Adicet Bio, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. Overview We are a clinical stage biotechnology company discovering and developing allogeneic gamma delta T cell therapies for autoimmune diseases and cancer. We are advancing a pipeline of “off-the-shelf” gamma delta T cells, engineered with chimeric antigen receptors (CARs), to facilitate durable activity in patients. Our approach to activate, engineer and manufacture allogeneic gamma delta T cell product candidates derived from the peripheral blood cells of unrelated donors allows us to generate new product candidates in a rapid and cost-efficient manner. Our allogeneic "off-the-shelf" manufacturing process is designed to allow product from unrelated donors to be stored and sold on demand to treat patients without inducing a graft versus host immune response. This is in contrast to products based on alpha beta T cells, which either must be manufactured for each patient from his or her own T cells, or require significant gene editing to manufacture if the T cells are derived from donors that are unrelated to the patient. Our lead product candidate, ADI-001, a first-in-class allogeneic gamma delta T cell therapy expressing a CAR targeting CD20, is being developed for the potential treatment of autoimmune diseases. We are also pursuing ADI-270, an armored gamma delta CAR T cell product candidate designed to address multiple CD70+ solid tumor and hematological malignancies indications, with renal cell carcinoma (RCC) as the initial indication. Our pipeline has several additional internal gamma delta T cell therapy programs in discovery and preclinical development for both hematological malignancies and solid tumors. We expect to continue to develop product candidates in autoimmune diseases and cancer based on our gamma delta T cell platform using either previously validated antigens or those that we identify and target using CAR and other technology. We plan to file one new Investigational New Drug (IND) application every 12-18 months. ADI-001 In December 2023, the U.S. Food and Drug Administration (FDA) cleared our IND application for ADI-001 in lupus nephritis (LN). In August 2024, we expanded our ADI-001 autoimmune clinical development program to include systemic lupus erythematosus (SLE), systemic sclerosis (SSc) and anti-neutrophil cytoplasmic autoantibody associated vasculitis (AAV). In September 2024, we activated sites for our Phase 1 clinical trial of ADI-001 in autoimmune diseases and opened enrollment for patients with LN. In October 2024, we received clearance for our IND amendment to evaluate ADI-001 in idiopathic inflammatory myopathies (IIM) and stiff person syndrome (SPS) as part of our Phase 1 clinical trial in autoimmune diseases. We expect to initiate enrollment for patients with SLE, SSc, IIM and SPS in the second quarter of 2025, and for patients with AAV in the second half of 2025. We believe the favorable safety profile, cellular kinetics and B cell depletion in peripheral blood and secondary lymphoid tissue demonstrated with ADI-001 clinical experience to date is favorable for development in autoimmune diseases. We believe the potential market opportunity for ADI-001 in B cell mediated autoimmune diseases is substantial based on the prevalence in the U.S., EU5, China and Japan of greater than 1.7 million patients with autoimmune diseases where CAR-T cell therapy has demonstrated clinical proof-of-concept, including SLE (which includes LN), SSc, IIM and SPS. In June 2024, the FDA granted Fast Track Designation to ADI-001 for the potential treatment of relapsed/refractory class III or class IV LN. In February 2025, the FDA granted Fast Track Designation to ADI-001 for the potential treatment of adult patients with refractory SLE with extrarenal involvement and for SSc. In November 2024, we dosed our first LN patient, and in February 2025, reported that we have dosed a total of three LN patients, in our Phase 1 clinical trial of ADI-001 in autoimmune diseases. We plan to report preliminary LN clinical data from this trial in the first half of 2025, and data for other autoimmune diseases in the second half of 2025, subject to study site initiation and patient enrollment. Due to the prioritization of ADI-001 in autoimmune indications, patient enrollment in the Phase 1 clinical study of ADI-001 in mantle cell lymphoma has been closed. ADI-270 96 ADI-270 is an investigational allogeneic gamma delta CAR T cell therapy targeting CD70 via the CD27-ligand for the treatment of RCC and with potential in other solid tumor and hematological malignancies indications. ADI-270 is designed to home to solid tumors, with a highly specific targeting moiety for CD70 and an armoring technology of transforming growth factor beta dominant-negative receptor to address immunosuppressive factors in the tumor microenvironment. Building on gamma delta 1 tissue tropism to solid tumors and three mechanisms of anti-tumor activity (CAR, innate and adaptive), CAR gamma delta 1 T cells may be well positioned to address solid tumors. In June 2024, we received FDA clearance for our IND application for ADI-270 in RCC. In July 2024, we also received FDA Fast Track Designation for ADI-270 for the potential treatment of patients with metastatic/advanced clear cell RCC (ccRCC). In December 2024, we dosed our first RCC patient, and in February 2025 reported that we have enrolled a total of three RCC patients, in our Phase 1 multicenter, open-label clinical trial to assess the safety and anti-tumor activity of ADI-270. We plan to share preliminary clinical data in the first half of 2025. Recent Developments Termination of the Loan and Security Amendment On November 27, 2024, Adicet Therapeutics, Inc. (Adicet Therapeutics), a Delaware corporation and our wholly-owned subsidiary, and Banc of California executed a payoff letter (the Payoff Letter) to repay in full all outstanding indebtedness and terminate all commitments and obligations, subject to certain exceptions, under that certain Loan and Security Agreement (the Loan Agreement), dated as of April 28, 2020, as amended. Under the Payoff Letter, we agreed to pay Banc of California approximately $10,000 in administrative fees and establish cash collateral accounts and execute pledge and security agreements to secure ancillary services provided by Banc of California. As of December 31, 2024, we have $2.9 million of restricted cash held in cash collateral accounts. No termination penalty was paid in connection with the Payoff Letter. Research and Development Activities in China In May 2024, we initiated research and development activities in China through a series of contractual agreements entered into and among Shanghai Adicet Biotechnology Co., Ltd. (the Adicet VIE), Adicet (Shanghai) Biotechnology Co., Ltd. (Adicet Shanghai), a wholly owned subsidiary of Adicet Therapeutics, and the shareholders of the Adicet VIE. We are the primary beneficiary of the Adicet VIE, which is considered a consolidated entity under accounting principles generally accepted in the United States of America (U.S. GAAP). At-the-Market (ATM) Offering On March 22, 2024, we entered into an Open Market Sales Agreement SM (the Jefferies Sales Agreement) with Jefferies to sell shares of our common stock, from time to time, through an ATM equity offering program under which Jefferies will act as sales agent or principal (the Jefferies ATM Program). As of December 31, 2024, no shares of common stock have been sold under the Jefferies Sales Agreement. Financial Operations Overview Revenue We have no products approved for commercial sale and do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for our product candidates, which we expect will not be for at least several years, if ever. Expenses Research and Development Research and development expenses, which consist primarily of costs incurred in connection with the development of our product candidates, are expensed as incurred. Research and development expenses consist primarily of: • employee related costs, including salaries, benefits and stock-based compensation expenses for research and development employees; • costs incurred under agreements with consultants, contract development and manufacturing organizations (CDMOs) and contract research organizations (CROs); 97 • lab materials, supplies and maintenance of equipment used for research and development activities; and • allocated facility-related costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and amortization, information technology costs and general support services. We allocate our external costs by product candidate. We do not allocate our internal costs by product candidate as a significant amount of internal research and development expenses are not tracked by product candidate, and we believe the allocation of such costs would be arbitrary and would not provide a meaningful assessment as we have used our employee and infrastructure resources across multiple product candidate research and development programs. We are focusing substantially all of our resources on the development of our product candidates. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including: • the scope, rate of progress and expense of clinical trials and other research and development activities; • clinical trial results; • uncertainties in clinical trial enrollment rate or design; • significant and changing government regulation; • the timing and receipt of any regulatory approvals; • the FDA’s or other regulatory authority’s influence on clinical trial design; • establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; • commercializing product candidates, if and when approved, whether alone or in collaboration with others; • obtaining and maintaining patent and trade secret protection and regulatory exclusivity for product candidates; • continued applicable safety profiles of the products following approval; and • retention of key research and development personnel. A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. Adequate funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to other rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition. General and Administrative General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock based compensation expenses, professional fees for legal, consulting, accounting and tax services, 98 allocated overhead expenses, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase for the foreseeable future due to expenses related to operating as a public company, including expenses related to personnel costs, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with the applicable Nasdaq and SEC requirements, investor relations costs and director and officer insurance premiums. Goodwill Impairment Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in our merger with resTORbio, Inc. in September 2020. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below the carrying value. If the fair value of the reporting unit is less than the carrying value, we measure the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. This amount is recognized as a goodwill impairment charge for the period. The Company performed an interim test for goodwill impairment in the year ended December 31, 2023 and determined that the entire balance of goodwill was impaired. Interest Income Interest income consists primarily of interest earned on our cash, cash equivalents, restricted cash and short-term investments in treasury securities. Interest Expense Interest expense consists primarily of the non-cash amortization of costs incurred in connection with the Loan Agreement (as defined in our Liquidity and Capital Resources section below). Other Expense, Net Other expense, net primarily consists of state franchise and capital taxes not related to income. Results of Operations Comparison of the Years Ended December 31, 2024 and 2023 The following table summarizes our results of operations for the periods indicated (in thousands, except percentages): Twelve Months Ended December 31, 2024 2023 Change % Change Operating expenses Research and development 99,323 106,043 (6,720 ) (6 %) General and administrative 28,292 26,533 1,759 7 % Goodwill impairment — 19,462 (19,462 ) (100 %) Total operating expenses 127,615 152,038 (24,423 ) (16 %) Loss from operations (127,615 ) (152,038 ) 24,423 (16 %) Interest income 10,714 9,978 736 7 % Interest expense (4 ) (25 ) 21 (84 %) Other expense, net (217 ) (573 ) 356 (62 %) Loss before income tax benefit (117,122 ) (142,658 ) 25,536 (18 %) Income tax provision — — — 0 % Net loss $ (117,122 ) $ (142,658 ) $ 25,536 (18 %) 99 Research and Development Twelve Months Ended December 31, 2024 2023 Payroll and personnel expenses(1) $ 42,693 $ 42,744 Costs incurred under agreements with consultants, CDMOs, and CROs 22,269 29,963 Lab materials, supplies and maintenance of equipment used for research and development activities 11,670 11,065 Other research and development expenses(2) 22,691 22,271 Total research and development expenses $ 99,323 $ 106,043 (1) Employee related costs, including salaries, benefits, bonuses, and stock-based compensation expenses for research and development employees. (2) Allocated facility-related costs, such as rent, utilities, insurance, repairs and maintenance, depreciation and amortization, information technology costs and general support services. Research and development expenses decreased by $6.7 million, or 6%, during the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in research and development expenses was primarily due to a $7.7 million decrease in expenses related to CDMOs. This decrease was partially offset by a $0.6 million increase in lab expenses as well as a $0.5 million increase in professional fees. General and Administrative General and administrative expenses increased by $1.8 million, or 7%, during the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase in general and administrative expenses was primarily due to a $0.9 million increase in professional fees for the period. There was also a $0.4 million increase in payroll and personnel expenses, which includes an increase in salaries and benefits of $0.5 million and stock-based compensation of $0.4 million, partially offset by a decrease of $0.3 million in recruiting fees. The increase was also due to a $0.3 million increase in depreciation expense as well as a $0.2 million increase in allocated facility expense for the period. Goodwill Impairment Goodwill impairment charges decreased by $19.5 million, or 100%, during the year ended December 31, 2024 compared to the year ended December 31, 2023. Beginning in the third quarter of 2023, we experienced a significant decline in our stock price. We concluded that the decrease in stock price was sustained and that it was more likely than not that the fair value of our single reporting unit was less than its carrying amount. Therefore, we performed an interim goodwill impairment test in the third 100 quarter of 2023. Based on our interim impairment test, we recorded a goodwill impairment charge of $19.5 million during the year ended December 31, 2023, representing the entire balance of goodwill. Interest Income Interest income increased by $0.7 million, or 7%, during the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to higher cash balances, investments in treasury securities, and higher interest rates for the period. Other Expense, Net Other expense, net decreased by $0.4 million, or 62%, during the year ended December 31, 2024 compared to the year ended December 31, 2023. This was due to a decrease in franchise taxes and realized losses related to foreign exchange rates. Income Tax Benefit There was no income tax expense or benefit for the years ended December 31, 2024 and 2023. Liquidity and Capital Resources Sources of Liquidity We have historically funded our operations primarily through a collaboration and licensing arrangement, public and private placements of equity securities and debt, and cash received in our merger with resTORbio, Inc. In January 2024, we raised aggregate net proceeds of approximately $19.3 million through the JonesTrading ATM Program. In March 2024, we terminated the JonesTrading ATM Program and entered into the Jefferies ATM Program. As of December 31, 2024, no shares of common stock have been sold through the Jefferies ATM Program. On January 22, 2024, we entered into an underwriting agreement (the Underwriting Agreement) with Jefferies LLC (Jefferies) and Guggenheim Securities, LLC, as representatives of the underwriters (the Underwriters), related to an underwritten public offering (the Offering) of 32,379,667 shares of our common stock, which included 5,325,000 shares sold and issued upon the exercise in full by the Underwriters of their option to purchase additional shares of common stock, and, in lieu of common stock to certain investors, pre-funded warrants to purchase 8,445,333 shares of common stock. The shares of common stock were sold at a public offering price of $2.40 per share and the pre-funded warrants were sold at a public offering price of $2.3999 per pre-funded warrant, which represents the per share public offering price of each share of common stock minus the $0.0001 per share exercise price for each pre-funded warrant. The purchase price paid by the Underwriters to us was $2.256 per share and $2.2559 per pre-funded warrant, representing a discount to the Underwriters of 6.0%. We received net proceeds from the Offering, after deducting the underwriting discount and commissions and other estimated offering expenses, of approximately $91.7 million. We may receive nominal proceeds, if any, from the exercise of the pre-funded warrants. As of December 31, 2024, we had cash, cash equivalents and short-term investments of $176.3 million and restricted cash of $2.9 million. We expect that our cash, cash equivalents and short-term investments will be sufficient to fund our forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the issuance of the consolidated financial statements included in this Annual Report on Form 10-K. Loan Agreement On April 28, 2020, we entered into a Loan and Security Agreement (the Loan Agreement) with Banc of California (formerly known as Pacific Western Bank) to finance leasehold improvements for our facilities in Redwood City, CA and other purposes permitted under the Loan Agreement. On October 21, 2021, we amended the Loan Agreement (as amended, the 2021 Loan Amendment) under which Banc of California will provide one or more Term Loans (as defined in the 2021 Loan Amendment), as well as certain Non-Formula Ancillary Services which shall not exceed $5.5 million in the aggregate. Non-Formula Ancillary Services are defined as automated clearinghouse transactions, corporate credit card services, letters of credit, or other treasury management services. Per the terms of the Loan Agreement, the aggregate sum of the outstanding Term Loans and Non-Formula Ancillary Services shall at no time exceed $15.0 million, which each Term Loan to be in an amount of not less than $1.0 million. Pursuant to the 2021 Loan Amendment, the interest rate for the Term Loans shall be set at an annual rate equal to the greater of (i) 0.25% above the Prime Rate then in effect and (ii) 4.25%. 101 On December 2, 2022, we further amended the Loan Agreement (the 2022 Loan Amendment). The 2022 Loan Amendment extended the drawdown period for any Term Loan by one year, which expired on April 19, 2024. Furthermore, the 2022 Loan Amendment extended the final maturity date of any Term Loan by one year from October 19, 2025 to October 19, 2026, and the maturity date of non-formula ancillary services to November 30, 2023. On May 30, 2023, we entered into the 2023 Loan Amendment. Pursuant to the 2023 Loan Amendment, we must maintain the lesser of (i) $35.0 million or (ii) all of our combined balances in demand deposit accounts, money market accounts, and/or insured cash sweep accounts with Banc of California. If our total cash and investments drop to less than $35.0 million, the 2023 Loan Amendment permits us to maintain cash and/or investments in one or more accounts outside of Banc of California up to a total of $2.5 million. In April 2024, the Term Loan availability under our Loan Agreement expired. The Non-Formula Ancillary Services, which shall not exceed $5.5 million in the aggregate, remained available. On November 27, 2024, we executed a payoff letter (the Payoff Letter) with Banc of California to repay in full all outstanding indebtedness and terminate all commitments and obligations, subject to certain exceptions, under the Loan Agreement. Under the Payoff Letter, we agreed to pay Banc of California approximately $10,000 in administrative fees and establish cash collateral accounts and execute pledge and security agreements to secure ancillary services provided by Banc of California. We paid the $10,000 administrative fees in December 2024. As of December 31, 2024, we have $2.9 million of restricted cash held in cash collateral accounts. No termination penalty was paid in connection with the Payoff Letter. Future Funding Requirements We have incurred losses since inception and have incurred losses of $117.1 million and $142.7 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $497.9 million. As of December 31, 2024, we had cash, cash equivalents, and short-term investments of $176.3 million. We believe that our cash, cash equivalents and short-term investments will be sufficient for us to fund our operations for at least twelve months from the issuance date of our consolidated financial statements as of, and for the year ended, December 31, 2024 included elsewhere in this Annual Report on Form 10-K. We have based these estimates on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. Because of the risks and uncertainties associated with research, development, and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. All of our revenue to date has been generated from the Regeneron Agreement, which is a collaboration and license agreement. We do not expect to generate any significant product revenue until we obtain regulatory approval of and commercialize any of our product candidates or enter into additional collaborative agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. We anticipate that we will need to raise substantial additional capital, the requirements for which will depend on many factors, including: • the scope, timing, rate of progress and costs of our drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates; • the timing, number and scope of clinical programs we decide to pursue; • the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates; • the scope and costs of development and commercial manufacturing activities; • the cost and timing associated with commercializing our product candidates, if they receive marketing approval; • the extent to which we acquire or in-license other product candidates and technologies; 102 • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • our ability to establish and maintain collaborations on favorable terms, if at all; • our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval; • our implementation of operational, financial and management systems; • the impact of potential health emergencies on United States and global economic conditions that may impact our ability to access capital on terms anticipated, or at all; and • the post-merger costs associated with being a public company. A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. Adequate funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to other rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition. See the section of this Annual Report on Form 10-K entitled “ Risk Factors ” for additional risks associated with our substantial capital requirements. Summary Statement of Cash Flows The following table sets forth the primary sources and uses of our cash and cash equivalents for each of the periods presented below (in thousands): Twelve Months Ended December 31, 2024 2023 Net cash provided by (used in): Operating activities $ (92,378 ) $ (93,717 ) Investing activities (119,242 ) (4,464 ) Financing activities 111,307 236 Net decrease in cash and cash equivalents $ (100,313 ) $ (97,945 ) Cash Flows from Operating Activities Net cash used in operating activities was $92.4 million for the year ended December 31, 2024. Cash used in operating activities consisted of net loss offset by non-cash adjustments of $30.3 million and a net decrease in operating assets and liabilities of $5.5 million. Non-cash items primarily included stock-based compensation expense of $22.2 million, depreciation and amortization of $6.5 million and non-cash lease expense of $3.2 million. The net decrease in assets and liabilities was primarily due to a decrease of $3.7 million in operating lease liability, a decrease of $2.0 million in accrued and other current and non-current liabilities and a decrease of $1.3 million in prepaid expenses and other current assets. The decrease was partially offset by an increase in accounts payable of $1.1 million and an increase in other non-current assets of $0.4 million. Net cash used in operating activities was $93.7 million for the year ended December 31, 2023. Cash used in operating activities consisted of net loss offset by non-cash adjustments of $48.7 million and a net increase in operating assets and liabilities of $0.3 million. Non-cash items primarily included goodwill impairment of $19.5 million, stock-based compensation expense of $20.3 million, depreciation and amortization of $6.1 million and non-cash lease expense of $2.8 million. The net increase in assets and liabilities was primarily due to an increase of $0.9 million in prepaid expenses and other current assets 103 and an increase of $0.4 million in other non-current assets accounts. There was also an increase in accrued and other current and non-current liabilities of $0.8 million. The increase was partially offset by a decrease in accounts payable of $1.7 million. Cash Flows from Investing Activities Net cash used in investing activities was $119.2 million for the year ended December 31, 2024, which consisted of $129.1 million of purchases of short-term treasury securities and $1.1 million of purchases of lab equipment for our GMP cell processing suite at 1000 Bridge Parkway. We received $11.0 million related to the maturities of short-term treasury securities. Net cash used in investing activities was $4.5 million for the year ended December 31, 2023, which consisted of purchases of property and equipment related to the construction of our facilities in Redwood City, California. Cash Flows from Financing Activities Net cash provided by financing activities was $111.3 million for the year ended December 31, 2024, which included approximately $91.7 million in net proceeds from the issuance of our common stock and pre-funded warrants in the Offering and approximately $19.3 million in net proceeds from the issuance of our common stock under the JonesTrading ATM Program. Net cash provided by financing activities was $0.2 million for the year ended December 31, 2023, which was primarily related to $0.4 million in net proceeds from the issuance of common stock in connection with our employee stock purchase plan. This was partially offset by $0.2 million of cash paid for taxes withheld on the net share settlement of equity awards. Critical Accounting Policies, Significant Judgments and Use of Estimates Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting practices (GAAP). The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results. While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements: Accrued CDMO, CRO, and Research and Development Expenses We have entered into various agreements with CDMOs and CROs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued and other current liabilities on the consolidated balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CDMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets on the consolidated balance sheets until the services are rendered. To date, our estimated accruals have not differed materially from the actual costs. Stock-Based Compensation We use a fair value-based method to account for all stock-based compensation arrangements with employees and non-employees, including stock options and restricted stock awards. Our determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option pricing model. The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. For awards that have a performance condition, we recognize compensation expense based on its assessment of the probability that the performance condition will be achieved, using an accelerated attribution model, over the explicit or implicit service period. We account for forfeitures as they occur. In determining fair value of the stock options granted, we use the Black–Scholes option-pricing model, which requires the input of subjective assumptions, including but not limited to, expected term, volatility and risk-free interest rates. Changes in these assumptions can materially affect the estimate of the fair value of stock-based compensation: Goodwill Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in a business combination. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below the carrying value. 104 Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. We have determined that we operate in a single operating segment and have a single reporting unit. Prior to performing the impairment test, we assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit was less than the carrying amount. If after assessing the totality of events or circumstances, we were to determine that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, we would perform a quantitative impairment test. The quantitative impairment test involves comparing the fair value of the reporting unit to the carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than the carrying value, we measure the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. We performed an interim test for goodwill impairment in the third quarter of the fiscal year ended December 31, 2023 and determined that goodwill was impaired. Smaller Reporting Company We are a “smaller reporting company” as defined in the Exchange Act. As a smaller reporting company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not smaller reporting companies. These provisions include (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act of 2002, as amended; (ii) scaled executive compensation disclosures; and (iii) the option to provide only two years of audited financial statements, instead of three years. We will continue to be a smaller reporting company for as long as we continue to have (i) less than $250 million in market value of our shares held by non-affiliates as of the last business day of our second fiscal quarter or (ii) less than $100 million of annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter and a market value of our shares held by non-affiliates of less than $700 million as of the last business day of our second fiscal quarter. We may choose to take advantage of some but not all of these exemptions. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. We have elected to avail ourselves of the exemption for the delayed adoption of certain accounting standards and, therefore, are not subject to the same new or revised accounting standards as other public companies that are not smaller reporting companies. Recently Issued and Adopted Accounting Pronouncements See the section entitled “ Summary of Significant Accounting Policies ” in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk. Interest Rate Risk As of December 31, 2024, we had cash, cash equivalents and short-term investments of $176.3 million, which consisted of cash and funds invested in treasury securities and money market funds. Interest income is sensitive to general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material impact on our cash and cash equivalents, financial position, or results of operations. Foreign Currency Exchange Risk Our headquarters are located in the United States, where a majority of our general and administrative expenses and research and development costs are incurred in U.S. Dollars. As we grow our business, our results of operations and cash flows may be subject to fluctuations due to foreign currency exchange rates. To date, we do not believe foreign currency exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein. Inflation Risk Our assets are primarily monetary, consisting of cash, cash equivalents, restricted cash and short-term investments in treasury securities. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture, fixtures and office equipment, computer hardware and software and leasehold improvements, we 105 believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. Inflation generally affects us by increasing our cost of labor, clinical trial and manufacturing costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2024 and 2023. Item 8. Financial Statemen ts and Supplementary Data. All financial statements and supplementary data required to be filed hereunder are filed as listed under Item 15(a) of this Annual Report on Form 10-K and are incorporated herein by this reference. Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure. None.