Werewolf Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive officer and principal financial officer, or persons performing similar functions, and effected by a company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of a company’s assets; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of the company’s management and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision of and with the participation of our principal executive officer and principal financial officer, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2022. This Annual Report does not include an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the fourth quarter of the year ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 80 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item 10 will be included in the section captioned “Corporate Governance” and “Proposal No. 1” in our definitive proxy statement to be filed with the Securities and Exchange Commission, or the SEC, with respect to our 2023 Annual Meeting of Stockholders within 120 days of December 31, 2022, which information is incorporated herein by reference. Code of Ethics We have adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is posted on the Corporate Governance section of our website, which is located at www.werewolftx.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K. We will provide any person, without charge, a copy of such Code of Business Conduct and Ethics upon written request, which may be mailed to 200 Talcott Ave, 2nd Floor, Watertown, MA 02472, Attn: Corporate Secretary. Item 11. Executive Compensation The information required by this Item 11 will be included in the section captioned “Executive Compensation” in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, which information, other than the information required by Item 402(v) of Regulation S-K, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Except to the extent provided below, the information required by this Item 12 will be included in the section captioned “Principal Stockholders” in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, which information is incorporated herein by reference. Equity Compensation Plan Information The following table contains information about our 2017 Stock Incentive Plan, or the 2017 Plan, our 2021 Stock Incentive Plan, or the 2021 Plan, and our 2021 Employee Stock Purchase Plan, or 2021 ESPP, as of December 31, 2022. As of December 31, 2022 Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (a) (b) (c) Equity compensation plans approved by security holders (1)(2)(3) 5,244,121 $ 7.86 1,182,587 Equity compensation plans not approved by security holders — — — Total 5,244,121 $ 7.86 1,182,587 (1) Includes the 2017 Plan, the 2021 Plan and the 2021 ESPP. (2) As of December 31, 2022, 938,587 shares of our common stock were available for issuance under the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan will be increased on each January 1 through January 1, 2031 by the lesser of (i) 5% of the number of shares of our common stock outstanding on the first day of such year and (ii) an amount determined by our board of directors. The shares of common stock underlying any awards that are expired, forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by us under the 2021 Plan or the 2017 Plan are added back to the shares of common stock available for issuance under the 2021 Plan. On January 1, 2023, the shares under the 2021 Plan were increased by 1,575,753 shares pursuant to the annual increase described above. (3) As of December 31, 2022, 244,000 shares of our common stock were reserved for issuance under the 2021 ESPP. The number of shares reserved for issuance under the 2021 ESPP will be increased on each January 1 through January 1, 2032 by the least of (i) 488,000 shares, (ii) 1% of the number of shares of our common stock outstanding on the first day of such year and (iii) an amount determined by our board of directors. On January 1, 2023, the shares under the 2021 ESPP were increased by 315,150 shares pursuant to the annual increase described above. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 will be included in the sections captioned “Corporate Governance” and “Transactions with Related Persons” in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, which information is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this Item 14 will be included in the section captioned “Ratification of the Appointment of Ernst & Young, LLP As Our Independent Registered Public Accounting Firm For The Fiscal Year Ending December 31, 2023” in our definitive Proxy Statement 81 for our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2022, which information is incorporated herein by reference. 82 PART IV Item 15. Exhibit and Financial Statement Schedules (1) Financial Statements The following documents are attached hereto and are filed as part of this Annual Report. Report of the Independent Registered Public Accounting Firm (PCAOB ID No. 42 ) F-1 Report of the Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 (2) Financial Statement Schedules Schedules have been omitted since they are either not required or not applicable or the information is otherwise included herein. (3) Exhibits The exhibits filed or furnished as part of this Annual Report are listed in the Exhibit Index immediately preceding the signatures, which Exhibit Index is incorporated herein by reference. Item 16. Form 10-K Summary None. 83 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Werewolf Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Werewolf Therapeutics, Inc. (the Company) as of December 31, 2022, the related consolidated statement of operations, consolidated statement of redeemable convertible preferred stock and stockholders’ (deficit) equity, and cash flows for the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2022. Boston, Massachusetts March 23, 2023 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Werewolf Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Werewolf Therapeutics, Inc. and its subsidiary (the “Company”) as of December 31, 2021, the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ (deficit) equity, and cash flows, for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Boston, Massachusetts March 24, 2022 We began serving as the Company’s auditor in 2020. In 2022, we became the predecessor auditor. Werewolf Therapeutics, Inc. Consolidated Balance Sheets (amounts in thousands, except par value amounts) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 129,315 $ 157,531 Prepaid expenses and other current assets 3,957 3,537 Other receivables (due from collaborations) 6,928 — Total current assets 140,200 161,068 Property and equipment, net 8,988 2,913 Restricted cash 1,214 1,208 Operating lease right of use asset 8,463 13,412 Other non-current assets 1,380 649 Total assets $ 160,245 $ 179,250 Liabilities and stockholders’ equity: Current liabilities: Accounts payable $ 1,221 $ 2,037 Accrued expenses and other current liabilities 14,152 8,765 Operating lease liability, current 2,084 1,072 Deferred revenue, current 6,532 — Total current liabilities 23,989 11,874 Operating lease liability, net of current portion 12,600 14,589 Deferred revenue, net of current portion 1,128 — Other liabilities 191 — Total liabilities 37,908 26,463 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.0001 par value, 5,000 shares authorized as of December 31, 2022 and December 31, 2021; no shares issued or outstanding as of December 31, 2022 or December 31, 2021 — — Common stock, $ 0.0001 par value, 200,000 shares authorized as of December 31, 2022 and December 31, 2021; 31,515 and 27,608 shares issued as of December 31, 2022 and December 31, 2021, respectively; 31,434 and 27,313 shares outstanding as of December 31, 2022 and December 31, 2021, respectively 3 2 Additional paid-in capital 429,039 405,680 Accumulated deficit ( 306,705 ) ( 252,895 ) Total stockholders’ equity 122,337 152,787 Total liabilities and stockholders’ equity $ 160,245 $ 179,250 The accompanying notes are an integral part of these consolidated financial statements. 1z Werewolf Therapeutics, Inc. Consolidated Statements of Operations (amounts in thousands, except per share amounts) Year Ended December 31, 2022 2021 Revenue: Collaboration revenue $ 16,401 $ — Operating expenses: Research and development 53,761 35,269 General and administrative 18,696 14,818 Total operating expenses 72,457 50,087 Operating loss ( 56,056 ) ( 50,087 ) Other income: Other income, net 338 — Interest income 1,908 104 Total other income 2,246 104 Net loss ( 53,810 ) ( 49,983 ) Accretion of redeemable convertible preferred stock to redemption value — ( 151,942 ) Net loss attributable to common stockholders $ ( 53,810 ) $ ( 201,925 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 1.86 ) $ ( 10.94 ) Weighted-average common shares outstanding, basic and diluted 28,864 18,455 The accompanying notes are an integral part of these consolidated financial statements. Werewolf Therapeutics, Inc. Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity (amounts in thousands) Series A Redeemable Convertible Preferred Stock Series B Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ (Deficit) Equity Shares Amount Shares Amount Shares Amount Balance at December 31, 2020 80,247 $ 69,012 78,222 $ 72,070 1,746 $ 2 $ — $ ( 51,865 ) $ ( 51,863 ) Issuance of common stock from initial public offering, net of issuance costs of $ 2,379 — — — — 7,500 — 109,221 — 109,221 Accretion of redeemable convertible preferred stock to redemption value — 79,372 — 72,570 — — ( 895 ) ( 151,047 ) ( 151,942 ) Conversion of redeemable convertible preferred stock to common stock upon closing of initial public offering ( 80,247 ) ( 148,384 ) ( 78,222 ) ( 144,640 ) 18,280 — 293,024 — 293,024 Stock-based compensation expense — — — — — — 4,095 — 4,095 Stock option exercises — — — — 82 — 235 — 235 Net loss — — — — — — — ( 49,983 ) ( 49,983 ) Balance at December 31, 2021 — — — — 27,608 2 405,680 ( 252,895 ) 152,787 Issuance of common stock from at the market offering, net of issuance costs of $ 455 — — — — 3,827 1 15,735 — 15,736 Stock-based compensation expense — — — — — — 7,400 — 7,400 Stock option exercises — — — — 80 — 224 — 224 Net loss — — — — — — — ( 53,810 ) ( 53,810 ) Balance at December 31, 2022 — $ — — $ — 31,515 $ 3 $ 429,039 $ ( 306,705 ) $ 122,337 The accompanying notes are an integral part of these consolidated financial statements. Werewolf Therapeutics, Inc. Consolidated Statements of Cash Flows (amounts in thousands) Year Ended December 31, 2022 2021 Operating activities: Net loss $ ( 53,810 ) $ ( 49,983 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 7,400 4,095 Depreciation expense 1,104 216 Non-cash lease expense 1,406 519 Change in fair value of success payment liability 555 — Amortization of debt issuance costs 203 — Loss on disposal of property and equipment 7 — Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 541 ) ( 3,072 ) Other receivables ( 6,928 ) — Other non-current assets 279 ( 649 ) Accounts payable ( 883 ) 1,007 Accrued expenses and other current liabilities 3,738 5,263 Deferred revenue 7,660 — Right of use assets and operating lease liability ( 977 ) ( 241 ) Other liabilities 191 ( 31 ) Net cash used in operating activities ( 40,596 ) ( 42,876 ) Investing activities: Purchases of property and equipment ( 3,611 ) ( 498 ) Net cash used in investing activities ( 3,611 ) ( 498 ) Financing activities: Proceeds from at the market offering of common stock 16,191 — Proceeds from initial public offering of common stock — 111,600 Payment of equity issuance costs ( 451 ) ( 2,378 ) Deferred financing costs ( 88 ) — Proceeds from stock option exercises 254 205 Net cash provided by financing activities 15,906 109,427 Net (decrease) increase in cash and cash equivalents ( 28,301 ) 66,053 Cash, cash equivalents and restricted cash—beginning of period 158,830 92,777 Cash, cash equivalents and restricted cash—end of period $ 130,529 $ 158,830 Supplemental disclosure of cash flow information: Cash paid for lease liabilities $ 1,806 $ 1,035 Supplemental disclosure of non-cash investing and financing activities: Stock option exercise receivables in prepaid expenses and other current assets $ — $ 30 Purchases of property and equipment in accounts payable and accrued expenses $ 111 $ 79 Issuance costs in accounts payable and accrued expenses $ 4 $ — Right of use assets obtained in exchange for lease liabilities $ — $ 13,658 Accretion of Series A and Series B redeemable convertible preferred stock $ — $ 151,942 The accompanying notes are an integral part of these consolidated financial statements. Werewolf Therapeutics, Inc. Notes to Consolidated Financial Statements 1. Nature of Business Werewolf Therapeutics, Inc. (“Werewolf” or the “Company”) was incorporated in the state of Delaware in October 2017. The Company is an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body’s immune system for the treatment of cancer. The Company’s headquarters are located in Watertown, Massachusetts. Since inception, the Company has devoted substantially all of its time and efforts to performing research and development activities, raising capital and recruiting management and technical staff to support these operations. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company had cash and cash equivalents of $ 129.3 million at December 31, 2022. The Company expects that its cash and cash equivalents will enable it to fund its operating expenses and capital expenditure requirements for at least twelve months from the filing date of this Annual Report on Form 10-K. However, additional funding will be necessary beyond this point to fund future preclinical and clinical activities. The Company expects to finance its future cash needs through a combination of equity or debt financings, collaboration agreements, strategic alliances and licensing arrangements. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of Werewolf Therapeutics, Inc. and its wholly-owned subsidiary, Werewolf Therapeutics Mass Securities, Inc. All intercompany transactions and balances have been eliminated in consolidation. Segment Information Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the Company’s Chief Operating Decision Maker (“CODM”) to make decisions with respect to resource allocation and assessment of performance. The CODM is the Company’s Chief Executive Officer. The CODM manages the Company’s operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular concentration is focused on the discovery and development of cancer therapeutics by advancing a novel class of conditionally activated proinflammatory immune modulators. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, estimates related to the application of Revenue from Contracts with Customers (Topic 606) (“ASC 606”) to the Company’s collaboration agreement with Jazz Pharmaceuticals Ireland Limited, the accrual of research and development expenses, the expected future lives of property and equipment, the valuation of stock-based awards, and the success based fee associated with the Company’s debt agreement. Actual results could differ from those estimates. Fair Value of Financial Instruments ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure for Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price, or 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 a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Cash and Cash Equivalents The Company’s cash and cash equivalents consist of cash maintained within a standard checking account. The Company also maintains a cash sweep account in which cash from its main operating cash account is invested overnight in highly liquid, short-term investments. The Company considers all highly liquid investments with a maturity date of 90 days or less at the date of purchase to be cash equivalents. Property and Equipment Property and equipment is recorded at cost and consists of laboratory equipment, furniture and office equipment, computer equipment, and leasehold improvements. The Company capitalizes property and equipment that is acquired for research and development activities and that has alternate future use. Expenditures for maintenance and repairs are recorded to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. Leasehold improvements are depreciated over the lesser of their useful life or the term of the lease. Depreciation is calculated over the estimated useful lives of the assets using the straight-line method. Impairment of Long-lived Assets Long-lived assets consist of property and equipment. The Company reviews its property and equipment whenever events or changes in circumstances indicate that the carrying value of certain assets might not be recoverable. If such events or changes in circumstances arise, the Company compares the carrying amount of the long-lived assets to the estimated future undiscounted cash flows expected to be generated by the long-lived assets. If the estimated aggregate undiscounted cash flows are less than the carrying amount of the long-lived assets, an impairment charge, calculated as the amount by which the carrying amount of the assets exceeds the fair value of the assets, is recorded. The fair value of the long-lived assets is determined based on the estimated discounted cash flows expected to be generated from the long-lived assets. The Company has not recorded any material impairment charges during the years presented. Leases At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not recognize leases with terms of one year or less on the balance sheet. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly basis. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate (“IBR”), which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, and in a similar economic environment. The Company subsequently measures its lease liability at the present value of remaining lease payments, discounted using the IBR for the lease. The right-of-use asset is subsequently measured at the amount of the lease liability, adjusted for prepaid or accrued lease payments and the remaining balance of lease incentives received. The Company recognizes operating lease expense on a straight-line basis over the lease term. Revenue Recognition The Company analyzes its collaborations to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). For elements of collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company recognizes revenue when its 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. In applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and 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 Company satisfies the performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. As part of the assessment, the Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the standalone selling price, which may include reimbursement rates for personnel costs, development timelines and probabilities of regulatory success. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of promised goods or services to the customer will be one year or less. Arrangements that include upfront payments may require deferral of revenue recognition to a future period until obligations under these arrangements are fulfilled. The event-based milestone payments represent variable consideration, and the Company uses the “most likely amount” method to estimate this variable consideration. Given the high degree of uncertainty around the occurrence of these events, the Company determined the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. Revenue will be recognized from sales-based royalty payments when or as the sales occur. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. Research and Development Expenses Expenditures relating to research and development are expensed as incurred. Research and development expenses include external expenses incurred under arrangements with third parties, academic and non-profit institutions and consultants; salaries and personnel-related costs, including non-cash stock-based compensation expense; license fees to acquire in-process technology and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs. Non‑refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. As part of the process of preparing the consolidated financial statements, the Company is required to estimate its accrued research and development expenses as of each balance sheet date. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. This process involves reviewing open contracts and purchase orders, communicating with internal personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company periodically confirms the accuracy of its estimates with its service providers and makes adjustments if necessary. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The financial terms of agreements with these service providers are subject to negotiation, vary from contract to contract and may result in uneven payment flows. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense. Intellectual Property Expenses The Company expenses costs associated with intellectual property-related matters as incurred and classifies such costs as general and administrative expenses within the consolidated statements of operations. Stock-based Compensation The Company accounts for stock-based payments in accordance with ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASC 718”). This guidance requires all stock-based payments to employees, including grants of employee stock options and restricted stock awards (“RSAs”), to be recognized as expense in the consolidated statements of operations and comprehensive (loss) income based on their grant date fair values. For stock options granted to employees and to members of the Company’s board of directors for their services on the board of directors, the Company estimates the grant date fair value of each stock option using the Black-Scholes option-pricing model. For restricted stock units (“RSUs”) and RSAs granted to employees, the Company estimates the grant date fair value of each award using intrinsic value, which is based on the value of the underlying common stock less any purchase price. For stock-based payments subject to service-based vesting conditions, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock-based payment on a straight-line basis over the requisite service period. The Black‑Scholes option pricing model requires the input of certain subjective assumptions, including (i) the calculation of expected term of the stock-based payment, (ii) the risk‑free interest rate, (iii) the expected stock price volatility and (iv) the expected dividend yield. The Company uses the simplified method as proscribed by SEC Staff Accounting Bulletin No. 107 to calculate the expected term for stock options granted to employees as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The Company determines the risk‑free interest rate based on a treasury instrument whose term is consistent with the expected term of the stock options. Because there had been no public market for the Company’s common stock prior to the Company’s IPO, there is a lack of Company‑specific historical and implied volatility data. Accordingly, the Company bases its estimates of expected volatility on the historical volatility of a group of publicly-traded companies with similar characteristics to itself, including stage of product development and therapeutic focus within the life sciences industry. Historical volatility is calculated over a period of time commensurate with the expected term of the stock-based payment. The Company uses an assumed dividend yield of zero as the Company has never paid dividends on its common stock, nor does it expect to pay dividends on its common stock in the foreseeable future. The Company accounts for forfeitures of all stock-based payments when such forfeitures occur. Income Taxes Income taxes are recorded in accordance with ASU No. 2019-12, Income Taxes (Topic 740) (“ASC 740”) which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors, including, but not limited to, changes in the law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. Comprehensive Loss The Company does not have items of other comprehensive loss for the years ended December 31, 2022 and 2021, and therefore does not present a consolidated statement of comprehensive loss. The Company’s comprehensive loss equals its net loss. Net Loss per Common Share Basic net loss per share is calculated based upon the weighted-average number of common shares outstanding during the period, excluding outstanding stock options and RSUs that have been issued but are not yet vested. Diluted net loss per share is calculated based upon the weighted-average number of common shares outstanding during the period plus the dilutive impact of weighted-average common equivalent shares outstanding during the period. The potentially dilutive shares of common stock resulting from the assumed exercise of outstanding stock options and the assumed vesting of RSUs are determined under the treasury stock method. Concentration of Credit Risk and Off-Balance Sheet Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. Cash is held in a checking account at two financial institutions. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements. Recent Accounting Pronouncements Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption. Subsequent Events The Company has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Other than as described in these financial statements, the Company did not identify any subsequent events that would have required adjustment to or disclosure in the financial statements . 3. Jazz Collaboration and License Agreement In April 2022, the Company entered into an exclusive global collaboration and license agreement (the “Collaboration Agreement”) with Jazz Pharmaceuticals Ireland Limited (“Jazz”) pursuant to which the Company granted Jazz certain licenses to develop and commercialize products containing the Company’s Interferon alpha (“IFNα”) INDUKINE™ molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria (each such product, a “Licensed Product”). Under the Collaboration Agreement, the Company is responsible for certain pre-clinical development activities with respect to JZP898 (formerly WTX-613) and other development activities specified in mutually agreed upon development plans. Jazz will generally reimburse the Company for the cost of such activities. Jazz will be responsible for all other development and commercialization activities conducted to exploit the Licensed Products, including submission of an investigational new drug application (“IND”) to the U.S. Food and Drug Administration (the “FDA”). Under the terms of the Collaboration Agreement, the Company received a non-refundable upfront cash payment of $ 15.0 million in April 2022. Milestones and Royalties The Company is eligible to receive up to $ 520.0 million in development and regulatory milestones, and up to $ 740.0 million in sales-based milestones for all Licensed Products. In addition, the Company is eligible to receive tiered mid-single digit royalties based on Jazz’s, and any of its affiliates’ and sublicensees’ annual net sales of Licensed Products, subject to reduction in specified circumstances. Accounting Analysis under ASC 606 Identification of the Contract(s) The Company assessed the Collaboration Agreement and concluded that it represents a contract with a customer within the scope of ASC Topic 606, Revenue from Contracts with Customers . Identification of Promises and Performance Obligations The Company has concluded that the exclusive license to its intellectual property, JZP898 (formerly WTX-613), and the non-exclusive corresponding “know-how” are not capable of being distinct from the other promises within the contract, and as such, the Company has determined that the license and “know-how” combined with the other research and development services and supply represent a single combined performance obligation. Determination of Transaction Price The overall transaction price as of the inception of the contract was determined to be $ 33.5 million, which is comprised of the nonrefundable upfront payment of $ 15.0 million and the estimated costs for research services of $ 18.5 million. Outside of the estimated costs for research services, there is no other variable consideration included in the transaction price at inception. The Company used the most likely amount method to estimate variable consideration and estimated that the most likely amount for each potential development and regulatory milestone payment under this agreement is zero, as achievement of those milestones is uncertain and highly susceptible to factors outside the Company’s control. Accordingly, all such milestone payments were excluded from the transaction price. Management will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, will adjust the transaction price as necessary. Sales based royalties, including milestones based on the level of sales, were also excluded from the transaction price, as the license is deemed to be the predominant item to which the royalties relate. The Company will recognize such revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). The upfront payment of $ 15.0 million was recorded as deferred revenue and, along with payments related to the Company’s conduct of research services under the Collaboration Agreement, will be recognized as revenue