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Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-03-23 · 172 added, 155 removed, 198 unchanged (62% of the section changed)

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Our most advanced product candidates, WTX-124 and WTX-330, are systemically delivered, conditionally activated Interleukin-2 and Interleukin-12, respectively, INDUKINE molecules for the treatment of multiple tumor types.

In the second quarter of 2022, we received clearance from the U.S.

Food and Drug Administration, or the FDA, for our investigational new drug application, or IND, for WTX-124.

In the third quarter of 2022, the first patient was dosed in a Phase 1/1b clinical trial to evaluate WTX-124 as a monotherapy and in combination with Merck’s anti-PD-1 therapy KEYTRUDA ® (pembrolizumab) in patients with advanced or metastatic solid tumors, with initial data anticipated in the fourth quarter of 2023.

In the third quarter of 2022, we submitted our IND for WTX-330 and have since received clearance from the FDA.

In the first quarter of 2023, the first patient was dosed in a Phase 1 clinical trial to evaluate the safety and tolerability of WTX-330 in patients with advanced or metastatic solid tumors or lymphoma resistant to checkpoint inhibitors or for which checkpoint inhibitors are not approved.

In April 2022, we entered into a collaboration and license agreement, or the Collaboration Agreement, with Jazz Pharmaceuticals Ireland Limited, or Jazz, pursuant to which we granted Jazz certain licenses to develop and commercialize products containing our Interferon alpha (IFNα) INDUKINE molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria, which we refer to as the Licensed Products.

Under the Collaboration Agreement, we are initially responsible for certain pre-clinical development activities with respect to JZP898 and other development activities specified in mutually agreed upon development plans.

We are currently evaluating WTX-124 in a Phase 1/1b clinical trial as a monotherapy and in combination with Merck & Co., Inc.’s anti-PD-1 therapy KEYTRUDA (pembrolizumab) in patients with immunotherapy sensitive advanced or metastatic solid tumors who have failed standard of care treatment, including checkpoint inhibitor therapy.

In November 2023, we announced preliminary first-in-human clinical data from the initial monotherapy dose-escalation cohorts in the Phase 1/1b clinical trial.

The preliminary data established proof of mechanism for WTX-124 and proof of concept for our INDUKINE design, and included assessments of safety and tolerability, pharmacokinetics, relevant biomarkers and preliminary antitumor activity.

The preliminary data included data collected as of October 18, 2023, from 16 heavily pretreated patients from the first four monotherapy dose escalation cohorts (1, 3, 6, and 12 mg) supportive of continued dose escalation.

Dose escalation is ongoing in the monotherapy and combination therapy arms of the trial.

In the first half of 2024, we expect to report updated interim data from the monotherapy dose-escalation arms of the Phase 1/1b clinical trial, select a recommended dose for expansion and initiate monotherapy dose expansion arms, and report initial data from the combination dose escalation cohorts of the Phase 1/1b clinical trial.

We are also currently evaluating WTX-330 in a Phase 1 clinical trial for the treatment of immunotherapy resistant advanced or metastatic solid tumors or lymphoma, to be followed by expansion arms in relapsed/refractory tumors following treatment with checkpoint inhibitors or tumors for which checkpoint inhibitors are not approved.

We announced the initiation of patient dosing in February 2023.

The trial is currently open for enrollment.

We plan to report initial data from the Phase 1 clinical trial in the second quarter of 2024.

In April 2022, we entered into a global collaboration and license agreement, or the Collaboration Agreement, with Jazz Pharmaceuticals Ireland Limited, or Jazz, under which Jazz acquired exclusive global development and commercialization rights related to Interferon alpha, or 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).

Pursuant to the terms of the Collaboration Agreement, we are responsible for certain preclinical development activities with respect to JZP898 and other development activities specified in mutually agreed upon development plans.

Jazz will generally reimburse us for the cost of such activities.

Jazz is responsible for all other development and commercialization activities conducted to exploit the Licensed Products, including submission of an IND to the FDA.

Under the terms of the Collaboration Agreement, we received an upfront payment of $15.0 million in April 2022, and we are eligible to receive cost reimbursements for research services performed under the Collaboration Agreement.

We are also 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, we are 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.

We were incorporated and commenced operations in 2017.

Since inception, we have devoted substantially all of our time and efforts to performing research and development activities, raising capital and recruiting management and technical staff to support these operations.

To date, we have financed our operations primarily with proceeds from the sales of our convertible promissory notes and equity securities and from the upfront payment that we received from Jazz pursuant to the terms of the Collaboration Agreement.

From December 2017 to August 2018, we issued convertible promissory notes for aggregate gross cash proceeds of $11.0 million.

