Acumen Pharmaceuticals, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. ACUMEN PHARMACEUTICALS, INC. INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 115 Balance Sheets as of December 31, 2021 and 2020 116 Statements of Operations and Comprehensive Loss for the years ended December 31, 2021 and 2020 117 Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020 118 Statements of Cash Flows for the years ended December 31, 2021 and 2020 119 Notes to Financial Statements 120 114 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Acumen Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Acumen Pharmaceuticals, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations, changes in convertible preferred stock and stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditors since 2021. Tysons, Virginia March 28, 2022 115 Table of Contents ACUMEN PHARMACEUTICALS, INC. BALANCE SHEETS (in thousands, except share and per share data) December 31, 2021 2020 ASSETS Current assets Cash and cash equivalents $ 122,162 $ 43,777 Marketable securities, short-term 72,075 — Grant receivable — 109 Prepaid expenses and other current assets 4,424 543 Total current assets 198,661 44,429 Marketable securities, long-term 31,619 — Property and equipment, net 36 — Other assets 14 — Total assets $ 230,330 $ 44,429 LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable $ 1,088 $ 531 Accrued expenses and other current liabilities 4,059 423 Preferred stock tranche rights liability — 5,033 Preferred stock warrant liability — 380 Total liabilities 5,147 6,367 Series A convertible preferred stock, $ 0.0001 par value; no shares authorized, issued and outstanding as of December 31, 2021; 711,203 shares authorized and 477,297 shares issued and outstanding as of December 31, 2020; liquidation preference of $ 1,067 as of December 31, 2020 — 1,067 Series A-1 convertible preferred stock, $ 0.0001 par value; no shares authorized, issued and outstanding as of December 31, 2021; 11,898,177 shares authorized and 7,537,879 shares issued and outstanding as of December 31, 2020; liquidation preference of $ 16,847 as of December 31, 2020 — 16,333 Series B convertible preferred stock, $ 0.0001 par value; no shares authorized, issued and outstanding as of December 31, 2021; 29,457,450 shares authorized and 11,862,043 shares issued and outstanding as of December 31, 2020; liquidation preference of $ 45,070 as of December 31, 2020 — 39,253 Stockholders’ equity (deficit) Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized and no shares issued and outstanding as of December 31, 2021; no shares authorized, issued and outstanding as of December 31, 2020 — — Common stock, $ 0.0001 par value; 300,000,000 shares authorized and 40,473,270 shares issued and outstanding as of December 31, 2021; 50,500,000 shares authorized and 419,124 shares issued and outstanding as of December 31, 2020 4 — Additional paid-in capital 352,981 8,374 Accumulated deficit ( 127,571 ) ( 26,965 ) Accumulated other comprehensive loss ( 231 ) — Total stockholders’ equity (deficit) 225,183 ( 18,591 ) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 230,330 $ 44,429 The accompanying notes are an integral part of these financial statements. 116 Table of Contents ACUMEN PHARMACEUTICALS, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share data) Year Ended December 31, 2021 2020 Grant and other revenue $ — $ 1,436 Operating expenses Research and development 12,305 7,997 General and administrative 7,279 1,351 Total operating expenses 19,584 9,348 Loss from operations ( 19,584 ) ( 7,912 ) Other income (expense) Change in fair value of preferred stock tranche rights liability and preferred stock warrant liability ( 81,157 ) 586 Interest income, net 84 1 Other income, net 51 — Total other income (expense) ( 81,022 ) 587 Net loss ( 100,606 ) ( 7,325 ) Other comprehensive loss Unrealized loss on marketable securities ( 231 ) — Comprehensive loss $ ( 100,837 ) $ ( 7,325 ) Net loss per common share, basic and diluted $ ( 5.02 ) $ ( 17.48 ) Weighted-average shares outstanding, basic and diluted 20,057,534 419,124 The accompanying notes are an integral part of these financial statements. 117 Table of Contents ACUMEN PHARMACEUTICALS, INC. STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands, except share data) Series A Convertible Preferred Stock Series A-1 Convertible Preferred Stock Series B Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2019 477,297 $ 1,067 7,537,879 $ 16,333 — $ — 419,124 $ — $ 8,220 $ ( 19,640 ) $ — $ ( 11,420 ) Issuance of Series B convertible preferred stock for cash, net of issuance costs of $ 395 — — — — 11,862,043 39,253 — — — — — — Share-based compensation — — — — — — — — 154 — — 154 Net loss — — — — — — — — — ( 7,325 ) — ( 7,325 ) Balance as of December 31, 2020 477,297 1,067 7,537,879 16,333 11,862,043 39,253 419,124 — 8,374 ( 26,965 ) — ( 18,591 ) Issuance of milestone shares for cash, net of issuance costs of $ 16 — — — — 7,908,027 30,031 — — — — — — Exercise of preferred stock warrant — — 447,426 1,250 — — — — — — — — Reclassification of preferred stock tranche rights liability upon issuance of milestone shares — — — — — 81,190 — — — — — — Reclassification of warrant liability upon exercise of preferred stock warrant — — — 5,380 — — — — — — — — Exercise of common stock warrants — — — — — — 137,446 — 614 — — 614 Conversion of convertible preferred stock into common stock upon initial public offering ( 477,297 ) ( 1,067 ) ( 7,985,305 ) ( 22,963 ) ( 19,770,070 ) ( 150,474 ) 28,232,672 3 174,501 — — 174,504 Issuance of common stock for cash, net of issuance costs of $ 15,445 — — — — — — 11,499,998 1 168,555 — — 168,556 Cashless exercise of common stock warrants — — — — — — 178,847 — — — — — Stock options exercised — — — — — — 5,183 — 15 — — 15 Unrealized loss on marketable securities — — — — — — — — — — ( 231 ) ( 231 ) Share-based compensation — — — — — — — — 922 — — 922 Net loss — — — — — — — — — ( 100,606 ) — ( 100,606 ) Balance as of December 31, 2021 — $ — — $ — — $ — 40,473,270 $ 4 $ 352,981 $ ( 127,571 ) $ ( 231 ) $ 225,183 The accompanying notes are an integral part of these financial statements. 118 Table of Contents ACUMEN PHARMACEUTICALS, INC. STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2021 2020 Cash flows from operating activities Net loss $ ( 100,606 ) $ ( 7,325 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 4 — Change in fair value of preferred stock tranche rights liability and preferred stock warrant liability 81,157 ( 586 ) Stock-based compensation expense 922 154 Amortization of premiums and accretion of discounts on marketable securities, net 155 — Other non-cash expense 109 — Changes in operating assets and liabilities: Grant receivable — ( 79 ) Prepaid expenses and other current assets ( 3,881 ) 53 Other assets ( 14 ) 144 Accounts payable 557 308 Accrued expenses and other current liabilities 3,636 ( 119 ) Net cash used in operating activities ( 17,961 ) ( 7,450 ) Cash flows from investing activities Purchases of available-for-sale marketable securities ( 104,080 ) — Purchases of property and equipment ( 40 ) — Net cash used in investing activities ( 104,120 ) — Cash flows from financing activities Proceeds from issuance of Series B milestone shares, net of issuance costs 30,031 — Proceeds from issuance of convertible preferred stock, net of issuance costs — 44,675 Proceeds from exercise of Series A-1 warrant 1,250 — Proceeds from exercise of common stock warrants 614 — Proceeds from issuance of common stock upon initial public offering, net of issuance costs 168,556 — Proceeds from stock option exercises 15 — Net cash provided by financing activities 200,466 44,675 Net change in cash and cash equivalents 78,385 37,225 Cash and cash equivalents at the beginning of the period 43,777 6,552 Cash and cash equivalents at the end of the period $ 122,162 $ 43,777 Supplemental disclosure of cash flow information Cash paid for income taxes $ — $ — Cash paid for interest $ — $ — Supplemental disclosure of noncash financing activities Reclassification of preferred stock tranche rights liability upon share issuance $ 81,190 $ — Reclassification of warrant liability upon exercise of preferred stock warrant $ 5,380 $ — Conversion of convertible preferred stock into common stock upon IPO $ 174,504 $ — The accompanying notes are an integral part of these financial statements. 119 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS Acumen Pharmaceuticals, Inc. (“Acumen” or the “Company”) was incorporated in 1996 in the state of Delaware. Acumen discovers and develops targeted therapies for the treatment of Alzheimer’s disease (“AD”). Acumen’s sole drug candidate, ACU193, is a humanized monoclonal antibody which selectively targets amyloid-beta oligomers (“AßOs”). Acumen and Merck & Co., Inc. discovered and developed ACU193 through an eight-year research collaboration. Acumen currently holds exclusive rights to the program. The Company submitted an Investigational New Drug Application for ACU193 to the Food and Drug Administration in the fourth quarter of 2020. The Company initiated a Phase 1 clinical trial of ACU193 in the second quarter of 2021, which the Company named “INTERCEPT-AD.” Approximately 62 individuals with early AD (mild cognitive impairment or mild dementia due to AD) are expected to be randomized into this double-blind, placebo-controlled, first-in-human study of ACU193. INTERCEPT-AD consists of single-ascending-dose and multiple-ascending-dose cohorts and the overall objective of the trial is to evaluate the safety and tolerability and establish clinical proof of mechanism of ACU193 administered intravenously. In October 2021, the Company announced the initial dosing of the first patient in the INTERCEPT-AD trial and the subsequent successful sentinel safety review of the first two patients. Clinical trial site activation and patient recruitment and enrollment is ongoing. At present, INTERCEPT-AD is in the single-ascending-dose portion of the trial. Based on current site activations and enrollment rates, the Company anticipates reporting its topline data from this trial in the first half of 2023. The Company is subject to the uncertainty of whether the Company’s intellectual property will develop into successful commercial products. November 2020 Reverse Stock Split On November 20, 2020, the Company effected a 1-for-30 reverse stock split of its authorized, issued and outstanding shares of common stock and convertible preferred stock. Accordingly, all share and per share amounts for the periods presented in the accompanying financial statements and these notes have been adjusted retroactively, where applicable, to reflect this reverse stock split. On November 20, 2020, the Company also increased the number of shares of preferred stock and common stock authorized for issuance (see Note 6). June 2021 Reverse Stock Split The Company’s Board of Directors (“Board”) approved a reverse split of shares of the Company’s common stock and convertible preferred stock on a 1-for-1.49 basis (the “June 2021 Reverse Stock Split”), which was effected on June 23, 2021. The par value and the number of authorized shares of the convertible preferred stock and common stock were not adjusted in connection with the June 2021 Reverse Stock Split. All references to common stock, convertible preferred stock, warrants to purchase common stock, warrants to purchase convertible preferred stock, options to purchase common stock, share data, per share data and related information contained in the financial statements have been retrospectively adjusted to reflect the effect of the June 2021 Reverse Stock Split for all periods presented. No fractional shares of the Company’s common stock were issued in connection with the June 2021 Reverse Stock Split. Any fractional share resulting from the June 2021 Reverse Stock Split was rounded down to the nearest whole share, and any stockholder entitled to a fractional share as a result of the June 2021 Reverse Stock Split received a cash payment in lieu of receiving fractional shares. Initial Public Offering On July 6, 2021, the Company issued 9,999,999 shares of common stock in an initial public offering (“IPO”), and on July 8, 2021, the Company issued an additional 1,499,999 shares of common stock that were purchased by the underwriters pursuant to the underwriters’ option to purchase additional shares at the public offering price 120 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS less underwriting discounts and commissions. The price to the public for each share was $ 16.00 . The aggregate net proceeds from the Company’s IPO, after underwriting discounts and commissions and other offering expenses of $ 15.4 million, were $ 168.6 million. On July 6, 2021, in connection with the closing of the IPO, 477,297 shares of Series A, 7,985,305 shares of Series A-1, and 19,770,070 shares of Series B convertible preferred stock, respectively, automatically converted into an equal number of shares of common stock. Warrants to purchase shares of common stock were automatically net exercised for the purchase of an aggregate of 178,847 shares of common stock. As a result of the IPO, the underwriters’ exercise of their option, the conversions of the Series A, A-1 and B convertible preferred stock, and the exercise of the warrants, the Company’s total number of outstanding common shares increased by 39,911,517 immediately following the closing of the IPO. Liquidity and Capital Resources The Company has incurred operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2021 and 2020, the Company had an accumulated deficit of $ 127.6 million and $ 27.0 million, respectively, and working capital of $ 193.5 million and $ 38.1 million, respectively. Prior to the IPO, the Company historically relied on raising capital from venture capital firms and private investors and funding from a government grant to finance its operations. On June 9, 2021, the Board and the holders of more than 67 % of the then outstanding shares of Series B convertible preferred stock held by the Series B purchasers (the “Requisite Investors”) elected to waive the achievement of the milestone subject to the terms and conditions of the Series B Preferred Stock Purchase Agreement (the “Series B Agreement”) and consummate the subsequent closing (the “Milestone Closing”) (see Note 5). On June 17, 2021, the Milestone Closing for the Series B convertible preferred stock occurred, resulting in the sale of 7,908,027 shares of Series B convertible preferred stock at $ 3.80 per share for gross proceeds of $ 30.0 million. As a result of the Milestone Closing and the closing of the Company’s IPO on July 6, 2021, management believes that its existing cash and cash equivalents and marketable securities will be sufficient to enable the Company to fund its operating expenses and capital expenditure requirements at least through 202 5 . Future capital requirements will depend upon many factors, including the timing and extent of spending on research and development and market acceptance of the Company’s products. The Company may need to obtain additional financing to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. Until such time, if ever, the Company can generate revenue sufficient to achieve profitability, the Company expects to finance its operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. There can be no assurance that such financing will be available on terms acceptable to the Company, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation of other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. The Company may be required to delay, limit, reduce or terminate its product discovery and development activities or future commercialization efforts. 121 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS In October 2021, the Company announced the initial dosing of the first patient in the INTERCEPT-AD trial and the subsequent successful sentinel safety review of the first two patients. Due to delays in clinical trial site activation and patient enrollment that the Company believes are principally related to effects of the coronavirus (“COVID-19”) pandemic, the Company is expanding the anticipated number of trial sites to support its enrollment objectives and anticipated timelines. Clinical trial site activation and patient recruitment and enrollment is ongoing. At present, INTERCEPT-AD is in the single-ascending-dose portion of the trial. Based on current site activations and enrollment rates, the Company anticipates reporting its topline data from this trial in the first half of 2023. The ultimate impact of the COVID-19 pandemic on the Company’s business, results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s business, results of operations, financial position and cash flows may be materially adversely affected. NOTE 2. BASIS OF PRESENTATIO N, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS Basis of Presentation The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the Company’s financial position, and the results of its operations and its cash flows. Emerging Growth Company From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial statements upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended, the Company meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting periods. These estimates and assumptions are based on our historical experience, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. 122 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The Company’s cash equivalents consist of funds held in several money market accounts. The Company had $ 121.2 million and $ 36.8 million in cash equivalents as of December 31, 2021 and 2020, respectively. Marketable Securities The Company’s marketable securities portfolio consists primarily of investments in money market funds, commercial paper, asset-backed securities, U.S. treasury securities and short-term highly liquid, high credit quality corporate debt securities. The Company considers its marketable securities to be available-for-sale. Available-for-sale securities are classified as cash equivalents, or as short-term or long-term marketable securities based on the maturity date at time of purchase and their availability to meet current operating requirements. Available-for-sale securities that mature in three months or less from the date of purchase are classified as cash equivalents. Available-for-sale securities, excluding cash equivalents, that mature in one year or less are classified as short-term marketable securities and those that mature in more than one year are classified as long-term. Securities that are classified as available-for-sale are measured at fair value; see “ Fair Value of Financial Instruments ” below. Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity. Amortization and accretion of premiums and discounts are recorded along with interest income on investments in interest income, net in the statements of operations and comprehensive loss. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive income. The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs. The Company does not generally intend to sell its available-for-sale securities; however, the Company assesses whether it is more likely than not that it will be required to sell any security before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other-than-temporary on available-for-sale securities will be included in other expense, net. The cost of investments sold will be calculated using the specific-identification method. The Company did no t record any other-than-temporary impairments related to available-for-sale securities for the year ended December 31, 2021. The Company did no t own any marketable securities during the year ended December 31, 2020. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company may maintain deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses due to credit risk on such accounts during any of the periods presented. Fair Value of Financial Instruments The Company’s financial assets and liabilities are accounted for in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures , which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most 123 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels: Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities. Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life. Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgement. Accordingly, the degree of judgement exercised by management in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying values reported in the Company’s balance sheets for cash (excluding cash equivalents which are recorded at fair value on a recurring basis), accounts payable and accrued expenses are reasonable estimates of their fair values due to the short-term nature of these items. The following tables present the Company’s fair value hierarchy for its money market securities, available-for-sale marketable securities, preferred stock tranche rights liability and preferred stock warrant liability measured at fair value on a recurring basis (in thousands): Fair value measurements at reporting date using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value at December 31, 2021 Assets included in: Cash and cash equivalents Money market securities $ 121,162 $ — $ — $ 121,162 Marketable securities Commercial paper — 47,939 — 47,939 Corporate debt securities — 24,694 — 24,694 Asset-backed securities — 19,143 — 19,143 U.S. treasury securities — 11,918 — 11,918 Total fair value $ 121,162 $ 103,694 $ — $ 224,856 1 24 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Fair value measurements at reporting date using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value at December 31, 2020 Assets included in: Cash and cash equivalents Money market securities $ 36,758 $ — $ — $ 36,758 Total fair value $ 36,758 $ — $ — $ 36,758 Liabilities included in: Preferred stock tranche rights liability $ — $ — $ 5,033 $ 5,033 Preferred stock warrant liability — — 380 380 Total fair value $ — $ — $ 5,413 $ 5,413 The fair value of the Company’s money market funds is determined using quoted market prices in active markets for identical assets. The fair value for the available-for-sale marketable securities is determined based on valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. Refer to Note 5 for further information about the Level 3 rollforward of activity and Level 3 inputs. Grant Receivable Grant receivable consists of research expenses reimbursable under a grant from the National Institute of Health (“NIH”). The Company carried its grant receivable at the unreimbursed amount. Management determined that the remainder of the unreimbursed amount under the grant receivable could no longer be collected from the NIH and the Company recorded a loss of $ 0.1 million in general and administrative expense on the statement of operations and comprehensive loss during the year ended December 31, 2021. Management determined that no allowance was necessary for this receivable as of December 31, 2020. Property and Equipment Property and equipment consists primarily of computer equipment and is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer-related assets. Convertible Preferred Stock The Company recorded shares of convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The Company applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securitie s, and therefore classified the Series A, Series A-1 and Series B convertible preferred stock as mezzanine equity. The convertible preferred stock was recorded outside of stockholders’ deficit because, in the event of certain deemed liquidation events considered 12 5 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS not solely within the Company’s control, such as a merger, acquisition and sale of all or substantially all of the Company’s assets, the convertible preferred stock would have become redeemable at the option of the holders. In the event of a change of control of the Company, proceeds received from the sale of such shares would have been distributed in accordance with the corresponding liquidation preferences. The Company did not adjust the carrying values of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable at any of the reporting dates. As mentioned above in Note 1, in connection with the closing of the IPO, all of the outstanding shares of Series A, Series A-1 and Series B convertible preferred stock automatically converted into an equal number of shares of common stock on July 6, 2021. Preferred Stock Tranche Rights Liability The Company determined that its obligation to issue, and the Company’s investors’ right to purchase, additional shares of Series B convertible preferred stock pursuant to the Milestone Closing (see Note 1 and Note 5) represented a freestanding financial instrument (the “tranche liability”). The tranche liability was initially recorded at fair value. The proceeds from the sale of the convertible preferred stock were first allocated to the fair value of the tranche liability with the remaining proceeds from the sale of the convertible preferred stock allocated to the Series B convertible preferred stock. The tranche liability was remeasured at each reporting period and upon the exercise of the obligation, with gains and losses arising from subsequent changes in its fair value recognized in other income and expense in the statements of operations and comprehensive loss. As discussed above in Note 1, the Milestone Closing occurred on June 17, 2021, and as a result, the remaining value of the tranche liability was reclassified to convertible preferred stock on the balance sheet. Preferred Stock Warrant Liability The Company accounted for the warrant to purchase Series A-1 convertible preferred stock as a liability as this warrant was a freestanding financial instrument that required the Company to transfer assets upon exercise. The warrant liability was initially recorded at fair value. The warrant liability was remeasured at each reporting period and upon the exercise of the applicable warrant, with gains and losses arising from subsequent changes in its fair value recognized in other income and expense in the statements of operations and comprehensive loss. The warrant was exercised on June 22, 2021, and the remaining value of the warrant liability was reclassified to convertible preferred stock on the balance sheet. There were no preferred stock warrants outstanding as of December 31, 2021. Common Stock Warrants The Company assesses whether warrants issued require accounting as derivatives. The Company determined that its common stock warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with FASB ASC Topic 815, Derivatives and Hedging . As such, the Company concluded the warrants met the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity. In June 2021, several holders of warrants to purchase the Company’s common stock exercised their warrants and purchased a total of 137,446 shares of common stock at an exercise price of $ 4.47 . On July 6, 2021, in connection with the closing of the Company’s IPO, the Company issued 178,847 shares of common stock in exchange for the 248,247 outstanding common stock warrants at an exercise price of $ 4.47 . There were no common stock warrants outstanding as of December 31, 2021. Grant and Other Revenue Recognition The Company’s NIH grant is not within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”) , as the grant does not meet the definition of a contract with a customer. The Company has concluded that 126 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS the grant meets the definition of a contribution and is a non-reciprocal transaction, and management has also concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as Acumen is a business entity and the grant is with a governmental agency. In the absence of applicable guidance under U.S. GAAP, the Company’s policy is to recognize grant revenue when the related costs are incurred and the right to payment is realized. Costs incurred are recorded in research and development and general and administrative expenses on the statements of operations and comprehensive loss. The Company believes the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC 606. Research and Development Expenses Research and development expenses primarily consist of consultants and materials, biologic storage, salaries and other personnel-related expenses related to research and development activities and are expensed as incurred. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected on the balance sheets as prepaid or accrued expenses. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Stock-based Compensation The Company expenses stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant date fair value of the awards and actual forfeitures. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, which requires the use of a number of complex assumptions including the fair value of the common stock, expected volatility, risk-free interest rate, expected dividends, and the expected term of the option. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. All stock-based compensation costs are recorded in research and development expense or general and administrative expense in the statements of operations and comprehensive loss based upon the respective employee’s or non-employee’s roles within the Company. Forfeitures are recorded as they occur. See also Note 7 below. Income Taxes Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, and net operating loss (“NOL”) carryforwards and research and development (“R&D”) tax credit carryforwards. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has recorded a full valuation allowance to reduce its net deferred income tax assets to zero. In the event the Company were to determine that it would be able to realize some or all of its deferred income tax assets in the future, an adjustment 1 27 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS to the deferred income tax asset valuation allowance would increase income in the period such determination was made. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company has no t recorded any accruals related to uncertain tax positions as of December 31, 2021 and 2020. The Company’s policy is to record interest and penalties, if any, as part of income tax benefit. No interest or penalties were recorded during the years ended December 31, 2021 and 2020. Net Loss Per Share of Common Stock Basic net loss per share of common stock is calculated using the two-class method under which earnings are allocated to both common shares and participating securities based on their participation rights. Net loss attributable to common stockholders was not allocated to the convertible preferred stock as the holders of the convertible preferred stock did not have a contractual obligation to share in any losses. Basic net loss per share is calculated by dividing the net loss attributable to common shares by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by dividing the net loss using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of stock options and warrants to purchase common stock (using the treasury stock method), and the conversion of convertible preferred stock and the preferred warrant (using the if-converted method). See Note 10 below. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , as amended, with guidance regarding the accounting for and disclosure of leases. This update requires lessees to recognize the liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. Topic 842 became effective on January 1, 2022. The Company will adopt this guidance using the modified retrospective method and will elect the package of practical expedients upon transition, which will retain the lease classification for leases that existed prior to the adoption of this guidance. Additionally, in calculating the right-of-use asset and lease liability, the Company will elect to combine lease and non-lease components as permitted under the guidance and to exclude short-term leases having initial terms of 12 months or less as an accounting policy election and recognize rent expense on a straight-line basis over the lease term for short-term leases. Upon adoption, the Company will record both a right-of-use asset and a lease liability of approximately $0.2 million on its balance sheet. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which was codified with its subsequent amendments as ASC 326. ASC 326 changes how entities account for credit losses on financial assets and other instruments that are not measured 1 2 8 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS at fair value through net income, including available-for-sale securities. The amendments require an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updated guidance is effective for the Company on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on its financial statements and related disclosures. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for the Company for annual reporting periods beginning January 1, 2022, and interim periods within fiscal years beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements. NOTE 3. MARKETABLE SECURITIES Marketable securities consisted of the following as of December 31, 2021 (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale securities, short-term Commercial paper $ 47,939 $ — $ — $ 47,939 Corporate debt securities 7,992 — ( 11 ) 7,981 Asset-backed securities 16,177 — ( 22 ) 16,155 Total available-for-sale securities, short-term 72,108 — ( 33 ) 72,075 Available-for-sale securities, long-term Corporate debt securities 16,816 — ( 103 ) 16,713 Asset-backed securities 3,013 — ( 25 ) 2,988 U.S. treasury securities 11,988 — ( 70 ) 11,918 Total available-for-sale securities, long-term 31,817 — ( 198 ) 31,619 Total available-for-sale securities $ 103,925 $ — $ ( 231 ) $ 103,694 As of December 31, 2021, the Company’s available-for-sale securities classified as short-term mature in one year or less and the Company’s available-for-sale securities classified as long-term mature within two years . Fourteen of the available-for-sale marketable securities were in an unrealized loss position as of December 31, 2021, all of which were in a loss position for less than twelve months. Unrealized losses on available-for-sale securities as of December 31, 2021 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. Accordingly, no other-than-temporary impairment was recorded for the year ended December 31, 2021. There were no realized gains or losses for the year ended December 31, 2021. 1 29 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 4. SUPPLEMENTAL FINANCIAL INFORMATION Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2021 2020 Research and development service agreements $ 2,591 $ 432 Prepaid insurance 1,514 5 Dues and subscriptions 96 — Prepaid raw materials 83 91 Other 140 15 Total prepaid expenses and other current assets $ 4,424 $ 543 Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2021 2020 Research and development $ 2,623 $ 133 Bonuses and other employee liabilities 1,102 — Legal 130 — Professional fees — 200 Other 204 90 Total accrued expenses and other current liabilities $ 4,059 $ 423 NOTE 5. CONVERTIBLE PREFERRED STOCK, TRANCHE LIABILITY AND WARRANT LIABILITY Convertible Preferred Stock On November 20, 2020, the Company entered into the Series B Agreement for a private placement of up to 19,770,070 shares of Series B convertible preferred stock, $ 0.0001 par value per share, at an original issuance price of $ 3.80 per share, subject to separate closings, including: (1) 11,862,043 shares at the Initial Closing on November 20, 2020, and (2) 7,908,027 shares at a subsequent closing that would be triggered by the achievement of a specific clinical milestone. The Series B Agreement obligated the Company to issue and sell and the Series B purchasers to purchase up to a total of 7,908,027 additional shares of Series B convertible preferred stock (the “Milestone Shares”) at the same price per share upon the achievement of a certain defined clinical milestone. The determination as to whether the milestone event has been met was subject to certification by the Board and the Requisite Investors. Each Series B convertible preferred stock investor had the right, but not the obligation, to purchase all or any portion of the Milestone Shares at any time in its sole option and in its sole and absolute discretion, whether or not the Company achieved the applicable clinical milestone. See “ Series B Convertible Preferred Stock Tranche Rights Liability ” below. As discussed above in Note 1, on June 9, 2021, the Board and the Requisite Investors elected to waive the achievement of the milestone subject to the terms and conditions of the Series B Agreement and consummate the Milestone Closing and, on June 17, 2021, the Milestone Closing occurred, resulting in the sale of 7,908,027 shares of Series B convertible preferred stock at $ 3.80 per share for gross proceeds of $ 30.0 million, bringing the total number of Series B convertible preferred shares outstanding to 19,770,070 . 1 30 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS On June 22, 2021, a warrant to purchase 447,426 shares of Series A-1 convertible preferred stock at an exercise price of $ 2.794 per share was exercised (see “Series A-1 Convertible Preferred Stock Warrant Liability” below), bringing the total number of Series A-1 convertible preferred shares outstanding to 7,985,305 . Additionally, on July 6, 2021, in connection with the closing of the IPO, 477,297 shares of Series A, 7,985,305 shares of Series A-1, and 19,770,070 shares of Series B convertible preferred stock, respectively, automatically converted into an equal number of shares of common stock. There were no shares of convertible preferred stock outstanding as of December 31, 2021. Convertible preferred stock consisted of the following as of December 31, 2020 (in thousands, except share and per share data): Shares Authorized Shares Issued and Outstanding Weighted Average Issuance Price per Share Carrying Value Liquidation Preference Series A 711,203 477,297 $ 2.24 $ 1,067 $ 1,067 Series A-1 11,898,177 7,537,879 2.24 16,333 16,847 Series B 29,457,450 11,862,043 3.80 39,253 45,070 Total 42,066,830 19,877,219 $ 56,653 $ 62,984 Dividends The holders of Series B, Series A-1 and Series A convertible preferred stock were entitled to receive dividends ahead of, or simultaneously with, common stockholders in an amount equal to the product of (A) the dividend payable on each share of the class or series of convertible preferred stock determined, if applicable, as if all shares of such class or series of convertible preferred stock had been converted into common stock and (B) the number of shares of common stock issuable upon conversion of a share of preferred stock. No dividends have been declared since inception. Liquidation preference In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Series B convertible preferred stock were entitled to receive, prior and in preference to, holders of Series A-1 convertible preferred stock, Series A convertible preferred stock, and holders of common stock, in the amount of the original issue price plus any declared but unpaid dividends thereon. If upon occurrence of such an event, the assets and funds to be distributed among the holders of Series B convertible preferred stock were insufficient to permit full payment to such holders, the entire assets and funds of the Company legally available for distribution would have been distributed ratably among the holders of the Series B convertible preferred stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Series A-1 convertible preferred stock were entitled to receive, prior and in preference to, holders of Series A convertible preferred stock and holders of common stock, in the amount of the original issue price plus any declared but unpaid dividends thereon. If upon occurrence of such an event, the assets and funds to be distributed among the holders of Series A-1 convertible preferred stock were insufficient to permit full payment to such holders, the entire assets and funds of the Company legally available for distribution would have been distributed ratably among the holders of the Series A-1 convertible preferred stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Series A convertible preferred stock were entitled to receive, prior and in preference to, holders of common 1 31 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS stock, in the amount of the original issue price plus any declared but unpaid dividends thereon. If upon occurrence of such an event, the assets and funds to be distributed among the holders of Series A convertible preferred stock were insufficient to permit full payment to such holders, the entire assets and funds of the Company legally available for distribution would have been distributed ratably among the holders of the Series A convertible preferred stock. Conversion rights Shares of all series of convertible preferred stock were convertible into such number of fully paid and non-assessable shares of common stock as determined by dividing the original issuance price for such series by the applicable conversion price for such series then in effect. The initial conversion price per share for each series of convertible preferred stock was the original issue price applicable to such series as shown in the table above, subject to adjustment in the event of certain dilutive issuances. The convertible preferred stock original issuance price and conversion price were each subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the convertible preferred stock. Each share of convertible preferred stock was convertible at any time at the option of the holder at the conversion ratio then in effect. In addition, each share of convertible preferred stock was to be automatically converted into common stock at the conversion ratio then in effect upon either (a) the closing of an underwritten public offering resulting in gross proceeds to the Company of at least $ 75 million and at a price per share equal to at least two times the Series B original issuance price, or $ 7.60 (subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B convertible preferred stock), or (b) the date and time, or the occurrence of an event, specified in such vote or written consent of at least 67 % of the holders of the then outstanding shares of Series B convertible preferred stock. If any Series B purchaser failed to purchase its respective portion of the Milestone Shares upon occurrence of the Milestone Closing, each existing share of Series B convertible preferred stock held by such stockholder would have automatically converted into one share of common stock two days after the Milestone Closing. On July 6, 2021, in connection with the closing of the IPO, each outstanding share of Series A, Series A-1 and Series B convertible preferred stock converted into one share of common stock. Voting rights Holders of convertible preferred stock were entitled to vote as a single class together with the holders of common stock and had one vote for each share of common stock into which the convertible preferred stock was convertible. The holders of Series B convertible preferred stock were entitled to elect two directors to the Board, and the holders of Series A and Series A-1 convertible preferred stock, voting together as a single class, were also entitled to elect two directors to the Board. The holders of common stock, exclusively and as a separate class, are entitled to elect two directors to the Board. The final director to the Board was designated by the holders of a majority of the shares of the preferred stock and common stock, voting together as a single class. A majority of the outstanding shares of convertible preferred stock was necessary for approving certain matters, including the ability to either increase or decrease the authorized number of directors constituting the Board, pursuant to protective provisions in the Company’s amended and restated certificate of incorporation. 1 32 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Series B Convertible Preferred Stock Tranche Rights Liability The Company concluded that the tranche liability met the definition of a freestanding financial instrument, as it was legally detachable and separately exercisable from the initial closing of the Series B convertible preferred stock. The fair value for the tranche liability was estimated as a forward contract using a valuation model, calibrated at issuance. The valuation model at issuance estimated the implied value of the Series B stock as of the expected milestone date utilizing the probability of milestone achievement, expected timing of milestone achievement, and risk-free rate. The model was calibrated such that the value of the initial tranche and the forward contract were equal to the initial tranche proceeds at issuance. Subsequently, the fair value of the liability was discounted to the valuation date and adjusted for probability of the achievement of the milestone event. The calibrated valuation model was updated as of December 31, 2020, March 31, 2021 and in the Stay Private scenario utilized in the hybrid methodology as of June 17, 2021 (the date of the Milestone Closing). Significant estimates and assumptions impacting fair value include the discount rate, expected time to the Milestone Closing, and probability of the Milestone Closing. The discount rate was equal to the risk-free rate commensurate with the estimated timing of the Milestone Closing. The following assumptions were used in the estimation of the fair value of the tranche liability as a forward contract as of each of the dates indicated: June 17, 2021 December 31, 2020 Risk-free interest rate 0.07 % 0.12 % Expected time to Milestone Closing (in years) 0.8 1.3 Probability of achievement of Milestone Closing 100 % 65 % For the other portion of the hybrid method used as of June 17, 2021, the fair value for the tranche liability was estimated based upon an allocation of the underlying equity value, which was determined using an IPO value as estimated through analysis of IPOs for comparable guideline companies, to arrive at a value per share in the IPO scenario. The estimated fair value of the tranche liability was $ 81,190,000 and $ 5,033,000 as of the Milestone Closing on June 17, 2021 and December 31, 2020, respectively. The significant increase in the June 17, 2021 valuation stems from both a shift in methodology from an option pricing method (“OPM”) to a Hybrid Model where the concluded value of the forward tranche is derived by the sum of the probability weighted present value of the forward tranche in the Stay Private and IPO scenarios (with the former including all other potential exit scenarios other than an imminent IPO), as well as the increase in the probability of achievement of the Milestone Closing. The resulting difference in estimated fair value was recognized as a change in fair value within other income in the accompanying statements of operations. The tranche liability was revalued each reporting period with the change in fair value recorded in the accompanying statements of operations through the issuance of the Milestone Shares on June 17, 2021. Following the Milestone Closing, the remaining tranche liability was reclassified to convertible preferred stock on the balance sheet. Series A-1 Convertible Preferred Stock Warrant Liability On October 19, 2018, the Company issued a ten-year warrant (the “Series A-1 Warrant”) to purchase up to an aggregate of 447,426 shares of Series A-1 convertible preferred stock at an exercise price of $ 2.794 on or before October 18, 2028 . The warrant liability met the definition of a freestanding financial instrument, as it was legally detachable and separately exercisable from the initial closing of the Series A-1 convertible preferred stock. As such, it was 133 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS revalued each reporting period with the change in fair value recorded in the accompanying statements of operations until the warrant was exercised on June 22, 2021. The fair value of the warrant liability was estimated using the OPM backsolve method as of December 31, 2020 and using a hybrid method, which included an OPM backsolve in the Stay Private scenario as of June 22, 2021. The following assumptions were used in the estimation of the fair value of the warrant liability using the OPM backsolve method as of each of the dates indicated: June 22, 2021 December 31, 2020 Risk-free interest rate 0.25 % 0.13 % Expected term (in years) 2.0 2.0 Expected volatility 90 % 90 % Expected dividend yield 0 % 0 % The hybrid method used to value the warrant liability at June 22, 2021 considered both the underlying equity value determined using the OPM backsolve method in a Stay Private scenario, as well as the underlying equity value that was determined using an expected IPO value as estimated through analysis of IPOs for comparable guideline companies, to arrive at a value per share in the IPO scenario. The underlying equity values from each approach were probability weighted based upon the expected likelihood of each scenario. The fair value of the warrant liability was estimated to be $ 12.02 and $ 0.85 as of June 22, 2021 and December 31, 2020, respectively. The following table provides a reconciliation of the tranche liability and warrant liability measured at fair value using Level 3 significant unobservable inputs (in thousands): Series A-1 Preferred Stock Warrant Series B Tranche Rights Total Balance, December 31, 201 9 $ 577 $ — $ 577 Fair value at issuance of Series B convertible preferred stock (November 2020) — 5,422 5,422 Change in fair valu e ( 197 ) ( 389 ) ( 586 ) Balance, December 31, 2020 380 5,033 5,413 Change in fair value 5,000 76,157 81,157 Settlement of tranche liability due to issuance of Milestone Shares — ( 81,190 ) ( 81,190 ) Settlement of warrant liability upon exercise of warrant ( 5,380 ) — ( 5,380 ) Balance, December 31, 2021 $ — $ — $ — NOTE 6. STOCKHOLDERS’ EQUITY (DEFICIT) Authorized Shares On July 6, 2021, the Company issued 9,999,999 shares of common stock in an IPO, and on July 8, 2021, the Company issued an additional 1,499,999 shares of common stock that were purchased by the underwriters pursuant to the underwriters’ option to purchase additional shares at the public offering price less underwriting discounts and commissions. The price to the public for each share was $ 16.00 . The aggregate net proceeds from the Company’s IPO, after underwriting discounts and commissions and other offering expenses of $ 15.4 million, were $ 168.6 million. 1 34 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Effective upon the closing of the IPO on July 6, 2021, the Company amended its certificate of incorporation suc h th at the total number of shares of all classes of capital stock authorized to be issued was increased to 310,000,000 , with 10,000,000 shares designated as preferred stock with a par value of $ 0.0001 , and 300,000,000 shares designated as common stock with a par value of $ 0.0001 . The Company amended its certificate of incorporation on November 20, 2020, such that the total number of shares of common stock authorized to be issued was increased to 50,500,000 , and the total number of shares of preferred stock authorized to be issued was increased to 42,066,830 , of which 711,203 were designated Series A convertible preferred stock, 11,898,177 were designated as Series A-1 convertible preferred stock and 29,457,450 were designated as Series B convertible preferred stock. The certificate of incorporation was also amended for the reverse stock splits that became effective on June 23, 2021 and November 20, 2020, but there were no changes to the authorized shares as a result of the reverse stock split that became effective on June 23, 2021 (see Note 1). Common Stock As of December 31, 2021, the Company’s Amended and Restated Certificate of Incorporation authorized the issuance of 300,000,000 shares of common stock, $ 0.0001 par value per share. Each share of common stock is entitled to one voting right. Common Stock Warrants In accordance with ASC 815, the common stock warrants issued in 2014 through 2017 did not meet the definition of a derivative and were classified in stockholders’ deficit in the consolidated balance sheets. In June 2021, several holders of warrants to purchase the Company’s common stock exercised their warrants and purchased a total of 137,446 shares of common stock at an exercise price of $ 4.47 . On July 6, 2021, the Company issued 178,847 shares of common stock in exchange for the remaining 248,247 outstanding common stock warrants at an exercise price of $ 4.47 . As of December 31, 2021, there were no common stock warrants outstanding. As of December 31, 2020, the outstanding warrants to purchase the Company’s common stock were comprised of the following: Equity Upon Exercise Exercise Price Expiration Dates Number of Warrants Warrants issued in 2014 Common Stock $ 4.47 3/21/2024 – 6/30/2025 83,726 Warrants issued in 2015 Common Stock $ 4.47 6/30/2025 209,690 Warrants issued in 2016 Common Stock $ 4.47 6/30/2025 34,396 Warrants issued in 2017 Common Stock $ 4.47 6/30/2025 57,881 Total Warrants 385,693 NOTE 7. STOCK-BASED COMPENSATION 2021 Equity Incentive Plan The 2021 Equity Incentive Plan (the “2021 Plan”), which provides for the grant of incentive stock options to employees, and the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors and 135 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS consultants, became effective on June 30, 2021. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan was 7,698,282 shares, which is the sum of (1) 3,550,000 new shares, plus (2) 667,104 shares that remained available for issuance under the Company’s Amended and Restated Stock Performance Plan that was adopted by the Board and stockholders on April 8, 2013 (as amended from time to time, most recently on November 20, 2020, the “2013 Plan”) at the time the 2021 Plan became effective, plus (3) any shares subject to outstanding stock options or other stock awards that were granted under the 2013 Plan that, on or after the 2021 Plan became effective, terminate or expire prior to exercise or settlement, are settled in cash, are forfeited or repurchased because of the failure to vest, or are reacquired or withheld to satisfy a tax withholding obligation or the purchase or exercise price in accordance with the terms of the 2013 Plan. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2022 through January 1, 2031, in an amount equal to 5 % of the total number of shares of the Company’s common stock outstanding on December 31 of the fiscal year before the date of each automatic increase, or a lesser number of shares determined by the Board prior to the applicable January 1. The maximum number of shares of the Company’s common stock that may be issued upon the exercise of incentive stock options under the 2021 Plan is 12,000,000 . As of December 31, 2021, 4,217,104 shares were authorized for issuance under the 2021 Plan and 3,857,481 shares remained available for issuance under the 2021 Plan. The 2013 Plan provided for the grant of incentive stock options, nonstatutory stock options, issuance of shares of restricted stock and other equity awards to the Company’s employees, officers, directors, consultants and advisors. All outstanding awards issued under the 2013 Plan remain subject to the terms of the 2013 Plan. As of December 31, 2021, there were 3,475,995 options outstanding under the 2013 Plan. Stock Options The Black-Scholes option-pricing model was used to estimate the fair value of stock options granted during the year ended December 31, 2021 with the following weighted average assumptions: Risk-free interest rate 0.4 % – 1.3 % Expected term (in years) 5.3 – 6.1 Expected volatility 90 % Expected dividend yield 0 % The weighted average grant date fair value of options granted during the year ended December 31, 2021, was $ 1.93 per share. The Company did not grant any options during the year ended December 31, 2020. Prior to its IPO, the fair value of the Company’s common stock underlying the stock options has historically been determined by the Board with assistance from management and, occasionally with input from an independent third-party valuation firm. For the year ended December 31, 2020, management engaged an independent third-party valuation firm to provide an estimate of the fair value of its common stock. The fair value of common stock was determined considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry-specific economic outlook. 136 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS As of December 31, 2020, management, with the assistance of an independent third-party valuation firm, estimated the fair value of a share of common stock to be $ 0.83 utilizing the following assumptions: Risk-free interest rate 0.13 % Expected time to liquidity event (in years) 2.0 Expected volatility 90 % Expected dividend yield 0 % T he stock options granted after December 31, 2017 vest monthly over 24 or 36 months and have a ten-year contractual term. Stock options granted prior to December 31, 2017 were either fully vested upon grant or generally vested monthly over a range of three to 24 months and have a ten-year term. The Company became publicly traded in July 2021 and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options has been determined using the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following table reflects summarized stock option activity: Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 1,001,517 $ 1.13 Granted 2,839,284 2.99 Exercised ( 5,183 ) 2.85 Outstanding at December 31, 2021 3,835,618 $ 2.51 8.5 $ 19,458 Vested and exercisable at December 31, 2021 1,004,510 $ 1.56 6.9 $ 5,523 The intrinsic value of stock options exercised during the year ended December 31, 2021 was approximately $ 54,000 . No options were exercised during the year ended December 31, 2020. As of December 31, 2021, total unrecognized compensation costs related to unvested stock option awards granted was approximately $ 4.7 million, which the Company expects to recognize over a weighted-average period of approximately 3.0 years. The Company recorded stock-based compensation expense related to stock options in the following expense categories of its statements of operations for the periods shown (in thousands): Year Ended December 31, 2021 2020 General and administrative $ 690 $ 103 Research and development 232 51 Total stock-based compensation $ 922 $ 154 137 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS Employee Stock Purchase Plan The 2021 Employee Stock Purchase Plan (the “ESPP”), which permits employees to purchase shares of the Company’s common stock, became effective on June 30, 2021. A total of 375,000 shares of the Company’s common stock were initially reserved for sale under the ESPP. The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2022 through January 1, 2031, by the lesser of (1) 1 % of the total number of shares of the Company’s common stock outstanding on the last day of the fiscal year before the date of the automatic increase, and (2) 800,000 shares; provided that before the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (1) and (2). As of December 31, 2021, there have been no purchases of shares under the ESPP. NOTE 8. INCOME TAXES The Company has no t recorded any tax provision or benefit for federal income taxes for the years ended December 31, 2021 and 2020. Current income taxes are based upon the year’s income taxable for federal and state tax reporting purposes. Deferred income taxes (benefits) are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes. Deferred tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income, and NOL and R&D tax credit carryforwards. A reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total benefit for income taxes for the years ended December 31, 2021 and 2020 is as follows: For the Year Ended December 31, 2021 2020 Statutory federal income tax rate 21.0 % 21.0 % State tax, net of federal benefit 0.7 5.1 Change in fair value of tranche and warrant liabilities ( 16.9 ) 1.7 Non-deductible expense ( 0.1 ) — R&D credit ( 0.3 ) 4.1 Rate change ( 0.2 ) — Other 0.1 — Change in valuation allowance ( 4.3 ) ( 31.9 ) Income tax provision (benefit) 0.0 % 0.0 % Significant components of the Company’s deferred tax assets as of December 31, 2021 and 2020 were as follows (in thousands): December 31, 2021 2020 Deferred tax assets: Net operating loss $ 10,819 $ 6,354 R&D credit 1,381 1,681 Stock compensation 263 85 Accruals and other temporary differences 58 — Gross deferred tax assets 12,521 8,120 Depreciation ( 1 ) — Valuation allowance ( 12,520 ) ( 8,120 ) Deferred tax assets, net of allowance $ — $ — 1 38 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS In assessing the realizability of deferred tax assets as of December 31, 2021 and 2020, management considered whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or the NOL carryforwards and R&D tax credit carryforwards will be used. The Company has determined that it is not more likely than not that its deferred tax assets will be realized. Accordingly, a valuation allowance for the full amount of the net deferred tax assets has been recorded as of December 31, 2021 and 2020. The change in the valuation allowance as of December 31, 2021 from December 31, 2020 is due to the pretax loss incurred for the year ended December 31, 2021. As of December 31, 2021, the Company had approximately $ 40.9 million of NOL carryforwards available for federal tax purposes which begin to expire on December 31, 2028 . As a result of the Tax Act of 2017, for U.S. income tax purposes, NOLs generated prior to December 31, 2017 can still be carried forward for up to 20 years, but NOLs generated after December 31, 2017 carryforward indefinitely, but are limited to 80 % utilization against taxable income. Of the total federal NOL of $ 40. 9 million, $ 6.4 million will begin to expire in 2028 and $ 34.5 million will not expire but will only offset 80% of future taxable income. As of December 31, 2021, the Company also had approximately $ 49.5 million of state NOL carryforwards. The state NOLs begin to expire on December 31, 2028 . As of December 31, 2021, the Company had approximately $ 1.4 million of R&D credit carryforwards available for federal tax purposes, which begin to expire on December 31, 2023 . NOL carryforwards and R&D carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be used annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain stockholders. The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such study, and the fact that there may be additional such ownership changes in the future. The Company conducts intensive research and experimentation activities, generating R&D tax credits for federal and state purposes under section 41 of the Code. The Company has not performed a formal study validating these credits claimed in the tax returns. Once a study is prepared, the amount of R&D tax credits available could vary from what was originally claimed on the tax returns. The Company is subject to U.S. federal and various state taxes. Generally, the tax years remain open for examination by the federal statute under a three-year statute of limitation; however, states generally keep their statutes open for four years. However, the Company’s tax years from 2003 and after are subject to examination by the United States and state taxing authorities due to the carry forward of unused NOLs and R&D credits. 139 Table of Contents ACUMEN PHARMACEUTICALS, INC. NOTES TO FINANCIAL STATEMENTS NOTE 9. COMMITMENTS AND CONTINGENCIES The Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Leases The Company has been subleasing space in Indiana since March 1, 2020, under a lease that initially expired on December 31, 2020. The Company executed a new sublease for this space that was effective February 1, 2021. The term of the sublease is for 31 months, expiring on August 30, 2023 . The Company pays monthly rent of $ 12,719 and is allowing others to sublease a portion of the space from the Company for less than a one-year period. As of December 31, 2021, the remaining aggregate minimum rent obligation over the remaining term was approximately $ 255,000 . As of December 31, 2021, future minimum lease payments under this lease agreement associated with the Company’s operations were as follows (in thousands): Year ended December 31, 2022 $ 153 Year ended December 31, 2023 102 Total $ 255 NOTE 10. NET LOSS PER SHARE The Company computes loss per common share using the two-class method required for participating securities. Basic and diluted loss per share was the same for each period presented as the inclusion of all potential common stock outstanding would have been anti-dilutive. The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per common share because to do so would be anti-dilutive: Year Ended December 31, 2021 2020 Shares issuable upon exercise of stock options 3,835,618 1,001,517 Shares issuable upon conversion of Series A Preferred Stock — 477,297 Shares issuable upon conversion of Series A-1 Preferred Stock — 7,537,879 Shares issuable upon conversion of Series B Preferred Stock — 11,862,043 Shares issuable upon exercise of common stock warrants — 385,693 Shares issuable upon exercise of preferred stock warrant — 447,426 Total 3,835,618 21,711,855 140 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.