Cabaletta Bio, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of December 31, 2021, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at the reasonable assurance level as of December 31, 2021. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance of the reliability of financial reporting and of the preparation of financial statements for external reporting purposes, in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors; and (3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on its financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate. Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. Management’s assessment included extensive documentation, evaluating and testing the design and operating effectiveness of its internal controls over financial reporting. Based on management’s processes and assessment, as described above, management has concluded that, as of December 31, 2021, our internal control over financial reporting was effective. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.” 133 Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As a result of the COVID-19 pandemic, since March 2020, many of our employees have been working remotely. We have not identified any material changes in our internal control over financial reporting as a result of these changes to the working environment. We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 134 PART III Item 10. Directors, Executive Officers and Corporate Governance. Except as set forth below, the information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our 2021 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021. We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer and principal financial officer. The Code of Business Conduct and Ethics is posted on our website at http://investors.cabalettabio.com/corporate-governance/governance-highlights . We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Business Conduct and Ethics by posting such information on our website, at the address and location specified above and, to the extent required by the listing standards of The Nasdaq Global Select Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information. Item 11. Executive Compensation. The information required by this Item 11 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference . Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item 12 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference . Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item 13 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference . Item 14. Principal Accounting Fees and Services. The information required by this Item 14 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference . Our independent public accounting firm is Ernst & Young, Philadelphia, PA, PCAOB Auditor ID 42 . 135 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements: Page Report of Independent Registered Public Accounting Firm F-2 Balance Sheets as of December 31, 2021 and 202 0 F-3 Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 202 0 F-4 Statements of Convertible Preferred Stock and Stockholders’ E quity for the Years Ended December 31, 2021 and 2020 F-5 Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-6 Notes to Financial Statements F-7 (2) Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. (3) Exhibits. The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K. The exhibits listed in the Exhibit Index are incorporated by reference herein. Item 16. Form 10-K Summary None. 136 INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Balance Sheets as of December 31, 2021 and 2020 F-3 Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020 F-4 Statements of Stockholders’ E quity for the Years Ended December 31, 2021 and 2020 F-5 Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-6 Notes to Financial Statements F-7 F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Cabaletta Bio, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Cabaletta Bio, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018 Philadelphia, Pennsylvania March 17, 2022 F-2 CABALETTA BIO, INC. Balance Sheets (in thousands, except share and per share amounts) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 122,222 $ 101,429 Short-term investments — 7,233 Prepaid expenses and other current assets 2,319 4,873 Total current assets 124,541 113,535 Property, plant and equipment, net 1,438 890 Other assets 357 299 Total Assets $ 126,336 $ 114,724 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 2,333 $ 1,243 Accrued and other current liabilities 6,047 3,937 Total current liabilities 8,380 5,180 Commitments and contingencies (see Note 7) Stockholders’ equity: Preferred stock, $ 0.00001 par value: 10,000,000 shares authorized and no shares issued or outstanding as of December 31, 2021 and 2020 — — Voting and non-voting common stock, $ 0.00001 par value: 150,000,000 ( 143,590,481 voting and 6,409,519 non-voting) shares authorized as of December 31, 2021 and 2020; 28,927,129 ( 24,614,629 voting and 4,312,500 non-voting) shares issued and outstanding as of December 31, 2021 and 24,062,775 ( 19,387,160 voting and 4,675,615 non-voting) shares issued and outstanding as of December 31, 2020 — — Additional paid-in capital 230,543 175,836 Accumulated other comprehensive income — 6 Accumulated deficit ( 112,587 ) ( 66,298 ) Total stockholders’ equity 117,956 109,544 Total liabilities and stockholders’ equity $ 126,336 $ 114,724 The accompanying notes are an integral part of these financial statements. F-3 CABALETTA BIO, INC. Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Year Ended December 31, 2021 2020 Operating expenses: Research and development $ 32,494 $ 21,376 General and administrative 13,819 12,457 Total operating expenses 46,313 33,833 Loss from operations ( 46,313 ) ( 33,833 ) Other income: Interest income 24 494 Net loss $ ( 46,289 ) $ ( 33,339 ) Other comprehensive income: Net unrealized gain on available-for-sale investments, net of tax $ — $ 6 Net comprehensive loss $ ( 46,289 ) $ ( 33,333 ) Net loss per voting and non-voting share, basic and diluted $ ( 1.80 ) $ ( 1.44 ) The accompanying notes are an integral part of these financial statements. F-4 CABALETTA BIO, INC. Statements of Stockholders’ Equity (in thousands, except share and per share amounts) Common Stock Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity Balance—December 31, 2019 24,034,022 $ — $ 171,280 $ — $ ( 32,959 ) $ 138,321 Issuance of common stock in connection with exercise of stock options 25,611 — 139 — — 139 Issuance of common stock under employee stock purchase plan 3,142 — 29 — — 29 Net unrealized gains on available-for-sale securities — — — 6 — 6 Stock-based compensation — — 4,388 — — 4,388 Net loss — — — — ( 33,339 ) ( 33,339 ) Balance—December 31, 2020 24,062,775 $ — $ 175,836 $ 6 $ ( 66,298 ) $ 109,544 Common stock issuance, net of $ 1,492 of issuance costs 4,792,562 — 48,253 — — 48,253 Issuance of common stock in connection with exercise of stock options 64,292 — 579 — — 579 Issuance of common stock under employee stock purchase plan 7,500 — 71 — — 71 Net unrealized losses on available-for-sale securities — — — ( 6 ) — ( 6 ) Stock-based compensation — — 5,804 — — 5,804 Net loss — — — — ( 46,289 ) ( 46,289 ) Balance—December 31, 2021 28,927,129 $ — $ 230,543 $ — $ ( 112,587 ) $ 117,956 The accompanying notes are an integral part of these financial statements. F-5 CABALETTA BIO, INC. Statements of Cash Flows (in thousands) Year Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 46,289 ) ( 33,339 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 5,804 4,388 Amortization of premium on investments 62 119 Depreciation 733 354 Changes in operating assets and liabilities: Prepaid expenses and other current assets 2,554 ( 524 ) Other assets ( 58 ) ( 198 ) Accounts payable 975 555 Accrued and other current liabilities 2,110 1,875 Net cash used in operating activities ( 34,109 ) ( 26,770 ) Cash flows from investing activities: Purchases of property and equipment ( 1,166 ) ( 635 ) Purchases of investments — ( 11,097 ) Proceeds from maturities of investments 7,165 3,751 Net cash provided by (used in) investing activities 5,999 ( 7,981 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs 48,253 ( 192 ) Proceeds from issuance of common stock in connection with the exercise of stock options 579 139 Proceeds from the issuance of common stock under employee stock purchase plan 71 29 Net cash provided by (used in) financing activities 48,903 ( 24 ) Net increase (decrease) in cash and cash equivalents 20,793 ( 34,775 ) Cash and cash equivalents—beginning of year 101,429 136,204 Cash and cash equivalents—end of year $ 122,222 $ 101,429 Supplemental disclosures of non-cash investing and financing activities: Property and equipment purchases included in accounts payable $ 135 $ 20 The accompanying notes are an integral part of these financial statements. F-6 CABALETTA BIO, INC. Notes to the Financial Statements (in thousands, except share and per share amounts) 1. Basis of Presentation Cabaletta Bio, Inc. (the Company or Cabaletta) was incorporated in April 2017 in the State of Delaware as Tycho Therapeutics, Inc. and, in August 2018, changed its name to Cabaletta Bio, Inc. The Company is headquartered in Philadelphia, Pennsylvania. Cabaletta is a clinical-stage biotechnology company focused on the discovery and development of engineered T cell therapies for B cell-mediated autoimmune diseases. Principal operations commenced in April 2018, when the Company executed two sponsored research agreements with the Trustees of the University of Pennsylvania (Penn). On October 29, 2019, the Company completed its initial public offering (IPO) of 6,800,000 shares of Common Stock at an offering price of $ 11.00 per share. The Company received net proceeds of $ 66,156 after deducting underwriting discounts, commissions and estimated offering expenses. In connection with the IPO, the Company’s outstanding shares of convertible preferred stock were automatically converted into 12,904,534 shares of Common Stock. In November 2019, the underwriters partially exercised their option and purchased an additional 475,501 shares of Common Stock resulting in net proceeds to the Company of $ 4,864 , after deducting underwriting discounts and commissions. Risks and Uncertainties The Company does not expect to generate revenue from sales of engineered T cell therapies for B cell-mediated autoimmune diseases or any other revenue unless and until the Company completes preclinical and clinical development and obtains regulatory approval for one or more product candidates. If the Company seeks to obtain regulatory approval for any of its product candidates, the Company expects to incur significant commercialization expenses. The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. As a result, the Company is unable to predict the timing or amount of increased expenses or when or if the Company will be able to achieve or maintain profitability. Further, the Company is currently dependent on Penn for much of its preclinical research, clinical research and development activities and initial manufacturing activities (Note 6). Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. Even if the Company is able to generate revenues from the sale of its product candidates, if approved, it may not become profitable. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations. In December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China and has since reached multiple other regions and countries. The COVID-19 pandemic has continued to evolve as new variants of COVID-19 have been identified and spread, which has led to various responses, including government-imposed quarantines, travel restrictions and other public health safety measures in response to the emergence of new variants. The extent to which COVID-19 will continue to impact the Company’s operations or those of its third party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, new information that may emerge concerning the severity of COVID-19, the impact of new strains of the virus, the effectiveness, availability and utilization of vaccines and the actions to contain COVID-19 or treat its impact, among others. The Company’s financial results to date have not been significantly impacted by COVID-19, however, the Company cannot at this time predict the specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on its financial condition, operations, and business plans, including its ability to raise additional capital, the timing and enrollment of patients in its ongoing and planned clinical trials, future financings and other expected milestones of its product candidates. F-7 Liquidity The Company has sustained annual operating losses since inception and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities. The Company had cash and cash equivalents of $ 122,222 as of December 31, 2021. Through December 31, 2021, the Company has incurred an accumulated deficit of $ 112,587 . Management expects to incur additional losses in the future as it continues its research and development and will need to raise additional capital to fully implement its business plan and to fund its operations. The Company intends to raise such additional capital through a combination of equity offerings, debt financings, government funding arrangements, strategic alliances or other sources. However, if such financing is not available at adequate levels and on a timely basis, or such agreements are not available on favorable terms, or at all, as and when needed, the Company will need to reevaluate its operating plan and may be required to delay or discontinue the development of one or more of its product candidates or operational initiatives. The Company expects that its cash and cash equivalents as of December 31, 2021 will be sufficient to fund its projected operations for at least 12 months following the date the Company files this Annual Report on Form 10-K with the Securities and Exchange Commission (SEC). 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include but are not limited to the fair value of stock-based compensation, the valuation allowance on the Company’s deferred tax assets and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates. Off-Balance Sheet Risk and Concentrations of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist of cash and cash equivalents, which are primarily invested in U.S. treasury-based money market funds. As of December 31, 2020, the Company held available-for-sale debt securities, which were invested in investment grade corporate bonds with high credit quality issuers. These investments matured in 2021 . A portion of the Company’s cash is maintained at a federally insured financial institution. The deposits held at this institution are in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held. The cash in this account is swept daily into U.S. treasury-based and U.S. government-based money market funds. The Company has no off‑balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts. Investments Investments are available-for-sale and carried at estimated fair value. The Company’s valuations of available-for-sale debt securities are generally derived from independent pricing services based upon quoted prices in active markets for similar securities, with prices adjusted for yield and number of days to maturity, or based on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active F-8 markets. Management determines the appropriate classification of its investments in debt securities at the time of purchase and at the end of each reporting period. Investments with original maturities beyond three months at the date of purchase and which mature at, or less than, twelve months from the balance sheet date are classified as current. Unrealized gains and losses are excluded from earnings and are reported as a component of 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 including 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. Additionally, the Company assesses whether it has plans to sell the security or if more likely than not it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other-than-temporary, if any, on available-for-sale securities are included in interest and other income, net. The cost of investments sold is based on the specific-identification method. Interest income on investments as well as amortization of discount or premium is included in interest income. Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Cost includes the acquisition costs and all costs necessary to bring the asset to the location and working condition necessary for its intended use. Depreciation expense is recognized using the straight-line method over the estimated useful life of each asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the accompanying statements of operations. Expenditures for normal, recurring or periodic repairs and maintenance related to property and equipment are charged to expense as incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if it will result in future economic benefits. Estimated useful lives for property and equipment are as follows: Property and equipment Estimated useful life Laboratory equipment Three years Furniture and fixtures Three years Computer equipment Three years Leasehold improvements Lesser of estimated useful life or remaining lease term Fair Value Measurement Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows: Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2—Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. F-9 Research and Development Expenses Research and development costs include costs incurred for internal and external research and development activities and are expensed as incurred in the accompanying statements of operations. Research and development costs consist of salaries and benefits, including associated stock-based compensation, and laboratory supplies and facility costs, as well as fees paid to entities that conduct certain research and development activities on the Company’s behalf. The Company records accrued liabilities for estimated costs of research and development activities conducted by service providers, which include activities under agreements with Penn (Note 6), the conduct of sponsored research, preclinical studies and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided and includes these costs in accrued and other current liabilities and prepaid expenses and other current assets in the accompanying balance sheets and within research and development expense in the accompanying statements of operations. Non-refundable advance payments made for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as expense as the goods are received or the related services are rendered. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with service providers. The Company makes significant judgments and estimates in determining the accrued liabilities and prepaid expenses in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities and prepaid expenses. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception. Stock-based Compensation The Company measures its stock-based awards granted to employees and non-employees based on the estimated fair values of the awards on the respective grant dates. The Company uses the Black-Scholes option-pricing model (Black-Scholes) to estimate the fair value of its stock-based awards. The Company recognizes compensation expense for time-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The Company accounts for forfeitures of stock option awards as they occur. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities, which relate primarily to the carrying amount of the Company’s property and equipment and its net operating loss carryforwards, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets where, based upon the available evidence, the Company concludes that it is more-likely-than-not that the deferred tax assets will not be realized. In evaluating its ability to recover deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Because of the uncertainty of the realization of deferred tax assets, the Company has recorded a full valuation allowance against its deferred tax assets. Reserves are provided for tax benefits for which realization is uncertain. Such benefits are only recognized when the underlying tax position is considered more-likely-than-not to be sustained on examination by a taxing authority, assuming they possess full knowledge of the position and facts. Interest and penalties related to uncertain tax positions are recognized in the provision of income taxes; however, the Company currently has no interest or penalties related to uncertain income tax benefits. Net Loss Per Share The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. The Company has voting and non-voting common stock. The rights, including the liquidation and dividend rights, of the holders of the voting and non-voting common stock are identical, except with respect to voting. Each share of non-voting common stock may be converted at any F-10 time into one share of voting common stock at the option of its holder by providing written notice to the Company, subject to the limitations provided for in the amended and restated certificate of incorporation. The Company also considers its unvested shares of common stock held by the Company’s founders and, prior to its conversion to common stock, its convertible preferred stock to be participating securities as, in the event a dividend is paid on common stock, the holders of convertible preferred stock and unvested shares of common stock would be entitled to receive dividends on a basis consistent with the common stockholders. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock, which excludes unvested shares of common stock. The undistributed loss for each year is allocated to common stockholders based on the contractual participation rights of the voting and non-voting common stock as if the losses for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed losses are allocated on a proportionate basis. Diluted net loss per share attributable to common stockholders is computed under the if-converted method and assumes that all non-voting common stock has been converted to common stock. Since the Company was in a loss position for all periods presented, the effects of the other potentially dilutive securities are antidilutive. Segments Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined it operates in a single operating segment and has one reportable segment. Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize the liabilities related all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. This guidance will be effective for public companies for annual and interim periods beginning after December 15, 2018. For all other entities, including Emerging Growth Companies, this standard is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted. As an Emerging Growth Company, the Company expects to adopt Topic 842 in 2022 and has not yet finalized the assessment of the impact that Topic 842 will have on its financial statements or financial statement disclosures. 3. Fair Value Measurements As of December 31, 2021 and 2020, the Company’s financial instruments included cash and cash equivalents, accounts payable and accrued expenses. As of December 31, 2020, the Company also had available-for-sale debt securities. The carrying amounts for cash and cash equivalents, accounts payable and accrued expenses reported in F-11 the Company’s financial statements for these instruments approximate their respective fair values because of the short-term nature of these instruments. The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values: December 31, 2021 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash and cash equivalents: Money market funds $ 122,222 $ 122,222 $ — $ — Total $ 122,222 $ 122,222 $ — $ — December 31, 2020 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash and cash equivalents: Money market funds $ 101,429 $ 101,429 $ — $ — Short-term investments: Corporate bonds 7,233 — 7,233 — Total $ 108,662 $ 101,429 $ 7,233 $ — Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs. For debt securities classified as available-for-sale investments, the Company records unrealized gains or losses resulting from changes in fair value between measurement dates as a component of other comprehensive income. The Company did no t hold any available-for-sale securities as of December 31, 2021. December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair value Financial assets Money market funds Included in cash and cash equivalents $ 101,429 $ — $ — $ 101,429 Corporate bonds - due in one year or less Included in short-term investments 7,227 6 — 7,233 Total $ 108,656 $ 6 $ — $ 108,662 F-12 4. Property, Plant and Equipment Property plant and equipment consists of the following: December 31, 2021 2020 Laboratory equipment $ 2,242 $ 961 Furniture and fixtures 277 277 Leasehold improvements 57 57 Computer equipment 53 53 Total property, plant and equipment 2,629 1,348 Less: accumulated depreciation ( 1,191 ) ( 458 ) Property, plant and equipment, net $ 1,438 $ 890 Depreciation expense was $ 733 and $ 354 for the years ended December 31, 2021 and 2020, respectively. 5. Accrued and Other Current Liabilities Accrued and other current liabilities consist of the following: December 31, 2021 2020 Research and development services $ 2,836 $ 1,294 General and administrative services 180 160 Compensation expense 2,977 2,445 Other 54 38 $ 6,047 $ 3,937 6. Collaborations, Licensing Agreements and other Agreements Amended and Restated License Agreement with the Trustees of the University of Pennsylvania and Children’s Hospital of Philadelphia In August 2018, the Company entered into a license agreement with Penn, as amended and restated in July 2019 to include the Children’s Hospital of Philadelphia (CHOP) as a party, and as amended in May 2020 and October 2021 (the License Agreement) pursuant to which the Company obtained (a) a non-exclusive, non-sublicensable worldwide license to certain of Penn’s intellectual property to conduct research, product development, clinical trials, cell manufacturing and other activities, and (b) an exclusive, worldwide, royalty-bearing right and license, with a right to sublicense, on a target-by-target basis, under certain of Penn’s intellectual property to make, use, sell, offer for sale, import, and otherwise commercialize products for the treatment of autoimmune and alloimmune diseases. Unless earlier terminated, the License Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn’s intellectual property licensed by the Company. The Company may terminate the License Agreement at any time for convenience upon 60 days written notice. In the event of an uncured, material breach, Penn may terminate the License Agreement upon 60 days written notice. Under the terms of the License Agreement, the Company was obligated to pay $ 2,000 annually for three years beginning August 2018 for funding to the laboratories of each of Drs. Milone and Payne (see Sponsored Research Agreements ). During the term of the License Agreement until the first commercial sale of the first product, the Company is obligated to pay Penn a non-refundable, non-creditable annual license maintenance fee of $ 10 . In May 2020, the Company paid Penn an additional, non-refundable, non-creditable license fee of $ 33 under the amended License Agreement. The Company is required to pay certain milestone payments upon the achievement of specified clinical and commercial milestones. Milestone payments are reduced by a certain percentage for the second product that achieves F-13 a milestone, by an additional percentage for the third product that achieves a milestone, and so on, for each subsequent product that achieves a milestone. In the event that the Company is able to successfully develop and launch multiple products under the License Agreement, total milestone payments could be approximately $ 21,000 . Penn is also eligible to receive tiered royalties at percentage rates in the low single-digits, subject to an annual minimum royalty, on annual worldwide net sales of any products that are commercialized by the Company or its sublicensees that contain or incorporate, or are covered by, the intellectual property licensed by the Company. To the extent the Company sublicenses its license rights under the License Agreement, Penn would be eligible to receive tiered sublicense income at percentage rates in the mid-single to low double-digits. There were no amounts due under the License Agreement as of December 31, 202 1 or 202 0. Sponsored Research Agreements The Company has sponsored research agreements, or SRA, with two faculty members at Penn, who are also scientific co-founders of the Company and members of the Company’s scientific advisory board. In May 2020, one of the SRAs was amended to expand the scope of sponsored research. In August 2020, the same SRA was further amended to extend the term of the original research plan. In December 2021, the Company further amended this SRA to extend the term and expand the workplan to include additional correlative studies related to the DesCAARTes TM trial. In April 2021 and October 2021, the other SRA was amended to extend the term of the original research plan. Under the amended SRAs, the Company has committed to funding defined research plans through December 2024 and November 2022 , respectively. The total estimated cost of $ 12,483 under the SRAs satisfies the Company’s annual obligation under the License Agreement (see Amended and Restated License Agreement with the Trustees of the University of Pennsylvania above). As of December 31, 2021, $ 9,930 of cost has been incurred pursuant to these SRAs. For the years ended December 31, 2021 and 2020, the Company recognized research and development expense of $ 2,840 and $ 2,995 , respectively, related to these SRAs in the accompanying statements of operations. As of December 31, 2021 and 2020, $ 346 and $ 1,851 respectively, of advance payments are included in Prepaid expenses and other current assets in the accompanying balance sheets and there was $ 36 and $ 217 included in Accrued and other current liabilities in the accompanying balance sheets as of December 31, 2021 and 2020. In December 2021, the Company entered into a SRA with Penn for the laboratory of Dr. Drew Weissman, or the Weissman SRA. Under the Weissman SRA, discovery-stage proof of concept studies for lipid nanoparticle mRNA for the delivery and/or enhancement of CAAR technology is being conducted. Under the Weissman SRA, Penn granted the Company a non-transferable, non-exclusive license to use certain intellectual property for specific internal research purposes and further grants the Company the first option to negotiate to acquire, subject to agreement on commercial terms, an exclusive or non-exclusive worldwide license to certain patent rights for specific CAAR products developed under the Weissman SRA. Unless earlier terminated, the Weissman SRA will expire in December 2023. Pursuant to the Weissman SRA, the Company also entered into an Option Agreement with Penn, or the Weissman Option, which grants the Company the option to negotiate to acquire a non-exclusive worldwide license to certain patent rights in connection with the Weissman SRA. Master Translational Research Services Agreement I n October 2018, the Company entered into a services agreement (the Services Agreement) with Penn for additional research and development services from various laboratories within Penn. The research and development activities are detailed in separately executed Penn organization-specific addenda. In May 2020, the Company amended its Addendum with the Center for Advanced Retinal and Ocular Therapeutics (CAROT) to expand access to vector manufacturing. Research and development expense related to executed addenda under the master translational research service agreement with Penn recognized in the accompanying statements of operations for the years ended December 31, 2021 and 2020 was $ 1,933 and $ 2,474 , respectively. The Company may incur additional expenses up to $ 1,360 through the remaining term of the CAROT Amended Addendum. F-14 Subscription and Technology Transfer Agreement In July 2019, the Company entered into a subscription and technology transfer agreement pursuant to which the Company owed Penn an upfront subscription fee, which was paid in 2019, and a nominal non-refundable royalty on the net sales of products, a portion of which will be credited toward milestone payments and royalties, respectively, under the Amended License Agreement. Technology transfer activities will be at the Company’s cost and subject to agreement as to the technology to be transferred. The Company recognized $ 150 of research and development expense under this agreement for the year ended December 31, 2021. No expense was recognized under this agreement for the year ended December 31, 2020. Artisan Collaboration and License Agreement In July 2020, the Company entered into a collaboration and license agreement with Artisan Bio, Inc. (Artisan), wherein the Company and Artisan agreed to collaborate to potentially enhance certain pipeline products of the Company at specific targets using Artisan’s gene editing and engineering technology. If the Artisan technology is applied to any of the Company’s products, the Company will be responsible for the development, manufacturing, and commercialization of any such products. Under the terms of the agreement, the Company was required to pay Artisan a nominal upfront fee, as well as costs associated with research and development activities. Artisan is eligible to receive future research, development and regulatory milestones, and is also eligible to receive sales milestones and tiered royalties on net sales of products that incorporate the Artisan technology. The Company can terminate the agreement at will upon advance written notice with payment of a nominal cancellation fee. Licence and Supply Agreement with Oxford Biomedica In December 2021, the Company entered into a Licence and Supply agreement (LSA) with Oxford Biomedica (UK) Limited, wherein the LSA grants the Company a non-exclusive license to Oxford’s LentiVector® platform for its application in the Company’s DSG3-CAART program and puts in place a multi-year vector supply agreement. Under the terms of the agreement, the Company is required to pay Oxford an upfront fee, as well as costs associated with initial vector manufacturing activities for a total cost of up to approximately $ 4,000 . Oxford is eligible to receive regulatory and sales milestones in the low tens of millions and royalties in the low single digits on net sales of products that incorporate the Oxford technology. The Company can terminate the agreement at will upon advance written notice and subject to certain manufacturing slot cancellation fees. As of December 31, 2021, the Company has recognized expenses of approximately $ 1,100 in the accompanying statements of operations under this LSA. 7. Commitments and Contingencies Operating Lease Agreement In February 2019, the Company entered into an operating lease agreement for new office space in Philadelphia, Pennsylvania. The lease term commenced in May 2019 and will expire in July 2022 . The initial annual base rent is $ 261 , and such amount will increase by 2 % annually on each anniversary of the commencement date. The Company records rent expense on a straight-line basis over the lease term. Rent expense related to this lease agreement recognized in the accompanying statement of operations was $ 272 and $ 266 for the years ended December 31, 2021 and 2020. In February 2022, the Company amended this lease for an additional 35 months, through June 30, 2025 . The annual base rent is $ 279 , starting on January 1, 2023 and such amount will increase by 2.5 % annually. In January 2021, the Company entered into a Development and Manufacturing Services Agreement (WuXi Agreement) with WuXi Advanced Therapies, Inc. (WuXi) to serve as the Company’s cell processing manufacturing partner for the planned MuSK-CAART Phase 1 clinical trial, or MusCAARTes TM trial. The Company concluded the WuXi Agreement has an embedded lease as a dedicated manufacturing suite is used for the Company’s cell processing manufacturing. The monthly fee of $ 125 for this suite is included in the minimum lease payment table below. During the year ended December 31, 2021, the Company recognized $ 480 of expense related to this lease in the accompanying statements of operations. The WuXi Agreement will expire the later of January 2024 , or upon completion of WuXi’s services related to the MusCAARTes TM trial. The Company has the right to terminate the WuXi Agreement for convenience or other reasons specified in the WuXi Agreement upon prior written notice. If the Company terminates the WuXi Agreement, it will be obligated to pay an early termination fee of up to $ 1,500 . F-15 As of December 31, 2021, the future minimum payments for operating leases are as follows: 2022 $ 1,658 2023 1,500 2024 1,500 Thereafter — $ 4,658 Research Service Agreement In February 2021, the Company entered into a research service agreement with CHOP for vector manufacturing. In May 2021, this agreement was amended to provide additional vector manufacturing services. Research and development expense related to this research service agreement with CHOP recognized in the accompanying statements of operations was $ 1,071 for the year ended December 31, 2021. No expense was recognized for the year ended December 31, 2020. There was $ 166 recorded in Accrued and other current liabilities in the accompanying balance sheets as of December 31, 2021. This agreement has a remaining cost of approximately $ 646 , expected to be incurred through the first half of 2023. Manufacturing Agreement In August and October 2021, the Company entered into agreements with a contract manufacturing organization for the purchase of plasmids to be used in vector manufacturing for a total cost of approximately $ 1,620 , expected to be incurred during 2021 and 2022. As of December 31, 2021, $ 1,310 of expense related to these agreements has been recognized in the accompanying statements of operations. There was $ 827 recorded in Accrued and other current liabilities in the accompanying balance sheets as of December 31, 2021. Other Purchase Commitments In the normal course of business, the Company enters into various purchase commitments with third-party contract manufacturers for the manufacture and processing of its product candidates and related raw materials, contracts with contract research organizations for clinical trials and agreements with vendors for other services and products for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred. Indemnification The Company enters into certain types of contracts that contingently requires the Company to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company’s bylaws, under which the Company must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers and consultants for liabilities arising out of their relationship, (iii) contracts under which the Company may be required to indemnify partners against certain claims, including claims from third parties asserting, among other things, infringement of their intellectual property rights, and (iv) procurement, consulting, or license agreements under which the Company may be required to indemnify vendors, consultants or licensors for certain claims, including claims that may be brought against them arising from the Company’s acts or omissions with respect to the supplied products, technology or services. From time to time, the Company may receive indemnification claims under these contracts in the normal course of business. In addition, under these contracts, the Company may have to modify the accused infringing intellectual property and/or refund amounts received. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results or financial condition. It is not possible to determine the maximum potential amount under these contracts due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. F-16 Pending Litigation On February 28, 2022, a purported stockholder of the Company filed a complaint against the Company and certain of the Company’s current officers and certain of the Company’s current and former directors in the United States District Court for the Eastern District of Pennsylvania captioned Patterson v. Cabaletta Bio, Inc., et al. . No. 2:22-cv-00737 (E.D. Pa.). The complaint was filed on behalf of a putative class of persons and entities who purchased or otherwise acquired (a) Cabaletta common stock pursuant and/or traceable to the offering documents issued in connection with the Company’s October 24, 2019 initial public offering; and/or (b) Cabaletta securities between October 24, 2019 and December 13, 2021 both dates inclusive. The complaint alleges claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder and under Sections 11 and 15 of the Securities Act based upon allegedly false or misleading statements and omissions regarding our DesCAARTes TM Phase 1 clinical trial of DSG3-CAART, clinical data for the DesCAARTes TM trial, the efficacy of DSG3-CAART, and the clinical and/or commercial prospects for DSG3-CAART. The complaint seeks damages, prejudgment and post-judgment interest, and reasonable attorneys’ fees, expert fees and other costs. The Company may also become subject to additional securities class action lawsuits in the future. The Company intends to vigorously defend the lawsuit. At this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company. No information is available to indicate that it is probable that a loss has been incurred and can be reasonably estimated as of the date of the financial statements and, as such, no accrual for the loss has been recorded within the financial statements. 8. Common Stock Common Stock Pursuant to the Company’s Third Amended and Restated Certificate of Incorporation filed in October 2019, the Company is authorized to issue 143,590,481 shares of voting common stock and 6,409,519 shares of non-voting common stock. Holders of voting common stock shall have the exclusive right to vote for the election of directors of the Company and on all other matters requiring stockholder action. Each share of the Company’s non-voting common stock may be converted at any time into one share of common stock at the option of its holder by providing written notice to the Company, subject to the limitations provided for in the amended and restated certificate of incorporation. The Company has a Sales Agreement with Cowen and Company, LLC, to provide for the offering, issuance and sale of up to an aggregate amount of $ 75.0 million of common stock from time to time in “at-the-market” offerings (the ATM Program) pursuant to its shelf registration statement on Form S-3 (File No. 333-250006) and subject to the limitations thereof. During the year ended December 31, 2021, the Company sold 4,792,562 shares pursuant to the ATM Program for net proceeds of $ 48.3 million, after deducting commissions of $ 1.4 million. 2018 Stock Option and Grant Plan In September 2018, the Company adopted the 2018 stock option and grant plan (the 2018 Plan), which provided for the Company to sell or issue common stock, or other stock-based awards, to employees, members of the board of directors and consultants of the Company. The Company generally granted stock-based awards with service conditions only (service-based awards), although there was one grant with performance conditions. As of December 31, 2020, there are no unvested options with performance conditions. Stock options granted under the 2018 Plan generally vest over three to four years . There were 1,959,411 options granted under the 2018 Plan prior to the Company’s IPO in October 2019. No further grants may be made under the 2018 Plan subsequent to the IPO. 2019 Stock Option and Incentive Plan The 2019 Stock Option and Incentive Plan (2019 Plan) was approved by the Company’s board of directors on October 14, 2019, and became effective on October 23, 2019. The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares initially reserved for issuance under the 2019 Plan was 2,342,288 , which will be increased each January 1 thereafter by 4 % of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors. On January 1, 2 022, the total number of shares under the 2019 Plan was increased by 1,157,085 shares. As of December 31, 2021, there were 1,855,788 shares remaining available for issuance. F-17 A summary of the stock option activity is presented below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding as of January 1, 2021 2,900,479 $ 7.33 8.5 16,303 Granted 1,653,733 10.87 Exercised ( 64,292 ) 9.00 102 Forfeited/Cancelled ( 232,707 ) 10.87 Outstanding as of December 31, 2021 4,257,213 $ 8.49 8.2 $ 2,367 Options Exercisable at December 31, 2021 1,751,754 $ 5.89 7.3 $ 2,028 The aggregate intrinsic value of options granted is calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock. The weighted average grant-date fair value of stock options granted during the year ended December 31, 2021 and 2020 was $ 7.45 and $ 8.31 , respectively. The fair value of each award is estimated using Black-Scholes based on the following assumptions: For the Year Ended December 31, 2021 2020 Risk-free interest rate 0.63%—1.39% 0.28%—1.48% Expected term 5.5—6.1 years 5.7—6.1 years Expected volatility 79%—81% 70%—79% Expected dividend yield 0 % 0 % Black-Scholes requires the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include: Expected term —The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method, which is the midpoint between the vesting period and the contractual term of the option. Expected volatility —As a privately held company prior to the Company’s IPO in October 2019, the Company has limited trading history for its common stock and, as such, the expected volatility is estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock-based awards. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Risk-free interest rate —The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of a stock-based award. Expected dividend —The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero. Stock-based Compensation The Company has recorded stock-based compensation in the accompanying statements of operations as follows: For the Year Ended December 31, 2021 2020 Research and development $ 2,746 $ 1,989 General and administrative 3,058 2,399 Total $ 5,804 $ 4,388 F-18 As of December 31, 2021, there was $ 14,897 of unrecognized compensation cost related to unvested option awards, which is expected to be recognized over a weighted-average period of 2.6 years . 2019 Employee Stock Purchase Plan The 2019 Employee Stock Purchase Plan (2019 ESPP) was approved by the Company’s board of directors on October 14, 2019, and became effective on October 23, 2019. A total of 234,229 shares of common stock were initially reserved for issuance under the 2019 ESPP, and will be increased each January 1 thereafter through January 1, 2029 by the least of (i) 234,229 shares of common stock, (ii) 1 % of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or (iii) such lesser number of shares determined by the 2019 ESPP’s administrator. On January 1, 2022, there was no increase to the total number of shares under the 2019 ESPP. Employee contributions are made through payroll deductions of up to 15 % of eligible compensation over the offering period. A participant may not accrue rights to purchase more than $ 25 worth of the Company’s common stock for each calendar year in which such right is outstanding. At the end of each offering period, shares of the Company’s common stock may be purchased at 85 % of the lesser of the Company’s common stock on (i) the first trading day of the relevant offering period and (ii) the last trading day of the relevant offering period. The first offering period commenced on July 1, 2020 and ended on November 30, 2020. Thereafter, offerings will be six months in duration and will commence on each December 1 and June 1. 9. Income Taxes The reconciliation of federal statutory income tax rate to the Company’s effective income tax rate is as follows: For the Year Ended December 31, 2021 2020 Expected income tax benefit at the federal statutory rate 21.0 % 21.0 % State and local taxes, net of federal benefit 12.5 12.5 Research and development credit, net 4.4 2.6 Non-deductible items and other ( 0.6 ) ( 0.8 ) Change in valuation allowance ( 37.3 ) ( 35.3 ) Total 0.0 % 0.0 % Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The principal components of the Company’s deferred tax assets consisted of the following: December 31, 2021 2020 Deferred tax assets: Federal, state and local net operating loss carryforwards $ 28,857 $ 15,241 License fee deductions 318 340 Research and development tax credits 3,359 1,317 Stock-based compensation deductions 2,616 1,243 Accrued expenses 1,074 837 Gross deferred tax assets 36,224 18,978 Less: valuation allowance ( 36,224 ) ( 18,978 ) Total deferred tax assets — — Deferred tax liabilities: — — $ — $ — Net deferred tax assets $ — $ — F-19 The Company increased its valuation allowance by $ 17,246 for the year ended December 31, 2021 in order to maintain a full valuation allowance against its deferred tax assets. Based on the Company’s history of losses, the Company recorded a full valuation allowance against its deferred tax assets as of December 31, 2021. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support a reversal of the allowance. As of December 31, 2021, the Company had federal, state and local net operating loss carryforwards of $ 85,798 , $ 87,983 and $ 78,892 , respectively; $ 85,548 of the federal amounts do not expire, and the remaining $ 250 expire in 2037 . The state net operating losses begin to expire in 2037 . The local net operating losses begin to expire in 2039 . As of December 31, 2021, the Company had federal research and development tax credit carryforwards of $ 3,359 , which begin to expire in 2038 . Under the provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the IRC), these net operating losses, credit carryforwards and other tax attributes may be subject to limitation based on previous significant changes in ownership and upon future significant changes in ownership of the Company, as defined by the IRC. The Company files income tax returns in the U.S. federal jurisdiction as well as in Pennsylvania and Philadelphia. The tax years 2020, 2019 and 2018 remain open to examination by the jurisdictions where the Company is subject to tax. The Company evaluates tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50 % likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. As of December 31, 2021, the Company had no unrecognized income tax benefits that would affect the Company’s effective tax rate if recognized. F-20 10. Net Loss Per Share The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. For the years ended December 31, 2021 and 2020, the Company had voting and non-voting common stock outstanding. Since the rights of the voting and non-voting common stock are identical, except with respect to voting, the undistributed losses of the Company have been allocated on a proportionate basis to the two classes. Diluted net loss per share is calculated using the if-converted method, which assumes conversion of all non-voting common stock to voting common stock. Year ended December 31, 2021 Voting common stock Non-voting common stock Basic net loss per share: Numerator Allocation of undistributed losses attributable to common stockholders $ ( 38,417 ) $ ( 7,872 ) Denominator Weighted average number of shares used in basic per share computation 21,360,544 4,376,776 Net loss per share, basic $ ( 1.80 ) $ ( 1.80 ) Diluted net loss per share: Numerator Allocation of undistributed losses for basic computation $ ( 38,417 ) $ ( 7,872 ) Reallocation of undistributed losses as a result of conversion of non-voting to voting common shares ( 7,872 ) — Allocation of undistributed losses $ ( 46,289 ) $ ( 7,872 ) Denominator Weighted average number of shares used in basic per share computation 21,360,544 4,376,776 Add: Conversion of non-voting to voting common shares outstanding 4,376,776 — Weighted average number of shares used in diluted per share computation 25,737,320 4,376,776 Net loss per share, diluted $ ( 1.80 ) $ ( 1.80 ) F-21 Year ended December 31, 2020 Voting common stock Non-voting common stock Basic net loss per share: Numerator Allocation of undistributed losses attributable to common stockholders $ ( 25,090 ) $ ( 8,249 ) Denominator Weighted average number of shares used in basic per share computation 17,417,900 5,727,327 Net loss per share, basic $ ( 1.44 ) $ ( 1.44 ) Diluted net loss per share: Numerator Allocation of undistributed losses for basic computation $ ( 25,090 ) $ ( 8,249 ) Reallocation of undistributed losses as a result of conversion of non-voting to voting common shares ( 8,249 ) — Allocation of undistributed losses $ ( 33,339 ) $ ( 8,249 ) Denominator Weighted average number of shares used in basic per share computation 17,417,900 5,727,327 Add: Conversion of non-voting to voting common shares outstanding 5,727,327 — Weighted average number of shares used in diluted per share computation 23,145,227 5,727,327 Net loss per share, diluted $ ( 1.44 ) $ ( 1.44 ) The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive: For the Year Ended December 31, 2021 2020 Stock options to purchase common stock 4,257,213 2,900,479 Non-vested founder stock — 465,801 Total 4,257,213 3,366,280 11. 401(k) Savings Plan The Company maintains a defined-contribution savings plan under Section 401(k) of the IRC, or the 401(k) Plan. The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. In 2019, the Company made a safe harbor nonelective contribution of 3 % of eligible compensation on behalf of all employees. Effective January 1, 2020, the Plan provided for matching contributions on a portion of participant contributions pursuant to the 401(k) Savings Plan’s matching formula, up to 4 % of eligible compensation. All matching contributions and participant contributions vest immediately. Contributions totaled $ 256 and $ 203 for the years ended December 31, 2021 and 2020, respectively, and have been recorded in the statements of operations. F-22 EXHIBIT INDEX Exhibit Number Description 3.1 Third Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-39103) filed on October 30, 2019) 3.2 Amended and Restated Bylaws of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K (File No. 001-39103) filed on October 30, 2019) 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-234017) filed on October 16, 2019 ) 4.2 Amended and Restated Investors' Rights Agreement among the Registrant and certain of its stockholders, dated January 2, 2019 (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-234017) filed on September 30, 2019) 4.3 Description of Securities (incorporated by reference to Exhibit 4.3 of the Registrant’s Annual Report on Form 10-K (File No. 001-39103) filed on March 30, 2020) 10.1# 2018 Stock Option and Grant Plan, as amended, and form of award agreements thereunder (incorporated by reference to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-234017) filed on September 30, 2019) 10.2# 2019 Stock Option and Incentive Plan, and form of award agreements thereunder. (incorporated by reference to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-234017) filed on October 16, 2019) 10.3# 2019 Employee Stock Purchase Plan. (incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1/A (File No. 333-234017) filed on October 16, 2019) 10.4# Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q filed on December 5, 2019) 10.5# Form of Indemnification Agreement between the Registrant and each of its directors (incorporated by reference to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.6# Form of Indemnification Agreement between the Registrant and each of its executive officers (incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.7 + Amended and Restated License Agreement, dated as of July 23, 2019, among the Registrant, the Trustees of the University of Pennsylvania and the Children’s Hospital of Philadelphia (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.8 + Sponsored Research Agreement, dated as of April 23, 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.9 + Sponsored Research Agreement, dated as of April 23, 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 137 10.10 + Master Translational Research Services Agreement, dated as of October 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.11 + CAROT Master Services Addendum to Master Translational Research Services Agreement, dated as of February 4, 2019, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.12 + CVPF Master Services Addendum to Master Translational Research Services Agreement, dated as of October 22, 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.13 Lease, dated as of February 11, 2019, between the Registrant and Brandywine Cira, L.P. (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.14# Employment Agreement between the Registrant and Steven Nichtberger (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.15# Employment Agreement between the Registrant and Anup Marda (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.16# Employment Agreement between the Registrant and Gwendolyn Binder (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.17# Employment Agreement between the Registrant and David Chang (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1, filed with the SEC on September 30, 2019) 10.18#* Amended and Restated Non-Employee Director Compensation Policy 10.19# Amendment No. 1, dated May 27, 2020, to the Sponsored Research Agreement, dated April 23, 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-39103) filed on May 28, 2020) 10.20 + First Amendment, dated May 27, 2020, to the Amended and Restated License Agreement, dated July 23, 2019, among the Registrant, the Trustees of the University of Pennsylvania and the Children’s Hospital of Philadelphia (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-39103) filed on May 28, 2020) 10.21 + Amendment to CAROT Master Services Addendum to Master Translational Research Services Agreement, dated as of May 18, 2020 between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-39103) filed on August 6, 2020) 10.22 + Amendment No. 2, dated August 17, 2020, to the Sponsored Research Agreement, dated April 23, 2018, as amended by Amendment No. 1 dated May 27, 2020, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-39103) filed on November 10, 2020) 138 10.23 + Amendment No. 1, dated April 27, 2021, to the Sponsored Research Agreement, dated April 23, 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-39103) filed on May 3, 2021 ) 10.24+ Amendment No. 2, dated October 19, 2021, to the Sponsored Research Agreement, dated April 23, 2018, between the Registrant and the Trustees of the University of Pennsylvania (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-39103) filed on November 1, 2021 ) 10.25+ Second Amendment, dated October 19, 2021, to the First Amended and Restated License Agreement, dated May 27, 2020, among the Registrant, the Trustees of the University of Pennsylvania and the Children’s Hospital of Philadelphia (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-39103) filed on November 1, 2021) 10.26* First Amendment, dated February 15, 2022, to the Lease, dated as of February 11, 2019, between the Registrant and Brandywine Cira, L.P. 10.27+* Amendment No. 3, dated December 17, 2021, to the Sponsored Research Agreement, dated April 23, 2018, between the Registrant and the Trustees of the University of Pennsylvania 10.28#* Form of Employment Agreement 10.29+* Sponsored Research Agreement, dated as of December 23, 2021, between the Registrant and the Trustees of the University of Pennsylvania 10.30+* Option Agreement, dated December 23, 2021, by and between Registrant and the Trustees of the University of Pennsylvania 10.31+* Licence and Supply Agreement, dated December 30, 2021, by and between the Registrant and Oxford Biomedica (UK) Limited 21.1* List of Subsidiaries of the Registrant 23.1* Consent of Ernst & Young, independent registered public accounting firm 31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to 1 8 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 139 104* Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101*) # Management Contract or compensatory plan or arrangement. + Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10) of Regulation S-K. * Filed herewith. ** The certifications furnished in Exhibit 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference. 140 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized . Cabaletta Bio, Inc. Date: March 17, 2022 By: /s/ Steven Nichtberger Steven Nichtberger, M.D. Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Steven Nichtberger Director, Chief Executive Officer and President March 17, 2022 Steven Nichtberger, M.D. (Principal Executive Officer) /s/ Anup Marda Chief Financial Officer March 17, 2022 Anup Marda (Principal Financial and Accounting Officer) /s/ Catherine Bollard Director March 17, 2022 Catherine Bollard, M.D. /s/ Scott Brun Director March 17, 2022 Scott Brun, M.D. /s/ Richard Henriques Director March 17, 2022 Richard Henriques /s/ Mark Simon Director March 17, 2022 Mark Simon 141