SEC Filing – C4 Therapeutics

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cccc-10q_20210331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

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

For the transition period from ___________________ to ___________________

Commission File Number: 001-39567

C4 Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	47-5617627
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

490 Arsenal Way, Suite 200 Watertown, MA	02472
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 231-0700

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

CCCC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 3, 2021, the registrant had 43,195,352 shares of common stock, $0.0001 par value per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Form 10-Q, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Form 10-Q may include, but are not limited to, statements about:

•

the initiation, timing, progress, results, safety and efficacy, and cost of our research and development programs and our current and future preclinical studies and clinical trials, including statements regarding the timing of initiation and completion of studies or trials, the period during which the results of the trials will become available, and our research and development programs;

•

the ultimate impact of the current novel coronavirus, or COVID-19, pandemic, or any other health epidemic, on our business, manufacturing, clinical trials, research programs, supply chain, regulatory review, healthcare systems or the global economy as a whole;

•

risks related to the direct or indirect impact of the COVID-19 pandemic or any future large-scale adverse health event, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, material delays in diagnoses, initiation or continuation of treatment for diseases that may be addressed by our development candidates and investigational medicines, or in patient enrollment in clinical trials, potential clinical trials, regulatory review or supply chain disruptions, and other potential impacts to our business, the effectiveness or timeliness of steps taken by us to mitigate the impact of the pandemic, and our ability to execute business continuity plans to address disruptions caused by the COVID-19 pandemic or future large-scale adverse health event;

•

our ability to obtain funding for our operations necessary to complete further development, manufacturing and commercialization of our product candidates;

•

our ability to obtain and maintain regulatory approval for any of our current or future product candidates;

•

the period of time over which we anticipate our existing cash and cash equivalents and short-term investments will be sufficient to fund our operating expenses and capital expenditure requirements;

•

our ability to identify and develop product candidates for treatment of additional disease indications;

•

the potential attributes and benefits of our product candidates;

•

the rate and degree of market acceptance and clinical utility for any product candidates we may develop;

•

the pricing and reimbursement of our product candidates, if approved;

•

the effects of competition with respect to any of our current or future product candidates, as well as innovations by current and future competitors in our industry;

•

the implementation of our strategic plans for our business, any product candidates we may develop and our TORPEDO platform;

•

the ability and willingness of our third-party strategic collaborators to continue research, development and manufacturing activities relating to our product candidates, including our ability to advance programs under our existing collaboration agreements with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or Roche, Biogen MA, Inc., or Biogen, and Calico Life Sciences LLC, or Calico, or other new collaboration agreements;

•

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates;

•

estimates of our future expenses, revenues, capital requirements, and our needs for additional financing;

•

future agreements with third parties in connection with the manufacturing and commercialization of our product candidates, if approved;

•

the size and growth potential of the markets for our product candidates and our ability to serve those markets;

•

our financial performance;

•

regulatory developments in the United States and foreign countries;

•

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

•

the success of competing therapies that are or may become available;

•

our ability to attract and retain key scientific or management personnel;

•

developments relating to our competitors and our industry; and

•

other risks and uncertainties, including those discussed in Part II, Item 1A - Risk Factors in this Form 10-Q.

In some cases, forward-looking statements can be identified by terminology such as “will,” “may,” “should,” “could,” “expects,” “intends,” “plans,” “aims,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those expressed or implied by the forward-looking statements. No forward-looking statement is a promise or a guarantee of future performance.

The forward-looking statements in this Form 10-Q represent our views as of the date of this Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-Q.

This Form 10-Q may include statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We have not independently verified the information contained in such sources.

SUMMARY OF RISKS FACTORS

Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in Part II, Item 1A - Risk Factors in this Form 10-Q. These risks include, among others:

•

We are an early-stage biopharmaceutical company with a limited operating history and have incurred significant losses since our inception. To date, we have not generated any revenue from product sales. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years and may never achieve or maintain profitability. Our net loss was $21.0 million and $11.9 million for the three months ended March 31, 2021 and 2020, respectively.

•

We will need substantial additional funding to pursue our business objectives and continue our operations. If we are unable to raise capital when needed, we may be required to delay, limit, reduce or terminate our research or product development programs or future commercialization efforts.

•

Our approach to the discovery and development of product candidates based on our TORPEDO platform is unproven, which makes it difficult to predict the time, cost of development and likelihood of successfully developing any products.

•

Most of our product candidates are still in preclinical development. Our business could be harmed if we are unable to advance to clinical development, develop, obtain regulatory approval for and/or commercialize our product candidates or experience significant delays in doing any of these things.

•

We cannot be certain of the timely completion or outcome of our preclinical testing and clinical trials. In addition, the results of preclinical studies may not be predictive of the results of clinical trials and the results of any early-stage clinical trials we commence may not be predictive of the results of later-stage clinical trials.

•

Our preclinical studies and clinical trials may fail to demonstrate adequately the safety, potency, purity and efficacy of any of our product candidates, which would prevent or delay development, regulatory approval and commercialization of our current and future product candidates.

•

We have entered into collaboration agreements with Roche, Biogen and Calico and may in the future seek to enter into collaborations with third parties for the development and/or commercialization of certain of our product candidates. If we fail to enter into these types of new collaborations, or if our existing collaborations are not successful, we may be unable to continue development of our product candidates, we will not receive any contemplated milestone payments or royalties, and we could fail to capitalize on the market potential of our product candidates.

•

The continuing effects of the novel COVID-19 pandemic could adversely impact our business, including our preclinical studies and clinical trials.

•

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

•

We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates receive marketing approval. This reliance on third parties may increase the risk that we will not have sufficient quantities of our product candidates in a timely manner, or at an acceptable cost or quality.

•

If we are unable to obtain required marketing approvals for, commercialize, manufacture, obtain and maintain patent protection for or gain market acceptance of our product candidates, or if we experience significant delays in doing so, our business will be materially harmed and our ability to generate revenue from product sales will be materially impaired.

•

If we are unable to obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

NOTE REGARDING COMPANY REFERENCES

Unless the context otherwise requires, the terms “C4 Therapeutics,” “the Company,” “we,” “us,” and “our” in this Form 10-Q refer to C4 Therapeutics, Inc. and its consolidated subsidiary.

NOTE REGARDING TRADEMARKS

We own or have rights to various trademarks, service marks and trade names that are used in connection with the operation of our business, including our company name, C4 Therapeutics, our logo, the name of our TORPEDO™ technology platform and the names of our BIDAC™ and MONODAC™ protein degrader product candidates. This Form 10-Q may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to and does not imply a relationship with, or endorsement or sponsorship by, us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statement of Operations and Comprehensive Loss	2
	Condensed Consolidated Statement of Stockholder’s Equity (Deficit)	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67
	SIGNATURES	68

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

C4 Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

	March 31, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	94,912		$	181,727
Marketable securities, current		218,567			189,962
Accounts receivable		3,656			4,484
Prepaid expenses and other current assets		4,876			4,836
Total current assets		322,011			381,009
Marketable securities, non-current		32,495			—
Property and equipment, net		4,015			3,323
Right-of-use asset		12,909			13,229
Restricted cash		2,577			2,577
Total assets	$	374,007		$	400,138
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,742		$	5,683
Accrued expenses and other current liabilities		6,260			9,524
Deferred revenue, current		26,565			27,603
Operating lease liability, current		1,086			1,042
Total current liabilities		37,653			43,852
Deferred revenue, net of current		50,886			53,617
Operating lease liability, net of current		11,532			11,826
Long-term debt − related party		10,231			10,052
Total liabilities		110,302			119,347
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value of $0.0001 per share; 10,000,000 shares authorized, and no shares issued or outstanding as of March 31, 2021 and December 31, 2020, respectively		—			—
Common stock, par value of $0.0001 per share; 150,000,000 shares authorized, and 43,108,960 and 43,059,632 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		4			4
Additional paid-in capital		468,589			464,597
Accumulated other comprehensive (loss) income		(94	)		13
Accumulated deficit		(204,794	)		(183,823	)
Total stockholders’ equity		263,705			280,791
Total liabilities and stockholders’ equity	$	374,007		$	400,138

See accompanying notes to condensed consolidated financial statements.

