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 ~~August~~May 1, ~~2023,~~2024, the registrant had ~~54,808,715~~54,929,567 shares of voting and non-voting common stock, $0.0001 par value per share, outstanding.

1. Background

Prelude Therapeutics Incorporated (the “Company”) is a clinical-stage fully integrated oncology company built on a foundation of drug discovery excellence to deliver novel precision cancer medicines to underserved patients. Since beginning operations in 2016, the Company has devoted substantially all its efforts to research and development, conducting preclinical and clinical studies, recruiting management and technical staff, administration, and raising capital.

2. Risks and liquidity

The Company ~~is subject to~~faces a number of risks common to early-stage companies in the biotechnology industry. Principal among these risks are the uncertainties in the development process, development of the same or similar technological innovations by competitors, protection of proprietary technology, dependence on key personnel, compliance with government regulations and approval requirements, and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities. There can be no assurance that the Company’s research and development will be successfully completed, ~~that~~ adequate protection for the Company’s technology will be obtained, ~~that~~ any products developed will obtain necessary government regulatory approval, or ~~that~~ any approved products will be commercially viable. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. ~~In addition, the Company is dependent upon the services of its employees, consultants and contractors.~~

Since its inception, the Company has incurred operating losses and had an accumulated deficit of $~~392.7~~487.8 million at ~~June 30, 2023.~~March 31, 2024. The Company has no revenue ~~to date~~to-date and devotes its efforts to research and development. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development.

The Company believes ~~that~~ its cash, cash equivalents, and marketable securities as of ~~June 30, 2023~~March 31, 2024 will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve ~~months.~~months from the filing date of this Quarterly Report on Form 10-Q.

To fund its operating expenses and capital expenditure requirements after that date, the Company plans to seek additional funding through public or private equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, ~~the Company~~it could be required to delay, reduce or eliminate research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospects.

3. Summary of significant accounting policies

The summary of significant accounting policies included in the Company’s financial statements for the year ended December 31, ~~2022~~2023 can be found in “Note 3. Summary of significant accounting policies” of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on ~~March~~February 15, ~~2023.~~2024. Those policies have not materially changed.

Basis of presentation

The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2023.~~2024. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, ~~2022~~2023 found in the Company's Annual Report on Form 10-K filed with the SEC on ~~March~~February 15, ~~2023.~~2024. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Use of estimates

The preparation of the unaudited interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the unaudited interim financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Estimates and assumptions are periodically reviewed, and the effects of the revisions are reflected in the accompanying unaudited interim financial statements in the period they are determined to be necessary. The most significant estimate relates to accrued clinical trial expenses.

Income taxes

Based upon the historical and anticipated future losses, management has determined that the deferred tax assets generated by net operating losses and research and development credits do not meet the more likely than not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

Cash, Cash Equivalents and Restricted cash

The Company’s cash equivalents include short-term highly liquid investments with an original maturity of 90 days or less when purchased and are carried at fair value in the accompanying balance sheets.

Restricted cash consists of a letter of credit ~~with Silicon Valley Bank, a division of First Citizens Bank,~~ for the benefit of the landlord in connection with the Company’s Chestnut Run Lease. See Note 8 for further details.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheet that total to the amounts shown in the statement of cash flows:


(in thousands)	June 30, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Cash and cash equivalents	$	26,446	$	30,605	$	24,707	$	25,291
Restricted cash		4,044		4,044		4,044		4,044
Total cash, cash equivalents, and restricted cash shown in statement of cash flows	$	30,490	$	34,649	$	28,751	$	29,335

Marketable Securities

The Company’s marketable securities consist of investments in corporate debt securities, United States (“U.S.”) government debt securities, and agency securities that are classified as available-for-sale. The securities are carried at fair value with the unrealized gains and losses, net of tax, included in accumulated other comprehensive loss, a component of stockholders’ equity. Realized gains and losses as well as credit losses, if any, on marketable securities are included in the Company’s statements of operations. The Company classifies marketable securities that are available for use in current operations as current assets on the balance sheets.

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period, including pre-funded warrants to purchase shares of common ~~stock that were issued in a financing transaction in May 2023 (Note 7).~~stock. The weighted-average number of shares of common stock outstanding used in the basic net loss per share calculation does not include unvested restricted stock awards as these instruments are considered contingently issuable shares until they vest. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise of securities, such as stock options, and the effect from unvested restricted stock awards and restricted stock units which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. The Company’s unvested restricted stock awards entitle the holder to participate in dividends and earnings of the Company, and, if the Company were to recognize net income, it would have to use the two-class method to calculate earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the unvested restricted stock awards have no obligation to fund losses.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:


	June 30,				March 31,
	2023		2022		2024		2023
Unvested restricted stock awards		81,044		356,432		—		131,468
Unvested restricted stock units		125,000		170,000		93,125		163,750
Stock options		12,083,788		8,915,289		14,737,740		11,868,020
Employee stock purchase plan						50,941		51,837
		12,289,832		9,441,721		14,881,806		12,215,075

Amounts in the above table reflect the common stock equivalents.

Recently Issued Accounting Pronouncements

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these unaudited interim financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

~~Recently Adopted~~ Accounting ~~Pronouncements~~guidance not yet adopted

In ~~August 2020,~~November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU"), 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures. This ASU expands segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount for other segment items and a description of its composition, and interim disclosures of a reportable segment’s profit or loss and assets. The disclosures required under ASU 2023-07 are also required for public entities with a single reportable segment. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard but does not expect that it will have a material impact on the financial statements and related disclosures.

In December 2023, the FASB issued ASU ~~Update No. 2020-06, Debt —~~ ~~Debt~~2023-09, Income Taxes - Improvements to Income Tax Disclosures. ASU 2023-09 requires enhanced income tax disclosures related to the rate reconciliation and income taxes paid information. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024 with ~~Conversion and Other Options (Subtopic 470-20)~~ ~~and~~ ~~Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06)~~ (“~~ASU 2020-06~~”). ASU 2020-06 eliminated the beneficial conversion and cash conversion accounting models in ASC 470-20 which required separate accounting for embedded conversion features and simplified the settlement assessment to determine whether an instrument qualifies for equity classification.early adoption permitted. The Company ~~early~~ ~~adopted~~is currently evaluating the ~~new~~impact of this standard but does not expect that it will have a material impact on ~~January 1, 2023~~.the financial statements and related disclosures.

4. Marketable Securities

The following ~~is a summary~~provides detail of the ~~Company’s~~Company's marketable securities.


(in thousands)	Amortized Cost		Gross unrealized gain		Gross unrealized loss			Fair Value		Amortized Cost		Gross unrealized gain		Gross unrealized loss			Fair Value
June 30, 2023
March 31, 2024
Marketable securities:
Agency securities	$	8,381	$	—	$	(47	)	$	8,334	$	10,566	$	—	$	(6	)	$	10,560
Corporate debt securities		123,789		14		(385	)		123,418		66,059		20		(90	)		65,989
U.S. government securities		97,084		3		(296	)		96,791		100,827		—		(159	)		100,668
Total	$	229,254	$	17	$	(728	)	$	228,543
Total marketable securities										$	177,452	$	20	$	(255	)	$	177,217

December 31, 2022
December 31, 2023
Marketable securities:
Agency securities										$	10,431	$	19	$	—		$	10,450
Corporate debt securities	$	163,208	$	7	$	(1,672	)	$	161,543		67,806		193		(20	)		67,979
U.S. government securities		9,607		—		(27	)		9,580		129,184		72		(41	)		129,215
Total	$	172,815	$	7	$	(1,699	)	$	171,123
Total marketable securities										$	207,421	$	284	$	(61	)	$	207,644

The Company’s marketable securities generally have contractual maturity dates of 1322 months or less. As of ~~June 30, 2023,~~March 31, 2024, the Company had 3944 securities with a total fair market value of $~~199.1~~166.3 million in an unrealized loss position. The Company believes ~~that~~ any unrealized losses associated with the decline in value of its securities is temporary and is primarily related to market ~~factors and~~factors. Furthermore, the Company believes ~~that~~ it is more likely than not that it will be able to hold its ~~debt~~marketable securities to maturity. Therefore, the Company anticipates a full recovery of the amortized cost basis of its ~~debt~~marketable securities at maturity and an allowance for credit losses was not recognized.

5. Fair Value of Financial Instruments

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The Company follows the provisions of ASC 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

•

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.

•

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:


	Fair value measurement at reporting date using						Fair value measurement at reporting date using
(in thousands)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
June 30, 2023
Assets:
Cash equivalents (Money Market Funds)	$	25,435	$	—	$	—
March 31, 2024
Assets
Cash equivalents:
Money Market Funds							$	23,063	$	—	$	—

Marketable securities:
Agency securities		—		8,334		—		—		10,560		—
Corporate debt securities		—		123,418		—		—		65,989		—
U.S. government securities		—		96,791		—		—		100,668		—
Total	$	25,435	$	228,543	$	—
Total marketable securities								—		177,217		—
Total financial assets							$	23,063	$	177,217	$	—

December 31, 2022
Assets:
Cash equivalents (Money Market Funds)	$	25,996	$	—	$	—
December 31, 2023
Assets
Cash equivalents:
Money Market Funds							$	24,369	$	—	$	—

Marketable securities:
Agency securities							$	—	$	10,450	$	—
Corporate debt securities		—		161,543		—		—		67,979		—
U.S. government securities		—		9,580		—		—		129,215		—
Total	$	25,996	$	171,123	$	—
Total marketable securities								—		207,644		—
Total financial assets							$	24,369	$	207,644	$	—

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


(in thousands)	June 30, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Compensation and related benefits	$	5,043	$	5,682	$	3,640	$	9,157
Research and development		2,815		6,887		5,707		5,666
Other		809		524		800		945
	$	8,667	$	13,093	$	10,147	$	15,768

7. Common Stock

The Company has two classes of common ~~stock;~~stock: “voting common stock” and “non-voting common stock.” The holders of the voting common stock are entitled to one vote for each share of voting common stock held at all meetings of stockholders. Except as otherwise required by law, the holders of non-voting common stock shall not be entitled to vote at any meetings of stockholders (or written actions in lieu of meetings) and the shares of non-voting common stock shall not be included in determining the number of shares voting or entitled to vote on any matter. Unless required by law, there shall be no cumulative voting. Any holder of non-voting common stock may elect to convert each share of non-voting common stock into one fully paid and non-assessable share of voting common stock at any time by providing written notice to the Company; provided that as a result of such conversion, such holder, together with its affiliates and any members of a Schedule 13(d) group with such holder, would not beneficially own in excess of 9.99% of the Company’s common stock immediately prior to and following such conversion, unless otherwise as expressly provided for in the Company’s restated certificate of incorporation. However, this ownership limitation may be increased (not to exceed 19.99%) or decreased to any other percentage designated by such holder of non-voting common stock upon 61 days’ notice to the Company.

~~Second quarter 2023 financing~~Open Market Sales Agreement

10In March 2023, in connection with filing a prospectus supplement to its Shelf Registration Statement, the Company entered into an Open Market Sales Agreement(the Sales Agreement) with Jefferies LLC, as the sales agent, pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering amount of up to $75.0 million. The $75.0 million of common stock that may be issued and sold pursuant to the Sales Agreement is included in the $400.0 million of securities that may be issued and sold pursuant to the Shelf Registration Statement. The Company will pay Jefferies LLC a commission rate of up to 3.0% of the aggregate gross proceeds from the sale of any shares of common stock pursuant to the Sales Agreement. At March 31, 2024, there was $75.0 million remaining under the Sales Agreement.

2023 financings

During the second quarter of 2023, the Company sold 6,761,200 shares of its common stock which comprised of (i) 5,312,978 shares of its voting common stock and (ii) 1,448,222 shares of its non-voting common stock at a price of $5.75 per share and to certain investors in lieu of common stock, the Company sold pre-funded warrants to purchase 12,895,256 shares of voting common stock at a price of $5.7499 per pre-funded warrant, resulting in gross proceeds to the Company of $113.0 million. Of the voting common stock issued, 2,264,456 shares were purchased by the Company’s underwriters in connection with a 30-day option at a price of $5.75 per share. Offering costs of $2.6 million, of which $0.3 million were previously paid and deferred, were recorded to additional paid-in capital in the accompanying balance sheets, resulting in net proceeds of $110.4 million.

During the fourth quarter of 2023, the Company sold in a private placement pre-funded warrants to purchase 7,936,759 shares of voting common stock at a price of $3.1499 per pre-funded warrant, resulting in net proceeds of $24.8 million after deducting offering costs of $0.2 million.

The purchase price per share of each pre-funded warrant represents the per share offering price for the common stock, minus the $0.0001 per share exercise price of such pre-funded warrant. As of ~~June 30, 2023,~~March 31, 2024, no pre-funded warrants had been exercised. ~~Of the voting common stock issued,~~ ~~2,264,456~~ ~~shares were purchased by the Company’s underwriters in connection with a 30-day option at a price of $5.75~~ ~~per share.~~

The pre-funded warrants were classified as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. The pre-funded warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return.

The Company did not conduct any financings during the first quarter of 2024.

8. Commitments

Leases

The Company leases office and laboratory space in Wilmington, Delaware under a noncancelable lease (the ~~“Lease”).~~

~~Future minimum annual lease payments under the Lease at June 30, 2023 are as follows:~~

(in thousands)

2023 (remaining)

$
964

Total undiscounted lease payments

964

Less imputed interest

(26
)
Current lease liability

$
938

~~In August 2022, we entered into an amendment (the “Lease Amendment”) to the lease agreement for office and lab space at Chestnut Run Plaza in Wilmington, Delaware (the~~ “Chestnut Run Lease”). The Chestnut Run Lease has a commencement date of the earlier of (i) the Landlord Work Substantial Completion Date (as such term is defined in the Chestnut Run Lease), or (ii) the date the Company takes possession of the premises ~~for the conduct of the Company’s business (the “Commencement Date”). The Chestnut Run Lease premises includes~~include approximately 81,000 rentable square feet located at Chestnut Run Plaza in Wilmington, Delaware (the "Premises"). Under the terms of the Chestnut Run Lease, the landlord has provided an allowance towards the cost of completing tenant improvements for the Premises and improvements resulting from both the landlord's build-out and the Company's improvements are the landlord's assets for accounting purposes. Costs incurred by the Company related to the tenant improvements in excess of the landlord's allowance will be treated as prepaid rent and will increase the right-of-use asset once the accounting commencement date occurs. As of June 30, 2023, the Company recorded $~~9.0~~ million of prepaid rent. Upon the Commencement Date, which is expected to happen in the third quarter of 2023, the Company will recognize a right-of-use asset and operating lease liability in accordance with ASC 842, Leases. The Chestnut Run Lease has an initial term of 162 months with 3 five-year extension options and certain expansion rights. ~~The estimated rent payments related~~Neither the option to extend nor the expansion rights were recognized as part of the Company's measurement of the right-of-use ("ROU") asset and operating lease liability as of March 31, 2024. Under the terms of the Chestnut Run Lease, the landlord provided an allowance towards the cost of completing tenant improvements for the premises. The Company concluded that the improvements resulting from both the landlord's build-out and the tenant improvements are the landlord's assets for accounting purposes. Costs incurred by the Company related to tenant improvements in excess of the landlord's allowance were treated as prepaid rent and increased the right-of-use asset on the commencement date. The discount rate used to account for the

Company’s operating lease under ASC 842, Leases, was the Company’s estimated incremental borrowing rate on the commencement date of 15.0%. The Company's incremental borrowing rate reflects a collateralized borrowing with a similar term and amount as the Chestnut Run Lease.

Lease cost for the three months ended March 31, 2024 and 2023 was $1.1 million and $0.5 million, respectively. Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2024 and 2023 was nil and $0.5 million, respectively.

The remaining lease term of the Chestnut Run Lease is 13.2 years and future minimum annual lease payments at March 31, 2024 are as follows:

(in thousands)

2023 (remaining)

$
—

2024

1,299

2025

2,784

2026

2,986

2027

3,060

2028

3,137

Thereafter

29,371


(in thousands)
2024 (remaining)	$	1,747
2025		2,746
2026		2,979
2027		3,054
2028		3,130
2029		3,209
Thereafter		26,427
Total undiscounted lease payments		43,292
Less imputed interest		(25,652	)
Current lease liability	$	17,640

The Company paid a security deposit for the Chestnut Run Lease in the form of a letter of credit ~~with Silicon Valley Bank, a division of First Citizens Bank,~~ of $4.0 million, which is included in the accompanying balance sheet as restricted cash as of ~~June 30, 2023.~~March 31, 2024. The security deposit may be reduced to $0.5 million over time in accordance with the terms of the Chestnut Run Lease.

In connection with the Company’s expansion of operations in the State of Delaware, the Company was approved for a grant from the State of Delaware in 2021 that will provide up to $5.5 million in reimbursements over three years for the development of lab space in addition to increasing jobs in Delaware to meet specific targeted levels through 2023. During the third quarter of 2022, the Company was approved for an additional grant from the State of Delaware for the development of lab space in the amount of $1.0 million. In 2022, the Company received cash of $3.4 million from the grants for the development of lab space. The Company has met the minimum requirements stated in the grant agreement in order to not be required to pay back any portion of the $3.4 million disbursed. The Company deferred the recognition of these grant funds as they relate to capitalized costs and has classified them as long-term liabilities onin the accompanying balance sheet. The Company ~~will recognize~~recognizes the grant funds in other income as grant income over the ~~useful life~~length of the ~~related assets. If, after two years from the disbursement date, the incurred costs for lab space are less than the $3.4~~ ~~million received, the Company is required to pay back the difference between total funds received and allowable costs incurred.~~lease term. Additionally, if the Company leaves the State of Delaware within five years of the disbursement, the Company is required to return an amount equal to the amount of grant funds disbursed on a pro-rated basis.

~~Rent expense was $0.6~~ ~~million for both the three months ended June 30, 2023 and 2022. Rent expense was $1.1~~ ~~million for both the six months ended June 30, 2023 and 2022.~~

Employment Agreements

The Company entered into employment agreements with key personnel providing for compensation and severance in certain circumstances, as defined in the respective employment agreements.

401(k) Defined Contribution Plan

The Company sponsors a 401(k) defined‑contribution plan covering all employees. Participants are permitted to contribute up to 100% of their eligible annual pretax compensation up to an established federal limit on aggregate participant contributions. The Company provides a match of a maximum amount of 3% of the participant’s compensation. For both the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the Company made matching contributions of $0.2 ~~million~~million.

Research Collaboration Agreement

In 2023, the Company entered into a multi-year, multi-program agreement with AbCellera Biologics Incorporated ("AbCellera") to jointly discover, develop, and $commercialize novel oncology medicines for up to five programs. Under the terms of the agreement, AbCellera will lead manufacturing activities and the Company will lead clinical development and global commercialization, subject to AbCellera’s option to co-promote any resulting commercial products in the United States. If, at any point one party in the collaboration opts-out of future co-development cost sharing, that party will be entitled to a royalty from commercialization of the collaboration target, dependent on the proportion of their co-development contributions compared to the total development costs of a target as defined within the agreement. The Company concluded that the agreement with AbCellera will be accounted for under the~~0.1~~

~~million, respectively. For~~

scope of ASC 808, Collaborative Arrangements, as both parties will actively participate in joint operating activities and are exposed to significant risks and rewards. Under ASC 808, certain transactions between collaborative arrangement participants should follow the ~~six~~accounting for revenue under ASC 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer for a distinct good or service. The Company determined that co-development arrangement as defined in our agreement with AbCellera does not meet the definition of a customer as defined by ASC 606. As a result, these activities will be accounted for as research and development costs. Costs related to the AbCellera collaboration were not material for the three months ended ~~June 30, 2023 and 2022, the Company made matching contributions of $0.4~~ ~~million and $0.3~~ ~~million, respectively.~~March 31, 2024.

Other Research and Development Arrangements

The Company enters into agreements with clinical research organizations ("CROs") to assist in the performance of research and development activities. Expenditures to CROs ~~will~~ represent a significant cost in clinical development for the Company.

9. Stock-Based Compensation

The Company has two equity incentive plans: the 2016 Equity Incentive Plan, as amended, and the 2020 Equity Incentive Plan. New awards can only be granted under the 2020 Equity Incentive Plan (the “Plan”) and as of ~~June 30, 2023,~~March 31, 2024, ~~4,823,436~~4,904,812 shares were available for future grants. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the Plan shall automatically increase on January 1st of each year and continuing for ten years beginning on January 1, 2021, in an amount equal to five percent of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the Company's board of directors or compensation committee to determine a lesser number of shares shall be added for such year. On January 1, 2024, 2,745,712 shares were added to the Plan. The Plan provides for the granting of common stock, incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors. The Company’s stock options vest based on the terms in each award agreement, generally over four-year periods with 25% of options vesting after one year and then monthly thereafter, and have a term of ten years.

The Company measures stock-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards. The Company recorded stock-based compensation expense in the following expense categories in its accompanying statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(in thousands)	2023		2022		2023		2022		2024		2023
Research and development	$	3,234	$	2,472	$	6,225	$	5,672	$	3,010	$	2,991
General and administrative		3,499		3,556		6,764		7,185		2,537		3,265
	$	6,733	$	6,028	$	12,989	$	12,857	$	5,547	$	6,256

Stock Options

The following table summarizes stock option activity for the periods indicated:


	Number of shares			Weighted average exercise price per share		Weighted average remaining contractual term (years)		Number of shares			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2023		9,390,930		$	12.08		8.31
Outstanding at January 1, 2024									11,898,446		$	10.60		7.77
Granted		2,977,898		$	6.91				3,071,300		$	4.58
Exercised		(17,685	)	$	1.77				(1,170	)	$	1.89
Forfeited		(267,355	)	$	17.72				(230,836	)	$	15.66
Outstanding at June 30, 2023		12,083,788		$	10.70		8.25
Exercisable at June 30, 2023		4,941,993		$	11.56		7.28
Outstanding at March 31, 2024									14,737,740		$	9.27		8.02
Exercisable at March 31, 2024									7,001,612		$	11.15		6.93

At ~~June 30, 2023,~~March 31, 2024, the aggregate intrinsic value of outstanding options and exercisable options was $~~5.4~~6.4 million and $~~4.8~~5.8 million, respectively.

The following table summarizes information about stock options outstanding at ~~June 30, 2023~~March 31, 2024 under the Plan:

Options Outstanding

Options Exercisable

Range of Exercise Prices

Number
Outstanding

Weighted Average
Remaining
Contractual Life
(in years)

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise
Price

$0.31 - $4.88

2,925,468

7.12

$
2.74

2,188,856

$
2.34

$4.89 - $7.50

4,100,967

9.49

6.57

35,665

6.03

$7.51 - $13.04

3,218,825

7.80

11.85

1,755,910

12.28

$13.05 - $88.98

1,838,528

8.06

30.53

961,562

31.44

12,083,788

4,941,993


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.31 - $4.56		2,290,135		6.06	$	2.13		1,975,983	$	1.82
$4.57 - $5.00		4,041,027		9.51		4.65		538,800		4.82
$5.01 - $10.34		3,689,654		8.74		6.72		1,058,642		6.74
$10.35 - $88.98		4,716,924		7.12		18.68		3,428,187		18.89
		14,737,740						7,001,612

The weighted-average grant date fair value of options granted was $~~5.04~~3.40 and $~~6.00~~5.12 per option for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. ~~The aggregate intrinsic value of options exercised was $~~80 ~~thousand for the six months ended June 30, 2023.~~ The Company recorded stock-based compensation expense of $~~6.5~~5.3 million and $~~5.7~~5.9 million for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, related to stock options. The Company recorded stock-based compensation expense of $12.4~~ ~~million and $12.2~~ ~~million for the six months ended June 30, 2023 and 2022,~~ respectively, related to stock options. As of ~~June 30, 2023,~~March 31, 2024, the total unrecognized compensation expense related to unvested stock option awards was $~~50.5~~40.9 million, which the Company expects to recognize over a weighted-average period of ~~2.37~~2.31 years.

The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:

Six months ended
June 30,

2023

2022

Expected volatility

83.51
%

84.82
%
Risk-free interest rate

3.80
%

2.39
%
Expected life (in years)

6.02

6.01

Expected dividend yield

—

—


	Three months ended March 31,
	2024			2023
Expected volatility		85.12	%		83.55	%
Risk-free interest rate		4.14	%		3.80	%
Expected life (in years)		6.07			6.05
Expected dividend yield		—			—

Restricted Stock Awards and Units

The Company issues restricted stock awards (“RSA”) to employees that generally vest over a four-year period with 25% of awards vesting after one year and then monthly thereafter. Any unvested shares will be forfeited upon termination of services. The fair value of an RSA is equal to the fair market value price of the Company’s common stock on the date of grant. RSA expense is recorded on a straight-line basis over the vesting period.

The following table summarizes activity related to RSA stock-based payment awards:

Number of
shares

Weighted-average
grant date fair
value

Unvested balance at January 1, 2023

201,716

$
2.81

Vested

(120,672
)

$
2.50

Unvested balance at June 30, 2023

81,044

$
3.26


	Number of shares			Weighted-average grant date fair value
Unvested balance at January 1, 2024		27,008		$	3.26
Vested		(27,008	)	$	3.26
Unvested balance at March 31, 2024		—		$	—

The Company recorded stock-based compensation expense of $0.1 million and $0.2 million for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, related to RSAs. The Company recorded stock-based compensation expense of $0.3~~ ~~million and $0.4~~ ~~million for the six months ended June 30, 2023 and 2022,~~ respectively, related to RSAs. As of ~~June 30, 2023, the total~~March 31, 2024, there was no unrecognized expense related to ~~all RSAs was $0.3~~ ~~million, which the Company expects to recognize over a weighted-average period of~~ ~~0.74~~ ~~years.~~RSAs.

The Company granted restricted stock units (“RSU”) to employees that generally vest over a four-year period with 25% of awards vesting after one year and then quarterly thereafter. Any unvested units will be forfeited upon termination of services.

The following table summarizes activity related to RSU stock-based payment awards:

Number of
shares

Weighted-average
grant date fair
value

Unvested balance at January 1, 2023

165,000

$
6.08

Vested

(40,000
)

$
5.70

Unvested balance at June 30, 2023

125,000

$
6.21


	Number of shares			Weighted-average grant date fair value
Unvested balance at January 1, 2024		103,750		$	6.16
Vested		(10,625	)	$	6.44
Unvested balance at March 31, 2024		93,125		$	6.12

The Company recorded stock-based compensation expense of $0.1 million for both the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ related to RSUs. At ~~June 30, 2023,~~March 31, 2024, the total unrecognized expense related to the RSUs was $~~0.7~~0.5 million, which the Company expects to recognize over ~~2.61~~1.87 years.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the “ESPP”), which, as of ~~June 30, 2023,~~March 31, 2024, had ~~1,698,350~~2,168,434 shares of common stock reserved for future issuance. The number of shares of the Company’s common stock that may be issued pursuant to rights granted under the ESPP shall automatically increase on January 1st of each year and continuing for ten years beginning in 2021, in an amount equal to one percent of the total number of shares of all classes of the Company’s common stock outstanding on December 31st of the preceding calendar year, subject to the discretion of the Company's board of directors or compensation committee to determine a lesser number of shares shall be added for such year. On January 1, ~~2023,~~2024, ~~478,990~~549,142 shares were added to the ESPP.

Under the ESPP, eligible employees can purchase the Company’s common stock through accumulated payroll deductions at such times as are established by the Company's compensation committee. Eligible employees may purchase the Company’s common stock at 85% of the lower of the fair market value of the Company’s common stock on the first day of the offering period or on the last day of the offering period. Eligible employees may contribute up to 15% of their eligible compensation. Under the ESPP, a participant may not accrue rights to purchase more than $25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding.

The ESPP is considered compensatory under the FASB stock compensation rules. Accordingly, share-based compensation expense is determined based on the option’s grant-date fair value as estimated by applying the Black Scholes option-pricing model and is recognized over the withholding period. The Company recognized share-based compensation expense of $0.1 million for ~~both~~each of the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ related to the ESPP. ~~The Company recognized share-based compensation expense of $0.2~~ ~~million and $0.1~~ ~~million for the six months ended June 30, 2023 and 2022, respectively, related to the ESPP.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on ~~March~~February 15, ~~2023.~~2024, or our 2023 Annual Report on Form 10-K. These forward-looking statements may include, but are not limited to, statements regarding our future results of operations and financial position, ~~the impact of the ongoing COVID-19 pandemic,~~ inflation and interest rate risk, a potential recession, a potential temporary federal government shutdown, business strategy, market size, potential growth opportunities, preclinical and clinical development activities, efficacy and safety profile of our product candidates, use of net proceeds from our offerings, our ability to maintain and recognize the benefits of certain designations received by product candidates, the timing and results of preclinical studies and clinical trials, commercial collaborations with third parties and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates. The words ~~“believe,~~“believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” ~~“will,~~“could,” ~~“potentially,~~“should,” ~~“estimate,~~“potential,” “likely,” “projects,” “continue,” ~~“anticipate,~~“will,” ~~“strive,~~“schedule,” ~~“predict,” “target,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,”~~and “would” and similar expressions ~~that convey uncertainty of future events or outcomes~~ are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Overview

~~We are~~Prelude is a clinical-stage fully integrated oncology company built on a foundation of drug discovery excellence to deliver novel precision cancer medicines to underserved patients. By leveraging our core competencies in cancer biology and medicinal chemistry, combined with our clinical development capabilities, we have built an efficient, fully-integrated drug discovery engine and the development expertise necessary to identify compelling biological targets and create new chemical entities, or NCEs, that we ~~rapidly~~ advance into clinical trials. We believe our approach could result in better targeted cancer therapies. Our discovery excellence has been validated by our ~~rapid~~steady progress in creating a wholly-owned, internally developed pipeline. We also began work with our partner AbCellera on an early-stage discovery program involving potent degraders as payloads for novel antibodies targeting tumor specific antigens. Since our inception in 2016, we have received clearance from the U.S. Food and Drug Administration, or the FDA, for multiple investigational new drug applications, or INDs, and successfully advanced several programs into clinical trials. In addition, we have other ~~unique~~differentiated proprietary programs in various stages of preclinical development.

By focusing on developing molecules using broad mechanisms that have multiple links to oncogenic driver pathways in select patients, we have developed a diverse pipeline consisting of multiple distinct programs ~~spanning methyltransferases,~~including kinases, ~~protein-protein interactions and~~ targeted protein ~~degraders.~~degraders, and precision antibody drug conjugates. Our pipeline is designed to serve patients with high unmet medical need, where there are limited or no treatment options. We believe we can best address these diseases by developing therapies that target primary and secondary resistance mechanisms.

We have several drug candidates in clinical development and ~~we believe we can~~our objective is to generate proof-of-concept clinical data ~~in the next 12 to 24 months~~ to guide our future regulatory pathways to approval. Our ~~CDK9 and MCL1 inhibitors are selective and potent, with potentially superior safety profiles. Our next generation CDK4/6 inhibitor is specifically designed to be a brain and tissue penetrant and our~~ SMARCA2 molecule is a unique, first-in-class protein degrader, targeting specific patient populations. Our CDK9 inhibitor is selective and potent, with a potentially superior safety profile over first-generation CDK9 inhibitors. Our next generation CDK4/6 inhibitor is specifically designed to be brain and tissue penetrant.

Our novel, first-in-class SMARCA2 degrader compounds and our potent, highly selective and potentially best-in-class CDK9 inhibitor represent our best opportunities for demonstrating clinical proof-of-concept in 2024 and advancing into potential Phase 2/3 registration studies. In 2023, we also announced a global partnership with AbCellera Biologics Incorporated ("AbCellera") that will allow us to combine our small molecules and degraders expertise with their antibody expertise to develop precision antibody drug conjugates. We also intend to explore continued clinical development with external partners for our CDK4/6.

PRT3789 is a first-in-class, highly selective degrader of SMARCA2 protein, which along with SMARCA4 controls gene regulation through chromatin remodeling. Cancer cells with SMARCA4 mutations are dependent on SMARCA2 for their growth and survival and selectively degrading SMARCA2 induces cell death in cancer cells while sparing normal cells in preclinical models. PRT3789 has been shown to be efficacious and well tolerated in multiple preclinical models of SMARCA4 deleted/mutated cancers as monotherapy and in combination with standards of care therapies. We believe a selective SMARCA2 degrader has the potential to be of benefit in up to 10% of non-small cell lung cancer, or NSCLC, patients in the United States including many other tumor types with the SMARCA4 mutation.

Patients with SMARCA4 mutations or deletions have poor prognosis and limited treatment options. Therefore, mutated or deleted SMARCA4 cancers provide a potential biomarker to select those patients most likely to respond to treatment with a highly selective SMARCA2 degrader.

PRT3789 is currently in Phase 1 clinical development in biomarker selected SMARCA4 mutant patients. To date, PRT3789 has demonstrated selective, potent and dose dependent degradation of SMARCA2 with an acceptable safety profile. Based on PK/PD and safety data to date, the Company expects to conclude monotherapy dose escalation in the middle of 2024 and identify recommended phase 2 doses. In addition, enrollment of patients into back-fill cohorts enriched for NSCLC and SMARCA4 loss-of-function mutations is ongoing. Objectives for this first Phase 1 clinical trial are to establish the safety and tolerability profile of PRT3789 as both monotherapy and in combination with docetaxel, evaluate activity, pharmacokinetics and pharmacodynamics and determine a dose and potential indications for advancement into a registrational clinical trial. We expect to present initial data in the second half of 2024 from patients currently enrolled in the Phase 1 trial.

Our discovery team has identified a series of highly selective and orally bioavailable SMARCA2 degraders. The lead oral molecule, PRT7732, is currently in IND enabling studies and on track to enter Phase 1 clinical development in the second half of 2024. PRT7732 is structurally distinct from PRT3789 and in addition, may provide clinically meaningful differences, including potential utility in earlier lines of therapy.

As one of our first precision ADC programs, we and our partner AbCellera began work on an early-stage discovery program involving potent degraders of the SMARCA family of proteins as payloads for novel antibodies targeting tumor specific antigens. Given the potent anti-tumor activity of these molecules in pre-clinical models of cancers beyond those targeted by our SMARCA2 selective degraders, we believe that these precision ADCs have the potential to extend the therapeutic utility of this class.The partnership includes up to five precision ADC targets. Under the terms of the agreement, we and AbCellera will jointly discover, develop, and commercialize products emerging from the collaboration. AbCellera will lead manufacturing activities and we will lead clinical development and global commercialization, subject to AbCellera’s option to co-promote any resulting commercial products in the United States.

Our CDK9 candidate, PRT2527, is designed to be a potent and selective CDK9 inhibitor. We believe PRT2527 has the potential to avoid off-target toxicities, achieve substantial clinical activity and to become the best-in-class CDK9 inhibitor for hematologic malignancies.

In preclinical studies, PRT2527 was shown to reduce MCL1 and MYC protein levels and was highly active in preclinical models at well-tolerated doses. Our preclinical studies suggest that PRT2527 demonstrates high kinase selectivity and potency, providing opportunity for a wider therapeutic index compared to less selective CDK9 inhibitors, allowing for rapid development in combinations.

Preclinical data demonstrated that treatment with PRT2527 depleted oncogenic drivers with short half-lives, such as MYC and MCL1, and effectively induced apoptosis. PRT2527 treatment demonstrated robust efficacy in both hematological malignancies and solid tumor models with MYC dysregulation. Dose dependent increases in exposure and target engagement were observed as evidenced by MYC and MCL1 depletion to levels associated with tumor regression in preclinical models. ~~On April 18, 2023 we~~

~~presented the following findings at the 2023 American Association for Cancer Research annual meeting, or the 2023 AACR Annual Meeting:~~

•

PRT2527 has completed a Phase 1 multi-dose escalation study (NCT05159518) in patients with solid tumors. In ~~adults with advanced solid tumors,~~this study, PRT2527 was ~~generally well-tolerated with manageable~~shown to achieve high levels of target inhibition and the potential to be better tolerated than existing CDK9 inhibitors, specifically, managing neutropenia and an absence of ~~significant~~meaningful gastrointestinal events or hepatotoxicity. ~~The short half-life of PRT2527 enables acute CDK9 inhibition over a defined period making it potentially suitable for weekly administration without inducing significant toxicity.~~

The observed dose-dependent downregulation of MYC and MCL1 mRNA expression, CDK9 transcriptional targets, ~~– MYC and MCL-1 mRNA expression in PBMCs isolated from patients treated with PRT2527 –~~ was consistent with the degree of target engagement required for preclinical efficacy. ~~The 15 m/mg2~~As predicted by the preclinical models, 12 mg/m2 QW ~~dose of PRT2527 was~~dosing showed optimal target inhibition and has been selected ~~for further evaluation in dose-confirmation cohort.~~

as the optimal dose. The overall safety profile observed in this study ~~support~~supports further development of PRT2527 in hematologic ~~malignancies.~~

~~A Phase 1 multi-dose escalation~~malignancies (NCT05665530). In this study, of PRT2527 is ~~currently ongoing~~advancing as monotherapy in ~~hematologic~~hematological indications, such as B-cell malignancies and acute myeloid leukemia (AML), and we have initiated the combination with zanubrutinib in B-cell malignancies. ~~Patient recruitment for hematological clinical trials~~We expect to complete the monotherapy dose escalation in B-cell malignancies in the USmiddle of 2024. A second cohort of patients with AML is ~~highly competitive and this trial has recently been expanded~~expected to ~~include global sites to support patient recruitment. As part~~initiate in the first half of this Phase 1 multi-dose escalation trial, we intend to expand the Phase 1 clinical trial and evaluate PRT2527 in combination with zanubrutinib. Potential indications for PRT2527 include aggressive B-cell lymphoma subtypes, mantle cell lymphoma (MCL), chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) including Richter syndrome, and T-cell lymphoma subtypes.

~~We intend to provide a program update by year end on the CDK9 inhibitor program and present initial results at a future scientific meeting.~~2024.

Our MCL1 candidate, PRT1419, iswas designed to be a potent and selective inhibitor of the anti-apoptotic protein, MCL1. ~~The potency and selectivity~~We concluded Phase 1 development of PRT1419 ~~is supported by preclinical data demonstrating nanomolar inhibition of MCL1~~ and ~~no inhibition of related enzymes at 200 times higher concentration of our product candidate. The IV formulation of PRT1419 has demonstrated~~established a ~~desirable pharmacokinetic, pharmacodynamic and safety profile with~~confirmation dose in hematological malignancies. Based on the potential ~~for differentiation from competitor compounds. A significant number of patients were enrolled at~~to address the ~~recommended expansion dose of 80 mg/m2 in a Phase 1 solid tumor dose escalation and confirmation study. On April 18, 2023, we presented the following findings at 2023 AACR Annual Meeting:~~

•

~~PRT1419 demonstrated acceptable safety and tolerability profile in patients with advanced and metastatic solid tumors,~~intended patient population with the ~~most common treatment-related adverse events~~CDK9 inhibitor which potently inhibits MCL-1, we decided to prioritize our CDK9 inhibitor, PRT2527, and to discontinue development of nausea, vomiting, and diarrhea. Neutropenia was deemed to be dose related. No cardiac toxicity was observed. Pharmacokinetics/pharmacodynamics and safety data in the 80 mg/m2 QW PRT1419 dose cohort support further evaluation of this dose in future studies. Induction of activated-BAX and cleaved caspase-3 was observed at 80mg/m2 and 120 mg/m2 QW PRT1419, suggesting successful MCL-1 inhibition. No tumor reductions met response criteria.

The clinical pharmacodynamic profile of PRT1419 demonstrates the desired level of target engagement, as measured by caspase activation in peripheral mononuclear cells and reduction of CD14+ monocytes to levels associated with tumor regressions in preclinical models of hematological cancers. A Phase 1 multi-dose escalation clinical trial of PRT1419 in patients with hematologic malignancies is ongoing. In this trial, PRT1419 is being evaluated as monotherapy for myeloid malignancies and in combination with azacitidine or venetoclax for patients with relapsed/refractory myeloid or B-cell malignancies.PRT1419.

~~We will provide a clinical update on PRT1419 by year end.~~

~~In July 2022, we received IND clearance for~~ PRT3645 is a brain and tissue penetrant molecule that potently targets CDK4/6 with a biased selectivity for CDK4. A Phase 1 multi-dose escalation clinical trial of PRT3645 ~~is underway~~has been completed. At the 2023 AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics, we ~~expect to reach~~presented data, showing that treatment with PRT3645 was associated with a ~~biologically active dose confirmation~~substantial decrease in ~~Q4 2023. Potential indications for~~pRb and Ki67 expression, indicating a high level of target engagement at the doses evaluated. Also, PRT3645 ~~in combination with other therapies, in addition to breast cancer with or without brain metastases, include endometrial, sarcomas, glioblastomas, non-small cell lung cancer, head and neck cancers.~~

~~We intend to provide a program update by year end and present initial results at a future scientific meeting.~~

In October 2022, we received clearance for PRT3789, a first-in-class, highly selective degrader of SMARCA2 protein, which along with SMARCA4 controls gene regulation through chromatin remodeling. Cancer cells with SMARCA4 mutations are dependent on SMARCA2 for their growth and survival and selectively degrading SMARCA2 induces cell death in cancer cells while sparing normal cells. PRT3789 is efficacious andwas generally well tolerated in ~~preclinical models~~the initial three dose cohorts of ~~SMARCA4 deleted/mutated cancers as monotherapy and in combination with standards of care. We believe a selective SMARCA2 degrader has the potential to be of benefit in up to 70,000 US/EU cancer~~ patients with no clinically meaningful gastrointestinal, hematologic or neurological events reported to date, leveraging its enhanced selectivity profile. Having completed the ~~SMARCA4 mutation.~~

Patients with SMARCA4 mutations or deletions may have poor clinical outcomes and limited treatment options. Therefore, mutated, or deleted SMARCA4 cancers provides a potential biomarker to select those patients most likely to respond to treatment with a highly selective SMARCA2 degrader.

Adose escalation portion of the Phase 1 ~~multi-dose escalation~~ clinical trial of ~~PRT3789 is ongoingin biomarker selected SMARCA4 mutated cancers. We~~PRT3645, we intend to ~~evaluate PRT3789 as monotherapy as well as in combination.~~explore continued clinical development with external partners.

~~We intend to provide a program update by year end and expect to reach confirmation dose in the first half of 2024.~~

~~We recently nominated a new chemical entity as a potent, orally bioavailable and highly selective SMARCA2 degrader candidate (>1000x over SMARCA4) and intend to file an IND early in 2024.~~Components of Results of Operations

~~We were incorporated in February 2016 under the laws of the State of Delaware.~~ Since inception, we have devoted substantially all of our resources to developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. We have funded our operations primarily through the sale of convertible preferred stock, common stock and pre-funded warrants. Our net loss was ~~$58.1~~$31.4 million and ~~$56.8~~$27.7 million for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. As of ~~June 30, 2023,~~March 31, 2024, we had an accumulated deficit of ~~$392.7~~$487.8 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.

~~As of June 30, 2023, we had $255.0 million in cash, cash equivalents, and marketable securities.~~

~~Components of Results of Operations~~

Revenue

~~To date,~~To-date, we have not recognized any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales. However, there can be no assurance as to when we will generate such revenue, if at all.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred, including:

•

expenses incurred to conduct the necessary discovery-stage laboratory work, preclinical studies and clinical trials required to obtain regulatory approval;

•

personnel expenses, including salaries, benefits and stock-based compensation expense for our employees engaged in research and development functions;

•

costs of funding research performed by third parties, including pursuant to agreements with clinical research organizations, or CROs, that conduct our clinical trials, as well as investigative sites, consultants and CROs that conduct our preclinical and nonclinical studies;

•

expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;

•

fees paid to consultants who assist with research and development activities;

•

expenses related to regulatory activities, including filing fees paid to regulatory agencies; and

•

allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.

We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other costs which are deployed across multiple projects under development.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase significantly over the next several years as we increase personnel costs, including stock-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expense also includes corporate facility costs not otherwise included in research and development expense, including rent, utilities, depreciation and maintenance, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.

We expect that our general and administrative expense will increase in the future to support our continued research and development activities and potential commercialization ~~efforts, and as a result of increased costs associated with operating as a public company.~~efforts. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants and legal support, ~~and accountants,~~ among other expenses. The costs associated with being a public company include expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the Securities and Exchange Commission, or SEC, insurance and investor relations costs. If any of our current or future product candidates obtains U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.

Other Income, Net

Other income, net consists primarily of interest earned on our cash equivalents and marketable securities and grant income received from the State of Delaware. We anticipate re-applying for grants from the State of Delaware from time to time as long as we maintain qualifying headcount ~~levels in the State of Delaware.~~levels.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net operating losses, or NOLs, we have incurred or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized.

Results of Operations

Comparison of the Three Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~

The following table sets forth our results of operations.


	Three months ended June 30,						Change			Three months ended March 31,						Change
(in thousands)	2023			2022						2024			2023
Operating expenses:
Research and development	$	24,966		$	21,310		$	3,656		$	27,409		$	21,834		$	5,575
General and administrative		7,432			8,151			(719	)		6,934			7,281			(347	)
Total operating expenses		32,398			29,461			2,937			34,343			29,115			5,228
Loss from operations		(32,398	)		(29,461	)		(2,937	)		(34,343	)		(29,115	)		(5,228	)
Other income, net		1,967			2,087			(120	)		2,912			1,397			1,515
Net loss	$	(30,431	)	$	(27,374	)	$	(3,057	)	$	(31,431	)	$	(27,718	)	$	(3,713	)

Research and Development Expenses

Research and development expenses increased from ~~$21.3~~$21.8 million for the three months ended ~~June 30, 2022~~March 31, 2023 to ~~$25.0~~$27.4 million for the three months ended ~~June 30, 2023.~~March 31, 2024. Research and development expenses increased primarily due to the timing of our clinical research programs. Research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the level of preclinical and clinical trial-related activities.

Research and development expenses by program are summarized in the table ~~below:~~below. Expenses for programs that have been discontinued are included in Other.


	Three months ended June 30,					Three months ended March 31,
(in thousands)	2023			2022		2024		2023
PRT1419 (Oral and IV)	$	2,309		$	2,387
PRT3789						$	4,161	$	1,432
PRT2527		1,724			853		2,055		1,078
PRT3789		2,035			—
PRT3645		1,913			—		683		533
PRMT5 (PRT543 and PRT811)		(378	)		2,770
Discovery programs		4,487			5,439		6,736		4,156
Other							127		2,288
Internal costs, including personnel related		12,876			9,861		13,647		12,347
	$	24,966		$	21,310	$	27,409	$	21,834

General and Administrative Expenses

General and administrative expenses decreased from ~~$8.2~~$7.3 million for the three months ended ~~June 30, 2022~~March 31, 2023 to ~~$7.4~~$6.9 million for the three months ended ~~June 30, 2023.~~March 31, 2024. General and administrative expenses decreased primarily due to a decrease in non-cash expense related to stock-based compensation, partially offset by an increase in professional fees incurred as we expand our ~~careful management of general and administrative expenses.~~

~~Other Income, net~~

~~Other income, net decreased from $2.1 million for the three months ended June 30, 2022,~~operations to ~~$2.0 million for the three months ended June 30, 2023 primarily due to losses on foreign currency exchange.~~

~~Comparison of the Six Months Ended June 30, 2023 and 2022~~

~~The following table sets forth~~support our ~~results of operations.~~

Six months ended
June 30,

Change

(in thousands)

2023

2022

Operating expenses:

Research and development

46,800

44,131

2,669

General and administrative

14,713

15,618

(905
)
Total operating expenses

61,513

59,749

1,764

Loss from operations

(61,513
)

(59,749
)

(1,764
)
Other income, net

3,364

2,910

454

Net loss

(58,149
)

(56,839
)

(1,310
)

~~Research and Development Expenses~~

~~Research~~research and development expenses increased from $44.1 million for the six months ended June 30, 2022 to $46.8 million for the six months ended June 30, 2023. Research and development expenses increased primarily due to the timing of our clinical research programs. Research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the level of preclinical and clinical trial-related activities.

~~Research and development expenses by program are summarized in the table below:~~

Six months ended
June 30,

(in thousands)

2023

2022

PRT1419 (Oral and IV)

$
4,161

$
4,476

PRT2527

2,802

1,701

PRT3789

3,467

—

PRT3645

2,446

—

PRMT5 (PRT543 and PRT811)

58

6,055

Discovery programs

8,643

10,841

Internal costs, including personnel related

25,223

21,058

$
46,800

$
44,131

~~General and Administrative Expenses~~

General and administrative expenses decreased from $15.6 million for the six months ended June 30, 2022 to $14.7 million for the six months ended June 30, 2023. General and administrative expenses decreased primarily due to our careful management of general and administrative expenses.

efforts.

Other Income, net

Other income, net increased from $1.4 million for the three months ended March 31, 2023, to $2.9 million for the ~~six~~three months ended ~~June 30, 2022, to $3.4 million for the six months ended June 30, 2023~~March 31, 2024 primarily due to interest earned on the investment of our cash ~~balance.~~balance as a result of higher interest rates and higher investment balances.

Liquidity and Capital Resources

Overview

Since our inception, we have not recognized any revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all.

As of March 31, 2024, we had $201.9 million in cash, cash equivalents, and marketable securities. We believe that our cash, cash equivalents, and marketable securities as of March 31, 2024 will be sufficient to fund operating expenses and capital expenditure requirements into 2026. Since our inception, we have funded our operations through the sale of convertible preferred stock, common stock, and pre-funded warrants. ~~As of June 30, 2023, we had $255.0 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $392.7 million.~~

During the second quarter of 2023, we sold 6,761,200 shares of common stock which comprised of (i) 5,312,978 shares of voting common stock and (ii) 1,448,222 shares of non-voting common stock at a price of $5.75 per share and to certain investors in lieu of common stock, we sold pre-funded warrants to purchase 12,895,256 shares of voting common stock at a price of $5.7499 per pre-funded warrant, resulting in gross proceeds of $113.0 million. We incurred offering costs of $2.6 million, of which $0.3 million were previously paid and deferred, which resulted in net proceeds of $110.4 million. The purchase price per share of each pre-funded warrant represents the per share offering price for the common stock, minus the $0.0001 per share exercise price of such pre-funded warrant. Of the voting common stock sold, 2,264,456 were purchased by our underwriters in connection with a 30-day option at a price of $5.75 per share.

During the fourth quarter of 2023, we sold in a private placement pre-funded warrants to purchase 7,936,759 shares of voting common stock at a price of $3.1499 per pre-funded warrant, resulting in net proceeds of $24.8 million after deducting offering costs of $0.2 million.

We did not issue any securities during the first quarter of 2024.

Funding Requirements

Our primary use of cash is to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•

the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

•

the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;

•

the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;

•

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

•

the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;

•

expenses needed to attract and retain skilled personnel;

•

costs associated with being a public company;

•

the costs required to scale up our clinical, regulatory and manufacturing capabilities;

•

the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and

•

revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates,

we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

In March 2023, we filed a prospectus supplement to our existing shelf registration statement on Form S-3, or the Shelf Registration Statement. The Shelf Registration Statement permits the offering of up to $400.0 million aggregate dollar amount of shares of our common stock or preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities, in one or more offerings and in any combination. The Shelf Registration statement expiries in November 2024, and as of March 31, 2024 there was $187.0 million remaining under the Shelf Registration Statement. In March 2023, in connection with filing a prospectus supplement to our Shelf Registration Statement, we entered into an Open Market Sales Agreement (the Sales Agreement) with Jefferies LLC, as the sales agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering amount of up to $75.0 million. The $75.0 million of common stock that may be issued and sold pursuant to the

Sales Agreement is included in the $400.0 million of securities that may be issued and sold pursuant to the Shelf Registration Statement. We will pay Jefferies LLC a commission rate of up to 3.0% of the aggregate gross proceeds from the sale of any shares of common stock pursuant to the Sales Agreement. We have $75.0 million remaining under the Sales Agreement as of March 31, 2024.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

The following table shows a summary of our cash flows for the periods indicated:

Six months ended
June 30,

(in thousands)

2023

2022

Net cash used in operating activities

$
(57,802
)

$
(40,363
)
Net cash (used in) provided by investing activities

(57,427
)

58,729

Net cash provided by financing activities

111,070

512

Net (decrease) increase in cash, cash equivalents and restricted cash

$
(4,159
)

$
18,878


	Three months ended March 31,
(in thousands)	2024			2023
Net cash used in operating activities	$	(31,791	)	$	(30,134	)
Net cash provided by investing activities		31,221			17,999
Net cash used in financing activities		(14	)		(269	)
Net decrease in cash, cash equivalents and restricted cash	$	(584	)	$	(12,404	)

Operating Activities

During the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, we used ~~$57.8~~$31.8 million of cash in operating activities. Cash used in operating activities reflected our net loss of ~~$58.1~~$31.4 million and a ~~$13.3~~$5.2 million net increase in our operating assets and liabilities, offset by noncash charges of ~~$13.6~~$4.8 million, which primarily consisted of ~~$13.0 million in~~ stock-based compensation. The primary use of cash was to fund our operations related to the development of our product candidates.

During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, we used ~~$40.4~~$30.1 million of cash in operating activities. Cash used in operating activities reflected our net loss of ~~$56.8~~$27.7 million and a $8.9 million net increase in our operating assets and liabilities, offset by noncash charges of ~~$16.1~~$6.5 million, which primarily consisted of ~~$12.9~~$6.3 million in stock-based ~~compensation, $1.8 million in amortization of premiums and discounts on marketable securities, $0.8 million noncash lease expense, and $0.6 million in depreciation.~~compensation. The primary use of cash was to fund our operations related to the development of our product candidates.

Investing Activities

During the ~~six~~three months ended June 30, 2023, net cash used in investing activities of $57.4 million consisted primarily of $128.1 million in purchases of marketable securities, partially offset by $72.5 million in proceeds from maturities of marketable securities. During the six months ended June 30, 2022,March 31, 2024, net cash provided by investing activities of ~~$58.7~~$31.2 million consisted primarily of ~~$87.6~~$37.0 million in proceeds from maturities of marketable securities, partially offset by ~~$27.1~~$5.5 million in purchases of marketable securities. During the three months ended March 31, 2023, net cash provided by investing activities of $18.0 million consisted primarily of $26.0 million in proceeds from maturities of marketable securities partially offset by $7.2 million used for purchases of marketable securities.

Financing Activities

~~During~~For the ~~six~~three months ended ~~June 30,~~March 31, 2023 net cash ~~provided by~~used in financing activities was ~~$111.1~~$0.3 million ~~which was primarily~~related to the ~~result~~payment of ~~$110.7 million in proceeds received from the sale of common stock and pre-funded warrants, net of issuance~~offering costs. ~~For the six months ended June 30, 2022 net cash provided by financing activities was $0.5 million from the exercise of stock options and purchases of stock under our Employee Stock Purchase Plan.~~

2221

Critical Accounting ~~Policies~~Estimates

During the three months ended ~~June 30, 2023,~~March 31, 2024, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting ~~Policies and~~ Estimates” in our 2023 Annual Report on Form ~~10-K filed with the Securities and Exchange Commission on March 15, 2023.~~

~~JOBS Act Accounting Election~~

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) in which we have total annual gross revenues of at least $1.235 billion, or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th~~, (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2025.~~10-K.

Emerging Growth Company and Smaller Reporting Company Status

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements, including without limitation, exemption to the requirements for providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We will remain an emerging growth company until the earlier to occur of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our ~~IPO,~~initial public offering (i.e. December 31, 2025), (ii) in which we have total annual gross revenues of at least $1.235 billion or (iii) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, or (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

2322

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this ~~item.~~item with respect to the period ending March 31, 2024.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedure

As of ~~June 30, 2023,~~March 31, 2024, management, with the participation of our Principal Executive Officer and Principal Financial and Accounting Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer concluded that, as of ~~June 30, 2023,~~March 31, 2024, the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

Management determined that, as of ~~June 30, 2023,~~March 31, 2024, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2423

PART II— OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. In addition, we may receive letters alleging infringement of patents or other intellectual property rights. We are not presently a party to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business, operating results, cash flows or financial conditions should such litigation be resolved unfavorably. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, and other factors.

Item 1A. Risk Factors

~~Risk factors that may affect~~Investing in our ~~business~~common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider the risks and ~~financial results are discussed within~~uncertainties described under Part I, Item 1A, “Risk Factors” ofin our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission on ~~March~~February 15, ~~2023,~~ 2024, in addition to the risk factors that appear below.

Risks Related to Our Dependence on Third Parties

Changes in United States and China relations, as well as relations with other countries, and/or ~~2022 Form 10-K.~~ regulations may adversely impact our business, our operating results, our ability to raise capital and the market price of our shares.

The U.S. government, including the SEC, has made statements and taken certain actions that led to changes to United States and international relations, and will impact companies with connections to the United States or China, including imposing several rounds of tariffs affecting certain products manufactured in China, imposing certain sanctions and restrictions in relation to China and issuing statements indicating enhanced review of companies with significant China-based operations. It is unknown whether and to what extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any such actions would have on companies with significant connections to the U.S. or to China, our industry or on us. Any unfavorable government policies on cross-border relations and/or international trade, including increased scrutiny on companies with significant China-based operations and escalation of tensions between China and Taiwan, such as recent step up of military exercises around Taiwan by China, capital controls or tariffs, may affect our ability to raise capital and the market price of our shares.

There have been ~~no material changes~~Congressional legislative proposals, such as the recent bill titled the Biosecure Act, to discourage contracting with Chinese companies on the development or manufacturing of pharmaceutical products. If any new legislation, executive orders, tariffs, laws and/or regulations are implemented, if existing trade agreements are renegotiated or if the U.S. or Chinese governments take retaliatory actions due to the ~~disclosures relating~~recent U.S.-China tension, such changes could have an adverse effect on our business, financial condition and results of operations, our ability to ~~this item from those set forth in~~raise capital and the market price of our ~~2022 Form 10-K.~~shares.

Risks Related to Our Business and Industry

The Company may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act (“FCPA”) and Chinese anti-corruption law.

The Company is subject to the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments, foreign government officials and political parties by U.S. persons as defined by the statute for purposes of obtaining or retaining businesses. The Company may have agreements with third parties who may make sales in mainland China and the U.S., during the process of which the Company may be exposed to corruption. Activities in Taiwan create the risk of unauthorized payments or offers of payments by an employee, consultant or agent of the Company, because these parties are not always subject to the Company’s control.

Although the Company believes to date it has complied in all material aspects with the provisions of the FCPA and Chinese anti-corruption law, the existing safeguards and any future improvements may prove to be less than effective and any of the Company’s employees, consultants or agents may engage in corruptive conduct for which the Company might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions against the Company and individuals and therefore could negatively affect the Company’s business, operating results and financial condition. In addition, the Taiwanese government may seek to hold the Company liable as a successor for FCPA violations committed by companies in which the Company invests or acquires.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~Unregistered Sales of Equity Securities~~

None.

~~Use of Proceeds~~

In the third quarter of 2020, we completed our IPO and sold 9,573,750 shares of common stock at an IPO price of $19.00 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to registration statements on Form S-1 (File No. 333-248628), which was declared effective by the SEC on September 24, 2020, as supplemented by a registration statement on Form S-1 filed pursuant to Rule 462(b) (File No. 333-248628). We received net proceeds from the IPO of approximately $166.6 million, after deducting underwriting discounts and commissions of approximately $12.7 million and offering expenses of approximately $2.5 million. Morgan Stanley, Goldman Sachs & Co. LLC and BofA Securities acted as joint book-running managers of the offering and as representatives of the underwriters. None of the expenses associated with the IPO were paid to directors, officers, persons owning 10% or more of any class of equity securities, or to their associates, or to our affiliates.

There has been no material change in the planned use of proceeds from our IPO as described in the prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act on September 25, 2020.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).

Exhibit
Number
Description
Form
File No.
Exhibit No.
Exhibit Filing Date
Filed/Furnished Herewith
3.1

Amended and Restated Certificate of Incorporation

X
4.1

Form of Pre-Funded Warrant
8-K
001-39527
4.1
May 18, 2023

31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
101.INS
Inline XBRL Instance Document

X
101.SCH
Inline XBRL Taxonomy Extension Schema Document.

X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.

X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.

X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.

X
101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

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104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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Exhibit Number	Description	Form	File No.	Exhibit No.	Exhibit Filing Date	Filed/Furnished Herewith
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document					X
101.SCH	Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents					X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)					X

*The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Prelude Therapeutics Incorporated

Date: ~~August 3, 2023~~May 7, 2024	By:	/s/ Krishna Vaddi
		Krishna Vaddi, PhD
		Chief Executive Officer
		(Principal Executive Officer)
Date: ~~August 3, 2023~~May 7, 2024	By:	/s/ ~~Laurent Chardonnet~~Bryant Lim
		~~Laurent Chardonnet~~Bryant Lim
		Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)


Delaware	81-1384762
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
~~200 Powder Mill Road~~175 Innovation Boulevard Wilmington, Delaware	~~19803~~19805
(Address of principal executive offices)	(Zip Code)


(in thousands, except share data)	June 30, 2023			December 31, 2022			March 31, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	26,446		$	30,605		$	24,707		$	25,291
Marketable securities		228,543			171,123			177,217			207,644
Prepaid expenses and other current assets		5,221			2,652			3,442			2,654
Total current assets		260,210			204,380			205,366			235,589
Restricted cash		4,044			4,044			4,044			4,044
Property and equipment, net		6,082			4,908			7,294			7,325
Right-of-use asset		918			1,792			30,107			30,412
Prepaid expenses and other non-current assets		9,357			5,376
Other assets								295			295
Total assets	$	280,611		$	220,500		$	247,106		$	277,665
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,585		$	6,777		$	5,308		$	4,580
Accrued expenses and other current liabilities		8,667			13,093			10,147			15,768
Operating lease liability		938			1,832			2,188			1,481
Total current liabilities		15,190			21,702			17,643			21,829
Other liabilities		3,361			3,361			3,277			3,339
Operating lease liability								15,452			15,407
Total liabilities		18,551			25,063			36,372			40,575
Commitments (Note 8)
Stockholders’ equity:
Voting common stock, $0.0001 par value: 487,149,741 shares authorized; 41,958,456 and 36,496,994 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		4			4
Non-voting common stock, $0.0001 par value: 12,850,259 shares authorized; 12,850,259 and 11,402,037 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		1			1
Voting common stock, $0.0001 par value: 487,149,741 shares authorized; 42,071,505 and 42,063,995 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively								4			4
Non-voting common stock, $0.0001 par value: 12,850,259 shares authorized; 12,850,259 shares issued and outstanding at both March 31, 2024 and December 31, 2023								1			1
Additional paid-in capital		655,473			531,682			698,785			693,252
Accumulated other comprehensive loss		(711	)		(1,692	)
Accumulated other comprehensive (loss) income								(235	)		223
Accumulated deficit		(392,707	)		(334,558	)		(487,821	)		(456,390	)
Total stockholders’ equity		262,060			195,437			210,734			237,090
Total liabilities and stockholders’ equity	$	280,611		$	220,500		$	247,106		$	277,665


	Six months ended June 30,						Three months ended March 31,
(in thousands)	2023			2022			2024			2023
Cash flows used in operating activities:
Net loss	$	(58,149	)	$	(56,839	)	$	(31,431	)	$	(27,718	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		559			625			426			278
Noncash lease expense		874			842			414			432
Stock-based compensation		12,989			12,857			5,547			6,256
Amortization of premium and discount on marketable securities, net		(805	)		1,784			(1,541	)		(446	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(2,540	)		1,557			(788	)		(355	)
Accounts payable		(1,333	)		(838	)		631			374
Accrued expenses and other liabilities		(4,493	)		495			(5,692	)		(1,903	)
Long-term prepaid expenses and other long-term assets		(4,010	)		—			—			(6,610	)
Operating lease liabilities		(894	)		(846	)		643			(442	)
Net cash used in operating activities		(57,802	)		(40,363	)		(31,791	)		(30,134	)
Cash flows (used in) provided by investing activities:
Cash flows provided by investing activities:
Purchases of marketable securities		(128,134	)		(27,140	)		(5,490	)		(7,191	)
Proceeds from maturities of marketable securities		72,500			87,579			37,000			26,000
Purchases of property and equipment		(1,793	)		(1,710	)		(289	)		(810	)
Net cash (used in) provided by investing activities		(57,427	)		58,729
Cash flows provided by financing activities:
Proceeds from issuance of common stock and pre-funded warrants, net of offering costs		110,691			—
Proceeds from the issuance of common stock under ESPP		348			300
Net cash provided by investing activities								31,221			17,999
Cash flows used in financing activities:
Payment of offering costs								—			(297	)
Proceeds from the issuance of common stock in connection with the exercise of stock options		31			212			2			28
Net cash provided by financing activities		111,070			512
Net (decrease) increase in cash, cash equivalents and restricted cash		(4,159	)		18,878
Payment of withholding taxes related to stock-based compensation to employees								(16	)		—
Net cash used in financing activities								(14	)		(269	)
Net decrease in cash, cash equivalents and restricted cash								(584	)		(12,404	)
Cash, cash equivalents, and restricted cash at beginning of period		34,649			35,872			29,335			34,649
Cash, cash equivalents, and restricted cash at end of period	$	30,490		$	54,750		$	28,751		$	22,245
Supplemental disclosures:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	—		$	928		$	109		$	—
Property and equipment in accounts payable	$	30		$	77
Offering costs in accrued expenses and other current liabilities	$	67		$	—
Offering costs in accounts payable	$	201		$	—
Unrealized gain (loss) on marketable securities	$	981		$	(1,583	)
Property and equipment in accounts payable and accrued expenses and other current liabilities							$	269		$	21
Unrealized (loss) gain on marketable securities							$	(458	)	$	1,294


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


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


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Balance Sheets (Unaudited)	1
	Statements of Operations and Comprehensive Loss (Unaudited)	2
	Statements of Changes in Stockholders’ Equity (Unaudited)	3
	Statements of Cash Flows (Unaudited)	54
	Notes to Unaudited Interim Financial Statements	65
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2423
Item 4.	Controls and Procedures	2423
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	2524
Item 1A.	Risk Factors	2524
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
Signatures		27


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(in thousands, except share and per share data)	2023			2022			2023			2022			2024			2023
Operating expenses:
Research and development	$	24,966		$	21,310		$	46,800		$	44,131		$	27,409		$	21,834
General and administrative		7,432			8,151			14,713			15,618			6,934			7,281
Total operating expenses		32,398			29,461			61,513			59,749			34,343			29,115
Loss from operations		(32,398	)		(29,461	)		(61,513	)		(59,749	)		(34,343	)		(29,115	)
Other income, net		1,967			2,087			3,364			2,910			2,912			1,397
Net loss	$	(30,431	)	$	(27,374	)	$	(58,149	)	$	(56,839	)	$	(31,431	)	$	(27,718	)
Per share information:
Net loss per share of common stock, basic and diluted	$	(0.54	)	$	(0.58	)	$	(1.12	)	$	(1.20	)	$	(0.42	)	$	(0.58	)
Weighted average common shares outstanding, basic and diluted		56,240,491			47,276,684			52,012,330			47,172,136			75,735,954			47,737,190
Comprehensive loss:
Net loss	$	(30,431	)	$	(27,374	)	$	(58,149	)	$	(56,839	)	$	(31,431	)	$	(27,718	)
Unrealized (loss) gain on marketable securities, net of tax		(313	)		19			981			(1,583	)		(458	)		1,294
Comprehensive loss	$	(30,744	)	$	(27,355	)	$	(57,168	)	$	(58,422	)	$	(31,889	)	$	(26,424	)



	Voting common stock				Non-voting common stock				Additional paid-in		Accumulated other comprehensive			Accumulated
(in thousands, except shares)	Shares		Amount		Shares		Amount		capital		loss			deficit			Total
Balance at January 1, 2023		36,496,994	$	4		11,402,037	$	1	$	531,682	$	(1,692	)	$	(334,558	)	$	195,437
Issuance of common stock upon exercise of stock options & vesting of RSUs		17,224		—		—		—		28		—			—			28
Unrealized gain on marketable securities, net of tax		—		—		—		—		—		1,294			—			1,294
Stock-based compensation expense		—		—		—		—		6,256		—			—			6,256
Net loss		—		—		—		—		—		—			(27,718	)		(27,718	)
Balance at March 31, 2023		36,514,218	$	4		11,402,037	$	1	$	537,966	$	(398	)	$	(362,276	)	$	175,297
Issuance of common stock and prefunded warrants, net of issuance costs of $2.6 million		5,312,978		—		1,448,222		—		110,423		—			—			110,423
Issuance of common stock upon exercise of stock options & vesting of RSU's		40,461		—		—		—		3		—			—			3
Issuance of common stock under ESPP		90,799		—		—		—		348		—			—			348
Unrealized loss on marketable securities, net of tax		—		—		—		—		—		(313	)		—			(313	)
Stock-based compensation expense		—		—		—		—		6,733		—			—			6,733
Net loss		—		—		—		—		—		—			(30,431	)		(30,431	)
Balance at June 30, 2023		41,958,456	$	4		12,850,259	$	1	$	655,473	$	(711	)	$	(392,707	)	$	262,060



	Voting common stock				Non-voting common stock				Additional paid-in		Accumulated other comprehensive			Accumulated
(in thousands, except shares)	Shares		Amount		Shares		Amount		capital		loss			deficit			Total
Balance at January 1, 2023		36,496,994	$	4		11,402,037	$	1	$	531,682	$	(1,692	)	$	(334,558	)	$	195,437
Issuance of common stock upon exercise of stock options & vesting of RSUs		17,224		—		—		—		28		—			—			28
Unrealized gain on marketable securities, net of tax		—		—		—		—		—		1,294			—			1,294
Stock-based compensation expense		—		—		—		—		6,256		—			—			6,256
Net loss		—		—		—		—		—		—			(27,718	)		(27,718	)
Balance at March 31, 2023		36,514,218	$	4		11,402,037	$	1	$	537,966	$	(398	)	$	(362,276	)	$	175,297


(in thousands)
2023 (remaining)	$	964
Total undiscounted lease payments		964
Less imputed interest		(26	)
Current lease liability	$	938


	Number of shares			Weighted-average grant date fair value
Unvested balance at January 1, 2023		201,716		$	2.81
Vested		(120,672	)	$	2.50
Unvested balance at June 30, 2023		81,044		$	3.26

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company