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Item 8. Financial Statements and Supplementary Data

2024-03-26 compared with 2023-03-27 · 328 added, 299 removed, 393 unchanged (61% of the section changed)

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Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022

Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 202 2 and 202 1

Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022

Statements of Cash Flows for the years ended December 31, 2023 and 2022

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We have audited the accompanying balance sheets of Acumen Pharmaceuticals, Inc.

(the Company) as of December 31, 2022 and 2021, the related statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ equity (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, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with U.S.

(the Company) as of December 31, 2023 and 2022, the related statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

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Marketable securities, long-term 62,553 15,837

Restricted cash 233 —

Property and equipment, net 122 165

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Accrued expenses and other current liabilities 6,339 3,350

Operating lease liability, current portion 105 —

Finance lease liability, short-term 756 —

Operating lease liability, short-term 110 105

Total current liabilities 12,971 7,812

Operating lease liability, long-term 284 —

Debt, long-term 29,897 —

Total liabilities 43,152 7,812

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Common stock, $ 0.0001 par value;

300,000,000 shares authorized and 41,025,062 and 40,473,270 shares issued and outstanding as of December 31, 2022 and 2021, respectively

300,000,000 shares authorized as of December 31, 2023 and 2022;

57,910,461 and 41,025,062 shares issued and outstanding as of December 31, 2023 and 2022, respectively

Additional paid-in capital 489,453 359,949

Accumulated deficit ( 222,798 ) ( 170,427 )

Accumulated other comprehensive loss ( 751 ) ( 231 )

Accumulated other comprehensive income (loss) 312 ( 751 )

Total stockholders’ equity 266,973 188,775

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Other income (expense)

Interest income, net 2,392 84

Other income (expense), net ( 11 ) 51

Change in fair value of preferred stock tranche rights liability and preferred stock warrant liability — ( 81,157 )

Total other income (expense) 2,381 ( 81,022 )

Interest income 10,791 2,392

Change in fair value of embedded derivatives ( 1,360 ) —

Interest expense ( 581 ) —

Other expense, net ( 83 ) ( 11 )

Total other income 8,767 2,381

Net loss ( 52,371 ) ( 42,856 )

Other comprehensive loss

Unrealized loss on marketable securities ( 520 ) ( 231 )

Other comprehensive gain (loss)

Unrealized gain (loss) on marketable securities 1,063 ( 520 )

Comprehensive loss $ ( 51,308 ) $ ( 43,376 )

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ACUMEN PHARMACEUTICALS, INC.

STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Preferred Stock Series A-1

Preferred Stock Series B Convertible

Preferred Stock Common Stock Additional

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Comprehensive Income (Loss) Total

Stockholders’

Shares Amount Shares Amount Shares Amount Shares Amount

Shares Amount

Balance as of January 1, 2022 40,473,270 $ 4 $ 352,981 $ ( 127,571 ) $ ( 231 ) $ 225,183

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 $ 412

422,160 — 3,792 — — 3,792

Cashless exercise of common stock warrants — — — — — — 178,847 — — — — —

Stock options exercised — — — — — — 5,183 — 15 — — 15

Unrealized loss on marketable securities — — — — ( 520 ) ( 520 )

Stock options exercised for cash 124,886 — 115 — — 115

Cashless exercise of stock options 4,746 — — — — —

Stock-based compensation — — 3,061 — — 3,061

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16,774,193 2 121,902 — — 121,904

Unrealized loss on marketable securities — — — — — — — — — — ( 520 ) ( 520 )

Stock options exercised — — — — — — 124,886 — 115 — — 115

Cashless exercise of stock options — — — — — — 4,746 — — — — —

Stock options exercised for cash 111,206 — 325 — — 325

Issuance of warrant with Term Loan — — 1,132 — — 1,132

Unrealized gain on marketable securities — — — — 1,063 1,063

Stock-based compensation — — 6,145 — — 6,145

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Depreciation 61 32

Change in fair value of preferred stock tranche rights liability and preferred stock warrant liability — 81,157

Stock-based compensation expense 6,145 3,061

Amortization of premiums and accretion of discounts on marketable securities, net ( 3,121 ) 487

Change in fair value of embedded derivatives 1,360 —

Amortization of right-of-use asset 123 137

Other non-cash expense — 109

Non-cash research and development expense 739 —

Realized gain on marketable securities ( 11 ) —

Non-cash interest expense 145 —

Changes in operating assets and liabilities:

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Accrued clinical trial expenses 1,670 2,570

Operating lease liability ( 137 ) —

Accrued expenses and other current liabilities 2,989 ( 562 )

Finance lease liability 17 —

Operating lease liability ( 110 ) ( 137 )

Net cash used in operating activities ( 43,064 ) ( 35,153 )

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Proceeds from maturities and sales of marketable securities 78,981 80,860

Proceeds from sale of property and equipment 3 —

Purchases of property and equipment ( 21 ) ( 161 )

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Proceeds from issuance of common stock, net of issuance costs 121,904 3,792

Proceeds from Term Loan 30,000 —

Payments for financing costs ( 476 ) —

Proceeds from exercise of stock options 325 115

Proceeds from issuance of Series B milestone shares, net of issuance costs — 30,031

Proceeds from exercise of Series A-1 warrant — 1,250

Proceeds from exercise of common stock warrants — 614

Net cash provided by financing activities 151,753 3,907

Net change in cash and cash equivalents 7,939 78,385

Cash and cash equivalents at the beginning of the period 122,162 43,777

Cash and cash equivalents at the end of the period $ 130,101 $ 122,162

Net change in cash and cash equivalents and restricted cash ( 62,982 ) 7,939

Cash and cash equivalents and restricted cash at the beginning of the period 130,101 122,162

Cash and cash equivalents and restricted cash at the end of the period $ 67,119 $ 130,101

Supplemental disclosure of cash flow information

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Supplemental disclosure of noncash financing activities

Right-of-use assets obtained in exchange for finance lease liabilities $ 739 $ —

Right-of-use assets obtained in exchange for operating lease liabilities $ 399 $ 242

Conversion of convertible preferred stock into common stock upon IPO $ — $ 174,504

Reclassification of preferred stock tranche rights liability upon share issuance $ — $ 81,190

Reclassification of warrant liability upon exercise of preferred stock warrant $ — $ 5,380

Issuance of warrant with Term Loan $ 1,132 $ —

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

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Based on decades of research and supporting evidence, AßOs have gained increasing scientific acceptance as a primary toxin involved in the initiation and propagation of AD pathology.

The Company is currently focused on advancing a targeted immunotherapy drug candidate, ACU193, through clinical proof of mechanism trials in early AD patients.

ACU193 is a recombinant humanized immunoglobin gamma 2 (“IgG2”) monoclonal antibody (“mAb”) that was designed to selectively target AßOs , has demonstrated functional and protective effects in in vitro assays, and has demonstrated in vivo safety and pharmacologic activity in multiple animal species, including transgenic models for AD.

The Company is currently focused on advancing a targeted immunotherapy drug candidate, sabirnetug, in clinical development following Phase 1 results in “early AD” patients (patients with mild cognitive impairment or mild dementia due to Alzheimer’s pathology) that were reported in July 2023.

Sabirnetug is a recombinant humanized immunoglobulin gamma 2 (“IgG2”) monoclonal antibody (“mAb”) that was designed to selectively target AßOs , has demonstrated functional and protective effects in in vitro assays, and has demonstrated in vivo safety and pharmacologic activity in multiple animal species, including transgenic mouse models for AD.

The Company is subject to the uncertainty of whether its intellectual property will develop into successful commercial products.

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 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.

Public Offering

On July 21, 2023, the Company issued 16,774,193 shares of its common stock, $ 0.0001 par value per share (“Common Stock”), in a public offering (the “Offering”) at a price of $ 7.75 per share.

The aggregate net proceeds from the Offering, after underwriting discounts and commissions and other offering expenses, were $ 121.9 million.

See additional discussion in Note 8.

Stockholders’ Equity.

Liquidity and Capital Resources

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As of December 31, 2023 and 2022, the Company had an accumulated deficit of $ 222.8 million and $ 170.4 million, respectively, and working capital of $ 233.6 million and $ 172.5 million, respectively.

During 2023, the Company received cash from the Offering and borrowings with net proceeds of $ 29.5 million under a term loan facility (see Note 6.

Management believes that the Company has sufficient cash to continue operating activities for beyond 12 months from issuance of these financial statements.

In October 2022, the Company issued 422,160 shares of common stock for net proceeds of $ 3.8 million, at a weighted average price of $ 10.06 per share.

See additional discussion in Note 8.

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.

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, if approved for commercial sale.

The Company expects that it will 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, as 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 any 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.

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The Company may be required to delay, limit, reduce or terminate its product discovery and development activities or future commercialization efforts.

The Company initiated a Phase 1 clinical trial of ACU193 in the second quarter of 2021, which the Company named “INTERCEPT-AD.” This trial enrolled patients with mild dementia or mild cognitive impairment (“MCI”), due to AD, conditions referred to as “early AD.” INTERCEPT-AD is a U.S.-based, multi-center, randomized, double-blind, placebo-controlled clinical trial with overlapping single ascending dose and multiple ascending dose cohorts involving a total of approximately 65 patients with early AD.

The Company completed a Phase 1 clinical trial of sabirnetug in the second quarter of 2023, which the Company named “INTERCEPT-AD.” This trial enrolled 65 patients with “early AD” and 62 participants received at least one dose of study drug.

INTERCEPT-AD was a U.S.-based, multi-center, randomized, double-blind, placebo-controlled clinical trial with overlapping single ascending dose and multiple ascending dose cohorts evaluating patients with early AD.

In July 2023, the

Company announced topline results from INTERCEPT-AD, which demonstrated that sabirnetug met the primary and secondary objectives of this study in 62 participants with early AD .

The Company expects to initiate a Phase 2 clinical trial of sabirnetug called “ALTITUDE-AD” in the first half of 2024.

BASIS OF PRESENTATION, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

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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.

Under the Jumpstart Our Business Startups Act of 2012, as amended, the Company meets the definition of an emerging growth company and has elected to use 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

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To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current period presentation.

Accrued clinical trial expenses are presented as a separate line on the balance sheets and statements of cash flows, whereas these accrued expenses were previously included in accrued expenses and other current liabilities.

These reclassifications had no effect on the reported results of operations.

Cash and Cash Equivalents

The more significant estimates and assumptions by management include, among others:

the valuation allowance of deferred tax assets resulting from net operating losses, the valuation of stock options, the valuation of the warrant to purchase Common Stock and the valuation of embedded derivatives within the Company’s debt, long-term.

Cash and Cash Equivalents and Restricted Cash

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.

All of the Company’s cash equivalents have liquid markets and high credit ratings.

The Company had $ 66.2 million and $ 129.1 million in cash equivalents as of December 31, 2023 and 2022, respectively.

Restricted cash primarily consists of deposited cash collateral for the Company’s credit card program.

The following table provides a reconciliation of cash, cash equivalents and restricted cash from the balance sheets to the statements of cash flows (in thousands):

Cash and cash equivalents $ 66,886 $ 130,101

Restricted cash 233 —

Total cash, cash equivalents and restricted cash $ 67,119 $ 130,101

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’s marketable securities portfolio consists primarily of investments in money market funds, asset-backed securities, U.S.

treasury and agency 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 are classified as cash equivalents, or as short-term or long-term marketable securities based on the maturity date at the 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.

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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.

Amortization of premiums and accretion of 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 not record any other-than-temporary impairments related to available-for-sale securities for the years ended December 31, 2022 or 2021.

For securities available-for-sale, Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments eliminates the concept of other-than-temporary impairment and instead requires entities to determine if impairment is related to credit loss or non-credit loss.

In making the assessment of whether a loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis.

Subsequent activity related to the credit loss component in the form of write-offs or recoveries is recognized as part of the allowance for credit losses on securities available-for-sale.

The Company has made the accounting policy election to exclude accrued interest receivable on securities from the estimate of credit losses and will record a credit loss expense for accrued interest receivable in the period when a credit loss is recorded for the related securities.

Management determined that t he Company did not require an allowance for credit losses for available-for-sale securities as of December 31, 2023 or 2022, as only a small number of investments had a present value of cash flows expected to be collected in excess of the amortized cost, and the aggregate amount of this credit loss was immaterial.

The Company did not have any related write-offs or recoveries for the years ended December 31, 2023 and 2022.

Concentrations of Credit Risk

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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 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:

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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.

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 judgment.

Accordingly, the degree of judgment 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.

There were no transfers made among the three levels in the fair value hierarchy for the years ended December 31, 2023 and 2022 .

The carrying values reported in the balance sheets for cash (excluding cash equivalents which are recorded at fair value on a recurring basis), restricted cash, accounts payable, accrued clinical trial expenses and accrued expenses are reasonable estimates of their fair values due to the short-term nature of these items.

The carrying amount of the Company’s long-term debt approximates fair value due to its variable market interest rate and management’s opinion that current rates and terms that would be available to the Company with the same maturity and security structure would be essentially equivalent to that of the Company’s long-term debt.

Certain features of the term loan were determined to be an embedded derivative requiring separate measurement from the loan host instrument.

Property and Equipment

Property and equipment consists primarily of computer equipment and furniture and fixtures 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 and five years for furniture.

Effective as of January 1, 2022, the Company accounts for its leases under ASC 842, Leases .

Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the balance sheet as both a right-of-use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and right-of-use assets are amortized over the lease term.

Property and equipment are stated at cost.

Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, including leasehold improvements and finance lease right-of-use assets that are amortized over the shorter of their estimated useful lives or the terms of the respective leases.

The Company generally uses the following useful lives for its property and equipment categories:

three years for computer-related assets and five years for furniture.

Leases for additional discussion regarding our finance lease for computer equipment .

The Company accounts for its leases under ASC 842, Leases .

Under this guidance, arrangements meeting the definition of a lease are classified as operating or finance leases and are recorded in the balance sheet at the commencement date as both a right-of-use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and right-of-use assets are amortized over the lease term, or, for finance leases, over the shorter of the lease term or the estimated useful life of the assets.

For operating leases, interest on the lease liability and the amortization of the right-of-use asset results in straight-line rent expense over the lease term.

For finance leases, the right-of-use asset is amortized on a straight-line basis and the amortization is presented as an operating expense separately from interest expense on the lease liability.

Variable lease expenses are recorded when incurred and not included in the measurement of right-of-use assets and lease liabilities.

ASC 842 provides practical expedients for an entity’s ongoing accounting.

In calculating right-of-use assets and lease liabilities, the Company has elected to combine lease and non-lease components.

Additionally, the Company has elected to apply the practical expedient related to short-term leases (i.e., leases having initial terms of 12 months or less at commencement date) as an accounting policy election.

For short-term leases, the Company will not recognize a right-of-use asset or lease liability, but instead will recognize lease payments as an expense on a straight-line basis over the lease term.

Prior to the adoption of ASC 842 on January 1, 2022, the Company accounted for its leases under ASC 840, Leases.

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 Securities , 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 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 a subsequent closing, (deemed the “Milestone Closing” in Note 7) represented a freestanding financial instrument (the “tranche liability”), as it was legally detachable and separately exercisable from the initial closing of the Series B convertible preferred stock.

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.

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, 2022.

Common Stock Warrants

In calculating right-of-use assets and lease liabilities, the Company has elected to combine lease and non-lease components for real estate leases, but has not elected to combine lease and non-lease components for computer equipment leases.

Additionally, the Company has elected not to

recognize a right-of-use asset or lease liability for leases with an initial term of 12 months or less.

For short-term leases, the Company recognized lease payments on a straight-line basis over the lease term.

Debt Discount and Debt Issuance Costs

The debt discount, which reduces the related debt balance in the balance sheets, is comprised of debt issuance costs, contractual fees due upon repayment of the debt, the issuance date fair value of warrants issued with the debt and the issuance date fair value of any derivatives that are bifurcated from the debt.

Debt issuance costs include direct costs (e.g., legal costs and bank fees) incurred to issue non-revolving debt instruments.

The debt discount is amortized to interest expense over the contractual term of the related debt using the effective interest method.

Embedded Derivatives

The Company evaluates embedded derivatives within debt to determine whether the embedded derivatives should be bifurcated from the host instrument and accounted for as a derivative at fair value that will be remeasured at each reporting period for the term of the loan, with changes in fair value recorded in the statements of operations and comprehensive loss.

Management initially assesses the probability of the occurrence of trigger events for bifurcated embedded derivatives in determining fair value.

The probability is reassessed at each reporting period during the term of a loan.

Common Stock Warrant

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 and there were no common stock warrants outstanding following this issuance.

The Company determined that its warrant to purchase Common Stock is not a liability within the scope of ASC 480, Distinguishing Liabilities from Equity , but met the requirements to be classified within stockholders’ equity, as the warrant is indexed to the Company’s own stock and met all of the conditions for equity classification in accordance with ASC 815, Derivatives and Hedging .

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.

Research and development (“R&D”) expenses primarily consist of consultants and materials, biologic storage, salaries and other personnel-related expenses related to R&D 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.

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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.

Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors.

Clinical trial costs are a significant component of R&D expenses and include costs associated with third-party contractors.

The Company accrues and expenses costs for clinical trial activities performed by third parties based upon the work completed to date for each clinical trial in accordance with established agreements.

The Company determines its costs through discussions with internal clinical stakeholders and outside service providers as to the progress

or stage of completion of clinical trials or services and the contracted fee to be paid for such services.

In the event advance payments are made to an outside service provider, the payments are recorded within prepaid expenses and other current assets on the Balance Sheet and subsequently recognized as research and development expense in the Statement of Operations when the associated services have been performed.

The Company determines its costs through discussions with internal clinical stakeholders and outside service providers as to the progress or stage of completion of clinical trials or services and the contracted fee to be paid for such services.

In the event advance payments are made to an outside service provider, the payments are recorded within prepaid expenses and other current assets in the balance sheets and subsequently recognized as R&D expense in the statements of operations and comprehensive loss when the associated services have been performed.

As actual costs become known, the Company adjusts its estimates, liabilities and assets.

Inputs used in the determination of estimates discussed above may vary from actual, which will result in adjustments to research and development expense in future periods.

Inputs used in the determination of estimates discussed above may vary from actual, which will result in adjustments to R&D expense in future periods.

Stock-based Compensation

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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 fair value of restricted stock units (“RSUs”) is the closing market price of the Common Stock on the date of the grant.

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.

Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period.

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 9.

Stock-based Compensation below.

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.

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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.

For the year ended December 31, 2022, potential common shares consisted of stock options.

For the year ended December 31, 2021, potential common shares consisted 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 12 below.

Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, stock options, restricted stock units and warrants, which would result in the issuance of incremental shares of common stock.

However, potential shares of common stock are excluded if their effect is anti-dilutive.

For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

For the year ended December 31, 2023, potential common shares consisted of stock options, restricted stock units, convertible debt and a warrant to purchase Common Stock.

For the year ended December 31, 2022, potential shares of common stock consisted of stock options.

Potentially dilutive securities not included in the calculation of diluted net loss per share of common stock as of the periods presented, because to do so would be anti-dilutive, were as follows:

Shares issuable upon exercise of stock options 7,523,947 5,610,893

Shares issuable upon conversion election for Term Loan 988,142 —

Shares issuable upon exercise of warrant 730,769 —

Unvested RSUs 328,500 —

Total 9,571,358 5,610,893

Segment Information

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Recently Adopted Accounting Pronouncements

ASC 842 requires lessees to recognize the liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheet and also requires lessees and lessors to disclose key information about their leasing transactions.

The Company adopted this guidance on January 1, 2022, using the modified retrospective method and the Company elected the package of practical expedients upon transition, which retained the lease classification for leases that existed prior to the adoption of this guidance.

The Company recorded both a right-of-use asset and a lease liability of approximately $ 0.2 million on its balance sheet upon the adoption of ASC 842.

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.

The Company adopted this guidance on January 1, 2022 with no material impact to the Company’s financial statements upon adoption.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

In June 2016, the FASB issued Accounting Standards Update 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.

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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.

The Company adopted this guidance on January 1, 2023.

The Company’s marketable securities portfolio consists entirely of available-for-sale debt securities and, as such, the adoption of this guidance did not have a material impact on its financial statements and disclosures upon adoption, but it did require the Company to provide additional disclosures related to its available-for-sale debt securities in a continuous unrealized loss position.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), to address the complexity associated with applying U.S.

GAAP to certain financial instruments with characteristics of liabilities and equity.

ASU 2020-06 includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments, which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20.

Additionally, ASU 2020-06 requires entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments.

The Company early adopted this guidance on January 1, 2023, with no impact to the financial statements or results of operations of the Company.

MARKETABLE SECURITIES

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Corporate debt securities $ 144,184 $ 97 $ ( 191 ) $ 144,090

Asset-backed securities 3,006 — ( 102 ) 2,904

treasury securities 15,032 — ( 357 ) 14,675

Government and agency - U.S.

securities 32,470 82 ( 6 ) 32,546

Total available-for-sale securities, short-term 176,654 179 ( 197 ) 176,636

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Corporate debt securities 57,240 320 ( 15 ) 57,545

Government and agency - U.S.

4,985 23 — 5,008

Total available-for-sale securities, long-term 62,225 343 ( 15 ) 62,553

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Available-for-sale securities, short-term

Commercial paper $ 47,939 $ — $ — $ 47,939

Corporate debt securities $ 30,174 $ — $ ( 249 ) $ 29,925

Government and agency - U.S.

securities 15,032 — ( 357 ) 14,675

Asset-backed securities 3,006 — ( 102 ) 2,904

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Corporate debt securities 15,880 — ( 43 ) 15,837

Asset-backed securities 3,013 — ( 25 ) 2,988

treasury securities 11,988 — ( 70 ) 11,918

Total available-for-sale securities, long-term 15,880 — ( 43 ) 15,837

Total available-for-sale securities $ 64,092 $ — $ ( 751 ) $ 63,341

The following tables summarize the amount of unrealized losses, defined as the amount by which the amortized cost exceeds fair value, and the related fair value of available-for-sale marketable securities with unrealized losses, which have been segregated into two categories:

those that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months (in thousands):

December 31, 2023

Less than 12 Months Greater than 12 Months Total

Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses

Corporate debt securities $ 78,995 $ ( 152 ) $ 12,074 $ ( 54 ) $ 91,069 $ ( 206 )

Government and agency - U.S.

securities 5,585 ( 6 ) — — 5,585 ( 6 )

Total $ 84,580 $ ( 158 ) $ 12,074 $ ( 54 ) $ 96,654 $ ( 212 )

December 31, 2022

Less than 12 Months Greater than 12 Months Total

Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses

Corporate debt securities $ 29,515 $ ( 58 ) $ 16,247 $ ( 234 ) $ 45,762 $ ( 292 )

Asset-backed securities — — 2,904 ( 102 ) 2,904 ( 102 )

Government and agency - U.S.

securities 3,026 ( 7 ) 11,649 ( 350 ) 14,675 ( 357 )

Total $ 32,541 $ ( 65 ) $ 30,800 $ ( 686 ) $ 63,341 $ ( 751 )

As of December 31, 2023, 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 .

Certain of the Company’s available-for-sale marketable securities that were in an unrealized loss position as of December 31, 2022 have been in a loss position for between 12 to 15 months;

however, unrealized losses on available-for-sale securities as of December 31, 2022 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 years ended December 31, 2022 and 2021.

There were no realized gains or losses for the years ended December 31, 2022 and 2021.

The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

As noted in the table above, although some of the Company’s available-for-sale marketable securities as of December 31, 2023 have been in an unrealized loss position for more than 12 months, the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

No credit losses were recognized on the Company’s available-for-sale securities during the years ended December 31, 2023 and 2022.

The Company recorded an immaterial realized gain during the year ended December 31, 2023 and had no realized gains or losses during the year ended December 31, 2022.

FAIR VALUE MEASUREMENTS

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Corporate debt securities — 201,635 — 201,635

Asset-backed securities — 2,904 — 2,904

treasury securities — 37,554 — 37,554

Total fair value $ 66,207 $ 239,189 $ — $ 305,396

Liabilities included in:

Debt, long-term

Embedded derivative liabilities $ — $ — $ 2,560 $ 2,560

Total fair value $ — $ — $ 2,560 $ 2,560

Fair value measurements at reporting date using

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Marketable securities

Commercial paper — 47,939 — 47,939

Corporate debt securities — 45,762 — 45,762

Asset-backed securities — 2,904 — 2,904

treasury securities — 11,918 — 11,918

Government and agency - U.S.

— 14,675 — 14,675

Total fair value $ 129,100 $ 63,341 $ — $ 192,441

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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.

Series B Convertible Preferred Stock Tranche Rights Liability

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 the end of each reporting period and in the Stay Private scenario utilized in the hybrid methodology as of June 17, 2021 (the date of the Milestone Closing, as further discussed in Note 7).

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:

2021 December 31,

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 $ 81.2 million and $ 5.0 million as of the Milestone Closing on June 17, 2021 and December 31, 2020, respectively.

The significant increase in the June 17, 2021 valuation stemmed from both a shift in methodology from an option pricing method (“OPM”) to a Hybrid Model where the concluded value of the forward tranche was 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 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:

2021 December 31,

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

The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2023 (in thousands):

Balance, January 1, 2023 $ —

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 )

Fair value of embedded derivatives at issuance of Term Loan 1,200

Change in fair value of embedded derivatives 1,360

Balance, December 31, 2023 $ 2,560

For the year ended December 31, 2023, the fair value of the embedded derivatives in the Term Loan has been estimated using the Monte Carlo model.

A summary of the weighted-average significant unobservable inputs (Level 3 inputs) used in measuring the embedded derivatives in the Term Loan as of December 31, 2023 and November 10, 2023 (inception) is as follows:

December 31, November 10,

Conversion price $ 2.53 $ 2.53

Expected term (in years) 4.7 4.9

Expected equity volatility 106.7 % 102.5 %

Risk-free interest rate 3.9 % 4.7 %

Discount for lack of marketability 11.5 % 9.5 %

Expected dividend yield 0 % 0 %

SUPPLEMENTAL FINANCIAL INFORMATION

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

Prepaid insurance $ 1,106 $ 1,514

Research and development service agreements $ 1,680 $ 1,077

Prepaid raw materials 199 83

Prepaid insurance 807 1,106

Interest receivable 225 —

Dues and subscriptions 175 105

Prepaid raw materials 98 199

Other 108 237

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

Research and development $ 1,211 $ 2,476

Compensation and other employee liabilities $ 3,692 $ 2,008

Research and development 2,186 1,211

Interest 249 —

Other 212 131

Total accrued expenses and other current liabilities $ 6,339 $ 3,350

The Company has been subleasing space in Carmel, Indiana since March 1, 2020.

The Company executed a new sublease for this space that was effective on February 1, 2021 and expires on August 30, 2023.

The sublease does not provide the Company with any renewal options.

The Company allows others to sublease a portion of the space from the Company for less than a one-year period.

The Company recognizes sublease income in other income (expense) on its statements of operations and comprehensive loss.

The Company expects to recognize approximately $ 9,000 in sublease income during 2023.

On November 10, 2023, the Company entered into a Loan and Security Agreement with K2 HealthVentures LLC (the “Loan Agreement”).

The Loan Agreement provided the Company with a term loan facility (the “Term Loan”) in the aggregate principal amount of $ 50.0 million, of which the Company borrowed $ 30.0 million in the first tranche upon closing.

The remaining $ 20.0 million is available for borrowing upon the Company’s request based on review of certain information and discretionary approval from the lenders.

The Loan Agreement bears interest per annum at the greater of 9.65 % or the sum of the prime rate last quoted in The Wall Street Journal plus 1.15 % for such interest period and the principal amount of Term Loan outstanding under the Loan Agreement.

The Term Loan matures on November 1, 2027, and can be extended to November 1, 2028, if the Company achieves certain financing milestones.

The Loan Agreement provides for a final payment fee of an additional $ 1.6 million (the “Final Payment”) due upon repayment of the Term Loan.

The principal and interest of the Term Loan are to be repaid in equal monthly installments beginning on July 1, 2026 through the maturity of the Loan Agreement.

The Loan Agreement allows prepayments of the entire Term Loan or a portion of the Term Loan of more than $ 5.0 million, provided that any partial prepayment will leave outstanding borrowings of at least $ 15.0 million.

The lenders can elect to convert up to $ 2.5 million of the Term Loan (the “Conversion Amount”) to Common Stock at a conversion price of $ 2.53 (the “Conversion Option”).

If the lenders elect to convert the Conversion Amount upon the Next Qualified Financing, as defined in the Loan Agreement whereby the Company receives aggregate gross proceeds of at least $ 20.0 million, the conversion price will equal the lowest effective cash price per share of securities issued in such Qualified Financing (the “Share-Settled Redemption”).

The Conversion Option and Share-Settled Redemption within the Loan Agreement are required to be bifurcated as a single compound embedded derivative (the “Embedded Derivatives”) at fair value, with subsequent changes in fair value recognized in the statements of operations and comprehensive loss.

In accordance with the Loan Agreement, the Company issued an equity-classified warrant to purchase 730,769 shares of Common Stock (the “Loan Warrant”), with an initial allocated fair value of $ 1.1 million.

See additional discussion in Note 8.

Stockholders’ Equity.

The initial recognition of the direct fees of $ 0.5 million, the Final Payment of $ 1.6 million, the fair value of the Embedded Derivatives of $ 1.2 million and the fair value of the Loan Warrant of $ 1.1 million for the Loan Agreement resulted in a discount of $ 4.4 million, which is being amortized to interest expense over the term of the Loan Agreement using the effective interest method.

Outstanding debt consisted of the following (in thousands):

December 31, 2023

Principal value of Term Loan, including final payment of $ 1,635

Fair value of bifurcated embedded derivatives 2,560

Unamortized debt discount ( 4,298 )

Total debt, long-term $ 29,897

The following table provides the components of interest expense (in thousands):

December 31, 2023

Interest expense based on the coupon interest rate of the outstanding debt $ 418

Accretion of debt discount 145

Total interest expense $ 563

For the year ended December 31, 2023, the effective interest rate for the Term Loan was 14.3 %.

As of December 31, 2023, the aggregate principal payments due for the Term Loan by year are as follows (in thousands):

Year ended December 31, 2026 $ 10,104

Year ended December 31, 2027 21,531

Total principal payment due for Term Loan $ 31,635

Office leases

On September 11, 2023, the Company entered into a lease for office space in Newton, Massachusetts, with a lease term of approximately 38 months beginning October 20, 2023, and which expires on December 31, 2026.

On September 28, 2022, the Company entered into a lease for office space in Charlottesville, Virginia with a lease term of 15 months beginning October 1, 2022.

On December 1, 2022, the Company entered into a lease for additional office space in the same building in Charlottesville, Virginia with a lease term of 12 months beginning on January 1, 2023.

automatic renewal for either of the Charlottesville, Virginia leases, but any holdover tenancy shall be on a month-to-month basis thereafter.

The following table summarizes quantitative information about the Company’s operating leases for the year ended December 31, 2022 (in thousands):

There is no automatic renewal for either of the Charlottesville, Virginia leases, but the lease agreements provide that any holdover tenancy shall be on a month-to-month basis thereafter.

The Company had been subleasing space in Carmel, Indiana since March 1, 2020.

The Company executed a new sublease for this space that was effective on February 1, 2021 and expired on August 30, 2023, at which time the Company ceased to occupy this space.

The Company allowed others to sublease a portion of the space from the Company for less than a one-year period.

The Company recognizes sublease income in other expense, net in the statements of operations and comprehensive Loss.

Computer Equipment Lease

In September 2023, the Company entered into an agreement with a vendor that included the lease of certain computer equipment for its planned Phase 2 clinical trial with an October 2023 lease commencement date.

In January 2024, the Company paid $ 0.8 million for the computer equipment which will be returned to the vendor at the completion of the vendor’s services under the agreement.

Upon the lease inception, the Company recorded non-cash expense of $ 0.7 million in research and development expense in the statement of operations and comprehensive loss for the right-of-use assets related to the computer equipment lease as the equipment is being used for R&D and does not have an alternative future use.

The following table summarizes quantitative information about the Company’s leases (in thousands):

Year Ended December 31,

Finance lease

Interest lease cost $ 17 $ —

Finance lease expense 17 —

Operating leases

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Total rent expense $ 160 $ 124

Supplemental information related to leases for the year ended December 31, 2022 was as follows (dollar amounts in thousands):

Supplemental information related to leases was as follows (dollar amounts in thousands):

Year Ended December 31,

Operating cash flows from finance lease $ 17 $ —

Operating cash flows from operating leases $ 121 $ 154

Right-of-use assets obtained in exchange for finance lease liabilities $ 739 $ —

Right-of-use assets obtained in exchange for operating lease liabilities $ 399 $ 242

Noncash research and development expense for the right-of-use assets (finance lease) $ 739 —

Weighted-average remaining lease term – finance leases (in years) 3.8 —

Weighted-average remaining lease term – operating leases (in years) 3.0 0.7

Weighted-average discount rate – finance leases 9.7 % —

Weighted-average discount rate – operating leases 9.7 % 10.0 %

As of December 31, 2023, the present value of maturities of the Company’s finance lease liabilities were as follows (in thousands):

Year ended December 31, 2024 $ 763

present value discount ( 7 )

Finance lease liability $ 756

As of December 31, 2023, the present value of maturities of the Company’s operating lease liabilities were as follows (in thousands):

Year ended December 31, 2024 $ 143

Year ended December 31, 2025 155

Year ended December 31, 2026 158

present value discount ( 63 )

Operating lease liabilities $ 105

Prior to the adoption of ASC 842, and for the year ended December 31, 2021, the Company recognized rent expense on a straight-line basis over the lease period and recorded deferred rent expense for rent expense incurred but not yet paid.

During the year ended December 31, 2021, the Company recognized total rent expense of approximately $ 147,000 , and recognized sublease income of approximately $ 66,000 .

CONVERTIBLE PREFERRED STOCK

Convertible Preferred Stock

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”).

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, bringing the total number of Series B convertible preferred shares outstanding to 19,770,070 .

See “ Series B Convertible Preferred Stock Tranche Rights Liability ” above in Note 4.

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” above in Note 4), bringing the total number of Series A-1 convertible preferred shares outstanding to 7,985,305 .

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.

There were no shares of convertible preferred stock outstanding as of December 31, 2022 or 2021.

Operating lease liability $ 393

STOCKHOLDERS’ EQUITY

Authorized Shares

On July 6, 2021, the Company issued 9,999,999 shares of common stock in the 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.

Effective upon the closing of the IPO on July 6, 2021, the Company amended its certificate of incorporation such that 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 .

As of December 31, 2022, 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.

As of December 31, 2023, the total number of shares of capital stock authorized to be issued per the Company’s Amended and Restated Certificate of Incorporation is 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.

Each share of Common Stock issued and outstanding is entitled to one vote.

Public Offering

On July 21, 2023, the Company issued 16,774,193 shares of its Common Stock in a public offering (the “Offering”) at a price of $ 7.75 per share.

The aggregate net proceeds from the Offering, after underwriting discounts and commissions and other offering expenses, were $ 121.9 million.

Shelf Registration and At-The-Market Equity Offering

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Pursuant to the Registration Statement, the Company may offer and sell securities having an aggregate public offering price of up to $ 200.0 million.

In connection with the filing of the Registration Statement, the Company also entered into a sales agreement with BofA Securities, Inc.

and Stifel, Nicolaus & Company, Incorporated (the “Sales Agents”), as sales agents, pursuant to which the Company may issue and sell shares of its common stock for an aggregate offering price of up to $ 50.0 million under an at-the-market offering program (the “ATM”), which is included in the $ 200.0 million of securities that may be offered pursuant to the Registration Statement.

Pursuant to the ATM, the Company will pay the Sales Agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of common stock.

In connection with the filing of the Registration Statement, the Company also entered into a sales agreement (the “Sales Agreement”) with BofA Securities, Inc.

(“BofA”) and Stifel, Nicolaus & Company, Incorporated (“Stifel”), as sales agents, pursuant to which the Company may issue and sell shares of its Common Stock for an aggregate offering price of up to $ 50.0 million under an at-the-market offering program (the “ATM”), which is included in the $ 200.0 million of securities that may be offered pursuant to the Registration Statement.

On April 23, 2023, the Company entered into an amendment to the Sales Agreement (as amended, the “Amended Sales Agreement”) to add BTIG, LLC (“BTIG”) as a sales agent under the Amended Sales Agreement (BTIG, together with BofA and Stifel, the “Sales Agents”).

Pursuant to the Amended Sales Agreement, the Company will pay the Sales Agents a commission rate of up to 3.0 % of the gross proceeds from the sale of any shares of Common Stock.

The Company is not obligated to make any sales of shares of its common stock under the ATM.

The Company did not sell any shares of its Common Stock under the ATM during the year ended December 31, 2023.

In October 2022, the Company issued 422,160 shares of common stock under the ATM for net proceeds of $ 3.8 million, at a weighted average price of $ 10.06 per share.

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’ equity (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, 2022 and 2021, there were no common stock warrants outstanding.

See additional discussion in Note 12.

Subsequent Events.

Common Stock Warrant

On November 10, 2023, in accordance with the Loan Agreement, the Company issued the Loan Warrant to purchase 730,769 shares of Common Stock at an exercise price of $ 1.95 with a ten-year contractual term and an allocated fair value of $ 1.1 million.

This warrant is outstanding as of December 31, 2023.

In accordance with ASC 815, the Loan Warrant issued in 2023 did not meet the definition of a derivative and was classified in stockholders’ equity in the balance sheet.

The Black-Scholes option-pricing model was used to estimate the fair value of the warrant on November 10, 2023 with the following weighted average assumptions:

Risk-free interest rate 4.6 %

Contractual term (in years) 10

Expected volatility 98.4 %

Expected dividend yield 0 %

STOCK-BASED COMPENSATION

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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 consultants, became effective on June 30, 2021.

The 2021 Plan is a successor to 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”).

The 2021 Plan is a successor to the Company’s Amended and Restated Stock Performance Plan that was adopted by the Company’s board of directors (“Board”) and stockholders on April 8, 2013 (as amended from time to time, most recently on November 20, 2020, the “2013 Plan”).

Following the effectiveness of the 2021 Plan, no further grants may be made under the 2013 Plan;

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As of December 31, 2023, there were 3,231,274 options outstanding under the 2013 Plan.

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 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.

On January 1, 2022, the Board increased the number of shares of common stock reserved for issuance under the 2021 Plan by 2,023,663 shares.

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 .

The number of shares of Common Stock reserved for issuance under the 2021 Plan automatically increases on January 1 of each calendar year through January 1, 2031, in an amount equal to 5 % of the total number of shares of 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.

On January 1, 2023, the number of shares of Common Stock reserved for issuance under the 2021 Plan automatically increased by 2,051,253 shares.

The maximum number of shares of 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, 2023, 11,773,198 shares were authorized for issuance under the 2021 Plan and 3,674,730 shares remained available for issuance under the 2021 Plan.

The Company recorded stock-based compensation expense related to stock options and RSUs in the following expense categories of the statements of operations and comprehensive loss for the periods shown (in thousands):

Year Ended December 31,

General and administrative $ 4,288 $ 2,163

Research and development 1,857 898

Total stock-based compensation $ 6,145 $ 3,061

Stock Options

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The weighted average grant date fair value of options granted during the years ended December 31, 2023 and 2022 was $ 4.38 per share and $ 3.79 per share, respectively.

Prior to the Company’s IPO, the fair value of the Company’s common stock underlying the stock options was historically 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, which was utilized as an input to the Company’s Black-Scholes options pricing model for stock options awarded during the first quarter of 2021.

The December 31, 2020 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.

The fair value of the Company’s common stock as of June 30, 2021 was estimated based upon the per share offering price of the Company’s common stock to the public in its IPO which closed on July 6, 2021.

The June 30, 2021 fair value for the Company’s common stock was utilized as an input for options granted by the Company to its Board on June 30, 2021, which was immediately prior to the IPO.

As of June 30, 2021 and December 31, 2020, management estimated the fair value of a share of common stock to be $ 16.00 and $ 0.83 , respectively.

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 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 %

The stock options granted after December 31, 2017 vest monthly over a range of 12 to 36 months or vest monthly over a total of 48 months following a one-year cliff and all have a ten-year contractual term.

Stock options granted after December 31, 2017 generally vest monthly over a range of 12 to 48 months or vest monthly over a total of 48 months following a one-year cliff and all have a ten-year contractual term.

During the year ended December 31, 2023, the Company also issued option awards to members of its Board that vest in full on the first anniversary of the grant date.

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.

The Company became publicly traded in July 2021 and lacks sufficient company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility using a weighted average blend of historical volatility of a publicly traded set of peer companies, as well as its own historical volatility.

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.

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Vested and exercisable at December 31, 2023 4,021,147 $ 3.17 7.1 $ 7,055

The intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021was approximately $ 0.6 million and $ 0.1 million.

As of December 31, 2022, total unrecognized compensation costs related to unvested stock option

awards granted was approximately $ 8.9 million, which the Company expects to recognize over a weighted-average period of approximately 2.6 years.

The Company recorded stock-based compensation expense related to stock options in the following expense categories of its statements of operations and comprehensive loss for the periods shown (in thousands):

Year Ended December 31,

General and administrative $ 2,163 $ 690

Research and development 898 232

Total stock-based compensation $ 3,061 $ 922

The intrinsic value of stock options exercised during the years ended December 31, 2023 and 2022 was approximately $ 0.5 million and $ 0.6 million, respectively.

As of December 31, 2023, total unrecognized compensation costs related to unvested stock option awards granted was approximately $ 12.3 million, which the Company expects to recognize over a weighted-average period of approximately 2.2 years.

Restricted Stock Units

In January 2023, the Company granted a RSU award to each of its then-current employees.

These RSU awards vest in equal annual installments on the first three anniversaries of the grant date.

Number of Shares Weighted Average Grant Date Fair Value

Unvested as of January 1, 2023 — $ —

Granted 328,500 $ 6.11

Unvested at December 31, 2023 328,500 $ 6.11

As of December 31, 2023, total unrecognized compensation costs related to unvested RSUs was approximately $ 1.4 million, which the Company expects to recognize over a weighted-average period of approximately 2.1 years.

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;

The 2021 Employee Stock Purchase Plan (the “ESPP”), which permits employees to purchase shares of Common Stock, became effective on June 30, 2021.

The number of shares of Common Stock reserved for issuance automatically increases on January 1 of each calendar year through January 1, 2031, by the lesser of (1) 1 % of the total number of shares of 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, 2022, there are 779,732 shares authorized for issuance under the ESPP and have been no purchases of shares under the ESPP.

On January 1, 2023, the number of shares of Common Stock reserved for issuance under the ESPP automatically increased by 410,251 shares.

As of December 31, 2023, there are a total of 1,189,983 shares authorized for issuance and there have been no purchases of shares under the ESPP.

The Company has not recorded any tax provision or benefit for federal income taxes for the years ended December 31, 2023 and 2022.

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Rate change ( 0.1 ) ( 1.1 )

Change in fair value of tranche and warrant liabilities — ( 16.9 )

Non-deductible expense — ( 0.1 )

R&D credit — ( 0.3 )

Other ( 0.5 ) —

Change in valuation allowance ( 22.5 ) ( 22.1 )

Income tax provision (benefit) 0.0 % 0.0 %

Income tax provision 0.0 % 0.0 %

Significant components of the Company’s deferred tax assets as of December 31, 2023 and 2022 were as follows (in thousands):

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Net operating loss $ 16,555 $ 13,125

R&D credit 1,381 1,381

Capitalized R&D 13,328 6,788

Stock compensation 1,849 675

R&D credit 1,350 1,381

Intangible assets 441 —

Accruals and other temporary differences 575 179

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Deferred tax liabilities:

Embedded debt derivative liabilities ( 274 ) —

Other ( 163 ) —

Depreciation — ( 30 )

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In assessing the realizability of deferred tax assets as of December 31, 2023 and 2022, 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 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 net operating loss (“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.

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The change in the valuation allowance as of December 31, 2023 from December 31, 2022 is due to the pretax loss incurred for the year ended December 31, 2023.

As of December 31, 2022, the Company had approximately $ 52.7 million of NOL carryforwards available for federal tax purposes which a portion begins to expire on December 31, 2028.

As of December 31, 2023, the Company had approximately $ 67.2 million of NOL carryforwards available for federal tax purposes.

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 $ 52.7 million, $ 6.4 million will begin to expire in 2028 and $ 46.2 million will not expire.

Of the total federal NOLs of $ 67.2 million, $ 6.5 million will begin to expire on December 31, 2028 and $ 60.7 million will not expire.

As of December 31, 2023, the Company also had approximately $ 46.9 million of state NOL carryforwards.

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Utilization of the NOL and R&D credit 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 Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state 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.

These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized 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 formal analysis of the potential impact of Section 382 on its deferred tax assets as of December 31, 2023.

Until this analysis has been completed, the Company has not adjusted any of its deferred tax assets, including NOLs or R&D credits.

Until this analysis has been completed, the Company has

not adjusted any of its deferred tax assets, including NOLs or R&D credits.

The Company will reassess the amount of NOLs and credits subject to limitation under Section 382 when a study is complete.

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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.

In November 2022, the Company entered into a License Agreement (“Agreement”) with Lonza Sales AG (“Lonza”) for a worldwide non-exclusive license to use certain Lonza technology in its research and development and drug manufacturing activities.

Under the terms of the Agreement, in consideration of the licenses and consents granted to the Company, the Company is required to make an annual payment to Lonza (i) in Swiss Francs in the low six-digits where the Company manufactures ACU193 and (ii) in Swiss Francs in the mid six-digits per sublicense upon the anniversary date of the Agreement where a third party manufactures ACU193.

In addition, if the Company generates Net Sales, as defined in the Agreement, of ACU193, the Company will be obligated to pay Lonza a royalty of low single digits based upon what entity manufactures ACU193 at that time.

NET LOSS PER SHARE

The Company computes net 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.

Potentially dilutive securities not included in the calculation of diluted net loss per common share, because to do so would be anti-dilutive, include shares issuable upon the exercise of stock options of 5,610,893 and 3,835,618 for the years ended December 31, 2022 and 2021, respectively.

SUBSEQUENT EVENT

Failure of Silicon Valley Bank

On March 10, 2023, the Company became aware that the Federal Deposit Insurance Corporation (“FDIC”) issued a press release (the “FDIC press release”) stating that Silicon Valley Bank, Santa Clara, California (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver.

On March 12, 2023, the Treasury Department announced that depositors of SVB would have access to all of their money starting March 13, 2023.

The Company had approximately $ 1.8 million cash deposited with SVB as of December 31, 2022.

On March 14, 2023, the Company regained access to the full amount of its cash that was deposited with SVB.

In November 2023, the Company entered into a Non-exclusive Collaboration and License Agreement (the “Halozyme License Agreement”) with Halozyme, Inc.

(“Halozyme”).

Under the terms of the Halozyme License Agreement, Halozyme granted the Company a non-exclusive license to Halozyme’s drug delivery technology for the development of a subcutaneous formulation of sabirnetug (such combination, the “Halozyme Product”).

For the year ended December 31, 2023, the Company recorded R&D expense with an offsetting accrual in accrued expenses and other current liabilities as of December 31, 2023, for the majority of the seven-figure upfront license payment for the Halozyme Product (the “Upfront Payment”), as the Halozyme Product is in its development stage and does not have an alternative future use.

Subsequent Events for more information regarding the Upfront Payment.

Additionally, the Company will make milestone payments tied to achievement of certain development and commercialization milestone events with respect to the Halozyme Product, as well as milestone payments based on achievement of certain net sales levels of the Halozyme Product.

The Company will also make single-digit royalty payments based on worldwide net sales of the Halozyme Product.

In November 2022, the Company entered into a License Agreement (“Lonza License Agreement”) with Lonza Sales AG (“Lonza”).

Under the terms of the Lonza License Agreement, Lonza granted the Company a worldwide non-exclusive license to use Lonza’s glutamine synthetase gene expression system to manufacture and commercialize sabirnetug (the “Lonza Product”).

Under the terms of the Lonza License Agreement, in consideration of the licenses and consents granted to the Company, the Company paid an upfront fee of 1.0 million Swiss Francs.

The Company is also required to pay certain royalties upon commercialization and annual payments on a country-by-country basis in respect of the manufacturing and sale of the Lonza Product, which include (i) a royalty of less than 1 % on net sales where Lonza manufactures the Lonza Product, (ii) an annual royalty payment in Swiss Francs in the low six-digits and a royalty of less than 1 % on net sales where the Company manufactures the Lonza Product and (iii) an annual payment in Swiss Francs in the mid six-digits per sublicense and a royalty on net sales in the low single digits where a third party manufactures the Lonza Product.

These payment obligations would expire ten years from the first commercial sales of the Lonza Product in such country of sale.

SUBSEQUENT EVENTS

In January 2024, the Company issued 2,068,246 shares of Common Stock under the ATM for net proceeds of $ 7.9 million, or $ 3.84 per share.

In January 2024, the Company paid the seven-figure Upfront Payment for the Halozyme Agreement.

Commitments and Contingencies for additional information.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data