Table of Contents
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As filed with the Securities and Exchange Commission on December 6, 2023
No. 333-      
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
Graphite Bio, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
2836
 
84-4867570
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification No.)
611 Gateway Blvd, Suite 120
South San Francisco, CA 94080
(650)
484-0886
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
Kimberlee C. Drapkin
Chief Executive Officer
Graphite Bio, Inc.
611 Gateway Blvd, Suite 120
South San Francisco, CA 94080
(650)
484-0886
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Copies of all communications, including commu
nic
ations sent to agent for service, should be sent to:
 
Mitchell S. Bloom, Esq.
Andrew H. Goodman, Esq.
Tevia K. Pollard, Esq.
Maggie Wong, Esq.
Shoaib Ghias, Esq.
Goodwin Procter LLP
Three Embarcadero Center
San Francisco, CA 94111
(617)
570-1000
 
Dan Koeppen
Ethan Lutske
Jennifer Fang
Robert L. Wernli, Jr.
Ben Capps
Wilson Sonsini Goodrich & Rosati, P.C.
12235 El Camino Real
San Diego, CA 92130
(858)
350-2300
 
 
Approximate date of commencement of proposed sale of the securities to the public:
As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or 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 7(a)(2)(B) of the Securities Act.  
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction: Exchange Act Rule
13e-4(i)
(Cross-Border Issuer Tender Offer)  
Exchange Act Rule
14d-1(d)
(Cross-Border Third-Party Tender Offer)  
 
 
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 
 


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The information in this preliminary proxy statement/prospectus is not complete and may be changed. Graphite may not sell the securities described in this preliminary proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary proxy statement/prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROXY STATEMENT/PROSPECTUS

SUBJECT TO COMPLETION, DATED DECEMBER 6, 2023

 

LOGO    LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

 

 

To the Stockholders of Graphite Bio, Inc. and Lenz Therapeutics, Inc.,

Graphite Bio, Inc., a Delaware corporation (“Graphite”), and Lenz Therapeutics, Inc., a Delaware corporation (“LENZ”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) on November 14, 2023, pursuant to which, among other matters, Generate Merger Sub, Inc., a wholly-owned subsidiary of Graphite (“Merger Sub”), will merge with and into LENZ, with LENZ surviving the merger as the surviving corporation and a wholly-owned subsidiary of Graphite (such transaction, the “merger”). Upon the completion of the merger, Graphite will change its name to “LENZ Therapeutics, Inc.” Graphite following the merger is referred to herein as the “combined company.”

At the effective time of the merger (the “effective time”), (i) each then-outstanding share of LENZ’s common stock, par value $0.001 per share (“LENZ common stock”), will be converted into the right to receive a number of shares of Graphite’s common stock, par value $0.00001 per share (“Graphite common stock”), based on a ratio calculated in accordance with the Merger Agreement (the “exchange ratio”) and (ii) each then-outstanding share of LENZ’s preferred stock, par value $0.001 per share (“LENZ preferred stock” and together with the LENZ common stock, the “LENZ capital stock”), will be converted into the right to receive a number of shares of Graphite common stock equal to the exchange ratio multiplied by the aggregate number of shares of LENZ common stock into which such share of LENZ preferred stock is then convertible, as described in more detail in the section titled “The Merger Agreement—Exchange Ratio” beginning on page 200 of the accompanying proxy statement/prospectus. The final exchange ratio is subject to adjustment prior to closing of the merger (the “closing”) based upon Graphite’s net cash (as defined in the Merger Agreement) (“Graphite’s net cash”) at closing. Each share of Graphite common stock and each option to purchase Graphite common stock (“Graphite option”) that is issued and outstanding at the effective time will remain issued and outstanding in accordance with its terms and such shares and options, subject to the proposed special cash dividend and reverse stock split, will be unaffected by the merger; provided that, each outstanding and unexercised Graphite option with a per share exercise price equal to or greater than $3.00 (prior to giving effect to the proposed special cash dividend and reverse stock split) (the “Out-of-the-Money Graphite Options”) will be accelerated in full immediately prior to the effective time and each such Out-of-the-Money Graphite Option not exercised as of immediately prior to the effective time will be cancelled at the effective time for no consideration. All Graphite options with a per share exercise price of less than $3.00 (prior to giving effect to the proposed special cash dividend and reverse stock split) will continue to be subject to the same terms and conditions after the effective time as were applicable to such options as of immediately prior to the effective time.

In connection with the merger, each outstanding and unexercised option to purchase shares of LENZ common stock (“LENZ option”) immediately prior to the effective time, whether or not vested, will be assumed by Graphite, subject to adjustment as set forth in the Merger Agreement, and each warrant to purchase shares of

 

1


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LENZ common stock or LENZ preferred stock outstanding immediately prior to the effective time will be converted into a warrant to purchase shares of Graphite common stock, subject to adjustment as set forth in the Merger Agreement.

In connection with the merger, Graphite concurrently entered into a subscription agreement (the “Subscription Agreement”) with certain institutional investors (the “PIPE investors”) pursuant to which, among other things, Graphite agreed to issue to the PIPE investors shares of Graphite common stock immediately following the merger in a private placement transaction for an aggregate purchase price of $53.5 million, which amount may be increased to up to $125 million through additional subscriptions under the Subscription Agreement from additional PIPE investors (the “Graphite private placement”).

Immediately after the consummation of the merger, based solely on the estimated exchange ratio as described in the accompanying proxy statement/prospectus, and after giving effect to the Graphite private placement, assuming a subscription amount of $53.5 million, Graphite securityholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, former LENZ securityholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, and the investors issued shares of Graphite common stock in the Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, in each case subject to adjustment of the exchange ratio as set forth in the Merger Agreement and excluding any shares reserved for future grants under the 2024 Plan and the 2024 ESPP (each as defined in the accompanying proxy statement/prospectus). As of the date hereof, Graphite’s management anticipates that Graphite’s net cash at the closing will be between $115 million and $175 million, and, as further described below and in connection with the Merger Agreement, there would be no adjustment to the exchange ratio.

Shares of Graphite common stock are currently listed on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “GRPH”. Graphite intends to file an initial listing application for the combined company with Nasdaq. After completion of the merger, Graphite will be renamed “LENZ Therapeutics, Inc.” and it is expected that the common stock of the combined company will trade on Nasdaq under the symbol “LENZ”. On            ,             , the last trading day before the date of the accompanying proxy statement/prospectus, the closing sale price of Graphite common stock as reported on Nasdaq was $         per share.

The closing of the Graphite private placement is conditioned upon the satisfaction or waiver of the conditions to the closing of the merger and the substantially concurrent closing of the merger, as well as certain other conditions. The Graphite private placement is more fully described in the accompanying proxy statement/prospectus.

Graphite stockholders (the “Graphite stockholders”) are cordially invited to attend the special meeting of Graphite’s stockholders. Graphite is holding its special meeting (together with any adjournment or other delay thereof, the “Graphite special meeting”) on            , 2024, at                      Pacific Time, unless adjourned or postponed to a later date, in order to obtain the stockholder approvals necessary to complete the merger and related matters. The Graphite special meeting will be held entirely online. Graphite stockholders will be able to attend and participate in the Graphite special meeting online by visiting         , where they will be able to listen to the meeting live, submit questions and vote. Graphite stockholders will need the 16-digit control number included with the Notice of Internet Availability of Proxy Materials being mailed to the Graphite stockholders separately in order to attend the Graphite special meeting. At the Graphite special meeting, Graphite will ask its stockholders to:

 

  1.

Approve (i) the issuance of shares of Graphite common stock, which will represent more than 20% of the shares of Graphite common stock outstanding immediately prior to the merger, to stockholders of LENZ (the “LENZ stockholders”), pursuant to the terms of the Merger Agreement, a copy of which is attached as Annex A to the accompanying proxy statement/prospectus, and pursuant to Nasdaq Listing Rule 5635(a), (ii) the change of control of Graphite resulting from the merger pursuant to Nasdaq Listing Rule 5635(b), and (iii) the issuance of shares of Graphite common stock to the PIPE investors

 

2


Table of Contents
  pursuant to Nasdaq Listing Rule 5635(d), which shares of Graphite common stock will represent more than 20% of the shares of Graphite common stock outstanding as of the date of the execution of the Subscription Agreement (the “Nasdaq Stock Issuance Proposal” or “Proposal No. 1”);

 

  2.

Approve an amendment to Graphite’s certificate of incorporation (the “Graphite charter”) to (i) effect a reverse stock split of Graphite’s issued common stock at a ratio in the range between 1:    and 1:    , inclusive, with the final ratio and effectiveness of all other ratios of such amendment and the abandonment of such amendment to be mutually agreed by the board of directors of Graphite (the “Graphite board of directors”) and the board of directors of LENZ (the “LENZ board of directors”) prior to the effective time and (ii) change Graphite’s name to “LENZ Therapeutics, Inc.”, effective as of the effective time under the Merger Agreement, in the form attached as Annex F to the accompanying proxy statement/prospectus (the “Charter Amendment Proposal” or “Proposal No. 2”);

 

  3.

Approve the 2024 Plan (as defined in the accompanying proxy statement/prospectus) in the form attached as Annex G to the accompanying proxy statement/prospectus, which will become effective as of and contingent on the completion of the merger (the “2024 Plan Proposal” or “Proposal No. 3”);

 

  4.

Approve the 2024 ESPP (as defined in the accompanying proxy statement/prospectus) in the form attached as Annex H to the accompanying proxy statement/prospectus, which will become effective as of and contingent on the completion of the merger (the “2024 ESPP Proposal” or “Proposal No. 4”); and

 

  5.

Approve an adjournment of the Graphite special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Nasdaq Stock Issuance Proposal and/or the Charter Amendment Proposal (the “Adjournment Proposal” or “Proposal No. 5”).

Proposal Nos. 1, 2, 3, 4 and 5 are collectively referred to as the “Graphite Stockholder Proposals.”

As described in the accompanying proxy statement/prospectus, certain Graphite stockholders who in the aggregate owned approximately 52% of the outstanding shares of capital stock of Graphite as of November 14, 2023, are parties to stockholder support agreements with Graphite and LENZ whereby such stockholders have agreed to vote all of their shares in favor of the Graphite Stockholder Proposals, and certain LENZ stockholders who in the aggregate owned approximately 70% of the outstanding shares of LENZ capital stock as of November 14, 2023, are parties to stockholder support agreements with Graphite and LENZ whereby such stockholders have agreed to vote all of their shares in favor of the adoption of the Merger Agreement and the approval of the merger and related transactions contemplated by the Merger Agreement, in each case subject to the terms of the support agreements. Following the effectiveness of the registration statement on Form S-4 of which the accompanying proxy statement/prospectus is a part and pursuant to the Merger Agreement, LENZ stockholders holding a sufficient number of shares of LENZ capital stock to adopt the Merger Agreement and approve the merger and related transactions will be asked to execute written consents providing for such adoption and approval.

Further, prior to the effective time, the Graphite board of directors will declare and set aside the aggregate cash amount to be paid in accordance with a special cash dividend (the “special cash dividend”) to holders of record of outstanding shares of Graphite common stock as of a record date prior to the effective time of the merger, to be set by the Graphite board of directors as close as reasonably practicable to (but not later than) the anticipated closing. The aggregate amount of the special cash dividend is expected to be $60.0 million, subject to certain adjustments depending on Graphite’s net cash and the Graphite private placement.

After careful consideration, each of the Graphite and LENZ boards of directors have unanimously approved the Merger Agreement and have determined that it is advisable and in the best interests of their respective stockholders to consummate the merger. The Graphite board of directors has approved the proposals described in the accompanying proxy statement/prospectus and unanimously recommends that its stockholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus.

 

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More information about Graphite, LENZ, the Merger Agreement and transactions contemplated thereby and the foregoing proposals is contained in the accompanying proxy statement/prospectus. Graphite urges you to read the accompanying proxy statement/prospectus carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 26 OF THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.

Graphite and LENZ are excited about the opportunities the merger brings to Graphite’s and LENZ’s stockholders and thank you for your consideration and continued support.

 

Kimberlee C. Drapkin

President and Chief Executive Officer

Graphite Bio, Inc.

  

Evert Schimmelpennink

President and Chief Executive Officer

LENZ Therapeutics, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the accompanying proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated              and is first being mailed to Graphite’s stockholders on or about             .

 

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GRAPHITE BIO, INC.

611 Gateway Blvd, Suite 120

South San Francisco, CA 94080

NOTICE OF SPECIAL MEETING

To the stockholders of Graphite Bio, Inc.:

NOTICE IS HEREBY GIVEN that the Graphite special meeting will be held on             , 2024 at                      Pacific Time, unless adjourned to a later date. The Graphite special meeting will be held entirely online. You will be able to attend and participate in the Graphite special meeting online by visiting         , where you will be able to listen to the meeting live, submit questions and vote. You will need the 16-digit control number included with the Notice of Internet Availability of Proxy Materials being mailed to you separately in order to attend the Graphite special meeting.

The Graphite special meeting will be held for the following purposes:

 

  1.

Approve (i) the issuance of shares of Graphite common stock, which will represent more than 20% of the shares of Graphite common stock outstanding immediately prior to the merger, to the LENZ stockholders, pursuant to the terms of the Merger Agreement, a copy of which is attached as Annex A to the accompanying proxy statement/prospectus, and pursuant to Nasdaq Listing Rule 5635(a), (ii) the change of control of Graphite resulting from the merger pursuant to Nasdaq Listing Rule 5635(b), and (iii) the issuance of shares of Graphite common stock to the PIPE investors pursuant to Nasdaq Listing Rule 5635(d), which shares of Graphite common stock will represent more than 20% of the shares of Graphite common stock outstanding as of the date of the execution of the Subscription Agreement;

 

  2.

Approve an amendment to Graphite’s charter to (i) effect a reverse stock split of Graphite’s issued common stock at a ratio in the range between 1:    and 1:    , inclusive, with the final ratio and effectiveness of such amendment and the abandonment of all other ratios of such amendment to be mutually agreed by the Graphite board of directors and the LENZ board of directors prior to the effective time and (ii) change Graphite’s name to “LENZ Therapeutics, Inc.”, effective as of the effective time under the Merger Agreement, in the form attached as Annex F to the accompanying proxy statement/prospectus;

 

  3.

Approve the 2024 Plan (as defined in the accompanying proxy statement/prospectus) in the form attached as Annex G to the accompanying proxy statement/prospectus, which will become effective as of and contingent on the completion of the merger;

 

  4.

Approve the 2024 ESPP (as defined in the accompanying proxy statement/prospectus) in the form attached as Annex H to the accompanying proxy statement/prospectus, which will become effective as of and contingent on the completion of the merger; and

 

  5.

Approve an adjournment of the Graphite special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Nasdaq Stock Issuance Proposal and/or the Charter Amendment Proposal.

The Graphite board of directors has fixed              as the record date for the determination of stockholders entitled to notice of, and to vote at, the Graphite special meeting and any adjournment thereof. Only holders of record of shares of Graphite common stock at the close of business on the record date are entitled to notice of, and to vote at, the Graphite special meeting. At the close of business on the record date, Graphite had                 shares of common stock outstanding and entitled to vote.

 

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Your vote is important. The affirmative vote of a majority of the votes properly cast by the holders of Graphite common stock at the Graphite special meeting, assuming a quorum is present, is required for approval of Proposal Nos. 1, 2, 3, 4 and 5. Each of Proposal Nos. 2, 3 and 4 is conditioned upon the approval of Proposal No. 1. Approval of each of Proposal Nos. 1, 2, 3 and 4 is a condition to the completion of the merger.

Even if you plan to virtually attend the Graphite special meeting, Graphite requests that you sign and return the enclosed proxy or vote by mail or online to ensure that your shares will be represented at the Graphite special meeting if you are unable to virtually attend. You may change or revoke your proxy at any time before it is voted at the Graphite special meeting.

THE GRAPHITE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS FAIR TO, IN THE BEST INTERESTS OF, AND ADVISABLE TO GRAPHITE AND THE GRAPHITE STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE GRAPHITE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT GRAPHITE STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

Important Notice Regarding the Availability of Proxy Materials for the Graphite Special Meeting to Be Held                     on             , 2024 at                     Pacific Time via the internet.

The proxy statement/prospectus and annual report to stockholders are available at         .

By Order of Graphite’s Board of Directors,

Kimberlee C. Drapkin

President and Chief Executive Officer

            ,             

 

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EXPLANATORY NOTE

The issuance of all shares of Graphite common stock in exchange for each share of LENZ common stock, as well as the issuance of all shares of Graphite common stock issuable upon the exercise of warrants to purchase LENZ capital stock being assumed in the merger, is intended to be covered by this registration statement on Form S-4 of which the accompanying proxy statement/prospectus is a part. The Graphite common stock that will be issued in the Graphite private placement will not be covered by this registration statement on Form S-4 of which the accompanying proxy statement/prospectus is a part, and will be subject to restrictions on resale until such shares are registered for resale.

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Graphite that is not included in or delivered with this document. You may obtain this information without charge through the Securities and Exchange Commission (“SEC”) website (www.sec.gov) or upon your written or oral request by contacting 611 Gateway Blvd, Suite 120, South San Francisco, CA 94080, Attention: Corporate Secretary, or by calling (650) 484-0886. Graphite also maintains a website at https://graphitebio.com/, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. However, the information contained in or accessible through Graphite’s website is not part of this proxy statement/prospectus or the registration statement of which this proxy statement/prospectus forms a part.

To ensure timely delivery of these documents, any request should be made no later than              to receive them before the Graphite special meeting.

For additional details about where you can find information about Graphite, please see the section titled “Where You Can Find More Information” beginning on page 424 of this proxy statement/prospectus.

 

 

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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     12  

MARKET PRICE AND DIVIDEND INFORMATION

     25  

RISK FACTORS

     26  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     125  

THE SPECIAL MEETING OF GRAPHITE STOCKHOLDERS

     128  

THE MERGER

     133  

THE MERGER AGREEMENT

     199  

AGREEMENTS RELATED TO THE MERGER

     220  

GRAPHITE DIRECTORS, OFFICERS AND CORPORATE GOVERNANCE

     222  

GRAPHITE EXECUTIVE COMPENSATION

     232  

GRAPHITE DIRECTOR COMPENSATION

     238  

GRAPHITE EQUITY COMPENSATION PLAN INFORMATION

     241  

LENZ EXECUTIVE COMPENSATION

     242  

LENZ DIRECTOR COMPENSATION

     250  

MATTERS BEING SUBMITTED TO A VOTE OF GRAPHITE STOCKHOLDERS

     251  

PROPOSAL NO. 1—THE NASDAQ STOCK ISSUANCE PROPOSAL

     251  

PROPOSAL NO. 2—THE CHARTER AMENDMENT PROPOSAL

     253  

PROPOSAL NO. 3—THE 2024 PLAN PROPOSAL

     261  

PROPOSAL NO. 4—THE 2024 ESPP PROPOSAL

     271  

PROPOSAL NO. 5—THE ADJOURNMENT PROPOSAL

     277  

GRAPHITE’S BUSINESS

     278  

LENZ’S BUSINESS

     305  

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

     339  

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

     359  

MANAGEMENT FOLLOWING THE MERGER

     374  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     382  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     388  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF THE COMBINED COMPANY

     395  

DESCRIPTION OF GRAPHITE CAPITAL STOCK

     401  

COMPARISON OF RIGHTS OF HOLDERS OF GRAPHITE CAPITAL STOCK AND LENZ CAPITAL STOCK

     404  

PRINCIPAL STOCKHOLDERS OF GRAPHITE

     417  

PRINCIPAL STOCKHOLDERS OF LENZ

     419  

PRINCIPAL STOCKHOLDERS OF THE COMBINED COMPANY

     421  

LEGAL MATTERS

     424  

EXPERTS

     424  

WHERE YOU CAN FIND MORE INFORMATION

     424  

INDEX TO FINANCIAL STATEMENTS

     F-1  

Annex A AGREEMENT AND PLAN OF MERGER

     A-1  

Annex B OPINION OF LEERINK PARTNERS LLC

     B-1  

Annex C FORM OF LENZ STOCKHOLDER SUPPORT AGREEMENT

     C-1  

Annex D FORM OF GRAPHITE STOCKHOLDER SUPPORT AGREEMENT

     D-1  

Annex E FORM OF LOCK-UP AGREEMENT

     E-1  

Annex F CERTIFICATE OF AMENDMENT FOR THE GRAPHITE CHARTER

     F-1  

Annex G FORM OF 2024 EQUITY INCENTIVE PLAN

     G-1  

Annex H FORM OF 2024 EMPLOYEE STOCK PURCHASE PLAN

     H-1  

Annex I APPRAISAL RIGHTS (SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW)

     I-1  


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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 2 of this proxy statement/prospectus.

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the merger?

 

A:

On November 14, 2023, Graphite, LENZ and Merger Sub entered into the Merger Agreement, a copy of which is attached as Annex A. The Merger Agreement contains the terms and conditions of the proposed merger. Pursuant to the Merger Agreement, Merger Sub will merge with and into LENZ, with LENZ surviving as a wholly-owned subsidiary of Graphite. This transaction is referred to in this proxy statement/prospectus as the “merger.” At the effective time, Graphite will change its name to “LENZ Therapeutics, Inc.” The surviving corporation following the merger is referred to as the “combined company.”

At the effective time, (a) each then-outstanding share of LENZ common stock (excluding shares held as treasury stock and automatically cancelled pursuant to the Merger Agreement and excluding dissenting shares, but including any awards of restricted shares of LENZ common stock that are unvested and outstanding immediately prior to the effective time (the “LENZ restricted shares”)) will be converted into the right to receive a number of shares of Graphite common stock, based on the exchange ratio described in more detail in the section titled “The Merger Agreement—Exchange Ratio” beginning on page 200 of this proxy statement/prospectus, (b) each then-outstanding share of LENZ preferred stock will be converted into the right to receive a number of shares of Graphite common stock equal to the exchange ratio multiplied by the aggregate number of LENZ common stock into which each share of LENZ preferred stock is then convertible, (c) each then-outstanding LENZ option will be assumed by Graphite, subject to adjustment as set forth in the Merger Agreement and (d) each then-outstanding warrant to purchase shares of LENZ common stock or LENZ preferred stock will be converted into a warrant to purchase shares of Graphite common stock, subject to adjustment as set forth in the Merger Agreement.

Under the terms of the Merger Agreement, each share of Graphite common stock issued and outstanding at the time of the merger will remain issued and outstanding, and, subject to the proposed reverse stock split and any acceleration provided for in connection with the merger, will be unaffected by the merger. In addition, each then unexercised and outstanding Out-of-the-Money Graphite Option will accelerate in full as of immediately prior to the effective time and each such stock option not exercised as of immediately prior to the effective time will be cancelled at the effective time for no consideration. All Graphite options with an exercise price per share of less than $3.00 will continue to be subject to the same terms and conditions after the effective time as were applicable to such Graphite option as of immediately prior to the effective time.

Upon the closing, on a pro forma basis and based upon the number of shares of Graphite common stock expected to be issued in the merger, pre-merger Graphite stockholders will own approximately 35% of the combined company and pre-merger LENZ stockholders will own approximately 65% of the combined company on a fully-diluted basis (prior to giving effect to the Graphite private placement and excluding shares reserved for future grants under the 2024 Plan and the 2024 ESPP, as each is defined in the section titled “Proposal No. 3—The 2024 Plan Proposal” and “Proposal No. 4—The 2024 ESPP Proposal,” respectively, beginning on pages 261 and 271, respectively, of this proxy statement/prospectus). Following the consummation of the Graphite private placement, assuming a subscription amount of $53.5 million, the Graphite stockholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, former LENZ stockholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, and the investors issued shares of Graphite common stock in the

 

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Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis (excluding, in each case, any additional shares reserved under the 2024 Plan and the 2024 ESPP). The exchange ratio, and related pro forma ownership, will be adjusted (i) to account for the effect of the proposed reverse stock split and (ii) to the extent that Graphite’s net cash immediately prior to the closing is less than $115 million (and as a result, Graphite stockholders could own more or less of the combined company).

 

Q:

Why are the two companies proposing to merge?

 

A:

Graphite and LENZ believe that combining the two companies will result in a combined company with a robust pipeline, a strong leadership team and substantial capital resources, positioning it to become a pre-eminent biopharmaceutical company focused on developing LENZ’s product candidates, LNZ100 and LNZ101. For a more complete description of the reasons for the merger, please see the sections titled “The Merger—Graphite’s Reasons for the Merger” and “The Merger—LENZ’s Reasons for the Merger” beginning on pages 155 and 158, respectively, of this proxy statement/prospectus.

 

Q:

What will happen to Graphite if, for any reason, the merger with LENZ does not close?

 

A:

Graphite has invested significant time and incurred, and expects to continue to incur, significant expenses related to the proposed merger with LENZ. In the event the merger does not close, the Graphite private placement will also not close, as the closing of the Graphite private placement is expected to occur concurrently with, and is conditioned upon, the closing, and Graphite will have a limited ability to continue its current operations without obtaining additional financing. Although the Graphite board of directors may elect, among other things, to attempt to complete another strategic transaction if the merger with LENZ does not close, the Graphite board of directors may instead divest all or a portion of Graphite’s business or take steps necessary to liquidate or dissolve Graphite’s business and assets if a viable alternative strategic transaction is not available. If Graphite decides to dissolve and liquidate its assets, Graphite would be required to pay all of its contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurance as to the amount of and the timing of such liquidation and distribution of available cash left to distribute to stockholders after paying the obligations of Graphite and setting aside funds for reserves.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving this proxy statement/prospectus because you have been identified as a stockholder of Graphite and/or LENZ as of the applicable record date. This document serves as:

 

   

a proxy statement of Graphite used to solicit proxies for the Graphite special meeting to vote on the matters set forth herein; and

 

   

a prospectus of Graphite used to offer shares of Graphite common stock in exchange for shares of LENZ capital stock in the merger.

 

Q:

What is the Graphite private placement?

 

A:

On November 14, 2023, Graphite entered into the Subscription Agreement with the PIPE investors. Pursuant to the Subscription Agreement, Graphite agreed to sell shares of Graphite common stock for an aggregate purchase price of approximately $53.5 million in the Graphite private placement.

The closing of the Graphite private placement is expected to occur concurrently with, and is conditioned upon, the closing. Following the consummation of the Graphite private placement, assuming a subscription amount of $53.5 million, the Graphite stockholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, former LENZ stockholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, and the investors issued shares of Graphite common stock in the Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis (excluding, in each case, any additional shares reserved under the 2024 Plan and the 2024 ESPP).

 

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At the closing of the Graphite private placement, in connection with the Subscription Agreement, Graphite intends to enter into a registration rights agreement (the “Registration Rights Agreement”) with the PIPE investors. Pursuant to the Registration Rights Agreement, Graphite will prepare and file a resale registration statement with the SEC within 10 calendar days following the closing of the Graphite private placement. Graphite will use commercially reasonable efforts to cause this registration statement to be declared effective by the SEC within 60 days of the closing of the Graphite private placement (or within 90 calendar days if the SEC reviews the registration statement), or by such other deadline as provided in the Registration Rights Agreement.

 

Q:

What proposals will be voted on at the Graphite special meeting in connection with the merger?

 

A:

Pursuant to the terms of the Merger Agreement, the following proposals must be approved by the majority of votes cast at the Graphite special meeting in order for the merger to close:

 

   

Proposal 1—The Nasdaq Stock Issuance Proposal to approve (i) the issuance of shares of Graphite common stock, which represent more than 20% of the shares of Graphite common stock outstanding immediately prior to the merger, to LENZ stockholders pursuant to the terms of the Merger Agreement and pursuant to Nasdaq Listing Rule 5635(a), (ii) the change of control of Graphite resulting from the merger pursuant to Nasdaq Listing Rule 5635(b), and (iii) the issuance of shares of Graphite common stock to the PIPE investors pursuant to Nasdaq Listing Rule 5635(d), which shares of Graphite common stock will represent more than 20% of the shares of Graphite common stock outstanding as of the date of the execution of the Subscription Agreement.

 

   

Proposal 2—The Charter Amendment Proposal to approve an amendment to the Graphite charter to (i) effect a reverse stock split of Graphite’s issued common stock at a ratio in the range between 1:                 and 1:                , inclusive, with the final ratio and effectiveness of such amendment and the abandonment of all other ratios of such amendment to be mutually agreed by the Graphite board of directors and the LENZ board of directors prior to the effective time, and (ii) change Graphite’s name to “LENZ Therapeutics, Inc.”, effective as of the effective time under the Merger Agreement, in the form attached as Annex F to the accompanying proxy statement/prospectus.

Each of Proposal Nos. 1 and 2 is a condition to the completion of the merger. The issuance of Graphite common stock in connection with the merger and the change of control of Graphite resulting from the merger will not take place unless Proposal No. 1 is approved by the majority of the votes cast and the merger is consummated. The amendment to the Graphite charter to effect a reverse stock split of Graphite’s issued common stock will not take place unless Proposal No. 2 is approved by the majority of the votes cast.

In addition to the requirement of obtaining the approval of the majority of the votes cast of Proposal Nos. 1 and 2, the closing of the merger is subject to the satisfaction or waiver of each of the closing conditions set forth in the Merger Agreement. For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 214 of this proxy statement/prospectus.

The presence, by accessing online or being represented by proxy, at the Graphite special meeting of the holders of a majority of the shares of Graphite common stock outstanding and entitled to vote at the Graphite special meeting is necessary to constitute a quorum at the meeting for the approval of the Nasdaq Stock Issuance Proposal, the Charter Amendment Proposal, the 2024 Plan Proposal and the ESPP Proposal.

 

Q:

What proposals are to be voted on at the Graphite special meeting, other than the Nasdaq Stock Issuance Proposal and the Reverse Stock Split Proposal?

 

A:

At the Graphite special meeting, the holders of Graphite common stock will also be asked to consider the following proposals:

 

   

Proposal 3—The 2024 Plan Proposal to approve the 2024 Plan in the form attached as Annex G to the accompanying proxy statement/prospectus, which will become effective as of and contingent on the completion of the merger.

 

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Proposal 4—The 2024 ESPP Proposal to approve the 2024 ESPP in the form attached as Annex H to the accompanying proxy statement/prospectus, which will become effective as of and contingent on the completion of the merger.

 

   

Proposal 5—The Adjournment Proposal to approve an adjournment of the Graphite special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Nasdaq Stock Issuance Proposal and/or the Charter Amendment Proposal.

Each of Proposal Nos. 3 and 4 are conditions to the completion of the merger. Graphite does not expect that any matter other than the Graphite Stockholder Proposals will be brought before the Graphite special meeting.

The presence, by accessing online or being represented by proxy, at the Graphite special meeting of the holders of the majority of the shares of Graphite common stock outstanding and entitled to vote at the Graphite special meeting is necessary to constitute a quorum at the meeting for the purpose of approving the Graphite Stockholder Proposals.

 

Q:

What stockholder votes are required to approve the Graphite Stockholder Proposals at the Graphite special meeting?

 

A:

The affirmative vote of a majority of the votes cast for and against by the holders of Graphite common stock at the Graphite special meeting, assuming a quorum is present, is required for approval of each of the Graphite Stockholder Proposals. Each of Proposal Nos. 2, 3 and 4 is conditioned upon the approval of Proposal No. 1.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes, as applicable to each approval. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Graphite special meeting. For Proposal Nos. 1, 2, 3, 4 and 5, abstentions and broker non-votes are not counted as votes cast and will have no effect on the outcome of the vote.

 

Q:

Why is Graphite seeking stockholder approval to issue shares of Graphite common stock to existing stockholders of LENZ in the merger?

 

A:

Because the Graphite common stock is listed on Nasdaq, Graphite is subject to the Nasdaq rules. Rule 5635(a) of the Nasdaq rules requires stockholder approval with respect to the issuance of Graphite common stock, among other instances, (i) when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of Graphite common stock before the issuance and (ii) when any director, officer or “Substantial Shareholder” (as defined by Nasdaq Listing Rule 5635(e)(3)) of such company has a 5% or greater interest, directly or indirectly, in the company to be acquired or in the consideration to be paid in the transaction and the issuance of common stock could result in an increase in outstanding common shares or voting power of 5% or more. Rule 5635(b) of the Nasdaq rules also requires stockholder approval when any issuance or potential issuance will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock (or securities convertible into or exercisable for common stock) or voting power of an issuer could constitute a change of control. Rule 5635(d) of the Nasdaq rules also requires stockholder approval for a transaction other than a public offering involving the sale, issuance or potential issuance by an issuer of common equity securities (or securities convertible into or exercisable for common equity securities) at a price that is less than market value of the stock if the number of equity securities to be issued is or may be equal to 20% or more of the common equity securities, or 20% or more of the voting power, outstanding before the issuance.

 

 

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In the case of the merger, Graphite expects to issue approximately 107,720,000 shares of Graphite common stock on a fully diluted basis, and Graphite common stock to be issued pursuant to the Merger Agreement will represent greater than 20% of its voting stock. In addition, entities affiliated with Versant Ventures beneficially own approximately 28.3% of the outstanding shares of Graphite common stock prior to the merger and approximately 17.0% of the outstanding shares of LENZ capital stock prior to the merger, and representatives of Versant Ventures serve on the board of directors of each of pre-merger Graphite and pre-merger LENZ. In the case of the Graphite private placement, Graphite expects to issue approximately 24,883,552 shares of Graphite common stock on a fully diluted basis, and the Graphite common stock to be issued pursuant to the Subscription Agreement will represent greater than 20% of Graphite’s voting stock. Accordingly, Graphite is seeking stockholder approval of the issuance pursuant to the Merger Agreement and the issuance pursuant to the Subscription Agreement under the Nasdaq rules.

 

Q:

What will Graphite stockholders receive in the merger?

 

A:

Graphite stockholders will continue to own and hold their existing shares of Graphite common stock issued and outstanding at the time of the merger and such shares will remain issued and outstanding, and, subject to the proposed reverse stock split and any acceleration provided for in connection with the merger, will be unaffected by the merger. In addition, each unexercised and outstanding Out-of-the-Money Graphite Option, will accelerate in full as of immediately prior to the effective time and each such stock option not exercised as of immediately prior to the effective time will be cancelled at the effective time for no consideration. All Graphite options with an exercise price per share of less than $3.00 will continue to be subject to the same terms and conditions after the effective time as were applicable to such Graphite options as of immediately prior to the effective time.

Additionally, prior to the closing, Graphite will declare, and set aside the aggregate cash amount to be paid in accordance with, a special cash dividend to Graphite stockholders of record prior to the closing, which may be contingent upon the closing.

For a more complete description of the treatment of Graphite securities in the merger, please see the sections titled “The Merger Agreement—Merger Consideration,” “The Merger Agreement—Exchange Ratio,” and “Market Price and Dividend Information” beginning on pages 199,200 and 25, respectively, of this proxy statement/prospectus. For a description of the effect of the Graphite private placement on Graphite’s current stockholders, please see the section titled “Agreements Related to the Merger—Subscription Agreement” beginning on page 220 of this proxy statement/prospectus.

 

Q:

What will LENZ securityholders receive in the merger?

 

A:

LENZ stockholders will receive shares of Graphite common stock, LENZ optionholders’ outstanding and unexercised LENZ options will be assumed by Graphite and will be converted into Graphite options, with appropriate adjustments to reflect the exchange ratio, as determined in accordance with the Merger Agreement, and each outstanding warrant to purchase shares of LENZ common stock or LENZ preferred stock will be converted into a warrant to purchase shares of Graphite common stock, with appropriate adjustments to reflect the exchange ratio, as determined in accordance with the Merger Agreement. Immediately after the merger, on a pro forma basis and based upon the number of shares of Graphite common stock expected to be issued in the merger, pre-merger Graphite stockholders will own approximately 35% of the combined company on a fully diluted basis and pre-merger LENZ stockholders will own approximately 65% of the combined company on a fully-diluted basis (prior to giving effect to the Graphite private placement and excluding shares reserved for future grants under the 2024 Plan and the 2024 ESPP). Following the consummation of the Graphite private placement, assuming a subscription amount of $53.5 million, the Graphite stockholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, former LENZ stockholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, and the investors issued shares of

 

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  Graphite common stock in the Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis (excluding, in each case, any additional shares reserved under the 2024 Plan and the 2024 ESPP). The exchange ratio, and related pro forma ownership, will be adjusted (i) to account for the effect of the proposed reverse stock split and (ii) to the extent that Graphite’s net cash immediately prior to the closing is less than $115 million (and as a result, Graphite stockholders could own more or less of the combined company).

For a more complete description of the treatment of LENZ common stock and LENZ options in the merger, please see the sections titled “The Merger Agreement—Merger Consideration” and “The Merger Agreement—Exchange Ratio” beginning on pages 199 and 200, respectively of this proxy statement/prospectus. For a description of the effect of the Graphite private placement on LENZ’s current securityholders, please see the section titled “Agreements Related to the Merger—Subscription Agreement” beginning on page 220 of this proxy statement/prospectus.

 

Q:

What is the reverse stock split and why is it necessary?

 

A:

Subject to the approval of the Charter Amendment Proposal, concurrently with the effective time, by virtue of filing the amendment to the Graphite charter in the form attached hereto as Annex F and incorporated herein by reference, the outstanding shares of Graphite common stock will be combined into a lesser number of shares, at a reverse split ratio to be mutually agreed by the Graphite board of directors and the LENZ board of directors prior to the effective time and publicly announced by Graphite and identified in the amendment to the Graphite charter so filed. Upon the effectiveness of such amendment to effect the reverse stock split (the “reverse stock split effective time”), the issued shares of Graphite common stock immediately prior to the reverse stock split effective time will automatically without further action on the part of Graphite be combined into a smaller number of shares such that a Graphite stockholder will own one new share of Graphite common stock for every                  to                  shares of issued Graphite common stock held by such stockholder immediately prior to the reverse stock split effective time.

The Graphite board of directors believes that a reverse stock split may be desirable for a number of reasons. Graphite common stock is currently, and is expected to continue to be following the completion of the merger, listed on Nasdaq. According to the applicable Nasdaq rules, in order for Graphite common stock to continue to be listed on Nasdaq, Graphite must satisfy certain requirements established by Nasdaq. The Graphite board of directors expects that a reverse stock split of Graphite common stock will increase the market price of Graphite common stock so that Graphite will be able to maintain compliance with the relevant Nasdaq listing requirements for the foreseeable future, although Graphite cannot assure holders of Graphite common stock that it will be able to do so. The Graphite board of directors also believes a higher stock price may help generate investor interest in the combined company, help the combined company attract and retain employees, increase trading volume in the combined company’s common stock, and facilitate future financings by the combined company.

Please see the discussion in the section titled “Proposal No. 2—The Charter Amendment Proposal” beginning on page 253 of this proxy statement/prospectus for additional details regarding and reasons for the proposed reverse stock split.

 

Q:

Will the common stock of the combined company trade on an exchange?

 

A:

Shares of Graphite common stock are currently listed on Nasdaq under the symbol “GRPH.” Graphite intends to file an initial listing application for the common stock of the combined company with Nasdaq. At the effective time, Graphite will be renamed “LENZ Therapeutics, Inc.” and it is expected that the common stock of the combined company will trade on Nasdaq under the symbol “LENZ.” On                             , the last trading day before the date of this proxy statement/prospectus, the closing sale price of Graphite common stock was $                 per share.

 

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Q:

Who will be the directors of the combined company following the merger?

 

A:

Immediately following the merger, the combined company’s board of directors will be composed of seven members, consisting of two members designated by Graphite and five members designated by LENZ. The staggered structure of the Graphite board of directors will remain in place for the combined company following the completion of the merger. All of Graphite’s current directors, other than Kimberlee C. Drapkin and            , are expected to resign from their positions as directors of Graphite, effective as of the effective time.

 

Q:

Who will be the executive officers of the combined company immediately following the merger?

 

A:

Immediately following the merger, the executive management team of the combined company is expected to consist of the following members of the LENZ executive management team prior to the merger:

 

Name

  

Title

Evert Schimmelpennink

  

President, Chief Executive Officer and Secretary

Shawn Olsson

  

Chief Commercial Officer

Marc Odrich

  

Chief Medical Officer

 

Q:

As a Graphite stockholder, how does the Graphite board of directors recommend that I vote?

 

A:

After careful consideration, the Graphite board of directors unanimously recommends that Graphite stockholders vote “FOR” all of the Graphite Stockholder Proposals.

 

Q:

What risks should I consider in deciding whether to vote in favor of the merger?

 

A:

You should carefully review the section titled “Risk Factors” beginning on page 26 of this proxy statement/prospectus and the documents incorporated by reference herein, which set forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Graphite and LENZ, as independent companies, are subject.

 

Q:

When do you expect the merger to be consummated?

 

A:

The merger is anticipated to close in the first quarter of 2024, but the exact timing cannot be predicted. For more information, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 214 of this proxy statement/prospectus.

 

Q:

What do I need to do now?

 

A:

Graphite urges you to read this proxy statement/prospectus carefully, including the annexes and the documents incorporated by reference, and to consider how the merger affects you.

If you are a Graphite stockholder of record, you may provide your proxy instruction in one of four different ways:

 

   

By Internet. You may vote at                         . 24 hours a day, seven days a week. Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the meeting date. You will need the control number included on your proxy card.

 

   

During the Graphite special meeting. You may vote during Graphite special meeting by going to                         . You will need the control number included on your proxy card.

 

 

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By Telephone: You may vote using a touch-tone telephone by calling 1-800-690-6903, 24 hours a day, seven days a week. Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the meeting date. You will need the control number included on your proxy card.

 

   

By Mail. You may vote by completing and mailing your proxy card. Mark, sign and date your proxy card and return it in the postage-paid envelope provided or return to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Votes submitted through the mail must be received by                         .

Even if you plan to participate in the virtual Graphite special meeting, it is recommended that you also vote by proxy so that your vote will be counted if you later decide not to participate in the Graphite special meeting.

If you hold your shares in “street name” (as described below), will receive voting instructions from your broker, bank or other nominee. You must follow the voting instructions provided by your broker, bank or other nominee on how to vote your shares. Stockholders holding their shares in “street name” should generally be able to vote by returning an instruction card, or by telephone or on the Internet. However, the availability of telephone and Internet voting will depend on the voting process of your broker, bank or other nominee. If you hold your shares in “street name,” you may not vote your shares on your own behalf at the Graphite special meeting unless you obtain a legal proxy from your broker, bank or other nominee. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Graphite special meeting.

 

Q:

What happens if I do not return a proxy card or otherwise vote or provide proxy instructions, as applicable?

 

A:

If you are a Graphite stockholder, the failure to return your proxy card or otherwise vote or provide proxy instructions will reduce the aggregate number of votes required to approve Proposal Nos. 1, 2, 3, 4 and 5.

 

Q:

May I attend the Graphite special meeting and vote in person?

 

A:

Stockholders of record as of                 , will be able to attend and participate in the Graphite special meeting online by accessing                 . There will be no physical location for stockholders to attend. To join the Graphite special meeting and vote online, you will need to have your 16-digit control number which is included on your proxy card or on the instructions that accompanied your proxy materials. The control number is designed to verify your identity and allow you to vote your shares of Graphite common stock at the Graphite special meeting or to vote by proxy prior to the Graphite special meeting. If you attend the Graphite special meeting and vote via the Internet, your vote will revoke any proxy that you have previously submitted.

If your shares are held in “street name,” you should contact your bank, broker or other nominee if you did not receive a control number. If your shares are held in “street name” you will also need to provide a legal proxy to vote during the meeting.

Please note that even if you plan to attend the Graphite special meeting, it is recommended that you vote in advance to ensure that your shares will be represented.

 

Q:

Who counts the votes?

 

A:

Votes will be counted by the inspector of elections appointed for the Graphite special meeting. If you are a stockholder of record, your executed proxy card is returned directly to such inspector of elections for tabulation. If you hold your shares through a broker, your broker returns one proxy card to the inspector of elections on behalf of all its clients.

 

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Q:

If my Graphite shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

If you hold shares beneficially in street name and do not provide your broker or other agent with voting instructions, your shares may constitute a “broker non-vote.” A “broker non-vote” occurs when shares held by a broker are not voted with respect to a particular proposal because the broker does not have or did not exercise discretionary authority to vote in the matter and has not received voting instructions from its clients. These matters are referred to as “non-routine” matters. Each of Proposals Nos. 1, 2, 3, 4 and 5 are considered “non-routine” matters, and thus a Graphite stockholder’s broker, bank or other agent may not vote your shares on these proposals in the absence of such holders’ voting instructions. Accordingly, if you hold your shares beneficially in street name please be sure to instruct your broker or other agent how to vote to ensure that your vote is counted on each of the proposals.

 

Q:

What are broker non-votes and do they count for determining a quorum?

 

A:

Generally, a “broker non-vote” occurs when shares held by a broker are not voted with respect to a particular proposal because the broker does not have or did not exercise discretionary authority to vote on the matter and has not received voting instructions from its client.

Broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Graphite special meeting. Broker non-votes will not be counted as “votes cast” and will therefore have no effect on Proposal Nos. 1, 2, 3, 4 and 5. None of the proposals currently scheduled to be voted on at the Graphite special meeting are “routine” matters for which brokers have discretionary authority to vote. Accordingly, it is not expected that there will be any broker non-votes.

 

Q:

May I change my vote after I have submitted a proxy or provided proxy instruction?

 

A:

Graphite stockholders of record, unless such stockholder’s vote is subject to a support agreement, may change their vote at any time before their proxy is voted at the Graphite special meeting in one (1) of four (4) ways:

 

   

You may submit another properly completed proxy with a later date by mail or via the internet.

 

   

You can provide your proxy instructions via telephone at a later date.

 

   

You may send a notice that you are revoking your proxy over the internet, following the instructions provided on the proxy card.

 

   

You may attend the Graphite special meeting online. Upon entry of your 16-digit control number which is included on your proxy card or on the instructions that accompanied your proxy materials. The control number is designed to verify your identity and allow you to vote your shares of Graphite common stock at the Graphite special meeting or to vote by proxy prior to the Graphite special meeting. If you attend the Graphite special meeting and vote via the Internet, your vote will revoke any proxy that you have previously submitted. Simply attending the Graphite special meeting will not, by itself, revoke your proxy.

If a Graphite stockholder who owns shares of Graphite common stock in “street name” has instructed a broker to vote its shares of Graphite common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Have any of Graphite’s stockholders agreed to vote in favor of the issuance of the shares in the merger?

 

A:

Yes. In connection with the execution of the Merger Agreement, holders of approximately 52% of the outstanding shares of Graphite common stock have entered into support agreements, as further described in the section titled “Agreements Related to the Merger” beginning on page 220 of this proxy statement/prospectus, with Graphite and LENZ that provide, among other things, that the stockholders subject to these agreements will vote in favor of the issuance of shares of Graphite common stock in the merger, subject to the terms of the support agreements.

 

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Q:

Who is paying for this proxy solicitation?

 

A:

Graphite is paying for the cost of printing and filing of this proxy statement/prospectus and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Graphite common stock for the forwarding of solicitation materials to the beneficial owners of Graphite common stock. Graphite will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Graphite has retained Mackenzie Partners, Inc. (“Mackenzie”) to assist it in soliciting proxies using the means referred to above. Graphite will pay the fees of Mackenzie which Graphite expects to be approximately $8,500, plus reimbursement of out-of-pocket expenses.

 

Q:

What are the material U.S. federal income tax consequences of the merger to holders of Graphite common stock?

 

A:

Graphite stockholders will not sell, exchange or dispose of any shares of Graphite common stock as a result of the merger. Thus, there will be no material U.S. federal income tax consequences to Graphite stockholders as a result of the merger.

 

Q:

What are the material U.S. federal income tax consequences of the merger to United States holders of LENZ capital stock?

 

A:

Subject to the limitations and qualifications described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” each of Graphite and LENZ intend that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If the merger so qualifies, holders of LENZ capital stock will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of shares of Graphite common stock in exchange for LENZ capital stock in the merger. For a more detailed discussion of the material U.S. federal income tax consequences of the merger, see “The Merger—Material U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 188 of this proxy statement/prospectus.

 

Q:

What are the material U.S. federal income tax consequences of the special cash dividend that Graphite will declare and pay to holders of Graphite common stock?

 

A:

The U.S. federal income tax consequences of a holder’s receipt of the special cash dividend generally should be treated first as a dividend to the extent of Graphite’s current and accumulated earnings and profits, then as a non-taxable return of capital to the extent of the holder’s basis in Graphite common stock, and then as capital gain from the sale or exchange of Graphite common stock with respect to any remaining amount. Graphite currently has an accumulated deficit and expects additional losses in the current period. Thus, Graphite expects most or all of the distribution of the special cash dividend to be treated as other than a dividend for U.S. federal income tax purposes. However, there can be no assurance that it will be so treated. Please review the information in the section titled “The Merger—Material U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Consequences of the Special Cash Dividend to Holders of Graphite Common Stock” beginning on page 191 of this proxy statement/prospectus for a discussion of the material U.S. federal income tax consequences of the special cash dividend to holders of Graphite common stock.

 

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Q:

What are the material U.S. federal income tax consequences of the reverse stock split to holders of Graphite common stock?

 

A:

A holder of Graphite common stock should not recognize gain or loss upon the reverse stock split, except to the extent such holder receives cash in lieu of a fractional share of Graphite common stock, and subject to the discussion in the section titled “Proposal No. 2—The Charter Amendment Proposal” beginning on page 253 of this proxy statement/prospectus. Please review the information in the section titled “Proposal No. 2—The Charter Amendment Proposal—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” beginning on page 257 of this proxy statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the reverse stock split to holders of Graphite common stock.

 

Q:

Who can help answer my questions?

 

A:

If you are a Graphite stockholder and would like additional copies of this proxy statement/prospectus without charge or if you have questions about the merger or related matters, including the procedures for voting your shares, you should contact:

Mackenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

(212) 929-5500

(800) 322-2885

Email: proxy@mackenziepartners.com

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. To better understand the merger and the proposals being considered at the Graphite special meeting, you should read this entire proxy statement/prospectus carefully, including the Merger Agreement and the other annexes to which you are referred in this proxy statement/prospectus, and the documents incorporated by reference therein. For more information, please see the section titled “Where You Can Find More Information” beginning on page 424 of this proxy statement/prospectus. Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 2 of this proxy statement/prospectus.

The Companies

Graphite

Graphite has historically been a clinical-stage, next-generation gene editing company. In January 2023, Graphite announced a voluntary pause of its Phase 1/2 CEDAR study of nulabeglogene autogedtemcel (nula-cel), for sickle cell disease (“SCD”) due to a serious adverse event in the first patient dosed, which Graphite concluded is likely related to study treatment. Nula-cel was being developed as a highly differentiated approach to treating SCD, with the potential to directly correct the mutation that causes SCD and restore normal adult hemoglobin expression.

In February 2023, Graphite announced its decision to discontinue the development of nula-cel and initiate a process to explore strategic alternatives. As a result of this decision, Graphite announced a corporate restructuring that resulted in an approximately 71.2% reduction in its workforce. Graphite also disclosed its intention to continue research activities associated with its pre-clinical non-genotoxic conditioning program, with the goal of advancing toward one or more potential development candidates. As part of the corporate restructuring, Graphite also elected not to utilize the portion of its facilities space subject to its lease agreement with Bayside Area Development for purposes of its own operations.

In August 2023, Graphite entered into a license and option agreement (the “LOA”), pursuant to which Graphite granted a third-party an option to acquire certain of Graphite’s technology and intellectual property related to its nula-cel program and related pre-clinical platform assets. Graphite also entered into an asset purchase agreement pursuant to which it transferred to another third-party its pre-clinical non-genotoxic conditioning program, including technology and intellectual property, while Graphite continued to explore strategic alternatives. On September 12, 2023, Graphite entered into an amendment to the LOA with such counterparty, under which Graphite agreed to assign certain contracts to such counterparty prior to exercise of the option.

In October 2023, Graphite entered into a sublease for a portion of the facility leased to it by Bayside Area Development, as well as an amendment to the master lease, which provided for an accelerated termination of the lease and a release of liabilities under the lease and the new sublease upon payment of a lump sum at the time of signing. Following this transaction, Graphite is no longer obligated for any rent payments under its lease with Bayside Area Development.

LENZ

LENZ Therapeutics, Inc. is a late-stage biopharmaceutical company focused on developing and commercializing innovative therapies to improve vision. Its initial focus is the treatment of presbyopia, the inevitable loss of near vision that impacts the daily lives of nearly all people over 45. In the United States, the estimated addressable population which suffers from this condition, known as presbyopes, is 128 million, almost

 

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four times the number of individuals suffering from dry eye disease and three times the number of individuals suffering from childhood myopia, macular degeneration, diabetic retinopathy and glaucoma combined. LENZ believes that a once-daily pharmacological eye drop that can effectively and safely improve near vision throughout the full workday, without the need for reading glasses, will be a highly attractive commercial product with an estimated U.S. market opportunity in excess of $3 billion. It is LENZ’s goal to develop and commercialize such a product, and the company has assembled an executive team with extensive clinical and commercial experience to execute this goal and become the category leader.

LENZ’s product candidates LNZ100 and LNZ101 are preservative-free, single-use, once-daily eye drops containing aceclidine and aceclidine plus brimonidine, respectively. LENZ believes its product candidates are differentiated based on rapid onset, degree and duration of near vision improvement, as well as their ability to be used across the full age range of presbyopes, from their mid-40s to well into their mid-70s, as well as the broadest refractive range. Aceclidine’s pupil-selective mechanism of action was demonstrated in LENZ’s clinical trials where near vision improved while avoiding blurry distance vision. Its product candidates were well-tolerated in clinical trials, and their active ingredients have favorable tolerability profiles that have been well-established empirically.

In LENZ’s INSIGHT Phase 2 trial, both LNZ100 and LNZ101 achieved the primary endpoint of three-lines or greater improvement in near visual acuity without losing one or more lines in Best Corrected Distance Visual Acuity at one hour post-treatment, with a response rate of 71% and 56%, respectively, compared to 6% for vehicle. Based on the positive results in its Phase 2 trial, LENZ is currently conducting three Phase 3 clinical trials (the CLARITY or Phase 3 trials) with results expected to be announced in the second quarter of 2024. Subject to successful completion of these trials, the company plans to submit a New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) for one or both of its product candidates in mid-2024. If approval is granted, LENZ will rigorously evaluate the results of its Phase 3 data, especially patient reported outcomes, and FDA feedback to select and commercialize the product that LENZ believes will have the greatest commercial potential, with a launch target date in mid-2025.

Merger Sub

Merger Sub is a direct, wholly-owned subsidiary of Graphite and was formed solely for the purpose of carrying out the merger. Merger Sub’s principal executive offices are located at 611 Gateway Blvd, Suite 120, South San Francisco, CA 94080; and its telephone number is (857) 242-0170.

The Merger (see page 133)

On November 14, 2023, Graphite, Merger Sub, and LENZ entered into the Merger Agreement, pursuant to which Merger Sub will merge with and into LENZ, with LENZ surviving as a wholly-owned subsidiary of Graphite.

Graphite and LENZ expect the merger to be consummated during the first quarter of 2024, subject to the satisfaction or waiver of certain conditions to the closing, including, among other things, approval by the Graphite stockholders of the Nasdaq Stock Issuance Proposal and the Charter Amendment Proposal.

Immediately after the merger, on a pro forma basis and based upon the number of shares of Graphite common stock expected to be issued in the merger, pre-merger Graphite stockholders will own approximately 35% of the combined company on a fully-diluted basis and pre-merger LENZ stockholders will own approximately 65% of the combined company on a fully-diluted basis (prior to giving effect to the Graphite private placement and excluding shares reserved for future grants under the 2024 Plan and the 2024 ESPP). Following the consummation of the Graphite private placement, assuming a subscription amount of $53.5 million, the Graphite stockholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully diluted basis,

 

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former LENZ stockholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis and the investors issued shares of Graphite common stock in the Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis (excluding, in each case, any additional shares reserved under the 2024 Plan and the 2024 ESPP).

For a more complete description of the merger and the exchange ratio, please see the sections titled “The Merger” and “The Merger Agreement—The Exchange Ratio” beginning on pages 133 and 200, respectively, of this proxy statement/prospectus.

Graphite’s Reasons for the Merger (see page 155)

In reaching its decision to approve the Merger Agreement and the transactions contemplated by the Merger Agreement, the Graphite board of directors considered a number of factors that it viewed as supporting its decision to approve the Merger Agreement, including:

 

   

information concerning Graphite’s business, the financial condition and prospects of Graphite, business and strategic objectives, as well as the risks of accomplishing those objectives;

 

   

Graphite’s business and financial prospects if it were to remain an independent company and the Graphite board of directors’ determination that Graphite could not continue to operate as an independent company and needed to enter into an agreement with a strategic partner;

 

   

potential strategic alternatives and merger partner candidates and the Graphite board of directors’ view that no alternatives to the merger (including remaining a standalone company, a liquidation and dissolution of Graphite and the distribution of any available cash, a cash tender offer at a discount to net cash value, and alternative strategic transactions) were reasonably likely to create greater value to Graphite’s stockholders;

 

   

the Graphite board of directors’ conclusion that the merger would provide Graphite’s existing stockholders a significant opportunity to participate in the potential growth of the combined company following the merger, which will focus on LENZ’s product pipeline, while also receiving a cash payment following the closing of the merger on account of the special cash dividend; and

 

   

the Graphite board of directors’ belief that the $11.5 million enterprise value ascribed to Graphite, in addition to Graphite’s anticipated $175 million net cash position, would provide the existing Graphite stockholders significant value for Graphite’s public listing, and afford the Graphite stockholders a significant opportunity to participate in the potential growth of the combined company following the merger at the negotiated exchange ratio.

LENZ’s Reasons for the Merger (see page 158)

The LENZ board of directors has unanimously approved the Merger Agreement, the merger and the transactions contemplated thereby. The LENZ board of directors reviewed several factors in reaching its decision and believes that the Merger Agreement, the merger and the transactions contemplated thereby are advisable and fair to, and in the best interests of LENZ and its stockholders. Several factors were considered by the LENZ board of directors, including:

 

   

the merger will provide LENZ’s current stockholders with greater liquidity by owning publicly-traded stock, and expanding both the access to capital for LENZ and the range of investors potentially available as a public company, compared to the investors LENZ could otherwise gain access to if it continued to operate as a privately-held company;

 

   

the belief of the LENZ board of directors that this transaction provides a viable alternate public listing strategy and addresses the risk of the lack of an available market for an initial public offering at a later date; and

 

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the expected cash resources of the combined company, including the ability to support the combined company’s current operations and to continue to build infrastructure and successfully commercialize LENZ’s lead product candidate, subject to the successful completion of the ongoing Phase 3 trials, NDA submission and subsequent FDA approval.

Recommendation of the Graphite Board of Directors (see page 128)

 

   

The Graphite board of directors has determined and declared the Merger Agreement and the transactions contemplated therein, including the issuance of shares of Graphite common stock to the LENZ stockholders pursuant to the Merger Agreement and the Graphite private placement, are fair to, advisable and in the best interests of Graphite and its stockholders. The Graphite board of directors unanimously recommends that Graphite stockholders vote “FOR” the Nasdaq Stock Issuance Proposal as described in this proxy statement/prospectus.

 

   

The Graphite board of directors has determined and declared that it is advisable and in the best interests of Graphite and its stockholders to approve the amendment to the Graphite charter to effect the reverse stock split and change Graphite’s name as described in this proxy statement/prospectus and has approved such proposal. The Graphite board of directors unanimously recommends that Graphite stockholders vote “FOR” the Charter Amendment Proposal as described in this proxy statement/prospectus.

 

   

The Graphite board of directors has determined and declared that it is advisable and in the best interests of Graphite and its stockholders to approve the 2024 Plan, as described in this proxy statement/prospectus. The Graphite board of directors unanimously recommends that Graphite stockholders vote “FOR” the 2024 Plan Proposal as described in this proxy statement/prospectus.

 

   

The Graphite board of directors has determined and declared that it is advisable and in the best interests of Graphite and its stockholders to approve the 2024 ESPP, as described in this proxy statement/prospectus. The Graphite board of directors unanimously recommends that Graphite stockholders vote “FOR” the 2024 ESPP Proposal as described in this proxy statement/prospectus.

 

   

The Graphite board of directors has determined and believes that adjourning the Graphite special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Nasdaq Stock Issuance Proposal and/or the Charter Amendment Proposal is fair to, in the best interests of, and advisable to, Graphite and its stockholders and has approved and adopted the proposal. The Graphite board of directors unanimously recommends that Graphite stockholders vote “FOR” the Adjournment Proposal, if necessary, as described in this proxy statement/prospectus.

Interests of Graphite’s Directors and Executive Officers in the Merger (see page 169)

In considering the recommendation of the Graphite board of directors with respect to issuing shares of Graphite common stock in the merger and other matters to be acted upon by the Graphite stockholders at the Graphite special meeting, the Graphite stockholders should be aware that Graphite’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of the Graphite stockholders generally. These interests include the following:

 

   

Certain of Graphite’s directors are expected to become directors of the combined company after the effective time and, following the closing, will be compensated as non-employee directors of the combined company pursuant to a new non-employee director compensation policy that is expected to be adopted in connection with the closing;

 

   

Under the Merger Agreement, Graphite’s directors and executive officers are entitled to continued indemnification, expense advancement and insurance coverage;

 

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In connection with the merger, all outstanding equity awards held by Graphite’s directors will fully accelerate in vesting;

 

   

In connection with the merger, (i) prior to giving effect to the cash dividend and the reverse stock split, the vesting of each outstanding and unexercised Out-of-the-Money Graphite Option shall be fully accelerated, and each such option not exercised as of immediately prior to the effective time shall be cancelled at the effective time for no consideration and (ii) each Graphite option that has an exercise price per share less than $3.00 and is unexpired and unexercised as of the effective time, shall continue to be subject to the same terms and conditions after the effective time as were applicable to such Graphite options immediately prior to the effective time, subject to adjustment with respect to the special cash dividend and reverse stock split; and

 

   

Each of Graphite’s executive officers are parties to either, or a combination of, an employment agreement, separation agreement and/or retention agreement that provide for severance benefits, including accelerated vesting of outstanding equity awards and certain cash payments, in connection with the merger.

The Graphite board of directors was aware of these potential conflicts of interests and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the merger, and to recommend that the Graphite stockholders approve the proposals to be presented to the Graphite stockholders for recommendation at the Graphite special meeting as contemplated by this proxy statement/prospectus.

Interests of LENZ’s Directors and Executive Officers in the Merger (see page 177)

In considering the recommendation of the LENZ board of directors with respect to approving the merger, LENZ stockholders should be aware that certain of its directors and executive officers have interests in the merger that are different from, or in addition to, the interests of LENZ stockholders generally.

Evert Schimmelpennink, Frederic Guerard, James McCollum, Shelley Thunen and Zach Scheiner are currently directors of LENZ and are expected to become directors of the combined company, and all of LENZ’s executive officers are expected to become the executive officers of the combined company, upon the closing of the merger, in connection with which the executive officers are expected to enter into new confirmatory offer letters to reflect their status as executive officers of a publicly-traded company and to provide for certain increases to annual base salary and annual target bonus opportunity. In connection with the closing of the merger, each executive officer of the combined company is expected to become a participant in a new executive change in control and severance policy that is expected to be adopted in connection with the closing. Following completion of the merger, it is expected that the combined company will provide compensation to non-employee directors pursuant to a new non-employee director compensation policy that is expected to be adopted in connection with the closing, including grants of equity awards to non-employee directors that will take effect at the closing.

As of November 8, 2023, LENZ’s non-employee directors and executive officers, together with their affiliated entities, beneficially owned, in the aggregate, approximately 70% of the outstanding shares of LENZ capital stock, excluding any shares issuable upon exercise of LENZ options or LENZ warrants held by such individuals and entities. Such shares of LENZ capital stock will be converted into shares of Graphite common stock at the effective time.

The LENZ board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the merger, and to recommend that the LENZ stockholders approve the merger as contemplated by this proxy statement/prospectus. For more information, please see the section titled “The Merger—Interests of LENZ’s Directors and Executive Officers in the Merger” beginning on page 177 of this proxy statement/prospectus.

 

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Opinion of Leerink Partners LLC (see page 164)

Graphite retained Leerink Partners LLC (“Leerink Partners”) as its financial advisor in connection with the merger and the other transactions contemplated by the Merger Agreement. On November 14, 2023, Leerink Partners rendered to the Graphite board of directors its oral opinion, which was subsequently confirmed by delivery of a written opinion to the Graphite board of directors dated November 14, 2023, that, as of such date and based upon and subject to the various assumptions made, and the qualifications and limitations upon the review undertaken by Leerink Partners in preparing its opinion, the exchange ratio proposed to be paid by Graphite pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Graphite.

The full text of the written opinion of Leerink Partners, dated November 14, 2023, which describes the assumptions made and the qualifications and limitations upon the review undertaken by Leerink Partners in preparing its opinion, is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. Leerink Partners’ financial advisory services and opinion were provided for the information and assistance of the Graphite board of directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of the Graphite board of directors’ consideration of the merger and the opinion of Leerink Partners addressed only the fairness, from a financial point of view, as of the date thereof, to Graphite of the exchange ratio proposed to be paid by Graphite pursuant to the terms of the Merger Agreement. The opinion of Leerink Partners did not address any other term or aspect of the Merger Agreement or the merger and does not constitute a recommendation to any stockholder of Graphite or LENZ as to whether or how such holder should vote with respect to the merger or otherwise act with respect to the merger or any other matter.

The full text of the written opinion of Leerink Partners should be read carefully in its entirety for a description of the assumptions made and qualifications and limitations upon the review undertaken by Leerink Partners in preparing its opinion.

The Merger Agreement (see page 199)

Merger Consideration (page 199)

At the effective time, upon the terms and subject to the conditions set forth in the Merger Agreement, (a) each then-outstanding share of LENZ common stock (excluding shares held as treasury stock and automatically cancelled pursuant to the Merger Agreement and excluding dissenting shares, but including any LENZ restricted shares) will be converted into the right to receive a number of shares of Graphite common stock equal to the exchange ratio described in more detail below, (b) each then-outstanding share of LENZ preferred stock will be converted into the right to receive a number of shares of Graphite common stock equal to the exchange ratio multiplied by the aggregate number of LENZ common stock into which each such share of LENZ preferred stock is then convertible, (c) each then-outstanding LENZ option will be assumed by Graphite, subject to adjustment as set forth in the Merger Agreement and (d) each then-outstanding warrant to purchase shares of LENZ common stock or LENZ preferred stock will be converted into a warrant to purchase shares of Graphite common stock, subject to adjustment as set forth in the Merger Agreement.

Exchange Ratio (page 200)

The exchange ratio is calculated using a formula intended to allocate existing Graphite and LENZ stockholders a percentage of the combined company. Based on Graphite’s and LENZ’s capitalization as of November 9, 2023, the exchange ratio is estimated to be equal to approximately 1.4135. This estimate is subject to adjustment prior to closing for net cash at the cash determination time (and as a result, Graphite stockholders could own more, and LENZ stockholders could own less, or vice versa, of the combined company).

 

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Treatment of LENZ Restricted Shares (page 202)

Under the terms of the Merger Agreement, at the effective time, each award of restricted shares of LENZ common stock that is unvested and outstanding immediately prior to the effective time will be converted into a number of shares of Graphite common stock equal to the product of (A) the number of shares of LENZ restricted shares, multiplied by (B) the exchange ratio, and rounding the resulting number down to the nearest whole number of shares of Graphite common stock. The Graphite common stock issued upon such conversion will remain subject to the terms and conditions (including, without limitation, vesting and repurchase provisions) of such LENZ restricted shares as of immediately prior to the effective time.

Treatment of LENZ Options (page 202)

Under the terms of the Merger Agreement, at the effective time, each LENZ option that is outstanding and unexercised immediately prior to the effective time, whether or not vested, will be assumed and converted into a Graphite option. The number of shares of LENZ common stock underlying such LENZ options will be adjusted appropriately to reflect the exchange ratio. Graphite will assume LENZ’s 2020 Equity Incentive Plan.

Treatment of LENZ Warrants (page 203)

Under the terms of the Merger Agreement, at the effective date, each warrant to purchase shares of LENZ capital stock that is outstanding and unexercised immediately prior to the effective time will be assumed and converted into a warrant to purchase shares of Graphite common stock. The number of shares of LENZ capital stock underlying such warrants will be adjusted appropriately to reflect the exchange ratio.

Treatment of Graphite Common Stock and Graphite Options (page 203)

Each share of Graphite common stock issued and outstanding at the time of the merger will remain issued and outstanding. In addition, each Graphite option that is outstanding immediately prior to the effective time, whether vested or unvested, will survive the closing and remain outstanding in accordance with its terms, provided that (i) each Out-of-the-Money Graphite Option shall be accelerated in full immediately prior to the effective time, and each such Out-of-the-Money Graphite Option not exercised as of immediately prior to the effective time shall be cancelled at the effective time for no consideration, and (ii) each Graphite option that has an exercise price per share less than $3.00, is unexpired and unexercised as of the effective time, shall continue to be subject to the same terms and conditions after the effective time as were applicable to such Graphite option immediately prior to the effective time.

Conditions to the Completion of the Merger (page 214)

To complete the merger, Graphite stockholders must approve the Graphite Stockholder Proposals and LENZ stockholders must adopt the Merger Agreement and approve the merger and the related transactions contemplated by the Merger Agreement. Additionally, each party’s obligation to complete the merger is subject to the satisfaction or, to the extent permitted by applicable law, the written waiver by each of the parties, at or prior to closing, of various closing conditions set forth in the Merger Agreement.

Non-Solicitation (page 208)

The Merger Agreement contains non-solicitation provisions prohibiting Graphite and LENZ from inquiring about or seeking a competing transaction. Each of Graphite and LENZ have agreed that, subject to certain exceptions, neither it nor any of its subsidiaries shall, nor will either party or any of its subsidiaries authorize any of its representatives to, directly or indirectly (i) solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry (as each is defined in the section titled “The Merger Agreement—Non-Solicitation” beginning on page 208 of this proxy statement/prospectus) or take any action that would reasonably be expected to lead to an Acquisition

 

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Proposal or Acquisition Inquiry, (ii) furnish any non-public information with respect to its or any person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry, (iii) engage in discussions or negotiations with any person with respect to any Acquisition Proposal or Acquisition Inquiry, (iv) approve, endorse or recommend any Acquisition Proposal (subject to certain exceptions), (v) execute or enter into any letter of intent or any contract contemplating or otherwise relating to an Acquisition Transaction, (vi) take any action that would reasonably be expected to lead to an Acquisition Proposal or Acquisition Inquiry, or (vii) publicly propose to do any of the foregoing.

Board Recommendation Change (page 209)

Under the Merger Agreement, subject to certain exceptions described below, Graphite agreed that its board of directors may not withhold, amend, withdraw or modify (or publicly propose to withhold, amend, withdraw or modify) the recommendation of the Graphite board of directors in a manner adverse to LENZ (each, a “Graphite board recommendation change”).

However, notwithstanding the foregoing, and subject to certain circumstances, the Graphite board of directors may make a Graphite board recommendation change, at any time prior to the approval of the proposals to be considered at the Graphite special meeting by the necessary vote of Graphite stockholders, if (x) Graphite has received a bona fide written Superior Offer (as defined in the section titled “The Merger Agreement—Board Recommendation Change” beginning on page 209 of this proxy statement/prospectus) or (y) there is a Graphite intervening event (as defined in the section titled “The Merger Agreement—Board Recommendation Change” beginning on page 209 of this proxy statement/prospectus).

Termination of the Merger Agreement (page 217)

Either party may terminate the Merger Agreement in certain circumstances, which would prevent the merger from being consummated.

Termination Fee (page 217)

The Merger Agreement provides for the payment of a termination fee of $7,500,000 by Graphite or LENZ to the other party upon termination of the Merger Agreement under specified circumstances.

Support Agreements (see page 220)

Concurrently with the execution of the Merger Agreement, (i) certain stockholders of Graphite, owning in the aggregate approximately 52% of the outstanding shares of Graphite common stock, have entered into support agreements with Graphite and LENZ to vote all of their shares of Graphite common stock in favor of the Graphite Stockholder Proposals (the “Graphite Support Agreements”), and (ii) certain stockholders of LENZ, owning in the aggregate approximately 70% of the outstanding shares of LENZ common stock, have entered into support agreements with Graphite and LENZ to vote all of their shares of LENZ capital stock in favor of the Merger Agreement and the related contemplated transactions and against any alternative acquisition proposals (the “LENZ Support Agreements,” and, together with the Graphite Support Agreements, the “Support Agreements”). In the event of a Graphite board recommendation change (as defined herein), then the aggregate number of shares of Graphite common stock subject to the Graphite Support Agreement will automatically be reduced on a pro rata basis so that the aggregate number of such shares of Graphite common stock shall collectively only constitute the greater of (a) 20% of the outstanding shares of Graphite capital stock or (b) 30% of the votes cast in support of the Graphite Stockholder Proposals (as defined in the Merger Agreement).

The foregoing descriptions of the Support Agreements do not purport to be complete and are qualified in their entirety by the full text of the forms of Support Agreements, which are attached hereto as Annex C and Annex D.

 

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Lock-Up Agreements (see page 220)

Concurrently with the execution of the Merger Agreement, certain executive officers, directors and stockholders of Graphite and LENZ have entered into lock-up agreements with Graphite (the “Lock-Up Agreements”), pursuant to which such parties have agreed not to, except in limited circumstances, sell or transfer their shares of Graphite common stock, for the 90-day period following the closing.

The Graphite stockholders who have executed Lock-Up Agreements as of November 14, 2023, owned in the aggregate, approximately 43% of the shares of Graphite’s outstanding capital stock.

The foregoing description of the Lock-Up Agreements does not purport to be complete and is qualified in its entirety by the full text of the form of Lock-Up Agreement, which is attached hereto as Annex E.

Subscription Agreement (see page 220)

On November 14, 2023, concurrently with the execution of the Merger Agreement, Graphite entered into the Subscription Agreement with the PIPE investors, pursuant to which Graphite agreed to sell shares of Graphite common stock for an aggregate purchase price of approximately $53.5 million, which amount may be increased to up to $125 million through additional subscriptions under the Subscription Agreement from additional PIPE investors. The closing of the Graphite private placement is expected to occur concurrently with, and is conditioned upon, the closing of the merger. Following the consummation of the Graphite private placement, assuming a subscription amount of $53.5 million, the Graphite stockholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, former LENZ stockholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis and the investors issued shares of Graphite common stock in the Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis (excluding, in each case, any additional shares reserved under the 2024 Plan and the 2024 ESPP).

Management Following the Merger (see page 374)

Effective as of the closing of the merger, the combined company’s executive officers are expected to be the following members of the LENZ executive management team prior to the merger:

 

Name

  

Position(s)

Evert Schimmelpennink    President, Chief Executive Officer, Secretary and Director
Shawn Olsson    Chief Commercial Officer
Marc Odrich, M.D.    Chief Medical Officer

Material U.S. Federal Income Tax Consequences of the Merger (see page 188)

For a discussion summarizing U.S. federal income tax considerations of the merger, see the section titled “The Merger—Material U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Consequences of the Merger.”

Risk Factors (see page 26)

Both Graphite and LENZ are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective securityholders, including the following risks:

 

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Risks Related to the Merger

 

   

The exchange ratio will not change or otherwise be adjusted based on the market price of Graphite common stock as the exchange ratio depends on Graphite’s net cash at the closing and not the market price of Graphite common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed;

 

   

Failure to complete the merger may result in Graphite or LENZ paying a termination fee to the other party and could harm the common stock price of Graphite and the future business and operations of each company;

 

   

Some Graphite and LENZ executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests;

 

   

Graphite stockholders and LENZ stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger; and

 

   

If the merger is not completed, Graphite’s stock price may decline significantly.

Risks Related to Graphite

 

   

Graphite has incurred significant losses since its inception, it expects to incur significant losses for the foreseeable future, and it may never achieve or maintain profitability;

 

   

Graphite’s limited operating history may make it difficult for you to evaluate the performance of Graphite’s business to date and to assess its future viability;

 

   

Graphite will need substantial additional funding. If Graphite is unable to raise capital when needed on acceptable terms, or at all, it would be forced to delay, reduce, or terminate its research and product development programs, future commercialization efforts or other operations;

 

   

Graphite may not be successful in completing the merger or any strategic transactions that it may consummate in the future could have negative consequences;

 

   

If Graphite is successful in completing the merger, Graphite may be exposed to other operational and financial risks;

 

   

If the merger is not consummated, Graphite’s board of directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities;

 

   

Graphite’s ability to consummate the merger depends on its ability to retain its employees required to consummate such transaction; and

 

   

Graphite’s corporate restructuring and the associated headcount reduction may not result in anticipated savings, could result in total costs and expenses that are greater than expected, and could disrupt its business.

Risks Related to LENZ

 

   

LENZ is a late-stage biopharmaceutical company with limited operating history. It has incurred significant losses and negative cash flows from operations since its formation, and LENZ anticipates that it will continue to incur losses for the foreseeable future. LENZ has no products approved for commercial sale, which may make it difficult for you to evaluate its current business and predict its future success and viability;

 

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LENZ’s business depends entirely on the development and commercialization of LNZ100 or LNZ101. If LENZ is unable to successfully complete its clinical development program for LNZ100 or LNZ101 and obtain the marketing approvals necessary to commercialize either of them, or experiences significant delays in doing so, or if after obtaining marketing approvals, LENZ fails to commercialize any one of these product candidates, its business will be materially harmed. LENZ currently generates no revenues from sales of any products and may never generate revenue or be profitable;

 

   

Clinical trials are expensive, time-consuming, difficult to design and implement and involve an uncertain outcome. The outcome of preclinical testing and earlier clinical trials may not be predictive of the success of later clinical trials. The results of LENZ’s clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities, and it may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of its product candidates;

 

   

Even if LNZ100, LNZ101 or any other product candidate receives marketing approval, they may fail to achieve market acceptance by eye care professionals and patients, and the market opportunity for these products, if and when approved, may be smaller than LENZ estimates;

 

   

If LENZ is unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market its product candidates on acceptable terms, LENZ may be unable to successfully commercialize its product candidates that obtain regulatory approval;

 

   

If LENZ is unable to obtain and maintain sufficient intellectual property protection for its technology and products and product candidates LENZ may develop, or if the scope of the intellectual property protection obtained is not sufficiently broad, its competitors or other third parties could develop and commercialize products similar or identical to LENZ, and its ability to successfully develop and, if approved, commercialize its product candidates may be adversely affected;

 

   

LENZ faces significant competition, and if its competitors develop and market technologies or products more rapidly than LENZ does or that are more effective, safer or less expensive than the product candidates LENZ develops, its commercial opportunities will be negatively impacted. LENZ’s product candidates may, if approved, also face competition from existing branded, generic and off-label products;

 

   

LENZ relies, and expects to continue to rely, on third parties, including independent clinical investigators and contract research organizations, to conduct, supervise and monitor certain aspects of its clinical trials and any future preclinical studies. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements or meet expected deadlines, LENZ may not be able to obtain regulatory approval for or commercialize its product candidates, or such approval or commercialization may be delayed, and its business could be substantially harmed;

 

   

LENZ contracts with third parties for the manufacture of its product candidates for its ongoing clinical trials, and expects to continue to do so for additional clinical trials and ultimately for commercialization. This reliance on third parties increases the risk that LENZ will not have sufficient quantities of its product candidates or drugs or such quantities at an acceptable cost, which could delay, prevent or impair its development or commercialization efforts; and

 

   

LENZ’s success is highly dependent on its ability to attract and retain highly skilled executive officers and employees.

Risks Related to the Combined Company

 

   

The market price of the combined company’s common stock is expected to be volatile, the market price of the common stock may drop following the merger and an active trading market for the combined company’s common stock may not develop and its stockholders may not be able to resell their shares of common stock for a profit, if at all;

 

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The combined company may need to raise additional financing in the future to fund its operations, which may not be available to it on favorable terms or at all;

 

   

Provisions in the combined company’s charter documents and under Delaware law could make an acquisition of the combined company more difficult and may discourage any takeover attempts which stockholders may consider favorable, and may lead to entrenchment of management;

 

   

After completion of the merger, the combined company’s executive officers, directors and principal stockholders will have the ability to control or significantly influence all matters submitted to the combined company’s stockholders for approval; and

 

   

The combined company will have broad discretion in the use of the cash and cash equivalents of the combined company, including the proceeds from the Graphite private placement, and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” beginning on page 26 of this proxy statement/prospectus. Graphite and LENZ both encourage you to read and consider all of these risks carefully.

Regulatory Approvals (see page 212)

Under the Merger Agreement, the merger cannot be completed until the waiting period (and any extensions thereof), if any, applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), has expired or otherwise been terminated. The initial waiting period under the HSR Act is expected to expire at 11:59 p.m., Eastern Time, on December 21, 2023. For a further discussion summarizing regulatory approval considerations of the merger, see the section titled “The Merger—Regulatory Approvals.”

Nasdaq Stock Market Listing (see page 194)

Graphite intends to file an initial listing application for the combined company common stock with Nasdaq. If such application is accepted, Graphite anticipates that the common stock of the combined company will be listed on Nasdaq following the closing of the merger under the trading symbol “LENZ”.

Anticipated Accounting Treatment (see page 195)

The merger is expected to be treated by Graphite as a reverse merger and will be accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). For financial reporting, LENZ is considered to be the accounting acquirer, based on the expectation that, immediately following the merger: (i) LENZ’s equity holders will own a substantial majority of the voting rights in the combined company; (ii) LENZ will designate a majority (five of seven) of the initial members of the board of directors of the combined company; and (iii) LENZ’s senior management will hold all key positions in senior management of the combined company. The combined company will be named LENZ Therapeutics, Inc. and be headquartered in Del Mar, CA. Accordingly, the merger is expected to be treated as the equivalent of LENZ issuing stock to acquire the net assets of Graphite. As a result of the merger, LENZ’s assets and liabilities will be recorded at their pre-combination carrying amounts and Graphite’s assets and liabilities will be measured and recognized at their fair values as of the effective time. Upon consummation of the merger, the historical financial statements of LENZ will become the historical consolidated financial statements of the combined company. See the “Unaudited Pro Forma Condensed Combined Financial Information” included elsewhere in this proxy statement/prospectus for additional information.

Appraisal Rights (see page 195)

Holders of Graphite common stock are not entitled to appraisal rights in connection with the merger under Delaware law. LENZ stockholders and beneficial owners of LENZ capital stock are entitled to, under certain circumstances, appraisal rights in connection with the merger under Delaware law.

 

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Comparison of Stockholder Rights (see page 404)

Both Graphite and LENZ are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the Delaware General Corporation Law (“DGCL”). If the merger is completed, LENZ stockholders will become Graphite stockholders, and their rights will be governed by the DGCL, the amended and restated bylaws of Graphite, as amended and restated in connection with the merger, and the Graphite charter, as may be further amended by Proposal No. 2 if approved by the Graphite stockholders at the Graphite special meeting. The rights of Graphite stockholders contained in Graphite’s charter and bylaws (as amended in connection with the merger) differ from the rights of LENZ stockholders under the amended and restated certificate of incorporation and bylaws of LENZ, as more fully described under the section titled “Comparison of Rights of Holders of Graphite Capital Stock and LENZ Capital Stock” beginning on page 404 of this proxy statement/prospectus.

 

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MARKET PRICE AND DIVIDEND INFORMATION

The Graphite common stock is currently listed on The Nasdaq Global Market under the symbol “GRPH”.

The closing price of the Graphite common stock on November 14, 2023, the last day of trading prior to the announcement of the merger, as reported on The Nasdaq Global Market, was $2.33 per share.

Because the market price of the Graphite common stock is subject to fluctuation, the market value of the shares of the Graphite common stock that the LENZ stockholders will be entitled to receive in the merger may increase or decrease.

LENZ is a private company and its shares of common stock are not publicly traded.

Assuming approval of Proposal Nos. 1 and 2 and successful application for initial listing with Nasdaq, following the consummation of the merger, the Graphite common stock will trade on Nasdaq under Graphite’s new name, “LENZ Therapeutics, Inc.,” and new trading symbol “LENZ”.

As of             , the record date for the Graphite special meeting, there were approximately                  registered holders of record of the Graphite common stock. As of             , LENZ had                  holders of record of LENZ common stock and                  holders of record of LENZ preferred stock. For detailed information regarding the beneficial ownership of certain Graphite and LENZ stockholders, see the sections titled “Principal Stockholders of Graphite” and “Principal Stockholders of LENZ beginning on pages 417 and 419, respectively, of this proxy statement/prospectus.”

Dividends

Graphite has never declared or paid any cash dividends on the Graphite common stock and does not anticipate paying cash dividends on the Graphite common stock for the foreseeable future, except the special cash dividend that Graphite will declare and pay to the holders of record of outstanding shares of Graphite common stock as of a record date prior to the effective time of the merger, to be set by the Graphite board of directors as close as reasonably practicable to (but not later than) the anticipated closing date. The aggregate amount of the special cash dividend will equal $60.0 million, subject to adjustment (i) if (x) Graphite’s net cash at closing exceeds $175 million and (y) the Graphite private placement is more than $75,000,000, then Graphite may increase the amount of the special cash dividend by an amount not to exceed the lesser of such excess as described in the foregoing clause (y) and $75,000,000, and (ii) if Graphite’s net cash at closing minus the special cash dividend is less than $115,000,000, then Graphite shall (unless otherwise requested by LENZ) reduce the special cash dividend by the amount such that the final Graphite net cash at closing minus the amount of the special cash dividend, is at least $115,000,000. Notwithstanding the foregoing, any determination to pay cash dividends subsequent to the merger will be at the discretion of the combined company’s then-current board of directors and will depend upon a number of factors, including the combined company’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the then-current board of directors deems relevant.

LENZ has never paid or declared any cash dividends on the LENZ capital stock. If the merger does not occur, LENZ does not anticipate paying any cash dividends on the LENZ capital stock in the foreseeable future, and LENZ intends to retain all available funds and any future earnings, if any, to finance the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the LENZ board of directors and will depend upon a number of factors, including its results of operations, financial condition, current and anticipated cash needs, future prospects, contractual restrictions, restrictions imposed by applicable laws and other factors the LENZ board of directors deems relevant.

 

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RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained or incorporated by reference in this proxy statement/prospectus, you should carefully consider the material risks described below before deciding how to vote your shares of Graphite common stock. You should also read and consider the other information in this proxy statement/prospectus. Please see the section titled “Where You Can Find More Information” beginning on page 424 of this proxy statement/prospectus for further information.

Risks Related to the Merger

Failure to complete, or delays in completing, the potential merger with LENZ, announced on November 15, 2023 could materially and adversely affect Graphite’s results of operations, business, financial results and/or common stock price.

On November 14, 2023, Graphite entered into an Agreement and Plan of Merger, which is referred to hereinafter as the “Merger Agreement”, with LENZ, pursuant to which, if all of the conditions to closing are satisfied or waived, a wholly-owned subsidiary of Graphite will merge with and into LENZ, with LENZ surviving as Graphite’s wholly-owned subsidiary. This transaction is referred to hereinafter as the “merger.” Consummation of the merger is subject to certain closing conditions, a number of which are not within Graphite’s control. Any failure to satisfy these required conditions to closing may prevent, delay or otherwise materially adversely affect the completion of the transaction. Graphite cannot predict with certainty whether or when any of the required closing conditions will be satisfied or if another uncertainty may arise and cannot assure you that Graphite will be able to successfully consummate the merger as currently contemplated under the Merger Agreement or at all.

Graphite’s efforts to complete the merger could cause substantial disruptions in, and create uncertainty surrounding, Graphite’s business, which may materially adversely affect Graphite’s results of operation and Graphite’s business. Uncertainty as to whether the merger will be completed may affect Graphite’s ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following the transaction. Uncertainty as to whether the merger will be completed could adversely affect Graphite’s business and Graphite’s relationship with collaborators, suppliers, vendors, regulators and other business partners. For example, vendors, collaborators and other counterparties may defer their decisions to work with Graphite or seek to change their existing business relationships with Graphite. Changes to, or termination of, existing business relationships could adversely affect Graphite’s results of operations and financial condition, as well as the market price of Graphite’s common stock. The adverse effects of the pendency of the transaction could be exacerbated by any delays in completion of the transaction or termination of the Merger Agreement.

The exchange ratio will not change or otherwise be adjusted based on the market price of Graphite common stock as the exchange ratio depends on the Graphite net cash at the closing and not the market price of Graphite common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

At the effective time, as described in the Merger Agreement, outstanding shares of LENZ capital stock will be converted into shares of Graphite common stock. Based on Graphite’s and LENZ’s capitalization as of November 9, 2023, the exchange ratio is estimated to be equal to approximately 1.4135. After applying this estimated exchange ratio and giving effect to the Graphite private placement, the Graphite stockholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, former LENZ stockholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis and the investors issued shares of Graphite common stock in the Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis (excluding, in each case, any additional shares reserved under the 2024 Plan and the 2024 ESPP), in each case

 

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subject to certain assumptions, including, but not limited to, Graphite’s net cash as of closing being between $115 million and $175 million and a subscription amount of $53.5 million in the Graphite private placement. In the event Graphite’s net cash is below $115 million, the exchange ratio will be adjusted such that the number of shares issued to the former LENZ securityholders will be increased, and Graphite stockholders will own a smaller percentage of the combined company following the merger.

Any changes in the market price of Graphite stock before the completion of the merger will not affect the exchange ratio or the number of shares LENZ stockholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the merger, the market price of Graphite common stock increases from the market price on the date of the Merger Agreement, then LENZ stockholders could receive merger consideration with substantially higher value for their shares of LENZ capital stock than the parties had negotiated when they established the exchange ratio. Similarly, if before the completion of the merger the market price of Graphite common stock decreases from the market price on the date of the Merger Agreement, then LENZ stockholders could receive merger consideration with substantially lower value than the parties had negotiated when they established the exchange ratio. The Merger Agreement does not include a price-based termination right.

Failure to complete the merger may result in Graphite paying a termination fee to LENZ, and could harm the common stock price of Graphite and future business and operations.

If the merger is not completed, Graphite is subject to the following risks:

 

   

if the Merger Agreement is terminated under specified circumstances, Graphite could be required to pay LENZ a termination fee of $7.5 million;

 

   

the price of Graphite common stock may decrease and could fluctuate significantly; and

 

   

Graphite will incur substantial costs related to the merger, such as financial advisor, legal and accounting fees, a majority of which must be paid even if the merger is not completed.

If the Merger Agreement is terminated and the LENZ board of directors determines to seek another business combination, there can be no assurance that Graphite will be able to find another third party with whom to transact a business combination that would yield comparable or greater benefits.

If the conditions to the merger are not satisfied or waived, the merger may not occur.

Even if the merger is approved by the stockholders of LENZ and Proposal Nos. 1 and 2, as described in this proxy statement/prospectus, are approved by the Graphite stockholders, specified conditions must be satisfied or, to the extent permitted by applicable law, waived to complete the merger. These conditions are set forth in the Merger Agreement and each material condition to the completion of the merger is described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 214 of this proxy statement/prospectus. Graphite and LENZ cannot assure you that all of the conditions to the consummation of the merger will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or the closing may be delayed.

The merger may be completed even though a material adverse effect may result from the public announcement of the merger, industry-wide changes or other causes.

In general, neither Graphite or LENZ is obligated to complete the merger if there is a material adverse effect affecting the other party between November 14, 2023 (the date of the Merger Agreement) and the closing of the merger. However, certain types of events are excluded from the concept of a “material adverse effect.” Such exclusions include but are not limited to changes in general economic or political conditions, industry-wide changes, changes resulting from the public announcement of the merger, natural disasters, pandemics (including the COVID-19 pandemic), public health events, other force majeure events, acts or threat of terrorism or war and changes in GAAP. Therefore, if any of these events were to occur and adversely affect Graphite or LENZ, the other party would still be required to consummate the merger notwithstanding such material adverse effects. If any such adverse effects occur and Graphite or LENZ consummates the closing of the merger, the common stock

 

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price of the combined company may suffer. This, in turn, may reduce the value of the merger to the stockholders of Graphite, LENZ, or both. For a more complete discussion of what constitutes a material adverse effect for Graphite or LENZ, see the section titled “The Merger Agreement—Representations and Warranties” beginning on page 204 of this proxy statement/prospectus.

If Graphite and LENZ complete the merger, the combined company may need to raise additional capital by issuing equity securities or additional debt or through licensing arrangements, which may cause significant dilution to the combined company’s stockholders or restrict the combined company’s operations.

On November 14, 2023, Graphite entered into the Subscription Agreement with certain investors, including existing investors of LENZ, pursuant to which the investors agreed to purchase, in the aggregate, $53.5 million in shares of Graphite common stock immediately following the closing of the merger, which amount may be increased to up to $125 million through additional subscriptions under the subscription agreement from additional investors. The closing of the Graphite private placement is conditioned upon the satisfaction or waiver of the conditions to the closing of the merger, as well as certain other conditions. The shares of Graphite common stock issued in the Graphite private placement will result in dilution to all securityholders of the combined company (i.e., both Graphite securityholders and former LENZ securityholders). The Graphite private placement is more fully described under the section titled “Agreements Related to the Merger—Subscription Agreement” beginning on page 220 of this proxy statement/prospectus.

Even if the Graphite private placement closes as expected, the combined company may need to raise additional capital in the future. Additional financing may not be available to the combined company when it is needed or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such financing will cause additional dilution to all securityholders of the combined company, including Graphite securityholders and former LENZ securityholders. It is also possible that the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing into which the combined company enters may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to grant liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing arrangements, the terms of such arrangements may not be favorable to the combined company.

Some Graphite and LENZ directors and executive officers may have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.

Directors and executive officers of Graphite and LENZ may have interests in the merger that are different from, or in addition to, the interests of other Graphite stockholders generally. These interests with respect to Graphite’s directors and executive officers may include, among others, acceleration of stock option or restricted stock unit vesting, retention bonus payments, extension of exercisability periods of previously issued stock option grants, severance payments if employment is terminated in a qualifying termination in connection with the merger and rights to continued indemnification, expense advancement and insurance coverage. One or more members of the Graphite board of directors may continue as directors of the combined company after the effective time, and, following the closing of the merger, may therefore be eligible to be compensated as non-employee directors of the combined company. These interests with respect to LENZ’s directors and executive officers may include, among others, that certain of LENZ’s directors and executive officers hold options, subject to vesting, to purchase shares of LENZ common stock which, after the effective time, will be converted into and become options to purchase shares of the common stock of the combined company; that LENZ’s executive officers are expected to continue as executive officers of the combined company after the effective time and are expected to enter into new confirmatory offer letters to reflect their status as executive officers of a publicly-traded company and to provide for certain increases to annual base salary and annual target bonus opportunity; and that all of Graphite’s and LENZ’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement.

 

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In addition, certain of each of Graphite’s and LENZ’s directors are affiliated with investment funds which hold an interest in LENZ. Further, certain members of LENZ’s current board of directors will continue as directors of the combined company after the effective time, and, following the closing of the merger, will be eligible to be compensated as non-employee directors of the combined company pursuant to a non-employee director compensation policy that is expected to be adopted in connection with the closing and take effect at the effective time.

The Graphite and LENZ board of directors were aware of and considered those interests, among other matters, in reaching their decisions to approve and adopt the Merger Agreement, approve the merger, and recommend the approval of the Merger Agreement to Graphite and LENZ stockholders. These interests, among other factors, may have influenced the directors and executive officers of Graphite and LENZ to support or approve the merger.

For more information regarding the interests of Graphite and LENZ directors and executive officers in the merger, please see the sections titled “The Merger—Interests of Graphite’s Directors and Executive Officers in the Merger” beginning on page 169 and “The Merger—Interests of LENZ’s Directors and Executive Officers in the Merger” beginning on page 177 of this proxy statement/prospectus.

Graphite stockholders and LENZ stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger, including the conversion shares of common stock issued in the Graphite private placement.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, Graphite stockholders and LENZ stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or will have only received part of the commensurate benefit resulting from the extent to which the combined company is able to realize the strategic and financial benefits currently anticipated from the merger.

If the merger is not completed, Graphite’s stock price may decrease significantly.

The market price of Graphite common stock is subject to significant fluctuations. Market prices for securities of pharmaceutical, biotechnology and other life science companies have historically been particularly volatile. In addition, the market price of Graphite common stock will likely be volatile based on whether stockholders and other investors believe that Graphite can complete the merger or otherwise raise additional capital to support Graphite’s operations if the merger is not consummated and another strategic transaction cannot be identified, negotiated and consummated in a timely manner, if at all. The volatility of the market price of Graphite common stock may be exacerbated by low trading volume. Additional factors that may cause the market price of Graphite common stock to fluctuate include:

 

   

the entry into, or termination of, Graphite’s key agreements, including commercial partner agreements;

 

   

announcements by Graphite’s commercial partners or competitors of new commercial products, Graphite’s clinical progress or lack thereof, significant contracts, commercial relationships or capital commitments;

 

   

the loss of Graphite’s key employees;

 

   

future sales of Graphite’s common stock;

 

   

general and industry-specific economic conditions that may affect its research and development expenditures;

 

   

Graphite’s failure to meet industry analyst expectations; and

 

   

period-to-period fluctuations in financial results.

 

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Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of Graphite common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies.

Graphite and LENZ securityholders will generally have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the merger as compared to their current ownership and voting interests in the respective companies.

After the completion of the merger, the current stockholders of Graphite and LENZ will generally own a smaller percentage of the combined company than their ownership of their respective companies prior to the merger. Immediately after the merger and after giving effect to the Graphite private placement, the Graphite stockholders as of immediately prior to the merger are expected to own approximately 30.7% of the outstanding shares of capital stock of the combined company on a fully-diluted basis, former LENZ stockholders are expected to own approximately 56.3% of the outstanding shares of capital stock of the combined company on a fully-diluted basis and the investors issued shares of Graphite common stock in the Graphite private placement are expected to own approximately 13.0% of the outstanding shares of capital stock of the combined company on a fully-diluted basis (excluding, in each case, any additional shares reserved under the 2024 Plan and the 2024 ESPP), subject to certain assumptions, including, but not limited to, Graphite’s net cash as of closing totaling between $115 million and $175 million and a subscription amount of $53.5 million in the Graphite private placement.

During the pendency of the merger, neither Graphite nor LENZ will be able to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect their respective business prospects.

Covenants in the Merger Agreement impede the ability of Graphite and LENZ to make acquisitions during the pendency of the merger, subject to specified exceptions. As a result, if the merger is not completed, the parties may be at a disadvantage with respect to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, seeking, initiating or knowingly encouraging, inducing or facilitating the communication, making, submission or announcement of any acquisition proposal or acquisition inquiry or taking any action that could reasonably be expected to lead to certain transactions involving a third party, including a merger, sale of assets or other business combination, subject to specified exceptions. Even if such a transaction would be favorable to such party’s stockholders, such party would be unable to pursue it. For more information, see the section titled “The Merger Agreement—Non-Solicitation” beginning on page 208 of this proxy statement/prospectus.

Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Graphite and LENZ from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals except in limited circumstances as described in further detail in the section titled “The Merger Agreement-Non—Solicitation” beginning on page 208 of this proxy statement/prospectus. In addition, if Graphite terminates the Merger Agreement under specified circumstances, Graphite will be required to pay LENZ a termination fee of $7.5 million. This termination fee may discourage third parties from submitting competing proposals to Graphite or its stockholders and may cause the Graphite or LENZ boards of directors to be less inclined to recommend a competing proposal.

Because the lack of a public market for LENZ common stock makes it difficult to evaluate the fair market value of its capital stock, the value of the Graphite common stock to be issued to LENZ stockholders may be more or less than the fair market value of LENZ common stock.

The outstanding capital stock of LENZ is privately held and is not traded on any public market. The lack of a public market makes it difficult to determine the fair market value of LENZ capital stock. Because the percentage of Graphite equity to be issued to LENZ stockholders was determined based on negotiations between

 

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the parties, it is possible that the value of the Graphite common stock to be issued to LENZ stockholders will be more or less than the fair market value of LENZ capital stock.

If the merger does not qualify as a reorganization under the Internal Revenue Code of 1986, as amended (the “Code”), U.S. holders of LENZ capital stock may be taxed on the full amount of the consideration received in the merger.

As discussed more fully under the section titled “The Merger—Material U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Consequences of the Merger,” the merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming the merger so qualifies, no gain will be recognized by U.S. holders of LENZ capital stock who receive only Graphite common stock in the merger. It is not, however, a condition to LENZ’s obligation or Graphite’s obligation to complete the transactions that the merger so qualifies. None of the parties to the Merger Agreement have sought or intend to seek any ruling from the IRS or an opinion from counsel regarding the qualification of the merger as a reorganization within the meaning of Section 368(a) of the Code. If the merger does not qualify for the U.S. federal income tax treatment described herein, U.S. holders of LENZ capital stock may be taxed on any gain realized up to the full fair market value of any Graphite common stock they receive in the merger.

Lawsuits may be filed against Graphite, LENZ, or any of the members of their respective boards of directors arising out of the merger, which may delay or prevent the merger.

Putative stockholder complaints, including stockholder class action complaints, and other complaints may be filed against Graphite, the Graphite board of directors, LENZ, the LENZ board of directors and others in connection with the transactions contemplated by the Merger Agreement. The outcome of litigation is uncertain, and Graphite or LENZ may not be successful in defending against any such future claims. Lawsuits that may be filed against Graphite, the Graphite board of directors, LENZ, or the LENZ board of directors could delay or prevent the merger, divert the attention of Graphite’s and LENZ’s management and employees from their day-to-day business and otherwise adversely affect Graphite and LENZ financially.

Graphite is substantially dependent on Graphite’s remaining employees to facilitate the consummation of the merger.

As of November 8, 2023, Graphite had only seven full-time employees. Graphite’s ability to successfully complete the merger depends in large part on Graphite’s ability to retain certain remaining personnel. Despite Graphite’s efforts to retain these employees, one or more employees may terminate their employment with Graphite on short notice. The loss of the services of certain employees could potentially harm Graphite’s ability to consummate the merger and run Graphite’s day-to-day business operations, as well as fulfill Graphite’s reporting obligations as a public company.

Risks Related to the Proposed Reverse Stock Split

The reverse stock split may not increase the combined company’s stock price over the long-term.

The Graphite board of directors believes that a reverse stock split may be desirable for a number of reasons. Graphite common stock is currently, and is expected to continue to be following the completion of the merger, listed on Nasdaq. According to the applicable Nasdaq rules, in order for Graphite common stock to continue to be listed on Nasdaq, Graphite must satisfy certain requirements established by Nasdaq. The Graphite board of directors expects that a reverse stock split of Graphite common stock will increase the market price of Graphite common stock so that Graphite will be able to maintain compliance with the relevant Nasdaq listing requirements for the foreseeable future, although Graphite cannot assure holders of Graphite common stock that it will be able to do so. The Graphite board of directors also believes a higher stock price may help generate investor interest in the combined company, help the combined company attract and retain employees, increase trading volume in the

 

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combined company’s common stock, and facilitate future financings by the combined company. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of Graphite’s common stock, it cannot be assured that the reverse stock split will increase the market price of its common stock by a multiple of the reverse stock split ratio mutually agreed by Graphite and LENZ, or result in any permanent or sustained increase in the market price of Graphite’s common stock, which is dependent upon many factors, including Graphite’s business and financial performance, general market conditions and prospects for future success. Thus, while the stock price of Graphite might meet the listing requirements for Nasdaq initially after the reverse stock split, it cannot be assured that it will continue to do so.

The reverse stock split may decrease the liquidity of the combined company’s common stock.

Although the Graphite board of directors believes that the anticipated increase in the market price of the combined company’s common stock resulting from the proposed reverse stock split could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for the combined company’s common stock. In addition, the reverse stock split may not result in an increase in the combined company’s stock price necessary to satisfy Nasdaq’s initial listing requirements for the combined company.

The reverse stock split may lead to a decrease in the combined company’s overall market capitalization.

Should the market price of the combined company’s common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of the combined company’s common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on the combined company’s stock price due to the reduced number of shares outstanding after the reverse stock split.

Risks Related to Graphite

Risks Related to Graphite’s Financial Position, Limited Operating History and Need for Additional Capital in the Event the Merger is not Consummated

Graphite has incurred significant losses since its inception, it expects to incur significant losses for the foreseeable future, and it may never achieve or maintain profitability.

Since Graphite’s inception, it has incurred significant net losses, has not generated any revenue from product sales to date and has financed its operations principally through the net proceeds raised in its initial public offering (the “IPO”) and private placements of its redeemable convertible preferred stock. Graphite’s net loss for the fiscal years ended December 31, 2022 and 2021 was $101.1 and $70.8 million, respectively. As of December 31, 2022, Graphite had an accumulated deficit of $242.4 million. Graphite expects to continue to incur significant and increasing losses for the foreseeable future. The net losses Graphite incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of Graphite’s results of operations may not be a good indication of Graphite’s future performance. Should Graphite resume development of product candidates, Graphite anticipates that its expenses would increase substantially if and as it:

 

   

initiates and conducts clinical trials for any product candidates that it may identify and develop;

 

   

initiates new research and discovery programs and preclinical development of product candidates from any new research programs;

 

   

seeks to identify additional research programs and additional product candidates;

 

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hires additional research and development and clinical personnel;

 

   

maintains, expands, enforces, defends and protects any intellectual property portfolio and provides reimbursement of third-party expenses related to its patent portfolio;

 

   

seeks marketing approvals for any of such product candidates that successfully complete clinical trials;

 

   

establishes its manufacturing capability, including developing its contract development and manufacturing relationships, and should it decide to do so, building and maintaining a commercial-scale current Good Manufacturing Practices (“cGMP”), manufacturing facility;

 

   

ultimately establishes a sales, marketing, and distribution infrastructure to commercialize any products for which it may obtain marketing approval;

 

   

adds operational, financial, and management information systems and personnel;

 

   

acquires or in-licenses product candidates, intellectual property and technologies; and

 

   

operates as a public company.

To date, Graphite has not successfully completed a clinical trial for any product candidate. To become and remain profitable, Graphite would have to develop and eventually commercialize products with significant market potential. This would require Graphite to be successful in a range of challenging activities, including identifying product candidates, completing preclinical testing and clinical trials of product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing, and selling those products for which Graphite may obtain marketing approval, obtaining market acceptance for such products and satisfying any post-marketing requirements. Graphite may never succeed in these activities and, even if it does, may never generate revenue in an amount sufficient to achieve profitability. Graphite currently has no ongoing programs. Graphite commenced its Phase 1/2 clinical trial of nulabeglogene autogedtemcel (nula-cel), in SCD in November 2021, and in February 2023 announced that it was discontinuing its development of nula-cel. In August 2023, Graphite entered into an agreement pursuant to which Graphite granted a third party rights to acquire Graphite’s technology and intellectual property related to its nula-cel program and related pre-clinical platform assets, and a separate agreement pursuant to which Graphite transferred to a third party its rights to its pre-clinical non-genotoxic conditioning program. Following these transactions, Graphite had no remaining ongoing development programs. Because of the numerous risks and uncertainties associated with developing gene therapy and gene editing product candidates, Graphite is unable to predict the extent of any future losses or when Graphite will become profitable, if ever. If Graphite does achieve profitability, Graphite may not be able to sustain or increase profitability on a quarterly or annual basis. Graphite’s failure to become and remain profitable would decrease the value of Graphite and Graphite’s stock price and could impair its ability to raise capital, maintain and fund its research and development efforts, expand its business, or continue its operations. A decline in the value of Graphite could also cause you to lose all or part of your investment.

Graphite’s limited operating history may make it difficult for you to evaluate the performance of Graphite’s business to date and to assess its future viability.

Graphite is an early-stage company. Graphite was founded in 2017 and commenced operations in 2020. Graphite’s operations to date have been limited to organizing and staffing its company, business planning, raising capital, acquiring and developing Graphite’s platform and technology, identifying potential product candidates, establishing and maintaining Graphite’s intellectual property portfolio, undertaking preclinical studies and preparing for clinical trials. Other than nula-cel, which was being evaluated in a Phase 1/2 clinical trial, and which Graphite terminated development of in February 2023, all of its research programs were still in the preclinical or research stage of development. Graphite has not demonstrated an ability to initiate or successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale product, or arrange for a third party to do so on Graphite’s behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop a new product from the time it is discovered to when it is available for treating patients. Consequently, any predictions you make about the likelihood of Graphite’s future success or viability may not be as accurate as they could be if Graphite had a longer operating history.

 

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Graphite’s limited operating history, particularly in light of the rapidly evolving gene editing field, may make it difficult to evaluate its technology and industry and predict Graphite’s future performance. Graphite’s very short history as an operating company makes any assessment of the likelihood of Graphite’s future success and viability subject to significant uncertainty. Graphite will encounter risks and difficulties frequently experienced by very early-stage companies in rapidly evolving fields. If Graphite does not address these risks successfully, Graphite’s business will suffer.

In addition, as a new business, Graphite may encounter other unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. Graphite will need to transition from a company with a research focus to a company capable of supporting commercial activities. Graphite may not be successful in such a transition. If Graphite does not adequately address these risks and difficulties or successfully make such a transition, Graphite’s business will suffer.

Graphite has never generated revenue from product sales, may never generate any revenue from product sales and may never become profitable.

Graphite’s ability to generate revenue from product sales and achieve profitability, if ever, depends on its ability, alone or with collaborative partners, to initiate and successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, any product candidates Graphite may identify for development. Graphite does not anticipate generating revenues from product sales for the next several years, if ever.

Even if one or more of the product candidates Graphite develops are approved for commercial sale, Graphite anticipates incurring significant costs associated with commercializing any approved product candidate. Graphite’s expenses could increase beyond expectations if Graphite is required by the FDA, the European Medicines Agency (“EMA”), or other regulatory authorities to perform clinical and other studies in addition to those that Graphite currently anticipates. Even if Graphite is able to generate revenues from the sale of any approved product candidates, it may not become profitable and may need to obtain additional funding to continue operations.

Graphite will need substantial additional funding. If Graphite is unable to raise capital when needed on acceptable terms, or at all, it would be forced to delay, reduce, or terminate its research and product development programs, future commercialization efforts or other operations.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. Graphite’s operations have consumed substantial amounts of cash since inception, and it expects its expenses to increase in connection with its ongoing activities, particularly as it identifies, continues the research and development of, initiates and conducts clinical trials of, and seeks marketing approval for, any product candidates Graphite may identify. In addition, if Graphite obtains marketing approval for any product candidates, Graphite expects to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution to the extent that such sales, marketing, manufacturing, and distribution are not the responsibility of a collaborator. Other unanticipated costs may also arise. Furthermore, Graphite expects to incur additional costs associated with operating as a public company. Accordingly, Graphite will need to obtain substantial additional funding in connection with Graphite’s continuing operations. If Graphite is unable to raise capital when needed or on acceptable terms, it would be forced to delay, reduce, or eliminate its research and product development programs, future commercialization efforts or other operations.

As of September 30, 2023, Graphite’s cash and cash equivalents and investments in marketable securities were $234.0 million. Graphite expects that these funds will enable it to fund its operating expenses and capital expenditure requirements for at least the next 12 months. However, its operating plan may change as a result of factors currently unknown to Graphite, and Graphite may need to seek funding sooner than planned. Graphite’s future capital requirements will depend on many factors, including:

 

   

the timing, scope, progress, results and costs of any product candidates that Graphite may identify and develop;

 

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the costs, timing, and outcome of regulatory review of the product candidates Graphite develops;

 

   

the costs of continuing to build Graphite’s gene editing platform;

 

   

the timing, scope, progress, results, and costs of discovery, preclinical development and formulation development for the product candidates Graphite develops;

 

   

the costs of preparing, filing, and prosecuting patent applications, establishing, maintaining and enforcing Graphite’s intellectual property and proprietary rights, and defending intellectual property-related claims;

 

   

the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for any product candidates for which Graphite receives regulatory approval;

 

   

Graphite’s ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

 

   

Graphite’s ability to negotiate favorable terms in strategic alternatives including, but not limited to, any collaboration, licensing or other arrangements into which Graphite may enter in the future and performing Graphite’s obligations in such collaborations;

 

   

the success of any collaborations that Graphite may establish and of Graphite’s license agreements;

 

   

the continued effect of the COVID-19 pandemic on Graphite’s business;

 

   

the extent to which Graphite acquires or in-licenses product candidates, intellectual property and technologies; and

 

   

the costs of operating as a public company.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and Graphite may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, Graphite’s product candidates, if approved, may not achieve commercial success. Graphite’s commercial revenues, if any, will be derived from sales of products that Graphite does not expect to be commercially available for many years, if at all. Accordingly, Graphite will need to continue to rely on additional financing to achieve Graphite’s business objectives. Adequate additional financing may not be available to Graphite on acceptable terms, or at all. In addition, Graphite may seek additional capital due to favorable market conditions or strategic considerations even if it believes it has sufficient funds for its current or future operating plans.

Any additional fundraising efforts may divert Graphite’s management from their day-to-day activities, which may adversely affect its ability to develop and commercialize any product candidates Graphite may identify. Graphite has no committed sources of additional capital and, if Graphite is unable to raise additional capital in sufficient amounts or on terms acceptable to Graphite, it may have to significantly delay, scale back or discontinue the development or commercialization of its product candidates or other research and development initiatives. Without sufficient funding, Graphite’s license agreements and any future collaboration agreements may also be terminated if Graphite is unable to meet the payment or other obligations under such agreements.

Until such time, if ever, as Graphite can generate substantial product revenues, Graphite expects to finance its cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. To the extent that Graphite raises additional capital through the sale of equity or convertible debt securities, its stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect its stockholders’ rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting Graphite’s ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, and possibly other restrictions.

 

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If Graphite raises funds through additional collaborations, strategic alliances, or licensing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs, or product candidates Graphite develops, or Graphite may have to grant licenses on terms that may not be favorable to it and/or that may reduce the value of Graphite’s common stock. If Graphite is unable to raise additional funds through equity or debt financings when needed, Graphite may be required to delay, limit, reduce, or terminate its product development or future commercialization efforts or grant rights to develop and market product candidates that Graphite would otherwise prefer to develop and market ourselves.

Graphite may be subject to adverse legislative or regulatory tax changes that could adversely affect its business and financial condition.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect Graphite’s stockholders or Graphite. Graphite cannot predict whether, when, in what form, or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or decided, which could result in an increase in Graphite’s, or its stockholders’, tax liability or require changes in the manner in which Graphite operates in order to minimize increases in its tax liability.

Graphite’s ability to use its U.S. net operating loss carryforwards and certain other U.S. tax attributes may be limited.

As of December 31, 2022 and 2021, Graphite had U.S. federal net operating loss carryforwards of $75.7 million and $57.3 million, respectively (which are not subject to expiration), and state net operating loss carryforwards of $3.2 million and $29 thousand, respectively (which begin to expire in various amounts in 2039). Graphite’s ability to use its U.S. federal and state net operating losses to offset potential future taxable income and reduce income taxes that would otherwise be due is dependent upon its generation of future taxable income, and Graphite cannot predict with certainty when, or whether, it will generate sufficient taxable income to use all of its net operating losses.

Under current law, unused U.S. federal net operating losses generated in taxable years beginning after December 31, 2017 are not subject to expiration and may be carried forward indefinitely. For taxable years beginning after December 31, 2020, however, the deductibility of such U.S. federal net operating losses is limited to 80% of Graphite’s taxable income in such taxable years. In addition, both Graphite’s current and future unused U.S. federal net operating losses and tax credits may be subject to limitation under Sections 382 and 383 of the Code if Graphite undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a rolling three-year period. Graphite may have experienced such ownership changes in the past, and Graphite may experience ownership changes in the future as a result of its equity offerings or subsequent shifts in its stock ownership, some of which are outside Graphite’s control. Graphite’s net operating losses and tax credits may also be impaired or restricted under state law.

Graphite faces risks related to health epidemics, pandemics and other widespread outbreaks of contagious disease, including the COVID-19 pandemic, which could significantly disrupt Graphite’s operations, impact its financial results or otherwise adversely impact Graphite’s business.

Significant outbreaks of contagious diseases, and other adverse public health developments, could have a material impact on Graphite’s business operations and operating results. The continued effects of COVID-19 have affected segments of the global economy as well as Graphite’s operations. For example, COVID-19 impacted clinical trial site resourcing, staffing and operations, resulting in longer timeframes than initially anticipated for participant screening and enrollment. In particular, treatment of the first patient in Graphite’s Phase 1/2 clinical trial of nula-cel was delayed due to screen failure as a result of a prospective participant

 

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becoming infected with COVID-19. As a result of the COVID-19 pandemic or similar public health crises that may arise, Graphite may experience further disruptions that could adversely impact its operations, research and development, including preclinical studies, clinical trials and manufacturing activities, including:

 

   

delays or disruptions in any clinical trials that Graphite may conduct, including patient screening, patient enrollment, patient dosing, clinical trial site activation, and study monitoring;

 

   

delays or disruptions in preclinical experiments and IND-enabling and clinical trial application-enabling studies due to restrictions related to Graphite staff being on site;

 

   

interruption or delays in the operations of the FDA, the EMA and comparable foreign regulatory agencies;

 

   

interruption of, or delays in, receiving, supplies of drug substance and drug product from Graphite’s contract manufacturing organizations (“CMOs”) or delays or disruptions in Graphite’s pre-clinical experiments or clinical trials performed by CROs due to staffing shortages, production and research slowdowns or stoppages and disruptions in delivery systems or research;

 

   

limitations imposed on Graphite’s business operations by local, state, or federal authorities to address such pandemics or similar public health crises could impact Graphite’s ability to conduct preclinical or clinical activities, including conducting IND-enabling studies or Graphite’s ability to select future development candidates;

 

   

the impact of the COVID-19 pandemic on Graphite’s corporate culture; and

 

   

business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations, cyber security and data accessibility, or communication or mass transit disruptions, any of which could adversely impact Graphite’s business operations or delay necessary interactions with local regulators, ethics committees, manufacturing sites, research or clinical trial sites and other important agencies and contractors.

The trading prices for biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic, and Graphite may face similar volatility in its stock price.

Graphite cannot predict the scope and severity of any potential business shutdowns or disruptions. If Graphite or any of the third parties with whom Graphite engages were to experience shutdowns or other business disruptions, Graphite’s ability to conduct its business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on Graphite’s business, financial condition, Graphite’s results of operations and prospects.

Risks Related to Graphite’s Business if Merger is not Consummated

Graphite may not be successful in completing the merger or any strategic transactions that it may consummate in the future could have negative consequences.

Graphite is exploring and evaluating strategic transactions, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction. However, there can be no assurance that Graphite will be able to successfully consummate any particular strategic transaction. The process of continuing to evaluate these strategic options may be very costly, time-consuming and complex and Graphite has incurred, and Graphite may in the future incur, significant costs related to this continued evaluation, such as legal and accounting fees and expenses and other related charges. Graphite may also incur additional unanticipated expenses in connection with this process. A considerable portion of these costs will be incurred regardless of whether any such course of action is implemented or transaction is completed. Any such expenses will decrease the remaining cash available for use in Graphite’s business and may diminish or delay any future distributions to Graphite’s stockholders.

 

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In addition, any strategic business combination or other transactions that Graphite may consummate in the future could have a variety of negative consequences and Graphite may implement a course of action or consummate a transaction that yields unexpected results that adversely affects Graphite’s business and decreases the remaining cash available for use in its business or the execution of its strategic plan. There can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the anticipated results. Any failure of such potential transaction to achieve the anticipated results could significantly impair Graphite’s ability to enter into any future strategic transactions and may significantly diminish or delay any future distributions to Graphite’s stockholders.

If Graphite is successful in completing the merger, Graphite may be exposed to other operational and financial risks.

The consummation of the merger or any other strategic transaction will require significant time on the part of Graphite’s management, and the diversion of management’s attention may disrupt Graphite’s business. The negotiation and consummation of any such transaction may also require more time or greater cash resources than Graphite anticipates and expose Graphite to other operational and financial risks, including:

 

   

increased near-term and long-term expenditures;

 

   

exposure to unknown liabilities;

 

   

higher than expected acquisition or integration costs;

 

   

incurrence of substantial debt or dilutive issuances of equity securities to fund future operations;

 

   

write-downs of assets or goodwill or incurrence of non-recurring, impairment or other charges;

 

   

increased amortization expenses;

 

   

difficulty and cost in combining the operations and personnel of any acquired business with Graphite’s operations and personnel;

 

   

impairment of relationships with key suppliers or customers of any acquired business due to changes in management and ownership;

 

   

inability to retain key employees of Graphite or any acquired business; and

 

   

possibility of future litigation.

Any of the foregoing risks could have a material adverse effect on Graphite’s business, financial condition and prospects.

If the merger is not consummated, Graphite’s board of directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

There can be no assurance that the merger will be completed. If the merger is not completed, Graphite’s board may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such decision and, as with the passage of time the amount of cash available for distribution will be reduced as Graphite continues to fund its operations. In addition, if Graphite’s board were to approve and recommend, and Graphite’s stockholders were to approve, a dissolution and liquidation, Graphite would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its stockholders. As a result of this requirement, a portion of Graphite’s assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain.

 

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In addition, Graphite may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, Graphite’s board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Graphite’s common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up.

Graphite’s ability to consummate the merger depends on its ability to retain its employees required to consummate such transaction.

Graphite’s ability to consummate the merger depends upon its ability to retain its employees required to consummate such a transaction, the loss of whose services may adversely impact the ability to consummate such transaction. In February 2023 and again in August 2023, Graphite undertook an organizational restructuring that significantly reduced its workforce in order to conserve its capital resources. Graphite’s cash conservation activities may yield unintended consequences, such as attrition beyond its planned reduction in workforce and reduced employee morale, which may cause remaining employees to seek alternative employment. Graphite’s ability to successfully complete the merger depends in large part on its ability to retain certain of its remaining personnel. If Graphite is unable to successfully retain its remaining personnel, Graphite is at risk of a disruption to its exploration and consummation of the merger as well as business operations.

Graphite’s corporate restructuring and the associated headcount reduction may not result in anticipated savings, could result in total costs and expenses that are greater than expected, and could disrupt its business.

In February 2023 and August 2023, Graphite undertook an organizational restructuring that significantly reduced its workforce, including the departure of its chief business officer and chief scientific officer. Graphite may not realize, in full or in part, the anticipated benefits, savings and improvements in its cost structure from its restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If Graphite is unable to realize the expected operational efficiencies and cost savings from the restructuring, its operating results and financial condition would be adversely affected. Furthermore, Graphite’s restructuring plan may be disruptive to its operations. For example, its headcount reductions could yield unanticipated consequences, such as increased difficulties in implementing its business strategy, including retention of its remaining employees. Employee litigation related to the headcount reduction could be costly and prevent management from fully concentrating on the business.

Any future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Graphite may not be able to effectively manage Graphite’s operations or recruit and retain qualified personnel, which may result in weaknesses in its infrastructure and operations, risks that Graphite may not be able to comply with legal and regulatory requirements, and loss of employees and reduced productivity among remaining employees. For example, the workforce reduction may negatively impact its clinical, regulatory, technical operations, and commercial functions, should Graphite choose to continue to pursue them, which would have a negative impact on its ability to successfully develop, and ultimately, commercialize its product candidates. Graphite’s future financial performance and its ability to develop its product candidates or additional assets will depend, in part, on its ability to effectively manage any future growth or restructuring, as the case may be. In addition, given the substantial restructuring of its operations, it may be difficult to evaluate its current business and future prospects on the basis of historical operating performance.

Graphite may become involved in securities class action litigation that could divert management’s attention and harm the company’s business, and insurance coverage may not be sufficient to cover all costs and damages.

In the past, securities class action litigation has often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative

 

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events, such as negative results from clinical trials. These events may also result in investigations by the SEC. Graphite may be exposed to such litigation or investigation even if no wrongdoing occurred. Litigation and investigations are usually expensive and divert management’s attention and resources, which could adversely affect its business and cash resources and its ability to consummate a potential strategic transaction or the ultimate value its stockholders receive in any such transaction.

Risks Related to Graphite’s Discovery, Development, and Commercialization

Graphite may not be successful in its efforts to identify and develop potential product candidates. If these efforts are unsuccessful, it may never become a commercial stage company or generate any revenues.

The success of Graphite’s business depends primarily upon its ability to identify, develop, and commercialize product candidates. Graphite’s research programs may fail to identify potential product candidates for clinical development for a number of reasons: its research methodology may be unsuccessful in identifying potential product candidates; its potential product candidates may be shown to have harmful side effects in preclinical in vitro experiments or animal model studies; they may not show promising signals of therapeutic effect in such experiments or studies; or they may have other characteristics that may make the product candidates impractical to manufacture, unmarketable, or unlikely to receive marketing approval.

If any of these events occur, Graphite may be forced to abandon its research or development efforts for a program or programs, which would have a material adverse effect on its business, financial condition, results of operations, and prospects and could potentially cause Graphite to cease operations. For instance, in February 2023, Graphite announced that it had discontinued development of its lead program, and subsequently announced that it had discontinued development of all its development programs. Research programs to identify new product candidates require substantial technical, financial, and human resources. Graphite may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful, which would be costly and time-consuming.

Even if Graphite completes the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming, and uncertain and may prevent Graphite from obtaining approvals for the commercialization of its product candidates. If Graphite is not able to obtain, or if there are delays in obtaining, required regulatory approvals, it will not be able to commercialize, or will be delayed in commercializing, product candidates it develops, and its ability to generate revenue will be materially impaired.

Any product candidates Graphite develops and the activities associated with their development and commercialization, including their design, testing, manufacture, recordkeeping, labeling, storage, approval, advertising, promotion, sale, import, export, and distribution, are subject to comprehensive regulation by the FDA, the EMA and other regulatory authorities in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent Graphite from commercializing the product candidate in a given jurisdiction. Graphite has not received approval to market any product candidates from regulatory authorities in any jurisdiction. Graphite has only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third parties to assist Graphite in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the biological product candidate’s safety, purity, and potency. Securing regulatory approval also requires the submission of extensive information about the product manufacturing process, and inspection of manufacturing facilities by, the relevant regulatory authority. Graphite’s product candidates may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities, or other characteristics that may preclude its obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if approval is obtained at all, and can vary substantially based upon a variety of factors, including the

 

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type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that Graphite’s data is insufficient for approval and require additional preclinical, clinical, or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval Graphite ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

If Graphite experiences delays in obtaining approval or if it fails to obtain approval of its product candidates, the commercial prospects for those product candidates may be harmed, and its ability to generate revenues will be materially impaired.

Graphite may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because Graphite has limited financial and managerial resources, it focuses on research programs and product candidates that it identifies for specific indications among many potential options. As a result, it may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Graphite’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities. Graphite’s spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If Graphite does not accurately evaluate the commercial potential or target market for a particular product candidate, it may relinquish valuable rights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it would have been more advantageous for Graphite to retain sole development and commercialization rights to such product candidate. Any such event could have a material adverse effect on its business, financial condition, results of operations, and prospects.

Even if Graphite completes the necessary clinical trials, it cannot predict when, or if, it will obtain regulatory approval to commercialize a product candidate Graphite may develop in the United States or any other jurisdiction, and any such approval may be for a more narrow indication than it seeks.

Graphite cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if its product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, or Graphite may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, Graphite may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials, and the review process.

Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or a REMS. These regulatory authorities may require labeling that includes precautions or contraindications with respect to conditions of use, or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of its product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for its product candidates and materially adversely affect its business, financial condition, results of operations, and prospects.

 

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Marketing approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking regulatory approval outside the United States could result in difficulties and costs for Graphite and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of its product candidates in those countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. Graphite does not have any product candidates approved for sale in any jurisdiction, including international markets, and Graphite does not have experience in obtaining regulatory approval in international markets. If Graphite fails to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, its target market will be reduced and its ability to realize the full market potential of its product candidates will be unrealized.

Graphite’s product candidates may fail to achieve the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community necessary for commercial success.

The commercial success of any of Graphite’s product candidates will depend upon its degree of market acceptance by physicians, patients, third-party payors, and others in the medical community. Ethical, social, and legal concerns about genetic medicines generally and gene editing technologies specifically could result in additional regulations restricting or prohibiting the marketing of its product candidates. Even if its product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors, and others in the medical community. The degree of market acceptance of its product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

   

the efficacy and safety of such product candidates as demonstrated in clinical trials;

 

   

the potential and perceived advantages compared to alternative treatments;

 

   

the limitation to Graphite’s targeted patient population and limitations or warnings contained in approved labeling by the FDA or other regulatory authorities;

 

   

the ability to offer its products for sale at cost-effective or competitive prices;

 

   

convenience and ease of administration compared to alternative treatments;

 

   

the clinical indications for which the product candidate is approved by the FDA, the EMA, or other regulatory agencies;

 

   

public attitudes regarding genetic medicine generally and gene editing technologies specifically;

 

   

the willingness of the target patient population to try novel therapies and of physicians to prescribe these therapies, as well as their willingness to accept a therapeutic intervention that involves the editing of the patient’s gene;

 

   

product labeling or product insert requirements of the FDA, the EMA, or other regulatory authorities,

 

   

including any limitations or warnings contained in a product’s approved labeling;

 

   

relative convenience and ease of administration;

 

   

the timing of market introduction of competitive products;

 

   

publicity concerning its products or competing products and treatments;

 

   

the strength and effectiveness of sales, marketing and distribution efforts;

 

   

sufficient third-party coverage and adequate reimbursement, including the ability to supply product that is cost-effective and acceptable to the pricing or reimbursement authorities in different countries; and

 

   

the prevalence and severity of any side effects.

 

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Even if any of its product candidates obtain regulatory approval, such products may not achieve an adequate level of acceptance, Graphite may not generate or derive sufficient product revenues, and Graphite may not become profitable.

Graphite faces significant competition in an environment of rapid technological change, and there is a possibility that its competitors may achieve regulatory approval before it or develop therapies that are safer, less expensive or more advanced or effective than Graphite, which may harm its financial condition and its ability to successfully market or commercialize its product candidates.

The development and commercialization of new drug products is highly competitive. Moreover, the gene editing field is characterized by rapidly changing technologies, significant competition, and a strong emphasis on intellectual property. Graphite will face competition with respect to any product candidates that it may develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.

There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which Graphite has research programs. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to its approach, and others are based on entirely different approaches.

There are several other companies advancing gene editing and gene editing and gene therapy product candidates in preclinical or clinical development in sickle cell disease, including Beam Therapeutics Inc., bluebird bio, Inc., Cellectis SA, CRISPR Therapeutics AG, Editas Medicine, Inc., Intellia Therapeutics, Inc., and Sangamo Therapeutics, Inc. Companies advancing gene therapy programs in beta-thalassemia include bluebird bio, Inc., CRISPR Therapeutics AG, Sangamo Therapeutics, Inc. and Edigene Inc. Companies advancing gene therapy programs in XSCID include Mustang Bio, Inc. Companies advancing gene therapy programs in Gaucher Disease include AVROBio, Inc. and Freeline Therapeutics Holdings plc. Companies advancing gene editing and gene therapy programs in preclinical development for AAT deficiency include Beam Therapeutics Inc., Editas Medicine, Inc., Intellia Therapeutics, Inc., Krystal Biotech Inc., Apic Bio Inc., and LogicBio Therapeutics Inc. Companies combining CRISPR with HDR (homology directed repair) include CRISPR Therapeutics AG, which, for oncology applications, inserts a chimeric antigen receptor (“CAR”) construct into the TCR alpha constant (TRAC) locus in T-cells using HDR. Additionally, an academic collaboration between the University of California, San Francisco and the University of California, Los Angeles is seeking to correct the sickle cell mutation using CRISPR followed by delivery of a single-stranded oligonucleotide DNA donor to potentially harness HDR.

Any product candidates that Graphite successfully develops and commercializes will compete with existing therapies and new therapies that may become available in the future that are approved to treat the same diseases for which Graphite may obtain approval for its product candidates. This may include other types of therapies, such as small molecule, antibody, and/or protein therapies.

Many of Graphite’s current or potential competitors, either alone or with their collaboration partners, may have significantly greater financial resources and expertise than it does in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products. Mergers and acquisitions in the pharmaceutical, biotechnology, and gene therapy industries may result in even more resources being concentrated among a smaller number of Graphite’s competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with Graphite in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, Graphite’s

 

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programs. Graphite’s commercial opportunity could be reduced or eliminated if its competitors develop and commercialize product candidates that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any product candidates that Graphite may develop or that would render any product candidates that Graphite may develop obsolete or non-competitive. Graphite’s competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than Graphite may obtain approval for its product candidates, which could result in its competitors establishing a strong market position before Graphite is able to enter the market. Additionally, technologies developed by Graphite’s competitors may render Graphite’s potential product candidates uneconomical or obsolete, and Graphite may not be successful in marketing its product candidates against competitors.

In addition, as a result of the expiration or successful challenge of Graphite’s patent rights, Graphite could face more litigation with respect to the validity and/or scope of patents relating to its competitors’ products. The availability of Graphite’s competitors’ products could limit the demand, and the price Graphite is able to charge, for any product candidates that Graphite may develop and commercialize.

If, in the future, Graphite is unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market its product candidates, Graphite may not be successful in commercializing those product candidates if and when they are approved.

Graphite does not have a sales or marketing infrastructure and have limited experience in the sale, marketing, or distribution of pharmaceutical products. To achieve commercial success for any approved products for which Graphite retains sales and marketing responsibilities, it must either develop a sales and marketing organization or outsource these functions to third parties. In the future, Graphite may choose to build a focused sales, marketing, and commercial support infrastructure to sell, or participate in sales activities with its collaborators for, some of its product candidates if and when they are approved.

There are risks involved with both establishing Graphite’s own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which Graphite recruits a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, Graphite would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and its investment would be lost if Graphite cannot retain or reposition its commercialization personnel.

Factors that may inhibit Graphite’s efforts to commercialize its product candidates on its own include:

 

   

Graphite’s inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs, and other support personnel;

 

   

the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the benefits of prescribing any future products;

 

   

the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement, and other acceptance by payors;

 

   

restricted or closed distribution channels that make it difficult to distribute its product candidates to segments of the patient population;

 

   

the lack of complementary products to be offered by sales personnel, which may put Graphite at a competitive disadvantage relative to companies with more extensive product lines; and

 

   

unforeseen costs and expenses associated with creating an independent commercialization organization.

If Graphite enters into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, its product revenues or the profitability of these product revenues to Graphite may be lower

 

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than if Graphite was to market and sell any products it may develop itself. In addition, Graphite may not be successful in entering into arrangements with third parties to commercialize its product candidates or may be unable to do so on terms that are favorable to it. Graphite may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market Graphite’s products effectively. If Graphite does not establish commercialization capabilities successfully, either on its own or in collaboration with third parties, Graphite will not be successful in commercializing its product candidates.

Adverse public perception of genetic medicines and gene editing in particular, may negatively impact regulatory approval of, and/or demand for, Graphite’s potential products, if approved.

Graphite’s potential therapeutic products historically involved editing the human genome. The clinical and commercial success of its potential products will depend in part on public understanding and acceptance of the use of gene editing therapy for the prevention or treatment of human diseases. Public perception and related media coverage of potential gene therapy-related efficacy or safety issues, including adoption of new therapeutics or novel approaches to treatment, as well as ethical concerns related specifically to gene editing, may adversely influence the willingness of subjects to participate in clinical trials, or if any therapeutic is approved, of physicians and patients to accept these novel and personalized treatments. Physicians, health care providers and third-party payors often are slow to adopt new products, technologies and treatment practices, particularly those that may also require additional upfront costs and training. Physicians may not be willing to undergo training to adopt these novel and potentially personalized therapies, may decide the particular therapy is too complex or potentially risky to adopt without appropriate training, and may choose not to administer the therapy. Further, due to health conditions, genetic profile or other reasons, certain patients may not be candidates for the therapies.

In addition, responses by federal and state agencies, congressional committees and foreign governments to negative public perception, ethical concerns or financial considerations may result in new legislation, regulations, or medical standards, such as stricter labeling requirements, that could limit Graphite’s ability to develop or commercialize any product candidates, obtain or maintain regulatory approval or otherwise achieve profitability. New government requirements may be established that could delay or prevent regulatory approval of its product candidates under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be. Based on these and other factors, health care providers and payors may decide that the benefits of these new therapies do not or will not outweigh their costs.

More restrictive government regulations or negative public opinion would have a negative effect on Graphite’s business or financial condition and may delay or impair its development and commercialization of product candidates or demand for its product candidates. Adverse events in its preclinical studies or clinical trials or those of its competitors or of academic researchers utilizing gene editing technologies, even if not ultimately attributable to product candidates Graphite identifies and develops, and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of potential product candidates Graphite identifies and develops, stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates. Use of gene editing technology by a third party or government to develop biological agents or products that threaten U.S. national security could similarly result in such negative impacts to Graphite.

Due to the novel nature of Graphite’s technology and the potential for its product candidates to offer therapeutic benefit in a single administration or limited number of administrations, Graphite faces uncertainty related to pricing and reimbursement for these product candidates. Likewise, even if it is able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations, third-party reimbursement practices, or healthcare reform initiatives, which would harm its business.

The regulations that govern marketing approvals, pricing, and reimbursement for new products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed.

 

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In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, Graphite might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay or might even prevent Graphite’s commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues Graphite is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder its ability to recoup its investment in one or more product candidates Graphite develops, even if any of its product candidates obtain marketing approval. See the section titled “Graphite’s Business—Government Regulation—Pharmaceutical Coverage, Pricing and Reimbursement.”

In the United States, no uniform policy exists for coverage and reimbursement for products among third-party payors. Therefore, decisions regarding the extent of coverage and amount of reimbursement to be provided can differ significantly from payor to payor. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the reimbursement rate a payor will pay for the product. One third-party payor’s decision to cover a particular product or service does not ensure that other payors will also provide coverage for the medical product or service. Third-party payors may limit coverage to specific products on an approved list or formulary, which may not include all FDA-approved products for a particular indication.

Graphite expects the cost of a single administration of a gene editing therapy, such as those Graphite has historically sought to develop, to be substantial, when and if they achieve regulatory approval. Coverage and reimbursement by government and private payors will be essential for most patients to be able to afford these treatments. Accordingly, sales of any such product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of any of its product candidates will be paid by government authorities, private health plans, and other third-party payors. Payors may not be willing to pay high prices for a single administration. Coverage and reimbursement by a third-party payor may depend upon several factors, including the third-party payor’s determination that use of a product is:

 

   

a covered benefit under its health plan;

 

   

safe, effective, and medically necessary;

 

   

appropriate for the specific patient;

 

   

cost-effective; and

 

   

neither experimental nor investigational.

Graphite cannot be sure that reimbursement will be available for any products that it commercializes and, if reimbursement is available, that the level of reimbursement will be adequate. Reimbursement may impact the demand for, or the price of, any product candidate for which Graphite obtains marketing approval. If reimbursement is not available or is available only to limited levels, Graphite may not be able to successfully commercialize any product candidate for which Graphite obtains marketing approval. Obtaining coverage and reimbursement for a product from third-party payors is a time-consuming and costly process that could require Graphite to provide to the payor supporting scientific, clinical, and cost-effectiveness data. There is significant uncertainty related to third-party coverage and reimbursement of newly approved products. Graphite may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If coverage and reimbursement are not available, or are available only at limited levels, Graphite may not be able to successfully commercialize any of its product candidates. Even if coverage is provided, the approved reimbursement amount may not be adequate to realize a sufficient return on its investment.

Graphite’s initial target patient populations are relatively small, as a result of which the pricing and reimbursement of any of its product candidates, if approved, must be adequate to support the necessary commercial infrastructure. If Graphite is unable to obtain adequate levels of reimbursement, its ability to successfully market and sell any such product candidates will be adversely affected. The manner and level at

 

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which reimbursement is provided for services related to any product candidates Graphite develops (e.g., for administration of Graphite’s product candidate to patients) is also important. Inadequate reimbursement for such services may lead to physician and payor resistance and adversely affect its ability to market or sell its product candidates. In addition, Graphite may need to develop new reimbursement models in order to realize adequate value. Payors may not be able or willing to adopt such new models, and patients may be unable to afford that portion of the cost that such models may require them to bear. If Graphite determines such new models are necessary but is unsuccessful in developing them, or if such models are not adopted by payors, its business, financial condition, results of operations, and prospects could be adversely affected.

There may be significant delays in obtaining reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA, the EMA or other regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers Graphite’s costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover Graphite’s costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Graphite’s inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products Graphite may develop could have a material adverse effect on Graphite’s operating results, its ability to raise capital needed to commercialize products, and its overall financial condition.

If the market opportunities for any product candidates Graphite may develop are smaller than it believes they are, its potential revenues may be adversely affected, and its business may suffer. Because the target patient populations for many of its product candidates are small, Graphite must be able to successfully identify patients and achieve a significant market share to maintain profitability and growth.

Graphite has focused its research and product development on treatments for rare genetically defined diseases. Its historical product candidates were expected to target a single mutation; as a result, the relevant patient population may therefore be small. Its projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with its product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence of these diseases. The number of patients in the United States, Europe, and elsewhere may turn out to be lower than expected, and patients may not be amenable to treatment with its product candidates, or may become increasingly difficult to identify or gain access to, all of which would adversely affect Graphite’s business, financial condition, results of operations, and prospects. Additionally, because of the potential that any product candidates Graphite develops could cure a target disease, Graphite may not receive recurring revenues from patients and may deplete the patient population prevalence through curative therapy.

Genetic medicines are novel, and any product candidates Graphite develops may be complex and difficult to manufacture. Graphite could experience delays in complying with regulatory requirements or production problems that result in delays in Graphite’s development or commercialization programs, limit the supply of its product candidates, or otherwise harm its business.

Graphite’s product candidates will likely require processing steps that are more complex than those required for most chemical pharmaceuticals. Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic, such as the product candidates Graphite is has historically developed generally cannot be fully characterized. As a result, assays of the finished product candidate may not be sufficient to ensure that the product candidate will perform in the intended manner. Problems with the manufacturing process, even minor

 

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deviations from the normal process, could result in product defects or manufacturing failures that result in unusable products, product recalls, product liability claims, insufficient inventory, or potentially delay progression of Graphite’s potential IND filings. Graphite may also encounter problems achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other comparable applicable foreign standards or specifications with consistent and acceptable production yields and costs. For example, the current approach of manufacturing AAV vectors may fall short of supplying required number of doses needed for advanced stages of pre-clinical studies or clinical trials, and the FDA may ask Graphite to demonstrate that Graphite has the appropriate manufacturing processes in place to support the higher-dose group in Graphite’s future pre-clinical studies or clinical trials.

In addition, the FDA, the EMA, and other regulatory authorities may require Graphite to submit samples of any of the approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA, or other regulatory authorities may require that Graphite not distribute a sample until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in product recalls. Product recalls could cause Graphite to delay clinical trials or product launches, which could be costly and otherwise harm its business, financial condition, results of operations, and prospects.

Graphite also may encounter problems hiring and retaining the experienced scientific, quality control, and manufacturing personnel needed to manage its manufacturing process, which could result in delays in its production or difficulties in maintaining compliance with applicable regulatory requirements.

Given the nature of biologics manufacturing, including for AAV vectors, there is a risk of contamination during manufacturing. Any contamination could materially harm its ability to produce product candidates on schedule and could harm its results of operations and cause reputational damage. Some of the raw materials that Graphite anticipates will be required in its manufacturing process are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall, or restriction on the use of biologically derived substances in the manufacture of its current or future product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could materially harm its development timelines and its business, financial condition, results of operations, and prospects.

Any problems in Graphite’s manufacturing process or the facilities with which it contracts could make it a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit its access to additional attractive development programs.

Product liability lawsuits against Graphite could cause it to incur substantial liabilities and could limit commercialization of its product candidates.

Graphite faces an inherent risk of product liability exposure related to the testing in human clinical trials of its product candidates and will face an even greater risk if Graphite commercially sells any products it develops. If Graphite cannot successfully defend itself against claims that its product candidates caused injuries, it could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any of its current or future product candidates;

 

   

injury to its reputation and significant negative media attention;

 

   

withdrawal of clinical trial participants;

 

   

significant time and costs to defend the related litigation;

 

   

substantial monetary awards to trial participants or patients;

 

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loss of revenue; and

 

   

the inability to commercialize Graphite’s product candidates.

Although Graphite maintains product liability insurance coverage, it may not be adequate to cover all liabilities that it may incur. Graphite anticipates that it will need to increase its insurance coverage when it begins clinical trials and if it successfully commercializes any products. Insurance coverage is increasingly expensive. Graphite may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Graphite’s relationships with healthcare providers, physicians, and third-party payors will be subject to applicable anti-kickback, fraud and abuse, anti-bribery and other healthcare laws and regulations, which could expose it to criminal sanctions, civil penalties, contractual damages, reputational harm, and diminished profits and future earnings.

Healthcare providers, including physicians, and third-party payors play a primary role in the recommendation and prescription of any product candidates that Graphite may develop for which it obtains marketing approval. Graphite’s current and future arrangements with third-party payors, healthcare providers and customers may expose it to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Graphite markets, sells, and distributes its products for which Graphite obtains marketing approval. See the section titled “Graphite’s BusinessGovernment RegulationGovernment Other U.S. Healthcare Laws and Compliance Requirements.”

Efforts to ensure that Graphite’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Given the breadth of the laws and regulations, limited guidance for certain laws and regulations and evolving government interpretations of the laws and regulations, governmental authorities may possibly conclude that Graphite’s business practices may not comply with healthcare laws and regulations. If Graphite’s operations are found to be in violation of any of the laws described above or any other government regulations that apply to it, Graphite may be subject to significant penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government health care programs, such as Medicare and Medicaid, individual imprisonment, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow Graphite to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect Graphite’s business, financial condition, results of operations, and prospects.

Healthcare and other reform legislation may increase the difficulty and cost for Graphite and any collaborators it may have to obtain marketing approval of and commercialize Graphite’s product candidates and affect the prices Graphite, or its collaborators, may obtain.

In the United States and some foreign jurisdictions, there have been and continue to be ongoing efforts to implement legislative and regulatory changes regarding the healthcare system. Such changes could prevent or delay marketing approval of any product candidates that Graphite may develop, restrict or regulate post-approval activities, and affect Graphite’s ability to profitably sell any product candidates for which it obtains marketing approval. Although Graphite cannot predict what healthcare or other reform efforts will be successful, such efforts may result in more rigorous coverage criteria, in additional downward pressure on the price that Graphite, or its future collaborators, may receive for any approved products or in other consequences that may adversely affect Graphite’s ability to achieve or maintain profitability. See the section titled “Graphite’s BusinessGovernment RegulationHealthcare Reform.”

The continuing efforts of the government, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of healthcare may adversely affect:

 

   

the demand for any of Graphite’s product candidates, if approved;

 

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the ability to set a price that Graphite believes is fair for any of its product candidates, if approved;

 

   

Graphite’s ability to generate revenues and achieve or maintain profitability;

 

   

the level of taxes that Graphite is required to pay; and

 

   

the availability of capital.

Within the United States, the federal government and individual states have aggressively pursued healthcare reform, as evidenced by the passing of the ACA and the ongoing efforts to modify or repeal that legislation. The ACA substantially changed the way healthcare is financed by both governmental and private insurers and contains a number of provisions that affect coverage and reimbursement of drug products and/or that could potentially reduce the demand for pharmaceutical products such as increasing drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care and assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid. Other aspects of healthcare reform, such as expanded government enforcement authority and heightened standards that could increase compliance-related costs, could also affect our business. Modifications have been implemented under the previous presidential administration and additional modifications or repeal may occur.

Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for Graphite’s product candidates. There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.

Graphite expects that the healthcare reform measures that have been adopted and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent Graphite from being able to generate revenue, attain profitability or commercialize Graphite’s products.

If Graphite or any contract manufacturers and suppliers it engages fail to comply with environmental, health, and safety laws and regulations, Graphite could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of its business.

Graphite and any contract manufacturers and suppliers it engages are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and employee health and safety. Graphite’s operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Its operations also produce hazardous waste. Graphite generally contracts with third parties for the disposal of these materials and wastes. Graphite cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from its use of hazardous materials, Graphite could be held liable for any resulting damages, and any liability could exceed its resources. Under certain environmental laws, Graphite could be held responsible for costs relating to any contamination at its current or past facilities and at third-party facilities. Graphite also could incur significant costs associated with civil or criminal fines and penalties.

 

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Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair its research and product development efforts. In addition, Graphite cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although Graphite maintains workers’ compensation insurance to cover for costs and expenses it may incur due to injuries to its employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. Graphite does not carry specific biological or hazardous waste insurance coverage, and its property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, Graphite could be held liable for damages or be penalized with fines in an amount exceeding its resources, and its clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on its business, financial condition, results of operations, and prospects.

In addition, Graphite may incur substantial costs in order to comply with current or future environmental, health, and safety laws, regulations, and permitting requirements. These current or future laws, regulations, and permitting requirements may impair its research, development, or production efforts. Failure to comply with these laws, regulations, and permitting requirements also may result in substantial fines, penalties, or other sanctions or business disruption, which could have a material adverse effect on its business, financial condition, results of operations, and prospects.

Any third-party contract manufacturers and suppliers Graphite engages will also be subject to these and other environmental, health, and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or an interruption in operations, which could have a material adverse effect on Graphite’s business, financial condition, results of operations, and prospects.

Risks Related to Graphite’s Intellectual Property

If Graphite is unable to obtain and maintain patent and other intellectual property protection for any product candidates it develops and for its platform technology, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, its competitors could develop and commercialize products and technology similar or identical to Graphite, and its ability to successfully commercialize its product candidates, and its platform technology may be adversely affected.

Graphite’s commercial success depends in large part on its ability to obtain and maintain patent, trademark, trade secret and other intellectual property protection of its platform technology, product candidates and other technology, methods used to manufacture them and methods of treatment, as well as successfully defending its patent and other intellectual property rights against third-party challenges. It is difficult and costly to protect Graphite’s platform technology and product candidates, and it may not be able to ensure their protection. Graphite’s ability to stop unauthorized third parties from making, using, selling, offering to sell, importing or otherwise commercializing its product candidates is dependent upon the extent to which Graphite has rights under valid and enforceable patents or trade secrets that cover these activities. In February 2023, Graphite announced that it had discontinued development of its lead program and subsequently announced that it had discontinued development of all its development programs, and Graphite does not intend to continue to seek or maintain intellectual property protection on the technology underlying these programs. In addition, Graphite has sold or intends to sell in the future certain intellectual property rights to one or more third parties, and any intellectual property rights sold in the manner will no longer provide benefit or protection to Graphite.

Graphite has historically sought to protect its proprietary position by in-licensing intellectual property relating to its platform technology and filing patent applications in the United States and abroad related to its platform technology and product candidates that are important to its business. If Graphite or its licensors are unable to obtain or maintain patent protection with respect to its platform technology and its product candidates, or if the scope of the patent protection secured is not sufficiently broad, its competitors could develop and commercialize products and technology similar or identical to Graphite and its ability to commercialize its product candidates may be adversely affected.

 

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The patent prosecution process is expensive, time-consuming, and complex, and Graphite may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, Graphite may not pursue or obtain patent protection in all relevant markets. It is also possible that Graphite will fail to identify patentable aspects of its research and development output in time to obtain patent protection. Although Graphite enters into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of its research and development output, such as its employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing its ability to seek patent protection. In addition, Graphite’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between its inventions and the prior art allow its inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, Graphite cannot be certain that it or its licensors were the first to make the inventions claimed in Graphite’s owned or any licensed patents or pending patent applications, or that Graphite or its licensors were the first to file for patent protection of such inventions.

No consistent policy regarding the scope of claims allowable in the field of gene editing has emerged in the United States. The scope of patent protection outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish Graphite’s ability to protect its inventions, obtain, maintain, enforce and defend its intellectual property rights and, more generally, could affect the value of its intellectual property or narrow the scope of its owned and licensed patent rights. With respect to both in-licensed and owned intellectual property, Graphite cannot predict whether the patent applications Graphite and its licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will be valid and enforceable and provide sufficient protection from competitors. Further, it is anticipated that in mid-2023, European patent applications will have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (“UPC”). This will be a significant change in European patent practice. As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications Graphite licenses or owns currently or in the future issue as patents, they may not issue in a form that will provide Graphite with any meaningful protection, prevent competitors or other third parties from competing with Graphite, or otherwise provide Graphite with any competitive advantage. Any patents that Graphite owns or in-licenses may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, Graphite does not know whether any of its platform advances and product candidates will be protectable or remain protected by valid and enforceable patents. Graphite’s competitors or other third parties may be able to circumvent its patents by developing similar or alternative technologies or products in a non-infringing manner.

In addition, given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, Graphite’s intellectual property may not provide it with sufficient rights to exclude others from commercializing products similar or identical to Graphite. Moreover, some of its owned and in-licensed patents and patent applications may in the future be, co-owned by Graphite with third parties. If Graphite is unable to obtain an exclusive license to such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including Graphite’s competitors, and such competitors could market competing products and technology. In addition, Graphite may need the cooperation of any such co-owners of Graphite’s patent rights in order to enforce such patents against third parties, and such cooperation may not be provided to Graphite. Any of the foregoing could have a material adverse effect on Graphite’s competitive position, business, financial conditions, results of operations, and prospects.

 

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Graphite’s rights to develop and commercialize its gene editing platform technology and product candidates are subject, in part, to the terms and conditions of licenses granted to Graphite by others.

Graphite depends on intellectual property licensed from third parties, and its licensors may not always act in its best interest. If Graphite fails to comply with its obligations under its intellectual property licenses, if the licenses are terminated, or if disputes regarding these licenses arise, Graphite could lose significant rights that are important to its business.

Graphite has licensed and is dependent on certain patent rights and proprietary technology from third parties that are important or necessary to the development of its gene editing technology and product candidates. For example, Graphite is a party to a license agreement with The Board of Trustees of the Leland Stanford Junior University (“Stanford”) pursuant to which Graphite in-licenses key patent applications for its gene editing platform technology and product candidates (“the Stanford License Agreement”). This license agreement imposes various diligence, milestone payment, royalty, insurance, and other obligations on Graphite. If Graphite fails to comply with these obligations, its licensors may have the right to terminate its license, in which event Graphite would not be able to develop or market its gene editing platform or any other technology or product candidates covered by the intellectual property licensed under this agreement. For example, under the Stanford License Agreement, Graphite is required to initiate clinical trial programs in accordance with the development plan and development milestones for the development of a licensed product covered by the licensed patent rights. If Graphite fails to initiate such clinical trial programs, its rights with respect to the licensed patent rights may terminate. may be able to license their rights to other third parties, including Graphite’s competitors, and Graphite’s competitors could market competing products and technology. In addition, Graphite may need the cooperation of any such co-owners of Graphite’s patent applications in order to enforce such patent rights against third parties, and such cooperation may not be provided to Graphite.

Additionally, Graphite may collaborate with academic institutions to accelerate its preclinical research or development under written agreements with these institutions. In certain cases, these institutions provide Graphite with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Even if Graphite were to hold such an option, Graphite may be unable to negotiate a license from the institution within the specified timeframe or under terms that are acceptable to Graphite. If Graphite is unable to do so, the institution may offer the intellectual property rights to others, potentially blocking its ability to pursue its program.

For example, the licensing or acquisition of third-party intellectual property rights is a highly competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that Graphite may consider attractive or necessary. These established companies may have a competitive advantage over Graphite due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Graphite to be a competitor may be unwilling to assign or license rights to Graphite. Graphite also may be unable to license or acquire third-party intellectual property rights on terms that would allow Graphite to make an appropriate return on its investment or at all. If Graphite is unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights Graphite has, Graphite may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on its business, financial condition, results of operations, and prospects.

The intellectual property landscape around the technologies Graphite uses or plans to use, including gene editing technology, is highly dynamic, and third parties may initiate legal proceedings alleging that Graphite is infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and may prevent, delay or otherwise interfere with its product discovery and development efforts.

Because of the large number of patents issued and patent applications filed in Graphite’s field, third parties may allege they have patent rights encompassing Graphite’s product candidates, technologies or methods. Third

 

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parties may assert that Graphite is employing or has employed their proprietary technology without authorization and may file patent infringement claims or lawsuits against Graphite, and if Graphite is found to infringe such third-party patents, Graphite may be required to pay damages, cease commercialization of the infringing technology, or obtain a license from such third parties, which may not be available on commercially reasonable terms or at all. In addition, Graphite has in the past, and may in the future, receive an offer for license from third parties regarding their proprietary intellectual property for which they may believe encompass Graphite’s product candidates and technologies. Graphite will evaluate such offers for relevance to its business.

The field of gene editing is still in its infancy, and no such therapeutic product candidates have reached the market. Due to the intense research and development that is taking place by several companies, including Graphite and Graphite’s competitors, in this field, the intellectual property landscape is evolving and in flux, and it may remain uncertain for the coming years. There may be significant intellectual property related litigation and proceedings relating to Graphite’s owned and in-licensed, and other third-party, intellectual property and proprietary rights in the future.

Graphite’s commercial success depends upon its ability and the ability of its collaborators and present and future licensors to develop, manufacture, market, and sell any product candidates that Graphite may develop and use its proprietary technologies without infringing, misappropriating, or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights as well as administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Graphite may be subject to and may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to its platform technology and its product candidates, including interference proceedings, post-grant review, inter partes review, and derivation proceedings before the USPTO and similar proceedings in foreign jurisdictions such as oppositions before the EPO. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which Graphite is developing its product candidates and they may assert infringement claims against Graphite based on existing patents or patents that may be granted in the future, regardless of their merit.

As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that Graphite’s platform technology and product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including Graphite, which patents cover various types of therapies, products or their methods of use or manufacture. There may also be third-party patents of which Graphite is currently unaware with claims to technologies, methods of manufacture or methods for treatment related to the use or manufacture of its product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that Graphite’s product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of its technologies infringes upon these patents.

Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which Graphite is developing product candidates. Some of its product candidates make use of CRISPR-based technology, which is a field that is highly active for patent filings. As of June 2019, it was reported that approximately 2072 patent families worldwide related to CRISPR gene editing inventions and uses as the description and/or claims of these patent families specifically focus on a CRISPR-type system. The extensive patent filings related to CRISPR make it difficult for Graphite to assess the full extent of relevant patents and pending applications that may cover its gene editing platform technology and product candidates and their use or manufacture. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of its gene editing platform technology and product candidates. For example, Graphite is aware of a patent portfolio that is co-owned by the University of California, University of Vienna and Emmanuelle Charpentier, or the University of California

 

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Portfolio, which contains multiple patents and pending applications directed to gene editing. Graphite is also aware of patents and patent applications directed to gene editing owned or co-owned by the Broad Institute, MIT and Harvard University, Toolgen, and Sigma Aldrich. Graphite’s ability to commercialize its product candidates may be adversely affected if it does not obtain a license to these patents. Graphite may not be able to obtain any required license on commercially reasonable terms or at all. Even if Graphite was able to obtain a license, it could be nonexclusive, thereby giving Graphite’s competitors and other third parties access to the same technologies licensed to Graphite, and it could require Graphite to make substantial licensing and royalty payments. If Graphite is unable to obtain a necessary license to a third-party patent on commercially reasonable terms, Graphite may be unable to commercialize its gene editing platform technology or product candidates or such commercialization efforts may be significantly delayed, which could in turn significantly harm its business.

Graphite’s ability to commercialize Graphite’s product candidates in the United States and abroad may be adversely affected if Graphite cannot obtain a license on commercially reasonable terms to relevant third-party patents that cover its product candidates or platform technology. Even if Graphite believes third-party intellectual property claims are without merit, there is no assurance that a court would find in its favor on questions of infringement, validity, enforceability, or priority. A court of competent jurisdiction could hold that these third party patents are valid, enforceable, and infringed, which could materially and adversely affect Graphite’s ability to commercialize its product candidates and any other product candidates or technologies covered by the asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, Graphite would need to overcome a presumption of validity. As this burden is a high one requiring Graphite to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If Graphite is found to infringe a third-party’s intellectual property rights, and Graphite is unsuccessful in demonstrating that such patents are invalid or unenforceable, Graphite could be required to obtain a license from such third-party to continue developing, manufacturing, and marketing Graphite’s product candidates and Graphite’s technology. However, Graphite may not be able to obtain any required license on commercially reasonable terms or at all. Even if Graphite is able to obtain a license, it could be non-exclusive, thereby giving Graphite’s competitors and other third parties access to the same technologies licensed to Graphite, and it could require Graphite to make substantial licensing and royalty payments. If Graphite is unable to obtain a necessary license to a third-party patent on commercially reasonable terms, Graphite may be unable to commercialize Graphite’s platform technology or product candidates or such commercialization efforts may be significantly delayed, which could in turn significantly harm its business. Graphite also could be forced, including by court order, to cease developing, manufacturing, and commercializing the infringing technology or product candidates. In addition, Graphite could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if Graphite is found to have willfully infringed a patent or other intellectual property right. Claims that Graphite has misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on its business, financial condition, results of operations, and prospects.

Defense of third-party claims of infringement of misappropriation, or violation of intellectual property rights involves substantial litigation expense and would be a substantial diversion of management and employee time and resources from its business. Some third parties may be able to sustain the costs of complex patent litigation more effectively than Graphite can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on Graphite’s ability to raise the funds necessary to continue its operations or could otherwise have a material adverse effect on its business, financial condition, results of operations and prospects. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Graphite’s common stock. Any of the foregoing events could have a material adverse effect on its business, financial condition, results of operations and prospects.

 

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Third parties may assert that Graphite’s employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

As is common in the biotechnology and biopharmaceutical industries, Graphite employs or has employed individuals who were previously employed at universities or other biotechnology or biopharmaceutical companies, including Graphite’s competitors or potential competitors. Although no claims against Graphite are currently pending, and although Graphite tries to ensure that its employees and consultants do not use the proprietary information or know-how of others in their work for Graphite, Graphite may be subject to claims that Graphite or its employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If Graphite fails in defending any such claims, in addition to paying monetary damages, Graphite may lose valuable intellectual property rights or personnel. Even if Graphite is successful in defending against such claims, litigation or other legal proceedings relating to intellectual property claims may cause Graphite to incur significant expenses, and could distract Graphite’s technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and, if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Graphite’s common stock. This type of litigation or proceeding could substantially increase Graphite’s operating losses and reduce Graphite’s resources available for development activities. Graphite may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of Graphite’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than Graphite can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property related proceedings could adversely affect Graphite’s ability to compete in the marketplace.

If Graphite is unable to protect the confidentiality of its trade secrets, its business and competitive position would be harmed.

In addition to seeking patents for its technology and product candidates, Graphite also relies on know-how and trade secret protection, as well as confidentiality agreements, non-disclosure agreements and invention assignment agreements with its employees, consultants and third-parties, to protect its confidential and proprietary information, especially where Graphite does not believe patent protection is appropriate or obtainable.

It is Graphite’s policy to require its employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties to execute confidentiality agreements upon the commencement of employment or consulting relationships with Graphite. These agreements provide that all confidential information concerning Graphite’s business or financial affairs developed by or made known to the individual or entity during the course of the party’s relationship with Graphite is to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and that are related to Graphite’s current or planned business or research and development or made during normal working hours, on Graphite’s premises or using Graphite’s equipment or proprietary information, are Graphite’s exclusive property. In the case of consultants and other third parties, the agreements provide that all inventions conceived in connection with the services provided are Graphite’s exclusive property. However, Graphite cannot guarantee that it has entered into such agreements with each party that may have or have had access to its trade secrets or proprietary technology and processes. Additionally, the assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and Graphite may be forced to bring claims against third parties, or defend claims that they may bring against Graphite, to determine the ownership of what Graphite regards as its intellectual property. Any of these parties may breach the agreements and disclose its proprietary information, including its trade secrets, and Graphite may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable.

 

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In addition to contractual measures, Graphite tries to protect the confidential nature of its proprietary information through other appropriate precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect. These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for Graphite’s proprietary information. Graphite’s security measures may not prevent an employee or consultant from misappropriating its trade secrets and providing them to a competitor, and any recourse Graphite might take against this type of misconduct may not provide an adequate remedy to protect Graphite’s interests fully. In addition, trade secrets may be independently developed by others in a manner that could prevent Graphite from receiving legal recourse. If any of Graphite’s confidential or proprietary information, such as Graphite’s trade secrets, were to be disclosed or misappropriated, or if any of that information was independently developed by a competitor, Graphite’s competitive position could be harmed.

In addition, some courts inside and outside the United States are sometimes less willing or unwilling to protect trade secrets. If Graphite chooses to go to court to stop a third party from using any of its trade secrets, Graphite may incur substantial costs. Even if Graphite is successful, these types of lawsuits may consume its time and other resources. Any of the foregoing could have a material adverse effect on its business, financial condition, results of operations and prospects.

Risks Related to Graphite’s Relationships with Third Parties

Graphite expects to rely on third parties to conduct its clinical trials and some aspects of its research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research, or testing.

Graphite has relied on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct some aspects of its research and preclinical testing, and Graphite expects to rely on third parties to help conduct any potential clinical trials. Any of these third parties may terminate their engagements with Graphite at any time under certain criteria. If Graphite needs to enter into alternative arrangements, it may delay its product development activities.

Graphite’s reliance on these third parties to conduct any potential clinical trials and for research and development activities will reduce its control over these activities but will not relieve Graphite of its responsibilities. For example, Graphite will remain responsible for ensuring that each of its potential clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA, the EMA and other regulatory authorities require Graphite to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected.

Although Graphite may design any potential clinical trials for future product candidates, CROs will conduct some or all of the clinical trials. As a result, many important aspects of its development programs, including their conduct and timing, will be outside of Graphite’s direct control. Graphite’s reliance on third parties to conduct current and future preclinical studies and future clinical trials will also result in less direct control over the management of data developed through preclinical studies and clinical trials than would be the case if Graphite was relying entirely upon its own staff. Communicating with third parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Third parties may:

 

   

have staffing difficulties;

 

   

fail to comply with contractual obligations;

 

   

experience regulatory compliance issues;

 

   

undergo changes in priorities or become financially distressed; or

 

   

form relationships with other entities, some of which may be Graphite’s competitors.

 

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These factors may materially adversely affect the willingness or ability of third parties to conduct Graphite’s preclinical studies and clinical trials and may subject Graphite to unexpected cost increases that are beyond Graphite’s control. If the CROs and other third parties do not perform preclinical studies and future clinical trials in a satisfactory manner, breach their obligations to Graphite or fail to comply with regulatory requirements, the development, regulatory approval and commercialization of its product candidates may be delayed, Graphite may not be able to obtain regulatory approval and commercialize its product candidates, or its development programs may be materially and irreversibly harmed. If Graphite is unable to rely on preclinical and clinical data collected by its CROs and other third parties, Graphite could be required to repeat, extend the duration of, or increase the size of any preclinical studies or clinical trials Graphite conducts and this could significantly delay commercialization and require greater expenditures, which could have a material adverse effect on its business, financial condition, result of operations, and prospects.

Graphite also expects to rely on third parties to store and distribute drug supplies for its clinical trials. Any performance failure on the part of its distributors could delay any potential clinical development or marketing approval of its product candidates or commercialization of its therapies, producing additional losses and depriving Graphite of potential product revenue.

Dr. Matthew Porteus, Graphite’s co-founder and a member of its board of directors, may have actual or potential conflicts of interest because of his position with Stanford.

Dr. Porteus serves on Graphite’s board of directors, its Scientific & Clinical Advisory Board and as its paid consultant and retains his position and affiliation with Stanford. Furthermore, Dr. Porteus holds shares of Graphite’s restricted common stock subject to vesting based, among other things, on his continued service to Graphite as a director, employee or consultant. Dr. Porteus’ position at Stanford creates, or may create the appearance of, conflicts of interest when Graphite asks Dr. Porteus to make decisions that could have different implications for Stanford than the decisions have for Graphite or for himself, including decisions related to its license of intellectual property rights from Stanford and other contractual relationships Graphite may enter into from time to time with Stanford.

Graphite contracts with third parties for the manufacture of materials for its research programs and preclinical studies and expects to continue to do so for clinical trials and for commercialization of its product candidates. This reliance on third parties increases the risk that Graphite will not have sufficient quantities of such materials, product candidates, or any products that Graphite may develop and commercialize, or that such supply will not be available to Graphite at an acceptable cost or timelines, which could delay, prevent, or impair its development or commercialization efforts.

Graphite does not have any manufacturing facilities at the present time. It has historically relied on third-party manufacturers for the manufacture of materials for its research programs and preclinical studies, including its viral vectors, GMP plasmids, RNA guides and Cas9.

Graphite may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms for one or more of its material needs. Even if Graphite is able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

   

the possible failure of the third party to manufacture Graphite’s product candidates according to Graphite’s schedule, or at all, including if the third party gives greater priority to the supply of other products over its product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between Graphite and them;

 

   

the possible breach of the manufacturing agreement by the third party;

 

   

the possible misappropriation of Graphite’s proprietary information, including Graphite’s trade secrets and know-how;

 

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the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for Graphite; and

 

   

reliance on the third party for regulatory compliance, quality assurance, safety, and pharmacovigilance and related reporting.

Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Graphite’s failure, or the failure of its third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on Graphite, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocations, seizures or recalls of product candidates, operating restrictions, and criminal prosecutions, any of which could significantly and adversely affect supplies of Graphite’s products and harm its business, financial condition, results of operations, and prospects.

Any products that Graphite may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of suppliers or manufacturers that operate under cGMP regulations and that might be capable of manufacturing for Graphite.

Any performance failure on the part of Graphite’s existing or future manufacturers could delay any potential clinical development or marketing approval. Graphite does not currently have arrangements in place for redundant supply for bulk drug substances. If any one of its current contract manufacturer cannot perform as agreed, Graphite may be required to replace that manufacturer, or Graphite may be forced to manufacture the materials ourselves, for which it may not have the capabilities or resources, or enter into an agreement with a different third-party manufacturer, which Graphite may not be able to do on reasonable terms, if at all. In either scenario, Graphite’s clinical trials supply could be delayed significantly as it establishes alternative supply sources. In some cases, the technical skills required to manufacture Graphite’s products or product candidates may be unique or proprietary to the original third-party manufacturer and Graphite may have difficulty, or there may be contractual restrictions prohibiting Graphite from, transferring such skills to a back-up or alternate supplier, or Graphite may be unable to transfer such skills at all. In addition, if Graphite is required to change third-party manufacturers for any reason, Graphite will be required to verify that the new third-party manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. Graphite will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce its product candidate according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new third- party manufacturer could negatively affect its ability to develop product candidates or commercialize its products in a timely manner or within budget. Furthermore, a third-party manufacturer may possess technology related to the manufacture of its product candidate that such third-party manufacturer owns independently. This would increase Graphite’s reliance on such third-party manufacturer or require Graphite to obtain a license from such third-party manufacturer in order to have another third-party manufacturer manufacture its product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that Graphite conduct bridging studies between its prior clinical supply used in its clinical trials and that of any new manufacturer. Graphite may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.

Graphite’s current and anticipated future dependence upon others for the manufacture of its product candidates or any products may adversely affect its future profit margins and its ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Graphite may enter into collaborations with third parties for the research, development, and commercialization of certain of the product candidates it may develop. If any such collaborations are not successful, Graphite may not be able to capitalize on the market potential of those product candidates.

Graphite may seek third-party collaborators for the research, development, and commercialization of certain of the product candidates Graphite may develop. If Graphite enters into any such arrangements with any third

 

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parties, it will likely have limited control over the amount and timing of resources that its collaborators dedicate to the development or commercialization of any product candidates it may seek to develop with them. Graphite’s ability to generate revenues from these arrangements will depend on its collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. Graphite cannot predict the success of any collaboration that it enters into.

Collaborations involving its research programs or its product candidates pose numerous risks to Graphite, including the following:

 

   

Collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations.

 

   

Collaborators may not pursue development and commercialization of its product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities. If a present or future collaborator of Graphite was to be involved in a business combination, the continued pursuit and emphasis on its product development or commercialization program under such collaboration could be delayed, diminished, or terminated.

 

   

Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing.

 

   

Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with Graphite’s product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than Graphite’s.

 

   

Collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such products.

 

   

Collaborators may not properly obtain, maintain, enforce, or defend Graphite’s intellectual property or proprietary rights or may use its proprietary information in such a way as to invite litigation that could jeopardize or invalidate its proprietary information or expose Graphite to potential litigation.

 

   

Disputes may arise between the collaborators and Graphite that result in the delay or termination of the research, development, or commercialization of Graphite’s therapies or product candidates or that result in costly litigation or arbitration that diverts management attention and resources.

 

   

Collaborators may not provide Graphite with timely and accurate information regarding development progress and activities under the collaboration or may limit Graphite’s ability to share such information, which could adversely impact its ability to report progress to its investors and otherwise plan Graphite’s own development of its product candidates.

 

   

Graphite may lose certain valuable rights under circumstances identified in Graphite’s collaborations, including if Graphite undergoes a change of control.

 

   

Collaborators may require Graphite to incur non-recurring and other charges, increase its near- and long- term expenditures, issue securities that dilutes its existing stockholders, or disrupts its management and business.

 

   

Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates Graphite develops.

 

   

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all.

 

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If Graphite’s collaborations do not result in the successful development and commercialization of product candidates, or if one of its collaborators terminates its agreement with Graphite, Graphite may not receive any future research funding or milestone or royalty payments under the collaboration. If Graphite does not receive the funding it expects under these agreements, its development of product candidates could be delayed, and it may need additional resources to develop product candidates. In addition, if one of Graphite’s collaborators terminates its agreement with Graphite, Graphite may find it more difficult to find a suitable replacement collaborator or attract new collaborators, and its development programs may be delayed or the perception of Graphite in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval, and commercialization described here apply to the activities of its collaborators.

If conflicts arise between Graphite and its collaborators or strategic partners, these parties may act in a manner adverse to Graphite and could limit its ability to implement its strategies.

If conflicts arise between Graphite’s corporate or academic licensors, collaborators or strategic partners and Graphite, the other party may act in a manner adverse to Graphite and could limit Graphite’s ability to implement its strategies. Some of Graphite’s academic licensors, collaborators and strategic partners are conducting multiple product development efforts within each area that is the subject of the license or collaboration with Graphite. Graphite’s licensors, collaborators or strategic partners, however, may develop, either alone or with others, products in related fields that are competitive with the product candidates Graphite develops that are the subject of these collaborations with Graphite. Competing products, either developed by the licensors, collaborators or strategic partners or to which the licensors, collaborators or strategic partners have rights, may result in the withdrawal of partner support for Graphite’s product candidates.

Some of Graphite’s licensors, collaborators or strategic partners could also become Graphite’s competitors in the future. Graphite’s licensors, collaborators or strategic partners could develop competing products, preclude Graphite from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with Graphite prematurely, or fail to devote sufficient resources to the development and commercialization of products. Any of these developments could harm Graphite’s product development efforts.

If Graphite is not able to establish collaborations on a timely basis, on commercially reasonable terms, or at all, Graphite may have to alter, reduce or delay its development and commercialization plans, or increase its expenditures to fund development or commercialization activities at Graphite’s own expense.

For some of the product candidates Graphite may develop, Graphite may decide to collaborate with other pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. Graphite faces significant competition in seeking appropriate collaborations and collaborations are complex and time-consuming to negotiate and document. Whether Graphite reaches a definitive agreement for a collaboration will depend, among other things, upon its assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, the EMA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to Graphite’s ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with Graphite.

Graphite may also be restricted under existing collaboration agreements from entering into future collaboration agreements on certain terms with potential collaborators. In addition, there have been a significant

 

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number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators, which further increases competition Graphite faces in seeking potential collaborations.

Graphite may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If Graphite is unable to do so, Graphite may have to curtail the development of the product candidate for which Graphite is seeking to collaborate, reduce or delay its development program or one or more of its other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase its expenditures and undertake development or commercialization activities at Graphite’s own expense. If Graphite elects to increase its expenditures to fund development or commercialization activities on its own, Graphite may need to obtain additional capital, which may not be available to Graphite on acceptable terms or at all. If Graphite does not have sufficient funds, Graphite may not be able to develop product candidates or bring them to market and generate product revenue.

Risks Related to Graphite’s Employee Matters, Managing Growth, Public Health and Information Technology

Graphite’s future success depends on its ability to retain its executive officers and other key employees and to attract, retain, and motivate qualified personnel.

Graphite is highly dependent on its executive officers, as well as the other principal members of its management and scientific teams. Each of its executive officers and such other principal members are employed “at will,” meaning Graphite or they may terminate the employment at any time. Graphite does not maintain “key person” insurance for any of its executives or other employees. The loss of the services of any of these persons could impede the achievement of its research, development, and commercialization objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing, and sales and marketing personnel is critical to Graphite’s success. Graphite may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Graphite also experiences competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, Graphite relies on consultants and advisors, including scientific and clinical advisors, to assist Graphite in formulating its research and development and commercialization strategy. Graphite’s consultants and advisors, including its scientific co-founders, may be employed by employers other than Graphite and may have commitments under consulting or advisory contracts with other entities that may limit their availability to Graphite. The inability to recruit, or loss of services of certain executives, key employees, consultants, or advisors, may impede the progress of Graphite’s research, development, and commercialization objectives and have a material adverse effect on its business, financial condition, results of operations, and prospects.

Graphite’s internal computer systems, or those of its third-party vendors, collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of its product development programs, compromise sensitive information related to Graphite’s business or prevent it from accessing critical information, potentially exposing Graphite to liability or otherwise adversely affecting its business.

Graphite’s internal computer systems and those of its current and any future third-party vendors, collaborators and other contractors or consultants are vulnerable to damage or interruption from computer viruses, malware (including ransomware), phishing attacks, computer hackers, malicious code, employee theft or misuse, intentional or accidental action or lack of action by Graphite’s employees or any contractors with access to its systems that leads to the introduction of vulnerabilities, denial-of-service attacks, sophisticated nation-state and nation- state-supported actors, supply chain attacks, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While Graphite seeks to protect its information technology systems from system failure and seeks to identify and manage specific cyber security risks, accident and security breach,

 

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if such an event were to occur and cause interruptions in its operations, it could result in a disruption of its development programs and its business operations, whether due to a loss of Graphite’s trade secrets, personal information, or other proprietary information or other disruptions. For example, the loss of clinical trial data from future clinical trials could result in delays in Graphite’s regulatory approval efforts and significantly increase its costs to recover or reproduce the data. If Graphite was to experience a significant cybersecurity breach of its information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to counter-parties and data subjects could be material. In addition, Graphite’s remediation efforts may not be successful. If Graphite does not allocate and effectively manage the resources necessary to build and sustain the proper technology and cybersecurity infrastructure, Graphite could suffer significant business disruption, including transaction errors, supply chain or manufacturing interruptions, processing inefficiencies, data loss or the loss of or damage to intellectual property or other proprietary information.

To the extent that any disruption or security breach were to result in a loss of, or damage to, Graphite or its third-party vendors’, collaborators’ or other contractors’ or consultants’ data or applications, or inappropriate disclosure of confidential, personal or proprietary information, Graphite could incur liability including litigation exposure, penalties and fines, it could become the subject of regulatory action or investigation, its competitive position could be harmed and the further development and commercialization of its product candidates could be delayed. Any of the above could have a material adverse effect on its business, financial condition, results of operations or prospects.

Graphite’s operations are vulnerable to interruption by fire, earthquakes, power loss, telecommunications failure, terrorist activity, pandemics and other events beyond Graphite’s control, which could harm its business.

Graphite has not undertaken a systematic analysis of the potential consequences to its business and financial results from a major flood, fire, earthquake, power loss, terrorist activity, pandemics or other disasters and do not have a recovery plan for such disasters. In addition, Graphite does not carry sufficient insurance to compensate for actual losses from interruption of its business that may occur, and any losses or damages incurred by Graphite could harm its business. The occurrence of any of these business disruptions could seriously harm Graphite’s operations and financial condition and increase Graphite’s costs and expenses.

Risks Related to Ownership of Graphite’s Common Stock

Graphite does not know whether a market will develop for its common stock or what the market price of its common stock will be, and, as a result, it may be difficult for its stockholders to sell their shares of Graphite common stock.

Although Graphite common stock is listed on the Nasdaq Global Market, an active trading market for its common stock may not be sustained. If a market for Graphite common stock is not sustained, it may be difficult for its stockholders to sell its shares of common stock at an attractive price or at all. Graphite cannot predict the prices at which its common stock will trade in the future. It is possible that in one or more future periods Graphite’s results of operations may be below the expectations of public market analysts and investors, and, as a result of these and other factors, the price of its common stock may fall.

The market price of Graphite common stock has been and may continue to be volatile and the value of an investment in its common stock may decline, which could result in substantial losses for investors.

The market price of Graphite common stock has been and is likely to continue to be highly volatile. From February 7, 2022 through December 5, 2023, the trading price of its common stock ranged between a low sales price of $1.59 and a high sales price of $11.30. As a result of this volatility, a holder may not be able to sell Graphite’s common stock at or above the price at which such holder acquired shares of its common stock.

 

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The market price for Graphite’s common stock may be influenced by those factors discussed in this “Risk Factors” section and many others, including:

 

   

the success of existing or new competitive product candidates or technologies;

 

   

the timing and results of preclinical studies and clinical trials for its product candidates;

 

   

failure or discontinuation of any of Graphite’s product development and research programs;

 

   

results of preclinical studies, clinical trials, or regulatory approvals of product candidates of Graphite’s competitors, or announcements about new research programs or product candidates of its competitors;

 

   

developments or changing views regarding the use of genetic medicines, including those that involve gene editing;

 

   

commencement or termination of collaborations for Graphite’s product development and research programs;

 

   

regulatory or legal developments in the United States and other countries;

 

   

developments or disputes concerning proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

the level of expenses related to any of Graphite’s research programs, preclinical development, or product candidates that Graphite may develop;

 

   

the results of Graphite’s efforts to develop additional product candidates or products;

 

   

actual or anticipated changes in estimates as to financial results, development timelines, or recommendations by securities analysts, if any, that cover Graphite’s stock;

 

   

announcement or expectation of additional financing efforts;

 

   

sales of Graphite’s common stock by Graphite, its insiders or other stockholders;

 

   

expiration of market stand-off or lock-up agreements;

 

   

variations in Graphite’s financial results or those of companies that are perceived to be similar to Graphite;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

the COVID-19 pandemic, natural disasters, or major catastrophic events;

 

   

general economic, industry, and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

In recent years, the stock market in general, and the market for pharmaceutical and biotechnology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of Graphite’s common stock, regardless of its actual operating performance. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of Graphite’s stock price, Graphite may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from its business.

 

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A significant portion of Graphite’s total outstanding shares may be sold into the market in the near future, which could cause the market price of its common stock to decline significantly.

Sales of a substantial number of shares of Graphite’s common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of its common stock. Persons who were its stockholders prior to the IPO continue to hold a substantial number of shares of Graphite’s common stock. Significant portions of these shares are held by a small number of stockholders. Sales by Graphite’s stockholders of a substantial number of shares, or the expectation that such sales may occur, could significantly reduce the market price of its common stock. Moreover, certain shares of its common stock have rights, subject to conditions, to require Graphite to file registration statements covering their shares or to include their shares in registration statements that Graphite may file for itself or other stockholders. Graphite has also registered or intends to register all shares of Graphite common stock that may be issued under its equity compensation plans or that are issuable upon exercise of outstanding Graphite options. These shares can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates. In addition, Graphite’s directors, executive officers and certain affiliates may establish programmed selling plans under Rule 10b5-1 of the Exchange Act for the purpose of effecting sales of its common stock. If any of these events cause a large number of Graphite’s shares to be sold, or if it is perceived that they will be sold, in the public market, the market price of Graphite’s common stock could decline.

Graphite’s principal stockholders and management own a significant percentage of its stock and will be able to exert significant control over matters subject to stockholder approval.

As of November 8, 2023, Graphite’s executive officers, directors, holders of 5% or more of Graphite’s capital stock and their respective affiliates beneficially owned approximately 40.69% of Graphite’s common stock. This group of stockholders has the ability to control Graphite through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of Graphite’s organizational documents or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for its common stock that Graphite’s stockholders may feel are in its best interest as one of its stockholders. The interests of this group of stockholders may not always coincide with the interests of Graphite’s other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for Graphite’s common stock.

Graphite is an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make its common stock less attractive to investors.

Graphite is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) and may remain an emerging growth company for up to five years. For so long as Graphite remains an emerging growth company, it is permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“SOX”), not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, the information Graphite provides stockholders will be different than the information that is available with respect to other public companies.

 

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In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Accordingly, the information contained in Graphite’s disclosure may be different from the information its stockholders receive from other public companies in which they hold stock. Graphite has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date Graphite (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, Graphite’s financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Graphite is also a “smaller reporting company,” meaning that the market value of its stock held by non-affiliates is less than $700.0 million and its annual revenue is less than $100.0 million during the most recently completed fiscal year. Graphite may continue to be a smaller reporting company if either (i) the market value of its stock held by non-affiliates is less than $250.0 million or (ii) its annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of Graphite’s stock held by non-affiliates is less than $700.0 million. If Graphite is a smaller reporting company at the time Graphite ceases to be an emerging growth company, Graphite may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company Graphite may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Graphite cannot predict whether investors will find its common stock less attractive if it relies on these exemptions. If some investors find Graphite’s common stock less attractive as a result, there may be a less active trading market for its common stock, and its stock price may be more volatile.

Graphite has broad discretion in the use of the capital it has raised and may not use it effectively.

Graphite cannot specify with certainty the particular uses of the capital it has raised, including the net proceeds from the IPO. Accordingly, its stockholders will have to rely upon the judgment of Graphite’s management with respect to the use of these funds, with only limited information concerning management’s specific intentions. Graphite’s management may spend a portion or all of the net proceeds from its prior financings, including the IPO in ways that its stockholders may not desire or that may not yield a favorable return. The failure by Graphite’s management to apply these funds effectively could harm its business, financial condition, results of operations and prospects. Pending their use, Graphite may invest the net proceeds from its prior financings, including the IPO in a manner that does not produce income or that loses value.

Provisions in Graphite’s amended and restated certificate of incorporation, its amended and restated bylaws and Delaware law may have anti-takeover effects that could discourage an acquisition of Graphite by others, even if an acquisition would be beneficial to its stockholders, and may prevent attempts by its stockholders to replace or remove its current management, which could depress the trading price of its common stock.

Graphite’s amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of discouraging, delaying or preventing a change in control of Graphite or changes in its management that stockholders may consider favorable, including transactions in which its stockholders might otherwise receive a premium for their shares. Graphite’s amended and restated certificate of incorporation and bylaws include provisions that:

 

   

authorize “blank check” preferred stock, which could be issued by Graphite’s board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to its common stock;

 

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create a classified board of directors whose members serve staggered three-year terms;

 

   

specify that special meetings of its stockholders can be called only by its board of directors;

 

   

prohibit stockholder action by written consent;

 

   

establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of Graphite’s stockholders, including proposed nominations of persons for election to Graphite’s board of directors;

 

   

provide that vacancies on Graphite’s board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

   

provide that Graphite’s directors may be removed (i) only for cause and (ii) only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock then entitled to vote at an election of directors;

 

   

expressly authorize its board of directors to make, alter, amend or repeal its amended and restated bylaws; and

 

   

require supermajority votes of the holders of its common stock to amend specified provisions of it amended and restated certificate of incorporation and amended and restated bylaws; however, if the Graphite board of directors recommends that the Graphite stockholders approve the amendment at a meeting of stockholders, the amendment shall only require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in Graphite’s management. These provisions could also limit the price that investors might be willing to pay in the future for shares of Graphite’s common stock, thereby depressing the market price of Graphite’s common stock.

In addition, because Graphite is incorporated in the State of Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits a person who owns in excess of 15% of its outstanding voting stock from merging or combining with Graphite for a period of three years after the date of the transaction in which the person acquired in excess of 15% of its outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Any provision of Graphite’s amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for its stockholders to receive a premium for their shares of its common stock, and could also affect the price that some investors are willing to pay for its common stock.

Graphite’s amended and restated bylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for certain state law litigation that may be initiated by its stockholders and the U.S. federal district courts as the exclusive forum for certain securities law actions, which could limit its stockholders’ ability to litigate disputes with Graphite in a different judicial forum and increase the costs for its stockholders to pursue certain claims against Graphite.

Pursuant to Graphite’s amended and restated bylaws, unless it consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on Graphite’s behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of its current or former directors, officers or employees to Graphite or its stockholders; (iii) any action asserting a claim arising pursuant to any provision of the DGCL, its amended and restated certificate of incorporation or its amended and restated bylaws (including their interpretation, validity or enforceability); or (iv) any action asserting a claim governed by the internal affairs doctrine. Unless Graphite consents in writing to the selection of an alternate forum, the United States federal district courts shall be the sole and exclusive forum

 

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for resolving any complaint asserting a cause of action arising under the Securities Act. In addition, Graphite’s amended and restated bylaws provides that any person or entity purchasing or otherwise acquiring any interest in shares of its capital stock is deemed to have notice of and consented to these exclusive forum provisions. The forum selection provisions in Graphite’s amended and restated bylaws may limit its stockholders’ ability to litigate disputes with Graphite in a judicial forum that they find favorable for disputes with Graphite or its directors, officers or employees, which may discourage the filing of lawsuits against Graphite and its directors, officers and employees, even though an action, if successful, might benefit Graphite’s stockholders. In addition, these forum selection provisions may impose additional litigation costs for stockholders who determine to pursue any such lawsuits against Graphite.

Risks Related to LENZ

Risks Related to LENZ’s Limited Operating History, Development and Commercialization of its Product Candidates

LENZ is a late-stage biopharmaceutical company with limited operating history. It has incurred significant losses and negative cash flows from operations since its formation, and LENZ anticipates that it will continue to incur losses for the foreseeable future. LENZ has no products approved for commercial sale, which may make it difficult for you to evaluate its current business and predict its future success and viability.

LENZ is a late-stage biopharmaceutical company with a limited operating history. Its operations to date have been limited to organizing the company, raising capital, developing its product candidates and beginning to prepare for commercialization, including building its commercial strategy, supply chain and distribution network. Consequently, any predictions you make about LENZ’s future success or viability may not be as accurate as they could be if it had a longer operating history. In addition, as a new business, LENZ may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. If one of its product candidates is approved by the FDA, LENZ will need to further expand its commercialization infrastructure to successfully launch such product. LENZ has not yet demonstrated its ability to successfully obtain marketing approvals, complete arrangements for third parties to manufacture the commercial-scale product on its behalf, or conduct sales and marketing activities necessary for successful product commercialization, and LENZ may not be successful in such a transition.

LENZ does not have any products approved for sale, it has not generated any revenue from the sale of products, has incurred significant net losses since the company’s formation and has funded its operations primarily from the sale and issuance of redeemable convertible preferred stock. Its net losses were $7.6 million and $10.8 million for the years ended December 31, 2021 and 2022, respectively, and $46.3 million as of September 30, 2023. As of September 30, 2023, LENZ had an accumulated deficit of $71.6 million. Additionally, the net losses it incurs may fluctuate significantly from quarter to quarter such that a period-to-period comparison of LENZ’s results of operations may not be a good indicator of its future performance. The size of LENZ’s future net losses will depend, in part, on the rate of future growth of its expenses and its ability to generate revenue.

LENZ expects to continue incurring significant expenses and increasing operating losses for the foreseeable future. LENZ expects that its expenses will increase substantially if and as it:

 

   

initiates additional clinical and other studies for its product candidates;

 

   

changes or adds additional manufacturers or suppliers, some of which may require additional permits or other governmental approvals;

 

   

creates additional infrastructure to support its operations as a public company and its product development and planned future commercialization efforts;

 

   

seeks marketing approvals for its product candidates;

 

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establishes a sales, marketing, and distribution infrastructure to commercialize any products for which it may obtain marketing approval;

 

   

seeks to identify, acquire and develop additional product candidates;

 

   

acquires or in-licenses other product candidates and technologies;

 

   

makes milestone or other payments in connection with the development or approval of its product candidates;

 

   

maintains, protects, and expands its intellectual property portfolio; and

 

   

experiences any delays or encounters issues with any of the above.

LENZ’s prior losses and expected future losses have had and will continue to have an adverse effect on its working capital and ability to achieve and maintain profitability.

LENZ’s business depends entirely on the development and commercialization of LNZ100 or LNZ101, and LENZ does not have additional product candidates in its current development pipeline. If LENZ is unable to successfully complete its clinical development program for LNZ100 or LNZ101 and obtain the marketing approvals necessary to commercialize either of them, or experiences significant delays in doing so, or if after obtaining marketing approvals, LENZ fails to commercialize any one of these product candidates, its business will be materially harmed. LENZ currently generates no revenues from sales of any products and may never generate revenue or be profitable.

LENZ has devoted a significant portion of its financial resources and business efforts to the development of LNZ100 and LNZ101, both of which include aceclidine as an active ingredient, for the treatment of presbyopia. LENZ does not currently have other product candidates in its development pipeline, and its success depends entirely on LNZ100 and/or LNZ101. LENZ has no products approved for commercial sale and does not anticipate generating any revenue unless LNZ100 or LNZ101 receives the regulatory approval necessary for commercialization. LENZ’s ability to generate revenues from product sales will depend on it obtaining marketing approval for and commercializing LNZ100 or LNZ101, and LENZ cannot accurately predict when or if LNZ100 or LNZ101 will be proven to be effective in humans for the proposed indication or whether either will receive marketing approval. LENZ’s ability to generate revenue and achieve profitability also depends significantly on its ability, or any future collaborator’s ability, to achieve a number of objectives, including:

 

   

successful and timely completion of clinical development of its product candidates, including LNZ100, LNZ101 and any other future product candidates;

 

   

effective investigational new drug applications (“INDs”) from the Food and Drug Administration (“FDA”) or comparable foreign applications that allow the commencement of its clinical trials or future clinical trials for its product candidates;

 

   

completion of clinical studies in compliance with the FDA’s current Good Clinical Practices (“GCPs”) with positive results;

 

   

the prevalence and severity of adverse events experienced with any of its product candidates;

 

   

establishing and maintaining relationships with contract research organizations (“CROs”) and clinical sites for the clinical development, both in the United States and internationally, of its product candidates, including LNZ100, LNZ101 and any other future product candidates;

 

   

timely receipt of marketing approvals from applicable regulatory authorities for any product candidates for which LENZ successfully completes clinical development for their intended uses;

 

   

making any required post-marketing approval commitments to applicable regulatory authorities;

 

   

establishing and maintaining commercially viable supply and manufacturing relationships with third parties that can provide adequate products and services, in both amount and quality, to support clinical development and meet the market demand for product candidates that LENZ develops, if approved;

 

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successful commercial launch following any marketing approval, including the development of a commercial infrastructure, whether in-house or with one or more collaborators;

 

   

maintaining compliance with regulatory requirements, including the FDA’s current Good Manufacturing Practice (“cGMP”) requirements;

 

   

a continued acceptable safety profile both prior to and following any marketing approval of its product candidates;

 

   

commercial acceptance of its product candidates by patients and the medical community;

 

   

identifying, assessing and developing new product candidates;

 

   

obtaining, maintaining and expanding patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;

 

   

protecting its rights in its intellectual property portfolio;

 

   

defending against third-party interference or infringement claims, if any;

 

   

obtaining favorable terms in any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize its existing or acquired product candidates;

 

   

addressing any competing therapies and technological and market developments; and

 

   

attracting, hiring and retaining qualified personnel.

LENZ may never be successful in achieving its objectives and, even if it is successful, it may never generate revenue that is significant or large enough to achieve profitability. If LENZ does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. If LENZ fails to become and remain profitable, the value of the company could decrease. This could impair its ability to maintain or expand its research and development efforts, raise necessary additional capital, grow its business, and continue its operations.

LENZ’s current product candidates, LNZ100 and LNZ101, are based on an active pharmaceutical ingredient (API) that has been previously approved and marketed outside of the United States, which exposes LENZ to additional risks.

The common API in LNZ100 and LNZ101, aceclidine, was previously approved by the EMA as a therapeutic for glaucoma by decreasing interocular pressure and had been marketed in more than 12 countries throughout Europe. Although LENZ expects to obtain new chemical entity (“NCE”) exclusivity in the United States if it is the first to obtain FDA approval of a product candidate containing aceclidine as an API, such determination is only made at the time of approval. Accordingly, no regulatory authority, including the FDA, has established or provided any confirmation that LENZ’s product candidates will in fact be regarded as an NCE, and there can be no assurance that either LNZ100 or LNZ101 will be the first product containing aceclidine to be approved by the FDA. Additionally, LENZ anticipates that manufacturers in Europe could make and sell aceclidine in generic form in the future, which could compete with its ability to commercialize in Europe. Previously, aceclidine was used as a treatment for glaucoma at concentrations higher than the concentrations used in LNZ100 and LNZ101. It is possible that if aceclidine is used again in Europe, it could be used at the wrong dosage and increase the possibility that patients experience adverse side effects related to aceclidine. Any adverse side effects that arise from the use of any form of aceclidine could prevent or inhibit the commercialization of LNZ100 or LNZ101 and seriously harm LENZ’s business. Furthermore, if manufacturer demand for aceclidine increases in the future, particularly as a result of generic forms of aceclidine becoming available, LENZ may not be able to continue to obtain aceclidine on commercially reasonable terms, which would seriously harm its business.

Additionally, LNZ101 also contains brimonidine as an API, which has also been used in marketed products since the 1990s. It is an active ingredient in Alphagan, Alphagan P and Lumify, in each case at concentrations

 

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higher than the concentrations used in LNZ101, and may in the future be used in other products or product candidates. Any adverse side effects that arise from the use of any form of brimonidine could prevent or inhibit the commercialization of LNZ101 and seriously harm LENZ’s business.

In addition, any approved or commercial drug product having the same API, including off-label use of such approved drug products, such as Glaucostat, Alphagan, Lumify and other generic forms of either API, could reduce the profitability of LNZ100 or LNZ101 even if LENZ obtains marketing approval from FDA or regulatory authorities outside of the United States. Any commercially available drug product having the same API could prevent LENZ or limit its ability to commercialize or to establish market share in the same jurisdiction even if it were to obtain marketing authorization in such jurisdiction.

Clinical trials are expensive, time-consuming, difficult to design and implement and involve an uncertain outcome. The outcome of preclinical testing and earlier clinical trials may not be predictive of the success of later clinical trials. The results of LENZ’s clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities, and LENZ may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.

Research and development of pharmaceutical products is inherently risky. LENZ cannot give any assurance that any of its product candidates will receive regulatory, including marketing, approval, which is necessary before they can be commercialized. The clinical trials and manufacturing of LENZ’s product candidates are, and the manufacturing and marketing of its products, if approved, will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where LENZ intends to test and market its product candidates. Before obtaining regulatory approvals for the commercial sale of any of its product candidates, LENZ must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that its product candidates are both safe and effective for use in each target indication. Product candidates in later stages of clinical trials may fail to show the desired safety, efficacy and durability profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. LENZ cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Failure can occur at any time during the clinical trial process. Even if its ongoing and any future clinical trials are completed as planned, LENZ cannot be certain that its results will support the safety and effectiveness of its product candidates for their targeted indications or support continued clinical development of such product candidates. Product candidates in later stages of clinical studies may fail to show the desired safety and efficacy data or meet endpoints despite having progressed through preclinical and clinical studies.

The results of LENZ’s preclinical and clinical studies of product candidates may not be predictive of the results of early-stage or later-stage clinical trials, and results of early clinical trials of its product candidates may not be predictive of the results of later-stage clinical trials. The results of clinical trials in one set of subjects may not be predictive of those obtained in another. In some instances, there can be significant variability in safety, efficacy or durability results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants.

In addition, even if such clinical trials are successfully completed, LENZ cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as it does, and more trials could be required before LENZ submits its product candidates for approval. For example, although LENZ has sought and received feedback from

 

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FDA on the designs of its clinical trials, FDA may ultimately disagree that LENZ’s Phase 3 trials support approval for both LNZ100 and LNZ101, which may limit the optionality for LENZ to choose which product it will submit for regulatory approval. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other jurisdiction. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, LENZ may be required to expend significant resources, which may not be available, to conduct additional trials in support of potential approval of its product candidates. Even if LENZ secures regulatory approval for any of its product candidates, the terms of such approval may limit the scope and use of the product candidate, which may also limit its commercial potential.

LENZ may also experience issues in conducting its clinical trials that would delay or prevent it from satisfying the applicable requirements of the FDA and other regulatory authorities, including:

 

   

inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of clinical trials for any future product candidates;

 

   

delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for advanced clinical trials;

 

   

delays in reaching agreement with the FDA or other regulatory authorities as to the design or implementation of its clinical trials;

 

   

obtaining regulatory authorization to commence a clinical trial;

 

   

delays in reaching, or fail to reach, agreement on acceptable terms with clinical trial sites or prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different clinical trial sites;

 

   

obtaining institutional review board (“IRB”) approval at each trial site;

 

   

recruiting suitable patients to participate in a clinical trial;

 

   

having patients complete a clinical trial or return for post-treatment follow-up;

 

   

inspections of clinical trial sites or operations by applicable regulatory authorities, or the imposition of a clinical hold;

 

   

clinical sites, CROs or other third parties deviating from trial protocol or dropping out of a trial;

 

   

failure to perform in accordance with applicable regulatory requirements, including the FDA’s GCP requirements, or applicable regulatory requirements in other countries;

 

   

addressing patient safety concerns that arise during the course of a trial, including occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

   

adding a sufficient number of clinical trial sites;

 

   

manufacturing sufficient quantities of product candidate for use in clinical trials; or

 

   

suspensions or terminations by IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board (“DSMB”), for such trial or by the FDA or other regulatory authorities due to a number of factors, including those described above.

LENZ may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent its ability to receive marketing approval or commercialize its product candidates or significantly increase the cost of such trials, including:

 

   

changes in regulatory requirements or guidance, or receive feedback from regulatory authorities that requires LENZ to modify the design of its clinical trials;

 

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clinical trials of its product candidates may produce negative or inconclusive results, and LENZ may decide, or regulators may require LENZ, to conduct additional clinical trials or abandon development programs;

 

   

the number of patients required for clinical trials of its product candidates may be larger than LENZ anticipates, enrollment in these clinical trials may be slower than it anticipates or participants may drop out of these clinical trials at a higher rate than it anticipates;

 

   

third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to LENZ in a timely manner, or at all;

 

   

LENZ or its investigators might have to suspend or terminate clinical trials of its product candidates for various reasons, including non-compliance with regulatory requirements, a finding that its product candidates have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;

 

   

the cost of clinical trials of its product candidates may be greater than LENZ anticipates and it may not have funds to cover the costs;

 

   

the supply or quality of its product candidates or other materials necessary to conduct clinical trials of its product candidates may be insufficient or inadequate;

 

   

regulators may revise the requirements for approving its product candidates, or such requirements may not be as LENZ anticipates; and

 

   

any future collaborators that conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for LENZ.

If LENZ is required to conduct additional clinical trials or other testing of its product candidates beyond those that it currently contemplates, if LENZ is unable to successfully complete clinical trials of its product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, LENZ may:

 

   

incur unplanned costs;

 

   

be delayed in obtaining marketing approval for its product candidates or not obtain marketing approval at all;

 

   

obtain marketing approval in some countries and not in others;

 

   

obtain marketing approval for indications or patient populations that are not as broad as intended or desired;

 

   

obtain marketing approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings or a Risk Evaluation Mitigation Strategy (“REMS”);

 

   

be subject to additional post-marketing testing requirements;

 

   

be subject to changes in the way the product is administered; or

 

   

have regulatory authorities withdraw or suspend their approval of the product.

LENZ cannot be certain that its planned clinical trials or any other future clinical trials will be successful. For example, use of LNZ100 and LNZ101 requires the patient to follow a prescribed technique to administer the eye drops. In LENZ’s Phase 2 clinical trial, patients were dosed by clinical staff in the office while in its Phase 3 clinical trial the product will be self-administered by patients on the vast majority of days. While under LENZ’s current trial design patients are only measured for efficacy on days they are in the office during the trial, during which they will be dosed by clinical staff, failure to properly administer the eye drops by the patient or inappropriate technique demonstration by the eye care professional (“ECP”), may adversely affect the outcome

 

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of LNZ100 and/or LNZ101 in demonstrating safety or efficacy in one or more clinical trials. Additionally, any safety concerns observed in any one of LENZ’s clinical trials in its targeted indications could limit the prospects for regulatory approval of its product candidates in those and other indications, which could have a material adverse effect on LENZ’s business, financial condition and results of operations.

If LENZ experiences delays or difficulties in the enrollment and/or retention of subjects in clinical trials, its receipt of necessary regulatory approvals could be delayed or prevented.

Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. LENZ may not be able to initiate or continue clinical trials for its product candidates if it is unable to locate and enroll a sufficient number of subjects to participate in these trials to such trial’s conclusion as required by the FDA, EMA or other comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials. While as of November 28, 2023, LENZ’s long-term safety trial (CLARITY-3) and first six-week safety and efficacy trial (CLARITY-1) are fully enrolled, and LENZ’s second six-week safety and efficacy trial (CLARITY-2) is 97% enrolled, any future difficulties LENZ experiences relating to enrollment in the CLARITY-2 trial or complications in the CLARITY-1 or CLARITY-3 trials could delay regulatory approval for LNZ100 or LNZ101.

Patient enrollment may be affected if LENZ’s competitors have ongoing clinical trials for product candidates that are under development for the same indications as its product candidates, and subjects who would otherwise be eligible for LENZ’s clinical trials instead enroll in clinical trials of its competitors’ product candidates. Patient enrollment for any of LENZ’s future clinical trials may be affected by other factors, including:

 

   

size and nature of the patient population, and process for identifying patients;

 

   

severity and difficulty of diagnosing the condition under investigation;

 

   

availability and efficacy of approved drugs and other competing therapeutic candidates for the condition under investigation;

 

   

the eligibility and exclusion criteria for the trial in question as defined in the protocol;

 

   

its ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

   

the design of the clinical trial;

 

   

perceived risks and benefits of the product candidate under study;

 

   

ECPs’ and participants’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications LENZ is investigating;

 

   

efforts to facilitate timely enrollment in clinical trials;

 

   

participant referral practices of ECPs;

 

   

the ability to monitor participants adequately during and after treatment;

 

   

proximity and availability of clinical trial sites for prospective trial subjects;

 

   

continued enrollment of prospective subjects by clinical trial sites; and

 

   

the risk that subjects enrolled in clinical trials will drop out of the trials before completion.

LENZ’s inability to enroll a sufficient number of subjects for its clinical trials would result in significant delays or may require it to abandon one or more clinical trials altogether. Enrollment delays in LENZ’s clinical trials may result in increased development costs for its product candidates and jeopardize its ability to obtain marketing approval for the sale of its product candidates. Furthermore, LENZ expects to rely on CROs and

 

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clinical trial sites to ensure the proper and timely conduct of its clinical trials and LENZ will have limited influence over their performance. Even if LENZ is able to enroll a sufficient number of subjects for its clinical trials, it may have difficulty maintaining enrollment of such subjects in its clinical trials.

Even if LNZ100, LNZ101 or any other product candidate receives marketing approval, they may fail to achieve market acceptance by ECPs and patients, and the market opportunity for these products, if approved, may be smaller than LENZ estimates.

If LNZ100, LNZ101 or any other product candidate that LENZ develops receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by ECPs, patients, and others in the medical community. Presbyopia is typically self-diagnosed and self-managed with over-the-counter reading glasses, or managed, after evaluation by an ECP, with prescription reading or bifocal glasses or multifocal contact lenses. Both LNZ100 and LNZ101, if approved, would require a prescription by an ECP, which would require a visit to ECP, which can be perceived to be more burdensome to an individual who has never previously visited an ECP and limit the number of prescriptions that are written. Some ECPs may also be deterred by the potential loss of revenue from the sale of contact lenses and glasses or feel uncomfortable prescribing a new product.

Currently, there is only one pharmacologic option for presbyopia marketed by AbbVie under the brand Vuity. Despite an initial strong commercial launch with over 120,000 prescriptions filled in 2022, the refill rate for Vuity has lagged due to a variety of reasons. Based on a survey of 40 ECPs in a study LENZ commissioned, the majority of ECPs reported that the barrier to Vuity adoption was that the product either did not work or did not work long enough. An additional survey of 18 optometrists indicated that 66% of their patients did not see duration past four hours despite one of the Vuity clinical trial results showing some effectiveness to the sixth hour. While the reported patient experience at three hours post-treatment aligns with the primary endpoint of Vuity efficacy at three hours in both Phase 3 trials, the limited functional benefit of Vuity at and beyond three hours was reportedly not sufficient to drive continued usage by patients. In fact, the ECPs and their patients identified both the low rate of effectiveness and the short duration of effectiveness as the key factors for discontinuing use. Because Vuity’s clinical success did not translate to commercial success, it is possible that prior users of Vuity may be reluctant to try another miotic as a result of their negative experiences with Vuity. Similarly, even if LENZ believes that the clinical data supporting LNZ100 and/or LNZ101 may offer advantages over Vuity, the products have not been evaluated head-to-head, and LNZ100 and LNZ101 may not, in fact, provide meaningful advantages resulting in greater adoption or acceptance by ECPs and patients, even if LNZ100 and/or LNZ101 obtain marketing authorization.

Additionally, Vuity is marketed by AbbVie, a much larger pharmaceutical company with established brand recognition. As a result, even if LNZ100 and/or LNZ101 demonstrate promising or superior clinical results, including the treatment of presbyopia, it is possible that ECPs may continue to rely on these treatments rather than LNZ100, LNZ101 or any other product candidate, if approved for marketing by the FDA. In addition, if generic versions of any products that compete with any of LENZ’s product candidates are approved for marketing by the FDA, they would likely be offered at a substantially lower price than LENZ expects to offer for its product candidates, if approved. As a result, ECPs, patients and others may choose to rely on such products rather than the product candidates of LENZ.

If LNZ100, LNZ101 or any other product candidate does not achieve an adequate level of acceptance, LENZ may not generate significant product revenues and it may not become profitable. The degree of market acceptance of LNZ100, LNZ101 or any other product candidate that LENZ develops, if approved for commercial sale, will depend on a number of factors, including:

 

   

the efficacy and potential advantages of its product candidates compared to alternative treatments, including the existing standard of care;

 

   

LENZ’s ability to offer products for sale at competitive prices, particularly in light of the lower cost of alternative treatments;

 

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the clinical indications for which the product is approved;

 

   

the convenience and ease of administration compared to alternative treatments;

 

   

the willingness of the target patient population to try new therapies and of ECPs to prescribe these therapies;

 

   

the strength of LENZ’s marketing and distribution support;

 

   

the timing of market introduction of competitive products;

 

   

the potential for LENZ’s competitors to limit its access to the market through anti-competitive contracts or other arrangements;

 

   

the prevalence and severity of any side effects; and

 

   

any restrictions on the use of LENZ products together with other medications.

LENZ’s assessment of the potential market opportunity for LNZ100, LNZ101 and other product candidates is based on industry and market data that it obtained from industry publications and research, surveys and studies conducted by third parties, some of which LENZ commissioned. Industry publications and third-party research, surveys and studies generally indicate that LENZ’s information has been obtained from sources believed to be reliable, although LENZ does not guarantee the accuracy or completeness of such information. LENZ’s estimates of the potential market opportunities for its product candidates include several key assumptions based on LENZ’s industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and fail to accurately reflect market opportunities. Further, LENZ has commissioned a number of market studies that are specific to LENZ and to its product candidates and used the results of these studies to help assess its market opportunity. If any of LENZ’s assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for LNZ100, LNZ101 or any of LENZ’s other product candidates may be smaller than it expects, and as a result its product revenue may be limited and it may be more difficult for it to achieve or maintain profitability.

Interim, initial, “top-line” and preliminary data from LENZ’s clinical trials that it announces or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, LENZ may publicly disclose interim, preliminary or top-line data from its preclinical studies and clinical trials. Interim data from clinical trials that LENZ may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from its clinical trials continue other treatments for their condition. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data LENZ previously published. As a result, interim, preliminary and top-line data should be viewed with caution until the final data are available. LENZ also makes assumptions, estimations, calculations and conclusions as part of its analyses of data, and it may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that LENZ reports may differ from future results of the same studies or trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated.

Further, others, including regulatory agencies, may not accept or agree with LENZ’s assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and could have a material adverse effect on the success of LENZ’s business. In addition, the information LENZ chooses to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what LENZ determines is material or otherwise appropriate information to include in its disclosure. If the interim, top-line or preliminary data that

 

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LENZ reports differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, LENZ’s ability to obtain approval for, and commercialize, its product candidates may be harmed, which could harm its business, results of operations, prospects or financial condition. Further, disclosure of interim, top-line or preliminary data by LENZ or by its competitors could result in volatility in the price of the combined company’s common stock after the merger and the Graphite private placement.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates progress through preclinical and clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize yield and manufacturing batch size, minimize costs and achieve consistent quality and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause LENZ’s product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of product candidates and jeopardize LENZ’s ability to commercialize its product candidates, if approved, and generate revenue.

LENZ faces significant competition, and if its competitors develop and market technologies or products more rapidly than LENZ does or that are more effective, safer or less expensive than the product candidates LENZ develops, its commercial opportunities will be negatively impacted. LENZ’s product candidates may, if approved, also face competition from existing branded, generic and off-label products.

The development and commercialization of new drug products is highly competitive. LENZ faces competition with respect to LNZ100 and LNZ101 and will face competition with respect to any other product candidates that it may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. As its product candidates are for the treatment of presbyopia, LENZ may face competition from a variety of companies developing or marketing other pharmaceutical presbyopia therapies, including AbbVie (formerly Allergan), Bausch & Lomb, Eyenovia, Glaukos, Johnson & Johnson, Orasis, OSRX Pharmaceuticals (an affiliate of Ocular Science), Viatris (through licensing of Ocuphire’s presbyopia products), Visus Therapeutics and Vyluma. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Presbyopia is typically self-diagnosed and self-managed with over-the-counter reading glasses, or managed, after evaluation by an ECP, with prescription reading or bifocal glasses or multifocal contact lenses. Both LNZ100 and LNZ101, if approved, would require a prescription by an ECP, which would require a visit to ECP, which can be perceived to be more burdensome to an individual who has never previously visited an ECP and limit the number of prescriptions that are written. Some ECPs may also be deterred by the potential loss of revenue from the sale of contact lenses and glasses or feel uncomfortable prescribing a new product.

LENZ’s product candidates may not demonstrate sufficient additional clinical benefits to ECPs, patients or payors to justify a higher price compared to using glasses, which are potentially just a one-time purchase.

LENZ’s commercial opportunity could be reduced or eliminated if its competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any of LENZ’s products that are approved. LENZ’s competitors also may obtain FDA or other regulatory approval for their products more rapidly than LENZ may obtain approval for its products, which could result in LENZ’s competitors establishing a strong market position before LENZ is able to enter the market.

Many of the companies against which LENZ is competing or against which it may compete in the future have substantially greater financial resources and expertise in research and development, manufacturing,

 

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preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than LENZ does. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of LENZ’s competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with LENZ in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, LENZ’s programs.

If LENZ is unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market its product candidates on acceptable terms, LENZ may be unable to successfully commercialize its product candidates that obtain regulatory approval.

LENZ plans to use the proceeds of the merger and the Graphite private placement, in part, to continue to build the sales and marketing infrastructure required to successfully commercialize its lead product candidate, subject to FDA approval. As of June 5, 2023, LENZ has substantially completed hiring of all senior leadership roles in the commercial team, including adding industry veterans with extensive experience in the pharmaceutical space. LENZ plans to launch with its own sales organization in the United States, which it envisions expanding to a substantially larger number individuals, focused on partnering with ECPs, while also deploying, in parallel, a highly targeted consumer strategy. In order to achieve these commercialization goals for any product candidates, if approved, LENZ must build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services for each of the territories in which LENZ may have approval to sell and market its product candidates. LENZ may not be successful in accomplishing these required tasks.

Establishing and building out an internal sales and marketing team with technical expertise and supporting distribution capabilities to commercialize its product candidates will be expensive and time-consuming and will require significant attention of LENZ’s executive officers to manage. Any failure or delay in the development of LENZ’s internal sales, marketing and distribution capabilities could adversely impact the commercialization of any of its product candidates that it obtains approval to market, if LENZ does not have arrangements in place with third parties to provide such services on its behalf. Alternatively, if LENZ chooses to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment its own sales force and distribution systems or in lieu of its own sales force and distribution systems, LENZ will be required to negotiate and enter into arrangements with such third parties relating to the proposed collaboration. If LENZ is unable to enter into such arrangements when needed, on acceptable terms, or at all, it may not be able to successfully commercialize any of its product candidates that receive regulatory approval, or any such commercialization may experience delays or limitations. If LENZ is unable to successfully commercialize its approved product candidates, either on its own or through collaborations with one or more third parties, its future product revenue will suffer, and LENZ may incur significant additional losses.

LENZ’s commercial strategy is focused on targeting and partnering with the estimated 15,000 ECPs that prescribed over 85% of the pharmaceutical presbyopia prescriptions in the United States in 2022. If LENZ is unable to obtain access to these ECPs or successfully demonstrate the clinical benefits of its products to adequate numbers of ECPs, if approved, its efforts to commercialize such products will be severely inhibited, which would have a material adverse effect on LENZ’s business.

Additionally, a direct-to-consumer (“DTC”) strategy can potentially be extremely costly. LENZ intends to deploy a targeted, cost-effective, digitally focused DTC strategy, but if it is unable to be sufficiently effective with a limited budget and are required to spend more than anticipated, LENZ may need to raise more capital, divert resources from other strategies or just fail to reach the intended market. As a result, a DTC strategy that is not sufficiently cost-effective can have a material adverse effect on LENZ’s business.

 

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If product liability lawsuits are brought against LENZ, it may incur substantial liabilities and may be required to limit commercialization of its products, if approved.

LENZ’s business exposes it to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments. Product liability claims could delay or prevent completion of LENZ’s development programs. If its product candidates are approved for marketing, such claims could still result in an FDA, EMA or other regulatory authority investigation of the safety and effectiveness of such products, LENZ’s manufacturing processes and facilities or its marketing programs. These investigations could potentially lead to a recall of its products or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in injury to LENZ’s reputation, withdrawal of clinical trial participants, costs to defend the related litigation, a diversion of management’s time and LENZ’s resources, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, the inability to commercialize its product candidates and decreased demand for its product candidates, if approved for commercial sale. LENZ currently has product liability insurance that it believes is appropriate for its stage of development and may need to obtain higher levels prior to marketing any of its product candidates, if approved. Any insurance LENZ has or may obtain may not provide sufficient coverage against potential liabilities and, if judgments exceed its insurance coverage, could adversely affect LENZ’s results of operations and business and cause the combined company’s stock price to decline. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, LENZ may be unable to maintain or obtain insurance coverage at a reasonable cost or in sufficient amounts to protect it against losses, including those caused by product liability claims.

A variety of risks associated with marketing LENZ’s product candidates internationally could materially adversely affect its business.

LENZ is developing regulatory strategies for its product candidates outside the United States and, accordingly, LENZ expects that it or its partners would seek regulatory approval of its product candidates outside of the United States. As such, LENZ expects that it will be subject to additional risks related to operating in foreign countries if LENZ or such partners obtain the necessary approvals, including:

 

   

differing regulatory requirements and drug pricing regimes in foreign countries;

 

   

potential issues due to aceclidine having been previously marketed and sold in Europe as a treatment for glaucoma, including, but not limited to potential competition from or for manufacturers and suppliers, and potential assumptions, concerns or biases resulting from the limited efficacy of the prior marketed products;

 

   

unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign taxes, including withholding of payroll taxes;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

   

difficulties staffing and managing foreign operations;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

potential liability under the U.S. Foreign Corrupt Practices Act (“FCPA”) or comparable foreign regulations;

 

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challenges enforcing LENZ’s contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geopolitical actions, including war and terrorism.

These and other risks associated with LENZ’s international operations or those of any applicable international partners may materially adversely affect its ability to attain or maintain profitable operations.

Risks Related to LENZ’s Intellectual Property

If LENZ is unable to obtain and maintain sufficient intellectual property protection for its technology and products and product candidates it may develop, or if the scope of the intellectual property protection obtained is not sufficiently broad, its competitors or other third parties could develop and commercialize products similar or identical to LENZ, and LENZ’s ability to successfully develop and, if approved, commercialize its product candidates may be adversely affected.

LENZ relies upon a combination of patents, trademarks, trade secret protection, and confidentiality agreements to protect the intellectual property related to its development programs and product candidates. Its success depends in part on its ability to obtain and maintain patent protection in the United States and other countries with respect to LNZ100, LNZ101 and any future product candidates. LENZ seeks to protect its proprietary position by filing patent applications in the United States and abroad related to its development programs, product candidates and novel discoveries that are important to its business. The patent prosecution process is expensive and time-consuming, and LENZ may not be able to file, prosecute, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner.

The patents and patent applications that LENZ owns may fail to result in issued patents with claims that protect LNZ100, LNZ101 or any future product candidate in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to its patents and patent applications has been found, which can prevent a patent from issuing from a pending patent application, or be used to invalidate a patent. Even if patents do successfully issue and even if such patents cover LNZ100, LNZ101 or any future product candidate, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to LENZ could deprive it of rights necessary for the successful commercialization of any product candidates that LENZ may develop. Further, the scope and coverage of such patents may be so narrow that a third party could successfully design around its patents without materially impacting the therapeutic effectiveness of the resulting drug product. Further, if LENZ encounters delays in regulatory approvals, the period of time during which it could market a product candidate under patent protection could be reduced.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that LENZ or any of its potential future collaborators will be successful in protecting its product candidates by obtaining and defending patents. These risks and uncertainties include the following:

 

   

the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

 

   

the USPTO requires LENZ to disclose all material references to the Patent Examiner during prosecution of its patent applications at the USPTO, and failure to do so could result in a third party successfully challenging LENZ’s ability to enforce a patent against an infringer;

 

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patent applications may not result in any patents being issued;

 

   

patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

 

   

LENZ’s competitors, many of whom have substantially greater resources than it does and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block LENZ’s ability to make, use and sell its product candidates;

 

   

there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for treatments of diseases or conditions that prove successful, as a matter of public policy regarding worldwide health concerns; and

 

   

countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing products.

The patent prosecution process is also expensive and time consuming, and LENZ may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications or maintain and/or enforce patents that may issue based on its patent applications, at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. LENZ may not be able to obtain or maintain patent applications and patents due to the subject matter claimed in such patent applications and patents being in disclosures in the public domain. It is also possible that LENZ will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection. Moreover, if it chooses to license certain patent rights in the future from third parties, LENZ may not have the right to control the preparation, filing and prosecution of such patent applications, or to maintain the patents, directed to technology that it licenses from those third parties. LENZ may also require the cooperation of its future licensor, if any, in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore, any licensed patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of its business. LENZ cannot be certain that patent prosecution and maintenance activities by any of its future licensors have been or will be conducted in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause LENZ to lose rights in any applicable intellectual property that it in-licenses, and as a result its ability to develop and commercialize products or product candidates may be adversely affected and LENZ may be unable to prevent competitors from making, using and selling competing products.

If the patent applications LENZ holds or may in-license in the future with respect to its development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for LNZ100, LNZ101 or any future product candidate, it could dissuade other companies from collaborating with LENZ to develop product candidates, and threaten its ability to commercialize LNZ100, LNZ101 or future product candidates. Any such outcome could have a materially adverse effect on LENZ’s business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been and will continue to be the subject of litigation and new legislation, resulting in court decisions, including Supreme Court decisions, which have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect LENZ’s rights to the same extent as the laws of the United States. For example, many countries restrict the patentability of methods of treatment of the human body. Publications in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, LENZ cannot know with certainty whether it was the first to make the inventions claimed in its own patents or pending patent applications, or that it was the

 

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first to file for patent protection of such inventions. As a result of these and other factors, the issuance, scope, validity, enforceability, and commercial value of its patent rights are highly uncertain. LENZ’s pending and future patent applications may not result in patents being issued which protect its technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of LENZ’s patents or narrow the scope of its patent protection. For example, the America Invents Act created new administrative post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings that allow third parties to challenge the validity of issued patents. This applies to all of LENZ’s U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. In addition to increasing uncertainty with regard to LENZ’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken LENZ’s ability to obtain new patents or to enforce its existing patents and patents that it might obtain in the future.

Moreover, LENZ may be subject to a third-party pre-issuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging its patent rights or the patent rights of others. The costs of defending patents or enforcing proprietary rights in post-issuance administrative proceedings and litigation can be substantial and the outcome can be uncertain. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, LENZ’s patent rights, allow third parties to commercialize its technology or products and compete directly with LENZ, without payment to its, or result in LENZ’s inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by its patents and patent applications is threatened, it could dissuade companies from collaborating with LENZ to license, develop or commercialize current or future product candidates.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and LENZ’s owned and licensed patents and patent applications may be challenged in the courts or patent offices in the United States and abroad. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. An adverse decision in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit LENZ’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of its technology and products. Generally, issued patents are granted a term of 20 years from the earliest claimed non-provisional filing date. In certain instances, patent term can be adjusted to recapture a portion of delay incurred by the USPTO in examining the patent application (patent term adjustment). The scope of patent protection may also be limited.

Without patent protection for its current or future product candidates, LENZ may be open to competition from generic versions of such products. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, its patent portfolio may not provide it with sufficient rights to exclude others from commercializing products similar or identical to those of LENZ.

 

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Patent terms may be inadequate to protect LENZ’s competitive position on its product candidates for an adequate amount of time.

Patent rights are of limited duration. In the United States, if all maintenance fees are paid timely, the natural expiration of a patent is generally 20 years after its first effective filing date. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such product candidates are commercialized. Even if patents covering its product candidates are obtained, once the patent life has expired for a product, LENZ may be open to competition from biosimilar or generic products. As a result, LENZ’s patent portfolio may not provide it with sufficient rights to exclude others from commercializing product candidates similar or identical to those of LENZ. Upon issuance in the United States, the term of a patent can be increased by patent term adjustment, which is based on certain delays caused by the USPTO, but this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. The term of a U.S. patent may also be shortened if the patent is terminally disclaimed over an earlier-filed patent.

Depending upon the timing, duration and specifics of FDA marketing approval of LNZ100, LNZ101 and future product candidates, one or more of LENZ’s U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years beyond the normal expiration of the patent as compensation for patent term lost during drug development and the FDA regulatory review process, which is limited to the approved indication (or any additional indications approved during the period of extension). This extension is based on the first approved use of a product and is limited to only one patent that covers the approved product, the approved use of the product, or a method of manufacturing the product. Such patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with LENZ’s assessment of whether such extensions are available, and may refuse to grant extensions to its patents, or may grant more limited extensions than LENZ requests. LENZ may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time-period or the scope of patent protection afforded could be less than it requests. If LENZ is unable to extend the expiration date of its existing patents or obtain new patents with longer expiry dates, its competitors may be able to take advantage of its investment in development and clinical trials by referencing its clinical and preclinical data to obtain approval of competing products following LENZ’s patent expiration and launch their product earlier than might otherwise be the case.

Laws governing analogous patent term extension (“PTE”) in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, LENZ may not receive an extension if it fails to exercise due diligence during the testing phase or regulatory review process, apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. If LENZ is unable to obtain PTE or restoration, or the term of any such extension is less than it requests, the period during which LENZ will have the right to exclusively market its product will be shortened and its competitors may obtain approval of competing products following LENZ’s patent expiration and may take advantage of its investment in development and clinical trials by referencing its clinical and preclinical data to launch their product earlier than might otherwise be the case, and LENZ’s revenue could be reduced, possibly materially.

Obtaining and maintaining LENZ’s patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and its patent protection could be reduced or eliminated for noncompliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or patent applications will be due to be paid to the USPTO and other foreign patent agencies in several stages over

 

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the lifetime of LENZ’s patents and patent applications. The USPTO and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on LENZ’s international patent application, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If LENZ or any of its licensors fail to maintain the patents and patent applications covering LNZ100, LNZ101 or any future product candidate, its competitors may be able to enter the market, which would have an adverse effect on LENZ’s business.

LENZ may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect its ability to develop and market its products.

As the biopharmaceutical industry expands and more patents are issued, the risk increases that LENZ’s product candidates may be subject to claims of infringement of the patent rights of third parties. There can be no assurance that LENZ’s operations do not, or will not in the future, infringe, misappropriate or otherwise violate existing or future third-party patents or other intellectual property rights. Identification of third-party patent rights that may be relevant to its operations is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. LENZ cannot guarantee that any of its patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can LENZ be certain that it has identified each and every third-party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of its current and future product candidates in any jurisdiction.

Numerous U.S. and foreign patents and pending patent applications exist in LENZ’s market that are owned by third parties. LENZ’s competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with LENZ’s ability to make, use and sell its product candidates. LENZ does not always conduct independent reviews of pending patent applications and patents issued to third parties. Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will not be filed outside the United States can remain confidential until patents issue. In addition, patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived. Furthermore, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover LENZ’s product candidates or the use of its product candidates. As such, there may be applications of others now pending or recently revived patents of which LENZ is unaware. These patent applications may later result in issued patents, or the revival of previously abandoned patents, that may be infringed by the manufacture, use or sale of LENZ’s product candidates or will prevent, limit or otherwise interfere with its ability to make, use or sell its product candidates.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. LENZ’s interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact its ability to market its products. For example, LENZ may incorrectly determine that its product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. LENZ’s determination of the expiration date of any patent in the United States or abroad that it considers relevant may be

 

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incorrect, and its failure to identify and correctly interpret relevant patents may negatively impact LENZ’s ability to develop and market its products.

LENZ may become involved in third-party claims of intellectual property infringement, which may delay or prevent the development and commercialization of LNZ100, LNZ101 and any future product candidate.

LENZ’s commercial success depends in part on it avoiding infringement and other violations of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation, and administrative law proceedings, inter partes review, and post-grant review before the USPTO, as well as oppositions and similar processes in foreign jurisdictions. LENZ may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights and who allege that its product candidates, uses and/or other proprietary technologies infringe their intellectual property rights. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which LENZ and its collaborators are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as LENZ gains greater visibility and market exposure as a public company, the risk increases that its product candidates or other business activities may be subject to claims of infringement of the patent and other proprietary rights of third parties. Third parties may assert that LENZ is infringing their patents or employing their proprietary technology without authorization.

Also, there may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of LENZ’s current and future product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that LENZ’s current or future product candidates may infringe.

In addition, third parties may obtain patent rights in the future and claim that use of LENZ’s technologies infringes upon their rights. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of its product candidates, any molecules formed during the manufacturing process, methods of treating certain diseases or conditions that LENZ is pursuing with its product candidates, LENZ’s formulations including combination therapies, or any final product itself, the holders of any such patents may be able to block LENZ’s ability to commercialize such product candidate unless it obtained a license under the applicable patents, or until such patents expire. Such a license may not be available on commercially reasonable terms or at all. In addition, LENZ may be subject to claims that it is infringing other intellectual property rights, such as trademarks or copyrights, or misappropriating the trade secrets of others, and to the extent that its employees, consultants or contractors use intellectual property or proprietary information owned by others in their work for LENZ, disputes may arise as to the rights in related or resulting know-how and inventions.

Parties making claims against LENZ may obtain injunctive or other equitable relief, which could effectively block its ability to further develop and commercialize one or more of its current and future product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from its business. In the event of a successful infringement or other intellectual property claim against LENZ, it may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign its affected products, which may be impossible or require substantial time and monetary expenditure. LENZ cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, LENZ may need to obtain licenses from third parties to advance its research or allow commercialization of its product candidates, and LENZ has done so from time to time. LENZ may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, LENZ would be unable to further develop and commercialize one or more of its product candidates, which could harm its business significantly. LENZ cannot provide any assurances

 

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that third-party patents do not exist which might be enforced against its product candidates, resulting in either an injunction prohibiting its sales, or, with respect to its sales, an obligation on LENZ’s part to pay royalties or other forms of compensation to third parties.

During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of LENZ’s existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of its common stock may decline. Such announcements could also harm LENZ’s reputation or the market for its future products, which could have a material adverse effect on its business.

LENZ may become involved in lawsuits to protect or enforce its patents or other intellectual property rights, or the patents or other intellectual property rights of any licensors, which could be expensive, time consuming, and unsuccessful.

Competitors may infringe or otherwise violate LENZ’s patents, the patents of its licensors or its other intellectual property rights. To counter infringement or unauthorized use or misappropriations, LENZ or any future licensors may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may de