From August 2019 to June 2020, we issued an aggregate of 80,246,565 shares of Series A preferred stock for aggregate gross cash proceeds of $44.2 million, together with conversion of all of our previously issued convertible promissory notes.

In December 2020, we issued 78,222,173 shares of Series B preferred stock at a price of $0.92 per share, resulting in gross cash proceeds of $72.1 million.

On May 4, 2021, we completed our initial public offering, or IPO, pursuant to which we issued and sold 7,500,000 shares of our common stock at a public offering price of $16.00 per share.

We received net proceeds of approximately $109.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

On May 10, 2022, we entered into a sales agreement, or the Sales Agreement, with SVB Securities LLC, or SVB, pursuant to which we may offer and sell shares of our common stock with an aggregate offering price of up to $50.0 million, which we refer to as the ATM Offering.

As of December 31, 2022, we 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.

During the period beginning January 1, 2023 and ending March 23, 2023, we issued and sold approximately 3.8 million shares of our common stock in connection with the ATM Offering, resulting in gross proceeds of approximately $8.8 million before deducting sales commissions and offering expenses.

Due to our significant research and development expenditures, we have accumulated substantial net losses since our inception.

As of December 31, 2022, we had an accumulated deficit of $306.7 million.

We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements.

We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all.

failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.

Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.

Impact of COVID-19 on Our Business

The extent, duration and full impact of the COVID-19 pandemic on our financial statements and operations, including our ongoing and planned preclinical activities and ongoing and future clinical trials, remains uncertain.

Further information relating to the risks and uncertainties related to the COVID-19 pandemic is contained in the section titled “Risk Factors” in Part I, Item 1A of this Annual Report.

Jazz will be responsible for all other development and commercialization activities conducted to exploit the Licensed Products.

Jazz received IND application clearance from the FDA for JZP898 in July 2023 and initiated a Phase 1 clinical trial of JZP898 in the fourth quarter of 2023.

Financial Operations Overview

We have not generated any revenue to date from product sales and do not expect to do so in the near future.

For the year ended December 31, 2022, we recognized $16.4 million of revenue related to the Collaboration Agreement, of which $7.3 million related to the upfront payment received in April 2022 and $9.1 million related to costs incurred for research services to be reimbursed by Jazz.

We had $7.7 million of deferred revenue as of December 31, 2022, which is classified as either current or net of current portion in our consolidated balance sheets based on the period over which the revenue is expected to be recognized.

As of December 31, 2022, we had not received any milestone or royalty payments under the Collaboration Agreement.

In the future, we expect to continue to generate revenue from the Collaboration Agreement and may generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements.

We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year based upon our pattern of performance under the Collaboration Agreement and as a result of the timing and amount of milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized.

All of our revenue has been generated from the Collaboration Agreement with Jazz.

For the years ended December 31, 2023 and 2022, we recognized $19.9 million and $16.4 million of revenue, respectively.

Revenue from the transaction price for the Collaboration Agreement is recognized based on a cost-to-cost input method for both periods and includes upfront, milestone, and cost reimbursement payments.

The Collaboration Agreement includes multiple development and regulatory and sales-based milestones, which were excluded from the transaction price at inception of the Collaboration Agreement based on our assessment that there was a high level of uncertainty of achieving the milestones.

During the year ended December 31, 2023, we re-evaluated this assessment and concluded that a $5.0 million variable consideration payment should be added to the

transaction price, resulting in a cumulative catch-up of revenue of $4.2 million recognized during the year ended December 31, 2023.

In the future, our ability to generate revenue from the Collaboration Agreement will depend on successfully achieving the various development and regulatory and sales-based milestones, as well as incurring costs for research activities that are reimbursable by Jazz.

We may also generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements.

We expect that potential future revenue, if any, will fluctuate from quarter-to-quarter and year-to-year based upon our pattern of performance under the Collaboration Agreement and as a result of the timing and amount of milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized.

If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

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We track external development costs by product candidate or development program, but generally we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates.

Our external development costs for the years ended December 31, 2022 and 2021 were as follows (in thousands):

Our external development costs were as follows:

Year Ended December 31,

$ 8,461 $ 8,928

JZP898 (formerly WTX-613)

(in thousands)

JZP898 $ 7,380 $ 8,181

WTX-330 4,698 13,702

WTX-124 2,867 8,461

WTX-712 1,040 —

WTX-518 149 —

Pre-development candidates 2,360 2,588

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Research and development activities are central to our business model.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we progress our clinical trials of WTX-124 and WTX-330 and continue to discover and develop additional product candidates.

As a result of our entry into the Collaboration Agreement, which commenced in April 2022, our external preclinical development costs for JZP898 (formerly WTX-613) will generally be reimbursed by Jazz.

WTX-712 did not incur material external development costs for the years ended December 31, 2022 and 2021.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we progress our clinical trials of WTX-124 and WTX-330, continue preclinical development of WTX-712 and WTX-518, and continue to discover and develop additional product candidates.

As a result of our entry into the Collaboration Agreement, which commenced in April 2022, our external preclinical development costs for JZP898 will generally be reimbursed by Jazz.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming.

We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates.

We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete

development of our current or future product candidates.

The actual probability of success for our product candidates will depend on a variety of factors, including:

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General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel in our executive, finance, people operations, business development, legal, IT and administrative functions.

General and administrative expenses also include legal fees relating to intellectual property and corporate matters;

professional fees for accounting, auditing, tax and consulting services;

professional fees for accounting, audit, tax and consulting services;

insurance costs;

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We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support the increasing size and complexity of our research, development and manufacturing activities.

Other Income, Net

Other income, net consists primarily of remeasurement gains or losses attributable to changes in the fair value of the success payment liability associated with our debt agreement with Pacific Western Bank, or PWB, and amortization of debt issuance costs related to our debt agreement with PWB.

Interest Income

Interest income consists of interest earned from cash and cash equivalents and restricted cash and cash equivalents invested in money market funds.

Interest Expense

Interest expense represents interest incurred from our loan agreement with Pacific Western Bank, or PWB, and non-cash interest expense related the amortization of debt issuance costs.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of remeasurement gains or losses attributable to changes in the fair value of the success payment liability associated with our loan agreement with PWB and amortization of debt issuance costs incurred prior to the drawdown of our loan agreement with PWB.

For more information see “Liquidity and Capital Resources” below.

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The preparation of these consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes.

On an ongoing basis, we evaluate our estimates which include, but are not limited to, accrued expenses, stock-based compensation expense and income taxes.

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

On an ongoing basis, we evaluate our estimates which include, but are not limited to those related to revenue recognition, accrued expenses, assumptions used in the valuation of stock-based compensation expense and income taxes.

We base our estimates on historical experience, known trends and events

and various other factors that we believe to be reasonable under the circumstances.

Actual results could differ from those estimates under different assumptions and conditions.

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We analyze our 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 Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements , or ASC 808.

This assessment is

performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

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

For elements of collaboration arrangements that are accounted for pursuant to ASC 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, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

In applying ASC 606, we perform the following five steps:

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We use key assumptions to determine the standalone selling price, which may include reimbursement rates for personnel costs, development timelines and probabilities of regulatory success.

We do 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.

We do not assess whether a contract has a significant financing component if we expect at contract inception 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 we use the “most likely amount” method to estimate this variable consideration.

Given the high degree of uncertainty around the occurrence of these events, we determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved.

Event-based milestone payments represent variable consideration, and we use the “most likely amount” method to estimate this variable consideration.

Given the high degree of uncertainty around the occurrence of these events, we consider 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.

We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.

At the inception of a contract, we assess whether the contract is, or contains, a lease.

The assessment is based on:

(1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset.

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.

We do not recognize leases with terms of one year or less on the balance sheet.

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.

At the inception of an arrangement, we determine 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 twelve months are recognized on the balance sheet as right-of-use assets and current or non-current lease liabilities, as applicable.

We do not recognize leases with terms of twelve months or less on the balance sheet.

The lease term is determined at lease commencement, and includes the noncancellable period during which we have the right to use the underlying asset.

Any period covered by an option to extend or terminate a lease is included in the lease term if we are reasonably certain that the option to extend will be exercised or the option to terminate will not be exercised.

We monitor plans to renew material leases on a quarterly basis.

We combine lease and non-lease components for our leases.

Lease payments included in determining the right-of-use asset and lease liability recognized include fixed payments to be paid over the term of the lease, less any lease incentives to be paid or payable to us by the lessor.

Variable lease payments are included if they are based on an index or rate.

Variable lease payments that are not based on an index or rate are recognized as expense in the period incurred.

The interest rate implicit in lease contracts is typically not readily determinable.

As a result, we utilize our incremental borrowing rate, or IBR, which reflects the fixed rate at which we 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.

We subsequently measure our 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.

We recognize operating lease expense on a straight-line basis over the lease term.

As a result, we utilize our incremental borrowing rate, or IBR, which reflects the fixed rate at which we 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 lease liability is measured as the value of the remaining lease payments, discounted to present value using the IBR for the lease.

All of our leases are classified as operating leases.

Operating lease expense is recognized over the lease term using the straight-line method.

Accrued Research and Development Expenses

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Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.

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

Stock-based Compensation

We account for stock-based payments in accordance with Accounting Standards Update, or ASU, No.

2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting , or ASC 718.

This guidance requires all stock-based payments to employees, including grants of employee stock options, restricted stock awards and restricted stock units, to be recognized as expense in the consolidated statements of operations and comprehensive income (loss) based on their grant date fair values.

options granted to employees and to members of our board of directors for their services on the board of directors, we estimate the grant date fair value of each stock option using the Black-Scholes option-pricing model.

For restricted stock awards and restricted stock units granted to employees, we estimate 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, we recognize 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.

We use the simplified method as prescribed by SEC Staff Accounting Bulletin No.

107 to calculate the expected term for stock options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

We determine 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 our common stock prior to our IPO, there is a lack of historical and implied volatility data.

Accordingly, we base our estimates of expected volatility on the historical volatility of a group of publicly traded companies with similar characteristics to us, 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.

We use an assumed dividend yield of zero as we have never paid dividends on our common stock, nor do we expect to pay dividends on our common stock in the foreseeable future.

We account for forfeitures of all stock-based payments when such forfeitures occur.

We issue stock-based awards to employees and directors, generally in the form of stock options, restricted stock units, or RSUs, restricted stock awards, or RSAs, or as awards under our 2021 Employee Stock Purchase Plan, or the 2021 ESPP.

Stock-based compensation is measured at the grant date based on the estimated fair value of the award and recognized as expense over the requisite service period of the award on a straight-line basis.

For awards with performance conditions, we estimate the likelihood of satisfaction of the performance condition, which affects the period over which the expense is recognized.

When the likelihood of satisfying the performance conditions related to an award is determined to be probable, the expense is recognized over the requisite service period.

We have not granted any awards with market conditions.

We recognize forfeitures of stock-based awards as they occur.

The grant date fair value of stock options, and awards granted under the 2021 ESPP are measured using the Black-Scholes valuation model, which requires us to make assumptions about the fair value of the underlying common stock on the date of grant.

The grant date fair value of RSUs and RSAs is estimated to be equal to the closing price of our common stock on the date of grant.

In the event that stock-based awards are granted in contemplation of or shortly before a planned release of material non-public information, and such information is expected to result in a material increase in the share price of our common stock, we may consider whether an adjustment to the observable market price is required when estimating the grant date fair value.

Recent Accounting Pronouncements

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Comparison of the years ended December 31, 2023 and 2022

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:

The following table summarizes our results of operations:

Year Ended December 31, $ Change

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Other income:

Other income, net

Interest income 7,416 1,908 5,508

Interest expense

(3,139) — (3,139)

Other (expense) income, net (1,142) 338 (1,480)

Total other income

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$ (37,368) $ (53,810) $ 16,442

Revenue was $16.4 million for the year ended December 31, 2022, which is comprised of partial recognition of the $15.0 million upfront payment received in April 2022 upon the execution of the Collaboration Agreement with Jazz and costs incurred for research services to be reimbursed by Jazz.

There was no collaboration revenue in the year ended December 31, 2021.

Revenue was $19.9 million for the year ended December 31, 2023, which is comprised of partial recognition of the $15.0 million upfront payment received in April 2022 upon the execution of the Collaboration Agreement with Jazz and costs incurred for research services to be reimbursed by Jazz, and revenue related to the achievement of certain variable consideration components.

Comparatively, we recognized $16.4 million in collaboration revenue during the year ended December 31, 2022.

This $3.5 million increase in collaboration revenue is primarily driven by a change in the transaction price of $5.0 million during the year ended December 31, 2023, upon achieving a variable consideration component included in the Collaboration Agreement, which led to an additional recognition of $4.7 million during the year ended December 31, 2023.

This increase was partially offset by a decline in revenue recognized as a result of a decrease in research and development activities related to JZP898.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

The following table summarizes our research and development expenses:

Year Ended December 31, $ Change

(in thousands)

Manufacturing $ 22,605 $ 13,797 $ 8,808

Personnel $ 15,242 $ 14,170 $ 1,072

Manufacturing 8,328 22,605 (14,277)

Clinical trial costs 6,020 3,858 2,162

Lab consumables 4,430 3,305 1,125

Contract research organization 4,146 6,469 (2,323)

Facilities 2,870 2,805 65

Lab consumables 3,305 3,250 55

Other 740 549 191

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Research and development expenses for the year ended December 31, 2023 were $41.8 million, compared to $53.8 million for the year ended December 31, 2022.

The increase of $18.5 million was primarily due to:

• $8.8 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and current and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and JZP898 (formerly WTX-613);

• $5.2 million of increased personnel costs, including $1.9 million of increased stock-based compensation expense, primarily due to increased headcount associated with expanded discovery efforts as well as the hiring of clinical development personnel;

• $2.5 million of increased contract research organization expense incurred to support IND enabling studies and clinical start-up activities for WTX-124 and WTX-330;

• $1.5 million of increased facilities expense primarily related to leasing of additional space to support additional headcount.

The decrease of $12.0 million was primarily due to:

• $14.3 million of decreased manufacturing costs driven by a decrease of $12.9 million in costs incurred with contract manufacturing organizations used to support the production of preclinical, and current and future clinical

trial materials associated with candidates WTX-124, WTX-330, and JZP898, as well as $1.4 million of favorable adjustments recognized during the second quarter of 2023 upon the closeout of completed purchase orders;

• $2.3 million of decreased contract research organization costs driven by $1.4 million of higher costs in 2022 leading up to initiating our clinical trials for WTX-124 and WTX-330, as well as $1.8 million in higher costs incurred in 2022 related to IND-enabling studies for JZP989.

These decreases were partially offset by $1.0 million in contract research organization costs incurred in 2023 as we furthered our development of WTX-712.

These decreases were partially offset by:

• $1.1 million of increased personnel costs, including $0.6 million of increased stock-based compensation expense due to the timing and valuation of stock-based awards granted to employees, combined with annual cost of living adjustments;

• $2.2 million of increased clinical trial costs, primarily driven by continued expansion of sites and enrollment for both our WTX-124 and WTX-330 trials;

• $1.1 million of increased lab consumables costs, primarily related to expanded discovery efforts.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2022 and 2021:

The following table summarizes our general and administrative expenses:

Year Ended December 31, $ Change

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Personnel $ 9,187 $ 8,949 $ 238

Corporate insurance 2,852 2,011 841

IT costs 592 344 248

Professional services 4,710 4,008 702

Corporate insurance 1,780 2,852 (1,072)

Facility costs 1,260 1,368 (108)

IT costs 655 592 63

Other 1,078 927 151

Total general and administrative expenses $ 18,670 $ 18,696 $ (26)

General and administrative expenses for the year ended December 31, 2022 were $18.7 million, compared to $14.8 million for the year ended December 31, 2021.

The increase of $3.9 million was primarily due to:

• $2.8 million of increased personnel costs, including $1.4 million of increased stock-based compensation expense, due to the full-year impact of increased headcount in 2021 to support operating as a public company;

• $0.8 million of increased corporate insurance costs, driven by the full-year impact of public company management liability insurance.

Other Income, Net

Other income for the year ended December 31, 2022 was $2.2 million, compared to $0.1 million for the year ended December 31, 2021.

The increase of $2.1 million was primarily due to $1.8 million of increased interest income due to rising interest rates.

General and administrative expenses were $18.7 million for each of the years ended December 31, 2023 and 2022.

Significant fluctuations in general and administrative expenses include:

• $1.1 million of decreased corporate insurance costs, driven by a reduction in associated premiums;

• $0.2 million of increased personnel costs, driven by higher headcount and annual cost of living adjustments;

• $0.7 million of increased professional services costs, driven by costs incurred to protect our intellectual property and general corporate matters.

Interest Income

Interest income was $7.4 million for the year ended December 31, 2023, compared to $1.9 million for the year ended December 31, 2022.

This increase in interest income was primarily a result of higher interest rates during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Interest Expense

During the year ended December 31, 2023 we recognized interest expense of $2.9 million related to the unpaid principal balance of our Term Loans.

Additionally, we recognized $0.3 million of non-cash interest related to the amortization of debt issuance costs during the year ended December 31, 2023.

No interest expense was incurred during the year ended December 31, 2022.

Other (Expense) Income, Net

During the year ended December 31, 2023, other (expense) income, net primarily consisted of $1.0 million in losses recognized for the change in the fair value of the success payment liability during the period.

Comparatively, we recognized a gain of $0.6 million related to the change in the fair value of the success payment liability during the year ended December 31, 2022.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations through December 31, 2022 primarily through aggregate cash proceeds from convertible promissory notes of $11.0 million, gross proceeds from private placements of our convertible preferred stock of $116.3 million, net proceeds from our IPO of $109.2 million, a non-refundable upfront payment of $15.0 million received in connection with the Collaboration Agreement and net proceeds from our ATM Offering of $15.7 million.

Jazz Collaboration

In April 2022, we entered into the Collaboration Agreement with Jazz.

In addition, we are 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.

Since our inception in 2017, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company;

business planning;

raising capital;

developing and optimizing our platform technology;

identifying potential product candidates;

enhancing our intellectual property portfolio;

undertaking research, preclinical studies, and clinical trials;

and enabling manufacturing for our development programs.

Our net loss was $37.4 million and $53.8 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we had an accumulated deficit of $344.1 million.

As we have no products that are approved for sale, we have not generated any revenue from product sales to date, and we do not expect to generate any such revenue for the foreseeable future, if at all.

Instead, we have financed our operations primarily through aggregate cash proceeds from convertible promissory notes, private placements of our convertible preferred stock, our initial public offering, payments from Jazz under the Collaboration Agreement, sales of common stock through our at-the-market program, and the drawdown of our term loans.

Because our product candidates are in clinical development and the outcome of our efforts is uncertain, we cannot estimate the actual costs necessary to successfully complete the development and commercialization of our product candidates, or when we may achieve profitability, if at all.

As a result, we expect that our accumulated deficit will also increase significantly.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all.

Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.

Term Loan Facility

In April 2022, we entered into an amended and restated loan and security agreement, or the Loan Agreement, with PWB, which amended and restated in its entirety our previous loan and security agreement with PWB.

Under the terms of the Loan Agreement, PWB made available term loans in an aggregate principal amount of up to $40.0 million, or the Term Loans, consisting of (i) a term loan in the aggregate principal amount of up to $20.0 million available at any time until February 28, 2024 (which may be extended to August 31, 2024, upon the satisfaction of certain conditions set forth in the Loan Agreement), or the Amortization Date, and (ii) a term loan in the aggregate principal amount of up to $20.0 million available at any time until the Amortization Date upon the acceptance by the FDA of two IND submissions on or before March 31, 2023.

On March 15, 2023, we drew down $40.0 million of the Term Loans.

Under the terms of the Loan Agreement, PWB made available term loans in an aggregate principal amount of up to $40.0 million, or the Term Loans, consisting of (i) a term loan in the aggregate principal amount of up to $20.0 million available at any time until February 28, 2024 (which was extended to August 31, 2024 upon the satisfaction of certain conditions set forth in the Loan Agreement), or the Amortization Date, and (ii) a term loan in the aggregate principal amount of up to $20.0 million available at any time until the Amortization Date upon the acceptance by the FDA of two IND submissions on or before March 31, 2023.

In March 2023, we drew down $40.0 million of the Term Loans.

The Term Loans bear interest on the outstanding daily balance at a floating annual rate equal to greater of:

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The Loan Agreement provides for interest-only payments until the Amortization Date, at which time the aggregate outstanding principal balance of the Term Loans is required to be repaid in monthly installments on a 24-month repayment schedule.

All unpaid principal and accrued and unpaid interest with respect to the Term Loans is due and payable in full on February 28, 2026, as extended to August 31, 2026 upon the satisfaction of certain conditions set forth in the Loan Agreement.

All unpaid principal and accrued and unpaid interest with respect to the Term Loans is due and payable in full on August 31, 2026.

At our option, we may elect to prepay all, or any part, of the outstanding Term Loans at any time without premium or penalty.

We are obligated to pay PWB a fee in the event of certain corporate transactions equal to either (i) the greater of (a) $200,000 and (b) 2.00% of the amount drawn under the Term Loans for a transaction occurring on or prior to March 31, 2023, or (ii) for any transaction occurring thereafter, the greater of (a) $400,000 and (b) 4.00% of the amount drawn under the Term Loans, which fee is referred to as a Success Fee.

The Success Fee survives 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, we will remain obligated to pay the Success Fee upon the occurrence of a Success Fee Event during such ten-year period.

Under the Loan Agreement, we are required to comply with certain negative covenants, which among other things, restrict us from incurring future debt or granting liens, effectuating a merger or consolidation with or into any other business organization, paying dividends or making certain other distributions, selling or otherwise transferring our assets, and making investments in any entities or instruments, subject, in each case, to certain exceptions specified in the Loan Agreement.

We were obligated to pay PWB a one-time fee in the event of certain corporate transactions equal to either (i) the greater of (a) $200,000 and (b) 2.00% of the amount drawn under the Term Loans for a transaction occurring on or prior to March 31, 2023, or (ii) for any transaction occurring thereafter, the greater of (a) $400,000 and (b) 4.00% of the amount drawn under the Term Loans, which fee is referred to as the Success Fee, upon the occurrence of a Success Fee Event (as defined in the Loan Agreement).

In April 2023, the Success Fee Event occurred and, as such, we became obligated to pay the corresponding Success Fee to PWB, in accordance with the terms of the Loan Agreement.

We removed the corresponding financial instrument for the Success Fee liability and paid the total $1.6 million upon the occurrence of the Success Fee Event.

Upon occurrence of the Success Fee Event, the Amortization Date was extended to August 31, 2024, thereby extending the date for all unpaid principal and accrued and unpaid interest with respect to the Term Loans to August 31, 2026.

paying dividends or making certain other distributions, selling or otherwise transferring our assets, and making investments in any entities or instruments, subject, in each case, to certain exceptions specified in the Loan Agreement.

The Loan Agreement also contains standard affirmative covenants, including with respect to the issuance of audited consolidated financial statements, insurance, maintenance of good standing and government compliance in our state of formation.

On or before September 30, 2023, we are required to raise aggregate gross cash process of at least $50.0 million from the sale or issuance of our equity or from strategic partnerships or any similar transaction.

From receipt of those proceeds, we are required to maintain at all times at least $20.0 million of unrestricted cash in accounts with PWB.

We maintain at least $20.0 million of cash in PWB accounts, included within restricted cash and cash equivalents, net of current portion on our consolidated balance sheet as of December 31, 2023, which we are required to maintain at all times pursuant to the terms of the Loan Agreement.

Our failure to comply with any of the foregoing covenants would result in an event of default under the Loan Agreement.

On May 10, 2022, we entered into the Sales Agreement with SVB, pursuant to which we may offer and sell shares of our common stock with an aggregate offering price of up to $50.0 million, which we refer to as 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.

On May 10, 2022, we entered into a sales agreement, or the Sales Agreement, with Leerink Partners LLC, or Leerink Partners, pursuant to which, from time to time, we may offer and sell shares of our common stock, which we refer to as the ATM Offering.

The Sales Agreement provides that Leerink Partners is entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering.

In accordance with the terms of the Sales Agreement and a sales agreement prospectus included in the registration statement on Form S-3 that we filed with the SEC on May 10, 2022, which was declared effective on May 20, 2022, we were initially entitled to offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million in the ATM Offering.

As of December 31, 2023, we had sold an aggregate of 11,259,548 shares under the ATM Offering at an average price of $3.18 per share for net proceeds of $34.0 million after deducting sales commissions and offering expenses.

Subsequent to December 31, 2023, we sold an additional 3,083,983 shares under the ATM Offering, such that as of February 9, 2024, we had sold shares of common stock under the ATM Offering for aggregate gross sale proceeds of approximately $50.0 million.

On February 9, 2024, we filed a sales agreement prospectus supplement to the registration statement on Form S-3, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to an additional $25.0 million in the ATM Offering.

During the period from February 9, 2024 through March 1, 2024, we sold 545,077 additional shares of our common stock under the Sales Agreement and the sales agreement prospectus supplement for aggregate gross sale proceeds of approximately $3.5 million.

Jazz Collaboration

As of December 31, 2023, we have received $20.0 million in payments from Jazz, excluding payments for reimbursed costs, under the terms of the Collaboration Agreement.

We are eligible to receive up to an additional $515.0 million in development and regulatory milestones, and up to $740.0 million in sales-based milestones for all Licensed Products.

Plan of Operation and Future Funding Requirements

We use our capital resources primarily to fund operating expenses, primarily research and development expenditures.

We plan to increase our research and development expenses for the foreseeable future as we continue the preclinical and clinical development of our product candidates.

At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if at all.

For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability.

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

In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Further, inflation generally affects us by increasing our cost of labor and certain services.

We do not believe that inflation had a material effect on our financial statements included elsewhere in this Annual Report;

however, our operations may be adversely affected by inflation in the future.

Due to our significant research and development expenditures, we have accumulated substantial net losses in each period since inception.

We have incurred an accumulated deficit of $306.7 million through December 31, 2022.

As of December 31, 2023, we had cash and cash equivalents of $134.3 million.

After updating our expense forecasting, we now expect that our existing cash and cash equivalents, together with anticipated collaboration revenue, will be sufficient to fund our operational expenses and capital expenditure requirements through at least the fourth quarter of 2024.

We expect that our existing cash and cash equivalents will be sufficient to fund our operational expenses and capital expenditure requirements through at least twelve months from the date the consolidated financial statements included elsewhere in the Annual Report were issued on March 7, 2024.

Based on updated forecasting the Company expects that its existing cash and cash equivalents at December 31, 2023, and gross proceeds of $17.7 million under the at-the-market sales facility received from January 1, 2024 through March 1, 2024, will be sufficient to fund its operational expenses and capital expenditure requirements through at least the second quarter of 2025.

We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect.

Our need to raise additional funds may be accelerated if our research and development expenses exceed our current expectations, if we acquire a third party, or if we acquire or license rights to additional product candidates or new technologies from one or more third parties.

The timing and amount of our operating expenditures will depend largely on:

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• the costs of any third-party products used in our combination clinical trials that are not covered by such third parties or other sources;

• the potential additional expenses attributable to adjusting our development plans (including any supply related matters) as a result of the COVID-19 pandemic;

• the success of our collaboration with Jazz;

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• the costs of operating as a public company.

Our existing cash and cash equivalents will not be sufficient to complete development of WTX-124, WTX-330 or any other product candidate.

Our cash and cash equivalents will not be sufficient to complete development of WTX-124, WTX-330 or any other product candidates.

Accordingly, we will be required to obtain further funding to achieve our business objectives.

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Any of these actions could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.

The following table provides information regarding our cash flows for the years ended December 31, 2022 and 2021:

The following table provides information regarding our cash flows:

Year Ended December 31,

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58,429 15,906

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents

$ 25,048 $ (28,301)

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Net cash used in operating activities for the year ended December 31, 2023 was $32.6 million, compared to $40.6 million for the year ended December 31, 2022.

This decrease of approximately $2.3 million was primarily attributable to increased non-cash stock-based compensation, depreciation, and lease expenses of $5.1 million, a gain on change in fair value of the success payment liability of $0.6 million and amortization of debt issuance costs of $0.2 million partially offset by an increase in net loss of $3.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

This decrease of approximately $8.0 million was primarily driven by higher revenue from our Collaboration Agreement of $3.5 million, combined with a reduction in research and development expenses of $12.0 million.

Additionally, other income increased $0.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to higher interest rates during the current period.

The benefit of a lower net loss was partially

offset by a net increase of $7.4 million in cash used in operating activities as a result of a decrease in accounts payable, accrued expenses and other liabilities as of December 31, 2023 compared to December 31, 2022.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2023 was $0.8 million, compared to $3.6 million for the year ended December 31, 2022.

This increase of approximately $3.1 million was primarily attributable to cash paid for leasehold improvements and various equipment for our new headquarters.

Our move into the new facility was completed in May 2022.

This decrease of approximately $2.8 million was primarily driven by high capital expenditures in the second quarter of 2022 related to leasehold improvements for our new headquarters, which was opened in May 2022.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $58.4 million, compared to $15.9 million for the year ended December 31, 2022.

Cash provided by financing activities for the year ended December 31, 2022 primarily consisted of proceeds from our ATM Offering, compared to proceeds from our IPO during the year ended December 31, 2021.

Cash provided by financing activities for the year ended December 31, 2023 primarily consisted of proceeds from the $40.0 million drawdown of the Term Loans, plus net proceeds of $18.3 million from our ATM Offering during the period.

Comparatively, cash provided by financing activities for the year ended December 31, 2022 consisted primarily of net proceeds of $15.7 million from our ATM Offering during the period.

Inflation generally affects us by increasing our cost of labor and certain services;

however, we do not believe that inflation has had a material impact on our results of operations since inception.

Contractual Obligations

In the normal course of business, we enter into agreements with CROs, contact manufacturers, vendors and other third parties for preclinical studies and clinical trials, manufacturing services and other services and products for operating purposes.

These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice.

These contracts do not contain minimum purchase commitments and are cancellable by us upon prior written notice.

Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.

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See “Liquidity and Capital Resources – Sources of Liquidity – Term Loan Facility” for a description of our Loan Agreement.

As of March 23, 2023, we have drawn $40.0 million under the Term Loans.

Lease Agreements

Total estimated base rent payments over the remaining term of the lease for office and laboratory space that we entered into in April 2019 as our prior headquarters are approximately $0.2 million.

In May 2022, we entered into a sublease agreement with Crossbow Therapeutics, Inc., or Crossbow, to sublease the entirety of this space.

The annual rent from 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 us to the landlord for the leased premises.

In May 2022, we entered into a sublease agreement with Crossbow Therapeutics, Inc., or Crossbow, a related party, to sublease the entirety of this space.

The payments we expect to receive over the remaining term of the sublease are approximately $0.3 million, which is greater than the annual rent paid by us 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.

The short-term lease for office and laboratory space that we entered into in March 2021 terminated in May 2022.

The lease for office and laboratory space that we entered into in June 2021 commenced in May 2022.

The lease for office and laboratory space that we entered into in March 2021 terminated in May 2022.

The lease for office and laboratory space that we entered into in June 2021 commenced in May 2022 and expires in May 2030.

Total estimated base rent payments over the remaining term of the lease are approximately $15.7 million.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis