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, 2023


☐	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, 2023, the registrant had 55,023,089 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 Stockholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
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	91
Item 6.	Exhibits	92
Signatures		93

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, the sufficiency of our cash, cash equivalents and marketable securities to fund our operating expenses and capital expenditure requirements, 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 platform. Such investments may affect our operating results, and, if the return on these investments is lower or develops more slowly than we expect, our revenue and operating results may suffer.

•

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

•

Our product candidate, OTX-2002, was cleared by the United States Food and Drug Administration to advance to clinical development. Clinical development of OTX-2002 may be delayed or terminated, and we may never obtain regulatory approval of OTX-2002, which may have a material adverse impact on our platform or our business. Furthermore, clinical development requires substantial capital investment, which we may not be able to support. We may incur unforeseen costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of OTX-2002 and our other product candidates.

•

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

•

Our ability to manufacture our Omega Epigenomic ControllerTM candidates, or OEC candidates, for preclinical or clinical supply could be limited, especially with the increased demand for the manufacture of mRNA- and LNP-based vaccines to treat COVID-19, 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 and supply of materials for our research programs, preclinical studies and clinical trials and we do not have long-term contracts with many of these parties. This reliance on third parties increases the risk that we will not have sufficient quantities of such materials, including drug supplies for combination therapy, product candidates, or any therapies that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our development or commercialization efforts.

•

We continue to evaluate plans to acquire and establish our own manufacturing facility and infrastructure in addition to or in lieu of relying on contract development and manufacturing organizations for the manufacture of

our product candidates. Any plan to establish our own manufacturing facility and infrastructure will be costly and time-consuming and we may not be successful.

•

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

•

We are very early in our development efforts. Most of our product candidates are in preclinical development or discovery, and we received FDA clearance for our IND application for OTX-2002 and have initiated the associated clinical trial. It will be many years before we commercialize a product candidate, if ever. If we are unable to advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

•

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

•

Third parties may obtain or control intellectual property rights that may prevent or limit the development of our technology or products. Third-party claims of intellectual property infringement, misappropriation or other violation may result in substantial costs or prevent or delay our development and commercialization efforts.

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,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	104,541		$	70,615
Marketable securities		32,246			54,063
Accounts receivable, due from related party		475			618
Prepaid expenses and other current assets		11,590			12,294
Total current assets		148,852			137,590
Property and equipment, net		4,208			4,195
Operating lease right-of-use assets, net		2,732			3,668
Restricted cash		341			341
Other assets		182			204
Total assets	$	156,315		$	145,998
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,678		$	3,107
Accrued expenses		6,857			13,841
Other current liabilities		200			159
Lease liabilities, current		1,536			1,524
Long-term debt, current portion		5,833			3,333
Total current liabilities		18,104			21,964
Lease liabilities, non-current		759			1,120
Long-term debt, net		14,112			16,603
Other liabilities		340			340
Total liabilities		33,315			40,027
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; no shares issued and outstanding as of March 31, 2023 and December 31, 2022		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 55,023,089 and 48,072,517 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		55			48
Additional paid-in capital		385,658			343,608
Accumulated other comprehensive loss		(228	)		(479	)
Accumulated deficit		(262,485	)		(237,206	)
Total stockholders’ equity		123,000			105,971
Total liabilities and stockholders’ equity	$	156,315		$	145,998

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,
	2023			2022
Collaboration revenue from related party	$	516		$	268
Operating expenses:
Research and development		19,968			14,191
General and administrative		5,954			5,406
Related party expense, net		412			630
Total operating expenses		26,334			20,227
Loss from operations		(25,818	)		(19,959	)
Other income (expense), net:
Interest income (expense), net		682			(155	)
Other expense, net		(143	)		(50	)
Total other income (expense), net		539			(205	)
Net loss	$	(25,279	)	$	(20,164	)
Net loss per common stock attributable to common stockholders, basic and diluted	$	(0.50	)	$	(0.42	)
Weighted-average common stock used in net loss per share attributable to common stockholders, basic and diluted		50,627,287			47,807,209
Comprehensive loss:
Net loss	$	(25,279	)	$	(20,164	)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		251			(797	)
Comprehensive loss	$	(25,028	)	$	(20,961	)

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

Omega Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)


	SHARES		PAR VALUE		ADDITIONAL PAID-IN CAPITAL		ACCUMULATED OTHER COMPREHENSIVE GAIN (LOSS)			ACCUMULATED DEFICIT			TOTAL STOCKHOLDERS' EQUITY
As of January 1, 2023		48,072,517	$	48	$	343,608	$	(479	)	$	(237,206	)	$	105,971
Issuance of common stock for registered direct offering, net of issuance costs		6,920,415		7		39,720		—			—			39,727
Issuance of common stock for options exercised		30,157		—		108		—			—			108
Other comprehensive gain		—		—		—		251			—			251
Stock-based compensation		—		—		2,222		—			—			2,222
Net loss		—		—		—		—			(25,279	)		(25,279	)
As of March 31, 2023		55,023,089	$	55	$	385,658	$	(228	)	$	(262,485	)	$	123,000


	SHARES		PAR VALUE		ADDITIONAL PAID-IN CAPITAL		ACCUMULATED OTHER COMPREHENSIVE LOSS			ACCUMULATED DEFICIT			TOTAL 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

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,
	2023			2022
Operating activities
Net loss	$	(25,279	)	$	(20,164	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		371			376
Amortization of debt issuance costs and debt discount		9			12
Amortization of operating lease right-of-use assets		936			850
Accretion of discounts on marketable securities		18			314
Change in fair value of success fee obligation		82			—
Stock-based compensation expense		2,222			1,604
Changes in operating assets and liabilities:
Accounts receivable due from related party		143			(138	)
Prepaid expenses and other current assets		705			(1,563	)
Other assets		(99	)		(2,923	)
Accounts payable		156			(58	)
Accrued expenses and other current liabilities		(7,013	)		(1,329	)
Other liabilities		(362	)		(331	)
Net cash used in operating activities		(28,111	)		(23,350	)
Investing activities
Purchases of property and equipment		—			(152	)
Purchases of marketable securities		(19,768	)		(57,415	)
Proceeds from maturities of marketable securities		41,818			—
Net cash provided by (used in) investing activities		22,050			(57,567	)
Financing activities
Proceeds from equity offering		40,000			—
Payments of equity offering costs		(121	)		—
Proceeds from issuance of common stock under equity incentive plans		108			83
Net cash provided by financing activities		39,987			83
Net change in cash, cash equivalents and restricted cash		33,926			(80,834	)
Cash, cash equivalents and restricted cash—beginning of period		70,956			186,823
Cash, cash equivalents and restricted cash—end of period	$	104,882		$	105,989
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	104,541		$	105,648
Restricted cash		341		341
Cash, cash equivalents and restricted cash	$	104,882		$	105,989
Supplemental disclosures of cash flow information
Cash paid for interest	$	387		$	238
Supplemental disclosure of noncash investing and financing activities
Equity offering costs in accounts payable	$	152		$	—
Purchases of property and equipment included in accounts payable and accrued expenses	$	—		$	555

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

Liquidity and going concern

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

In 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. In February 2023, the Company completed a registered direct offering of common stock pursuant to which it issued and sold 6,920,415 shares of its common stock at a purchase price of $5.78 per share and secured approximately $39.7 million in net proceeds after deducting estimated offering expenses.

The Company expects that its cash, cash equivalents and marketable securities of $136.8 million at March 31, 2023 will enable it to fund its operating expenses and capital expenditure requirements for at least the next 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.

Significant Risks and Uncertainties Related to Macroeconomic Conditions and COVID-19

The global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including, for example, severely diminished liquidity and credit availability, rising interest and inflation rates, crises involving banking and financial institutions, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. In addition, the COVID-19 pandemic continues to be prevalent globally. While the COVID-19 pandemic did not significantly impact the Company’s business or results of operations during the three months ended March 31, 2023, 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. Unstable market

and economic conditions and further disruption created by COVID-19 or other pandemics may have serious adverse consequences on our business, financial condition and results of operations.

Basis of Presentation

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

2. Summary of Significant Accounting Policies

Principles of consolidation

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

Unaudited Interim Financial Information

The accompanying condensed consolidated unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited financial statements have been prepared on the same basis as audited financial statements, except certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been consolidated or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair representation of the results for the reported periods. These condensed consolidated unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023 (the “2022 10-K”).

The results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period.

Use of Estimates

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

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

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 2022 10-K. There was no significant change of accounting policy during the three months ended March 31, 2023.

Recently issued accounting pronouncements

On January 1, 2023, the Company adopted Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to

ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The guidance is effective for fiscal years beginning after December 15, 2022. The adoption of the standard was immaterial to the accompanying condensed consolidated financial statements.

3. Marketable Securities

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


	March 31, 2023
	Amortized cost		Gross unrealized losses			Fair value
Marketable securities	$	32,474	$	(228	)	$	32,246

	December 31, 2022
	Amortized cost		Gross unrealized losses			Fair value
Marketable securities	$	54,542	$	(479	)	$	54,063

The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. At March 31, 2023, 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, 2023 and, as a result, the Company did not reclassify any amounts out of accumulated other comprehensive loss during the year.

As of March 31, 2023, 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, 2023.

4. Prepaid Expenses and Other Current Assets

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


	March 31,		December 31,
	2023		2022
Prepaid clinical expenses	$	4,906	$	5,232
Prepaid research and development		2,591		2,072
Prepaid rent		1,886		1,857
Other receivables		784		1,180
Prepaid other		608		776
Prepaid insurance		595		1,020
Prepaid software		220		157
Prepaid expenses and other current assets	$	11,590	$	12,294

5. Property and Equipment, Net

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


	March 31,			December 31,
	2023			2022
Lab equipment	$	6,121		$	6,121
Leasehold improvements		1,378			1,378
Furniture and fixtures		1,093			1,093
Construction in process		1,211			827
Computer equipment		190			190
Total property and equipment		9,993			9,609
Less accumulated depreciation		(5,785	)		(5,414	)
Property and equipment, net	$	4,208		$	4,195

Depreciation expense for the three months ended March 31, 2023 and 2022 was $0.4 million and $0.4 million, respectively.

6. Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31,		December 31,
	2023		2022
Research costs	$	2,358	$	3,876
Manufacturing costs		1,657		4,303
Employee related expenses		1,456		4,368
Professional and consulting fees		617		743
Other		336		429
Accrued Clinical Expenses		329		—
Interest		104		122
Total	$	6,857	$	13,841

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, 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 term loan as a component of interest expense using the effective interest method.

In accordance with the Third Amendment, the Company was required to pay a success fee of $0.2 million upon the occurrence of a specified liquidity event, including an IPO. The Company determined that this obligation represented a freestanding financial instrument, and accordingly, the success fee obligation was classified as a liability on the Company’s condensed consolidated balance sheet as of December 31, 2020 and initially recorded at fair value, with changes in fair value for each reporting period recognized in other expense, net in the condensed consolidated statements of operations and comprehensive loss. The fair value of such obligation was remeasured at the end of each reporting period until the liability was settled, for which it was settled and paid in August 2021 upon the completion of the IPO.

On December 20, 2021, the Company entered into an amendment to the Loan Agreement (the "Fourth Amendment"), in which PWB made an additional term loan in an aggregate principal amount of $20.0