LENZ THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our unaudited condensed financial
statements and the related notes and other financial information included
elsewhere in this Quarterly Report on Form 10-Q, and the financial statements
and accompanying notes, as well as Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in our Annual Report on
Form 10-K for the year ended
Overview
We are a clinical-stage, next-generation gene editing company harnessing the power of high-efficiency precision gene repair, also known as homology directed repair (HDR), to develop a new class of therapies to potentially cure a wide range of serious and life-threatening diseases. We are pioneering a precision gene editing approach to achieve one of medicine's most elusive goals: to precisely "find & replace" any gene in the genome. Our next-generation gene editing platform, called UltraHDR™, is designed to precisely correct genetic mutations, replace entire disease-causing genes with functional genes, or insert new genes into predetermined, safe locations. We believe our platform technology could enable broad applications to transform human health, including directly correcting genetic mutations, engineering cells to permanently deliver therapeutic proteins, and precisely engineering effector cells to treat or cure a wide range of serious genetic and other diseases, including cancer, autoimmune and neurodegenerative diseases.
Our lead product candidate nulabeglogene autogedtemcel (nula-cel), formerly 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. Curing sickle cell disease by correcting the disease-causing point mutation is viewed as the gold-standard for curing SCD and has been the dream of treating physicians for generations. Our Phase 1/2 clinical trial of nula-cel is underway, with initial proof-of-concept data anticipated in mid-2023. We are also advancing our research programs and pipeline of potential one-time curative therapies for a wide range of genetic and other serious diseases and intend to file an investigational new drug application (IND) for a second program by mid-2024.
We were incorporated in
Since our inception in
We have incurred significant operating losses since inception. As of
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We expect our expenses will increase substantially in connection with our ongoing and planned activities, as we:
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advance product candidates through preclinical studies and clinical trials;
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manufacture supplies for our preclinical studies and clinical trials;
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acquire, discover, validate and develop additional product candidates and technologies;
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attract, hire and retain additional personnel;
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operate as a public company;
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implement operational, financial and management systems;
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pursue regulatory approval for any product candidates that successfully complete clinical trials;
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expand or establish additional facilities for our growing business and operations;
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establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval and related commercial manufacturing build-out; and
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obtain, maintain, expand and protect our portfolio of intellectual property rights.
We rely and will continue to rely on third parties in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our product candidates. We have no internal manufacturing capabilities, and we may continue to rely on third parties for our preclinical and clinical trial materials, of which the main suppliers are single-source suppliers. Given our stage of development, we do not yet have a marketing or sales organization or commercial infrastructure. Accordingly, if we obtain regulatory approval for any of our product candidates, we also expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from sales of any product for which we receive regulatory approval, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and may be forced to reduce our operations.
Business Impact of COVID-19 Pandemic
In
We are following, and will continue to follow, recommendations from the
The surge of the COVID-19 Omicron variant, which began around the same time that our Phase 1/2 clinical trial of nula-cel initially opened for enrollment, 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 our Phase 1/2 clinical trial was delayed due to a prospective participant becoming infected with COVID-19. We cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on our business, financial condition and operations, including planned clinical trials and clinical development timelines. The impact of the COVID-19 pandemic on our financial performance will depend on future developments, including the duration and spread of the pandemic, its impact on our clinical trial enrollment, trial sites, CROs, CMOs and other third parties with whom we do business, its impact on regulatory authorities and our 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, our business may be materially adversely affected.
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Stanford Exclusive License Agreement and Option Agreement
In
To date, pursuant to the License Agreement, we have paid an upfront license fee
to
In
We are required to share with
We are obligated to make payments to
We also are obligated to pay
The term of the License Agreement expires on the later of (i) the expiration of
the last patent or abandonment of the last patent application within the license
patent rights or (ii) the expiration of all royalty terms with respect to
Licensed Products. The License Agreement may be terminated by us at will or by
We are required to use diligent efforts to manufacture, market and sell Licensed
Products for the treatment of each of SCD, XSCID and beta thalassemia. In
addition, we are required to achieve specified milestones by specified dates
with respect to Licensed Products for the treatment of each of SCD, XSCID and
beta thalassemia. If we fail to satisfy our diligence obligations,
In
Subject to our exercise of the option under the First Option Agreement and our
execution of an amendment to the License Agreement that incorporates the
optioned patent rights and any optioned technology, we have agreed to issue to
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The term of the First Option Agreement expires 18 months after its effective
date, subject to our right to extend such expiration date by up to an additional
one year upon notice to
In
LCGM Service Agreement
On
IDT License Agreement
On
In consideration of the licenses and rights granted to us under the IDT License
Agreement, we agreed to pay to IDT an upfront payment in the amount of
The IDT License Agreement remains in effect on a country-by-country and product-by-product basis until the expiration of the royalty term for such product in such jurisdiction. We and IDT each have the right to terminate the IDT License Agreement for the other party's material breach of its obligations under the IDT License Agreement, subject to specified rights to cure. Additionally, we may terminate the IDT License Agreement for any reason upon written notice.
