	Amortized cost		Gross unrealized losses			Fair value
Corporate debt securities	$	38,907	$	(62	)	$	38,845

The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. At March 31, 2022, the balance in accumulated other comprehensive loss was comprised solely of activity related to marketable securities. There were no realized gains or losses recognized on the sale or maturity of marketable securities for the three months ended March 31, 2022 and, as a result, the Company did not reclassify any amounts out of accumulated other comprehensive loss during the year. The Company did not hold any marketable securities as of March 31, 2021.

The aggregate fair value of marketable securities that will mature within and after 12 months of March 31, 2022 totaled $80.1 million and $15.0 million respectively. As of March 31, 2022, the Company did not intend to sell, and was more than likely not required to sell, the debt securities in a loss position before recovery of their amortized cost bases. As a result, the Company determined it did not hold any investments with any other-than-temporary impairment at March 31, 2022.

4. Prepaid Expenses and Other Current Assets

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


	March 31,		December 31,
	2022		2021
Prepaid rent	$	825	$	825
Prepaid insurance		869		1,500
Prepaid software		132		143
Prepaid clinical expenses		222		0
Prepaid research and development		1,289		534
Prepaid other		745		436
Other receivables		1,183		264
Prepaid expenses and other current assets	$	5,265	$	3,702

5. Property and Equipment, Net

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


	March 31,			December 31,
	2022			2021
Leasehold improvements	$	1,378		$	1,378
Lab equipment		4,957			4,822
Furniture and fixtures		1,090			1,073
Computer equipment		129			129
Construction in process		609			54
Total property and equipment		8,163			7,456
Less accumulated depreciation		(4,227	)		(3,851	)
Property and equipment, net	$	3,936		$	3,605

Depreciation expense for the three months ended March 31, 2022 and 2021 was $0.4 million and $0.3 million, respectively.

6. Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31,		December 31,
	2022		2021
Employee related expenses	$	1,051	$	2,545
Research costs		2,258		5,640
Manufacturing costs		3,489		—
Professional and consulting fees		1,094		759
Interest		67		31
Other		1,044		500
Total	$	9,003	$	9,475

7. Term Loan

On March 9, 2018 (“Closing Date”), the Company entered into the Loan Agreement with Pacific Western Bank (“PWB”) to initially borrow $8.0 million. In conjunction with the Loan Agreement, the Company issued a warrant to PWB to purchase up to 200,000 shares of Series A Preferred Stock at the strike price of $0.50 per share. The warrant was exercisable for a 10-year period.

On September 30, 2019, the Company entered into an amendment to the Loan Agreement (the “First Amendment”), in which PWB made an additional term loan to the Company in an aggregate principal amount of $12.0 million. In conjunction with the First Amendment, the Company also issued a warrant to purchase 350,000 shares of Series A Preferred Stock, which effectively restated and replaced the original warrant agreement. The strike price of the amended warrant is $0.50 per share, and the term remains unchanged, expiring in March 2028. As the warrants issued were freestanding financial instruments that were exercisable for contingently redeemable shares, they were initially recorded at fair value on the date of issuance as a liability, with a corresponding discount recorded against the face value of the term loan. The discount was accreted against the face value of the term loan over its remaining term as additional interest expense. The change in estimated fair value of the warrants during the period was remeasured at each reporting date and recognized as a component of other expense, net in the condensed consolidated statements of operations and comprehensive loss.

Upon the closing of the IPO, the Company’s outstanding warrants to purchase Series A Preferred Stock automatically became warrants to purchase an aggregate of 92,647 shares of common stock. As a result, the fair value of the warrants was reclassified to additional paid-in capital. Additionally, the remaining unamortized debt discount of $0.1 million related to the warrants was written off during the three months ended September 30, 2021. In August 2021, the holders of such warrants completed a cashless exercise of the warrants, resulting in the Company’s issuance of 82,193 shares of its common stock, whereby 10,454 shares of common stock were withheld by the Company to pay for the exercise price of the warrants.

On January 22, 2020, the Loan Agreement was further amended (the “Second Amendment”) to extend the principal repayment start date. The Loan Agreement was further amended on December 30, 2020 (the “Third Amendment”) to extend the principal repayment date. The maturity date of the term loan was extended to June 30, 2023, and it was to be repaid beginning on June 30, 2021 in twenty-four equal installments, including interest at a floating annual rate equal to the greater of (i) 0.75% above the prime rate then in effect and (ii) 6.00%, due monthly starting the first month after December 30, 2020. As a result of the closing of Series C redeemable convertible preferred stock (“Series C Preferred Stock”) in March 2021, as further discussed in Note 12, Redeemable convertible preferred stock, the Company satisfied the cash proceeds milestone as defined in the Third Amendment, in which the Company received gross cash proceeds of more than $50.0 million from the issuance of new preferred stock prior to June 30, 2021. Accordingly, the principal repayment date of the term loan was further extended to December 31, 2021 and the maturity date was extended to December 31, 2023. There are no other changes to the terms as a result of the achievement of the cash proceeds milestone. In connection with the Third Amendment, the Company incurred $15 thousand of debt issuance costs, which have been recorded as a direct reduction against the term loan and amortized over the life of the associated