over approximately 3.7 years using an input-based measurement of actual costs incurred as a percentage of the estimated total costs expected to be incurred over the expected term of conduct of the research services. The Company believes this input-based method to recognize revenue best reflects the transfer of value to Jazz. Recognition of Revenue For the year ended December 31, 2022, using the cost-to-cost input method, which best depicts the research services performed for the customer, the Company recognized $ 16.4 million of revenue related to the Collaboration Agreement, of which $ 7.3 million related to the upfront payment and $ 9.1 million related to costs incurred for research services. As of December 31, 2022, there is $ 6.5 million and $ 1.1 million of current and long-term deferred revenue, respectively, related to the Collaboration Agreement. All costs associated with the Collaboration Agreement are recorded in research and development expense in the consolidated statements of operations. “Unbilled receivables” of $4.1 million was included within “Other receivables” in the accompanying consolidated balance sheets as of December 31, 2022. The following table presents changes in the Company’s contract liabilities during the year ended December 31, 2022 (in thousands): Balance as of Balance as of December 31, 2021 Additions Reductions December 31, 2022 Contract liabilities: Deferred revenue $ — $ 15,000 $ ( 7,340 ) $ 7,660 Totals $ — $ 15,000 $ ( 7,340 ) $ 7,660 As of December 31, 2022, the Company had not received any milestone or royalty payments under the Collaboration Agreement. 4. Financial Instruments and Fair Value Measurements The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds and a success payment liability pursuant to an amended and restated loan and security agreement (the “Loan Agreement”) with Pacific Western Bank (“PWB”) (see Note 8, Term Loan ). The carrying amounts reflected in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 were as follows (in thousands): Quoted Price in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Money market funds $ 128,812 $ — $ — $ 128,812 Total assets $ 128,812 $ — $ — $ 128,812 Liabilities Success payment liability $ — $ — $ 570 $ 570 Total liabilities $ — $ — $ 570 $ 570 The success payment liability was included within “Accrued expenses and other current liabilities” in the accompanying consolidated balance sheets as of December 31, 2022. There were no changes in valuation techniques during the year ended December 31, 2022. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 were as follows (in thousands): Quoted Price in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Money market funds $ 157,531 $ — $ — $ 157,531 Total assets $ 157,531 $ — $ — $ 157,531 There were no liabilities measured at fair value on a recurring basis as of December 31, 2021. Success Payment Liability The Company is obligated to pay to PWB a one-time success payment upon the occurrence of the Company achieving certain conditions defined in the Loan Agreement. The maximum aggregate success payment that could be payable by the Company is $ 1.6 million. The following table reconciles the change in fair value of the success payment liability during the year ended December 31, 2022 based on Level 3 inputs (in thousands): Year Ended December 31, 2022 Balance at December 31, 2021 $ — Additions 1,125 Change in fair value ( 555 ) Balance at December 31, 2022 $ 570 The success payment liability is stated at fair value and is considered Level 3 because its fair value measurement is based, in part, on significant inputs not observed in the market. The Company models the value of the liability based on several key variables, including probability of event occurrence and timing of event occurrence. The fair value of the success payment liability was determined using a probability weighted expected return method, in which the probability and timing of potential future events is considered in order to estimate the fair value of the success payment liability as of each valuation date. Management determined the fair value of the success payment liability as of December 31, 2022 using the following significant unobservable inputs: As of December 31, 2022 Probability of Success Fee Event 75 % Expected term (in years) 0.33 - 0.75 Discount rate 7.1 % Significant increases (decreases) in these inputs could result in a significantly lower or higher fair value measurement. The Company remeasured the liability at fair value with a corresponding decrease of $ 0.6 million recorded to other income, net for the year ended December 31, 2022. 5. Restricted Cash The Company maintained restricted cash of $ 1.2 million and $ 1.3 million at December 31, 2022 and December 31, 2021, respectively. At December 31, 2021, $ 0.1 million of the Company’s restricted cash balance was included within “Prepaid expenses and other current assets” in the accompanying consolidated balance sheets. These amounts are comprised solely of letters of credit required pursuant to the Company’s leased office spaces. Year Ended December 31, 2022 Year Ended December 31, 2021 Beginning of Period End of Period Beginning of Period End of Period Cash and cash equivalents $ 157,531 $ 129,315 $ 92,570 $ 157,531 Restricted cash 1,299 1,214 207 1,299 Cash, cash equivalents and restricted cash $ 158,830 $ 130,529 $ 92,777 $ 158,830 6. Property and Equipment, Net Property and equipment, net as of December 31, 2022 and 2021 was comprised as follows (in thousands): December 31, Estimated Useful Life (in years) 2022 2021 Laboratory equipment 5 $ 1,635 $ 839 Furniture and office equipment 5 264 9 Computer equipment 3 418 221 Leasehold improvements Shorter of 7 years or remaining lease term 7,971 274 Construction in progress 106 1,961 Total property and equipment, gross 10,394 3,304 Less: accumulated depreciation ( 1,406 ) ( 391 ) Total property and equipment, net $ 8,988 $ 2,913 Depreciation expense for the years ended December 31, 2022 and 2021 was $ 1.1 million and $ 0.2 million, respectively. 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities as of December 31, 2022 and 2021 were comprised as follows (in thousands): December 31, 2022 2021 Manufacturing $ 6,674 $ 3,427 Employee compensation and benefits 3,135 2,200 Professional fees 613 433 Contract research 2,990 2,542 Success payment liability 570 — Other 170 163 Total accrued expenses and other current liabilities $ 14,152 $ 8,765 8. Term Loan In April 2022, the Company entered into the Loan Agreement with PWB. Under the terms of the Loan Agreement, PWB made available a term loan in an aggregate principal amount of up to $ 20.0 million (“Tranche I Loan”) available at any time after the closing date until February 28, 2024 as extended to August 31, 2024 upon the satisfaction of certain conditions set forth in the Loan Agreement (such date, the “Amortization Date”). Based on the satisfaction of certain conditions defined in the Loan Agreement, PWB is also obligated to make available an additional term loan in the aggregate principal amount of up to $ 20.0 million (“Tranche II Loan”, or collectively with the Tranche I Loan, the “Term Loans”) available at any time after the closing date until the Amortization Date upon the acceptance by the U.S. Food and Drug Administration (the “FDA”) of two investigational new drug (“IND”) submissions on or before March 31, 2023. Although the Tranche I Loan and Tranche II Loan are now available to the Company, as of December 31, 2022, the Company has elected to defer making a draw. As of December 31, 2022, the Company had not drawn down any Term Loans and had no outstanding borrowings under the Loan Agreement. The Term Loans will bear interest on the outstanding daily balance at a floating annual rate equal to greater of: (i) 0.5 % above the prime rate then in effect or (ii) 4.5 %. If the prime rate changes throughout the term, the interest rate will be adjusted effective on the date of the prime rate change. All interest chargeable under the Loan Agreement is computed on a 360-day year for the actual number of days elapsed, with interest payable monthly. The Company is obligated to pay PWB a fee in the event of certain corporate transactions equal to either (i) the greater of (a) $ 0.2 million and (b) 2.0 % of the amount drawn under the Term Loans, for a transaction occurring on or before March 31, 2023, or (ii) for any transaction occurring thereafter, the greater of (a) $ 0.4 million and (b) 4.0 % of the amount drawn under the Term Loans (the “Success Fee”). The Success Fee will survive ten years from the date of payment of the Term Loans in full, such that, if the Loan Agreement is terminated prior to the payment of the Success Fee the Company will remain obligated to pay the Success Fee upon the occurrence of a Success Fee Event (as defined in the Loan Agreement) during such ten-year period. The Company determined that the Success Fee constitutes a freestanding financial instrument and should be accounted for as a liability in connection with ASC 815, Derivatives and Hedging . The Company determined the fair value of the Success Fee upon the closing date of the Loan Agreement and then marked to market the fair value of the Success Fee as of December 31, 2022. All outstanding obligations under the Loan Agreement are secured by the Company’s personal property (exclusive of any intellectual property) and are subject to acceleration in the event of default. In the event of a late payment or default, the Company is obligated to pay a fee equal to 5.0 % of such unpaid amounts. In connection with the Loan Agreement, the Company is required to comply with certain negative covenants, which among other things, restrict the Company from (i) incurring future debt or granting liens, (ii) effectuating a merger or consolidation with or into any other business organization, (iii) paying dividends or making certain other distributions, (iv) selling or otherwise transferring its assets, (v) making investments in any entities or instruments other than certain investments specified in the Loan Agreement and (vi) making capitalized expenditures in excess of 125 % of the amount provided for in the annual budget approved by the board of directors. The Loan Agreement also contains standard affirmative covenants, including with respect to the issuance of audited consolidated financial statements, insurance, and maintenance of good standing and government compliance in the Company’s state of formation. On or before September 30, 2023, the Company is required to raise aggregate gross cash process of at least $ 50.0 million from the sale or issuance of its equity or from strategic partnerships or any similar transaction. From after receipt of those proceeds, the Company is required to maintain at all times at least $ 20.0 million of unrestricted cash in accounts with PWB. PWB has the right to accelerate all outstanding obligations of the Company under the Loan Agreement or terminate any remaining Term Loan commitments in the event of a material adverse effect on (i) the operations, business or financial condition of the Company, (ii) the Company’s ability to repay any portion of the Term Loans or perform any of its other obligations under the Loan Agreement, and (iii) the Company’s interest in, or the value, perfection or priority of PWB’s security interest in the collateral. As of December 31, 2022, the Company had $ 40.0 million available to draw on the Term Loans and had no outstanding principal. In connection with the Loan Agreement, the Company recorded a total of $ 1.1 million as a success fee liability that is contingent upon the occurrence of future events and will be payable to PWB upon the occurrence of those events. The initial valuation of the success fee recorded in connection with the Loan Agreement was recorded as a deferred asset on the Company’s balance sheet until the Company draws down on the Term Loans. Upon drawdown of the Term Loans the initial value of the success fee will be reclassified as a discount to the term loan payable. The unamortized balance of the success fee will be charged to interest expense over the remainder of the borrowing term. 9. Common and Preferred Stock Common Stock The Company is authorized to issue 200.0 million shares of common stock. Common stockholders are entitled to dividends if and when declared by the Company’s board of directors. As of December 31, 2022, no dividends on common stock had been declared by the Company. On May 10, 2022, the Company entered into a Sales Agreement (the “Sales Agreement”) with SVB Securities LLC (“SVB”), pursuant to which the Company may offer and sell shares of its common stock with an aggregate offering price of up to $ 50.0 million (the “ATM Offering”). The Sales Agreement provides that SVB will be entitled to a sales commission equal to 3.0 % of the gross sales price per share of all shares sold under the ATM Offering. As of December 31, 2022, the Company had sold an aggregate of 3,827,567 shares under the ATM Offering at an average price of $ 4.36 per share for net proceeds of $ 15.7 million after deducting sales commissions and offering expenses. The Company had reserved shares of common stock for issuance as follows (in thousands): As of December 31, 2022 2021 Shares reserved for exercises of outstanding stock options 5,244 3,266 Shares reserved for vesting of restricted stock units 323 — Shares reserved for exercises of warrants 59 59 Shares reserved for future issuance under the 2021 Stock Incentive Plan 939 1,939 Total shares reserved for future issuance 6,565 5,264 Preferred Stock The Company is authorized to issue 5.0 million shares of undesignated preferred stock in one or more series. As of December 31, 2022, no shares of preferred stock were issued or outstanding. 10. Stock-based Compensation 2017 Stock Incentive Plan In December 2017, the Company adopted the 2017 Stock Incentive Plan (the “2017 Plan”), as amended and restated, under which it could grant incentive stock options (“ISOs”), non-qualified stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards to eligible employees, officers, directors and consultants. The terms of stock options and RSAs, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2017 Plan. 2021 Stock Incentive Plan In April 2021, the board of directors adopted and the Company’s stockholders approved the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective immediately prior to the effectiveness of the Company’s IPO. As a result of the adoption of the 2021 Plan, no further awards will be made under the 2017 Plan. The 2021 Plan provides for the grant of ISOs, non-qualified stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2021 Plan. The terms of awards, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2021 Plan. The Company initially registered 3,352,725 shares of common stock under the 2021 Plan, pursuant to a Registration Statement on Form S-8 filed with the SEC on April 30, 2021, which was comprised of (i) 2,843,116 shares of common stock reserved for issuance under the 2021 Plan, (ii) 31,884 shares of common stock originally reserved for issuance under the 2017 Plan that became available for issuance under the 2021 Plan upon the completion of the Company’s IPO, and (iii) 477,725 shares of unvested restricted stock subject to repurchase by us that may become issuable under the 2021 Stock Incentive Plan following such repurchase. The 2021 Plan also provides that an additional number of shares will be added annually to the shares authorized for issuance under the 2021 Plan on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022 and continuing until, and including, the fiscal year ended December 31, 2031. The number of shares added each year will be equal to the lesser of (i) 5 % of the number of outstanding common stock on such date and (ii) such amount as determined by the board of directors. Effective January 1, 2022, 1,380,397 additional shares were automatically added to the shares authorized for issuance under the 2021 Plan. As of December 31, 2022, there were 938,587 shares available for future issuance under the 2021 Plan. 2021 Employee Stock Purchase Plan In April 2021, the board of directors adopted and the Company’s stockholders approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective immediately prior to the effectiveness of the Company’s IPO. The Company initially reserved 244,000 shares of common stock for future issuance under the 2021 ESPP. The 2021 ESPP provides that an additional number of shares will automatically be added to the shares reserved for issuance on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022 and continuing for each fiscal year until, and including, the fiscal year ending on December 31, 2032. The number of shares added each year will be equal to the lowest of (i) 488,000 shares of common stock, (ii) 1 % of the number of shares of outstanding common stock on such date, and (iii) such amount as determined by the board of directors. The Company initiated its first offering period under the 2021 ESPP in December 2022. The 2021 ESPP provides that eligible employees may contribute up to 15 % of their eligible earnings toward the semi-annual purchase of the Company’s common stock. The 2021 ESPP is qualified under Section 423 of the Internal Revenue Code. The employee’s purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the last date of purchase (or, if not a trading day, on the immediately preceding trading day). The offering period under the 2021 ESPP has a duration of six months , and the purchase price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85 % of the lesser of (i) the fair market value of the Company’s common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of the Company’s common stock on the purchase date. The Company estimate the fair value of the common stock under the 2021 ESPP using a Black-Scholes valuation model. The fair value was estimate on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following assumptions: risk-free interest rate ( 4.7 %); expected term ( 0.5 years); expected volatility ( 77.0 %); and an expected dividend yield ( 0 %). The Company recorded less than $ 0.1 million of stock-based compensation under the 2021 ESPP for the year ended December 31, 2022. As of December 31, 2022, there was unrecognized stock-based compensation expense of less than $ 0.1 million related to the current ESPP offering period, which ends May 31, 2023. Stock-Based Compensation Expense Total stock-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2022 and 2021 was as follows (in thousands): Year Ended December 31, 2022 2021 Research and development $ 3,410 $ 1,524 General and administrative 3,990 2,571 Total stock-based compensation $ 7,400 $ 4,095 RSA Activity The Company may, at its discretion, repurchase unvested shares of restricted stock issued pursuant to the 2017 Plan at the initial purchase price if the employees or non-employees terminate their service relationship with the Company. The shares are recorded in stockholders’ deficit as they vest. The following table summarizes restricted stock award activity during the year ended December 31, 2022 (in thousands, except per share amounts): Shares/Units Weighted-Average Grant Date Fair Value Per Share Unvested at December 31, 2021 295 $ 1.35 Granted — $ — Vested ( 214 ) $ 1.34 Forfeited — $ — Unvested at December 31, 2022 81 $ 1.38 As of December 31, 2022, there was unrecognized stock-based compensation expense related to unvested restricted stock awards of $ 0.1 million, which the Company expects to recognize over a weighted-average period of approximately 0.4 years. The aggregate fair value of restricted stock awards that vested during the years ended December 31, 2022 and 2021, based upon the fair values of the stock underlying the restricted stock awards on the day of vesting, was $ 1.2 million and $ 3.6 million, respectively. RSU Activity The Company has also granted RSUs to its employees under the 2021 Plan. The following table summarizes RSU activity during the year ended December 31, 2022 (in thousands, except per share amounts): Shares/Units Weighted-Average Grant Date Fair Value Per Share Unvested at December 31, 2021 — $ — Granted 364 $ 4.39 Vested — $ — Forfeited ( 41 ) $ 4.97 Unvested at December 31, 2022 323 $ 4.32 As of December 31, 2022, there was unrecognized stock-based compensation expense related to unvested RSUs of $ 1.0 million, which the Company expects to recognize over a weighted-average period of approximately 1.24 years. No RSUs vested during the years ended December 31, 2022 or 2021. Stock Option Activity During the year ended December 31, 2022, the Company granted performance-based stock options to certain executive officers for the purchase of an aggregate of 883,352 shares of common stock with a grant date fair value of $ 3.36 per share. These stock options vest only upon achievement of specified performance targets related to certain business objectives. As of December 31, 2022, none of these options were vested because none of the specified performance targets had been achieved. Because achievement of the specified performance targets was not deemed probable as of December 31, 2022, the Company did not record any expense for these stock options from the date of issuance through December 31, 2022. The fair value of stock options granted during the years ended December 31, 2022 and 2021 was calculated on the date of grant using the following weighted-average assumptions: Year Ended December 31, 2022 2021 Risk-free interest rate 2.3 % 1.0 % Expected term (in years) 6.0 6.0 Dividend yield — % — % Expected volatility 77.0 % 78.7 % Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted during the years ended December 31, 2022 and 2021 was $ 5.98 and $ 9.72 per share, respectively. The following table summarizes stock option activity during the year ended December 31, 2022 (in thousands, except per share amounts): Options Outstanding Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (in years) Outstanding at December 31, 2021 3,266 $ 8.24 9.02 Granted 2,183 $ 7.14 Exercised ( 80 ) $ 2.82 Cancelled ( 125 ) $ 8.55 Outstanding, December 31, 2022 5,244 $ 7.86 8.34 Exercisable at December 31, 2022 1,683 $ 8.00 8.09 The aggregate intrinsic fair value of stock options exercised during the years ended December 31, 2022 and 2021 was $ 0.4 million and $ 0.8 million, respectively. As of December 31, 2022, there was unrecognized stock-based compensation expense related to unvested stock options of $ 18.3 million, which the Company expects to recognize over a weighted-average period of approximately 2.2 years. 11. Commitments and Contingencies Leases The Company’s leases are as follows: • An April 2019 operating lease for approximately 9,949 square feet of office and laboratory space which commenced in April 2019 and terminates in March 2024. The lease is subject to fixed-rate rent escalations and provided for a term extension option, which was not reasonably certain of exercise. In May 2022, the Company entered into a sublease agreement with Crossbow Therapeutics, Inc. (“Crossbow”), to sublease the entirety of this space. The annual rent for the subleased premises will be approximately $ 1.1 million in the first year and $ 1.0 million in the second year, which is greater than the annual rent paid by the Company to the landlord for the leased premises. Crossbow is obligated to pay all real estate taxes and costs related to the subleased premises, including cost of operations, maintenance, repair, replacement, and property management. • A March 2021 short-term lease for approximately 7,500 square feet of office and laboratory space which commenced in April 2021 and terminated in May 2022. The Company did not recognize an operating lease right of use asset or a lease liability upon lease commencement. Rent expense for the short-term lease was recognized as incurred. • A June 2021 operating lease for approximately 25,778 square feet of office and laboratory space, which commenced in May 2022 and terminates in May 2030. The lease is subject to fixed-rate rent escalations and provided for $ 5.7 million in tenant improvements, which the Company fully utilized, and a term extension option, which was not reasonably certain of exercise. The Company provided the landlord with a security deposit in the form of a letter of credit in the amount of $ 1.0 million upon signing, which is included in restricted cash as of December 31, 2022. Accounting under ASC 842: • Expected lease term: The expected lease term includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. • Incremental borrowing rate: As the discount rates in the Company’s lease are not implicit, management estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. • Lease and non-lease components: The Company is required to pay fees for operating expenses in addition to monthly base rent for certain operating leases (non-lease components). The Company has elected the practical expedient which allows non-lease components to be combined with lease components for all asset classes. Variable non-lease components are not included within the lease right-of-use asset and lease liability on the consolidated balance sheet, and instead are reflected as expense in the period they are paid. The following table summarizes operating lease costs (in thousands): Year Ended December 31, 2022 2021 Operating lease costs $ 2,537 $ 1,312 Variable lease costs 837 398 Short-term lease costs 228 411 Sublease income ( 834 ) — Total $ 2,768 $ 2,121 The following table summarizes the lease term and discount rate for operating leases: As of December 31, 2022 2021 Weighted-average remaining lease term (years) 7.0 7.6 Weighted-average discount rate 8.1 % 8.1 % As of December 31, 2022, the future minimum lease payments due under the Company’s leases are as follows (in thousands): Amount 2023 $ 3,133 2024 2,505 2025 2,337 2026 2,403 2027 2,472 Thereafter 6,258 Total remaining minimum rental payments 19,108 Less: effect of discounting ( 4,424 ) Total lease liability $ 14,684 License Agreements Harpoon License In March 2018, the Company entered into a Patent Assignment and License Agreement (the “Harpoon Agreement”) with Harpoon Therapeutics, Inc. (“Harpoon”), a clinical-stage immune-oncology company developing a novel class of T-cell engagers to fight cancer and other diseases. Under the terms of the Harpoon Agreement, Harpoon granted the Company a license to use its intellectual property, solely to make, have made, use, sell, offer for sale and import covered products in the licensed field and Harpoon sold, assigned and transferred other specific patents to the Company (the “Harpoon License”). On October 19, 2018, the Company and Harpoon entered into the First Amended and Restated Assignment and License Agreement which amended certain terms of the original agreement, but did not change the terms of the license to the Company, patent assignments between the parties or payments due to Harpoon. Further, on December 20, 2019, the companies entered into the Second Amended and Restated Assignment and License Agreement, which also amended certain terms of the original agreement to expand the licenses and assignments for specific patents granted to the Company or by the Company to Harpoon. In exchange for these additional terms, Harpoon agreed to reimburse up to $ 75,000 of the Company’s legal costs. Additionally, the Company agreed to pay to Harpoon royalties on future net sales and pay minimum annual royalties of $ 250,000 upon achievement of its first commercial sale. Under the terms of the Harpoon License, the Company paid an upfront fee of $ 500,000 in 2018 and is obligated to reimburse Harpoon for certain legal costs incurred by Harpoon. In addition, the Company is obligated to pay Harpoon royalties based on future net sales and has agreed to pay a minimum annual royalty payment at an amount in the low hundreds of thousands of dollars upon achievement of its first commercial sale. In 2018, the Company recorded the upfront fee as research and development expense upon payment as the intellectual property was acquired prior to regulatory approval and does not have an alternative future use. The royalty payments are contingent upon sales and, as such, the royalty payments made to Harpoon will be considered probable and estimable and treated as cost of sales when incurred. Accordingly, at the commencement of sales, the Company will account for the royalty payments as cost of sales equal to the greater of a percentage in the low-single digits of the net sales of the patent-covered products or a minimum annual royalty payment at an amount in the low hundreds of thousands of dollars. Any legal fees incurred in connection with the Harpoon Agreement will be expensed as incurred. The Harpoon License will expire on a country-by-country basis upon the expiration of the last to expire patent or patent application included in the licensed patents within the applicable country. The Company has the right to terminate the Harpoon License upon 30 days prior written notice to Harpoon, and either party may terminate for a material breach if such breach is not cured within a specified number of days. Adimab 2018 License In March 2018, the Company entered into a Development and Option Agreement (the “Adimab Agreement”) with Adimab LLC (“Adimab”), a company specializing in antibody discovery, humanization and optimization. Under the terms of the Adimab Agreement, Adimab granted the Company the rights to initiate certain research initiatives on a specified number of targets. Adimab also granted to the Company a license to certain Adimab core technologies, antibodies and products applicable to certain targets (“Adimab License”). In August 2020, the Company and Adimab entered into Amendment One to the Development and Option Agreement, which extended the period of time for the Company to evaluate candidate antibodies in advance of electing to exercise the option to acquire exclusive rights to licensed antibodies (the “Evaluation Term”), but did not otherwise change the terms of the Adimab License. The Evaluation Term was then further extended in December 2020 by entering into Amendment Two to the Development and Option Agreement, through delivery of a non-refundable payment of $ 100,000 by the Company to Adimab, which was creditable toward the option fee. The non-refundable payment was recorded immediately as research and development expense in the consolidated statements of operations. In July 2021, the Company and Adimab entered into the First Amended and Restated Development and Option Agreement to extend the target selection time period and to allow for the Company to add additional antibody discovery programs to be covered under the agreement, but otherwise retaining all other material provisions of the Adimab License. Under the terms of the Adimab License, the Company must pay both an upfront fee and final fee of $ 200,000 for all research programs. The Company must also pay Adimab milestone fees with respect to each research program ranging from $ 150,000 to $ 200,000 based on the achievement of technical milestones by Adimab for the applicable research program. In order to exercise any options in the Adimab Agreement, the Company must pay a $ 500,000 fee for each target option exercised. For each target option exercised, the Company is also obligated to pay certain milestones ranging from $ 1.0 million to $ 4.0 million for certain clinical and commercialization achievements. Additionally, for licensed products sold during the applicable royalty term, the Company must pay Adimab royalties at percentages in the low-to-mid single digits. The Adimab Agreement will expire upon the expiration of any options or if an option is exercised, on a country-by-country and licensed product-by-licensed product basis on the expiration of the last royalty term for a licensed product in the particular country. As of December 31, 2022, the Company has not exercised any target options or recorded any milestone or royalty payments for exercised options pursuant to the Adimab Agreement. Adimab 2022 Collaboration In November 2022, the Company entered into a Collaboration Agreement (the “Adimab Collaboration Agreement”) with Adimab. Under the terms of the Adimab Collaboration Agreement, Adimab has agreed to provide the Company with services to help discover, generate, optimize and/or engineer specified proteins. In addition, Adimab will provide the Company with a license to certain Adimab core technologies, patents and products applicable to certain targets (“Adimab Collaboration License”), separate from those provided in the 2018 Adimab Agreement. Under the terms of the Adimab Collaboration Agreement, the Company must pay Adimab milestone fees with respect to each research program ranging from $ 500,000 to $ 1.5 million based on the achievement of certain clinical milestones by the Company. The Adimab Collaboration Agreement provides the Company with an option to obtain any development and commercialization licenses from Adimab used in products. To exercise an option, the Company must pay a $ 500,000 fee for each product option exercised. For each product sold, the Company is also obligated to pay certain milestones ranging from $ 1.0 million to $ 2.0 million based on the achievement of the first commercial sale in certain countries. Additionally, for licensed products sold during the applicable royalty term, the Company must pay Adimab royalties at percentages in the low-to-mid single digits. The Adimab Collaboration Agreement will expire upon the expiration of any options or if an option is exercised, on a country-by-country and licensed product-by-licensed product basis on the expiration of the last royalty term for a licensed product in the particular country. As of December 31, 2022, the Company has not exercised any options and has not made any payments for clinical or sales-based milestones or royalties pursuant to the Adimab Collaboration Agreement. 12. Income Taxes During the years ended December 31, 2022 and 2021, the Company recorded no current or deferred income tax expenses or benefits as the Company has incurred losses since inception and has provided a full valuation allowance against its deferred tax assets. A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2022 2021 Income tax computed at federal statutory rate 21.0 % 21.0 % State taxes 8.3 5.7 Change in valuation allowance ( 30.4 ) ( 27.2 ) R&D credit carryovers 2.4 1.8 Stock-based compensation ( 1.5 ) ( 0.9 ) Permanent differences 0.2 ( 0.4 ) Effective income tax rate 0.0 % 0.0 % The Company’s deferred tax assets consist of the following (in thousands): As of December 31, 2022 2021 Deferred tax assets: Net operating losses $ 26,234 $ 22,831 Tax credit carryforwards 3,819 1,918 Lease liability 4,180 4,393 Other capitalized costs—net of amortization 103 111 Reserves and accruals 950 658 Stock-based compensation 1,448 500 Capitalized research and experimental expenditures—net of amortization 9,474 — Deferred tax assets 46,208 30,411 Valuation allowance ( 42,417 ) ( 26,110 ) Deferred tax assets recognized 3,791 4,301 Deferred tax liabilities: Right of use asset ( 2,358 ) ( 3,762 ) Fixed assets and depreciation ( 1,433 ) ( 6 ) Construction in progress — ( 533 ) Deferred tax liabilities ( 3,791 ) ( 4,301 ) Net deferred tax assets $ — $ — The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and experimental (“R&E”) expenditures under Section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during 2022 and resulted in the capitalization of R&E expenditures of $ 36.1 million. The Company will amortize these costs for tax purposes over 5 years if the research and development (“R&D”) was performed in the U.S. and over 15 years if the R&D was performed outside the U.S. The Company evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets as of December 31, 2022 and 2021. Management considered the Company’s cumulative net losses and concluded as of December 31, 2022 and 2021, that it was more likely than not that the Company would not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance was established against the net deferred tax assets as of December 31, 2022 and 2021. The valuation allowance increased by $ 16.3 million and $ 14.3 million for the years ended December 31, 2022 and 2021, respectively, primarily as a result of operating losses generated with no corresponding financial statement benefit. The Company has incurred net operating losses (“NOL”) since inception. As of December 31, 2022 and 2021, the Company had federal net operating loss carryforwards of $ 92.1 million and $ 80.3 million, respectively, available to reduce future federal taxable income. The carryforwards generated in 2017 expire in 2037. $ 92.0 million of carryforwards generated post 2017 do not expire. The TCJA enacted on December 22, 2017 limits a taxpayer’s ability to utilize NOL deduction in a year to 80% taxable income for federal net operating losses arising in tax years beginning after 2017. As of December 31, 2022 and 2021, the Company had state net operating loss carryforwards of $ 86.1 million and $ 74.5 million, respectively, available to reduce future state taxable income, which expire at various dates beginning in 2037. As of December 31, 2022 and 2021, the Company had federal research and development tax credit carryforwards of $ 2.6 million and $ 1.3 million, respectively, available to reduce future federal tax liabilities, which expire at various dates beginning in 2038. The Company also had state research and development tax credit carryforwards as of December 31, 2022 and 2021 of $ 1.2 million and $ 0.6 million, respectively, available to reduce future state tax liabilities, which expire at various dates beginning in 2034. Utilization of the Company’s net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company is in the process of completing a Section 382 study for the period of January 22, 2018, through December 31, 2022. As part of the first phase in the study, the Company completed testing date analysis through December 31, 2022, and identified three ownership changes that occurred on June 10, 2019, August 2, 2019, and August 31, 2022 for Section 382 purposes. As the Company experienced these ownership changes, all pre-change net operating loss and research and development tax credit carryforwards are subject to limitation. Due to the unlimited carryover period for post-2017 generated net operating losses, none of the Company’s net operating losses will expire unused. A portion of the Company’s research and development tax credits will expire unused. The exact amount of the research and development tax credits that will expire unused will be determined upon the completion of the Section 382 study. The Company is currently in a full valuation allowance and will not make any limitation adjustment to the net operating loss and research and development tax credit carryforwards until the Section 382 study is completed. Further, until the Section 382 study is completed, no amounts are being presented as an uncertain tax position. The Company has not recorded any reserves for uncertain tax positions as of December 31, 2022 and 2021. The Company has conducted a study of research and development tax credit for tax years 2018 - 2020. The amounts of federal and state research and development tax credit carryforwards presented above have reflected the results from the study. A full valuation allowance has been provided against the Company’s research and development credits. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from inception to the present. 13. Related Parties In May 2022, the Company entered into a sublease agreement with Crossbow, for which entities affiliated with MPM Capital (“MPM Capital”) are also beneficial owners, to sublease the entirety of its office and laboratory space in Cambridge, Massachusetts. Luke Evnin, Ph.D., the chair of the Company’s board of directors, co-founded MPM Capital and serves as Managing Director of MPM Capital. Briggs Morrison, who serves on the Company’s board of directors, serves as Executive Partner of MPM Capital. The term of the sublease agreement commenced in June 2022 and ends in March 2024, with no option to extend (see Note 11, Commitments and Contingencies ). The Company received cash payments under its sublease of approximately $ 0.8 million during the year ended December 31, 2022. In addition, the Company received $ 0.2 million from Crossbow in June 2022 as a security deposit that is included within “Other liabilities” in the accompanying consolidated balance sheets as of December 31, 2022. 14. 401(k) Savings Plan The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pretax basis. Beginning in 2022, the Company will match 50 % of each participant’s contribution up to a maximum of 6 % of the participant’s eligible compensation paid during the period. During the year ended December 31, 2022, the Company recognized expense of $ 0.2 million related to matching contributions. 15. Net Loss Attributable to Common Stockholders per Share For purposes of the diluted net loss attributable to common stockholders per share calculation, outstanding stock options, unvested RSAs, unvested RSUs and warrants to purchase common stock are considered to be potentially dilutive securities, however the following weighted-average amounts were excluded from the calculation of diluted net loss attributable to common stockholders per share because their effect would be anti-dilutive (in thousands): December 31, 2022 2021 Outstanding stock options 5,244 3,266 Unvested RSAs 81 295 Unvested RSUs 323 — Warrants to purchase common stock 59 59 Total 5,707 3,620 16. Subsequent Events On March 15, 2023, the Company borrowed an aggregate principal amount of $ 40.0 million as a term loan under the Loan Agreement with PWB. The draw was made in accordance with the initial terms and conditions of the Loan Agreement. The Company will begin to repay the principal in twenty-four equal monthly payments beginning on September 1, 2024. Refer to Note 8, Term Loan , for additional details on the Term Loan. During the period beginning January 1, 2023 and ending March 23, 2023, the Company issued and sold approximately 3.8 million shares of its common stock in connection with the ATM Offering, resulting in gross proceeds of approximately $ 8.8 million before deducting sales commissions and offering expenses. Refer to Note 9, Common and Preferred Stock , for additional details on the ATM Offering. EXHIBIT INDEX Exhibit No. Description of Exhibit 3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2021, File No. 001-40366). 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2021, File No. 001-40366). 4.1 Specimen Stock Certificate evidencing the shares of common stock of the Registrant (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 4.2 Amended and Restated Investors’ Rights Agreement, dated as of December 23, 2020, by and among the Registrant and the other parties thereto (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 4.3 Description of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 24, 2022). 10.1 2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.2 Form of Stock Option Agreement under 2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.3 Form of Restricted Stock Agreement under 2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.4 2021 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.5 Form of Stock Option Agreement under 2021 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.6 Form of Restricted Stock Agreement under 2021 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.7 Form of Restricted Stock Unit Agreement under 2021 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.8 2021 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.9 Form of Indemnification Agreement between the Registrant and each of its Executive Officers and Directors (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 8, 2021, File No. 333-255132). 10.10# Second Amended and Restated Assignment and License Agreement dated as of December 20, 2019, by and between the Registrant and Harpoon Therapeutics, Inc (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 8, 2021, File No. 333-255132). 10.11 Amended and Restated Royalty Transfer Agreement dated as of August 2, 2019, by and among MPM Oncology Impact Fund Charitable Foundation, Inc. and UBS Optimus Foundation (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 8, 2021, File No. 333-255132). 10.12 Lease Agreement dated as of March 28, 2019, by and between the Registrant and Cambridge 1030 Mass Ave, LLC (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 8, 2021, Registration No. 333-255132, File No. 333-255132). 10.13 Lease Agreement dated as of March 3, 2021, by and between the Registrant and ARE-480 Arsenal Street, LLC (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 8, 2021, File No. 333-255132). 10.14 Lease Agreement dated as of June 1, 2021, by and between the Registrant and ARE-MA Region No. 75, LLC. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 2, 2021, File No. 001-40366). 10.15+ Employment Agreement dated as of April 23, 2021, by and between the Registrant and Daniel J. Hicklin, Ph.D. (incorporated by reference to Exhibit 10.15 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.16+ Employment Agreement dated as of April 23, 2021, by and between the Registrant and Randi Isaacs M.D. (incorporated by reference to Exhibit 10.16 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.17+ Employment Agreement dated as of April 23, 2021, by and between the Registrant and Cynthia Seidel-Dugan, Ph.D. (incorporated by reference to Exhibit 10.17 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.18+ Employment Agreement dated as of April 23, 2021, by and between the Registrant and Reid Leonard, Ph.D. (incorporated by reference to Exhibit 10.18 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.19+ Employment Agreement dated as of April 23, 2021, by and between the Registrant and Ellen Lubman, M.B.A. (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.20+ Employment Agreement dated as of April 23, 2021, by and between the Registrant and Timothy W. Trost (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No. 333-255132). 10.21+ Employment Agreement dated as of April 30, 2021 by and between the Registrant and Chulani Karunatilake (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 10, 2021, File No. 001-40366). 10.22# Collaboration and License Agreement, dated as of April 6, 2022, by and between the Registrant and Jazz Pharmaceuticals Ireland Limited (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 10, 2022). 10.23 Amended and Restated Loan and Security Agreement dated as of April 12, 2022, by and between the Registrant and Pacific Western Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 15, 2022). 10.24 Sales Agreement, dated as of May 10, 2022, by and between the Registrant and SVB Securities LLC (incorporated by reference to Exhibit 1.2 to the Registrant’s Registration Statement on Form S-3, filed with the Securities and Exchange Commission on May 10, 2022). 16.1 Letter from Deloitte & Touche LLP, dated September 7, 2022 (incorporated by reference to Exhibit 16.1 to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 7, 2022). 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, Registration No. 333-255132). 23.1* Consent of Ernst & Young LLP, Independent Registered Accounting Firm. 23. 2 * Consent of Deloitte & Touche LLP, Independent Registered Accounting Firm. 31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1† Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104* Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) * Filed herewith. † The certifications attached as Exhibit 32.1 that accompany this Annual Report, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Werewolf Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report, irrespective of any general incorporation language contained in such filing. + Indicates management contract. # Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because such information is not material and is the type of information that the registrant treats as private or confidential. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WEREWOLF THERAPEUTICS, INC. Date: March 23, 2023 By: /s/ Daniel J. Hicklin Daniel J. Hicklin, Ph.D. President and Chief Executive Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Daniel J. Hicklin President, Chief Executive Officer and Director (Principal Executive Officer) March 23, 2023 Daniel J. Hicklin, Ph.D. /s/ Timothy W. Trost Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) March 23, 2023 Timothy W. Trost Chair of the Board of Directors Luke Evnin, Ph.D. /s/ Meeta Chatterjee Director March 23, 2023 Meeta Chatterjee, Ph.D. /s/ Derek DiRocco Director March 23, 2023 Derek DiRocco, Ph.D. /s/ Alon Lazarus Director March 23, 2023 Alon Lazarus, Ph.D. /s/ Briggs W. Morrison Director March 23, 2023 Briggs W. Morrison, M.D. /s/ Michael A. Sherman Director March 23, 2023 Michael A. Sherman, M.B.A.