Beam Therapeutics Inc. - Quarter Report: 2020 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2020

OR

Commission File Number 001-39208

Beam Therapeutics Inc.

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: (857) 327-8775

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

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, a 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  ☒

The number of shares of registrant’s common stock outstanding as of May 8, 2020 was 51,485,115.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “targets,” “projections,” “should,” “could,” “would,” “may,” “might,” “will,” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” in Part II, Item 1A of this report. Unless legally required, we assume no obligation to update any such forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

When we use the terms “Beam,” the “Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q, we mean Beam Therapeutics Inc. and its subsidiaries on a consolidated basis, unless the context indicates otherwise.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Beam Therapeutics Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

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

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Beam Therapeutics Inc.

Condensed Consolidated Statements of Operations and Other Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

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

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Beam Therapeutics Inc.

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

(Unaudited)

(in thousands, except share amounts)

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

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Beam Therapeutics Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

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

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Beam Therapeutics Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of the business and basis of presentation

Organization

Beam Therapeutics Inc. (the “Company” or “Beam”) is a research stage biotechnology company committed to creating a new class of precision genetic medicines, based on the Company’s proprietary base editing technology, with a vision of providing life-long cures to patients suffering from serious diseases. The Company was incorporated in January 2017 as a Delaware corporation and began operations in July 2017. Its principal offices are in Cambridge, Massachusetts.

Liquidity and capital resources

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

In connection with the Company’s initial public offering, or IPO, the Company’s board of directors approved a one-for-4.4843 reverse stock split of its issued and outstanding common stock and stock options and a proportional adjustment to the existing conversion ratios for the Company’s redeemable convertible preferred stock effective as of January 24, 2020. Accordingly, all common stock shares, per share amounts, and additional paid in capital amounts for all periods presented in the accompanying financial statements have been retroactively adjusted, where applicable, to reflect the reverse stock split and adjustment to the preferred stock conversion ratios.

In February 2020, the Company completed its IPO in which the Company issued and sold 12,176,471 shares of its common stock, including 1,588,235 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $17.00 per share, for aggregate gross proceeds of $207.0 million. The Company received approximately $188.3 million in net proceeds after deducting underwriting discounts and estimated offering expenses payable by the Company. In connection with the IPO, all outstanding shares of redeemable convertible preferred stock converted into 29,127,523 shares of the Company’s common stock.

Since its inception, the Company has incurred substantial losses and had an accumulated deficit of $233.5 million as of March 31, 2020. The Company expects to generate operating losses and negative operating cash flows for the foreseeable future. The Company expects that its cash, cash equivalents, and marketable securities as of March 31, 2020 of $253.4 million will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or GAAP, and pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position as of March 31, 2020, the

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results of its operations and other comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for the three months ended March 31, 2020 and 2019. Such adjustments are of a normal and recurring nature. The results for the three months ended March 31, 2020 are not necessarily indicative of the results for the year ending December 31, 2020, or for any future period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 30, 2020.

Consolidation

The accompanying condensed consolidated financial statements include the accounts of Beam Therapeutics Inc. and its wholly owned subsidiaries, Blink Therapeutics Inc., or Blink, which is a Delaware subsidiary that holds certain intellectual property related to RNA base editing, and Beam Therapeutics Securities Corporation, which is a Massachusetts subsidiary created to buy, sell and hold securities. All intercompany transactions and balances have been eliminated in consolidation.

COVID-19-related significant risks and uncertainties

With the global spread of the ongoing coronavirus disease of 2019, or COVID-19, pandemic in the first and second quarters of 2020, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business. In March 2020, to protect the health of its employees, and their families and communities, the Company restricted access to its offices to personnel who must perform critical activities that must be completed on-site, limited the number of such personnel that can be present at its facilities at any one time, and requested that most of its employees work remotely. In May 2020, as restrictions are eased and the number of remote employees are reduced, the Company expects to incur additional costs to provide a safe working environment to its onsite employees.

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

While the COVID-19 pandemic did not significantly impact the Company’s business or results of operations during the first quarter of 2020, the length and extent of the pandemic, its consequences, and containment efforts will determine the future impact on the Company’s operations and financial condition.

2. Summary of significant accounting policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2019, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 30, 2020. Since the date of those financial statements, there have been no changes to Beam’s significant accounting policies.

Use of estimates

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

The COVID-19 pandemic may have an impact on the development timelines of the Company’s pre-clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.  

Cash, cash equivalents, and restricted cash

Cash and cash equivalents consist of standard checking accounts, money market accounts, and all highly liquid investments with an original maturity of three months or less at the date of purchase. Restricted cash represents collateral provided for letters of credit issued as security deposits in connection with the Company’s leases of its corporate facilities.

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The following table reconciles cash, cash equivalents, and restricted cash reported within the Company’s condensed consolidated balance sheets to the total of the amounts shown in the condensed consolidated statement of cash flows (in thousands):

Recent accounting pronouncements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements, or ASC 808, which clarifies certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. ASC 808 will be effective for the Company in the first quarter of fiscal 2021, with early adoption permitted. A retrospective adoption to the date the Company adopted ASC 606, Revenue from Contracts with Customers, is required by recognizing a cumulative-effect adjustment to the opening balance or retained earnings of the earliest period presented. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

3. Property and equipment, net

Property and equipment consist of the following (in thousands):

Depreciation expense for the three months ended March 31, 2020 and 2019 was $1.1 million, and $0.7 million, respectively.

4. fair Value of financial instruments

The Company’s financial instruments that are measured at fair value on a recurring basis consist of cash equivalents, marketable securities, and success payment derivative liabilities pursuant to the license agreement between Harvard University, or Harvard, and the Company, or the Harvard License Agreement, and the license agreement between Broad Institute of MIT and Harvard, or Broad Institute, and Blink, or the Broad License Agreement.

ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:

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The following table sets forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy at March 31, 2020 (in thousands):

The following table sets forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy at December 31, 2019 (in thousands):

Cash equivalents – Money market funds included within cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. Commercial paper and corporate notes are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

Marketable securities – The Company measures its marketable securities at fair value on a recurring basis and classify those instruments within Level 2 of the fair value hierarchy. Marketable securities are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined using models or other valuation methodologies.

Success Payment Liabilities – As discussed further in Note 8, License Agreements, the Company is required to make success payments determined based upon the achievement of specified multiples of the initial weighted average value of the Company’s Series A Preferred at specified valuation dates. The Company’s liability for success payments under the Harvard License Agreement and Broad License Agreement are carried at fair value. To determine the estimated fair value of the success payment liability, the Company uses a Monte Carlo simulation methodology, which models the future movement of stock prices based on several key variables.

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The following variables were incorporated in the calculation of the estimated fair value of the Harvard and Broad Institute success payment liabilities:

At December 31, 2019, the fair value of the Series A Preferred was determined by management with the assistance of an independent third-party specialist. At March 31, 2020, the fair value of the common stock was the market value of the Company’s common stock. The computation of expected volatility was estimated using available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption. In addition, the Company incorporated the estimated number, timing, and probability of valuation measurement dates in the calculation of the success payment liability.

The following table reconciles the change in the fair value of success payment liabilities based on Level 3 inputs (in thousands):

5. Marketable securities

The following table summarizes the Company’s marketable securities held at March 31, 2020 (in thousands):

The following table summarizes the Company’s marketable securities held at December 31, 2019 (in thousands):

The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. At March 31, 2020, the balance in accumulated other comprehensive (loss) income was comprised solely of activity related to marketable securities. There were no realized gains or losses recognized on the sale or maturity of marketable securities for the three months ended March 31, 2020 and 2019 and, as a result, the Company did not reclassify any amounts out of accumulated other comprehensive (loss) income for the same period.

The Company held 26 debt securities in an unrealized loss position at March 31, 2020. The aggregate fair value of securities held by the Company in an unrealized loss position for less than 12 months at March 31, 2020 was $73.1 million, and there were no securities held by the Company in an unrealized loss position for more than 12 months. The Company holds debt securities of companies with high credit quality and has determined that there was no material change in the credit risk of any of its debt securities, and as of March 31, 2020 the Company did not intend to sell, and was more than likely not required to sell, the debt securities in a loss position

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before recovery of their amortized cost bases. As a result, the Company determined it did not hold any investments with any other-than-temporary impairment as of March 31, 2020. The contractual maturity date of all the investments are less than one year.

6. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

7. Leases

Operating leases

The Company’s operating leases are as follow:

The following table summarizes operating lease costs as well as sublease income (in thousands):

The following table summarizes the lease term and discount rate:

The following table summarizes the cash paid for amounts included in the measurement of lease liabilities (in thousands):

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At March 31, 2020, the future minimum lease payments for the Company’s operating leases for each of the years ending December 31 were as follows (in thousands):

In addition to the leases discussed above, the Company is party to an April 2019 lease for office and laboratory space to be built, with the lease for the first phase expected to commence at the earliest in late 2021 and the second phase expected to commence at the earliest in first half of 2023. The lease will terminate 12 years from the second phase commencement date. The lease is subject to fixed-rate rent escalations and provides for $23.4 million in tenant improvements and the option to extend the lease for two terms of 5 years each. Upon executing the lease, the Company made a security deposit of $11.8 million in the form of a letter of credit, which is included in restricted cash as of March 31, 2020. As the lease had not commenced, the Company has not recorded an operating lease ROU asset or lease liability for this lease in the accompanying condensed consolidated balance sheets. The minimum amount of anticipated undiscounted lease payments due under the MIT lease is $168.7 million. Further, the tabular disclosure of minimum lease payments above does not include payments due under this lease.

Financing obligations

In July 2019 and October 2019, the Company sold certain equipment to a leasing company. Contemporaneous with the closing of the sale, the Company entered into a lease agreement with the leasing company with a term of four years pursuant to which the Company leased back the equipment.

Further, in February 2020, the Company sold additional equipment to the leasing company for a total of $1.6 million and, concurrently, entered into a lease agreement with the leasing company to lease back the equipment for an annual rent of $0.5 million over a term of four years.

The equipment leases are being accounted for as financings as the lease terms are for substantially all the remaining economic life of the underlying equipment. Management concluded that control, including the significant risks and rewards of ownership, did not effectively transfer to the buyer-lessor at the inception of the sale and leaseback transactions. As a result, the transactions are accounted for as failed sale and leasebacks and result in the recognition of financing liabilities.

The future minimum payments related to the equipment financing obligations at March 31, 2020, for each of the years ending December 31 were as follows (in thousands):

Total paydown of principal and interest expense related to the equipment financing obligations were $0.3 million and $0.1 million, respectively for the three months ended March 31, 2020.

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8. License agreements

Harvard license agreement

Under the terms of the Harvard License Agreement, Harvard is entitled to receive success payments, determined based upon the achievement of specified multiples of the initial weighted average value of the Company’s Series A Preferred at specified valuation dates. The Company is required to make success payments to Harvard during a period of time, or the Harvard Success Payment Period, which has been determined to be the later of (1) the ninth anniversary of the Harvard License Agreement or (2) the earlier of (a) the 12th anniversary of the Harvard License Agreement and (b) the third anniversary of the first date on which a licensed product receives regulatory approval in the United States. During the Harvard Success Payment Period, the Company will perform a valuation on each rolling 90-day period, commencing one year after the Company’s IPO. As of March 31, 2020 and December 31, 2019, the Company has recorded $5.2 million and $3.9 million, respectively, for the estimated fair value of the success fee derivative liability. During the three months ended March 31, 2020 and 2019, the Company recorded $1.3 million and $0.5 million, respectively, of other expense related to the remeasurement of the liability. As of March 31, 2020, no success payments were paid or due to Harvard.

In addition, Harvard was entitled to receive financing milestone payments, which were paid by the Company during the three months ended March 31, 2019.

The annual maintenance fee under the Harvard License Agreement is recorded as research and development expense. Patent prosecution costs are recognized as expense in the period incurred. As of March 31, 2020, the Company determined that product development and regulatory approval milestones and royalties under the Harvard License Agreement were not probable and, as such, no amounts were recognized for the three months ended March 31, 2020.

Broad license agreement

Under the terms of the Broad License Agreement, Broad Institute is entitled to receive success payments, determined based upon the achievement of specified multiples of the initial weighted average value of the Blink Series A Preferred at specified valuation dates. The Company is required to make success payments to Broad Institute during a period of time, or the Broad Success Payment Period, which has been determined to be the earliest of (1) the twelfth anniversary of the Broad License Agreement, or (2) the third anniversary of the first date on which a licensed product receives regulatory approval in the United States. During the Broad Success Payment Period, the Company will perform a valuation on each rolling 90-day period, commencing one year after the Company’s IPO. As of March 31, 2020 and December 31, 2019, the Company has recorded $5.3 million and $3.9 million, respectively, for the estimated fair value of a success fee derivative liability. During the three months ended March 31, 2020 and 2019, the Company recorded $1.4 million and $0.5 million, respectively, of other expense related to the remeasurement of this liability. As of March 31, 2020, no success payments were paid or payable to Broad Institute.

In addition, Broad Institute was entitled to receive financing milestone payments, which were paid by the Company during the year ended December 31, 2019.

The annual maintenance fee under the Broad License Agreement is recorded as research and development expense. Patent prosecution costs are recognized as expense in the period incurred. As of March 31, 2020, the Company determined that product development and regulatory approval milestones and royalties under the Broad License Agreement were not probable and, as such, no amounts were recognized for the three months ended March 31, 2020.

Editas license agreement

In May 2018, the Company entered into a license agreement, or the Editas License Agreement, with Editas Medicine, Inc., or Editas, for certain intellectual property rights owned or controlled by Editas, for specified uses. Under the Editas License Agreement, Editas granted to the Company a worldwide, exclusive, sublicensable, license (subject to certain exceptions and conditions) under certain intellectual property controlled by Editas for the use of base editing therapies for the treatment of any field of human diseases and conditions, subject to certain exceptions, or the Beam Field, and the licenses granted or to be granted under the Editas License Agreement, or the Editas Development and Commercialization License). Additionally, Editas granted to the Company a royalty-free, non-exclusive license under certain intellectual property owned or controlled by Editas to perform research activities in the Beam Field. Editas provided the Company with an exclusive option to obtain an Editas Development and Commercialization License to three additional groups of intellectual property owned or controlled by Editas, on a group by group basis, during the specified option period, subject to certain exceptions. Pursuant to the Editas License Agreement, the Company will use commercially reasonable efforts to develop a product that includes the rights licensed to the Company within a specified period of time and to commercialize any such products that have received regulatory approval in certain specified countries.

The annual maintenance fees under the Editas License Agreement are recorded as research and development expense. Annual patent costs are expensed as incurred. In addition, the Company is required to make certain development, regulatory and commercial milestone payments to Editas upon the achievement of specified milestones. The triggering of these milestone payments was not probable and, as such, no amounts were recognized for the three months ended March 31, 2020.

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Bio Palette

In March 2019, the Company entered into a license agreement with Bio Palette pursuant to which Beam received an exclusive (even as to Bio Palette), sublicensable license under certain patent rights related to base editing owned or controlled by Bio Palette to exploit products for the treatment of human disease throughout the world, but excluding products in the microbiome field in Asia, or the Bio Palette License Agreement. In addition, the Company granted Bio Palette an exclusive (even as to Beam) license under certain patent rights related to base editing and gene editing owned or controlled by the Company to exploit products in the microbiome field in Asia. Each party to the agreement retains non-exclusive rights to develop and manufacture products in the microbiome field worldwide for the sole purpose of exploiting those products in its own territory. Each party agrees to certain coordination obligations in the microbiome field if either party determines not to exploit their rights in such field.

Upon the execution of the Bio Palette License Agreement, the Company paid Bio Palette an upfront fee of $0.5 million and issued to Bio Palette 16,725 shares of its common stock valued at $0.1 million, which were recorded as research and development expense for the three months ended March 31, 2019. Upon the issuance of a certain Bio Palette patent in the United States, the Company will pay a milestone payment of $2.0 million and will issue to Bio Palette 39,025 shares of its common stock valued at $0.3 million. As of March 31, 2020, the Company determined that the patent was probable of issuance and has recognized $2.3 million as research and development expense for the three months ended March 31, 2020.

9. Collaboration and license agreements

Prime Medicine

In September 2019, the Company entered into a Collaboration and License Agreement with Prime Medicine, Inc., or Prime Medicine, to research and develop a novel gene editing technology developed by one of Beam’s founders. Under the terms of the agreement, the Company granted Prime Medicine a non-exclusive license to certain of its CRISPR technology (including Cas12b), delivery technology and certain other technology controlled by Beam to develop and commercialize gene editing products for the treatment of human diseases. The Company is not currently using the intellectual property licensed from Prime Medicine in any of its current programs, but it is required to use commercially reasonable effort to develop new product candidates using the intellectual property licensed from Prime Medicine. Additionally, each party granted to the other party certain exclusive and non-exclusive licenses to certain technology developed after the effective date of the agreement and controlled by the granting party or jointly owned by the parties. Each party has an obligation to assign rights in certain technology developed under the collaboration to the other party.

As of March 31, 2020, the Company determined that milestones and royalties under the agreement were not probable of recognition.

Verve

In April 2019, Beam entered into a Collaboration and License Agreement with Verve Therapeutics, Inc., or Verve, to investigate gene editing strategies to modify genes associated with an increased risk of coronary diseases. Under the terms of the agreement, the Company granted Verve an exclusive license to certain base editor technology and certain delivery technology, and improvements and Verve granted Beam a non-exclusive license under certain know-how and patents controlled by Verve, an interest in joint collaboration technology and an exclusive license (except as to Verve) under certain delivery technology.

As of March 31, 2020, the Company determined that milestones and royalties under the agreement were not probable of recognition.

10. Preferred and common stock

During the three months ended March 31, 2020, the Company authorized preferred stock issuable of 25,000,000 shares and increased its authorized common stock issuable to 250,000,000 shares, both with a $0.01 par value per share.

The Company’s board of directors approved a one-for-4.4843 reverse stock split of its common stock and stock options and a proportional adjustment to the existing conversion ratios for the Company’s redeemable convertible preferred stock effective as of January 24, 2020. Accordingly, all common stock shares, per share amounts, and additional paid-in capital amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split.

In February 2020, the Company completed its IPO in which the Company issued and sold 12,176,471 shares of its common stock, including 1,588,235 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $17.00 per share, for aggregate gross proceeds of $207.0 million. The Company received approximately $188.3 million in net proceeds after deducting underwriting discounts and estimated offering expenses payable by the Company. In connection with the IPO, all outstanding shares of Preferred Stock converted into 29,127,523 shares of the Company’s common stock.

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11. Stock option and grant plan

Stock option and grant plan

The 2017 Stock Option and Grant Plan adopted by the board of directors in June 2017 and amended in February and May 2019, provides for the grant of qualified incentive stock options and nonqualified stock options, restricted stock or other awards to the Company’s employees, officers, directors, advisors, and outside consultants for the issuance or purchase of shares of the Company’s common stock.

In February 2020, the Company’s board of directors adopted the Beam Therapeutics Inc. 2019 Equity Incentive Plan, or the 2019 Plan, and, subsequent to the IPO, all equity-based awards will be granted under the 2019 Plan. The 2019 Plan provides for grant of qualified and nonqualified stock options, stock appreciation rights, restricted and unrestricted stock and stock units, performance awards, and other share-based awards to the Company’s employees, officers, directors, advisors, and outside consultants. As of March 31, 2020, the Company had 8,431,743 shares reserved and 2,768,145 shares available for future issuance under the 2019 Plan.

Stock-based compensation expense recorded as research and development and general and administrative expenses in the condensed consolidated statements of operations and other comprehensive loss is as follows (in thousands):

Stock options

A summary of option activity under the Company’s equity award plans:

The weighted-average grant date fair value per share of options granted in the three months ended March 31, 2020 was $12.06. As of March 31, 2020, there was $24.8 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately 2.66 years.

Restricted stock

The following summarizes the Company’s restricted stock activity:

At March 31, 2020, there was approximately $6.4 million of unrecognized stock-based compensation expense related to restricted stock that is expected to vest. These costs are expected to be recognized over a weighted-average remaining vesting period of 1.6 years.

12. Net loss per share attributable to common stockholders

As noted above, for periods in which the Company reports a net loss attributable to common stockholders, potentially dilutive securities have been excluded from the computation of diluted net loss per share as their effects would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts

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outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:

The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company (in thousands except share and per share amounts):

13. Income taxes

During the three months ended March 31, 2020 and 2019, the Company recorded a full valuation allowance on federal and state deferred tax assets since management does not forecast the Company to be in a taxable position in the near future.

14. Related party transactions

For the three months ended March 31, 2020 and 2019, the Company made payments of $0.1 million and $0.1 million, respectively, to its three founder shareholders for scientific consulting and other expenses.

The Company has entered into collaboration and license agreements with Prime Medicine and Verve. The Company and Prime Medicine have a common founder and several common board members. The Company and Verve have a common board member. During the three months ended March 31, 2020 and 2019, the Company purchased shares of Verve series A preferred stock valued at $0.8 million and $0.4 million, respectively.

15. Subsequent events

The Company evaluated all subsequent events through May 12, 2020, the date that these condensed consolidated financial statements were issued to determine if such events should be reflected in these condensed consolidated financial statements.

Lease amendment

In April 2020, the Company entered into a third amendment of its March 2020 amended lease agreement for laboratory space in Cambridge, Massachusetts. The amended lease commenced in April 2020 and will expire on December 31, 2025. The lease provides an option to extend the lease for two additional two-year periods through December 31, 2029, which were not determined by the Company to be reasonably certain of being exercised. As the commencement date of the leases has not occurred at March 31, 2020, no operating lease ROU asset or lease liability has been recorded in the accompanying condensed consolidated balance sheets for this amendment. The incremental increase in total amount of undiscounted lease payments as a result of the amended lease is approximately $1.1 million.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” in Part II, Item 1A. and elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a biotechnology company committed to creating a new class of precision genetic medicines based on our proprietary base editing technology, with a vision of providing life-long cures to patients suffering from serious diseases. Our proprietary base editing technology potentially enables an entirely new class of precision genetic medicines that targets a single base in the genome without making a double-stranded break in the DNA. This approach uses a chemical reaction designed to create precise, predictable and efficient genetic outcomes at the targeted sequence, which we believe will dramatically increase the impact of gene editing for a broad range of therapeutic applications. By building on the significant recent advances in the field of genetic medicine, we believe we will be able to rapidly advance our portfolio of novel base editing.

We are currently advancing a broad, diversified portfolio of base editing programs against distinct editing targets, with each program progressing along a clearly defined scientific path and utilizing the full range of our development capabilities. To unlock the full potential of our base editing technology across a wide range of therapeutic applications, we are pursuing a comprehensive suite of clinically validated delivery modalities in parallel. For a given tissue type, we use the delivery modality with the most compelling biodistribution.

COVID-19

With the global spread of the ongoing COVID-19 pandemic in the first and second quarters of 2020, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business. In March 2020, to protect the health of our employees, and their families and communities, we restricted access to our offices to personnel who must perform critical activities that must be completed on-site, limited the number of such personnel that can be present at our facilities at any one time, and requested that most of our employees work remotely. In May 2020, as restrictions are eased and the number of remote employees is reduced, we expect to incur additional costs to provide a safe working environment to our onsite employees.

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

While the COVID-19 pandemic did not significantly impact our business or results of operations during the first quarter of 2020, the length and extent of the pandemic, its consequences, and containment efforts will determine the future impact on our operations and financial condition.

Our base editing portfolio

Our programs are organized by delivery modality into three distinct pipelines: electroporation for efficient delivery to blood cells and immune cells ex vivo; lipid nanoparticles, or LNPs, for non-viral in vivo delivery to the liver and potentially other organs in the future; and adeno-associated viral vectors, or AAV, for viral delivery to the eye and central nervous system, or CNS. We have achieved proof-of-concept in vivo with long-term engraftment of ex vivo base edited human CD34 cells in mice for our Hereditary Persistence of Fetal Hemoglobin, or HPFH, program. Additionally, in the second quarter of 2020, we have published data on our Makassar precise correction sickle cell program, demonstrating that our adenine base editors, or ABEs, can efficiently convert the causative Hemoglobin S, or HbS, point mutation to HbG-Makassar, a naturally-occurring human variant that does not cause hemoglobin to polymerize, or red cells to sickle. With respect to our liver disease programs, also in the second quarter of 2020, we have shown the ability to directly correct the mutation causing alpha-1 antitrypsin deficiency, providing both in vitro and in vivo proof of concept for base editing to correct this disease. We have also successfully demonstrated feasibility of base editing with each of our three delivery modalities in relevant cell types for electroporation and AAV and in vivo in mice for LNP.

Beyond the in vivo proofs-of-concept already established, we expect to achieve additional milestones in 2020, which could include engraftment studies with our Makassar corrected CD34+ cells, xenograft models for our CAR-T programs or additional in vivo based editing in our programs using LNP or AAV delivery. If successful, and provided the COVID-19 pandemic does not cause our timelines to slip materially, this will allow us to initiate investigational new drug, or IND, enabling studies beginning in 2020. We expect to submit an initial wave of IND filings beginning in 2021.

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The modularity of our platform means that establishing preclinical proof-of-concept of base editing using a particular delivery modality will potentially reduce risk and accelerate the timeline for additional product candidates that we may develop targeting the same tissue. In some cases, a new product candidate may only require changing the guide RNA. Subsequent programs using the same delivery modality can also take advantage of shared capabilities and resources of earlier programs. In this way, we view each delivery modality as its own unique pipeline, where the success of any one program may pave the way for a large number of additional programs to progress quickly to the clinic.

Ex vivo electroporation for hematologic diseases and oncology

Sickle Cell Disease and Beta-Thalassemia

We are using base editing to pursue two complementary approaches to treating sickle cell disease and one to treat beta-thalassemia:

Approach 1: Recreate naturally occurring protective HPFH mutations to elevate HbF

The beneficial effects of fetal hemoglobin tetramer, or HbF, which is the fetal form of hemoglobin, to compensate for mutations in adult hemoglobin were first identified in individuals with a condition known as HPFH. Beta-thalassemia or sickle cell disease patients who also have HPFH are asymptomatic or experience a much milder form of their disease. HPFH is caused by single base changes in the regulatory region of the genes, HBG1 and HBG2, which prevents binding of one or more repressor proteins and increases the expression of gamma globin, which is half of the HbF tetramer.

Using base editing, we reproduce these specific, naturally occurring base changes in the regulatory elements of the gamma globin genes, preventing binding of repressor proteins and leading to re-activation of gamma globin expression, and thus the increase in gamma globin levels. Our in vitro and in vivo characterization shows ex vivo delivery of ABEs achieved precise editing, resulting in long-term engraftment and therapeutically relevant increases in target gene expression.

Further in vitro characterization:

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In vivo performance:

Approach 2: Direct correction of the sickle cell point mutation

Our second base editing approach for sickle cell disease is a direct correction of the causative HbS point mutation at position 6 of the beta globin gene. By making a single A-to-G edit, we have demonstrated in primary human CD34+ cells, isolated from sickle cell disease patients, the ability to create the naturally occurring Makassar variant of hemoglobin. This variant, which was originally identified in humans in 1970, has the same function as the wild-type variant and does not cause sickle cell disease. Distinct from other approaches, cells that are successfully edited in this way are fully corrected, no longer containing the sickle protein.

Using our ABE platform to edit CD34+ hematopoietic stem and progenitor cells, or HSPCs, isolated from donors with sickle cell disease, we achieved greater than 80% correction of the HbS point mutation to the HbG-Makassar variant, following in vitro erythroid differentiation. As expected, we observed the simultaneous reduction of HbS to less than 20% of control levels. In addition, more than 70% of erythroid colonies derived from edited patient cells showed biallelic editing, with 20% monoallelic, and 2% unedited. Further, the correction of the HbS protein to the HbG-Makassar variant was shown to very significantly reduce the propensity of in vitro differentiated erythroid cells to sickle when subjected to hypoxia. These findings represent therapeutic levels of correction and support advancement of this program to potentially address the underlying genetic cause of sickle cell disease. Published modeling studies suggest that 20% correction of HbS may be sufficient to cure the disease.

Ex vivo electroporation for multiplex editing of advanced cell therapies

CAR-T Cell Therapies in Immunology/Oncology

We believe that base editing is an ideal tool to simultaneously multiplex edit a large number of genes, without chromosomal rearrangements, to endow allogeneic CAR-T cells with a combination of features that may dramatically enhance their therapeutic potential.

Our proof-of-concept experiments demonstrate the ability of base editing to make simultaneous multiplex edits with very high efficiencies (85% to 95%) and without the generation of chromosomal rearrangements. In these experiments, we saw no significant loss of editing the efficiency from a single edit to a simultaneous triple edit. The high level of genetic editing resulted in the expected loss of expression of the corresponding proteins on the surface of the cells, which demonstrates that 90% of cells achieved complete loss of CD3 (TRAC gene) and of ß2M proteins.

Importantly, no chromosomal rearrangements were seen, as detected by a sensitive method (UDiTaS^TM) following editing with the C base editor. By contrast, in Cas9 nuclease-treated cells, chromosomal rearrangements were readily detected. 

Notably, nuclease-treated cells also demonstrated a growth deficit compared to controls, as the number of simultaneous edits rises. By contrast, base edited cells grew normally, consistent with a potentially more efficient manufacturing process for base edited cells.

Finally, the triple-edited cells were highly functional in in vitro assays that measured secreted interferon gamma, a biomarker of T cell activity. High levels of interferon were only released after the CAR-T cells interacted with cells expressing the targeted antigen and not with cells lacking the antigen, demonstrating the functional recognition of the antigen by the CAR.

Non-Viral delivery for liver diseases

Alpha-1 Antitrypsin Deficiency

With the high efficiency and precision of our base editors, we aim to utilize our ABEs to enable the programmable conversion of A-to-T and G-to-C base pairs and precisely correct the E342K point mutation, also referred to as the PiZ mutation or the PiZ allele, back to the wild type sequence.

For a recent study, we engineered novel ABEs and guide RNAs capable of correcting the PiZ mutation, and then applied a proprietary non-viral lipid nanoparticle formulation to deliver the optimized reagents to the livers of PiZ transgenic mice. This direct editing approach resulted in an average of 16.9% correction of beneficial alleles at 7 days and 28.8% at three months. This significant increase over the period suggests that corrected hepatocytes may have a proliferative advantage relative to uncorrected cells. In addition, treated mice demonstrate decreased alpha-1 antitrypsin, or A1AT, globule burden within the liver and a durable, significant increase in serum A1AT active protein at three months, roughly 4.9-fold higher than in controls, levels which we believe would be therapeutic if achieved in patients. These data indicate the potential for base editing to treat both lung and liver manifestations of Alpha-1 antitrypsin deficiency, supporting the therapeutic opportunity for base editing in treating this disease.

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Glycogen Storage Disease 1a

Our approach to treating patients with glycogen storage disease 1a, or GSD1a, is to apply base editing via LNP delivery to repair the two most prevalent mutations that cause the disease, R83C and Q347X. It is estimated that these two-point mutations account for 900 and 500 patients, respectively, in the United States, representing approximately 59% of all GSD1a patients. Animal studies have shown that as little as 11% of normal G6Pase activity in liver cells is sufficient to restore fasting glucose; however, this level must be maintained in order to preserve glucose control and alleviate other serious, and potentially fatal, GSD1a sequelae

We have identified product candidates that can correct up to 80% of the alleles in cells harboring the Q347X point mutation and approximately 60% of the alleles in cells harboring the R83C mutation as shown in the figures below. Correction of at least 11% is expected to be clinically relevant and potentially disease modifying for GSD1a patients.

Viral delivery for ocular and CNS disorders

Stargardt Disease

The most prevalent mutation in the ABCA4 gene that leads to Stargardt disease is the G1961E point mutation. Approximately 5,500 individuals in the United States are affected by this mutation. Our base editing approach is to repair the G1961E point mutation in the ABCA4 gene. Disease modeling using tiny spot stimuli, or light stimuli through holes that are equivalent in size to a single photoreceptor cell, suggests that only 12%-20% of these cells are sufficient to preserve vision. We anticipate, therefore, that editing percentages in the range of 12%-20% of these cells would be disease-modifying, since each edited cell will be fully corrected and protected from the biochemical defect.

We have identified a base editor that is able to edit approximately 45% of the alleles in recombinant cells carrying the human mutated sequence. Given that the base editor is larger than the packaging capacity of a single AAV, we use a split AAV system that delivers the base editor via two AAV vectors. Once inside the cell, the two halves of the editor are recombined to create a functional base editor. In human retinal pigment epithelial cells, or ARPE-19 cells, we have demonstrated approximately 50% editing of a surrogate base positioned immediately adjacent to the target base, which would be present in a diseased cell. If edited, this surrogate base would result in a synonymous change (i.e., no change to the amino acid).

Critical accounting policies and significant judgements

Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements. We have determined that our most critical accounting policies are those relating to stock-based compensation, variable interest entities, fair value measurements, and leases. There have been no significant changes to our existing critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Financial operations overview

General

We were incorporated on January 25, 2017 and commenced operations shortly thereafter. Since our inception, we have devoted substantially all of our resources to building our base editing platform and advancing development of our portfolio of programs, establishing and protecting our intellectual property, conducting research and development activities, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sales of our redeemable convertible preferred stock and proceeds from our IPO.

We are a development stage company, and all of our programs are at a preclinical stage of development. To date, we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future. Since inception we have incurred significant operating losses. Our net losses for the three months ended March 31, 2020 and 2019 were $30.5 million and $13.6 million, respectively. As of March 31, 2020, we had an accumulated deficit of $233.5 million. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our portfolio of programs as we continue our preclinical development of product candidates; advance these product candidates toward clinical development; further develop our base editing platform; research activities as we seek to discover and develop additional product candidates; maintenance, expansion enforcement, defense, and protection of our intellectual property portfolio; and hiring research and development, clinical and commercial personnel. In addition, we expect to incur additional costs associated with operating as a public company.

As a result of these anticipated expenditures, we will need additional financing 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 expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We can give no assurance that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional funding will be sufficient to meet our needs.

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Research and development expenses

Research and development expenses consist of costs incurred in performing research and development activities, which include:

We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed.

In the early phases of development, our research and development costs are often devoted to product platform and proof-of-concept studies that are not necessarily allocable to a specific target, therefore, we have not yet begun tracking our expenses on a program-by-program basis.

We expect that our research and development expenses will increase substantially in connection with our planned preclinical and future clinical development activities.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, intellectual property, business development, finance, and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and direct and allocated facility related expenses and other operating costs.

We anticipate that our general and administrative expenses will increase in the future to support increased research and development activities. We also expect to incur increased costs associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Results of operations

Comparison of the three months ended March 31, 2020 and 2019

The following table summarizes our results of operations, together with the change in dollars (in thousands):