SEC Form 424B3 filed by CARGO Therapeutics Inc.

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-280249

PROSPECTUS SUPPLEMENT NO. 2

(to prospectus dated June 27, 2024)

 

CARGO Therapeutics, Inc.

 

 

This prospectus supplement updates, amends and supplements the prospectus dated June 27, 2024 (the “Prospectus”), which forms a part of our Registration Statement on Form S-1, as amended (Registration No. 333-280249).

This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on November 12, 2024, which is set forth below.

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference.

Our Common Stock is listed on the Nasdaq Stock Market LLC under the symbol “CRGX.” On November 11, 2024, the closing price of our Common Stock was $21.98.

 

 

We are an “emerging growth company” under federal securities laws and are subject to reduced public company reporting requirements. Investing in our securities involves certain risks. See the section entitled “Risk Factors” beginning on page 36 of the Prospectus and under similar headings in any further amendments or supplements to the Prospectus to read about factors you should consider before buying our securities.

Neither the SEC nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement or the Prospectus. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus supplement is November 12, 2024

 

 

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 September 30, 2024

OR

 

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

For the transition period from      to     

Commission File Number: 001-41859

 

 

CARGO Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware		84-4080422
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
835 Industrial Road, Suite 400 San Carlos, California		94070
(Address of principal executive offices)		(Zip Code)
(650) 499-8950 (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 $0.001 per share		CRGX		Nasdaq Global Select Market

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

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

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

 

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. ☐

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 November 7, 2024, the registrant had 46,027,727 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve substantial risks, uncertainties and assumptions. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, including, without limitation, statements regarding our strategy, future operations, future operating expenses, future financial position, future revenue, projected costs, prospects, plans, intentions, expectations, goals and objectives may be forward-looking statements. The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should,” “would” or “will,” and similar expressions (including the negatives thereof) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this report include, but are not limited to, statements about:

 

•

the potential for adverse events, undesirable side effects or unexpected characteristics associated with any of our product candidates;

 

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the timing of achieving our scientific, clinical, manufacturing, regulatory and/or other product development objectives;

 

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the timing of our planned Investigational New Drug (IND) application submissions to the United States Food and Drug Administration (FDA) for our product candidates, including firicabtagene autoleucel (firi-cel) (previously CRG-022);

 

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our expectations regarding the potential market size and size of the potential patient populations for our product candidates and any future product candidates, if approved for commercial use;

 

•

our clinical and regulatory development plans;

 

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our expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing and availability of data from such studies;

 

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the number, size and design of our planned clinical trials, and what regulatory authorities may require to obtain full marketing approval;

 

•

our plans to research, develop and, if approved, commercialize our product candidates, including firi-cel and CRG-023;

 

•

the timing of commencement of future preclinical studies and clinical trials and research and development programs;

 

•

our ability to acquire, discover, develop and advance product candidates into, and successfully complete, clinical trials;

 

•

our ability to obtain certain designations, such as a Breakthrough Therapy or Regenerative Medicine Advance Therapy, for one or more of our product candidates;

 

•

a requirement to obtain approval of a companion diagnostic in connection with the approval of any of our product candidates;

 

•

our intentions and our ability to establish collaborations and/or partnerships;

 

•

the discovery of previously unknown or unexpected problems with our product candidates or any future product candidates or with the facilities where such product candidates are or will be manufactured;

 

•

the timing or likelihood of regulatory submissions and potential approvals for our product candidates, including the potential requirement to adopt a Risk Evaluation and Mitigation Strategy;

 

•

our commercialization, marketing and manufacturing strategies, including the buildout of our own manufacturing facility, capabilities and expectations;

 

•

the rate and degree of market acceptance of our product candidates, if approved;

 

•

the success of competing products or platform technologies that are or may become available;

 

i

•

impact from future regulatory, judicial, and legislative changes or developments in the United States and foreign countries;

 

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our intentions with respect to the commercialization of our product candidates;

 

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the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;

 

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

 

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future agreements with third parties in connection with the potential commercialization of our product candidates;

 

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the potential effects of health epidemics, pandemics, other widespread outbreaks of contagious disease, such as COVID-19 and the post-COVID-19 environment, on our preclinical and clinical programs and business;

 

•

the implementation of our business model and strategic plans for our business and product candidates, including additional indications for which we may pursue;

 

•

our ability to effectively manage our growth, including our ability to attract and retain key scientific and management personnel, and maintain our culture;

 

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

 

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potential claims relating to our intellectual property and third-party intellectual property;

 

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estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;

 

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

 

•

our future financial performance;

 

•

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act and a smaller reporting company as defined in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the Exchange Act);

 

•

developments and projections relating to our competitors and our industry, including competing products;

 

•

our expectations regarding the use of proceeds from our initial public offering and our existing cash and cash equivalents; and

 

•

other risks and uncertainties, including those listed under the caption “Risk Factors” in this Quarterly Report on Form 10-Q.

We have based these forward-looking statements largely on our current expectations, estimates, forecasts and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. In light of the significant uncertainties in these forward- looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the section titled “Risk factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward- looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

 

ii

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website, Securities and Exchange Commission filings, webcasts, press releases and conference calls. We use these mediums, including our website, to communicate with the public about our company, our business and other issues. It is possible that the information that we make available may be deemed to be material information. We, therefore, encourage investors and others interested in our company to review the information that we make available on our website.

 

iii

RISK FACTORS SUMMARY

Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common stock. These risks are more fully described in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q. These risks include, among others, the following:

 

•

We are a clinical-stage biotechnology company and have incurred significant losses since our inception, and we expect to incur losses for the foreseeable future. We have no products approved for commercial sale and may never achieve or maintain profitability.

 

•

Our limited operating history may make it difficult to evaluate our prospects and likelihood of success.

 

•

The substantial obligations from our license agreements may result in dilution to our stockholders, may be a drain on our cash resources or may cause us to incur debt obligations to satisfy the payment obligations.

 

•

If we are unable to successfully identify, develop, obtain regulatory approval and ultimately commercialize any of our current or future product candidates, or experience significant delays in doing so, our business, financial condition and results of operations will be materially adversely affected.

 

•

We have experienced rapid operational growth since our inception in December 2019 and expect to continue to grow in the future as our clinical and preclinical trials progress, we begin to advance the development of new and current product candidates and our headcount increases. If we fail to effectively manage our growth, we may not be able to execute on our business objectives.

 

•

Our ability to develop our product candidates and our platform technologies, as well as our future growth, depends on attracting, hiring and retaining our key personnel and recruiting additional qualified personnel.

 

•

We operate in highly competitive and rapidly changing industries, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

 

•

We rely on third parties to conduct our clinical trials, manufacturing and preclinical studies. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements or meet expected deadlines, our development programs and our ability to seek or obtain regulatory approval for or commercialize our product candidates may be delayed.

 

•

We have identified material weaknesses in our internal control over financial reporting. If our remediation of the material weaknesses is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

 

•

Our success depends on our ability to protect our intellectual property and our proprietary technologies.

 

iv

Table of Contents

 

				Page
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)			1
		Condensed Balance Sheets			1
		Condensed Statements of Operations and Comprehensive Loss			2
		Condensed Statements of Stockholders’ Equity			3
		Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit			4
		Condensed Statements of Cash Flows			5
		Notes to Unaudited Condensed Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			34
Item 4.		Controls and Procedures			34
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings			35
Item 1A.		Risk Factors			36
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			100
Item 3.		Defaults Upon Senior Securities			101
Item 4.		Mine Safety Disclosures			101
Item 5.		Other Information			101
Item 6.		Exhibits			102
Signatures					103

 

v

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CARGO THERAPEUTICS, INC.

Condensed Balance Sheets

(in thousands, except share and per share data)

 

		September 30, 2024				December 31, 2023
		(Unaudited)				(Note 2)
Assets
Current assets:
Cash and cash equivalents		$	71,176			$	405,732
Marketable securities			333,672				—
Prepaid expenses and other current assets			5,170				3,745
Total current assets			410,018				409,477
Operating lease right-of-use assets			24,063				28,222
Restricted cash			567				567
Property and equipment, net			11,659				10,379
Other non-current assets			4,654				4,391
Total assets		$	450,961			$	453,036
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	5,372			$	5,013
Accrued clinical and research and development expenses			8,595				7,242
Accrued expenses and other current liabilities			7,532				6,629
Operating lease liabilities, current			143				2,278
Total current liabilities			21,642				21,162
Operating lease liabilities, non-current			28,441				26,263
Other non-current liabilities			—				225
Total liabilities			50,083				47,650
Stockholders’ equity:
Common stock			46				41
Additional paid-in capital			667,410				550,491
Accumulated other comprehensive income			635				—
Accumulated deficit			(267,213	)			(145,146	)
Total stockholders’ equity			400,878				405,386
Total liabilities and stockholders’ equity		$	450,961			$	453,036

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

 

1

CARGO THERAPEUTICS, INC.

Condensed Statements of Operations and Comprehensive Loss

(unaudited, in thousands, except share and per share data)

 

		Three months ended September 30,								Nine months ended September 30,
		2024				2023				2024				2023
Operating expenses:
Research and development		$	35,932			$	22,233			$	103,893			$	48,724
General and administrative			11,180				6,478				33,343				13,030
Total operating expenses			47,112				28,711				137,236				61,754
Loss from operations			(47,112	)			(28,711	)			(137,236	)			(61,754	)
Interest income			5,403				894				15,395				1,577
Interest expense			—				—				—				(1,604	)
Net change in fair value of redeemable convertible preferred stock tranche obligations			—				(7,651	)			—				(8,343	)
Change in fair value of derivative liabilities			—				—				—				6,453
Loss on extinguishment of convertible notes			—				—				—				(2,316	)
Other expense, net			(199	)			(3	)			(226	)			(83	)
Net loss		$	(41,908	)		$	(35,471	)		$	(122,067	)		$	(66,070	)
Other comprehensive loss:
Unrealized gain on marketable securities			958				—				635				—
Comprehensive loss		$	(40,950	)		$	(35,471	)		$	(121,432	)		$	(66,070	)
Net loss per share attributable to common stockholders, basic and diluted		$	(0.88	)		$	(47.37	)		$	(2.77	)		$	(98.15	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted			47,664,309				748,862				44,014,886				673,175

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

 

2

CARGO THERAPEUTICS, INC.

Condensed Statements of Stockholders’ Equity

(unaudited, in thousands, except share data)

 

														Accumulated
		Common Stock								Additional Paid-In				Other Comprehensive				Accumulated				Total Stockholders’
		Shares				Amount				Capital				Income (Loss)				Deficit				Equity
Balances at December 31, 2023			41,205,551			$	41			$	550,491			$	—			$	(145,146	)		$	405,386
Exchange of common stock for pre-funded warrants			(1,842,499	)			(2	)			(23	)			—				—				(25	)
Exercise of stock options			5,595				—				26				—				—				26
Vesting of restricted stock			—				—				11				—				—				11
Stock-based compensation			—				—				3,904				—				—				3,904
Net loss			—				—				—				—				(35,811	)			(35,811	)
Other comprehensive loss			—				—				—				(279	)			—				(279	)
Balances at March 31, 2024			39,368,647				39				554,409				(279	)			(180,957	)			373,212
Issuance of common stock in private placement, net of issuance costs of $7,119			6,471,000				7				102,881				—				—				102,888
Exercise of stock options			22,744				—				80				—				—				80
Vesting of restricted stock			—				—				11				—				—				11
Stock-based compensation			—				—				4,302				—				—				4,302
Net loss			—				—				—				—				(44,348	)			(44,348	)
Other comprehensive loss			—				—				—				(44	)			—				(44	)
Balances at June 30, 2024			45,862,391				46				661,683				(323	)			(225,305	)			436,101
Exercise of stock options			127,631				—				783				—				—				783
Vesting of restricted stock			—				—				13				—				—				13
Stock-based compensation			—				—				4,931				—				—				4,931
Net loss			—				—				—				—				(41,908	)			(41,908	)
Other comprehensive income			—				—				—				958				—				958
Balances at September 30, 2024			45,990,022			$	46			$	667,410			$	635			$	(267,213	)		$	400,878

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

 

3

CARGO THERAPEUTICS, INC.

Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

(unaudited, in thousands, except share data)

 

		Redeemable Convertible Preferred Stock												Convertible Preferred Stock								Common Stock								Additional Paid-In				Accumulated				Total Stockholders’
		Shares				Amount								Shares				Amount				Shares				Amount				Capital				Deficit				Deficit
Balances at December 31, 2022			—			$	—								810,700			$	1				1,091,800			$	1			$	11,761			$	(46,999	)		$	(35,236	)
Reclassification of Series Seed redeemable convertible preferred stock			810,700				9,830								(810,700	)			(1	)			—				—				(9,829	)			—				(9,830	)
Issuance of Series A-1 redeemable convertible preferred stock, net of issuance costs of $755 and convertible preferred stock tranche asset and liability of $7,317 on issuance			5,072,919				60,760								—				—				—				—				—				—				—
Issuance of Series A-2 redeemable convertible preferred stock upon conversion of convertible notes			3,229,851				35,576								—				—				—				—				—				—				—
Issuance of restricted stock			—				—								—				—				1,874				—				—				—				—
Vesting of restricted stock			—				—								—				—				—				—				18				—				18
Repurchase of restricted stock			—				—								—				—				(4,698	)			—				—				—				—
Stock-based compensation			—				—								—				—				—				—				31				—				31
Net loss			—				—								—				—				—				—				—				(12,747	)			(12,747	)
Balances at March 31, 2023			9,113,470				106,166								—				—				1,088,976				1				1,981				(59,746	)			(57,764	)
Exercise of stock options			—				—								—				—				1,695				—				2				—				2
Vesting of restricted stock			—				—								—				—				—				—				43				—				43
Repurchase of restricted stock			—				—								—				—				(4,686	)			—				—				—				—
Stock-based compensation expense			—				—								—				—				—				—				592				—				592
Net loss			—				—								—				—				—				—				—				(17,852	)			(17,852	)
Balances at June 30, 2023			9,113,470				106,166								—				—				1,085,985				1				2,618				(77,598	)			(74,979	)
Issuance of Series A-1 redeemable convertible preferred stock, net of issuance costs of $55			3,381,941				42,012								—				—				—				—				—				—				—
Reclassification of tranche obligation asset to Series A-1 redeemable convertible preferred stock			—				1,910								—				—				—				—				—				—				—
Exercise of stock options			—				—								—				—				5,545				—				6				—				6
Vesting of restricted stock			—				—								—				—				—				—				25				—				25
Repurchase of restricted stock			—				—								—				—				(5,268	)			—				—				—				—
Stock-based compensation			—				—								—				—				—				—				1,084				—				1,084
Net loss			—				—								—				—				—				—				—				(35,471	)			(35,471	)
Balances at September 30, 2023			12,495,411			$	150,088								—			$	—				1,086,262			$	1			$	3,733			$	(113,069	)		$	(109,335	)

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

 

4

CARGO THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(unaudited, in thousands)

 

		Nine months ended September 30,
		2024				2023
OPERATING ACTIVITIES
Net loss		$	(122,067	)		$	(66,070	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense			13,137				1,707
Amortization of operating lease right-of-use assets			3,835				1,631
Depreciation			1,876				960
Loss from disposal of property and equipment			156				—
Acquired in-process research and development			270				1,225
Accretion on investments in marketable securities			(4,233	)			—
Change in fair value of derivative liabilities			—				(6,453	)
Loss on extinguishment of convertible notes			—				2,316
Noncash interest expense			—				1,604
Net change in fair value of redeemable convertible preferred stock tranche obligations			—				8,343
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			(1,525	)			(1,017	)
Other non-current assets			(263	)			(3,550	)
Accounts payable			1,053				3,297
Accrued clinical and research and development expenses			1,908				5,120
Accrued expenses and other current liabilities			631				203
Operating lease liabilities			367				(1,498	)
Net cash used in operating activities			(104,855	)			(52,182	)
INVESTING ACTIVITIES
Purchases of marketable securities			(489,461	)			—
Proceeds from sales and maturities of marketable securities			160,657				—
Purchase of property and equipment			(3,817	)			(5,660	)
Proceeds from sale of property and equipment			223				—
Purchase of in-process research and development			(950	)			(358	)
Net cash used in investing activities			(333,348	)			(6,018	)
FINANCING ACTIVITIES
Proceeds from issuance of common stock in private placement, net of issuance costs			102,888				—
Proceeds from issuance of convertible notes, net of issuance costs - related party			—				2,212
Proceeds from issuance of convertible notes, net of issuance costs			—				1,286
Proceeds from issuance of redeemable convertible preferred stock and tranche obligations, net of issuance costs			—				113,909
Proceeds from exercise of stock options			889				8
Payment of deferred initial public offering costs			(105	)			(743	)
Payment of transaction costs for exchange of common stock for warrants			(25	)			—
Net cash provided by financing activities			103,647				116,672
Net (decrease) increase in cash, cash equivalents and restricted cash			(334,556	)			58,472
Cash, cash equivalents, and restricted cash at beginning of period			406,299				1,872
Cash, cash equivalents, and restricted cash at end of period		$	71,743			$	60,344
COMPONENTS OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents		$	71,176			$	60,344
Restricted cash			567				—
Total cash, cash equivalents, and restricted cash		$	71,743			$	60,344

 

5

CARGO THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(unaudited, in thousands)

 

		Nine months ended September 30,
		2024				2023
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
Reclassification of tranche obligation asset to Series A-1 redeemable convertible preferred stock		$	—			$	1,910
Exchange of common stock for pre-funded warrants		$	37,600			$	—
Conversion of convertible notes to shares of Series A-2 redeemable convertible preferred stock		$	—			$	35,576
Reclassification of shares of Series Seed redeemable convertible preferred stock to mezzanine equity		$	—			$	9,830
Purchase of property and equipment in accounts payable and accrued expenses and other current liabilities		$	601			$	1,741
In-process research and development costs in accounts payable, accrued clinical and research and development expenses, and other non-current liabilities		$	493			$	1,250
Deferred offering costs related to initial public offering included in accounts payable, accrued expenses and other current liabilities		$	—			$	1,945

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

 

6

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

1. Organization

Description of the business

CARGO Therapeutics, Inc. (the “Company”) was incorporated in the state of Delaware in December 2019 as Syncopation Life Sciences, Inc. and changed its name to CARGO Therapeutics, Inc. in September 2022. It is a clinical-stage biotechnology company positioned to advance next generation, potentially curative cell therapies for cancer patients. The Company’s programs, platform technologies, and manufacturing strategy are designed to directly address the key limitations of approved cell therapies, including limited durability of effect, suboptimal safety and unreliable supply. The Company’s lead program, firicabtagene autoleucel (firi-cel) (previously CRG-022), an investigational autologous CD22 chimeric antigen receptor (“CAR”) T-cell therapy, has demonstrated robust safety, activity and manufacturability in clinical trials and is currently being studied in a potentially pivotal Phase 2 clinical trial for the treatment of large B-cell lymphoma (“LBCL”). The Company is also leveraging its proprietary cell engineering platform technologies to develop a pipeline of programs that incorporate multi-functional genetic “cargo” designed to enhance CAR T-cell persistence, as well as help safeguard against tumor resistance and T-cell exhaustion. The Company’s most advanced preclinical program, CRG-023, a tri-specific CAR T designed with the goal of providing more patients with a broad range of B-cell malignancies with durable responses by addressing several known causes of relapse associated with existing CAR T-cell therapies such as tumor antigen loss (e.g., CD19), loss of co-stimulation (e.g., CD58) and T cell exhaustion, resulting in a potential best-in-class CAR T-cell therapy. CRG-023 targets the B-cell lineage antigens (CD19, CD20, CD22) via tri-cistronic expression of 3 distinct CARs from a single lentiviral vector, each with its own co-stimulatory domain. One co-stimulatory domain incorporates CD2 signaling into the tri-specific CAR T cell, the design of which has been informed by immune-evasion and CAR T-cell resistance mediated by the loss of CD58 (the ligand of the CD2 co-stimulatory receptor).

Since its founding, the Company has devoted substantially all of its resources to organizing and staffing the Company, business planning, raising capital, establishing licensing arrangements, building its proprietary platform technologies, discovering its product candidates, establishing its intellectual property portfolio, conducting research, preclinical studies, and clinical trials, establishing arrangements with third parties for the manufacture of its product candidates and related raw materials, and providing general and administrative support for these operations.

Reverse Stock Split

On November 1, 2023, the Company’s board of directors approved an amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock and redeemable convertible preferred stock on a 13.5685-for-1 basis (the “Reverse Stock Split”) which was effected on November 3, 2023. The par value and authorized number of shares of common stock and redeemable convertible preferred stock were not adjusted as a result of the Reverse Stock Split. All share data and per share data amounts for all periods presented in the condensed financial statements and notes thereto have been retrospectively adjusted to reflect the effect of the Reverse Stock Split.

Initial Public Offering

On November 14, 2023, the Company closed its initial public offering (“IPO”), pursuant to which it issued and sold an aggregate of 18,750,000 shares of its common stock at a public offering price of $15.00 per share and on November 21, 2023, the Company issued and sold 2,512,181 additional shares of its common stock to the underwriters of the IPO pursuant to the partial exercise of their option to purchase additional shares, resulting in net proceeds of $291.0 million, after deducting underwriting discounts, commissions and other offering expenses. Upon the closing of the IPO, the Company’s 18,836,561 outstanding shares of redeemable convertible preferred stock then outstanding automatically converted into 18,836,561 shares of common stock. Following the closing of the IPO, no shares of redeemable convertible preferred stock were authorized or outstanding.

In connection with the closing of its IPO, on November 14, 2023, the Company’s certificate of incorporation was amended and restated to authorize 500,000,000 shares of common stock, par value $0.001 per share and 50,000,000 shares of preferred stock, par value of $0.001 per share.

 

7

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

Liquidity

Since inception, the Company has incurred significant operating losses and negative cash flows, and it expects that it will continue to incur losses and negative cash flows for the foreseeable future as it continues its research and development efforts, advances its product candidates through preclinical and clinical development, enhances its platforms and programs, expands its product pipeline, seeks regulatory approval, prepares for commercialization, hires additional personnel, protects its intellectual property and grows its business. As of and for the nine months ended September 30, 2024, the Company had an accumulated deficit of $267.2 million, cash and cash equivalents and marketable securities of $404.8 million and negative cash flows from operations of $104.9 million. The Company believes its existing cash and cash equivalents and marketable securities will be sufficient to support operations for at least 12 months from the issuance of these unaudited condensed financial statements.

2. Summary of Significant Accounting Policies

Basis of presentation

The Company has prepared the accompanying condensed financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. The financial statements are presented in U.S. dollars.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current period presentation. Specifically, interest income was previously presented within other income (expense), net for the three and nine months ended September 30, 2023 in the Quarterly Report on Form 10-Q filed with the SEC on December 13, 2023. Interest income is presented separately in the unaudited condensed statement of operations and comprehensive loss within these financial statements.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations.

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses, the fair value of derivative liabilities, the initial fair value of the financial commitment liabilities related to the convertible notes, valuation of the redeemable convertible preferred stock tranche asset and liability, valuation of deferred tax assets, the fair value of equity instruments, equity-based instruments, stock-based compensation, and the determination of the incremental borrowing rate.

Unaudited interim condensed financial statements

The condensed balance sheet as of September 30, 2024 and the condensed statements of operations and comprehensive loss, condensed statement of stockholders’ equity, and condensed statement of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2024, and 2023 and condensed statements of cash flows for the nine months ended September 30, 2024, and 2023 are unaudited. These unaudited condensed financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair statement of the Company’s financial position, results of operations and cash flows for the interim periods presented. The condensed results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year or for any other future

 

8

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

annual or interim period. The condensed balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date. These condensed financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.

Marketable securities

The Company invests in marketable securities, primarily securities issued by the U.S. government and its agencies. All marketable securities have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company evaluates securities for impairment at the end of each reporting period. Factors considered in the evaluation include whether a decline in fair value below the amortized cost basis is due to credit-related factors or non-credit-related factors, the financial condition and near-term prospect of the issuer, and the Company’s intent and ability to hold the investment to allow for anticipated recovery in fair value. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit-related is reported as a component of other comprehensive loss. Realized gains and losses are included in other income (expense), net. The cost of securities sold is based on the specific-identification method. Interest earned on marketable securities is included in interest income. Accrued interest on marketable securities is included in prepaid expenses and other current assets on the balance sheets.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period while the warrants are outstanding. The Company’s pre-funded warrants met all the criteria for equity classification and were recorded as a component of additional paid-in capital at their fair value on issuance.

Net loss per share attributable to common stockholders

The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share attributable to common stockholders is computed using the weighted-average number of shares of common stock outstanding during the period excluding unvested restricted stock subject to repurchase. Basic net loss per share includes pre-funded warrants issued in January 2024 because the pre-funded warrants have a nominal exercise price of $0.001 per share and they were fully vested and exercisable upon their issuance. Diluted net loss per share attributable to common stockholders is computed using the sum of the weighted-average number of shares of common stock outstanding during the period and the effect of dilutive securities.

For periods when the Company’s redeemable convertible preferred stock was outstanding, the holders of such shares were contractually entitled to participate in dividends but not contractually required to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. As the Company was in a net loss position for the periods presented, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders because the effects of potentially dilutive securities are antidilutive.

 

9

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

Recently adopted accounting pronouncements

The Company has implemented all new accounting pronouncements, which are expected to have a material impact on its condensed financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial statements.

Recently issued accounting pronouncements not yet adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures. ASU 2023-07 requires disclosure of incremental segment information on an interim and annual basis and provides new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for all public companies for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company adopted annual requirements under ASU 2023-07 on January 1, 2024 and plans to adopt interim requirements under ASU 2023-07 on January 1, 2025. The Company will begin including financial statement disclosures in accordance with ASU 2023-07 in its Annual Report on Form 10-K for the year ending December 31, 2024.

In December 2023, the FASB issued ASU 2023-09, Income Taxes—Improvements to Income Tax Disclosures. ASU 2023-09 requires consistent categories and greater disaggregation of information in the rate reconciliation, income taxes paid disaggregated by jurisdiction and certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for the Company beginning on January 1, 2025, with early adoption permitted. The Company is assessing the impact of the adoption of this standard on its financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the accompanying financial statements and disclosures.

3. Fair Value Measurement

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Carrying amounts of certain of the Company’s financial instruments including, cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued clinical and research and development expenses, and accrued expenses and other current liabilities approximate fair value due to the short-term nature of these instruments.

 

10

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

The following table presents the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2024:

 

		Valuation Hierarchy				Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
						(in thousands)
Assets:
Cash equivalents:
Money market funds			Level 1			$	70,174			$	—			$	—			$	70,174
Total						$	70,174			$	—			$	—			$	70,174
Marketable securities:
U.S. government and agencies securities			Level 2			$	196,278			$	305			$	(2	)		$	196,581
U.S. Treasury securities			Level 2				136,759				332				—				137,091
Total						$	333,037			$	637			$	(2	)		$	333,672
Total assets						$	403,211			$	637			$	(2	)		$	403,846

The Company’s marketable securities as of September 30, 2024 mature within one year.

The following table presents the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2023:

 

		Valuation Hierarchy				Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
						(in thousands)
Assets:
Cash equivalents:
Money market funds			Level 1			$	398,017			$	—			$	—			$	398,017
Total						$	398,017			$	—			$	—			$	398,017

The valuation techniques used to measure the fair values of the Company’s Level 2 financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices when available. If quoted market prices are not available, the fair value for the security is estimated under the market or income approach using pricing models with market observable inputs.

During the three and nine months ended September 30, 2024, and 2023, the Company did not recognize an allowance for credit-related losses or an other-than-temporary impairment charge for any of its investments.

4. Balance Sheet Components

Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following:

 

		September 30, 2024				December 31, 2023
		(in thousands)
Interest receivable		$	1,699			$	316
Other receivables			1,173				1,423
Prepaid research and development			1,707				825
Prepaid other			591				1,181
Total prepaid expenses and other current assets		$	5,170			$	3,745

 

11

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

Property and equipment, net

Property and equipment, net consisted of the following:

 

		September 30, 2024				December 31, 2023
		(in thousands)
Laboratory equipment		$	13,117			$	9,644
Furniture and fixtures			120				87
Computer equipment			680				593
Leasehold improvements			564				134
Construction in progress			691				1,833
Property and equipment at cost			15,172				12,291
Less: accumulated depreciation			(3,513	)			(1,912	)
Property and equipment, net		$	11,659			$	10,379

Depreciation expense for the three months ended September 30, 2024, and 2023 was $0.7 million and $0.5 million, respectively, and for nine months ended September 30, 2024, and 2023 was $1.9 million and $1.0 million, respectively.

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

 

		September 30, 2024				December 31, 2023
		(in thousands)
Accrued compensation and related expenses		$	5,589			$	5,391
Accrued purchases of property and equipment			515				112
Accrued deferred offering costs			—				95
Other			1,428				1,031
Total accrued expenses and other current liabilities		$	7,532			$	6,629

5. Leases

In December 2023, the Company entered into a 7-year lease for 99,557 square feet of lab and office space in San Carlos, California. The agreement provides for two options to renew for three years each, which the Company is not reasonably certain to exercise. The Company is required to maintain a letter of credit for $0.6 million which has been classified as non-current restricted cash on the unaudited condensed balance sheets.

In July 2024, the Company entered into an agreement with a third party to sublease approximately 38,200 square feet of the Company’s headquarters in San Carlos, California. The sublease term ends on June 30, 2026 with the third party having the option to extend the term for 12 months, unless sooner terminated or cancelled in accordance with the terms and conditions of the sublease or the Company intends to reoccupy the space. The sublease did not relieve the Company of its obligations under the primary lease, and therefore the Company did not adjust the right-of-use asset and the operating lease liability. The total undiscounted lease payments for the initial term of the sublease are $4.6 million as of September 30, 2024.

The Company also leases 31,117 square feet of lab and office space in San Mateo, California which expires in November 2024. The Company was a sublessor in two agreements for a combined 2,300 square feet of the Company’s leased premises which expired in May 2023 and October 2023. In the second quarter of 2024, the Company approved the plan to cease use of the San Mateo leased premises with a planned abandonment date of August 15, 2024. In June 2024, the Company executed an amendment to terminate one of the two leases in San Mateo effective August 15, 2024. As a result, in the second quarter of 2024, the Company reduced the operating lease liability and right-of-use asset of the modified lease by $0.3 million. The Company also accelerated the amortization of the right-of-use asset for the remaining leased premises and related leasehold improvements to recognize amortization on a straight-line basis between the approval date and the abandonment date.

