Entrada Therapeutics Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Nature of the Business

Organization

Entrada Therapeutics, Inc. ("Entrada" or the "Company") is a clinical-stage biopharmaceutical company aiming to transform the lives of patients by establishing a new class of medicines which engage intracellular targets that have long been considered inaccessible. The Company’s Endosomal Escape Vehicle ("EEV™")-therapeutics are designed to enable the efficient delivery of a wide range of therapeutics into a variety of organs and tissues, resulting in an improved therapeutic index. The Company was incorporated in Delaware on September 22, 2016 and its principal offices are located in Boston, Massachusetts.

Liquidity and Capital Resources

Since its inception, the Company has devoted substantially all of its resources to its research and development efforts relating to its proprietary, highly versatile and modular EEV platform ("EEV Platform"), advancing development of its portfolio of programs and general and administrative support for these operations, including raising capital. The Company is subject to risks and uncertainties common to earlier stage companies in the biotechnology industry, including, but not limited to, technical risks associated with the successful research, development and manufacturing of therapeutic candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations. Therapeutic candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. Since its inception, the Company has incurred significant net losses. As of September 30, 2024, the Company had an accumulated deficit of $130.5 million. To date, the Company has funded its operations primarily through the sale of equity securities and collaboration payments. Other than the recognition of revenue related to collaboration payments, the Company expects to continue to generate operating losses and negative operating cash flows for the foreseeable future.

The Company expects that its cash, cash equivalents and marketable securities of $449.3 million as of September 30, 2024 will be sufficient to fund its operations and capital expenditure requirements for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. The Company will need additional financing to support its continuing operations and pursue its business strategy and may pursue additional cash resources through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing, or other arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed or on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on the Company’s financial condition and its ability to pursue its business strategy. The Company will need to generate significant revenue to achieve profitability, and it may never do so.

In June 2024, the Company entered into a securities purchase agreement with a limited number of investors relating to a registered direct offering (the “June 2024 Offering”) of 3,367,003 shares of the Company’s common stock at a purchase price of $14.85 per share and, in lieu of common stock to certain investors who so chose, pre-funded warrants (the “Pre-Funded Warrants”) to purchase 3,367,003 shares of Common Stock at a purchase price of $14.8499 per Pre-Funded Warrant, which represents the price per share at which the shares of common stock were sold to the investors in the June 2024 Offering, minus $0.0001, which is the exercise price of each Pre-Funded Warrant. The June 2024 Offering was made pursuant to the shelf registration statement on Form S-3 (File No. 333-268099) previously filed by the Company with the Securities and Exchange Commission (the “SEC”) on November 1, 2022 and declared effective by the SEC on November 7, 2022. The aggregate net proceeds from the sale of common stock and Pre-Funded Warrants in the June 2024 Offering were approximately $99.6 million, after deducting offering expenses payable by the Company. The Company will receive nominal proceeds, if any, from the exercise of the Pre-Funded Warrants.

2. Summary of Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024 are consistent with those discussed in Note 2 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the Securities and Exchange Commission (the "SEC") on March 13, 2024 (the "Annual Report"), except as described below.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the ASC and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). The condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted, as is permitted by GAAP. These condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position as of September 30, 2024, and results of operations for the interim periods ended September 30, 2024 and 2023.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the years ended December 31, 2023 and 2022, and the notes thereto, included in the Annual Report.

Common Stock Warrants

The Company’s common stock warrants are evaluated pursuant to ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies its freestanding warrants as (i) liabilities, if the warrant terms allow settlement of the warrant exercise in cash, or (ii) equity, if the warrant terms only allow settlement in shares of common stock. Please refer to Note 8 below for the application to the Company’s pre-funded warrants.

Recently Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

3. Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. At September 30, 2024 and December 31, 2023, cash and cash equivalents include standard checking accounts and money market account funds that invest primarily in U.S. government-backed securities and treasuries.

As of September 30, 2024 and December 31, 2023, restricted cash represents collateral provided for a letter of credit issued as a security deposit in connection with the Company’s lease of its corporate facilities located at One Design Center Place, Boston, Massachusetts. A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the statement of cash flows is as follows (in thousands):

4. Marketable Securities

The following are summaries of the Company's marketable securities at September 30, 2024 and December 31, 2023 (in thousands).

As of September 30, 2024, the Company had 2 marketable securities with a total fair market value of $8.8 million in an unrealized loss position. All of the Company’s investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss). The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classifies all securities as available for sale.

The Company believes that any unrealized losses associated with the decline in value of its securities are temporary and believes that it is more likely than not that it will be able to hold its debt securities to maturity and that there was no material change in the credit risk of the above instruments since January 1, 2024. Therefore, the Company anticipates a full recovery of the amortized cost basis of its debt securities at maturity andno allowance for credit losses was recognized.

As of September 30, 2024 and December 31, 2023,$1.2 million and$1.7 million, respectively, of accrued interest receivable was included inprepaid expenses and other current assets.

5. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):

(1)The cash equivalent amounts above do not include $0.5 million of cash related to checking accounts included in cash and cash equivalents as of September 30, 2024 and December 31, 2023. These amounts are excluded as no valuation is needed for cash in checking accounts.

Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. The Company measures its debt securities at fair value on a recurring basis using inputs that are observable or can be corroborated by observable market data and classifies those instruments within Level 2 of the fair value hierarchy.

6. Property and Equipment, Net

Property and equipment, net consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

Depreciation expense for the three months ended September 30, 2024 and 2023 was $0.9 million and $0.8 million, respectively. Depreciation expense for the nine months ended September 30, 2024 and 2023 was $2.8 million and $2.1 million, respectively.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):

8. Common Stock and Preferred Stock

Common Stock

As of September 30, 2024 and December 31, 2023, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 150,000,000 shares of common stock, par value $0.0001 per share.

In February 2023, in connection with the closing of the Vertex Agreement (as defined in Note 12, Collaboration and License Agreements), the Company and Vertex also closed their Stock Purchase Agreement (the "Stock Purchase Agreement") for the sale and issuance of 1,618,613 shares of Entrada's common stock (the “Shares”) to Vertex for an aggregate purchase price of approximately $26.3 million or $16.26 per share. See Note 12, Collaboration and License Agreements, for further discussion of the Company's accounting for the Shares sold in connection with the closing of the Vertex Agreement.

In September 2023, the Company entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC, acting as the Company's agent and/or principal (the "Sales Agent"), with respect to an "at the market offering" program under which the Company may, from time to time, at its sole discretion, issue and sell shares of its common stock having an aggregate offering price of up to $150.0 million through the Sales Agent. During the nine months ended September 30, 2024, there have beenno sales of common stock pursuant to the Sales Agreement.

In June 2024, the Company entered into a securities purchase agreement with a limited number of investors relating to a registered direct offering (the “June 2024 Offering”) of 3,367,003 shares of the Company’s common stock at a purchase price of $14.85 per share and, in lieu of common stock to certain investors who so chose, pre-funded warrants (the “Pre-Funded Warrants”) to purchase 3,367,003 shares of Common Stock at a purchase price of $14.8499 per Pre-Funded Warrant, which represents the price per share at which the shares of common stock were sold to the investors in the June 2024 Offering, minus $0.0001, which is the exercise price of each Pre-Funded Warrant. The June 2024 Offering was made pursuant to the shelf registration statement on Form S-3 (File No. 333-268099) previously filed by the Company with the Securities and Exchange Commission (the “SEC”) on November 1, 2022 and declared effective by the SEC on November 7, 2022. The aggregate net proceeds from the sale of common stock and Pre-Funded Warrants in the June 2024 Offering were approximately $99.6 million, after deducting offering expenses payable by the Company. The Company will receive nominal proceeds, if any, from the exercise of the Pre-Funded Warrants.

The Pre-Funded Warrants were evaluated pursuant to ASC 480 and ASC 815. The Company classified the Pre-Funded Warrants as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date at fair value. The Pre-Funded Warrants are equity classified because they are freestanding financial instruments that are legally detachable and separately exercisable, are immediately exercisable, do not embody an obligation for the Company to repurchase its common shares, permit the holders to receive a fixed number of common shares upon exercise, are indexed to the Company’s common stock and meet the equity classification criteria. The Company valued the Pre-Funded Warrants at issuance, concluding their sales price approximated their fair value.

Shares Reserved for Future Issuance

The Company has reserved the following shares of common stock for future issuance as of:

Preferred Stock

As of September 30, 2024 and December 31, 2023, the Company was authorized to issue 10,000,000 shares of undesignated preferred stock, par value$0.0001 per share, in one or more series and to fix the rights, preferences, privileges and restrictions thereof. As of September 30, 2024 and December 31, 2023, there wereno shares of undesignated preferred stock issued or outstanding.

9. Stock-Based Compensation

2021 Plan

The total remaining shares of common stock authorized for issuance under the 2021 Stock Option and Incentive Plan (the "2021 Plan") increased from 6,336,068 as of December 31, 2023 to 7,339,182 as of September 30, 2024 primarily due to the automatic annual increase provision of the 2021 Plan.

2016 Plan

The total remaining shares of common stock authorized for issuance under the 2016 Stock Incentive Plan as of September 30, 2024 and December 31, 2023 were 1,813,811 shares and 2,044,585 shares, respectively.

2021 Employee Stock Purchase Plan

The total remaining shares of common stock authorized for issuance under the 2021 Employee Stock Purchase Plan (the "2021 ESPP") increased from 839,539 as of December 31, 2023 to 1,153,675 as of September 30, 2024 due to the automatic annual increase provision of the 2021 ESPP.

Stock-Based Compensation

Stock-based compensation expense recorded in the condensed consolidated statements of operations and comprehensive loss is as follows (in thousands):

Stock Option Valuation

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted during the nine months ended September 30, 2024 and 2023:

Early Exercise of Unvested Stock Options

Shares purchased by employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding shares until those shares vest according to their respective vesting schedules. Cash received from employee exercises of unvested options is included in current liabilities on the balance sheet. Amounts recorded are reclassified to common stock and additional paid-in capital as the shares vest. Vesting can occur in the year of exercise and thereafter. There were 4,670 and 14,745 unvested shares related to early exercises of stock options as of September 30, 2024 and December 31, 2023, respectively. As of both September 30, 2024 and December 31, 2023, the liability associated with the unvested early exercise of stock options was less than $0.1 million.

Stock Options

The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2024:

(1)This represents the number of vested and unvested options exercisable as of September 30, 2024.

The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2024 and 2023 was $9.66 per share and $9.19 per share, respectively. As of September 30, 2024, there was $17.2 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.03 years.

Restricted Stock Units

During the nine months ended September 30, 2024, restricted stock units ("RSUs") were granted to employees with vesting conditions based on continued service over time. Accordingly, stock-based compensation expense for such awards is recognized using a straight-line attribution model over the vesting term of each RSU. The fair value of each RSU is based on the closing price of the Company's common stock on the date of grant.

A summary of restricted stock activity during the nine months ended September 30, 2024 is as follows:

As of September 30, 2024, there was $24.9 million of unrecognized stock-based compensation expense related to restricted stock that is expected to vest. These costs are expected to be recognized over a weighted-average remaining vesting period of 2.96 years.

Performance Stock Units

During the nine months ended September 30, 2024, the Company granted 438,500 performance stock units ("PSUs") to employees of the Company at a weighted-average grant date fair value of $14.86 per share. All 438,500 PSUs were outstanding as of September 30, 2024. The PSUs will vest upon achievement of certain clinical milestones and continued employment thereafter. Compensation expense for PSUs is recognized on a straight-line basis over the requisite service periods when the achievement of the performance condition is deemed probable. If a performance condition is not determined to be probable or is not met, no stock-based compensation expense is recognized. Forfeitures are recognized as a reduction of stock-based compensation expense in the period in which they occur.

As of September 30, 2024, no PSUs were vested andno stock-based compensation expense was recognized as the performance conditions were not deemed probable.

10. Income Taxes

In accordance with ASC 740 interim reporting guidance, the Company records income tax expense in any interim period based on the estimated effective tax rate for the fiscal year for those tax jurisdictions in which the Company can reliably estimate the effective tax rate. The calculation of the estimated effective tax rate requires an estimate of pre-tax income by tax jurisdiction as well as total tax expense for the fiscal year. Accordingly, the annual estimated effective tax rate is subject to adjustment if there are changes to the initial estimates of total tax expense or pre-tax income.

The Company recorded an income tax benefit of$1.9 million for the three months ended September 30, 2024 and$17.4 million for thethree months ended September 30, 2023. The Company recorded income tax expense of$2.7 million for the nine months ended September 30, 2024 and $0.0 million for the nine months ended September 30, 2023. For all periods, the income tax benefit or expense recorded was driven largely by the application of ASC 740 interim reporting guidance to the projected current tax liabilities for tax years 2024 and 2023 associated with the tax recognition of payments received pursuant to the Vertex Agreement.

Despite the collaboration revenue, the Company continues to maintain a valuation allowance against all remaining deferred tax assets. The Company believes that it is more likely than not that it will not realize a future tax benefit of these attributes as the Company expects to continue to generate operating losses. Ultimate realization of any deferred tax asset is dependent on the Company’s ability to generate sufficient future taxable income in the appropriate tax jurisdiction before the expiration of carryforward periods, if any.

The Company recognizes interest and penalties owed to taxing authorities as part of the provision for income taxes. The Company currently anticipates that there will be no change in its unrecognized tax benefits in the next twelve months. As of September 30, 2024, the Company had no unrecognized tax benefits.

The Company is currently conducting a study of its research and development credit carryforwards. The study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amount is being presented as an uncertain tax position.

11. Commitments and Contingencies

The Company's commitments, including significant license agreements, are disclosed in Note 10 Commitments and Contingencies in the audited financial statements for the year ended December 31, 2023, and notes thereto, included in the Annual Report. Since the date of those financial statements, there have been no material changes to its commitments.

12. Collaboration and License Agreements

Vertex Agreement - Overview

The Company and Vertex closed their Strategic Collaboration and License Agreement in February 2023, as amended in October 2023 (the "Vertex Agreement"), pursuant to which the Company granted Vertex an exclusive worldwide license to research, develop, manufacture and commercialize VX-670, the Company’s intracellular EEV-based therapeutic candidate for the treatment of myotonic dystrophy type 1 ("DM1"), as well as any additional EEV-based therapeutic candidates that may be identified by the Company for the potential treatment of DM1 in the course of the parties’ global research collaboration. In October 2023, the Company and Vertex amended the Vertex Agreement to clarify a milestone and related payment terms.

The Vertex Agreement provides for afour-year global research collaboration under which Entrada will continue to perform preclinical development of the Company's partnered candidate VX-670 pursuant to the mutually agreed-upon research plan (the "Research Plan"). The Research Plan is overseen by a Joint Research Committee ("JRC") as detailed in the Vertex Agreement. Pursuant to the terms of the Vertex Agreement, the JRC may amend the Research Plan to include additional DM1-related research activities with a goal of identifying other EEV-based therapeutic product candidates for the potential treatment of DM1. Vertex is obligated to reimburse the Company’s research expenses incurred in performing activities under the Research Plan.

Pursuant to the Vertex Agreement, the Company received an upfront payment of $223.7 million, and Vertex made an equity investment of $26.3 million by purchasing 1,618,613 shares of the Company's common stock, pursuant to the Stock Purchase Agreement. Under the terms of the Vertex Agreement, the Company is eligible to receive up to $485.0 million upon the achievement of certain research, development, regulatory and commercial milestones. The Company will also receive tiered royalties, from the mid to high single digits based on potential future net sales of licensed products as set forth in the Vertex Agreement.

In the fourth quarter of 2023, the Company achieved a milestone pursuant to the Vertex Agreement related to preclinical IND-enabling Good Laboratory Practices ("GLP") toxicology studies of VX-670 that triggered a $17.5 million milestone payment, which the Company received in the fourth quarter of 2023. In the first quarter of 2024, the Company achieved a milestone related to the clinical advancement of VX-670, which triggered a $75.0 million payment. The Company received this payment in the second quarter of 2024.

The term of the Vertex Agreement will expire in its entirety upon expiration of the royalty term as set forth in the Vertex Agreement. Vertex may terminate the Vertex Agreement for convenience by providing adequate written notice to the Company. The Company may terminate the Vertex Agreement under certain specified circumstances, including in the event Vertex or any of its affiliates or sublicensees challenges directly or indirectly in a legal or administrative proceeding the patentability, enforceability, or validity of any licensed patent as set forth in the Vertex Agreement. Either party may terminate the Vertex Agreement for an uncured material breach by the other party or upon the bankruptcy or insolvency of the other party. Neither party may assign the agreement without the prior written consent of the other party, except that a party may assign its rights and obligations to an affiliate or third party that acquires all or substantially all of the business or assets to which the Vertex Agreement relates and agrees in writing to be bound by the terms of the Vertex Agreement.

Vertex Agreement - Accounting Analysis

The Company determined that the Vertex Agreement should be accounted for in accordance with ASC 606 as Vertex was deemed to be a customer. The Company assessed the promised goods and services under the Vertex Agreement in accordance with ASC 606. At inception, the Vertex Agreement included one performance obligation which was the combination of the exclusive license and the performance of the research activities for VX-670 ("Performance Obligation

One"). The Company concluded that the license is not distinct from the research and development services for VX-670 during the research collaboration as Vertex cannot fully exploit the value of the license without receipt of such services. The Company also determined that Vertex's ability to engage Entrada to perform work on additional EEV-based therapeutic candidates for the potential treatment of DM1 through the JRC represented customer options. The Company concluded that these customer options do not represent a material right as these services will be reimbursed by Vertex at a price that represents standalone selling price for such services.

In the second quarter of 2023, pursuant to the terms of the Vertex Agreement, Vertex amended the Research Plan (the "Amended Research Plan") to engage the Company to perform work on additional EEV-based therapeutic candidates for the potential treatment of DM1 ("Performance Obligation Two"). Such work is treated as a separate contract for accounting purposes and represents a separate performance obligation as the activities are distinct from the research activities for VX-670.

Determination of Transaction Price

At the commencement of the arrangement, the Vertex Agreement had a fixed transaction price of $232.0 million, primarily consisting of the $223.7 million upfront fee plus a premium of $6.9 million related to the 1,618,613 shares sold to Vertex under the Stock Purchase Agreement when measured at fair value on the date of issuance. The shares issued to Vertex pursuant to the Stock Purchase Agreement were unregistered and therefore considered restricted securities at the time of issuance. As a result, the fair value of the shares issued to Vertex of $19.4 million was calculated using the closing price of the Company's unrestricted shares of common stock on February 8, 2023, adjusted to reflect a discount for lack of marketability ("DLOM") due to the shares issued being unregistered and therefore subject to related sale restrictions.

The Company is also entitled to reimbursement of costs incurred associated with the delivery of services under the Research Plan. The Company utilized the most likely amount approach to estimate the expected cost reimbursement. The Company concluded that these amounts do not require a constraint and are included in the transaction price at inception. The Company considers this estimate at each reporting date and updates the estimate based on information available.

In the fourth quarter of 2023, the Company achieved a milestone related to preclinical IND-enabling GLP toxicology studies of VX-670, which triggered a$17.5 million payment. In the first quarter of 2024, the Company achieved a milestone related to the clinical advancement of VX-670, which triggered a$75.0 million payment. The Company received this payment in the second quarter of 2024. No additional milestones were deemed probable of being achieved as of September 30, 2024 and, therefore, all remaining milestone payments were fully constrained and excluded from the transaction price as of September 30, 2024. The Company re-evaluates the probability of achievement of development milestones and any related constraint at each period end, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue in the period of adjustment.

Allocation and Recognition

As of September 30, 2024, the transaction price for the combination of the exclusive license and the performance of the research activities for VX-670 primarily consists of (i) the upfront payment, (ii) the equity premium paid by Vertex (iii) the milestone achieved in the fourth quarter of 2023, (iv) the milestone achieved in the first quarter of 2024 and (v) reimbursement of costs incurred in connection with the delivery of services under the Amended Research Plan associated with VX-670. The transaction price for the work on additional EEV-based therapeutic candidates consists of the reimbursement of costs incurred in connection with the delivery of services under the Amended Research Plan associated with such work.

The Company recognizes revenue associated with both performance obligations as the related research and development services are provided using an input method, according to the costs incurred as related to the respective research services and the costs expected to be incurred in the future to satisfy the performance obligations in accordance with the Amended Research Plan. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligations. The estimated costs associated with the remaining effort required to complete the performance obligations in accordance with the research plans may change, which may materially impact revenue recognition. The Company regularly evaluates and, when necessary, updates the costs associated with the remaining effort pursuant to the performance obligations under the Vertex Agreement and records any necessary adjustment to revenue for the change in estimate.

The amounts received that have not yet been recognized as revenue are deferred on the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied. The performance obligations have not been fully satisfied as of September 30, 2024.

During the three months ended September 30, 2024, the Company recognized $19.6 million in revenue under the Vertex Agreement, including $2.6 million of cost reimbursements and $17.0 million from amounts that were recorded in deferred revenue as of June 30, 2024. During the nine months ended September 30, 2024, the Company recognized $172.4 million in revenue under the Vertex Agreement, including $12.2 million of cost reimbursements, $17.4 million related to a cumulative catch-up adjustment for the milestone achieved in the first quarter of 2024, and $142.8 million from amounts that were recorded in deferred revenue as of December 31, 2023.

During the three months ended September 30, 2023, the Company recognized $43.7 million of revenue under the Vertex Agreement, including $3.9 million of cost reimbursements and $39.8 million from amounts recorded in deferred revenue as of June 30, 2023. During the nine months ended September 30, 2023, the Company recognized $87.2 million of revenue under the Vertex Agreement, including $12.3 million of cost reimbursements and $74.9 million of amounts that were recorded in deferred revenue at the inception of the agreement.

The aggregate amount of the transaction price allocated to the Company’s unsatisfied performance obligations recorded in deferred revenue at September 30, 2024 is $53.9 million. The Company will recognize the deferred revenue related to the research and development services based on a cost input method, over the remaining term of the Amended Research Plan.

13. Net Income (Loss) per Share

The computation of basic net income (loss) per share is based on the weighted-average number of the Company's common shares outstanding. The weighted-average common shares outstanding used in the basic and diluted net loss per share calculation includes the Pre-Funded Warrants issued in connection with the Company’s registered direct offering in June 2024 as the Pre-Funded Warrants are exercisable for nominal cash consideration.

The computation of diluted net income (loss) per share is based on the weighted-average number of the Company's common shares outstanding and potential dilutive common shares outstanding during the period as determined by using the treasury stock method.

The following table illustrates the determination of basic and diluted net income (loss) per share for each period presented (in thousands, except share and per share date):

The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

14. Subsequent Events

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the condensed consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. The Company has concluded that no subsequent events have occurred that require disclosure.