Neurogene Inc. | SEC Filing

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ngne-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 June 30, 2024


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

For the transition period from ________ to ________

Commission file number: 001-36327

__________________________________________________

Neurogene Inc.

__________________________________

(Exact name of registrant as specified in its charter)


Delaware									98-0542593
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

535 W 24th St. 5th Floor New York, NY									10011
(Address of principal executive offices)									(Zip Code)

(855) 508-3568

Registrant’s telephone number, including area code

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, par value $0.000001 per share	NGNE	The Nasdaq Global 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 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:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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. o

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

As of August 5, 2024, there were 12,993,613 shares of the registrant’s common stock outstanding.

Table of Contents


		Page

Part I	Financial Information	1
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

Part II	Other Information	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	78
Signatures		79

Table of Contents

Part I - Financial Information

Item 1. Condensed Financial Statements

Neurogene Inc.

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Information)

(Unaudited)


	June 30, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	111,032	$	148,210
Short-term investments	42,873		48,947
Prepaid expenses and other current assets	5,244		3,191
Total current assets	159,149		200,348
Property and equipment, net	16,064		17,174
Operating lease right-of-use assets	3,381		3,681
Finance lease right-of-use assets	96		98
Restricted cash	339		508
Other non-current assets	794		764
Total assets	$	179,823	$	222,573

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,724	$	2,596
Accrued expenses and other current liabilities	7,144		17,495
Operating lease liabilities, current	2,765		2,559
Finance lease liabilities, current	52		42
Contingent value rights liability, current	1,388		281
Total current liabilities	13,073		22,973
Operating lease liabilities, non-current	10,915		12,302
Finance lease liabilities, non-current	53		65
Contingent value rights liability, non-current	717		1,006
Other liabilities	51		203
Total liabilities	24,809		36,549
Stockholders' equity:
Preferred stock, $0.000001 par value; 50,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023	—		—
Common stock, $0.000001 par value; 450,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 12,989,208 and 12,823,665 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	—		—
Additional paid-in capital	377,581		373,178
Accumulated deficit	(222,567)		(187,154)
Total stockholders' equity	155,014		186,024
Total liabilities and stockholders' equity	$	179,823	$	222,573

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

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Neurogene Inc.

Condensed Consolidated Statements of Operations

(In Thousands, Except Share Information)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue under licensing agreements	$	925	$	—	$	925	$	—
Operating expenses:
Research and development expenses	15,744		10,321		29,285		20,604
General and administrative expenses	5,315		2,275		10,553		5,027
Total operating expenses	21,059		12,596		39,838		25,631
Loss from operations	(20,134)		(12,596)		(38,913)		(25,631)
Other income (expense):
Interest income	2,035		743		4,355		1,520
Interest expense	(4)		(3)		(7)		(5)
Other income	144		—		287		-
Other expense	(533)		(4)		(1,135)		(7)
Net loss	$	(18,492)	$	(11,860)	$	(35,413)	$	(24,123)

Per share information: (1)
Net loss per share, basic and diluted	$	(1.09)	$	(26.68)	$	(2.09)	$	(54.94)
Weighted-average shares of common stock outstanding, basic and diluted	16,941,524		444,465		16,922,630		439,073

(1) For the three and six months ended June 30, 2023, net loss per share information is presented for the Company’s then outstanding Class A common stock. For the three and six months ended June 30, 2024, net loss per share information is presented for the Company’s common stock. See Note 1, Reverse Merger and Pre-Closing Financing and Note 3, Net Loss Per Share Attributable to Common Stockholders, for additional information.

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

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Neurogene Inc.

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

(In Thousands, Except Share Information)

(Unaudited)


	Convertible Preferred Stock									Stockholders' Equity
	Series A-1 Convertible Preferred Stock			Series A-2 Convertible Preferred Stock			Series B Convertible Preferred Stock			Preferred Stock			Class A Common Stock			Class B Common Stock			Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid- In Capital		Accumulated Deficit		Total Stockholders' Equity
Balance- December 31, 2023	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	12,823,665	$	—	$	373,178	$	(187,154)	$	186,024
Stock-based compensation expense	—	—		—	—		—	—		—	—		—	—		—	—		—	—		1,045		—		1,045
Common stock issued upon exercise of stock options	—	—		—	—		—	—		—	—		—	—		—	—		37,330	—		629		—		629
Net loss	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		(16,921)		(16,921)
Balance- March 31 2024	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	12,860,995	$	—	$	374,852	$	(204,075)	$	170,777
Shares issued upon the exercise of pre-funded warrants	—	—		—	—		—	—		—	—		—	—		—	—		103,407	—		—		—		—
Stock-based compensation expense	—	—		—	—		—	—		—	—		—	—		—	—		—	—		2,314		—		2,314
Common stock issued upon exercise of stock options	—	—		—	—		—	—		—	—		—	—		—	—		24,806	—		415		—		415
Net loss	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		(18,492)		(18,492)
Balance- June 30, 2024	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	12,989,208	$	—	$	377,581	$	(222,567)	$	155,014


	Convertible Preferred Stock									Stockholders' Deficit
	Series A-1 Convertible Preferred Stock			Series A-2 Convertible Preferred Stock			Series B Convertible Preferred Stock			Preferred Stock			Class A Common Stock			Class B Common Stock			Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid- In Capital		Accumulated Deficit		Total Stockholders' Deficit
Balance- December 31, 2022	18,604,653	$	34,414	13,291,208	$	28,675	74,405,719	$	181,277	—	$	—	428,334	$	—	—	$	—	—	$	—	$	5,098	$	(150,837)	$	(145,739)
Stock-based compensation expense	—	—		—	—		—	—		—	—		—	—		—	—		—	—		293		—		293
Class A common stock issued upon exercise of stock options	—	—		—	—		—	—		—	—		13,532	—		—	—		—	—		112		—		112
Net loss	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		(12,263)		(12,263)
Balance- March 31, 2023	18,604,653	$	34,414	13,291,208	$	28,675	74,405,719	$	181,277	—	$	—	441,866	$	—	—	$	—	—	$	—	$	5,503	$	(163,100)	$	(157,597)
Stock-based compensation expense	—	—		—	—		—	—		—	—		—	—		—	—		—	—		384		—		384
Class A common stock issued upon exercise of stock options	—	—		—	—		—	—		—	—		2,751	—		—	—		—	—		20		—		20
Net loss	—	—		—	—		—	—		—	—		—	—		—	—		—	—		—		(11,860)		(11,860)
Balance- June 30, 2023	18,604,653	$	34,414	13,291,208	$	28,675	74,405,719	$	181,277	—	$	—	444,617	$	—	—	$	—	—	$	—	$	5,907	$	(174,960)	$	(169,053)

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

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Neurogene Inc.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Operating activities
Net loss	$	(35,413)	$	(24,123)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	3,359		677
Depreciation and amortization of property and equipment	1,615		1,627
Asset impairment	91		—
Non-cash operating lease expense	360		324
Amortization of finance lease right-of-use assets	27		14
Amortization and accretion of premiums/discounts on held-to-maturity investments	(772)		—
Contingent value rights liability	818		—
Changes in assets and liabilities:
Prepaid expenses and other current assets	(2,053)		(634)
Other assets	(30)		—
Accounts payable	368		852
Accrued expenses and other liabilities	(4,672)		(1,288)
Operating lease liabilities	(1,241)		(331)
Net cash used in operating activities	(37,543)		(22,882)
Investing activities
Purchases of property and equipment	(525)		(111)
Purchases of held-to-maturity investments	(42,654)		—
Proceeds from maturities of held-to-maturity investments	49,500		—
Net cash provided by (used in) investing activities	6,321		(111)
Financing activities
Offering costs in connection with pre-closing financing	(4,287)		(100)
Transaction costs related to reverse merger	(2,855)		—
Proceeds from the issuance of common stock upon exercise of options	1,044		132
Principal payments on finance leases	(27)		(11)
Net cash (used in) provided by financing activities	(6,125)		21
Net decrease in cash, cash equivalents and restricted cash	(37,347)		(22,972)
Cash, cash equivalents and restricted cash at beginning of period	148,718		82,021
Cash, cash equivalents and restricted cash at end of period	$	111,371	$	59,049

Supplemental disclosure of non-cash investing and financing activities:
Additions to operating lease right of use assets from new operating lease liabilities	$	60	$	—
Property and equipment included in accounts payable and accrued expenses	$	71	$	52
Additions to finance lease right of use assets from new finance lease liabilities	$	25	$	46
Deferred offering cost	$	—	$	523
Supplemental cash flow information:
Cash paid for interest	$	7	$	5

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

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NEUROGENE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.Organization and Description of Business

Neurogene Inc. (formerly known as Neoleukin Therapeutics, Inc.) (the “Company” or “Neurogene”) is a clinical-stage biotechnology company that is a result of the reverse merger discussed below. The operating entity of Neurogene Inc. is the wholly owned subsidiary incorporated in the state of Nevada and also named Neurogene Inc. (“Neurogene OpCo”). Neurogene OpCo was incorporated as a limited liability company in Delaware on January 26, 2018 and converted into a Delaware corporation on July 3, 2018, and then merged with a wholly owned subsidiary of the parent company and re-domiciled to Nevada on December 18, 2023 in connection with the reverse merger described below. Both Neurogene and Neurogene OpCo have a principal place of business in New York, NY. Neurogene was formed to harness the power of gene therapy, combined with its EXACTTM transgene regulation technology, to turn today’s complex devastating neurological diseases into treatable conditions. The Company’s first clinical-stage program to utilize the EXACT technology is NGN-401, which is in an ongoing Phase 1/2 clinical trial for the treatment of Rett syndrome. In addition to NGN-401, Neurogene is also pursuing a conventional gene therapy program in an ongoing Phase 1/2 clinical trial of NGN-101 for the treatment of CLN5 Batten disease. Since beginning operations, the Company has devoted substantially all its efforts to research and development, recruiting management and technical staff, administration, and raising capital.

