Contineum Therapeutics, Inc. 10-Q

Item 1. Financial Statements. CONTINEUM THERAPEUTICS, INC. CONDENSED BALANCE SHEETS (unaudited) (in thousands, except share and par value data) March 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 16,264 $ 15,526 Marketable securities 101,643 109,664 Prepaid expenses and other current assets 1,804 2,516 Total current assets 119,711 127,706 Property and equipment, net 756 678 Other long-term assets 2,623 1,283 Operating lease right-of-use assets 474 719 Total assets $ 123,564 $ 130,386 Liabilities, convertible preferred stock and stockholders' deficit Current liabilities: Accounts payable $ 570 $ 635 Accrued expenses 5,190 4,385 Current portion of operating lease liabilities 474 464 Total current liabilities 6,234 5,484 Other long-term liabilities 228 110 Operating lease liabilities, net of current portion 111 108 Total liabilities 6,573 5,702 Convertible preferred stock, $ 0.001 par value; authorized shares— 16,940,594 at March 31, 2024 and December 31, 2023; issued shares and outstanding shares— 15,906,236 at March 31, 2024 and December 31, 2023; $ 193,462 aggregate liquidation preference at March 31, 2024 192,620 192,620 Stockholders' deficit: Common stock, $ 0.001 par value; authorized shares— 39,630,511 at March 31, 2024 and December 31, 2023, respectively; issued shares— 2,384,426 and 2,349,554 at March 31, 2024 and December 31, 2023 respectively; outstanding shares— 2,384,426 and 2,349,554 at March 31, 2024 and December 31, 2023 respectively. 2 2 Additional paid-in-capital 7,988 7,098 Accumulated deficit ( 83,561 ) ( 75,144 ) Accumulated other comprehensive income (loss) ( 58 ) 108 Total stockholders' deficit ( 75,629 ) ( 67,936 ) Total liabilities, convertible preferred stock and stockholders' deficit $ 123,564 $ 130,386 The accompanying notes are an integral part of these unaudited condensed financial statements. 1 Table of Contents CONTINEUM THERAPEUTICS, INC. CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited) (in thousands, except share and per share data) Three Months Ended March 31, 2024 2023 Operating expenses: Research and development $ 7,778 $ 3,632 General and administrative 2,152 1,483 Total operating expenses 9,930 5,115 Loss from operations ( 9,930 ) ( 5,115 ) Other income (expense): Interest income 1,636 401 Interest expense — ( 92 ) Change in fair value of preferred stock warrant liability ( 117 ) — Other expense, net ( 6 ) ( 18 ) Total other income 1,513 291 Loss before income taxes ( 8,417 ) ( 4,824 ) Provision for income taxes — — Net loss ( 8,417 ) ( 4,824 ) Other comprehensive income (loss): Unrealized gain (loss) on marketable securities ( 166 ) 67 Comprehensive loss $ ( 8,583 ) $ ( 4,757 ) Net loss per share, basic and diluted $ ( 3.55 ) $ ( 2.12 ) Weighted average shares of common stock outstanding, basic and diluted 2,369,067 2,277,555 The accompanying notes are an integral part of these unaudited condensed financial statements. 2 Table of Contents CONTINEUM THERAPEUTICS, INC. CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS ’ DEFICIT (in thousands, except share data) Additional Accumulated Other Total Convertible Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Capital Income (Loss) Deficit Deficit Balance at December 31, 2023 15,906,236 $ 192,620 2,349,554 $ 2 $ 7,098 $ 108 $ ( 75,144 ) $ ( 67,936 ) Exercise of stock options — — 34,872 — 122 — — 122 Stock-based compensation expense — — — — 768 — — 768 Net loss — — — — — — ( 8,417 ) ( 8,417 ) Unrealized loss on marketable securities — — — — — ( 166 ) — ( 166 ) Balance at March 31, 2024 15,906,236 $ 192,620 2,384,426 $ 2 $ 7,988 $ ( 58 ) $ ( 83,561 ) $ ( 75,629 ) Additional Accumulated Other Total Convertible Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Shares Amount Shares Amount Capital Income (Loss) Deficit Deficit Balance at December 31, 2022 11,889,674 $ 132,482 2,259,734 $ 2 $ 4,726 $ ( 76 ) $ ( 97,864 ) $ ( 93,212 ) Vesting of shares of common stock subject to repurchase — — 5,245 — 5 — — 5 Exercise of stock options — — 7,146 — 8 — — 8 Stock-based compensation expense — — — — 494 — — 494 Net loss — — — — — — ( 4,824 ) ( 4,824 ) Unrealized gain on marketable securities — — — — — 67 — 67 Balance at March 31, 2023 11,889,674 $ 132,482 2,272,126 $ 2 $ 5,233 $ ( 9 ) $ ( 102,688 ) $ ( 97,462 ) The accompanying notes are an integral part of these unaudited condensed financial statements. 3 Table of Contents CONTINEUM THERAPEUTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended March 31, 2024 2023 Operating activities Net loss $ ( 8,417 ) $ ( 4,824 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 61 73 Non-cash operating lease expense 244 238 Stock-based compensation 768 494 Amortization of debt discount and debt issuance costs — 26 Accretion of premiums/discounts on investments, net ( 1,023 ) ( 261 ) Change in fair value of preferred stock warrant liability 117 — Gain on marketable securities — 24 Changes in operating assets and liabilities Prepaid expenses and other current assets 713 ( 60 ) Other long-term assets — 5 Accounts payable ( 70 ) 282 Accrued expenses ( 380 ) ( 978 ) Operating lease liabilities 12 ( 263 ) Net cash used in operating activities ( 7,975 ) ( 5,244 ) Investing activities . Purchase of property and equipment ( 147 ) ( 52 ) Purchases of marketable securities ( 30,640 ) ( 9,216 ) Sales and maturities of marketable securities 39,518 18,623 Net cash provided by investing activities 8,731 9,355 Financing activities Payments of deferred offering costs ( 140 ) — Principal payments on debt — ( 625 ) Proceeds from exercise of stock options 122 8 Net cash used in financing activities ( 18 ) ( 617 ) Net increase in cash and cash equivalents 738 3,494 Cash and cash equivalents at beginning of period 15,526 5,569 Cash and cash equivalents at end of period $ 16,264 $ 9,063 The accompanying notes are an integral part of these unaudited condensed financial statements. 4 Table of Contents CONTINEUM THERAPEUTICS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation Organization and Nature of Operations Contineum Therapeutics, Inc. (the “Company”), is a clinical stage biopharmaceutical company focused on discovering and developing novel, oral small molecule therapies for neuroscience, inflammation and immunology indications with high unmet need. The Company, formerly named Sirocco Therapeutics, Inc. (“Sirocco” or “legacy Sirocco”), Inception 3, Inc. (“Inception”) and Versense Pharmaceuticals, Inc. (“Versense”), was incorporated in the state of Delaware in 2009 as Versense. Versense changed its name to Inception on October 25, 2011, and commenced active operations on July 13, 2012. In May 2018, Inception changed its name to Sirocco. A separate entity named Pipeline Therapeutics, Inc. (“legacy Pipeline”) was founded and incorporated in the state of Delaware on May 9, 2017. On May 7, 2019, legacy Sirocco acquired legacy Pipeline in a merger transaction (the “Merger”). As of December 31, 2019, legacy Pipeline was a wholly owned subsidiary of legacy Sirocco. In January 2020, legacy Pipeline was merged into legacy Sirocco and ceased to exist, and legacy Sirocco changed its name to Pipeline Therapeutics, Inc. In November 2023, Pipeline Therapeutics, Inc. changed its name to Contineum Therapeutics, Inc. Reverse Stock Split On April 1, 2024, the Company filed an amendment to its fourth amended and restated certificate of incorporation as amended and effected a 1 -for- 5.5972 reverse stock split of its capital stock. All share and per-share amounts presented in the financial statements and related notes have been retroactively adjusted to reflect the reverse stock split. Initial Public Offering On April 5, 2024, the Company closed its initial public offering (“IPO”), pursuant to which it issued and sold an aggregate of 6,875,000 shares of its common stock at a public offering price of $ 16.00 per share and on April 19, 2024, the Company issued and sold 548,682 additional shares of its common stock to the underwriters of the IPO pursuant to the partial exercise of their option to purchase additional shares, resulting in net proceeds of approximately $ 108.0 million, after deducting underwriting discounts, commissions and other offering expenses. Upon the closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into Class A common stock or Class B common stock, as applicable. Converted redeemable convertible preferred stock outstanding as of the date of IPO consisted of 15,906,236 shares that were outstanding as of March 31, 2024 ( see Note 6 ). Following the closing of the IPO, no shares of redeemable convertible preferred stock were authorized or outstanding. In connection with the closing of its IPO, on April 9, 2024, the Company’s certificate of incorporation was amended and restated to authorize 220,000,000 shares of common stock of which 200,000,000 are designated as Class A common stock and 20,000,000 of which are designated as Class B common stock; (ii) eliminate all references to the previously existing series of preferred stock; (iii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company’s board of directors in one or more series. The unaudited condensed financial statements as of March 31, 2024, including share and per share amounts, do not give effect to the IPO and related actions as it closed subsequent to March 31, 2024. Liquidity and Capital Resources Since its inception, the Company has devoted substantially all its resources to research and development activities, business planning, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. The Company incurred a net loss of $ 8.4 million for the three months ended March 31, 2024 . The Company had an accumulated deficit of $ 83.6 million as of March 31, 2024 . From its inception through March 31, 2024 , the Company has financed its operations primarily through issuance of convertible promissory notes, convertible preferred stock financings, a term loan and a license agreement (the “J&J License Agreement”) the Company entered in February 2023 with Johnson & Johnson Innovative Medicine (formerly Janssen Pharmaceutica NV), an affiliate of J&J. As of March 31, 2024 , the Company had cash, cash equivalents and marketable securities of $ 117.9 million, which does not include net proceeds from the IPO. Management believes its existing cash, cash equivalents and marketable securities and net proceeds received from its IPO will be sufficient to support operations for at least 12 months from the issuance of these unaudited condensed financial statements. As the Company continues to pursue its business plan, it expects to finance its operations through both public and private sales of equity, debt financings or other commercial arrangements, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties. However, there can be no assurance that any additional financing or strategic transactions will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may need to delay, reduce or eliminate its product development or future commercialization efforts, which could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. Further, if the Company raises funds through licensing or other similar arrangements with third parties, it may be required to relinquish valuable rights to its technology, future revenue streams, research programs or drug candidates or may be required to grant licenses on terms that may not be favorable to it and/or may reduce the value of its common stock Unaudited Interim Condensed Financial Statements The condensed balance sheet as of March 31, 2024 , condensed statements of operations and comprehensive loss, condensed statements of convertible preferred stock and stockholders’ deficit and cash flows for the three months ended March 31, 2024 and 2023 and related notes to condensed financial statements are unaudited. These unaudited interim condensed financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair statement of the Company’s financial position, results of operations and cash flows for the periods presented. The condensed results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year or for any other future annual or interim period. The condensed balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date. These interim condensed financial statements should be read in conjunction with the Company’s audited financial statements. 5 Table of Contents 2. Summary of Significant Accounting Policies During the three -month period ended March 31, 2024, there were no changes to our significant accounting policies as described in our registration statement on Form S- 1, as amended (File No. 333 - 278003 ) as filed with the Securities and Exchange Commission (SEC) pursuant to Rule 424 (b) of the Securities Act of 1933, as amended, on April 1, 2024 and declared effective by the SEC on April 4, 2024. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023 - 09, “Improvements to Income Tax Disclosures.” ASU 2023 - 09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023 - 09 is effective for public entities with annual periods beginning after December 15, 2024 and for private businesses for annual periods beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its financial statements. 3. Marketable Securities The Company invests its excess cash in marketable securities, including debt securities, commercial paper, asset-backed securities, yankee debt and U.S. government agency securities. The following table summarizes the amortized cost and fair value of the Company’s marketable securities by major investment category (in thousands). As of March 31, 2024 Unrealized Amortized Cost Gains Losses Fair Value US Government agency securities $ 14,434 $ — $ ( 45 ) $ 14,389 Certificate of deposit 9,463 6 ( 1 ) 9,468 Corporate debt securities 49,544 17 ( 25 ) 49,536 Commercial paper 20,751 4 ( 11 ) 20,744 Yankee debt 3,882 1 ( 4 ) 3,879 Asset-backed securities 3,627 3 ( 3 ) 3,627 $ 101,701 $ 31 $ ( 89 ) $ 101,643 As of December 31, 2023 Unrealized Amortized Cost Gains Losses Fair Value US Government agency securities $ 18,883 $ 11 $ — $ 18,894 Certificate of deposit 5,232 13 — 5,245 Corporate debt securities 52,310 65 ( 6 ) 52,369 Commercial paper 28,108 19 ( 1 ) 28,126 Yankee debt 2,445 3 — 2,448 Asset-backed securities 2,576 7 ( 1 ) 2,582 $ 109,554 $ 118 $ ( 8 ) $ 109,664 The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, current and expected future economic conditions. As of March 31, 2024 , the Company did not record an allowance for credit loss related to its investment portfolio. 6 Table of Contents 4. Fair Value Measurements The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three -tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 —Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 —Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 —Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity). Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands): Fair Value Measurements Using Quoted Prices in Significant Active Markets Significant Other Unobservable for Identical Observable Inputs Total Assets (Level 1) Inputs (Level 2) (Level 3) As of March 31, 2024: Assets: Cash equivalents $ 14,251 $ 14,251 $ — $ — US Government agency securities 14,390 13,587 803 — Certificates of deposits 9,468 — 9,468 — Corporate debt securities 49,536 — 49,536 — Commercial paper 20,743 — 20,743 — Yankee debt 3,879 — 3,879 — Asset-backed securities 3,628 — 3,628 — Total financial assets $ 115,895 $ 27,838 $ 88,057 $ — Liabilities: Preferred stock warrant liability ( 227 ) — — ( 227 ) Total financial liabilities $ ( 227 ) $ — $ — $ ( 227 ) As of December 31, 2023: Cash equivalents $ 14,646 $ 14,646 $ — $ — US Government agency securities 18,894 16,360 2,534 — Certificates of deposits 5,245 — 5,245 — Corporate debt securities 52,369 — 52,369 — Commercial paper 28,126 — 28,126 — Yankee debt 2,448 — 2,448 — Asset-backed securities 2,582 — 2,582 — Total financial assets $ 124,310 $ 31,006 $ 93,304 $ — Liabilities: Preferred stock warrant liability ( 109 ) — — ( 109 ) Total financial liabilities $ ( 109 ) $ — $ — $ ( 109 ) The carrying amounts of the Company’s financial instruments, including cash, cash equivalents and marketable securities, prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. Included in cash and cash equivalents at March 31, 2024 and December 31, 2023 are money market funds with a carrying value and fair value of $ 11.9 million and $ 11.8 million, respectively, based upon a Level 1 fair value assessment. Preferred Stock Warrant Liability The preferred stock warrant liability (included on the balance sheet under other long-term liabilities) consists of the fair value of a warrant to purchase Series B convertible preferred stock (see Note 6 ) and was based on significant unobservable inputs, which represent a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the preferred stock warrant utilized the Black-Scholes option-pricing model. Upon the closing of the IPO, the warrant to purchase shares of Series B preferred stock became a warrant to purchase shares of Class A common stock. 7 Table of Contents The quantitative elements associated with the Company’s Level 3 inputs impacting the fair value measurement of the preferred stock warrant liability include the fair value per share of the underlying Series B convertible preferred stock, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock. The most significant assumption in the Black-Scholes option-pricing model impacting the fair value of the preferred stock warrant is the fair value of the Company’s Series B convertible preferred stock as of each remeasurement date. The Company determines the fair value per share of the underlying preferred stock by taking into consideration its most recent sales of its convertible preferred stock as well as additional factors that the Company deems relevant. The Company historically has been a private company and lacks company-specific historical and implied volatility information of its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant. The Company has estimated a 0 % dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared dividends. The Company classifies this warrant as a liability on its balance sheets that it remeasures to fair value at each reporting date, and the Company recognizes changes in the fair value of the warrant liability as a component of other income (expense) in its statements of operations and comprehensive loss. The Company will continue to recognize changes in the fair value of the warrant liability until the warrant is exercised, expires or qualifies for equity classification. Significant increases or decreases in any of these inputs in isolation would result in a significantly different fair value measurement. An increase in the risk-free interest rate, and/or an increase in the remaining contractual term or expected volatility, and/or an increase in the fair value of the convertible preferred stock would result in an increase in the fair value of the warrant. Roll-Forward of Level 3 Financial Instruments A reconciliation of the Level 3 financial instruments from December 31, 2023 to March 31, 2024 is as follows (in thousands): Preferred Stock Warrant Liability Balance at December 31, 2023 $ 110 Change in fair value of preferred stock warrant liability 117 Balance at March 31, 2024 $ 227 5. Accrued Expenses Accrued expenses consisted of the following (in thousands): March 31, December 31, 2024 2023 Accrued compensation expenses $ 959 $ 1,904 Accrued research and development expenses 1,885 1,546 Accrued professional and consulting expenses 2,316 834 Other accrued expenses 30 101 Total accrued expenses $ 5,190 $ 4,385 6. Convertible Preferred Stock and Stockholders ’ Deficit Under its Amended and Restated Certificate of Incorporation dated April 10, 2023, the Company had a total of 56,571,107 shares of capital stock authorized for issuance, consisting of 39,630,511 shares of common stock, par value of $ 0.001 per share, and 16,940,594 shares of convertible preferred stock, par value of $ 0.001 per share. Shares of authorized convertible preferred stock are designated as 1,768,607 shares of Series A convertible preferred stock, 1,429,286 shares of Series A- 1 convertible preferred stock, 3,362,377 shares of Series B convertible preferred stock and 10,362,324 shares of Series C convertible preferred stock. Convertible Preferred Stock As of March 31, 2024 and December 31, 2023, the Company’s Series A, Series A- 1, Series B, and Series C convertible preferred stock have been classified as temporary equity in the accompanying balance sheets given that a majority of the Company’s board of director seats are held and/or voted upon by convertible preferred stockholders and they could cause certain events to occur requiring redemption of the preferred stock that are outside of the Company’s control. The Company has not adjusted the carrying values of the convertible preferred stock to the respective liquidation preferences of such shares as the instruments are currently not redeemable and the Company believes it is not probable that the instruments will become redeemable at this point in time. Adjustments to increase the carrying values to the respective liquidation preferences will be made if and when it becomes probable that an event would occur obligating the Company to pay such amounts. 8 Table of Contents The authorized, issued, and outstanding shares of convertible preferred stock as of March 31, 2024 consist of the following: Shares Authorized Shares Issued and Outstanding Liquidation Preference (in thousands) Series A 1,786,607 1,786,604 $ 10,000 Series A-1 1,429,286 1,423,119 11,179 Series B 3,362,377 3,346,607 32,034 Series C 10,362,324 9,349,906 140,249 16,940,594 15,906,236 $ 193,462 Series C Convertible Preferred Stock The Company’s convertible preferred stock as of March 31, 2024 has the following characteristics: 1 ) Dividends Holders of the Series A and A- 1 convertible preferred stock, in preference to any distributions to the holders of common stock, shall be entitled to receive non-cumulative cash dividends at an annual rate of $ 0.45 and $ 0.62 per share, respectively. Holders of the Series B convertible preferred stock, in preference to any distributions to the holders of common stock, Series A, and Series A- 1 stock, shall be entitled to receive non-cumulative cash dividends at an annual rate of $ 0.78 per share. Holders of the Series C convertible preferred stock, in preference to any distributions to the holder of common stock, Series A, Series A- 1 and Series B convertible preferred stock shall be entitled to receive non-cumulative cash dividends at an annual rate of $ 1.18 per share. Such dividends are payable only when and if declared by the Company’s board of directors. No such dividends have been declared or paid through March 31, 2024 . 2 ) Preference on Liquidation The holders of the Series A, Series A- 1, Series B, and Series C convertible preferred stock are entitled to receive liquidation preferences upon the liquidation, dissolution or winding-up of the Company at the greater of 1 ) the Series A, Series A- 1, Series B, and Series C convertible preferred stock original issue prices of $ 5.60 , $ 7.86 , $ 9.52 , $ 15.00 per share, respectively, plus all accrued and declared but unpaid dividends or 2 ) the amount that would have been payable had all shares been converted to common stock immediately prior to such liquidation, dissolution or winding up of the Company. Liquidation payments to the holders of the Series A and Series A- 1 convertible preferred stock have priority and are made in preference to any payments to the holders of common stock. Liquidation payments to the holders of the Series B convertible preferred stock have priority and are made in preference to any payments to the holders of common stock, Series A and Series A- 1 convertible preferred stock. Liquidation payments to the holders of the Series C convertible preferred stock have priority and are made in preference to any payments to the holders of common stock, Series A, Series A- 1, and Series B convertible preferred stock. After full payment of the liquidation preference to the holders of the Series A, Series A- 1, Series B and Series C convertible preferred stock upon the liquidation, dissolution or winding-up of the Company, the remaining assets, if any, will be distributed ratably to all holders of common stock. 3 ) Conversion Rights Each share of outstanding Series A, Series A- 1, Series B, and Series C convertible preferred stock is convertible into one share of common stock at the option of the holder, subject to certain anti-dilution adjustments. The conversion rate for the convertible preferred stock is determined by dividing the applicable original issue price, as adjusted for stock splits, by the applicable conversion price. The conversion price is initially the original issue price for such series of convertible preferred stock, but is subject to adjustment for dividends, stock splits, and other distributions. The conversion rate at March 31, 2024 for the Series A, Series A- 1, Series B, and Series C convertible preferred stock was 1:1. Each share of Series A, Series A- 1, Series B, and Series C convertible preferred stock will be automatically converted into common stock at the then effective conversion rate (i) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock for the account of the Company in which the gross cash proceeds to the Company are at least $ 50.0 million or (ii) upon written request for such conversion from the Requisite Investors (defined under the terms of the convertible preferred stock as at least 60 % of the holders of preferred stock). 4 ) Redemption Rights The holders of Series A, Series A- 1, Series B and Series C convertible preferred stock do not have any redemption rights. 5 ) Voting The holder of each share of Series A, Series A- 1, Series B and Series C convertible preferred stock generally vote together with the shares of common stock as a single class, but also have class vote approval rights as provided by the Company’s certificate of incorporation or as required by applicable law. 9 Table of Contents Common Stock As of March 31, 2024 , of the authorized 39,630,511 shares of common stock, 2,384,446 shares of Class A common stock are issued and outstanding. No shares of Class B common stock are outstanding. The Company has two classes of common stock: the Class A common stock and Class B common stock. Class A common stock has one vote per share and Class B common stock has no votes per share. Voting, dividend, and liquidation rights of the holders of the common stock are subject to, and qualified by, the rights, preferences and privileges of the holders of the convertible preferred stock. The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders. Common stock reserved for future issuance consisted of the following: As of March 31, 2024 Convertible preferred stock 15,906,236 Common stock options granted and outstanding 2,881,867 Shares available for issuance under the 2012 Incentive Plan 260,209 Preferred stock warrant 15,764 Total common stock reserved for future issuance 19,064,076 Stock Options In 2012, the Company adopted the 2012 Equity Incentive Plan (the “Plan”), which allowed for the issuance of incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock, restricted stock units, and other stock awards (collectively “Stock Awards”). The Plan was established to secure and retain the services of the group of persons eligible to receive Stock Awards and to provide additional incentives to its employees, directors, and consultants of the Company. Under the Plan, the Company can offer ISOs to employees and NSOs to employees, non-employee directors, and consultants. The Plan allows the Company to issue stock awards for shares of its common stock up to a total of 3,429,327 shares, subject to appropriate adjustments for stock splits, combinations and other similar events for issuance pursuant to awards made under the Plan. Under the Plan, the exercise price of each ISO shall be established in the sole discretion of the Company’s board of directors (or any of the committees of the Company’s board of directors); provided, however, that (i) the exercise price per share for an ISO shall not be less than the fair market value for shares of the Company’s common stock on the date of grant and (ii) the exercise price per share of an ISO granted to an optionee who on the date of the grant owns stock possessing more than 10 % stockholder of the Company shall not be less than 110 % of the fair market value of a share of its common stock on the date of grant and the option shall not be exercisable after five years from the date of grant. The options that are granted under the Plan are exercisable at various dates as determined upon grant and terminate within ten years of the date of grant, unless the optionee owns 10 % or more of the common shares at which point the expiration period is 5 years, or upon the employee’s termination (whereupon the terminated employee has ninety days after termination to exercise vested options from the date of termination). The vesting period generally occurs over four years. Stock option activity under the Plan is as follows: Options Outstanding Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) Balance at December 31, 2023 2,674,457 $ 5.93 7.22 $ 13,453 Options granted 242,282 16.18 — — Options exercised ( 34,876 ) 3.53 — — Options cancelled and forfeited — — — — Options expired — — — — As of March 31, 2024 2,881,863 $ 6.80 7.18 $ 27,022 Options vested and expected to vest as of March 31, 2024 2,881,863 $ 6.80 7.18 $ 27,022 Options exercisable as of March 31, 2024 2,019,302 $ 4.46 6.15 $ 23,656 The aggregate intrinsic value of options exercised during the period ended March 31, 2024 was $ 0.3 million, determined as of the date of exercise. Options exercisable includes options which are not vested, but are available to be early exercised as of March 31, 2024 . 10 Table of Contents The Company estimated the fair value of stock options using the Black-Scholes valuation model. The Company accounts for any forfeitures of options when they occur. Previously recognized compensation expense for an award is reversed in the period that the award is forfeited. The fair value of stock options was estimated using the following weighted-average assumptions: Three Months Ended March 31, 2024 2023 Assumptions: Expected term (in years) 5.94 6.08 Expected volatility 111 % 90 % Risk free interest rate 4.18 % 3.40 % Dividend yield — — The weighted-average grant-date fair value per share of stock options granted during the period ended March 31, 2024 was $ 13.66 per share, respectively. The Company recorded $ 0.4 million and $ 0.4 million in stock-based compensation expense in general and administrative and research and development, respectively, for the period ended March 31, 2024 . The Company recorded $ 0.3 million and $ 0.2 million in stock-based compensation expense in general and administrative and research and development, respectively, for the period ended March 31, 2023. As of March 31, 2024 there was approximately $ 9.2 million of total unrecognized stock-based compensation expense related to awards granted under the Plan, which is expected to be recognized over a weighted-average period of approximately 1.3 years. 7. License Agreement In February 2023, the Company entered into the J&J License Agreement, pursuant to which the Company granted J&J an exclusive, worldwide license to develop, manufacture and commercialize PIPE- 307 in all indications. The agreement allows the Company to elect, at its sole discretion and cost, to conduct a Phase 2 trial of PIPE- 307 for patients with multiple sclerosis. After such trial, J&J may, at its sole discretion, further develop PIPE- 307 for patients with multiple sclerosis. Additionally, upon J&J deciding to conduct a first Phase 3 clinical trial for a product using PIPE- 307, the agreement allows the Company the option to co-fund a portion of all Phase 3 and subsequent development costs for PIPE- 307, with such cost capped annually. If the Company opts to fund such development costs, then the royalties the Company is eligible to receive will increase. Pursuant to the terms of the agreement, the Company received an upfront, non-refundable and non-creditable payment of $ 50.0 million upon transferring the license and know-how, existing inventory and manufacturing technology. The Company is also eligible to receive approximately $ 1.0 billion in non-refundable, non-creditable milestone payments. Additionally, the Company is eligible to receive tiered royalties in the low-double digit to high-teen percent range on net sales of products containing PIPE- 307. The Company sold approximately 1.7 million shares of series C convertible preferred stock to JJDC, an affiliate of J&J, at $ 15.00 per share, for an aggregate purchase price of approximately $ 25.0 million, in April 2023. The Company determined that this preferred stock purchase was at fair value as other new investors purchased shares of preferred stock at the same price. The Company concluded that J&J represented a customer and applied relevant guidance from ASC 606 to evaluate the appropriate accounting for the J&J License Agreement. The Company evaluated the J&J agreement and concluded that it had promises to transfer a license of functional intellectual property, know-how, existing inventory and manufacturing technology (each of which was determined to be a distinct performance obligation). Control of the promised goods was transferred to J&J in the second quarter of 2023, and the $ 50 million upfront payment was recognized in May 2023 upon satisfaction of the performance obligations. The remaining consideration consists of future contingent milestone-based payments and sales-based royalties. As of March 31, 2024 , all variable consideration under the J&J License Agreement was fully constrained. In August 2023, the Company elected to conduct a Phase 2 trial using PIPE- 307 for patients with multiple sclerosis, which was considered a contract modification under the accounting guidance that added promised goods or services that are distinct at a price that is below the standalone selling price. Therefore, the Company accounted for the modification as a termination of the existing contract and creation of a new contract. Accordingly, the amount of consideration to be allocated to the remaining performance obligations consists of future contingent milestone-based payments and sales-based royalties, all of which were constrained. The only remaining performance obligation is the promise to conduct the Phase 2 trial as the other performance obligations had been satisfied prior to the modification date. Accordingly, the variable consideration allocated to the Phase 2 trial will be recognized as the study is completed using a cost-based measure of progress and when the amounts are no longer probable of a significant reversal. As of March 31, 2024 , no amounts had been recognized related to the Phase 2 trial. 8. Net Loss Per Share The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts): Three Months Ended March 31, 2024 2023 Numerator: Net loss $ ( 8,417 ) $ ( 4,824 ) Denominator: Weighted average common shares issued 2,369,067 2,288,358 Less: weighted average unvested common stock issued upon early exercise of stock options — 10,803 Weighted average shares used to compute net loss per common share, basic and diluted 2,369,067 2,277,555 Net loss per share, basic and diluted $ ( 3.55 ) $ ( 2.12 ) 11 Table of Contents The Company’s potentially dilutive securities, which include convertible preferred stock, preferred stock warrants, common stock issued upon early exercise of stock options, common stock subject to repurchase, common stock options, and the investor rights and obligations liability, have been excluded from the computation of diluted net loss per share for the three months ended March 31, 2024 and 2023 as the effect would reduce the net loss per share. Therefore, the weighted-average number of shares common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common securities, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: March 31, March 31, 2024 2023 Convertible preferred stock (as converted to common stock) 15,906,273 11,889,698 Common stock options 2,881,863 2,201,451 Unvested common stock issued upon early exercise of stock options — 17,130 Preferred stock warrant (as converted to common stock) 15,764 15,764 18,803,900 14,124,043 9. Subsequent Events The Company’s board of directors approved a one -for- 5.5972 reverse stock split of its issued and outstanding common and preferred stock, effective on April 1, 2024. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the effects of the reverse stock split. Shares of common stock underlying outstanding stock options and preferred stock warrants were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. On April 4, 2024, the Company’s registration statement on Form S- 1 (File No. 333 - 278003 ) relating to its initial public offering (“IPO”) of its common stock was declared effective by the SEC and the shares of its common stock began trading on the Nasdaq Global Select Market (Nasdaq) on April 4, 2024. The public offering price of the shares sold in the IPO was $ 16.00 per share. The IPO closed on April 9, 2024, pursuant to which the Company sold 6,875,000 shares of common stock, for gross proceeds of approximately $ 110.0 million. On April 19, 2024, the underwriters elected to partially exercise the over-allotment option purchasing 548,682 shares for gross proceeds of an additional $ 8.2 million. 12 Table of Contents Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited condensed financial statements and notes thereto as of and for the year ended December 31, 2023 and the related Management ’ s Discussion and Analysis of Financial Condition and Results of Operations, both of which are included in our final prospectus filed with the Securities and Exchange Commission ( “ SEC ” ) pursuant to Rule 424(b) under the Securities Act of 1933, as amended ( “ Securities Act ” ) on April 8, 2024 ( “ Prospectus ” ) that forms a part of our Registration Statement on Form S-1 (File No. 333-278003). This Quarterly Report on Form 10-Q may contain “ forward-looking statements ” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ” ). Such forward-looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties. We use words such as “ may, ” “ will, ” “ expect, ” “ anticipate, ” “ estimate, ” “ intend, ” “ plan, ” “ predict, ” “ potential, ” “ believe, ” “ should ” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements may include, but are not limited to, statements concerning projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. As a result of many factors, including without limitation those set forth under “ Risk Factors ” under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Overview We are a clinical stage biopharmaceutical company focused on discovering and developing novel, oral small molecule therapies that target biological pathways associated with specific clinical impairments for the treatment of neuroscience, inflammation and immunology (“NI&I”) indications with high unmet need. We have focused our efforts on developing selective compounds targeting challenging molecular pathways, and through these efforts, have built a portfolio of small molecule drug candidates. Our wholly-owned lead asset, PIPE-791, is a novel, brain penetrant, small molecule inhibitor of lysophosphatidic acid 1 receptor (“LPA1R”) in development for idiopathic pulmonary fibrosis (“IPF”) and Progressive multiple sclerosis (“Progressive MS”). LPA1R antagonism is a clinically validated mechanism, and we believe that our preclinical studies and Phase 1 healthy volunteer data support the continued development of PIPE-791 for both IPF and Progressive MS. Specifically, based on its high bioavailability, low plasma protein binding, and long receptor residence time in our preclinical studies compared to the preclinical data of other LPA1R antagonists that we know are currently in development, we also believe PIPE-791 has the potential to be a differentiated LPA1R therapy. We completed a Phase 1 clinical trial of PIPE-791 in healthy volunteers in support of clinical development in both IPF and Progressive MS. We plan to submit a clinical trial application (“CTA”) to the Medicines and Healthcare products Regulatory Agency (“MHRA”) to commence a Phase 1b open-label trial of PIPE-791 to measure the relationship of pharmacokinetics (“PK”) to lung and brain receptor occupancy by positron emission tomography (“PET”) imaging in 2024. This Phase 1b trial will inform dose selection for our planned future Phase 2 trials of PIPE-791 in IPF and Progressive MS. Our second drug candidate, PIPE-307, is a novel, small molecule selective inhibitor of the muscarinic type 1 M1 receptor (“M1R”), in development for depression and relapse-remitting multiple sclerosis (“RRMS”). M1R antagonism has been clinically validated in third-party trials in both depression and RRMS by scopolamine and clemastine, respectively. We have completed two Phase 1 trials of PIPE-307 in healthy volunteers and have initiated a Phase 2 trial of PIPE-307 for the potential treatment of RRMS. To our knowledge, PIPE-307 is the most clinically advanced selective M1R antagonist in development. We are developing PIPE-307 in collaboration with Johnson & Johnson. In addition, we are leveraging our drug discovery capabilities synergistically with our clinical portfolio. In January 2024, we nominated and commenced preclinical studies for CTX-343, a peripherally-restricted (unable to cross the blood brain barrier) LPA1R antagonist. In parallel, we are actively conducting preclinical and discovery-phase experiments targeting other NI&I indications where our internally-discovered molecules may have therapeutic potential. 13 Table of Contents We are currently focused on developing the following product candidates in our pipeline: We expect our operating expenses to significantly increase as we continue to develop, conduct clinical trials, and seek regulatory approvals for our drug candidates, engage in other research and development activities to expand our pipeline of drug candidates, expand our operations and headcount, maintain and expand our intellectual property portfolio, and, if we obtain approval for one or more of our drug candidates, launch commercial activities. We also expect to incur additional operating expenses as we begin operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing and scope of our clinical trials and our expenditures on other research and development activities. As we continue to pursue our business plan, we expect to finance our operations through both public and private sales of equity, debt financings or other commercial arrangements, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties. However, there can be no assurance that any additional financing or strategic transactions will be available to us on acceptable terms, if at all. If events or circumstances occur such that we do not obtain additional funding, we may need to delay, reduce or eliminate our product development or future commercialization efforts, which could have a material adverse effect on our business, results of operations or financial condition. Further, if we raise funds through licensing or other commercial arrangements with third parties, we may be required to relinquish valuable rights to our technology, future revenue streams, research programs or drug candidates or may be required to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Collaboration In February 2023, we entered into the J&J License Agreement with J&J, pursuant to which we granted J&J an exclusive, worldwide license to develop, manufacture and commercialize PIPE-307 in all indications. J&J is generally responsible for all development, manufacturing and commercialization activities for PIPE-307. Upon J&J conducting a first Phase 3 clinical trial for a product using PIPE-307, we have an opt-in right to fund a portion of all Phase 3 and subsequent development costs for PIPE-307. If we opt to fund such development costs, then the royalties we are eligible to receive will increase by one to two percentage points. We are conducting, at our own expense, a Phase 2 clinical trial of PIPE-307 in patients with RRMS. J&J has the right to discontinue our clinical trial if it has good faith concerns that this trial presents safety risks or could have a material adverse effect on its development or commercialization of PIPE-307. In addition, J&J has the right, in its sole discretion, to further develop or to elect not to develop PIPE-307 for this indication. The J&J License Agreement expires on a licensed product-by-product and country-by-country basis upon the last to occur of: (i) the expiration of the last-to-expire licensed patent claim covering the composition of matter of the licensed compound in such licensed product in such country; (ii) the expiration of exclusive marketing rights conferred by a regulatory authority or applicable law (other than patent exclusivity) for such licensed product in such country; and (iii) ten years after the first commercial sale of such licensed product in such country. Either party may terminate the J&J License Agreement in the event of an uncured material breach by the other party or a bankruptcy or insolvency of the other party. J&J may terminate the J&J License Agreement without cause upon prior written notice to us. Upon any termination, all license rights granted to J&J terminate. 14 Table of Contents Financial Operations Overview Revenue We recognize license revenues as identified performance obligations are satisfied or other events occur, specifically related to our J&J License Agreement. Pursuant to the terms of the J&J License Agreement, we received an upfront payment of $50.0 million in May 2023. We are also eligible to receive approximately $1.0 billion in non-refundable, non-creditable milestone payments, pursuant to the terms of the J&J License Agreement. Additionally, we are eligible to receive tiered royalties in the low-double digit to high-teen percent range on net sales of products containing PIPE-307. Operating Expenses Research and Development Research and development costs consist primarily of costs incurred for the unallocated internal research and development costs: Direct costs include: • employee-related expenses, including salaries, related benefits, travel that can be directly attributable to each research project; • expenses incurred in connection with research, laboratory consumables and preclinical studies; • expenses incurred in connection with conducting clinical trials, including investigator grants and site payments for time and pass-through expenses and expenses incurred under agreements with clinical research organizations ("CROs"), other vendors or central laboratories and service providers engaged to conduct our trials; • the cost of consultants engaged in research and development related services; • the cost to manufacture drug products for use in our preclinical studies and clinical trials; and • costs related to regulatory compliance. Unallocated internal research and development costs include: • employee-related expenses, including salaries, related benefits, travel that cannot be directly attributable to a specific research project; • stock-based compensation expenses for employees engaged in research and development functions; and • facilities, depreciation and other related expenses. We expense our research and development costs as they are incurred. We record advance payments for goods or services to be received in the future for use in research and development as prepaid expenses. We then expense the prepaid amounts as the related goods are delivered or the services are performed. We track outsourced development costs, consultant costs and other external research and development costs such as third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities to specific programs. We allocate employee related costs including salaries and related benefits based upon the level of effort for each specific project. Certain employee activities that cannot be allocated to any one specific project or management related activities are considered indirect costs. The following tables summarize our research and development expenses for the periods ended March 31, 2024 and 2023. The direct external development program expenses reflect external costs attributable to our clinical development and preclinical programs and personnel costs that can be directly attributed to a development program. The unallocated internal research and development costs include unallocated personnel costs, facility costs, stock-based compensation, laboratory consumables and discovery and research related activities. Three Months Ended March 31, 2024 2023 (in thousands) Direct external development program expense PIPE-791 $ 2,861 $ 1,106 PIPE-307 2,075 614 CTX-343 312 77 Others 1,104 838 Unallocated internal research and development costs Personnel related 369 290 Stock-based compensation 388 236 Facilities costs 219 209 Other 450 262 Total research and development costs $ 7,778 $ 3,632 15 Table of Contents Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future clinical trial design and various regulatory requirements, many of which we cannot determine with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates and our costs may increase if we exercise our opt-in right to fund a portion of all Phase 3 and subsequent development costs for PIPE-307 pursuant to the J&J License Agreement. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and for the foreseeable future. The successful development of our drug candidates is highly uncertain. This is due to numerous risks and uncertainties, including the following: • successful completion of preclinical studies and clinical trials; • delays in regulators or institutional review boards ("IRBs") authorizing us or our investigators to commence or continue our clinical trials; • our ability to negotiate agreements with clinical trial sites or CROs; • the number of clinical sites included in our clinical trials; • raising additional funds necessary to complete clinical development of our drug candidates; • obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our drug candidates; • establishing and qualifying manufacturing capabilities for clinical supplies of our drug candidates, whether directly or through qualified third party manufacturers; • our ability to receive necessary regulatory approvals from the U.S. Food and Drug Administration (:FDA") and comparable governmental bodies outside the United States; • our decision to elect to fund a portion of Phase 3 and subsequent development costs for PIPE-307; • coverage for our products by governmental and third party payors; • protecting and enforcing our rights in our intellectual property portfolio; • our ability to successfully compete with our competitors and their product offerings; and • maintaining a continued acceptable safety profile of the products following approval. A change in the outcome of any of these variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. We may never succeed in obtaining regulatory approval for any of our drug candidates or successfully commercialize our products, even if approved. General and Administrative General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property, patent applications, and corporate matters, professional fees for accounting and consulting services and facility-related costs. We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities, the growth of our business operations and headcount and to reflect increased operating expenses as we begin operating as a public company. These increased costs will likely include increased expenses related to audit, legal, regulatory services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs. Other Income (Expense) Interest Income Interest income consists of interest earned on our cash, cash equivalents and marketable securities. Interest Expense Interest expense consists of (i) interest on our outstanding Loan Agreement with First Citizens, and (ii) amortization of our debt discount associated with our loan and security agreement recorded in connection with the fair value of the warrant issued to First Citizens, the debt issuance costs incurred and the obligation to make a final payment fee. We repaid all of the outstanding principal on the First Citizens loan as of June 2023. 16 Table of Contents Results of Operations Comparison of the Three Months Ended March 31, 2024 and 2023 The following table summarizes our results of operations (in thousands) for the periods indicated: Three Months Ended March 31, 2024 2023 Change Operating expenses: Research and development $ 7,778 $ 3,632 $ 4,146 General and administrative 2,152 1,483 669 Total operating expenses 9,930 5,115 4,815 Loss from operations (9,930 ) (5,115 ) (4,815 ) Other income (expense) Interest income 1,636 401 1,235 Interest expense — (92 ) 92 Change in fair value of preferred stock warrant liability (117 ) — (117 ) Other expense (6 ) (18 ) 12 Total other income 1,513 291 1,222 Net loss $ (8,417 ) $ (4,824 ) $ (3,593 ) Research and development expenses . Research and development expenses were $7.8 million and $3.6 million for the three months ended March 31, 2024 and 2023, respectively. The increase of $4.2 million was primarily due to a $2.0 million increase in contract research organization costs primarily related to our on-going Phase 2 clinical trial for PIPE-307 for the potential treatment of RRMS and our completed Phase 1 healthy volunteer clinical trial for PIPE-791, a $0.9 million increase in expenses for toxicology studies primarily for PIPE-791 and a $0.6 million increase in personnel-related expenses. General and administrative expenses . General and administrative expenses were $2.2 million and $1.5 million for three months ended March 31, 2024 and 2023, respectively. The increase of $0.7 million was primarily due to a $0.5 million increase in consulting expenses primarily related to an audit completed in accordance with public company audit requirements and $0.1 million increase in personnel-related expenses. Interest income . Interest income was $1.6 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. The increase was due to an increase in funds invested in marketable securities starting in the second quarter of 2023 consisting of net proceeds of $60.1 million from the extension of our Series C convertible preferred stock financing and the receipt of $50.0 million upfront payment pursuant to the J&J License Agreement. We also had an increase in the yields earned on our marketable securities from the three months ended March 31, 2023 to the three months ended March 31, 2024. Liquidity and Capital Resources Sources of Liquidity We have incurred net losses and negative cash flows from operations in nearly every reporting period since our inception and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we advance our drug candidates through clinical development, undergo the regulatory approval process, engage in other research and development activities to expand our pipeline of drug candidates, expand our operations and headcount, maintain and expand our intellectual property portfolio and, if we obtain approval for one or more of our drug candidates, launch commercial activities. Specifically, in the near term we expect to incur substantial expenses relating to completing our clinical trials and our other product development activities. Through March 31, 2024, we have funded our operations primarily through the issuance of convertible promissory notes, the private placements of our convertible preferred stock, the J&J License Agreement, and our term loan facility with First Citizens. Through March 31, 2024, we have raised gross proceeds of approximately $194.0 million from the issuance of our convertible preferred stock and promissory notes and have received an upfront payment from the J&J License Agreement of $50.0 million. Our cash equivalents are held in money market funds and marketable securities. At March 31, 2024, we had an accumulated deficit of $83.6 million. In April 2024, we raised an additional $108.0 million in net proceeds from the initial public offering of our shares of Class A common stock (“IPO”). We expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, director and officer insurance and other expenses that we did not incur as a private company. As of March 31, 2024, we had cash, cash equivalents and marketable securities of $117.9 million. Management believes our existing cash, cash equivalents and marketable securities and proceeds received from our IPO will be sufficient to support our operations for at least 12 months from the date of this Quarterly Report on Form 10-Q. 17 Table of Contents As we continue to pursue our business plan, we expect to finance our operations through both public and private sales of equity, debt financings or other commercial arrangements, which could include milestone payments from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties. However, there can be no assurance that any additional financing or strategic transactions will be available to us on acceptable terms, if at all. If events or circumstances occur such that we do not obtain additional funding, we may need to delay, reduce or eliminate our product development or future commercialization efforts, which could have a material adverse effect on our business, results of operations or financial condition. Further, if we raise funds through licensing or other commercial arrangements with third parties, we may be required to relinquish valuable rights to our technology, future revenue streams, research programs or drug candidates or may be required to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Cash Flows The following table sets forth a summary of our cash flows for the period indicated (in thousands): Three Months Ended March 31, 2024 2023 Net cash used in operating activities $ (7,975 ) $ (5,244 ) Net cash provided by investing activities 8,731 9,355 Net cash used in financing activities (18 ) (617 ) Net increase in cash and cash equivalents $ 738 $ 3,494 Operating Activities Net cash used in operating activities was $8.0 million and $5.2 million for the three months ended March 31, 2024 and 2023, respectively. The net cash used in operating activities for the three months ended March 31, 2024 was primarily due to our net loss of $8.4 million, partially offset by $0.1 million of non-cash charges such as stock-based compensation, depreciation and amortization, amortization of premiums/discounts on marketable securities and amortization of right-of-use assets and a $0.3 million change in operating assets and liabilities. The net cash used in operating activities for the three months ended March 31, 2023 was primarily due to our net loss of $4.8 million and a $1.0 million change in operating assets and liabilities, partially offset by $0.6 million of non-cash charges such as stock-based compensation, depreciation and amortization, amortization of premiums/discounts on marketable securities, amortization of debt discount, amortization of right-of-use assets. Investing Activities Net cash provided by investing activities was $8.7 million for the three months ended March 31, 2024, which primarily consisted of $39.5 million of sales and maturities of marketable securities, partially offset by $30.7 million of purchases of marketable securities and $0.1 million of purchases of property and equipment. Net cash provided by investing activities was $9.4 million for the three months ended March 31, 2023, which primarily consisted of $18.6 million of proceeds from sales and maturities of marketable securities, partially offset by $9.2 million of purchases of marketable securities. Financing Activities Net cash used in financing activities was approximately $18,000 for the three months ended March 31, 2024, primarily due to payment of deferred offering costs offset by proceeds from the exercise of stock options. Net cash used in financing activities was $0.6 million for the three months ended March 31, 2023, primarily due to principal payments on the term loan of $0.6 million. Funding Requirements We expect our operating expenses to significantly increase as we continue to develop and seek regulatory approvals for our drug candidates, engage in other research and development activities to expand our pipeline of drug candidates, expand our operations and headcount, maintain and expand our intellectual property portfolio, and, if we obtain approval for one or more of our drug candidates, launch commercial activities. Management believes our existing cash, cash equivalents and marketable securities and proceeds received from the IPO will be sufficient to support our operations for at least 12 months from the date of this Quarterly Report on Form 10-Q. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and our actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing our drug candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Our future capital requirements will depend on many factors, including: • the type, number, scope, progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our drug candidates or other potential drug candidates or indications which we are pursuing or may choose to pursue in the future; • the outcome, timing and costs of regulatory review of our drug candidates; • the costs and timing of manufacturing for our drug candidates; • our efforts to enhance our operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; • the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities expand; • the costs and timing of establishing or securing manufacturing facilities for our drug candidates; 18 Table of Contents • the costs and timing of establishing sales and marketing capabilities if any of our drug candidates are approved; • our ability to establish and maintain strategic collaborations, licensing or other arrangements; • the financial terms of any such agreements that we may enter into; • our decision to elect to fund a portion of Phase 3 and subsequent development costs for PIPE-307; • the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights; and • costs associated with any drug candidates, products or technologies that we may in-license or acquire. Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we expect to finance our cash needs through public or private equity or debt financings or other commercial arrangements, including collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties. We may be unable to raise additional funds or enter into such commercial arrangements when needed, on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may be required to relinquish valuable rights to our drug candidates, future revenue streams or research programs or may be required to grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings or through commercial arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our drug candidates even if we would otherwise prefer to develop and market such drug candidates ourselves. Contractual Obligations and Commitments Our contractual obligations and commitments relate to our operating leases that relate primarily to our leases of office and laboratory space in San Diego, California. Our total contractual commitments for our lease agreements amount to approximately $7.8 million as of March 31, 2024. We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table above. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC. Critical Accounting Policies and Significant Judgments and Estimates Our discussion and analysis of financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates. There have been no material changes to our critical accounting estimates from those described under our “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” included in our Prospectus, except that from the effectiveness date of our registration statement on Form S-1 (File No. 333-278003), our common stock is publicly traded and we therefore no longer require common stock valuations. Emerging growth company and smaller reporting company status We are 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. We have 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 we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We will remain an emerging growth company until the earlier of (i) December 31, 2029, the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (ii) the last day of the fiscal year (a) in which we have total annual gross revenue of at least $1.235 billion or (b) in which we are deemed to be a large accelerated filer, which means the market value of our voting and non-voting common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th and (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter . Recently Issued Accounting Pronouncements See Note 2 to our financial statements for recently issued accounting pronouncements. 19 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item