 

12

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

The future payments associated with the Company’s operating lease liabilities as of September 30, 2024 were as follows:

 

		Amount
		(in thousands)
2024 (remaining three months)		$	145
2025			4,676
2026			7,224
2027			7,441
2028			7,664
Thereafter			18,119
Total undiscounted lease payments			45,269
Less: imputed interest			(16,685	)
Total operating lease liabilities		$	28,584

A summary of total lease costs and other information for the periods relating to the Company’s operating leases was as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2024				2023				2024				2023
		(in thousands)
Operating lease cost		$	2,035			$	683			$	6,702			$	1,929
Variable lease cost			847				168				2,525				476
Sublease income			(568	)			(60	)			(568	)			(280	)
Total lease cost		$	2,314			$	791			$	8,659			$	2,125

 

		September 30, 2024				December 31, 2023
Other information:
Weighted-average remaining lease term (in years)			6.5				6.7
Weighted-average discount rate			13.7	%			13.6	%

Supplemental cash flow and noncash information related to the Company’s operating leases was as follows:

 

		Nine months ended September 30,
		2024				2023
		(in thousands)
Cash paid for amounts included in the measurement of lease liabilities		$	2,500			$	1,804
Right-of-use assets obtained in exchange for lease obligations		$	—			$	2,291
Decrease in right-of-use assets and liabilities from lease modifications		$	324			$	—

6. Common stock

Common stock issued and outstanding on the unaudited condensed balance sheets and statements of stockholders’ equity includes shares related to restricted stock that are subject to repurchase and therefore are excluded from the reserved common stock in the table below.

 

13

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

The Company’s reserved common stock, on an as-converted basis for issuance was as follows:

 

		September 30, 2024				December 31, 2023
Common stock options issued and outstanding under the Plan			6,060,968				3,720,455
Common stock issuable upon exercise of pre-funded warrants			1,842,499				—
Remaining shares available for issuance under the Plan			3,457,652				3,893,858
Remaining shares available for issuance under the ESPP			798,780				386,725
Total reserved common stock			12,159,899				8,001,038

Pre-funded Warrants – Exchange Agreement

In January 2024, the Company entered into an exchange agreement (the “Exchange Agreement”), with certain stockholders (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,842,499 shares of the Company’s common stock owned by the Exchanging Stockholders for pre-funded warrants to purchase an aggregate of 1,842,499 common stock. The warrants have an exercise price of $0.001 per share and no expiration date. The pre-funded warrants are exercisable immediately and no additional consideration was rendered in the exchange. Holders of the pre-funded warrants (together with their affiliates and other attribution parties) may not exercise any portion of a pre-funded warrant if after giving effect to such exercise the holder, together with its affiliates, would beneficially own more than 9.99% (the “Exercise Limitation”) of the Company’s outstanding common stock immediately after exercise. At the holders’ election, the Exercise Limitation may be increased or decreased to any other percentage not in excess of 9.99% and will be effective 61 days after notice of such change to the Company.

The Company determined the fair value of the pre-funded warrants issued was $37.6 million which was equal to the fair value of the shares of the exchanged common stock.

Private Placement

On May 30, 2024, the Company sold and issued 6,471,000 shares of its common stock to certain healthcare-focused institutional investors in a private placement (the “Private Placement”) at $17.00 per share for gross proceeds of approximately $110.0 million. In June 2024, the Company filed a Registration Statement on Form S-1 with the SEC to register the shares of common stock sold in the Private Placement. The Company raised net proceeds of $102.9 million, after deducting placement agent fees and offering expenses of $7.1 million.

7. Stock-Based Compensation

2023 Incentive Award Plan

In November 2023, the Company’s board of directors adopted the 2023 Incentive Award Plan (the “2023 Plan”). On January 1, 2024, the shares of common stock authorized for issuance under the 2023 Plan increased by 2,060,277 shares and as of September 30, 2024, a total of 3,457,652 shares of common stock were available for future issuance under the 2023 Plan.

 

14

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

Stock options

Stock option activity for the nine months ended September 30, 2024 was as follows:

 

		Number of Options				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2023			3,720,455			$	7.61				9.49			$	57,821
Granted			2,751,102				23.07
Exercised			(155,970	)			5.70
Cancelled and forfeited			(254,619	)			13.97
Outstanding at September 30, 2024			6,060,968			$	14.41				9.01			$	37,216
Vested and expected to vest, September 30, 2024			6,060,968			$	14.41				9.01			$	37,216
Exercisable at September 30, 2024			1,074,989			$	11.79				8.51			$	9,000

Aggregate intrinsic value in the above table is calculated as the difference between the exercise price of the options and the Company’s estimated fair value of its common stock as of September 30, 2024 and December 31, 2023.

The aggregate intrinsic value of options exercised during the three months ended September 30, 2024 and 2023 was $1.8 million and $39,000, respectively, and during the nine months ended September 30, 2024 and 2023 was $2.3 million and $46,000, respectively. The estimated weighted-average grant-date fair value of options granted during the nine months ended September 30, 2024 and 2023 was $18.32 and $5.17 per share, respectively. As of September 30, 2024, there was $54.4 million of unrecognized stock-based compensation related to stock options, which is expected to be recognized over a weighted-average period of 3.1 years.

Restricted stock awards

The following table summarizes the Company’s restricted stock activity.

 

		Number of Awards				Weighted- Average Grant Date Fair Value
Unvested as of December 31, 2023			239,699			$	0.93
Vested			(169,035	)			1.00
Unvested as of September 30, 2024			70,664			$	0.76

The purchase price of the restricted stock awards is the fair value of common stock as determined by the board of directors at the issuance date. The shares generally vest monthly over four years from the grant date.

The Company recorded $0.1 million as a share repurchase liability for restricted stock awards in accrued expenses and other current liabilities on the unaudited condensed balance sheets as of September 30, 2024 and December 31, 2023.

As of September 30, 2024, unrecognized stock-based compensation expense related to outstanding unvested restricted stock awards was $35,000, which is expected to be recognized over a weighted-average period of 1.5 years.

 

15

CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

Stock-based compensation expense

Total stock-based compensation expense recorded in the unaudited condensed statements of operations and comprehensive loss was as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2024				2023				2024				2023
		(in thousands)
General and administrative		$	3,048			$	587			$	7,889			$	1,014
Research and development			1,883				497				5,248				693
Total stock-based compensation expense		$	4,931			$	1,084			$	13,137			$	1,707

The estimated grant-date fair value of awards granted was calculated based on the following assumptions:

 

		Nine months ended September 30,
		2024				2023
Expected term (in years)			5.3 - 6.1				1.3 -  6.4
Expected volatility			85.7% -  104.1	%			84.6% - 87.2	%
Expected dividend			—				—
Risk-free interest rate			3.5% - 4.7	%			3.2% - 4.6	%

Employee Stock Purchase Plan

On November 14, 2023, the Company’s board of directors adopted the 2023 Employee Stock Purchase Plan (the “ESPP”) which became effective immediately. On January 1, 2024, the number of shares of common stock authorized for issuance under the ESPP increased automatically by 412,055 shares and as of September 30, 2024, a total of 798,780 shares were available for future issuance under the ESPP. There were no shares issued under the ESPP during the three and nine months ended September 30, 2024.

8. License and Research and Development Agreements

Stanford license agreement

In August 2022, the Company entered into a license agreement with the Board of Trustees of the Leland Stanford Junior University (“Stanford University”) relating to the Company’s platform technologies relating to CAR T-cell therapies (the “Stanford License”). Pursuant to the Stanford License, Stanford University granted the Company a worldwide, exclusive license under certain patent rights, and a worldwide non-exclusive license under certain technology, in each case, owned or controlled by Stanford University, to make, use and sell products, methods or services in the field of human therapeutic and diagnostic products. The licensed patent rights cover platform technology relating to the use of CD2/CD58 co-stimulatory signaling in cell therapy.

As consideration for the licenses granted under the Stanford License, the Company made an upfront payment of $50,000 and issued 67,605 shares of its common stock with a fair value of $0.1 million, of which 22,317 shares were issued to Stanford University, 27,100 shares were issued to two non-profit organizations that supported the research, and 18,188 shares were issued to various Stanford University inventors. The Company determined that the purchase of the licenses under the Stanford License represented an asset acquisition as it did not meet the definition of a business. As the acquired licenses represented in-process research and development (“IPR&D”) assets with no alternative future use, the Company recorded the upfront consideration of $0.2 million as research and development expense in August 2022, upon entering into the Stanford License.

The Company recorded research and development expense pursuant to the Stanford License of $20,000 during the three and nine months ended September 30, 2024, and $10,000 during three and nine months ended September 30, 2023.

 

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CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

In addition to annual license maintenance fees of up to $0.1 million per year, the Company may be required to pay up to $7.5 million upon achievement of sales milestones, up to $4.0 million upon achievement of development milestone events for each product covered by licensed patent rights, including upon initiation of specific clinical trials or receipt of regulatory approvals, up to $50,000 in a milestone payment upon achievement of a certain commercial milestone event, up to $0.5 million in a milestone payment upon achievement of certain additional development milestone events, and a double-digit percentage of development and sales milestone payments on the first two licensed non-patent products and, subject to certain royalty reductions, as applicable, low single-digit percentage royalties on net sales of products that are covered by the licensed patent rights or licensed technology. Subject to the terms of the Stanford License, the Company also agreed to pay Stanford University a certain percentage of non-royalty sublicense-related revenue that the Company receives from third-party sublicenses.

Oxford license and supply agreement

In June 2022, the Company entered into a License and Supply Agreement (the “Oxford Agreement”), with OXB (UK) Limited (“Oxford”) for the manufacture and supply of lentiviral vectors for clinical and potentially commercial purposes by the Company. Pursuant to the Oxford Agreement, Oxford granted to the Company a non-exclusive worldwide, sub-licensable, royalty-bearing license under certain intellectual property rights for the purposes of research, development, manufacturing and commercialization of products transduced with the vectors manufactured by Oxford or by the Company following a technology transfer by Oxford, which products are directed against certain initial targets, and upon payment of certain fees, additional targets as agreed by Oxford and the Company.

As consideration for the license granted under the Oxford Agreement, the Company paid an upfront license fee of $0.2 million. The Company determined that the purchase of the license under the Oxford Agreement represented an asset acquisition as it did not meet the definition of a business. As the acquired license represented IPR&D assets with no alternative future use, the Company recorded the upfront payment of $0.2 million as research and development expense in June 2022.

In March 2024, the Company entered into an amendment to the Oxford Agreement pursuant to which Oxford and the Company agreed to an amended royalty payment structure for certain lentiviral vectors manufactured by Oxford. Under the firi-cel program the Company may be obligated to pay up to an aggregate amount of $4.8 million in regulatory and commercial milestones. This includes reduced regulatory and commercial milestones for the firi-cel program, as part of the amendment. In addition, the Company is no longer obligated to pay earned royalties on net sales of licensed products manufactured by Oxford under its firi-cel program and remains obligated to pay an earned royalty at low single-digit percentages of net sales of licensed products under its firi-cel program that are manufactured by an affiliate or a third party. Under its CRG-023 program, the Company may be obligated to pay up to an aggregate amount of $9.5 million in additional target fees, regulatory and commercial milestones and pay an earned royalty at low single-digit percentages of net sales.

No research and development expense related to the license was recorded during the three and nine months ended September 30, 2024. The Company recorded research and development expense related to the license of $0.3 million during the three and nine months ended September 30, 2023.

Unless terminated earlier, the Oxford Agreement will expire when no further payments are due to Oxford. The Company can terminate the agreement at will upon advance written notice and may be subject to certain manufacturing slot cancellation fees.

National Cancer Institute

In March 2022, the Company entered into an exclusive license agreement (the “2022 NCI License”) with the U.S. Department of Health and Human Services, as represented by The National Cancer Institute (“NCI”), pursuant to which the Company obtained a worldwide, royalty-bearing, exclusive license under certain patent rights to make, use, sell, offer for sale, and import certain autologous products covered by such licensed patents in the field of CAR-T immunotherapies for the treatment of B-cell malignancies that express CD22, and a non-sublicensable exclusive license for evaluation purposes only to make, use, and import, but not sell, certain allogenic products and to practice processes in the field of certain CAR-T immunotherapies for the treatment of B-cell malignancies that express CD22 for evaluation purposes, with an exclusive option to negotiate a non-exclusive or exclusive commercialization license. In March 2024, Company exercised its right to extend the exclusive option one time for an additional year and paid an extension royalty of $50,000.

 

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CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

As consideration for the licenses granted under the 2022 NCI License, the Company is required to pay the NCI a non-refundable license fee of $0.6 million, of which $0.2 million was paid in 2022, $0.1 million was paid in 2023 and $0.2 million was paid in March 2024, and the remaining balance of $0.1 million is payable on the third anniversary of the effective date of the agreement. The Company accrued the non-refundable upfront fees of $0.4 million upon entering into the 2022 NCI License. Non-refundable upfront fees of $0.1 million were accrued in accrued clinical and research and development expenses as of both September 30, 2024, and December 31, 2023, and as of December 31, 2023, $0.2 million, is classified as other non-current liabilities on the unaudited condensed balance sheet. The Company determined that the purchase of the license under the 2022 NCI License represented an asset acquisition as it did not meet the definition of a business. As the acquired license represented IPR&D assets with no alternative future use, the Company recorded the initial consideration of $0.6 million under the 2022 NCI License as research and development expense in March 2022, upon entering into the 2022 NCI License. The Company recorded research and development expense related to the license of $0.2 million and $0.6 million during the nine months ended September 30, 2024, and 2023, respectively, and of $0.1 million and $0.5 million during the three months ended September 30, 2024, and 2023, respectively.

The Company agreed to pay up to $0.2 million in regulatory milestone payments upon achieving specific regulatory filings, up to $1.8 million in development milestone payments upon achieving specific clinical trials or registration trials, and up to $16.0 million in sales milestones upon achievement of specific commercial milestone events for up to three distinct licensed products, and an earned royalty on net sales of autologous cell therapy products covered by the licensed patent rights and, if the Company chooses to exercise the exclusive option mentioned above, on net sales of allogenic products, at a low single-digit percentage, depending on the amount of annual net sales and subject to the terms of the 2022 NCI License. The Company is also required to make minimum annual royalty payments of $50,000 per year, which will be creditable against royalties due for sales in that year. In addition, the Company is obligated to pay the NCI a percentage of non-royalty revenue received by the Company from its right to sublicense. Additionally, in the event the Company is granted a priority review voucher (“PRV”), the Company would be obligated to pay the NCI a minimum of $5.0 million upon the sale, transfer or lease of the PRV or $0.5 million upon submission of the PRV for use by the U.S. FDA. The Company is also obligated to pay the NCI a royalty based on a percentage of the fair market value of the consideration the Company receives for any assignment of the 2022 NCI License to a non-affiliate (upon the NCI’s prior written consent) or on an allocated portion of the fair value of consideration received in connection with a change in control (including an IPO). On the closing of the Company’s IPO in November 2023, the change in control milestone was met, and the Company and the NCI are in discussions regarding the amount of such payment.

Unless earlier terminated, the 2022 NCI License will expire upon the expiration of the last to expire of the licensed patent rights. The NCI may terminate or modify the 2022 NCI License in the event of an uncured material breach, including, but not limited to, if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the license, or any portion thereof, at its sole discretion at any time upon 60 days written notice to the NCI.

In February 2023, the Company entered into an exclusive license agreement (the “2023 NCI License”) with the NCI, pursuant to which the Company obtained a worldwide, royalty-bearing, exclusive license under certain patent rights owned by the NCI to make, use, sell and import products and to practice processes in the field of certain CAR-T immunotherapies for the treatment of B-cell malignancies, wherein the T cells are engineered to express CD22 in combination with binders, CARs or other receptors targeting CD19, CD20, and/or CD79b; and at least one of the following: manufacturing the product with the STASH platform technology and/or a technology to activate CD2 signaling in the CAR T cell.

As consideration for the licenses granted under the 2023 NCI License, the Company agreed to pay the NCI a non-refundable license fee of $0.3 million in three installments whereby the first installment was payable within 60 days of the execution of the agreement and the remaining two payments are due on the first and second anniversaries of the effective date of the agreement. Additionally, the Company agreed to reimburse the NCI for $0.1 million in expenses incurred by the NCI prior to January 1, 2022, related to the preparation, filing, prosecution, and maintenance of all patent applications and patents included in the license under the 2023 NCI License. The Company determined that the purchase of the license under the 2023 NCI License represented an asset acquisition as it did not meet the definition of a business. As the acquired license represented IPR&D assets with no alternative future use, upon entering the 2023 NCI License in February 2023, the Company recorded the initial consideration of $0.4 million under the 2023 NCI License, consisting of the non-refundable upfront fees, as research and development expense.

 

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CARGO THERAPEUTICS, INC.

Notes to Unaudited Condensed Financial Statements

 

The Company recorded research and development expense of $50,000 and $0.4 million related to the minimum annual royalty, the license issue royalty, the reimbursement of past patent application expenses during the nine months ended September 30, 2024, and 2023, respectively. No research and development expense related to the license was recorded during the three months ended September 30, 2024, and 2023.

The Company agreed to pay up to $0.1 million in milestone payments upon achievement of certain regulatory milestone events, up to $1.7 million in milestone payments upon achievement of certain development milestone events including initiation of specific clinical trials or registration trials, and up to $16.0 million in milestone payments upon achievement of specific commercial milestone events. Subject to the terms of the 2023 NCI License, the Company also agreed to pay a low single-digit percentage on earned royalties on net sales of products covered by the licensed patent rights. The Company also agreed to make minimum annual royalty payments of $50,000 per year, which will be creditable against royalties due for sales in that year. In addition, the Company is obligated to pay the NCI a percentage of non-royalty revenue received by the Company from its right to sublicense at defined percentages. Additionally, if the Company is granted a PRV, the Company would be obligated to pay the NCI a minimum of $5.0 million upon the sale, transfer or lease of the PRV or $0.5 million upon submission of the PRV for use by the FDA. The Company is also obligated to pay the NCI a royalty based on a percentage of the fair market value of the consideration the Company receives for any assignment of the 2023 NCI License to a non-affiliate (upon the NCI’s prior written consent) or on an allocated portion of the fair value of consideration received in connection with a change in control (including an IPO). On the closing of the Company’s IPO in November 2023, the change in control milestone was met, and the Company and the NCI are in discussions regarding the amount of such payment.

Unless earlier terminated, the 2023 NCI License will expire upon the expiration of the last to expire of the licensed patent rights. The NCI may terminate or modify the 2023 NCI License in the event of an uncured material breach, including, but not limited to, if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the license, or any portion thereof, at its sole discretion at any time upon 60 days written notice to the NCI.

In connection with the closing of the Company’s IPO in November 2023, the Company accrued a total of $0.3 million of research and development expense within accrued clinical and research and development expenses on the balance sheet related to the change in control royalty for both the 2022 NCI License and the 2023 NCI License.

9. Net Loss Per Share

A reconciliation of net loss attributable to common stockholders and the number of shares in the calculation of basic and diluted loss per share was as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2024				2023				2024				2023
		(in thousands, except share and per share amounts)
Numerator:
Net loss attributable to common stockholders		$	(41,908	)		$	(35,471	)		$	(122,067	)		$	(66,070	)
Denominator:
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted			47,664,309				748,862				44,014,886				673,175
Net loss per share attributable to common stockholders, basic and diluted		$	(0.88	)		$	(47.37	)		$	(2.77	)		$	(98.15	)

 

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