Reverse Merger and Pre-Closing Financing

On July 18, 2023, Neoleukin Therapeutics, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) with its wholly owned subsidiary (“Merger Sub”) and Neurogene OpCo. Pursuant to the terms of the Merger Agreement, upon closing on December 18, 2023 (the “Closing”), Merger Sub merged with and into Neurogene OpCo, with Neurogene OpCo continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (referred to herein as the “reverse merger”).

At the time of Closing (or immediately prior to, where indicated), the following also occurred:

•The Company changed its name from “Neoleukin Therapeutics, Inc.” to “Neurogene Inc.” and is referred to herein as the “Company.” Unless the context otherwise requires, references to “Neoleukin Therapeutics, Inc.” or “Neoleukin” refer to the Company prior to Closing.

•Immediately prior to Closing, Neoleukin effected a 1-for-4 reverse stock split (the “Reverse Stock Split”). Unless noted otherwise, all references herein to share and per share amounts reflect the Reverse Stock Split.

•All of the then outstanding shares of Neurogene OpCo Class A common stock were converted into 3,240,888 shares of the Company’s common stock, based on an exchange ratio of approximately 0.0756 (the “Exchange Ratio”).

•All of the then outstanding shares of Neurogene OpCo preferred stock were converted into 7,231,747 shares of the Company’s common stock and 1,825,635 pre-funded warrants, based on the Exchange Ratio.

•Each then outstanding Neurogene OpCo stock option was exchanged for an equivalent stock option of the Company, adjusted to reflect the Exchange Ratio as necessary.

•Each then outstanding Neurogene OpCo pre-funded warrant to purchase shares of Neurogene OpCo common stock was converted into a pre-funded warrant to purchase shares of the Company’s common stock, adjusted to reflect the Exchange Ratio as necessary. Refer to the discussion below for further detail on Neurogene OpCo pre-funded warrants.

Concurrently with the execution and delivery of the Merger Agreement, and in order to provide Neurogene OpCo with additional capital for its development programs, Neurogene OpCo entered into a subscription agreement (the “Subscription Agreement”) with certain investors. Pursuant to the terms of the Subscription Agreement, immediately prior to the Closing, Neurogene OpCo issued and sold to the investors: (i) 2,792,206 shares of Neurogene OpCo common stock and (ii) 1,811,739 pre-funded warrants, exercisable for 1,811,739 shares of Neurogene OpCo common stock, at a purchase price of approximately $20.63 per share or $20.63 per warrant, for an aggregate purchase price of approximately $95.0 million (the “Pre-Closing Financing”).

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2.Risks and Uncertainties

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, successful development of technology, obtaining additional funding, protection of proprietary technology, compliance with government regulations, risks of failure of pre-clinical studies, clinical studies and clinical trials, the need to obtain marketing approval for its drug candidates and its consumer products, fluctuations in operating results, economic pressure impacting therapeutic pricing, dependence on key personnel, risks associated with changes in technologies, development by competitors of technological innovations and the ability to transition from pilot scale manufacturing to large scale production.

Liquidity and Financial Condition

Since its inception, the Company has funded its operations primarily with proceeds from the sales of equity securities and has incurred significant recurring losses, including net losses of $35.4 million and $24.1 million for the six months ended June 30, 2024 and 2023, respectively. In addition, the Company used cash in operations of $37.5 million and $22.9 million for the six months ended June 30, 2024 and 2023, respectively, and had an accumulated deficit of $222.6 million as of June 30, 2024. Management expects to incur substantial and increasing losses in future periods as the Company advances its products through its clinical and regulatory process and will rely on outside capital to fund its operations for the foreseeable future. The Company has not generated positive cash flows from operations, and there are no assurances that the Company will be successful in obtaining an adequate level of financing for the development and commercialization of its product candidates.

As of June 30, 2024, the Company had cash, cash equivalents and investments of approximately $153.9 million. On December 18, 2023, the Company closed the reverse merger and the Pre-Closing Financing. The Company expects its available cash and cash equivalents on hand as of the issuance date of these financial statements will be sufficient to fund its obligations as they become due for at least one year beyond the issuance date of these financial statements. As a result of the reverse merger with Neoleukin Therapeutics, the Company assumed an ATM or “at-the-market” Equity Offering Sales Agreement with BofA Securities, Inc., as agent (“BofA”), pursuant to which the Company was able to offer and sell, from time to time through BofA, shares of the Company’s common stock, having an aggregate offering price of up to $40.0 million. The Registration Statement on Form S-3 that was prepared for the ATM expired on December 21, 2023, and in March 2024, the Company formally terminated the ATM.

In the event the Company is unable to secure additional outside capital, management will be required to seek other alternatives which may include, among others, a delay or termination of clinical trials or the development of its product candidates, temporary or permanent curtailment of the Company’s operations, a sale of assets, or other alternatives with strategic or financial partners.

The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

3.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 18, 2024.

In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2024, and results of operations and cash flows for all periods presented. The interim results presented are not necessarily indicative of results that can be expected for the full year ending December 31, 2024.

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Use of Estimates

The preparation of the financial statements in accordance 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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management used significant estimates in the following areas, among others: recoverability of the Company’s net deferred tax assets and related valuation allowance, useful lives and recoverability of property and equipment, determining the incremental borrowing rate for calculating lease liabilities and related right-of-use assets and finance lease assets, revenue recognition, clinical trial accruals, accrual estimates for all contingent value rights (“CVRs”), the value attributed to employee stock options and other stock-based awards, and valuation of common stock. On an ongoing basis, the Company reviews its estimates to ensure that they appropriately reflect changes in the business or as new information becomes available. Actual results may differ from these estimates.

Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Chief Executive Officer. The CODM assesses performance of the segment according to clinical and pre-clinical data along with program specific expenses and market conditions in the pharmaceutical and biotechnology sectors. The Company operates as a single operating segment and has one reportable segment. The Company’s operations and its assets are held in the United States.

Cash and Cash Equivalents

The Company considers all highly-liquid investments purchased with original maturities of 90 days or less at time of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks and are stated at fair value.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows (in thousands):


	June 30, 2024		December 31, 2023
Cash and cash equivalents	$	111,032	$	148,210
Restricted cash	339		508
Total cash, cash equivalents and restricted cash	$	111,371	$	148,718

Cash equivalents consist of money market funds in which the carrying value equals the fair value. Restricted cash includes $0.3 million in cash deposits the Company maintains with its bank as collateral for the irrevocable letters of credits related to its lease obligations.

Concentrations of Credit Risk

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company’s cash and cash equivalent accounts, at times, may exceed federally insured limits. As of June 30, 2024, the Company had $110.9 million in excess of the federally insured limits. The Company places its cash in financial institutions that management believes to be of high credit quality.

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Revenue Recognition

The Company recognizes revenue when its customers obtain control of promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, (“ASC 606”) the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied.

In applying the ASC 606 framework, the Company must apply judgment to determine the nature of the promises within a revenue contract and whether those promises represent distinct performance obligations. In determining the transaction price, the Company does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of cumulative revenue when the uncertainty is resolved. Milestone and other forms of variable consideration that the Company may earn are subject to significant uncertainties of research and development related achievements, which generally are deemed not probable until such milestones are actually achieved. For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and where the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Additionally, the Company develops assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. The Company then allocates the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation for which it recognizes revenue as or when the performance obligations are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the variable consideration and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis.

Under the Company’s license agreements, the Company grants the license to a customer as it exists at the point of transfer and the nature of the license is a right to use the Company’s intellectual property as transferred. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. As of June 30, 2024, the Company has two revenue-generating agreements that are related to the legacy Neoleukin business as part of the reverse merger: the December 2023 CVR Licensing Agreement (as defined below) and the April 2024 CVR Licensing Agreement (as defined below). Refer to Note 9, Commitments and Contingencies, for further discussion on the CVR components.

Contingent Value Rights

In conjunction with the reverse merger, the Company entered into a CVR Agreement on December 18, 2023 with the Rights Agent named therein (the “CVR Agreement”) prior to Closing. Included in the CVR Agreement are three different types of CVRs: (i) the Lease CVR, (ii) the Intellectual Property CVR, and (iii) the Sales Tax CVR (each as defined in the CVR agreement). The Company evaluated each of the CVRs to determine if they qualified as derivatives under ASC 815, Derivatives and Hedging, and concluded that since certain scope exceptions were met, the CVRs did not qualify as derivatives. Instead, the Company records a contingent consideration liability associated with the CVRs when payments are probable and estimable under ASC 450, Contingencies. In assessing whether payments are probable and estimable, the Company considers the existence of or ability to enter into agreements with third parties or government agencies and the timing of potential payments. Refer to Note 9, Commitments and Contingencies, for further discussion on the CVRs.