Initial Public Offering
In June and
Components of Results of Operations
Operating Expenses
Research and Development
Research and development costs consist primarily of external and internal costs
incurred for our research activities and the development of our gene editing
platform and associated rights which we licensed in
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External costs include:
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costs incurred under agreements with third-party CROs, CMOs and other third parties that conduct preclinical and clinical activities on our behalf and manufacture our product candidates;
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costs associated with acquiring technology and intellectual property licenses that have no alternative future uses; and
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other costs associated with our research and development programs, including laboratory materials and supplies and consulting fees.
Internal costs include:
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employee-related costs, including salaries, benefits and stock-based compensation expense, for our research and development personnel; and
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facilities and other expenses incurred in connection with our research and development programs, including expenses for allocated rent and facilities maintenance, and depreciation and amortization.
Research and development costs are expensed as incurred. Since inception, we have not tracked our internal indirect costs and external research and development costs by program. The intellectual property we licensed in late 2020 is fundamental to our platform and we did not focus on any specific programs. In the future, we expect to track research and development costs on a program by program basis as we identify the specific programs and product candidates to develop.
During 2021 and 2020, we were eligible for a research and development tax
credit. The tax incentive was available to us based on research and development
activity within
We expect our research and development expenses to increase substantially for the foreseeable future as we advance our product candidates into and through preclinical studies and clinical trials, pursue regulatory approval of our product candidates and expand our pipeline of product candidates. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, early clinical data, investment in our clinical programs, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or if, when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if approved by the FDA and other applicable authorities.
Our future research and development costs may vary significantly based on factors such as:
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the scope, rate of progress, expense and results of our clinical trials and our discovery and preclinical development activities;
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the costs and timing of our CMC activities, including fulfilling GMP-related standards and compliance, and identifying and qualifying suppliers;
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per patient clinical trial costs;
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the number and duration of clinical trials required for approval of our product candidates;
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the number of sites included in our clinical trials;
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the countries in which the trials are conducted;
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delays in adding a sufficient number of trial sites and recruiting suitable patients to participate in our clinical trials;
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the number of patients that participate in the trials;
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patient drop-out or discontinuation rates;
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potential partial reimbursement from governmental agencies for our clinical activities;
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potential additional safety monitoring requested by regulatory agencies;
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the duration of patient participation in the trials and follow-up;
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the cost and timing of manufacturing our product candidates;
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the phase of development of our product candidates;
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the efficacy and safety profile of our product candidates; the timing, receipt,
and terms of any approvals from applicable regulatory authorities including the
FDA and non-
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maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates;
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significant and changing government regulation and regulatory guidance;
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changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;
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the extent to which we establish additional strategic collaborations or other arrangements; and
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the impact of any business interruptions to our operations or to those of the third parties with whom we work, particularly in light of the current COVID-19 pandemic environment.
General and Administrative Expenses
General and administrative expenses consist primarily of expenses related to
employee-related costs, including salaries, benefits and stock-based
compensation expense, for our executive, business development, finance and
accounting, human resources and other administrative functions; legal services,
including relating to intellectual property and corporate matters; accounting,
auditing, consulting and tax services; insurance; and facility and other
allocated costs not otherwise included in research and development expenses. We
expect our general and administrative expenses to increase substantially for the
foreseeable future as we anticipate an increase in our personnel headcount to
support expansion of research and development activities, as well as to support
our operations generally. We also expect to continue to incur significant
expenses associated with being a public company, including costs related to
accounting, audit, legal, regulatory, and tax-related services associated with
maintaining compliance with applicable Nasdaq and
Other Income (Expense), Net
Other income (expense), net primarily consists of amounts realized from interest income from the investments in marketable securities.
Results of Operations
Three Months Ended
The following table summarizes our statements of operations and comprehensive loss for the respective periods (in thousands):
Three Months Ended
June 30,
2022 2021
(unaudited)
Operating expenses:
Research and development $ 17,777 $ 12,667
General and administrative 8,999 4,866
Total operating expenses 26,776 17,533
Loss from operations (26,776 ) (17,533 )
Other income (expense), net:
Other income, net 840 4
Change in fair value of the Series A
redeemable convertible preferred stock
tranche liability - -
Total other income, net 840 4
Net loss $ (25,936 ) $ (17,529 )
Unrealized loss on investments (724 ) -
Comprehensive loss $ (26,660 ) $ (17,529 )
Operating Expenses
Research and Development Expenses
Research and development expenses were
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General and Administrative Expenses
General and administrative expenses were
Other Income (Expense), Net
The other income (expense), net for the three months ended
Six Months Ended
The following table summarizes our statements of operations and comprehensive loss for the respective periods (in thousands):
Six Months Ended
June 30,
2022 2021
(unaudited)
Operating expenses:
Research and development $ 36,023 $ 18,044
General and administrative 16,711 8,857
Total operating expenses 52,734 26,901
Loss from operations (52,734 ) (26,901 )
Other income (expense), net:
Other income (expense), net 963 4
Change in fair value of the Series A
redeemable convertible preferred stock
tranche liability - (10,341 )
Total other income (expense), net 963 (10,337 )
Net loss $ (51,771 ) $ (37,238 )
Unrealized loss on investments (1,033 ) -
Comprehensive loss $ (52,804 ) $ (37,238 )
Research and Development Expenses
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Other Income (Expense), Net
The other income (expense), net for the six months ended
Liquidity and Capital Resources
We have incurred losses since inception and have incurred negative cash flows
from operations from inception through
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Prior to our IPO, we funded our operations primarily from the sale of redeemable convertible preferred stock and issuance of convertible promissory notes.
On
Future Funding Requirements
Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our programs and, to a lesser extent, general and administrative expenditures. We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our product candidates, expand our corporate infrastructure, including the costs associated with being a public company, further our research and development initiatives for our product candidates, scale our laboratory and manufacturing operations, and incur marketing costs associated with potential commercialization. We are subject to all of the risks typically related to the development of new drug candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations.
Based upon our current operating plan, we estimate that our existing cash, cash
equivalents and investments in marketable securities as of the date of the
filing of this Form 10-Q, will be sufficient to fund our operating expenses and
capital expenditure requirements into the fourth quarter of 2024. Until we can
generate sufficient revenues from the commercialization of our product
candidates or from collaboration agreements with third parties, if ever, we
expect to finance our future cash needs through public or private equity or debt
financings, collaborations and other strategic alliances and licensing
arrangements, or any combination of these approaches. The sale of equity or
convertible debt securities may result in dilution to our stockholders and, in
the case of preferred equity securities or convertible debt, those securities
could provide for rights, preferences or privileges senior to those of our
common stock. Debt financings may subject us to covenant limitations or
restrictions on our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. Our ability
to raise additional funds may be adversely impacted by negative global economic
conditions and any disruptions to and volatility in the credit and financial
markets in
Our future capital requirements will depend on many factors, including:
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the timing, scope, progress, results and costs of research and development, discovery, preclinical and non-clinical studies and clinical trials for our current and future product candidates;
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the number, scope and duration of clinical trials required for regulatory approval of our current and future product candidates;
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the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities for our product candidates, including any requirement to conduct more studies or generate additional data beyond that which we currently expect would be required to support a marketing application;
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the cost of manufacturing clinical and commercial supplies of our current and future product candidates;
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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
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our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
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any product liability or other lawsuits related to our products;
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the revenue, if any, received from commercial sales of any product candidates for which we may receive marketing approval;
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our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party and government payers;
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the costs to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing our patents or other intellectual property rights;
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expenses needed to attract, hire and retain skilled personnel;
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the costs of operating as a public company; and
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the impact of the ongoing COVID-19 pandemic and unfavorable global economic conditions, which may exacerbate the magnitude of the factors discussed above.
A change in the outcome of any of these or other variables could significantly change the costs and timing associated with the development of our product candidates. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such change.
Cash Flows
The following table summarizes our sources and uses of cash for the periods
presented (in thousands):
Six Months Ended
June 30,
2022 2021
(unaudited)
Net cash used in operating activities $ (43,334 ) $ (21,844 )
Net cash used in investing activities (258,883 ) (1,123 )
Net cash provided by financing activities 412 385,264
Net increase in cash, cash equivalents and restricted cash
Cash Flows from Operating Activities
Net cash used in operating activities was
Net cash used in operating activities was
Cash Flows from Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Cash Flows from Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Recently Adopted Accounting Pronouncements
For information on new accounting standards, see Note 2 to our financial statements included in Part I in this Quarterly Report.
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Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in
During the three and six months ended
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in 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. Other exemptions and
reduced reporting requirements under the JOBS Act for emerging growth companies
include presentation of only two years of audited financial statements in a
registration statement for an initial public offering, an exemption from the
requirement to provide an auditor's report on internal controls over financial
reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended,
an exemption from any requirement that may be adopted by the
However, as described in Note 2 to our condensed financial statements included elsewhere in this Quarterly Report, we 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. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest of (i) the last day
of our first fiscal year in which we have total annual gross revenues of
If we are a "smaller reporting company" at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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