What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-13 compared with 2024-03-05 · 88 added, 38 removed, 172 unchanged (42% of the section changed)

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Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this annual report.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of seralutinib for the treatment of PAH.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of seralutinib for the treatment of PH, including PAH and PH-ILD.

Our goal is to be an industry leader in, and to enhance the lives of patients living with PH.

In May 2024, we entered into the collaboration agreement for seralutinib with Chiesi.

In December 2022, we announced positive topline results from the Phase 2 TORREY Study in PAH patients.

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In addition to PAH, we believe that seralutinib holds potential as a therapeutic for the treatment of PH-ILD.

We are actively pursuing clinical development plans for seralutinib in PH-ILD.

We expect to activate clinical sites for a global registrational Phase 3 for the treatment of PH-ILD in the second half of 2025.

We have assembled a deeply experienced and highly skilled group of industry veterans, scientists, clinicians and key opinion leaders from leading biotechnology and pharmaceutical companies, as well as leading academic centers from around the world.

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To date, we have focused primarily on organizing and staffing our company, business planning, raising capital, identifying, acquiring and in-licensing our product candidates and conducting preclinical studies and clinical trials.

We have funded our operations primarily through equity and debt financings.

We raised $1,263.2 million from October 2017 through December 31, 2023 through the sale of Series A and Series B convertible preferred stock, issuance of convertible notes, proceeds from our initial public offering, or IPO, completed in February 2019, proceeds from the Credit Facility and 2027 Notes (as defined below), issuance of common stock in May 2020 and July 2022 and issuance of common stock and accompanying warrants in July 2023.

We have funded our operations primarily through equity financings and the collaboration agreement.

We raised $1,401.1 million from October 2017 through December 31, 2024 through the sale of Series A and Series B convertible preferred stock, issuance of convertible notes, proceeds from our IPO, completed in February 2019, proceeds from 2027 Notes (as defined below), issuance of common stock in May 2020 and July 2022, issuance of common stock and accompanying warrants in July 2023 and entry into the collaboration agreement in May 2024.

As of December 31, 2024, we had $294.5 million in cash, cash equivalents and marketable securities.

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As of December 31, 2024, we had an accumulated deficit of $1,268.6 million.

We expect our expenses and operating losses will remain relatively flat as compared to 2023, as we continue our development of and seek regulatory approvals for seralutinib, including the conduct of ongoing and planned clinical trials and other research and development activities;

We expect to incur expenses and operating losses for the foreseeable future as we continue our development of and seek regulatory approvals for seralutinib, including the conduct of ongoing and planned clinical trials and other research and development activities;

and as we hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company.

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Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending in particular on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities.

On May 3, 2024, we announced a strategic global partnership with Chiesi.

Under the terms of the collaboration agreement, we granted Chiesi exclusive licenses for the worldwide development, manufacture and commercialization of seralutinib and licensed products and an Equity Option to purchase our common stock.

The total potential transaction value includes the one-time $160.0 million development cost reimbursement payment for licenses, research and development funding, and certain regulatory and commercial milestones.

We and Chiesi share equally in the costs of ongoing global seralutinib clinical development and the costs of commercialization in the United States, with the exception of the PROSERA Phase 3 study, for which we bear all costs.

We are also eligible for double-digit royalties in the mid-to-high teens percentage on tiers of annual net sales outside of the U.S.

and to an equal share of profits and losses from the commercialization of seralutinib and licensed products in the U.S.

For additional information regarding the collaboration agreement, as well as our license agreement with Pulmokine, see the section titled “Business—License and Collaboration Agreements” in this annual report.

We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for seralutinib, which we expect will take a number of years.

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Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate seralutinib development or future commercialization efforts or grant rights to develop and market seralutinib even if we would otherwise prefer to develop and market seralutinib ourselves.

If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate seralutinib development or future commercialization efforts or grant additional rights to develop and market seralutinib even if we would otherwise prefer to retain such right.

Components of Results of Operations

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products for the foreseeable future.

To date, we have generated all of our revenue from our collaboration agreement with Chiesi.

Our revenue consists of a one-time development cost reimbursement payment for licenses and ongoing cost-sharing payments for performance of research and development services classified as revenue from contracts with collaborators.

In the future, we may generate revenue from a combination of license fees and other upfront payments, other funded research and development agreements, milestone payments, product sales, other third-party funding, US profit/loss share and royalties in connection with strategic alliances.

We expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of performance of research and development services, the timing of our achievement of regulatory and commercialization milestones, the timing and amount of payments relating to such milestones and the extent to which any of our products are approved and successfully commercialized.

If we are unable to fund our development costs or we are unable to develop product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenues and our results of operations and financial position would be adversely affected.

Operating expenses

Research and development

Research and development expenses relate primarily to preclinical and clinical development of seralutinib and discovery efforts, as well as our discontinued clinical product candidates.

Research and development expenses relate primarily to preclinical and clinical development of seralutinib, as well as our discontinued clinical product candidates.

Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

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We categorize Terminated Programs as any research and development expenses attributable to our clinical stage product candidates that were terminated prior to December 31, 2023.

We expect our research and development expenses for the foreseeable future to remain relatively flat as we continue the development of seralutinib.

We expect to incur research and development expenses for the foreseeable future as we continue the development of seralutinib.

We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of seralutinib due to the inherently unpredictable nature of preclinical and clinical development.

Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

We anticipate that we will make determinations as to how much funding to direct to seralutinib on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to seralutinib's commercial potential.

developments and our ongoing assessments as to seralutinib's commercial potential.

We will need to raise substantial additional capital in the future.

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• the cost and timing of manufacturing seralutinib;

• the costs incurred as a result of the COVID-19 pandemic, including clinical trial delays;

• the costs incurred as a result of health epidemics and pandemics, including the COVID-19 pandemic, and clinical site staff shortages, including clinical trial delays;

• the phase 3 stage of development for seralutinib;

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Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs.

We expect our general and administrative expenses for the foreseeable future to remain relatively flat to support our current infrastructure and continued costs of operating as a public company.

We expect to incur general and administrative expenses for the foreseeable future to support our current infrastructure and continued costs of operating as a public company.

These expenses will likely include audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.

Other income (expense), net

Other income (expense), net consists of (1) interest income on our cash, cash equivalents and marketable securities, (2) investment accretion, (3) sublease income, (4) interest expense related to our Credit Facility and our 2027 Notes, (5) employee retention credit under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, (6) Ireland Corporate R&D tax credit and (7) other miscellaneous income (expense).

Other income (expense), net consists of (1) interest income on our cash, cash equivalents and marketable securities, (2) investment accretion, (3) interest expense related to our Credit Facility, prior to its termination and the 2027 Notes, (4) research and development tax credit and (5) other miscellaneous income (expense).

Provision for income taxes

Our tax provision from income taxes is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements.

The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenue, expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements.

We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances.

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To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Collaborative Arrangements

We assess whether our licensing and other agreements are collaborative arrangements based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards.

For arrangements that we determine are collaborations, we identify each unit of account, and then determine whether a customer relationship exists for that unit of account.

If we determine a performance obligation within the collaborative arrangement to be with a customer, we apply our revenue recognition accounting policy.

If a portion of a distinct bundle of goods or services within the collaborative arrangement is not with a customer, we apply recognition and measurement based on an analogy to authoritative accounting literature or, if there is no appropriate analogy, a reasonable, rational and consistently applied accounting policy election.

To the extent the arrangement is within the scope of Accounting Standards Codification, or ASC, Topic 808, we assess whether aspects of the arrangement between us and the collaboration partner are within the scope of other accounting literature.

If we conclude that some or all aspects of the arrangement represent a transaction with a customer, we account for those aspects of the arrangement within the scope of ASC Topic 606, Revenue from Contracts with Customers (ASC 606).

Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers, or Topic 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

Under Topic 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for contracts with customers, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine

the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer.

At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price, reduced by a consideration payable to a customer, that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

We utilize key assumptions to determine a stand-alone selling price for performance obligations, which may include forecasted revenues or costs, expected development timelines, discount rates and probabilities of technical and regulatory success.

Results of Operations for the Years Ended December 31, 2024 and 2023

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(in thousands)

Revenue from sale of licenses $ 90,682 $ — $ 90,682

Revenue from contracts with collaborators 24,019 — 24,019

Total revenue 114,701 — 114,701

Operating expenses:

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Total other income (expense), net 4,284 3,942 342

Loss before provision for income taxes (55,635) (179,817) 124,182

Provision for income taxes 893 — 893

Net loss $ (56,528) $ (179,817) $ 123,289

Operating Expenses

Research and development

Research and development expenses were $135.3 million for the year ended December 31, 2023, compared to $170.9 million for the year ended December 31, 2022, for a decrease of $35.6 million, which was primarily attributable to a decrease of $65.8 million of costs associated with preclinical studies and clinical trials for terminated programs, offset by an increase of $30.2 million of costs associated with preclinical studies and clinical trials for seralutinib.

For the year ended December 31, 2024, our revenue was $114.7 million.

Our revenue is generated from our ongoing collaboration with Chiesi and consists of a one-time development cost reimbursement payment for the licenses and ongoing cost-sharing payments for performance of research and development and pre-commercial services.

Research and development expenses

Research and development expenses were $138.5 million for the year ended December 31, 2024, compared to $135.3 million for the year ended December 31, 2023, for an increase of $3.2 million, which was primarily attributable to an increase of $36.1 million of costs associated with clinical trials for seralutinib, offset by a decrease of $32.9 million of costs associated with preclinical studies and clinical trials for terminated programs.

The following table shows our research and development expenses by program for the years ended December 31, 2024 and 2023:

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Total research and development $ 138,487 $ 135,304

In process research and development

In process research and development expenses

There were no IPR&D expenses for the year ended December 31, 2024.

IPR&D expenses for the year ended December 31, 2023 were $10.0 million, which was attributable to a milestone obligation incurred upon the initiation of the Phase 3 clinical trial of seralutinib in the fourth quarter of 2023 and paid to Pulmokine in 2024.

There were no significant IPR&D expenses for the year ended December 31, 2022.

General and administrative

General and administrative expenses were $38.5 million for the year ended December 31, 2023, compared to $47.6 million for the year ended December 31, 2022, for a decrease of $9.2 million, which was primarily attributable to a $5.5 million decrease in stock-based compensation expense, a decrease of $1.3 million in professional services expense, a decrease of $0.7 million in insurance costs and a decrease of $0.9 million in other operating expense.

General and administrative expenses

General and administrative expenses were $36.1 million for the year ended December 31, 2024, compared to $38.5 million for the year ended December 31, 2023, for a decrease of $2.3 million, which was primarily attributable to a $2.2 million decrease in stock-based compensation expense, a decrease of $0.8 million in legal expense, a decrease of $0.6 million in insurance costs, offset by an increase of $0.6 million in professional services expense and an increase of $0.4 million in travel costs.

Other income (expense), net

Other income, net was $3.9 million for the year ended December 31, 2023, compared to other expense, net of $10.8 million for the year ended December 31, 2022, for an increase of $14.7 million, which was primarily attributable to a $8.7 million increase in investment accretion, a $5.2 million increase in other income related to $2.8 million of employee retention credit under the CARES Act and $2.1 million of Ireland Corporate R&D tax credit, a $0.4 million increase in interest income and a $0.4 million decrease in interest expense.

Other income, net was $4.3 million for the year ended December 31, 2024, compared to other income, net of $3.9 million for the year ended December 31, 2023, for an increase of $0.3 million, which was primarily attributable to a $3.2 million increase in investment accretion and a $2.0 million decrease in interest expense, offset by a $3.6 million decrease in other income primarily related to $2.8 million of employee retention credit under the CARES Act and $1.0 million of Ireland Corporate R&D tax credit.

Provision for income taxes

For the year ended December 31, 2024, the tax expense was $0.9 million, which was primarily attributable to the treatment of the Chiesi income and a partial release of the valuation allowance.

There was no provision for income taxes for the year ended December 31, 2023.

Results of Operations for the Years Ended December 31, 2023 and 2022

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Under our license agreement with Pulmokine, we have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sale of products developed under the agreement.

As of December 31, 2023, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

Other contractual obligations include future payments under our Credit Facility, 2027 Notes and existing operating leases.

From our inception through the year ended December 31, 2023, our operations have been financed primarily by proceeds of $1,263.2 million from the sale of Series A and Series B convertible preferred stock, proceeds from our IPO, proceeds from our Credit Facility and 2027 Notes, proceeds from issuance of common stock in May 2020 and July 2022 and proceeds from issuance of common stock and accompanying warrants in July 2023.

As of December 31, 2024, we were

unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

Other contractual obligations include future payments under the 2027 Notes and existing operating leases.

From our inception through the year ended December 31, 2024, our operations have been financed primarily by proceeds of $1,401.1 million from the sale of Series A and Series B convertible preferred stock, proceeds from our IPO, proceeds from the 2027 Notes, proceeds from issuance of common stock in May 2020 and July 2022, proceeds from issuance of common stock and accompanying warrants in July 2023 and the collaboration agreement with Chiesi.

As of December 31, 2024, we had cash, cash equivalents and marketable securities of $294.5 million.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity.

On May 2, 2019, we entered into a credit, guaranty and security agreement, as amended on September 18, 2019, July 2, 2020, December 7, 2022 and February 14, 2023, pursuant to which the lenders party thereto agreed to make term loans available to us for working capital and general business purposes, in a principal amount of up to $150.0 million in term loan commitments, including a $30.0 million term loan which was funded at the closing date, with the ability to access the remaining $120.0 million in two additional tranches (each $60.0 million), subject to specified availability periods, the achievement of certain clinical development milestones, minimum cash requirements and other customary conditions, or the Credit Facility.

As of December 31, 2023, no tranches under the Credit Facility were available to be drawn.

On April 10, 2020, we filed a registration statement on Form S-3, or the 2020 Shelf Registration Statement, covering the offering from time to time of common stock, preferred stock, debt securities, warrants and units, which registration statement became automatically effective on April 10, 2020.

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On August 18, 2023, we filed a registration statement on Form S-3 registering the resale of the shares of common stock and shares of common stock issuable upon the exercise of warrants issued in the private placement, which was declared effective on August 28, 2023.

Additional information about our long-term borrowings is presented in Note 5 “Indebtedness” to the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K, herein by this reference.

On May 3, 2024, we entered into the collaboration agreement with Chiesi.

In consideration and as reimbursement for our development costs, Chiesi paid us an up-front, nonrefundable payment of $160.0 million.

In addition, we and Chiesi share equally in the costs of ongoing global seralutinib clinical development, with the exception of the PROSERA Phase 3 study, and the costs of commercialization in the United States.

For the year ended on December 31, 2024, we received cost-sharing payments from Chiesi in the amount of $7.8 million.

Additional information about our long-term borrowings is presented in Note 5 “Indebtedness” and operating leases is presented in Note 11 "Commitments and Contingencies" to the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K, herein by this reference.

The following table shows a summary of our cash flows for each of the years shown below:

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Net cash used in operating activities $ (3,468) $ (159,158) $ (187,032)

Net cash used in investing activities (110,970) (1,035) (117,427)

Net cash provided by financing activities 190,154 117,090 3,329

Effect of exchange rate changes on cash, cash equivalents and restricted cash 110 (517) (165)

Net decrease in cash, cash equivalents and restricted cash $ (79,864) $ (71,494) $ (303,153)

Net cash provided by (used in) investing activities 29,023 (110,970) (1,035)

Net cash provided by (used in) financing activities (11,488) 190,154 117,090

Effect of exchange rate changes on cash and cash equivalents (102) 110 (517)

Net increase (decrease) in cash and cash equivalents $ 13,965 $ (79,864) $ (71,494)

Operating activities

During the year ended December 31, 2024, operating activities used approximately $3.5 million of cash, primarily resulting from a net loss of $56.5 million and changes in amortization of premium on investments, net of accretion of

discount, of $13.1 million, reduced by stock-based compensation expense of $20.6 million and changes in contract liabilities of $55.9 million.

During the year ended December 31, 2023, operating activities used approximately $159.2 million of cash, primarily resulting from a net loss of $179.8 million and changes in accrued research and development expenses of $7.8 million, changes in amortization of premium on investments of $9.5 million, reduced by stock-based compensation expense of $28.5 million and in process research and development expense of $10.0 million.

During the year ended December 31, 2022, operating activities used approximately $187.0 million of cash, primarily resulting from a net loss of $229.4 million and payments against operating lease liabilities of $2.7 million, partially reduced by stock-based compensation expense of $42.6 million and amortization of operating lease right-of-use assets of $2.6 million.

During the year ended December 31, 2021, operating activities used approximately $188.9 million of cash, primarily resulting from a net loss of $234.0 million, partially reduced by stock-based compensation expense of $32.0 million, amortization of long-term debt discount and issuance costs of $6.7 million and accrued research and development expenses of $5.8 million.

Investing activities

During the year ended December 31, 2024, investing activities provided approximately $29.0 million of cash, primarily resulting from the maturities of marketable securities of $523.8 million, offset by purchases of marketable securities of $494.8 million.

During the year ended December 31, 2023, investing activities used approximately $111.0 million of cash, primarily resulting from the purchases of marketable securities of $441.7 million, offset by the maturities of marketable securities of $330.7 million.

During the year ended December 31, 2022, investing activities used approximately $1.0 million of cash, primarily resulting from the purchase of marketable securities of $238.0 million and the purchase of property and equipment of $0.4 million, partially offset by maturities of marketable securities of $237.5 million.

During the year ended December 31, 2021, investing activities used approximately $117.4 million of cash, primarily resulting from the purchase of marketable securities of $152.0 million, partially offset by maturities of marketable securities of $36.2 million.

Financing activities

During the year ended December 31, 2023, financing activities provided $190.2 million of cash, resulting from proceeds from the issuance of common stock and warrants in a private offering of $201.3 million, reduced by the principal repayments of long-term debt of $11.6 million.

During the year ended December 31, 2022, financing activities provided $117.1 million of cash, resulting from proceeds from the private offering of $119.9 million, proceeds from the exercise of stock options of $1.7 million, and from proceeds from the purchase of shares pursuant to our 2019 Employee Stock Purchase Plan, or ESPP, of $1.2 million, partially offset by the principal repayments of long-term debt of $5.8 million.

During the year ended December 31, 2021, financing activities provided $3.3 million of cash, resulting from proceeds from the exercise of stock options of $2.0 million, and from the purchase of shares pursuant to the ESPP of $1.3 million.

During the year ended December 31, 2024, financing activities used $11.5 million of cash, resulting from the principal repayment of long-term debt of $12.6 million, reduced by the proceeds from the issuance of equity option pursuant to stock purchase agreement with Chiesi of $0.5 million and the proceeds from issuance of common stock pursuant to the ESPP of $0.6 million.

During the year ended December 31, 2023, financing activities provided $190.2 million of cash, primarily resulting from proceeds from the issuance of common stock and warrants in a private offering of $201.3 million, reduced by the principal repayments of long-term debt of $11.6 million.

During the year ended December 31, 2022, financing activities provided $117.1 million of cash, primarily resulting from proceeds from the purchase of shares pursuant to our 2019 Employee Stock Purchase Plan, or ESPP, of $1.2 million, proceeds from the private offering of $119.9 million, and proceeds from the exercise of stock options of $1.7 million, partially offset by the principal repayments of long-term debt of $5.8 million.

Funding requirements

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• costs associated with any products or technologies that we may in-license or acquire;

• any delays and cost increases that result from the COVID-19 pandemic or other epidemic diseases.

Until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, our Credit Facility, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements.

• any delays and cost increases that result from epidemic diseases.

Until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis