Prelude Therapeutics Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022. Prelude is a clinical-stage oncology company with no product revenue and ongoing research and development. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $26.3 | $22.9 | $73.1 | $67.0 |
| General and administrative expense | $7.1 | $7.5 | $21.8 | $23.1 |
| Total operating expenses | $33.4 | $30.4 | $94.9 | $90.2 |
| Net loss | $30.6 | $30.0 | $88.8 | $86.8 |
| Net loss per share, basic and diluted | $0.45 | $0.63 | $1.55 | $1.84 |
| Other income, net | $2.8 | $0.4 | $6.1 | $3.4 |
- Operating loss equaled operating expenses; gross margin is not applicable because the company has not generated revenue.
- Operating cash use was $83.5 million for the first nine months of 2023, versus $60.8 million in 2022. Investing activities used $42.4 million, while financing activities provided $111.2 million. Cash, cash equivalents and restricted cash declined by $14.7 million to $19.9 million.
- At September 30, cash and cash equivalents were $15.9 million and marketable securities were $214.6 million, totaling $230.5 million in cash, cash equivalents and marketable securities. Restricted cash of $4.0 million is separately reported. Current assets were $234.9 million and current liabilities $16.9 million.
- Total liabilities were $20.3 million, including current operating lease liabilities of $0.5 million and other liabilities of $3.4 million. The company reported no credit facility or committed capital source.
- Accumulated deficit was $423.3 million and stockholders’ equity was $238.3 million. The company’s financing in Q2 generated $110.4 million net proceeds from common stock and pre-funded warrants.
Material changes and business developments
- Q3 R&D expense increased $3.4 million year over year, primarily reflecting timing of clinical research programs; G&A expense declined $0.4 million. Higher interest income drove the increase in other income. Net loss increased $0.7 million.
- For the first nine months, R&D expense rose $6.0 million and G&A expense fell $1.3 million; net loss increased $2.0 million. Increased internal and personnel costs contributed to the R&D rise. Interest income also increased.
- In May 2023, Prelude sold common stock and pre-funded warrants for $113.0 million gross proceeds and $110.4 million net proceeds. The warrants covered 12.9 million shares and none had been exercised by September 30. The transaction and outstanding equity awards create potential dilution.
- After the quarter, on November 1, 2023, management announced a focus on the SMARCA2 degrader and CDK9 inhibitor programs, which it views as its strongest opportunities for clinical proof of concept in 2024. The company also announced a global antibody-drug-conjugate partnership with AbCellera.
Outlook, risks and unusual items
- Management said September 30 cash, cash equivalents and marketable securities should fund operating expenses and capital needs for at least the next 12 months. It expects continuing losses and says additional funding will be needed thereafter; financing may dilute shareholders or be unavailable on acceptable terms.
- Management aims to share initial Phase 1 PRT3789 data in mid-2024, establish PRT2527 proof-of-concept data in 2024, and file an IND for a new SMARCA2 degrader in the first half of 2024. PRT3645 dose escalation was expected to finish in 2023, with later development to be explored with external partners. PRT1419 was deprioritized relative to PRT2527. These are forward-looking plans, not assured outcomes.
- The company expects R&D spending to increase as clinical work advances. Key uncertainties include clinical and regulatory outcomes, competition, intellectual property, access to financing, inflation and higher operating costs, and potential delays from government-agency disruption or broader economic and market instability.
- A new 81,000-square-foot Delaware facility lease was expected to commence in Q4 2023. The company had recorded $12.2 million of prepaid rent; commencement would result in recognition of a right-of-use asset and lease liability. Estimated lease payments include $29.6 million thereafter, in addition to scheduled payments through 2028.
- The company reported no material legal proceedings and stated that disclosure controls were effective at a reasonable assurance level, with no material quarterly change in internal control over financial reporting.
Investor facts to verify
- Whether the stated minimum 12-month liquidity runway remains adequate given the $83.5 million operating cash use in the first nine months and planned clinical spending.
- Clinical progress, safety and efficacy data, and timing for PRT3789 and PRT2527, as well as the new SMARCA2 IND plan and PRT3645 development or partnering.
- Effects of the November 2023 pipeline prioritization and AbCellera partnership on future spending, milestones and potential funding needs.
- Potential dilution from the 12.9 million pre-funded warrants, stock options and other equity awards, and any future capital raises.
- Actual commencement, accounting impact and payment obligations of the Chestnut Run lease, and the status of Delaware grant reimbursements and related conditions.