Exit and Disposal Costs

In connection with the reverse merger and through early fiscal 2025, the Company has incurred and expects to incur costs to wind-down Neoleukin’s Phase 1 trial of NL-201. This trial has ceased further development, and the Company has no plans to continue developing Neoleukin’s de novo protein technology. As a result, the trial’s activities do not provide the Company any future economic benefit. In accordance with ASC 420, Exit or Disposal Costs, the Company accrued the remaining costs to be incurred in the trial. The liability was classified as accrued expenses and other current liabilities in the condensed consolidated balance sheet.

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A summary of the accrued liabilities activity recorded in connection with the wind-down of Neoleukin’s Phase 1 trial of NL-201 for the six months ended June 30, 2024 is as follows (in thousands):


	Balance at December 31, 2023		Liability Adjustment		Amounts Paid		Balance at June 30, 2024
Trial wind-down costs:
Phase 1 NL-201 Trial	$	1,962	$	(42)	$	(685)	$	1,235

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies.

Net Loss Per Share Attributable to Common Stockholders

For the prior year period in which the Company had multiple classes of stock participating in earnings, the Company used the two-class method in calculating net loss per share. The two-class method requires income available to ordinary shareholders for the period to be allocated between ordinary shares and participating securities based upon their respective rights. The Company considered its convertible preferred stock to be participating securities as holders would be entitled to participate in dividends and earnings of the Company. As the holders of the convertible preferred stock have no obligation to fund losses, the two-class method is not applicable during periods with a net loss.

Basic net loss per share of Class A and Class B common stock was computed by dividing net loss attributable to the Company by the weighted-average number of shares of Class A and Class B common stock outstanding during the period. In periods of losses, diluted net loss per share was computed on the same basis as basic net loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

Following the Company’s reverse merger in December 2023, the Company only has one class of common stock remaining, referred to throughout as “common stock.” Basic net loss per share of common stock is computed by dividing net income attributable to the Company by the weighted-average number of shares of common stock outstanding during the period. In periods of losses, diluted net loss per share is computed on the same basis as basic net loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share amounts):


	Six Months Ended June 30,
	2024		2023
	Common stock		Class A		Class B
Numerator:
Net loss	$	(35,413)	$	(24,123)	$	—
Denominator:
Weighted-average shares outstanding in computing net loss per share, basic and diluted	16,922,630		439,073		—
Net loss per share, basic and diluted	$	(2.09)	$	(54.94)	$	—

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The following potentially dilutive securities have been excluded from the diluted per share calculations as they would be anti-dilutive:


	Six Months Ended June 30,
	2024	2023
Series A-1 convertible preferred stock (1)	—	18,604,653
Series A-2 convertible preferred stock (1)	—	13,291,208
Series B convertible preferred stock (1)	—	74,405,719
Stock options	1,496,652	615,007
Total	1,496,652	106,916,587

(1) The convertible preferred stock does not reflect the application of the 0.0756 Exchange Ratio.

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its condensed financial statements or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280). The amendments in this update expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment among other disclosure requirements. This update is effective for the Company in the consolidated financial statements for the year ending December 31, 2024, and interim periods beginning after January 1, 2025. The Company is analyzing the impact of this standard on its disclosures in the condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. This standard will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on the Company’s condensed consolidated financial statements and related disclosures.

4.Investments

The following table summarizes the Company’s investment securities as of June 30, 2024 (in thousands):


	June 30, 2024
	Amortized cost, as adjusted		Gross unrealized holding gains		Gross unrealized holding losses		Estimated fair value
Cash equivalents:
Money market funds	$	107,773	$	—	$	—	$	107,773
Short-term investments:
U.S. treasury notes	42,873		1		(4)		42,870
Total	$	150,646	$	1	$	(4)	$	150,643

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	December 31, 2023
	Amortized cost, as adjusted		Gross unrealized holding gains		Gross unrealized holding losses		Estimated fair value
Cash equivalents:
Money market funds	$	144,358	$	—	$	—	$	144,358
Short-term investments:
U.S. treasury notes	48,947		16		—		48,963
Total	$	193,305	$	16	$	—	$	193,321

All of the Company’s investments mature within the next 12 months.

5.Fair Value of Financial Instruments

As of June 30, 2024 and December 31, 2023, financial assets measured at fair value on a recurring basis are categorized in the table below based upon the lowest level of significant input to the valuations (in thousands):


	June 30, 2024
	Level 1		Level 2		Level 3
Assets:
Money market funds	$	107,773	$	—	$	—
U.S. treasury notes	42,870		—		—
Total	$	150,643	$	—	$	—


	December 31, 2023
	Level 1		Level 2		Level 3
Assets:
Money market funds	$	144,358	$	—	$	—
U.S. treasury notes	48,947		—		—
Total	$	193,305	$	—	$	—

Money market funds are cash equivalents and are included in cash and cash equivalents in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023.

6. Prepaid expenses and other current assets

Prepaid expenses and other assets consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Refunds and other receivables	$	647	$	600
Prepaid expenses	3,066		1,496
Other current assets	1,531		1,095
Total prepaid and other current assets	$	5,244	$	3,191

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7. Property and Equipment, Net

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


	June 30, 2024		December 31, 2023
Lab equipment	$	3,220	$	3,144
Manufacturing equipment	6,261		6,142
Office Equipment	19		19
Leasehold improvements	15,376		15,376
Software	268		268
Construction in progress	513		234
Total property and equipment, cost	25,657		25,183
Less accumulated depreciation	(9,593)		(8,009)
Property and equipment, net	$	16,064	$	17,174

Depreciation and amortization expense for each of the three months ended June 30, 2024 and 2023 was approximately $0.8 million and $0.8 million, respectively, and was approximately $1.6 million and $1.6 million for the six months ended June 30, 2024 and 2023, respectively.

Management has reviewed its property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. During the six months ended June 30, 2024, the Company recorded impairment losses on idle equipment of $0.1 million, which was charged to research and development expenses in the condensed consolidated statement of operations. Fair value for the idle assets was determined by a quoted purchase price for the assets.

8. Accrued Expenses and Other Current Liabilities

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


	June 30, 2024		December 31, 2023
Compensation, bonuses and related benefits	$	2,142	$	3,496
Research and development	4,494		4,895
Accrued severance, bonus, and retention (1)	—		2,476
Accrued offering costs in connection with pre-closing financing	—		3,334
Accrued transaction costs related to reverse merger	—		2,557
Other	508		737
Total accrued expenses and other current liabilities	$	7,144	$	17,495

(1) Includes accrued severance, bonus, and retention payments for current and former Neoleukin employees.

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9. Commitments and Contingencies

Operating and Finance Leases

Supplemental lease expense related to leases for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Operating lease cost	$	519	$	259	$	1,045	$	518
Finance lease cost
Amortization of finance leases	17		8		27		14
Interest on finance lease liabilities	4		3		7		5
Variable lease cost	285		56		614		110
Short-term lease cost	13		19		35		42
Total lease cost	$	838	$	345	$	1,728	$	689

The following table summarizes the maturity of the Company’s operating and finance lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating and finance lease liabilities recognized on the Company’s condensed consolidated balance sheet as of June 30, 2024 (in thousands):


Maturity of operating lease liabilities
2024 (remaining)	$	1,956
2025	3,987
2026	3,695
2027	3,239
2028	3,294
2029	613
Total lease payments	$	16,784
Less: interest	(3,104)
Total operating lease liabilities	$	13,680


Maturity of finance lease liabilities
2024 (remaining)	$	30
2025	60
2026	21
2027	6
Total lease payments	$	117
Less: interest	(12)
Total finance lease liabilities	$	105

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Supplemental balance sheet information related to leases as of June 30, 2024 was as follows (in thousands):


Leases
Operating right-of-use assets	$	3,381

Operating lease liabilities, current	2,765
Operating lease liabilities, non-current	10,915
Total operating lease liabilities	$	13,680

Finance right-of-use assets	$	96

Finance lease liabilities, current	52
Finance lease liabilities, non-current	53
Total finance lease liabilities	$	105


Other information
Cash paid for amounts included in measurement of operating lease liabilities (in thousands)	$	1,925
Cash paid for amounts included in measurement of finance lease liabilities (in thousands)	$	33
Weighted-average remaining lease term - operating leases (in years)	4.41
Weighted-average remaining lease term - finance lease (in years)	2.09
Weighted-average discount rate - operating leases	9.73		%
Weighted-average discount rate - finance lease	11.05		%

Lease CVR

As of June 30, 2024, approximately $1.3 million was recorded as a component of the contingent value rights liability on the Company’s condensed consolidated balance sheet consisting of lease commitments that were probable and estimable at the Closing. The commitments relate to Neoleukin’s sublease agreement, effective October 31, 2023, for one of its properties with an unrelated third party for the remainder of the lease term.

The following table summarizes the maturity of the Company’s Lease CVR as of June 30, 2024 (in thousands):


Maturity of Lease CVR
2024 (remaining)	$	234
2025	605
2026	414
Total lease CVR payments	$	1,253

Intellectual Property CVR

Under the CVR Agreement, each CVR holder is eligible to receive 100% of the net proceeds, if any, derived from any consideration paid as a result of the disposition of Neoleukin’s pre-merger legacy assets pursuant any agreements entered into before the Closing, and 80% of net proceeds, if any, derived from any consideration paid as a result of the disposition of Neoleukin’s pre-merger legacy assets pursuant any agreements entered into within one year after the Closing (the “Intellectual Property CVR”). Contingent consideration liabilities related to the CVR Agreement will only be recorded if the liabilities are probable and estimable as of the balance sheet date.

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December 2023 CVR Licensing Agreement

Prior to the Closing, Neoleukin entered into a licensing agreement on December 13, 2023 with an unrelated third party to develop and commercialize certain legacy Neoleukin assets (the “December 2023 CVR Licensing Agreement”). As discussed and defined within the Reverse Merger and Pre-Closing Financing section of Note 1, Organization and Description of Business, the terms of the CVR Agreement include that CVR holders are eligible to receive the Intellectual Property CVR. In June 2024, an upfront payment of $0.2 million was received by the Company. Since the December 2023 CVR Licensing Agreement was entered into before the Closing, the CVR holders are eligible to receive 100% of the net proceeds derived from the December 2023 CVR Licensing Agreement. Accordingly, an upfront payment of $0.2 million was recorded as licensing revenue within the condensed consolidated statements of operations and a $0.2 million contingent consideration liability was recorded related to the Intellectual Property CVR within the condensed consolidated balance sheet. The December 2023 CVR Licensing Agreement contains development, regulatory and commercialization milestones totaling up to approximately $13.4 million, as well as royalty payments. However, as of June 30, 2024, no other development and sales milestones were achieved nor deemed probable of achievement under the December 2023 CVR Licensing Agreement.

April 2024 CVR Licensing Agreement

In April 2024, the Company entered into a licensing and intellectual property assignment agreement with another unrelated third party to develop and commercialize certain legacy Neoleukin assets (the “April 2024 CVR Licensing Agreement”). In April 2024, the Company received a one-time upfront payment of approximately $0.8 million and reimbursement of $10,000 for patent expenses under the April 2024 CVR Licensing Agreement. Since the April 2024 CVR Licensing Agreement was entered into within one year after the Closing, the CVR holders are eligible to receive 80% of the net proceeds derived from the April 2024 CVR Licensing Agreement. Accordingly, the Company has recorded $0.8 million as licensing revenue within the condensed consolidated statements of operations and $0.6 million (80% of the upfront payment) as a contingent consideration liability related to the Intellectual Property CVR within the condensed consolidated statements of operations. The April 2024 CVR Licensing Agreement contains development, regulatory and commercialization milestones totaling up to approximately $11.0 million, as well as royalty payments. However, as of June 30, 2024, no other development and sales milestones were achieved nor deemed probable of achievement under the April 2024 CVR Licensing Agreement.

The December 2023 CVR Licensing Agreement and April 2024 CVR Licensing Agreement collectively account for the total Intellectual Property CVR. As of June 30, 2024, approximately $0.5 million was recorded as a component of the contingent value rights liability arising from the Intellectual Property CVR on the Company's condensed balance sheet, which total amount was offset by approximately $0.3 million due to deductions permitted under the Merger Agreement.

Sales Tax CVR

Prior to the Closing, Neoleukin entered into an agreement with an unrelated third party for refund analysis services of Washington state sales tax. As discussed and defined within the Contingent Value Rights section of Note 3, Summary of Significant Accounting Policies, the terms of the CVR Agreement include that CVR holders are eligible to receive net proceeds derived from an anticipated sales tax refund from Washington state relating to tax returns filed by Neoleukin prior to Closing. As of June 30, 2024, it was deemed probable that the Company will receive proceeds from Washington state for the sales tax refund and will remit the proceeds to the CVR holders. As of June 30, 2024, $0.3 million is accrued as a component of the contingent value rights liability arising from the Sales Tax CVR in the condensed consolidated balance sheet.

The following table summarizes the components of the contingent value rights liability in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024				December 31, 2023
	Current		Non-Current		Current		Non-Current
Lease CVR	$	536	$	717	$	281	$	1,006
Intellectual Property CVR	520		—		—		—
Sales Tax CVR	332		—		—		—
Total CVR liability	$	1,388	$	717	$	281	$	1,006

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As per the CVR Agreement, the total amount owed to CVR holders, after deductions permitted under the Merger Agreement, must be at least $0.5 million to trigger a CVR payment prior to the end of the CVR term. The first CVR payment to CVR holders is approximately $0.5 million and is due on August 14, 2024.

All other payments under the CVR Agreement were not considered probable and estimable as of June 30, 2024 and therefore no additional contingent consideration liability has been recorded.The Company will evaluate the probable and estimable range of outcomes under the CVR Agreement at each reporting period until the end of the CVR term and adjust the amounts accrued for as necessary.

Employment Agreements

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

Other Research and Development Arrangements

As of June 30, 2024, the Company had standing agreements with consultants, contractors or service providers that generally be terminated by the Company with 30 to 60 days written notice, unless otherwise indicated.

Litigation and Legal Proceedings

The Company is subject to litigation and other claims that arise in the ordinary course of business. While the ultimate result of outstanding legal matters cannot presently be determined, the Company does not expect that the ultimate disposition will have a material effect on its results of financial condition, results of operations or cash flows. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, there can be no assurance that the final outcome of any particular legal matter will not have a material adverse effect on the Company’s financial condition results of operations or cash flows.

10. Licenses

License Agreement with The University of North Carolina

In May 2019, Neurogene entered into an Exclusive License Agreement with the University of North Carolina at Chapel Hill (“UNC”) to obtain an exclusive, worldwide, royalty bearing license, with the right to grant sublicenses under certain patents to make, use, or sell products covered by such patents for prevention or treatment of disease or medical or genetic conditions, including CLN5 Batten disease or other diseases from dysfunction of the CLN5 gene. The Company is obligated to pay UNC up to $1.7 million in sales-related milestones for licensed products based on annual sales of the licensed product in excess of defined thresholds and low single-digit percentage royalties on net sales of licensed product for as long as there is a valid patent claim under the patent rights. Neurogene is also required to reimburse any patent expenses, as well as pay a nonrefundable annual maintenance fee which, when royalties become due and payable, will be creditable against such royalties. During the year ended December 31, 2021, the FDA granted Orphan Drug Designation for CLN5 and the Company made a milestone payment of $15,000 to UNC. During the year ended December 31, 2022, the Company dosed its first patient in a Phase 1 CLN5 study and made a milestone payment of $30,000 to UNC. The annual license fee was $4,000 for each of the six months ended June 30, 2024 and 2023.

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License Agreement with The University of Edinburgh

In December 2020, the University Court of the University of Edinburgh (the “University of Edinburgh”) and Neurogene entered into the Master Collaboration Agreement (“MCA”). Under the MCA, Neurogene and the University of Edinburgh agreed to collaborate on certain research and development projects (“Projects”) and Neurogene agreed to provide funding for such Projects for a 40-month initial term, which term was extended in November 2023 for an additional 33 months and may be further extended by mutual agreement. In exchange for such funding, the University of Edinburgh granted Neurogene the option to exclusively license any intellectual property arising from such Projects. If Neurogene exercises an exclusive option for a particular Project, Neurogene will enter into a separate exclusive license agreement on its own terms with the University of Edinburgh. Under the MCA, Neurogene is obligated to pay semi-annual installment payments relating to funding of costs for personnel and lab consumables for the 40-month period. Either party may terminate the MCA for convenience upon 90 days’ notice. If Neurogene terminates the MCA, it would be responsible for all non-cancellable costs and commitments related to any particular Project and any and all funding costs for any person working on such Project.

In March 2022, Neurogene exercised its option through the collaboration under the MCA and entered into a License Agreement (the “March 2022 Edinburgh License Agreement”) with University of Edinburgh, pursuant to which Neurogene licensed certain patents and know-how related to the EXACT technology and optimized MECP2 cassettes on an exclusive basis. Under the March 2022 Edinburgh License Agreement, Neurogene obtained an exclusive, worldwide license to the licensed patents to develop, manufacture, supply, sell, and commercialize any products that utilize the licensed patents (the “Licensed Products”) in exchange for low single-digit percentage royalties on future commercial net sales of the Licensed Products. Royalties are payable on a Licensed Product-by-Licensed Product and country-by-country basis until the latest of the expiration of the last licensed patent covering such Licensed Product in the country where the Licensed Product is sold, or, if no licensed patent exists or has expired in such country, then ten years from first commercial sale of such Licensed Product in such country. In connection with the license, Neurogene is also obligated to pay the University of Edinburgh up to $5.3 million in regulatory-related milestones and up to $25.0 million in sales-related milestones based on annual net sales of Licensed Products in excess of defined thresholds. During the six months ended June 30, 2023, the Company expensed $0.3 million for a milestone related to the first patient dosing in the Phase 1/2 trial for Rett syndrome.

For the six months ended June 30, 2024 and 2023, the expense recorded by the Company related to the MCA was $0.8 million and $0.6 million, respectively.

License Agreement with Virovek

In September 2020, Neurogene entered into a Non-Exclusive License Agreement with Virovek, Inc., pursuant to which Neurogene has a license to use certain patents and know-how on a non-exclusive basis related to Neurogene’s baculovirus (“baculo”) process in exchange for low single-digit percentage royalties on future commercial net sales of each product using the baculo process, development milestone payments of up to $0.2 million in the aggregate, and a nonrefundable annual license fee. During the six months ended June 30, 2023, the Company recorded a milestone expense of $0.1 million for the Rett Syndrome Investigational New Drug filing.

License Agreement with Sigma-Aldrich Co

In January 2023, Neurogene entered into a Non-Exclusive License Agreement with Sigma-Aldrich Co. LLC, pursuant to which Neurogene has a license to certain patents and know-how on a non-exclusive basis related to certain cell lines used in Neurogene’s baculo process in exchange for a small annual fee on a product-by-product basis, payable once the first product candidate enters the clinic. In addition, on a product-by-product basis, Neurogene is obligated to pay up to $2.5 million in the aggregate for development-related milestones. During the six months ended June 30, 2024 and 2023, the Company recorded a license expense of $60,000 and $0, respectively.

No expenses were recorded related to other in-process license agreements during the six months ended June 30, 2024 and 2023. None will be due under these agreements unless and until certain development milestones are reached.

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11. Stockholders’ Equity (Deficit)

Common stock and pre-funded warrants

As of June 30, 2024, the Company is authorized to issue 450,000,000 shares of common stock with a par value of $0.000001 per share.

The Company has pre-funded warrants outstanding to purchase an aggregate of 3,959,954 shares of common stock as of June 30, 2024. The pre-funded warrants are exercisable at any time for an exercise price of $0.000001, except that the pre-funded warrants cannot be exercised by the holders if, after giving effect thereto, the holders would beneficially own more than 9.99% of the outstanding common stock, subject to certain exceptions. However, any holder may increase or decrease such percentage to any other percentage (not in excess of 19.99%) upon at least 61 days’ prior notice from the holder to the Company. The holders of the pre-funded warrants will not have the right to vote the shares underlying the pre-funded warrants on any matter except to the extent required by Delaware law. These warrants were classified as equity.

During the three months ended June 30, 2024, 103,407 shares of common stock were issued upon the exercise of pre-funded warrants. Proceeds of the exercise to the Company were immaterial.

The Company had reserved shares of common stock for future issuance as follows:


	June 30, 2024	December 31, 2023
Unvested restricted stock units	479,549	–
Options outstanding	1,496,652	823,833
Shares available for future grant under the 2023 Equity Incentive Plan	1,473,277	2,237,722
Total common stock reserved	3,449,478	3,061,555

12. Stock-Based Compensation

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Research and development	$	1,375	$	241	$	1,940	$	415
General and administrative	939		143		1,419		262
Total expense	$	2,314	$	384	$	3,359	$	677

The following table summarizes the option activity:


	Number of shares	Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at December 31, 2023	823,833	$	31.43	5.89
Granted	808,472	$	34.96
Exercised	(62,136)	$	16.87
Expired/Forfeited	(73,517)	$	79.15
Outstanding at June 30, 2024	1,496,652	$	31.60	7.48
Exercisable at June 30, 2024	543,203	$	30.58	4.91

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As of June 30, 2024, the aggregate intrinsic value of outstanding options and exercisable options was approximately $13.5 million and $9.2 million, respectively. The aggregate intrinsic value of options exercised was approximately $1.0 million for the six months ended June 30, 2024.

The weighted-average grant date fair value of options granted was $26.22 and $12.99 per share for the six months ended June 30, 2024 and 2023, respectively. The Company recorded stock-based compensation related to stock options of approximately $1.6 million and $0.4 million for the three months ended June 30, 2024 and 2023, respectively, and $2.5 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the total unrecognized compensation expense related to unvested stock option awards was approximately $21.1 million, which the Company expects to recognize over a weighted-average period of 3.24 years.

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


	Three Months Ended June 30,			Six Months Ended June 30,
	2024	2023		2024	2023
Expected volatility	87.43%-90.84%	83.20%-83.31%		86.39%-90.84%	82.96%-83.70%
Risk-free interest rate	4.17%-4.60%	3.50%-3.68%		3.97%-4.60%	3.45% - 4.46%
Expected life (in years)	5.50-6.15	6.08		5.50-6.15	3.58 - 6.08
Expected dividend yield	—	—		—	—
Fair value of common stock (1)		$	18.39		$	18.39

(1) Prior to the reverse merger, the Company periodically estimated the fair value of the Company’s common stock considering, among other things, valuations of its common stock prepared by management with the assistance of a third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Following the reverse merger, the fair value of the Company’s common stock is based on the closing stock price on the date of grant as reported on the Nasdaq Global Market.

A summary of the Company’s RSU activity and related information for the six months ended June 30, 2024 is as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2023	—	$	—
Restricted stock units granted	482,384	$	36.06
Restricted stock units forfeited	(2,835)	$	36.06
Unvested at June 30, 2024	479,549	$	36.06

252,124 of these RSUs were granted with vesting in two equal tranches based on certain performance conditions ("PSUs"). Each PSU entitles the holder to receive one share of the Company's common stock when the PSU vests. During the six months ended June 30, 2024, the related performance conditions were not met and are not currently considered probable to vest. As such, no expense is recognized as of June 30, 2024.

The Company recorded stock-based compensation expense related to RSUs of approximately $0.7 million and $0.8 million for the three and six months ended June 30, 2024, respectively. As of June 30, 2024, there was approximately $7.4 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a remaining weighted average vesting period of approximately 2.70 years.

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13. Subsequent Events

From July 1, 2024 until the financial statements were issued, the Company granted 7,755 options to employees and 4,405 options were exercised.

On August 6, 2024, the Company entered into a Nonexclusive License Agreement with the Board of Trustees of Leland Stanford Junior University (the “Stanford License Agreement”) to license, on a non-exclusive basis, certain biological materials used by the Company in the manufacturing process of Neurogene’s product candidates, including NGN-401. Over the 10 year term of the Stanford License Agreement, the Company is obligated to pay up to $0.5 million in licensing fees.

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

NEUROGENE MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto included elsewhere in this report and our audited consolidated financial statements and notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the section entitled “Risk Factors,” our actual results could differ materially from the results described in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.” You should carefully read the “Cautionary Note About Forward-Looking Statements” and “Risk Factors” sections of the Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from the results described below.

Forward-looking statements are inherently uncertain and you should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. Except as required by law, we do not undertake any obligation to revise or update publicly any forward-looking statements after completion of the filing of this Quarterly Report on Form 10‑Q to reflect later events or circumstances or to reflect the occurrence of unanticipated events, or otherwise.

In this section, references to “we,” “our,” “us,” and “the Company” refer to post-merger Neurogene Inc. and our wholly owned subsidiary incorporated in the state of Nevada, also named Neurogene Inc. (“Neurogene OpCo”), unless otherwise indicated.

Overview

Despite recent scientific advances in genetics, most neurological diseases, particularly those with devastating consequences to patients, are left untreated. Conventional gene therapy is an attractive potential treatment approach for only a limited number of monogenic diseases due to the challenges caused by the complex biology of neurological diseases and by inherent variable transgene uptake and expression. We are a clinical-stage biotechnology company committed to overcoming these limitations and turning today’s complex devastating neurological diseases into treatable conditions. By harnessing our proprietary transgene regulation technology, EXACTTM (Expression Attenuation via Construct Tuning), we are building a robust and differentiated product portfolio of genetic medicines for rare neurological diseases with high unmet need not otherwise addressable by conventional gene therapy. Our EXACT approach leverages key scientific breakthroughs, including gene transfer technology, microRNA-based genetic circuits, and adeno-associated virus (AAV) delivery, and is designed to deliver therapeutic levels of transgene to key areas of the brain that underlie neurological disease pathology.

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Our first clinical-stage program to utilize the EXACT platform is NGN-401, which is in development for the treatment of Rett syndrome, a disease with a patient population that has a significant unmet need, and that ultimately progresses to substantial neurological and physical impairment and premature death. In January 2023, we received clearance from the FDA for our IND application for a Phase 1/2 clinical trial of NGN-401 for the treatment of pediatric female patients with Classic Rett syndrome. The Phase 1/2 clinical trial is an open-label, multi-center trial that is assessing the safety, tolerability, and efficacy of two doses of NGN-401 delivered using a one-time intracerebroventricular procedure, which we believe is the most suitable route of administration to achieve optimal biodistribution in key regions of the brain and other parts of the nervous system. In January 2024, we announced clearance by the United Kingdom (UK) Medicines and Healthcare Products Regulatory Agency of the clinical trial application for NGN-401, allowing us to expand enrollment of the Phase 1/2 clinical trial in the UK. We also announced during the first quarter acknowledgement from the Australian Therapeutic Goods Administration and approval from the Human Research Ethics Committee to conduct the Phase 1/2 clinical trial for NGN-401, providing clearance for the trial in a third region. Consistent with our clinical development strategy, in February 2024, we amended the protocol to expand the Low-dose Cohort 1 to add three additional patients for a total of eight patients and remove staggered dosing, as well as adding a High-dose Cohort 2 comprised of eight patients. The first three patients in Cohort 2 will be dosed in a staggered manner, which may result in a slower inital enrollment in Cohort 2. This approach provides us the flexibility to evaluate two doses concurrently, both of which we expect to be efficacious based on preclinical data, with a higher dose demonstrating greater biodistribution preclinically. We also believe that including two concurrent dose cohorts in this clinical trial will result in a more robust dataset that we will be able to use to inform a future registrational trial design. NGN-401 was manufactured at our manufacturing facility and clinical-grade product is being used for dosing in the Phase 1/2 clinical trial..

In March 2024, we announced dosing of the third patient in the Phase 1/2 clinical trial in Cohort 1. In May 2024, we presented data from the Phase 1/2 clinical trial at the ASGCT 27th Annual Meeting which demonstrated a favorable safety profile in the first three pediatric patients dosed in Cohort 1 (starting in 3Q:23 through 1Q:24), including one with a mild variant predicted to result in residual MeCP2 expression, with no signs or symptoms indicative of overexpression-related toxicity reported in any patient and no treatment-emergent or procedure-related serious adverse events (“SAEs”) reported. As of the presentation of that safety data, all treatment-related AEs were reported to have been mild/Grade 1, and transient or resolving, and most AEs included in that reported safety data were known potential risks of the virus vector used for delivery of NGN-401, which is an adeno-associated virus vector known as AAV9. In June 2024 at the International Rett Syndrome Foundation (IRSF) ASCEND Summit, we presented additional interim safety data for these first three patients, showing that NGN-401 continued to have a favorable safety profile.

The baseline demographics of the first three patients who received NGN-401 in Cohort 1 (1E15 vector genomes) include:


	Patient 1	Patient 2	Patient 3
Age at Dosing	7 years old	4 years old	6 years old
Race	Asian	White	White
MECP2 mutation	Mild	Severe	Severe
Time post-NGN-401 administration (as of June 2024)	~11 months	~8 months	~5 months

In June 2024, we announced that the first patient had been dosed in Cohort 2, receiving a total dose of 3E15vg, and that this dose of NGN-401 had been well-tolerated following dosing.

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In June 2024, we also announced that NGN-401 was one of four sponsors selected by the Center for Biologics Evaluation and Research (CBER) at the FDA to participate in the FDA’s Support for clinical Trials Advancing Rare disease Therapeutics (START) Pilot Program based on potential for clinical benefits and clinical development program readiness. As part of the START Program, we will have opportunities for enhanced communications with the FDA, with the aim to further accelerate the pace of NGN-401’s development. These opportunities are designed to provide frequent advice and regular ad-hoc conversations to address product-specific development issues, including, but not limited to, clinical study design, choice of control group and fine-tuning the choice of patient population. In August 2024, we announced that NGN-401 also received Regenerative Medicine Advanced Therapy (RMAT) designation from the FDA. RMAT designation is granted for regenerative medicines intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and with preliminary clinical evidence that indicates that the drug has the potential to address unmet medical needs. Benefits of the RMAT designation program include all the benefits of Fast Track and Breakthrough Therapy designation programs, including early and frequent communications with FDA senior managers, intensive guidance on efficient drug development and eligibility for an Accelerated Approval pathway and Priority Review.

We expect preliminary clinical data from the first cohort of patients in this trial in the fourth quarter of 2024 and an updated dataset from an expanded number of patients in the second half of 2025.

We believe that our EXACT platform has broad applicability in complex neurological diseases not otherwise easily addressable by conventional gene therapy. In addition to our Rett syndrome program, we have multiple programs in the discovery stage. We anticipate advancing one program into clinical development in 2025.

In addition to NGN-401, we are also pursuing a conventional gene therapy program in an ongoing Phase 1/2 clinical trial of NGN-101 for the treatment of CLN5 Batten disease. This patient population has a significant unmet need, and experiences extensive neurological and physical impairment leading to blindness, loss of motor function and early mortality. Our Phase 1/2 clinical trial of NGN-101 is the first trial to assess the treatment of both neurodegenerative and ocular disease manifestations of Batten disease. A third-party manufacturer produced product for the NGN-101 program to initiate the Phase 1/2 clinical trial. Dosing for this program commenced in the second quarter of 2022 and we have now completed enrollment in this trial and expect interim clinical data in the fourth quarter of 2024. To enable a go/no-go decision to advance the program into a registration study, we are planning to request a clinical/regulatory strategy meeting with the FDA in the fourth quarter of 2024. The focus of this meeting will be to align with the FDA on the expected clinical requirements to support a streamlined registration pathway, which will be necessary to move this program forward into a pivotal clinical trial. Given the rarity of the disease, FDA alignment on a streamlined registrational pathway will be critical for continued investment in the program.

We also established a fully operational current good manufacturing practices (“cGMP”) facility in Houston, Texas used to manufacture current and future product for research, toxicology and clinical studies. We believe that our in-house manufacturing capabilities better enable control of product quality and development timelines, strategic pipeline and financial flexibility, and clinical-to-commercial continuity.

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Completion of the Reverse Merger and Pre-Closing Financing

On December 18, 2023, we completed our business combination with Neurogene OpCo (the “Closing”) in accordance with the terms of the Agreement and Plan of Merger, dated as of July 17, 2023 (the “Merger Agreement”), by and among the Company, Project North Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and Neurogene OpCo, pursuant to which, among other matters, Merger Sub merged with and into Neurogene OpCo, with Neurogene OpCo surviving as a wholly owned subsidiary of the Company (the “Reverse Merger”). In connection with the completion of the Reverse Merger, the Company changed its name from “Neoleukin Therapeutics, Inc.” (“Neoleukin”) to “Neurogene Inc.,” and the business conducted by the Company became primarily the business conducted by Neurogene OpCo. Immediately prior to Closing, the Company effected a 1-for-4 reverse stock split (the “Reverse Stock Split”). Unless noted otherwise, all references in this Quarterly Report on Form 10-Q to share and per share amounts reflect the Reverse Stock Split.

Concurrently with the execution and delivery of the Merger Agreement, and in order to provide Neurogene OpCo with additional capital for its development programs, Neurogene OpCo entered into a subscription agreement (the “Subscription Agreement”) with certain investors named therein (the “Investors”), pursuant to which, subject to the terms and conditions of the Subscription Agreement, immediately prior to the effective time of the Reverse Merger, Neurogene OpCo issued and sold, and the Investors purchased, 2,792,206 shares of Neurogene OpCo common stock and 1,811,739 pre-funded warrants, exercisable for 1,811,739 shares of Neurogene OpCo common stock, at a purchase price of approximately $20.63 per share or $20.63 per warrant, for an aggregate purchase price of approximately $95.0 million (the “Pre-Closing Financing”).

Background

We were founded in 2018, and have devoted substantially all of our resources to conducting research and development activities (including with respect to the NGN-401 and NGN-101 programs) and undertaking preclinical studies, establishing our manufacturing facility, conducting clinical trials and the manufacturing of product used in our clinical trials and preclinical studies, business planning, developing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these activities.

Since our inception, we have funded our operations primarily with outside capital (e.g., proceeds from the sale of preferred stock and common stock) and have raised aggregate net proceeds of $332.4 million from these private placements. However, we have incurred significant recurring losses, including a net loss of $35.4 million and $24.1 million for the six months ended June 30, 2024 and 2023, respectively. In addition, as of June 30, 2024, we had an accumulated deficit of $222.6 million and cash, cash equivalents and short term investments totaling $153.9 million. In order to continue our operations, we must achieve profitable operations and/or obtain additional equity or debt financing. Until we achieve profitability, management plans to fund our operations and capital expenditures with cash on hand and the sale and issuance of securities. There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to consider actions such as reducing the scope of our operations and planned capital expenditures or selling certain assets, including intellectual property assets.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on a variety of factors, including the timing, scope and results of our research and development activities. Management expects that our expenses and capital requirements will increase substantially in connection with our ongoing activities as we:

•advance the NGN-401 and NGN-101 programs through clinical development, including in any additional indications;

•advance discovery programs from preclinical development into and through clinical development;

•seek regulatory approvals for any product candidates that successfully complete clinical trials;

•establish sales, marketing and distribution infrastructure to commercialize any approved product candidates;

•establish a commercialization infrastructure and scale up internal and external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval

•expand clinical, scientific, management and administrative teams;

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•maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know-how;

•implement operational, financial and management systems; and

•incur additional legal, accounting and other expenses related to operating as a public company.

We do not have any products approved for commercial sale and have not generated any commercial revenue from product sales. Our ability to generate product revenue sufficient to achieve and maintain profitability will depend upon the successful development and eventual commercialization of one or more of our product candidates, which we expect, if it ever occurs, will take many years. We expect to spend a significant amount in development and marketing costs prior to such time. We will therefore require substantial additional capital to develop our product candidates and support our continuing operations. We may never succeed in achieving regulatory and marketing approval for our product candidates. We may obtain unexpected results from our preclinical and clinical trials. We may elect to discontinue, delay, or modify preclinical and clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. Accordingly, until such time that we can generate a sufficient amount of revenue from product sales or other sources, if ever, management expects to finance our operations through private or public equity or debt financings, loans or other capital sources, which could include income from collaborations, partnerships or other marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. However, we may be unable to raise additional capital from these sources on favorable terms, or at all. Our failure to obtain sufficient capital on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to delay, reduce or curtail our research, product development or future commercialization efforts. We may also be required to license rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Our management cannot provide assurance that we will ever generate positive cash flow from operating activities. See “Liquidity and Capital Resources.”

In December 2020, we entered into the Master Research Collaboration (“MCA”) with the University Court of the University of Edinburgh (the “University of Edinburgh”) to support our pipeline development and expansion, and to accelerate scientific innovation to continue to improve upon conventional gene therapy. In November 2023, the collaboration agreement was amended and extended through December 2026. The University of Edinburgh has a vibrant community of over 500 neuroscience researchers and is widely recognized as a preeminent center for neuroscience research, especially in areas of neurodegeneration and in neurodevelopmental disorders, such as Rett syndrome. For example, researchers currently in neuroscience centers at the University of Edinburgh conducted the seminal preclinical work for Rett syndrome, including discovery of the MeCP2 protein, its function as a transcriptional repressor, developing the first and most widely adopted animal model of Rett syndrome, demonstrating for the first time the reversibility of phenotypes in any neurodevelopmental disorder as well as the first ever preclinical gene therapy efforts in Rett syndrome. Under the terms of the agreement, we have the option to in-license product candidates from Dr. Stuart Cobb’s laboratory, where he has a dual appointment as a Professor in Translational Neuroscience at the Patrick Wild Centre and the Centre for Discovery Brain Sciences and serves as our Chief Scientific Officer. Dr. Cobb may be entitled to receive in the future a percentage of certain license-related payments from Neurogene to the University of Edinburgh in accordance with the University of Edinburgh’s standard policies for professor inventors.

Impact of Global Economic Events

Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including high inflation, changes in interest rates, changes in foreign currency exchange rates, recent bank failures, proposed or adopted federal U.S. legislation seeking to limit the provision of services in our sector by certain non-U.S. entities, geopolitical factors, including the ongoing conflicts between Russia and Ukraine and Israel and the surrounding areas and the responses thereto, the impacts of climate change, and supply chain disruptions. While management is closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, including the impacts on our participants in our Phase 1/2 clinical trials, employees, suppliers, vendors and business partners, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside our control and could exist for an extended period of time. Management will continue to evaluate the nature and extent of the potential impacts to our business, results of operations, liquidity and capital resources. For additional information, see the section entitled “Risk Factors.”

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Components of Results of Operations

Revenue

We have no products approved for sale and have never generated any revenue from product sales.

We have generated licensing revenue from the recognition of upfront payments received under agreements with third parties for the disposition of legacy Neoleukin assets (the “December 2023 CVR Licensing Agreement” and the “April 2024 CVR Licensing Agreement”) that are related to the legacy Neoleukin business as part of the reverse merger. See Note 9, Commitments and Contingencies, for additional details regarding these licensing agreements.

Operating Expenses

Research and Development Expenses

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

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

•acquired licenses and intellectual property that are accounted for as asset acquisitions and have no alternative future use;

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

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

•expenses incurred under agreements with our third-party contract development and manufacturing organizations (“CDMOs”), as well as internal manufacturing scale-up expenses, including the cost of acquiring and manufacturing preclinical study and clinical trial materials;

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

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

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

Before a product receives regulatory approval, we record upfront and milestone payments to third parties under licensing arrangements as expense, provided that there is no alternative future use of the rights in other research and developments projects.

Non-refundable prepayments for research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided. Costs for certain development activities, such as outside research programs funded by us, are recognized based on an evaluation of the progress to completion of specific tasks with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense as applicable.

We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, including fees paid to CROs, CDMOs and research laboratories in connection with our preclinical development, process development, and clinical development activities. We also incur personnel and other operating expenses for research and development programs, which are presented in aggregate.

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

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General and Administrative Expenses

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

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

Interest Income

Interest income consists primarily of interest earned on our cash equivalents and short term investments. We expect our interest income to fluctuate depending on interest rates and the amount of cash that is invested.

Income Taxes

We assess our income tax positions and record tax benefits based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we record the amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions for which it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements.

Since inception, we have not recorded any income tax benefits for net operating losses (“NOLs”) or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized. Accordingly, we have established a valuation allowance against such deferred tax assets for all periods since inception.

As of December 31, 2023, we had federal and state NOL carryforwards in the amount of $277.9 million and $35.1 million, respectively, which may be available to offset future taxable income. The state NOL carryforwards will begin to expire in 2038, unless previously utilized. Most federal NOL carryforwards were generated subsequent to January 1, 2018, and therefore are able to be carried forward indefinitely. As of December 31, 2023, we also had federal research tax credit and federal orphan drug tax credit carryforwards of $7.5 million and $2.2 million, respectively, which may be used to offset future tax liabilities. These tax and orphan drug credit carryforwards begin to expire in 2039 and 2042, respectively, unless previously utilized.

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the periods indicated (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2024		2023		Change		2024		2023		Change
Revenue under licensing agreements	$	925	$	—	$	925	925		$	—	$	925
Operating expenses:
Research and development expenses	15,744		10,321		5,423		29,285		20,604		8,681
General and administrative expenses	5,315		2,275		3,040		10,553		5,027		5,526
Total operating expenses	21,059		12,596		8,463		39,838		25,631		14,207
Loss from operations	(20,134)		(12,596)		(7,538)		(38,913)		(25,631)		(13,282)
Other income (expense):
Interest income	2,035		743		1,292		4,355		1,520		2,835
Interest expense	(4)		(3)		(1)		(7)		(5)		(2)
Other income	144		—		144		287		—		287
Other expense	(533)		(4)		(529)		(1,135)		(7)		(1,128)
Net loss	$	(18,492)	$	(11,860)	$	(6,632)	$	(35,413)	$	(24,123)	$	(11,290)

Revenue

Licensing revenue was $0.9 million for the three months ended June 30, 2024, as compared to $0 for the three months ended June 30, 2023. We generated licensing revenue from the recognition of upfront payments received under the December 2023 CVR Licensing Agreement and the April 2024 CVR Licensing Agreement. Please see the section below entitled Other Expenses for a discussion on the related CVR liabilities.

Licensing revenue was $0.9 million for the six months ended June 30, 2024, as compared to $0 for the six months ended June 30, 2023. We generated licensing revenue from the recognition of upfront payments received under the December 2023 CVR Licensing Agreement and the April 2024 CVR Licensing Agreement. Please see the section below entitled Other Expenses for a discussion on the related CVR liabilities.

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Research and Development Expenses

The following table summarizes our research and development expenses for the periods indicated (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2024		2023		Change		2024		2023		Change
Program specific expenses:
Rett syndrome	$	2,798	$	1,466	$	1,332	$	4,817	$	2,252	$	2,565
Batten disease	1,734		1,307		427		2,924		2,553		371
Early Discovery	1,705		494		1,211		3,171		886		2,285
Discontinued Programs	1		161		(160)		(38)		270		(308)
Unallocated internal expenses:
Personnel-related	4,557		3,509		1,048		9,275		7,378		1,897
Share-based compensation	1,375		241		1,134		1,940		415		1,525
Manufacturing	2,815		2,490		325		5,620		5,301		319
Other	759		653		106		1,576		1,549		27
Total research and development expenses	$	15,744	$	10,321	$	5,423	$	29,285	$	20,604	$	8,681

Research and development expenses were $15.7 million for the three months ended June 30, 2024, as compared to $10.3 million for the three months ended June 30, 2023.

Expenses related to the Rett syndrome program increased primarily due to a $1.3 million increase in clinical trial costs for the Phase 1/2 clinical trial of NGN-401. The increase in expenses related to the Batten disease program was primarily driven by a $0.2 million increase in clinical development costs and $0.1 million increase in clinical trial costs for the Phase 1/2 clinical trial of NGN-101. The increase in expenses related to the Early Discovery program was primarily driven by a $1.2 million increase in preclinical costs.

In 2021, we re-prioritized our pipeline and discontinued certain programs that were in the preclinical and IND-enabling phase of development and shifted focus to developing programs such as NGN-401 for the treatment of Rett syndrome with our EXACT technology. The decline in expenses related to Discontinued Programs in the second quarter of 2024 was primarily driven by a reduction in study closeout costs. Expenses for Discontinued Programs were substantially complete by year end 2023.

The increase in unallocated internal expenses was driven primarily by higher salaries, benefits, and share-based compensation costs due to an increase in research and development headcount.

Research and development expenses were $29.3 million for the six months ended June 30, 2024, as compared to $20.6 million for the six months ended June 30, 2023.

Expenses related to the Rett syndrome program increased primarily due to a $2.6 million increase in clinical trial costs for the Phase 1/2 clinical trial of NGN-401, offset by a $0.3 million decline in preclinical costs. The increase in expenses related to the Batten disease program was primarily driven by a $0.2 million increase in clinical development costs and $0.1 million increase in preclinical costs. The increase in expenses related to the Early Discovery program was primarily driven by a $2.2 million increase in preclinical costs.

In 2021, we re-prioritized our pipeline and discontinued certain programs that were in the preclinical and IND-enabling phase of development and shifted focus to developing programs such as NGN-401 for the treatment of Rett syndrome with our EXACT technology. The decline in expenses related to Discontinued Programs in the first six months of 2024 was primarily driven by a reduction in study closeout costs. Expenses for Discontinued Programs were substantially complete by year end 2023.

The increase in unallocated internal expenses was driven primarily by higher salaries, benefits, and share-based compensation costs due to an increase in research and development headcount.

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We expect that our research and development expenses will continue to increase for the foreseeable future as we advance our programs and product candidates into and through clinical development and, as we continue to develop additional product candidates, build our manufacturing capabilities and develop our EXACT technology.

General and Administrative Expenses

General and administrative expenses were $5.3 million for the three months ended June 30, 2024, as compared to $2.3 million for the three months ended June 30, 2023. The increase was primarily attributable to: (1) approximately $1.4 million in employee-related expenses, including an increase of $0.8 million in stock-based compensation expense, driven by an increase in headcount to support our transition into a public company, (ii) approximately $0.6 million in professional services and consulting fees, (iii) approximately $0.6 million related to rent associated with the Company’s assumption of legacy Neoleukin facilities (the Eastlake Lease and Blaine Lease), and (iv) $0.5 million related to corporate related expenses and market research costs. This was partially offset by the recovery of approximately $0.1 million related to a business email compromise attack by a third party in the prior year.

General and administrative expenses were $10.6 million for the six months ended June 30, 2024, as compared to $5.0 million for the six months ended June 30, 2023. The increase was primarily attributable to: (1) approximately $2.2 million in employee-related expenses, including an increase of $1.2 million in stock-based compensation expense, driven by an increase in headcount to support our transition into a public company, (ii) approximately $1.5 million in professional services and consulting fees, (iii) approximately $1.1 million related to rent associated with the Company’s assumption of legacy Neoleukin facilities (the Eastlake Lease and Blaine Lease), and (iv) $0.8 million related to corporate related expenses and market research costs. This was partially offset by the recovery of approximately $0.4 million related to a business email compromise attack by a third party in the prior year.

We anticipate that our general and administrative expenses will increase in the future to support increased research and development activities.

Interest Income

Interest income increased by $1.3 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to a significant increase in the amount of Neurogene’s cash balances and a modest rise in interest rates.

Interest income increased by $2.8 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to a significant increase in the amount of Neurogene’s cash balances and a modest rise in interest rates.

Other Income

Other income increased by $0.1 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to sublease income associated with the Eastlake Lease assumed after the Reverse Merger closed.

Other income increased by $0.3 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to sublease income associated with the Eastlake Lease assumed after the Reverse Merger closed.

Other Expenses

Other expenses increased by $0.5 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The increase was primarily due to (1) the accrual of a contingent consideration liability related to the Intellectual Property CVR (as defined in Note 9, Commitments and Contingencies, in the notes to the financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q) in connection with the December 2023 Licensing Agreement and (2) the accrual of a contingent consideration liability related to the Sales Tax CVR for an anticipated sales tax refund from Washington state.

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Other expenses decreased by $1.1 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase was primarily due to (1) the accrual of contingent consideration liabilities related to the Intellectual Property CVR (as defined in Note 9, Commitments and Contingencies, in the notes to the financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q) in connection with the December 2023 Licensing Agreement and the April 2024 Licensing Agreement and (2) the accrual of a contingent consideration liability related to the Sales Tax CVR for an anticipated sales tax refund from Washington state.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our product candidates. We expect that our research and development and general and administrative costs will continue to increase significantly, including in connection with conducting clinical trials and manufacturing for our product candidates to support commercialization and providing general and administrative support for our operations, including the costs associated with operating as a public company. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources. We believe that our existing capital resources will be sufficient to fund our operations through at least 12 months following the filing date of this Form 10-Q. See the section entitled “Risk Factors” for additional risks associated with our substantial capital requirements.

As of June 30, 2024, we had cash, cash equivalents and short term investments totaling $153.9 million. Since inception and through the issuance of these financial statements, we have funded our operations primarily through private placements of convertible preferred stock and common stock for net proceeds of $332.4 million.

Future Capital Requirements

In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that management believes will be necessary to commercialize product candidates, if approved, we will require substantial additional capital. Accordingly, until such time as we can generate a sufficient amount of revenue from product sales or other sources, if ever, management expects to seek to raise any necessary additional capital through private or public equity or debt financings, loans or other capital sources, which could include income from collaborations, partnerships or other marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. To the extent that we raise additional capital through equity financings or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our own common stock, make certain investments or engage in merger, consolidation, licensing, or asset sale transactions. If we raise capital through collaborations, partnerships, and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional capital from these sources on favorable terms, or at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from macroeconomic conditions, geopolitical instability, government regulation and otherwise. The failure to obtain sufficient capital on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including by requiring us to delay, reduce or curtail our research, product development or future commercialization efforts. We may also be required to license rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Management cannot provide assurance that we will ever generate positive cash flow from operating activities.

In order to continue our operations, we must achieve profitable operations and/or obtain additional equity or debt financing. Until we achieve profitability, management plans to fund our operations and capital expenditures with cash on hand and the sale and issuance of securities. We may not be successful in raising additional capital and such capital, if available, may not be on terms that are acceptable to us.

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We have incurred, and expect to continue to incur, additional costs associated with operating as a public company. In addition, we anticipate that we will need substantial additional funding in connection with our continuing operations. Management bases its projections of operating capital requirements on our current operating plan, which includes several assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than management expects.

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount and timing of our capital requirements. Our future funding requirements will depend on many factors, including:

•the scope, timing, progress, results, and costs of researching and developing genetic medicines, and conducting larger and later-stage clinical trials;

•the scope, timing, progress, results, and costs of researching and developing other product candidates that we may pursue;

•the costs, timing, and outcome of regulatory review of our product candidates;

•the costs of future activities, including product sales, medical affairs, marketing, manufacturing, and distribution, for any of our product candidates for which we receive marketing approval;

•the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;

•the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

•the cost and timing of attracting, hiring, and retaining skilled personnel to support our operations and continued growth;

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

•Our ability to establish, maintain, and derive value from collaborations, partnerships or other marketing, distribution, licensing, or other strategic arrangements with third parties on favorable terms, if at all;

•the extent to which we acquire or in-license other product candidates and technologies, if any; and

•the costs associated with operating as a public company.

A change in the outcome of any of these or other factors with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional capital to meet the capital requirements associated with such operating plans.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):


	Six Months Ended June 30,
	2024		2023
Net cash used in operating activities	$	(37,543)	$	(22,882)
Net cash provided by (used in) investing activities	6,321		(111)
Net cash (used in) provided by financing activities	(6,125)		21
Net decrease in cash, cash equivalents and restricted cash	$	(37,347)	$	(22,972)

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Cash Flows from Operating Activities

For the six months ended June 30, 2024, we used $37.5 million of cash in operating activities. Cash used in operating activities reflected our net loss of $35.4 million, a $7.6 million net decrease in our operating assets and liabilities and noncash charges of $5.5 million, which consisted primarily of $3.4 million in stock-based compensation, $1.6 million in depreciation and $0.8 million in non-cash CVR liability changes, partially offset by $0.8 million in accretion on the held-to-maturity investments. The primary use of cash was to fund our operations related to the development of our product candidates, costs associated with the Reverse Merger and the Pre-Closing Financing, and related severance and retention payments to former Neoleukin employees.

For the six months ended June 30, 2023, we used $22.9 million of cash in operating activities. Cash used in operating activities reflected our net loss of $24.1 million and a $1.4 million net decrease in our operating assets and liabilities, offset by noncash charges of $2.6 million, which consisted primarily of $1.6 million in depreciation and $0.7 million in stock-based compensation. The primary use of cash was to fund our operations related to the development of our product candidates.

Cash Flows from Investing Activities

For the six months ended June 30, 2024, net cash flows provided by investing activities consisted of proceeds from the maturities of investments of $49.5 million partially offset by purchases of investments of $42.7 million and purchases of property and equipment of $0.5 million.

For the six months ended June 30, 2023, net cash flows used in investing activities consisted of purchases of property and equipment of $0.1 million.

Cash Flows from Financing Activities

For the six months ended June 30, 2024, net cash flows used in financing activities consisted of $4.3 million in offering costs paid in connection with the Pre-Closing Financing and $2.9 million in transaction costs related to the Reverse Merger, partially offset by proceeds of $1.0 million from the exercise of stock options.

For the six months ended June 30, 2023, net cash flows provided by financing activities consisted of proceeds of $0.1 million from the exercise of stock options.

Contractual Obligations and Commitments

Lease Obligations

New York Headquarters Lease

We sub-lease approximately 6,000 square feet of office space for our corporate headquarters in New York, New York, with a term expiring in June 2026.

Houston Lease

We lease 42,342 square feet for a manufacturing facility in Houston, Texas. The lease expires in August 2029. We have the option to renew the lease term for two additional five-year terms. The renewal periods were not included in the lease term for purposes of determining the lease liability or right-of-use asset.

Blaine Lease in Seattle

We lease approximately 33,300 square feet of office space in Seattle, Washington that was previously used by Neoleukin for offices, a laboratory for research an