C4 Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2021			2020
Revenue from collaboration agreements	$	7,426		$	6,816
Operating expenses:
Research and development		20,526			16,312
General and administrative		7,409			2,842
Total operating expenses		27,935			19,154
Loss from operations		(20,509	)		(12,338	)
Other (expense) income, net:
Interest expense and amortization of long-term debt − related party		(534	)		—
Interest and other income, net		72			259
Total other (expense) income, net		(462	)		259
Loss before income taxes		(20,971	)		(12,079	)
Income tax benefit		—			167
Net loss	$	(20,971	)	$	(11,912	)
Unrealized loss on marketable securities		(107	)		—
Comprehensive loss	$	(21,078	)	$	(11,912	)

Reconciliation of net loss to net loss attributable to common stockholders:
Net loss	$	(20,971	)	$	(11,912	)
Accrual of preferred stock dividends		—			(2,111	)
Net loss attributable to common stockholders	$	(20,971	)	$	(14,023	)
Net loss per share attributable to common stockholders − basic and diluted	$	(0.49	)	$	(9.59	)
Weighted-average number of shares used in computed net loss per share − basic and diluted		43,084,978			1,462,759

See accompanying notes to condensed consolidated financial statements.

C4 Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(Unaudited)

	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital			Income (Loss)			Deficit			Equity
Balance as of December 31, 2020		43,059,632	$	4	$	464,597			13		$	(183,823	)	$	280,791
Exercise of stock options		49,328		—		166			—			—			166
Stock-based compensation		—		—		3,845			—			—			3,845
Unrealized loss on marketable securities		—		—		—			(107	)		—			(107	)
Net loss		—		—		—			—			(20,971	)		(20,971	)
Other		—		—		(19	)		—			—			(19	)
Balance as of March 31, 2021		43,108,960	$	4	$	468,589		$	(94	)	$	(204,794	)	$	263,705

See accompanying notes to condensed consolidated financial statements.

C4 Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) - Continued

(in thousands, except share amounts)

(Unaudited)

	Redeemable Convertible Preferred Stock				Common Stock				Additional Paid-In			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital			Deficit			Deficit
Balance as of December 31, 2019		113,145,900	$	110,995		1,426,641	$	—	$	5,525		$	(117,488	)	$	(111,963	)
Exercise of stock options		—		—		49,031		—		156			—			156
Stock-based compensation		—		—		—		—		116			—			116
Repurchase of common stock		—		—		—		—		(202	)		—			(202	)
Vested stock option settlement		—		—		—		—		(728	)		—			(728	)
Net loss		—		—		—		—		—			(11,912	)		(11,912	)
Balance as of March 31, 2020		113,145,900	$	110,995		1,475,672	$	—	$	4,867		$	(129,400	)	$	(124,533	)

See accompanying notes to condensed consolidated financial statements.

C4 Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2021			2020
Cash flows used in operating activities:
Net loss	$	(20,971	)	$	(11,912	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation expense		451			416
Stock-based compensation expense		3,845			116
Accretion of discount on marketable securities		102			—
Reduction in carrying amount of right-of-use assets		320			298
Amortization of debt discount		182			—
Changes in operating assets and liabilities:
Accounts receivable		828			1,303
Prepaid expenses and other current assets		(40	)		(281	)
Accounts payable		(1,965	)		(2,100	)
Accrued expenses and other current liabilities		(3,666	)		(1,298	)
Operating lease liability		(251	)		(212	)
Deferred revenue		(3,769	)		(2,996	)
Net cash used in operating activities		(24,934	)		(16,666	)
Cash flows used in investing activities:
Sales and maturities of marketable securities		114,994			—
Purchases of marketable securities		(176,303	)		—
Purchases of property and equipment		(421	)		(184	)
Net cash used in investing activities		(61,730	)		(184	)
Cash flows (used in) provided by financing activities:
Proceeds from exercises of stock options		166			156
Payment of initial public offering costs		(314	)		—
Other		(3	)		—
Net cash (used in) provided by financing activities		(151	)		156

Net change in cash, cash equivalents and restricted cash		(86,815	)		(16,694	)
Cash, cash equivalents and restricted cash at beginning of period		184,304			93,126
Cash, cash equivalents and restricted cash at end of period	$	97,489		$	76,432

Reconciliation of cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash at end of period	$	97,489		$	76,432
Less: restricted cash		(2,577	)		(2,577	)
Cash and cash equivalents at end of the period	$	94,912		$	73,855

Supplemental disclosures of cash flow information:
Cash paid for interest	$	358		$	—

Supplemental disclosures of non-cash investing and financing activities:
Capital expenditures in accounts payable and accrued expenses	$	722		$	12
Stock option repurchases included in accrued expenses	$	—		$	202
Vested stock option liability included in accrued expenses	$	—		$	728

See accompanying notes to condensed consolidated financial statements.

C4 THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Nature of the business and basis of presentation

C4 Therapeutics, Inc., or, together with its subsidiary, the Company, is a biopharmaceutical company focused on harnessing the body’s natural regulation of protein levels to develop novel therapeutic candidates to target and eliminate disease-causing proteins for the treatment of cancer and other diseases. The Company was incorporated in Delaware on October 7, 2015 and has its principal office in Watertown, Massachusetts.

Liquidity and capital resources

Since its inception, the Company’s primary activities have been focused on research and development activities, building the Company’s intellectual property, recruiting personnel and raising capital to support these activities. To date, the Company has funded its operations primarily with proceeds received from the sales of redeemable convertible preferred stock, sales of common stock through an initial public offering, through its collaboration agreements, and debt financing.

The Company has incurred recurring losses since its inception, including net losses of $21.0 million and $11.9 million for the three months ended March 31, 2021 and 2020, respectively. In addition, as of March 31, 2021, the Company had an accumulated deficit of $204.8 million. To date, the Company has not generated any revenue from product sales as none of its product candidates has been approved for commercialization. The Company expects to continue to generate operating losses for the foreseeable future.

On October 6, 2020, the Company completed its initial public offering, or the IPO, at which time the Company issued 11,040,000 shares of its common stock at a price to the public of $19.00 per share, resulting in net proceeds of $191.2 million, after deducting underwriting discounts and commissions and expenses. Upon the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock automatically converted into 30,355,379 shares of common stock.

The Company expects that its cash, cash equivalents and marketable securities of $346.0 million as of March 31, 2021 will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Reverse stock split

On September 25, 2020, the Company effected a one-for-8.4335 reverse stock split of its issued and then outstanding common stock and stock options, and a proportional adjustment to the existing conversion ratios for the Company’s convertible preferred stock. Accordingly, all issued and then outstanding common stock, options to purchase common stock and per share amounts contained in the condensed consolidated financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented.

Risks and uncertainties

The Company is subject to risks common to other life science companies in the early development stage including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing and compliance with the Food and Drug Administration, and other government regulations. If the Company does not successfully advance its programs into and through human clinical trials and commercialize any of its product candidates, the Company may be unable to produce product revenue or achieve profitability. Additionally, if the Company elects to enter into collaborations for its programs, the success of those collaborations may significantly impact its revenue and profitability. There can be no assurance that the Company’s research and development efforts will be successful, adequate protection for the Company’s intellectual property will be obtained, any products developed will obtain or maintain necessary government regulatory approval, or any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in science and technology and substantial competition from pharmaceutical and biotechnology companies.

COVID-19 pandemic

The impact of the coronavirus, or COVID-19, pandemic on the Company’s business, results of operations and financial condition is uncertain and will depend on future developments, including the duration and spread of the outbreak, the impact of vaccines and new strains of COVID-19, and any governmental advisories and restrictions.

Note 2. Summary of significant accounting policies

Basis of presentation and consolidation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or the SEC, regarding interim financial reporting, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements include the accounts of C4 Therapeutics, Inc. and its subsidiary C4T Securities Corporation. All intercompany balances and transactions have been eliminated in consolidation.

Marketable securities

The Company classifies marketable securities with a remaining maturity when purchased of greater than three months as available-for-sale. Marketable securities with a remaining maturity date greater than one year are classified as non-current assets. Available-for-sale securities are carried at fair value with the unrealized gains and losses included in accumulated other comprehensive income as a component of stockholders’ equity (deficit) until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other income (expense).

Unaudited interim financial information

The accompanying condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020, the condensed consolidated statements of stockholders’ equity (deficit) for the three months ended March 31, 2021 and 2020, the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and the related interim disclosures are unaudited. These unaudited condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for year ended December 31, 2020, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 11, 2021.

Significant accounting policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2020, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 11, 2021.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses 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. This process may result in actual results differing materially from those estimated amounts used in the preparation of the condensed consolidated financial statements if these results differ from historical experience or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, amounts and timing of revenues recognized under the Company’s research and development collaboration arrangements and accrued research and development expense. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates.

Recently issued accounting standards

In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted the provisions of ASU 2019-12 effective January 1, 2021, which did not have a material effect on the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance for a limited time to ease the potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate, or LIBOR. Optional expedients in Topic 848 are generally available until December 31, 2022. The adoption of ASU 2020-04 is not expected have a material effect on the Company’s condensed consolidated financial statements.

Note 3. Fair value measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of March 31, 2021 (in thousands):

	Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	81,474	$	81,474	$	—	$	—
Corporate debt securities		13,115		—		13,115		—
Marketable securities:
Corporate debt securities		161,007		—		161,007		—
U.S. Treasury securities		84,996		—		84,996		—
U.S. government debt securities		5,059		—		5,059		—
Total cash equivalents and marketable securities	$	345,651	$	81,474	$	264,177	$	—

The Company classifies its money market funds, which are valued based on quoted market prices in active markets, with no valuation adjustment, as Level 1 assets within the fair value hierarchy.

Marketable securities consist of U.S. Treasury securities, U.S. government debt securities, and corporate debt securities, all of which are classified as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities. 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 on a recurring basis.

There have been no transfers between fair value levels during the three months ended March 31, 2021.

Note 4. Marketable securities

Marketable securities as of March 31, 2021 consisted of the following:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Marketable securities:
Corporate debt securities	$	161,109	$	1	$	(103	)	$	161,007
U.S. Treasury securities		84,988		8		—			84,996
U.S. government debt securities		5,059		—		—			5,059
Total marketable securities, current and non-current	$	251,156	$	9	$	(103	)	$	251,062

Marketable securities as of December 31, 2020 consisted of the following:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable securities:
U.S. Treasury securities	$	189,949	$	13	$	—	$	189,962
Total marketable securities, current	$	189,949	$	13	$	—	$	189,962

As of March 31, 2021, the Company held 52 marketable securities, with an aggregate fair value of $135.4 million, in an unrealized loss position. There were no individual securities that were in a significant unrealized loss position as of March 31, 2021 and the Company did not record an allowance for credit losses as of March 31, 2021 related to these securities. Further, given the short-term duration and the lack of significant change in the credit risk of these investments, the Company did not recognize any other-than-temporary impairment losses.

Note 5. Property and equipment

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

	March 31, 2021			December 31, 2020
Property and equipment:
Laboratory equipment	$	8,350		$	7,207
Furniture and fixtures		805			805
Leasehold improvements		541			541
Computer equipment		223			223
Office equipment		179			179
Total property and equipment		10,098			8,955
Less: accumulated depreciation		(6,083	)		(5,632	)
Total property and equipment, net	$	4,015		$	3,323

Depreciation expense related to property and equipment is as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Depreciation expense	$	451	$	416

Note 6. Leases

In July 2017, the Company entered into a lease of office and laboratory space for its headquarters at 490 Arsenal Way, Suite 200 in Watertown, Massachusetts (the “Watertown Lease”). The Watertown Lease commenced in April 2018 with rent commencing in May 2018. The lease has a non-cancelable term of ten years with an option to extend for one additional five-year period and is subject to rent escalation throughout the term and requires the Company to provide collateral in the amount of $2.6 million, which is recorded as restricted cash on the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

The elements of lease costs were as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Lease cost:
Operating lease cost	$	637	$	637
Variable lease cost		241		266
Total lease cost		878		903

The following table summarizes the lease term and discount rate applied in arriving at the lease liability:

March 31,

2021

December 31,

2020

Remaining lease term

7.0 years

7.3 years

Discount rate

Future lease payments under non-cancelable leases as of March 31, 2021 for each of the years ending December 31 are as follows (in thousands):

Undiscounted lease payments:
Remaining 2021	$	1,704
2022		2,340
2023		2,410
2024		2,483
2025		2,557
Thereafter		6,277
Total undiscounted lease payments		17,771
Less: imputed interest		(5,153	)
Total operating lease liability	$	12,618

Note 7. Accrued expenses and other current liabilities

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

	March 31, 2021		December 31, 2020
Accrued expenses and other current liabilities:
Accrued research and development	$	3,166	$	3,799
Accrued compensation and benefits		1,376		3,724
Accrued professional fees		831		1,532
Other		887		469
Total accrued expenses and other current liabilities	$	6,260	$	9,524

Note 8. Collaboration and license agreements

Roche Collaboration and License Agreement

In March 2016, the Company entered into a license agreement, or the Original Roche Agreement, with Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or Roche. Pursuant to the terms of the Original Roche Agreement, the Company and Roche agreed to collaborate on research activities to develop novel treatments in the field of targeted protein degradation using the Company’s degrader technology.

On December 22, 2018, the Company and Roche executed the Amended and Restated Roche License Agreement, or the Roche Agreement, which was further amended in November 2020. Under the Roche Agreement, if the Company opts into certain co-development rights, the parties will share future development costs and the Company will receive an increased royalty rate on product sales from commercialization of the target. If the Company opts into certain co-detailing rights, the Company is entitled to reimbursement of certain commercialization costs. The target structure contains six potential targets. Roche maintained its option rights to license and commercialize these six targets.

Upon signing the Roche Agreement, the Company received upfront consideration of $40.0 million from Roche. In addition, Roche will make annual research plan payments of $1.0 million for up to three years for each active research plan. For certain targets, Roche is required to pay the Company fees of $2.0 million and $3.0 million upon the progression of targets to the lead series identification achievement and good laboratory practice toxicology study phase, respectively. Option exercise fees ranges from $7.0 million to $20.0 million depending on the target. For each target option exercised by Roche, the Company is eligible to receive up to $275.0 million in research and development milestones per target and commercial milestone payments, with the commercial milestones being dependent on underlying net sales. Roche is also required to pay the Company up to $150.0 million per target in one-time sales-based payments if the target achieves certain levels of net sales. In addition, Roche is required to pay the Company royalties, at percentages from the mid-single digits to the low double-digits, on a licensed product-by licensed product basis, on worldwide net product sales.

The collaboration is managed by a joint research committee. The Company has control over the committee and may terminate the Roche Agreement on a target-by-target or product-by-product basis under several scenarios, upon at least 90 days’ prior written notice.

Roche Agreement accounting

The Company identified twelve performance obligations within the Roche Agreement, represented by the six potential research and development targets and the option rights held by Roche for each of the six targets. The transaction price is allocated to the performance obligations based on their relative standalone selling price. The allocated transaction price is recognized as revenue in one of two ways:

•

Research and development targets: The Company recognizes the portion of the transaction price allocated to each of the research and development performance obligations as the research and development services are provided, using an input method, in proportion to costs incurred to date for each research development target as compared to total costs incurred and expected to be incurred in the future to satisfy the underlying obligation related to said research and development target. The transfer of control occurs over this period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation.

•

Option rights: The transaction price allocated to the options rights, which are considered material rights, is recognized in the period that Roche elects to exercise or elects to not exercise its option right to license and commercialize the underlying research and development target.

Biogen Collaboration Research and License Agreement

In December 2018, the Company entered into a collaboration research and license agreement, or the Biogen Agreement, with Biogen MA, Inc., or Biogen, which was amended in February 2020. Pursuant to the terms of the Biogen Agreement, the Company and Biogen agreed to collaborate on research activities to develop novel treatments in the field of target protein degradation, or TPD, using the Company’s degrader technology. Under the terms of the Biogen Agreement, the Company will initially develop TPD therapeutics that utilize degrader technology for up to five target proteins over a period of 54 months, ending in June 2023. On a target-by-target basis, after successful completion of a defined target evaluation period, Biogen assumes full rights and responsibility to each degrader to meet certain criteria against a target. Biogen also has the option to pay an additional $62.5 million to extend the contract for four additional years and select up to five additional targets for development.

In exchange for the non-exclusive research license from Biogen, as well as a $45.0 million nonrefundable upfront payment, the Company has granted a license to develop, commercialize and manufacture products related to each of the targets (which is contingent on not cancelling the contract), performs initial research services for drug discovery, has provided a non-exclusive research and commercial license to its intellectual property and participates on the joint steering committee, or the Biogen JSC. The Company is also obligated to participate in early research activities for other potential targets or sandbox activities, at Biogen’s election up to a maximum amount; any work performed for these services is reimbursed by Biogen, and Biogen reimburses the Company for certain full-time equivalent, or FTE, costs. Biogen is also required to pay the Company up to $35.0 million per target in development milestones and $26.0 million per target in one-time sales-based payments for the first product to achieve certain levels of net sales. In addition, Biogen is required to pay the Company royalties on a licensed product-by-licensed product basis, on worldwide net product sales.

The collaboration is managed by the Biogen JSC, which Biogen has control over, and Biogen may terminate the Biogen Agreement on a target-by-target or product-by-product basis under several scenarios, upon at least 90 days’ prior written notice.

Biogen Agreement accounting

The Company recognizes revenue under the Biogen Agreement from two types of services: 1) research and development services, and 2) sandbox activities, which are discovery-type research services.

•

Research and development services: The Company identified one performance obligation at the outset of the Biogen Agreement, representing a combined performance obligation consisting of (1) the licenses, (2) the research activities for the target evaluation phase for all five targets and (3) the joint research plan phase for each target.

The Company recognizes the transaction price allocated to this performance obligation as the research and development services are provided, using an input method, in proportion to costs incurred to date for each research development target as compared to total costs incurred and expected to be incurred in the future to satisfy the underlying obligation related to said research and development target. The transfer of control occurs over this period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation.

•

Sandbox activities: Biogen has the option to fund sandbox activities in exchange for consideration at market rates, whereby the Company will perform discovery-type research at Biogen’s election to develop other potential targets that may be used as replacement targets for the initially nominated targets or two additional targets under the Biogen Agreement. Revenues earned under this option are recognized as services are performed and are not included in the transaction price allocated to the performance obligation described above. The Company recognizes FTE reimbursement received for sandbox activities as revenue as the hours are incurred each quarter.

Amounts due to the Company that have not yet been received are recorded as accounts receivable and amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s condensed consolidated balance sheet. In May 2021, the Company achieved a $3.0 million lead initiation fee under the Biogen Agreement. This amount will be recorded as previously described during the three-month period ending on June 30, 2021.

Calico Collaboration and License Agreement

In March 2017, the Company entered into a collaboration and license agreement, or the Calico Agreement, with Calico Life Sciences LLC, or Calico, whereby the Company and Calico agreed to collaborate to develop and commercialize small molecule protein degraders for diseases of aging, including cancer, for a five-year period ending in March 2022.

Under the terms of the Calico Agreement, the Company will initially develop and commercialize small molecule protein degraders for up to five target proteins over the research term. On a target-by-target basis, after successful completion of a defined target evaluation period, Calico has an exclusive option to pursue further pre-clinical development and commercialization via a joint research plan for each target.

Under the Calico Agreement, Calico paid an upfront amount of $5.0 million and certain annual payments totaling $5.0 million through June 30, 2020 and pays target initiation fees and reimburses the Company for a number of FTEs, depending on the stage of the research, at specified market rates. Upon completion of the required discovery research and development services on any target,

Calico is entitled to pursue commercial development of that target. The Company will perform initial research services for drug discovery and preclinical development, provide a non-exclusive research and commercial license to its IP and will participate on the Calico joint research committee, or the Calico JRC. For each target, the Company is eligible to receive up to $132.0 million in potential research, development and commercial milestone payments, on sales of all products resulting from the collaboration efforts. Calico is also required to pay the Company up to $65.0 million in one-time sales-based payments for the first product to achieve certain levels of net sales. In addition, Calico is required to pay the Company royalties, at percentages in the mid-single digits, on a licensed product-by-licensed product basis, on worldwide net product sales.

The Calico Agreement is managed by the Calico JRC. Calico has control over the Calico JRC and may terminate the Calico Agreement on a target-by-target or product-by-product basis under several scenarios, upon prior written notice.

Calico Agreement accounting

The Company identified one performance obligation at the outset of the Calico Agreement, which consists of: (1) the non-exclusive license and (2) the research activities for the target evaluation phase for all five targets and the joint research plan phase for targets 1 and 2.

The transaction price consists of the upfront amount, the committed anniversary payments, and the target initiation fees related to the targets nominated at the execution of the Calico Agreement. The Company amortizes the transaction price on a straight-line basis over the five-year term of the Calico Agreement. Straight-line amortization of the upfront payment was considered the best measure of progress because the customer has access to research and development services throughout the period. Incremental fees for research and development services are paid at agreed upon FTE rates and recognized in the period incurred.

Summary of revenue recognized from collaboration agreements

Revenue from collaboration agreements for the three months ended March 31, 2021 and 2020 in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Revenue from collaboration agreements:
Roche Agreement	$	2,193	$	2,269
Biogen Agreement		1,880		996
Calico Agreement		3,353		3,551
Total revenue from collaboration agreements	$	7,426	$	6,816

Financial information related to the collaboration and license agreements consisted of the following in the Company’s condensed consolidated balance sheet as of March 31, 2021 (in thousands):

Accounts

Receivable

Deferred Revenue,

Current

Deferred Revenue,

Net of Current

Deferred Revenue,

Total

Supplemental information: