What changed in this filing

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Item 9A. Controls and Procedures

2024-03-07 compared with 2023-03-23 · 385 added, 337 removed, 619 unchanged (54% of the section changed)

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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, 2023.

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.

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.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting as discussed below.

Notwithstanding this material weakness, our management, including our principal executive officer and principal financial officer, has concluded that our financial statements in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America.

The material weakness did not result in any restatements of consolidated financial statements previously reported by us, nor were there any changes to previously released financial results.

Management’s Annual Report on Internal Control over Financial Reporting

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• 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;

• 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.

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s 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.

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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, 2023 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.

Based on this assessment as of December 31, 2023, management concluded that our internal control over financial reporting was not effective due to the material weakness discussed below.

In our Form 10-Q for the quarterly period ended June 30, 2023, we reported a material weakness in our internal control related to design and operating deficiencies in our purchasing process, specifically related to the application of invoices to purchase orders and processes to estimate progress on open purchase orders and to identify inaccurate expense estimates within purchase orders.

During 2023, we implemented, and are continuing to implement measures designed to improve internal control over financial reporting to remediate the control deficiencies that led to the material weakness, including the efforts outlined below, designed to improve our internal control over financial reporting to remediate this material weakness.

These efforts included:

• hiring additional qualified accounting personnel, including an Assistant Controller and Senior Accountant;

• conducting a review of our procurement process and software, as well as sunsetting the historical software;

• engaging a professional accounting services firm to help us assess and commence documentation of our internal controls for complying with the Sarbanes-Oxley Act of 2002;

• strengthening, formalizing, documenting, and testing accounting processes and internal controls;

• engaging consultants to provide additional technical accounting expertise;

• implementing procedures around our estimation processes with key vendors as well as adding analytical tools to help identify possible material errors.

We believe significant progress was made in 2023 to enhance and strengthen our internal control over financial reporting.

However, while we believe our internal controls were properly designed and implemented as of December 31, 2023, they were not in all cases in place for a sufficient period of time to demonstrate operating effectiveness as of December 31, 2023.

As a result, management has concluded that the material weakness was not fully remediated as of December 31, 2023.

The measures we are implementing are subject to continued management review supported by confirmation and testing, as well as audit committee oversight.

Management remains committed to remediating these material weaknesses.

We will continue to implement measures to remedy our internal control deficiencies, though there can be no assurance that our efforts will be successful or avoid potential future material weaknesses.

This Annual Report does not include an attestation report of our independent registered public accounting firm, as it is not required for as long as we remain an emerging growth company or a smaller reporting company with less than $100.0 million in annual revenue.

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.

Other than the changes intended to remediate the material weaknesses noted above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of the year ended December 31, 2023 t hat has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information

None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fourth quarter of 2023.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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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.

The information required by this Item 10 will be included in the sections captioned “Corporate Governance,” “Proposal No.

1” and “Delinquent Section 16(a) Reports” in our definitive proxy statement to be filed with the Securities and Exchange Commission, or the SEC, with respect to our 2024 Annual Meeting of Stockholders within 120 days of December 31, 2023, which information is incorporated herein by reference.

Code of Ethics

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(1) Includes the 2017 Plan, the 2021 Plan and the 2021 ESPP.

Weighted average exercise price does not take into account 361,500 shares of common stock subject to outstanding restricted stock units.

Such shares of common stock will be issued at the time such awards vest, without any cash consideration payable for those shares.

As of December 31, 2023, 1,911,660 shares of our common stock were available for issuance under the 2021 Plan.

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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.

Our board of directors determined that the current shares of common stock reserve for issuance under the 2021 ESPP are sufficient to meet the short-term needs of the plan, and accordingly determined not to increase the number of shares of common stock reserve for issuance on January 1, 2024.

Certain Relationships and Related Transactions, and Director Independence

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Principal Accountant Fees and Services

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.

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, 2024” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2023, which information is incorporated herein by reference.

Exhibit and Financial Statement Schedules

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Report of the Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

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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.

We have audited the accompanying consolidated balance sheets of Werewolf Therapeutics, Inc.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations , consolidated statements of stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

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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.

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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

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2022.

Boston, Massachusetts

March 7, 2024

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)

(amounts in thousands, except share and per share amounts)

Current assets:

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Prepaid expenses and other current assets

Other receivables (due from collaborations) 6,928 —

Other receivables

Total current assets

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Property and equipment, net

Restricted cash

Restricted cash and cash equivalents, net of current portion

Operating lease right of use asset

Other non-current assets

$ 174,833 $ 160,245

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Deferred revenue, current 907 6,532

Note payable, current

Total current liabilities

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Deferred revenue, net of current portion 433 1,128

Note payable, net of discount, issuance costs, and current portion

Other liabilities

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Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized as of December 31, 2023 and December 31, 2022;

no shares issued or outstanding as of December 31, 2022 or December 31, 2021

no shares issued or outstanding as of December 31, 2023 and December 31, 2022

Common stock, $ 0.0001 par value, 200,000,000 shares authorized as of December 31, 2023 and December 31, 2022;

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Consolidated Statements of Operations

(amounts in thousands, except per share amounts)

(amounts in thousands, except share and per share amounts)

Year Ended December 31,

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Other income:

Other income, net

Interest income

Total other income

( 53,810 ) ( 49,983 )

Accretion of redeemable convertible preferred stock to redemption value

Interest expense

Other (expense) income, net

( 1,142 ) 338

Net loss attributable to common stockholders

Total other income

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

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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

Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share amounts)

Additional Paid-in Capital

Accumulated Deficit

Total Stockholders’ (Deficit) Equity

Total Stockholders’ Equity

Balance at December 31, 2021 27,607,954 $ 2 $ 405,680 $ ( 252,895 ) $ 152,787

Issuance of common stock from initial public offering, net of issuance costs of $ 2,379

Issuance of common stock from at the market offering, net of issuance costs of $ 956

3,827,567 1 15,735 — 15,736

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 — — 7,400 — 7,400

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7,431,981 1 18,296 — 18,297

Issuance of common stock, net

157,037 — 93 — 93

Stock-based compensation expense — — 8,008 — 8,008

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Depreciation expense

Non-cash interest expense

Non-cash lease expense

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Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Prepaid expenses and other assets

1,267 ( 262 )

Other receivables 5,578 ( 6,928 )

Other non-current assets

Accounts payable

Accounts payable, accrued expenses and other liabilities

( 4,335 ) 3,046

Accrued expenses and other current liabilities

Deferred revenue ( 6,320 ) 7,660

Right of use assets and operating lease liability

Operating lease liability

( 2,084 ) ( 977 )

Other liabilities

Net cash used in operating activities

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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 at the market offering of common stock, net of issuance costs

18,329 15,740

Proceeds from drawdown of term loans

Proceeds from issuances under Employee Stock Purchase Plan

Proceeds from stock option exercises 7 254

Payment of deferred financing costs

Net cash provided by financing activities

58,429 15,906

Net (decrease) increase in cash and cash equivalents

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

25,048 ( 28,301 )

Cash, cash equivalents and restricted cash—beginning of period

Cash, cash equivalents and restricted cash and cash equivalents—beginning of period

130,529 158,830

Cash, cash equivalents and restricted cash—end of period

Cash, cash equivalents and restricted cash and cash equivalents—end of period

$ 155,577 $ 130,529

Reconciliation of cash, cash equivalents and restricted cash and cash equivalents to the consolidated balance sheets

Cash and cash equivalents $ 134,343 $ 129,315

Prepaid expenses and other current assets 211 —

Restricted cash and cash equivalents, net of current portion 21,023 1,214

Total cash, cash equivalents and restricted cash and cash equivalents

$ 155,577 $ 130,529

Supplemental disclosure of cash flow information:

Cash paid for lease liabilities $ 1,806 $ 1,035

Cash paid for interest

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 $ 76 $ 111

Issuance costs in accounts payable and accrued expenses

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.

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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.

Since inception, the Company has devoted substantially all of its efforts and financial resources to organizing and staffing the company;

business planning;

raising capital;

developing and optimizing its platform technology;

identifying potential product candidates;

enhancing its intellectual property portfolio;

undertaking research, preclinical studies, and clinical trials;

and enabling manufacturing for its development programs.

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.

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The Company had cash and cash equivalents of $ 134.3 million at December 31, 2023.

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.

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 date of issuance of the consolidated financial statements included in this Annual Report on Form 10-K.

However, additional funding will be necessary beyond this point to fund future preclinical and clinical activities.

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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.

The Company operates in one business segment, which focuses on the discovery and development of cancer therapeutics.

The Company’s chief operating decision maker, its Chief Executive Officer, makes operating decisions based upon the performance of the enterprise as a whole and utilizes the Company’s consolidated financial statements for decision making.

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.

Significant estimates and assumptions reflected in these consolidated financial statements 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.

Actual results could differ from those estimates.

Fair Value of Financial Instruments

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).

ASC Topic 820, 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.

ASC 820 defines 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-tiered fair value hierarchy that distinguishes between the following:

• Level 1 - Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates);

and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3 - Unobservable inputs for which little or no market data exists and that are significant to the fair value measurement, such as the Company’s own assumptions used to measure assets and liabilities at fair value.

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 classification of a financial asset or liability 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 and Restricted Cash and Cash Equivalents

The Company’s cash and cash equivalents consist of cash maintained within standard checking accounts.

The Company also maintains cash sweep accounts in which cash from its main operating cash accounts are 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.

The Company maintained restricted cash and cash equivalents of $ 21.2 million and $ 1.2 million at December 31, 2023 and December 31, 2022, respectively.

At December 31, 2023, $ 20.0 million of the restricted cash and cash equivalents balance represents an obligation under the term loan facility to maintain a minimum cash balance in the Company’s accounts with Pacific Western Bank (“PWB”).

This obligation became effective upon imminent achievement of the funding goal as required by the terms of an amended and restated loan and security agreement (the “Loan Agreement”) with PWB (see Note 7 , Term Loan ).

The remaining restricted cash and cash equivalents balance as of December 31, 2023 and the entire restricted cash and cash equivalents balance as of December 31, 2022 are comprised solely of letters of credit required pursuant to the Company’s leased office spaces (see Note 10 , Commitments and Contingencies ).

Restricted cash and cash equivalents are presented as current or non-current assets based on when the restrictions are expected to expire.

The current portion of restricted cash and cash equivalents is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

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.

Property and equipment are stated at cost.

Depreciation is recorded using the straight-line method over the estimated useful lives of the applicable assets.

Upon the sale or retirement of an asset, the cost and related accumulated depreciation are eliminated from the respective account, and the resulting gain or loss, if any, is included in current operations.

Amortization of leasehold improvements is recorded as depreciation expense using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the related asset.

The Company capitalizes property and equipment that are acquired for research and development activities and that have an 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.

Property and equipment are depreciated over the following periods:

Laboratory equipment

Furniture and office equipment

Computer equipment

Leasehold improvements

Shorter of lease term or useful life of asset

Costs for property and equipment not yet placed into service are classified as construction in progress and depreciated in accordance with the above guidelines once placed into service.

Impairment of Long-lived Assets

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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.

The fair value of 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 ended December 31, 2023 or 2022.

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.

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.

The Company does 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 the Company has 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 the Company is reasonably certain that the option to extend will be exercised or the option to terminate will not be exercised.

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 Company combines lease and non-lease components for its 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 the Company 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, 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.

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 the Company’s leases are classified as operating leases.

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

Revenue Recognition

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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 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, 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.

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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.

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.

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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.

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 considers the milestones 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.

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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

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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 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 issues stock-based awards to employees and directors, generally in the form of stock options, restricted stock units (“RSUs”), restricted stock awards (“RSAs”), or as awards under the 2021 Employee Stock Purchase Plan (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, the Company estimates 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.

The Company has not granted any awards with market conditions.

The Company recognizes 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 the Company 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 the Company’s 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 the Company’s common stock, the Company may consider whether an adjustment to the observable market price is required when estimating the grant date fair value.

Debt Issuance Costs

Certain costs associated with the issuance of debt instruments are capitalized and amortized over the term of the respective debt instrument using the effective interest method through the maturity date of the related debt instrument and are recognized as a non-cash component of interest expense.

The carrying value of the Company’s debt instruments are presented net of debt issuance costs.

Equity Issuance Costs

Equity issuance costs represent costs paid to third parties to secure equity financing and generally consist of sales agent commissions, incremental legal fees and other professional fees.

Equity issuance costs are capitalized as other assets until the associated equity financing is consummated.

Upon consummation of an equity financing, these costs are recorded as a reduction of additional paid-in capital.

In the event that a planned equity financing is abandoned, any capitalized equity issuance costs are immediately expensed to operating expenses in the consolidated statement of operations.

Income taxes are recorded in accordance with ASC Topic 740, Income Taxes (“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.

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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.

to audit, new audit activity and changes in facts or circumstances related to a tax position.

The Company recognizes any material interest and penalties related to unrecognized tax benefits in income tax expense.

Comprehensive Loss

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The Company’s comprehensive loss equals its net loss.

Net Loss per Common Share

Basic and Diluted 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.

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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.

Cash and cash equivalents are primarily held with three reputable financial institutions in the United States.

At times, such deposits may be in excess of insured limits.

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Recent Accounting Pronouncements

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU No.

2023-09”), which enhances the transparency and decision usefulness of income tax disclosures primarily related to rate reconciliation and income taxes paid.

The provisions of ASU No.

2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and are required to be applied on a prospective basis.

The Company is currently evaluating the impact that this standard will have on its consolidated financial statements.

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.

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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.

Under the Collaboration Agreement, the Company is 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 the Company for the cost of such activities.

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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.

Jazz received IND application clearance for JZP898 in July 2023.

Under the terms of the Collaboration Agreement, the Company received a non-refundable upfront cash payment of $ 15.0 million in April 2022 and a variable consideration payment of $ 5.0 million in July 2023, which is included in the overall transaction price as described below.

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.

As of December 31, 2023, the Company is eligible to receive up to $ 515.0 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.

As of December 31, 2023, the Company has not recognized any revenue related to sales-based milestones.

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 .

The Company assessed the Collaboration Agreement and concluded that it represents a contract with a customer within the scope of ASC 606.

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.

The Company has concluded that the exclusive license to its intellectual property, JZP898, 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.

The overall transaction price as of the inception of the contract was determined to be $ 32.3 million, which was comprised of the nonrefundable upfront payment of $ 15.0 million and the estimated costs for research services of $ 17.3 million.

Outside of the estimated costs for research services, there was 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 was zero at inception of the contract, as achievement of those milestones was uncertain and highly susceptible to factors outside the Company’s control.

Accordingly, all such milestone payments were excluded from the transaction price at inception.

Management re-evaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, adjusts the transaction price as necessary.

During the year ended December 31, 2023, the overall transaction price was adjusted to include $ 5.0 million in variable consideration that was previously excluded based on the Company’s evaluation of the variable constraint associated with the variable payment.

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 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 or any development and regulatory milestones, will be recognized as revenue 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.

The remaining deferred revenue as of December 31, 2023 is expected to be recognized as revenue over a term of approximately 2.3 years.

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

The Company uses the cost-to-cost input method, which best depicts the research services performed for the customer, to measure the revenue recognized under the Collaboration Agreement.

Significant judgements used in the cost-to-cost method include estimated costs for research services and assumptions about the timing of when those costs are expected to be incurred.

Differences in these estimates and assumptions can have a significant impact on the measurement and timing of when revenue under the Collaboration Agreement is recognized.

For the years ended December 31, 2023 and 2022, the Company recognized $ 19.9 million and $ 16.4 million of revenue related to the Collaboration Agreement, respectively.

The measurement of revenue recognized based on the cost-to-cost input method and the timing of payments received under the Collaboration Agreement directly impact the amounts reported as contract liabilities in the Company’s consolidated balance sheets as of December 31, 2023 and 2022.

During the year ended December 31, 2023, the total revenue recognized included a cumulative catch-up of revenue of $ 4.2 million related to a variable payment that was previously excluded from the overall transaction price based on the Company’s evaluation of the variable constraint associated with the variable payment.

The cumulative catch-up of revenue was recognized based on the cost-to-cost input method discussed above.

Costs associated with the Collaboration Agreement are recorded in research and development expense in the consolidated statements of operations, and were $ 8.6 million and $ 9.1 million during the years ended December 31, 2023 and 2022, respectively.

Revenue from the reimbursement of costs for research activities were recognized during each of the respective periods in amounts equal to the costs incurred.

The following table presents the activity in the Company’s contract liabilities during the year ended December 31, 2023:

Beginning of Period Balance

End of Period Balance

(in thousands)

Contract liabilities:

Deferred revenue

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.

$ 7,660 $ 5,000 $ ( 11,320 ) $ 1,340

Total contract liabilities

$ 7,660 $ 5,000 $ ( 11,320 ) $ 1,340

The following table presents the activity in the Company’s contract liabilities during the year ended December 31, 2022:

Beginning of Period Balance

End of Period Balance

(in thousands)

Contract liabilities:

Deferred revenue

$ — $ 15,000 $ ( 7,340 ) $ 7,660

Total contract liabilities

$ — $ 15,000 $ ( 7,340 ) $ 7,660

Unbilled receivables related to the Collaboration Agreement of $ 0.4 million and $ 4.1 million is included in other receivables in the accompanying consolidated balance sheets as of December 31, 2023 and 2022, respectively.

Receivables related to the Collaboration Agreement of $ 0.9 million and $ 2.8 million are included in other receivables in the accompanying consolidated balance sheets as of December 31, 2023 and 2022, respectively.

Revenue recognized during the year ended December 31, 2023 includes $ 6.7 million of revenue that was included in deferred revenue as of December 31, 2022.

No revenue recognized during the year ended December 31, 2022 was included in deferred revenue as of December 31, 2021.

As of December 31, 2023, the Company has not received any royalty payments under the Collaboration Agreement.

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 Company’s assets that are required to be measured at fair value on a recurring basis consist of money market funds, classified as cash, cash equivalents and restricted cash and cash equivalents on the Company’s consolidated balance sheets as of December 31, 2023 and 2022 .

The Company’s liabilities that were required to be measured at fair value on a recurring basis consist of a success payment liability pursuant to the Loan Agreement with PWB (see Note 7 , Term Loan ) as of December 31, 2022.

The Company did not have any liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2023.

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

Inputs (Level 3)

Assets measured at fair value on a recurring basis as of December 31, 2023 were as follows:

(in thousands)

Money market funds

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$ 149,294 $ — $ — $ 149,294

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

Inputs (Level 3)

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 were as follows:

(in thousands)

Money market funds

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$ 128,812 $ — $ — $ 128,812

There were no liabilities measured at fair value on a recurring basis as of December 31, 2021.

Success payment liability $ — $ — $ 570 $ 570

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):

December 31, 2022

Total liabilities $ — $ — $ 570 $ 570

The success payment liability was included within accrued expenses and other current liabilities in the accompanying consolidated balance sheet as of December 31, 2022.

There were no changes in valuation techniques during the year ended December 31, 2023.

Success Payment Liability

The Company was obligated to pay to PWB a one-time success payment of up to $ 1.6 million upon the occurrence of the Company achieving certain conditions defined in the Loan Agreement.

The Success Fee Event (as defined in the Loan Agreement) occurred during the second quarter of 2023, resulting in the immediate payment in full of the required Success Fee (as defined in Note 7 below).

The following table reconciles the change in fair value of the success payment liability during the years ended December 31, 2023 and 2022 based on Level 3 inputs (in thousands):

Balance at December 31, 2021 $ —

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Balance at December 31, 2022 570

Change in fair value 1,030

Payment at Success Fee Event

Balance at December 31, 2023 $ —

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:

Upon completion of the Success Fee Event, the Company paid the total $ 1.6 million success payment and removed the corresponding success payment liability.

The Company remeasured the success payment liability at each reporting date and immediately prior to the Success Fee Event.

Changes in the fair value of the success payment liability are included in other (expense) income, net in the accompanying consolidated statements of operations.

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 was 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 immediately prior to the completion of the Success Fee Event and as of December 31, 2022 using the following significant unobservable inputs:

Immediately prior to completion of the Success Fee Event

As of December 31, 2022

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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.

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

Property and Equipment, Net

Property and equipment, net as of December 31, 2022 and 2021 was comprised as follows (in thousands):

Estimated Useful Life (in years) 2022 2021

Property and equipment, net was comprised as follows:

(in thousands)

Leasehold improvements $ 7,971 $ 7,971

Laboratory equipment 2,339 1,635

5 $ 1,635 $ 839

Furniture and office equipment

Computer equipment 512 418

Leasehold improvements

Shorter of 7 years or remaining lease term

Furniture and fixtures 306 264

Construction in progress — 106

Total property and equipment, gross

11,128 10,394

accumulated depreciation ( 3,170 ) ( 1,406 )

Total property and equipment, net $ 7,958 $ 8,988

Depreciation expense for the years ended December 31, 2022 and 2021 was $ 1.1 million and $ 0.2 million, respectively.

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):

Manufacturing

$ 6,674 $ 3,427

Accrued expenses and other current liabilities were comprised as follows:

(in thousands)

Employee compensation and benefits $ 3,627 $ 3,135

Professional fees

Manufacturing 2,772 6,674

Contract research 1,049 2,990

Professional fees 655 613

Accrued interest 310 —

Success payment liability — 570

Other 447 170

Total accrued expenses and other current liabilities

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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.

Based on the satisfaction of certain conditions defined in the Loan Agreement, PWB was 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 FDA of two IND submissions on or before March 31, 2023.

The Company had not drawn down any of the Term Loans as of December 31, 2022 and had no outstanding borrowings under the Loan Agreement.

During the year ended December 31, 2023, the Company drew down the entire $ 40.0 million available through the Term Loans.

The outstanding notes payable balance under the Term Loans consists of the following:

December 31, 2023

(in thousands)

Note payable $ 40,000

Unamortized debt discount and issuance costs ( 677 )

Net carrying amount of note payable 39,323

current portion of note payable ( 6,667 )

Note payable, net, less current portion $ 32,656

Subsequent to the interest-only period, which ends on August 31, 2024, the Company is required to make equal monthly principal payments plus interest until the Term Loans mature on August 31, 2026.

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

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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 recognized interest expense related to the Loan Agreement of $ 2.9 million during the year ended December 31, 2023.

No interest expense related to the Loan Agreement was incurred during the year ended December 31, 2022.

The following table presents the total principal payments scheduled to become due during each of the years ended December 31:

Principal Payments

(in thousands)

The Company was obligated to pay PWB a one-time 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 Company determined that the Success Fee constituted a freestanding financial instrument that was required to be accounted for as a liability in connection with ASC Topic 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.

The Success Fee Event (as defined in the Loan Agreement) occurred during the second quarter of 2023, resulting in the immediate payment in full of the $ 1.6 million required Success Fee.

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.

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.

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.

On or before September 30, 2023, the Company was 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, which is included within restricted cash and cash equivalents, net of current portion on the Company’s consolidated balance sheet as of December 31, 2023.

On April 17, 2023, the Company achieved the $ 50.0 million funding milestone, triggering the corresponding $ 20.0 million cash covenant, full payment of the Success Fee of $ 1.6 million, and the updated Amortization Date of August 31, 2024.

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.

Common and Preferred Stock

The Company is authorized to issue 200.0 million shares of common stock.

The Company is authorized to issue 200,000,000 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, 2023, 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):

On May 10, 2022, the Company entered into a Sales Agreement (the “Sales Agreement”) with Leerink Partners, LLC (“Leerink Partners”), formerly known as SVB Securities LLC, pursuant to which the Company is entitled to offer and sell shares of its common stock (the “ATM Offering”).

The Sales Agreement provides that Leerink Partners 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.

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

During the year ended December 31, 2023, the Company sold an aggregate of 7,431,981 shares under the ATM Offering at an average price of $ 2.56 per share for net proceeds of $ 18.3 million after deducting sales commissions and offering

During the year ended December 31, 2022, the Company 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.

On February 9, 2024, the Company filed a prospectus supplement (the “Prospectus Supplement”) under its shelf registration statement for the offer and sale of shares of its common stock having an aggregate offering price of up to $ 25.0 million.

Following the Company’s filing of the Prospectus Supplement, the Company is entitled to offer and sell shares of its common stock with an offering price of up to $ 75.0 million pursuant to the Sales Agreement.

During the period beginning January 1, 2024 and ending March 1, 2024, the Company sold 3,629,060 shares of its common stock under the ATM Offering, for gross proceeds of $ 17.7 million before deducting sales commissions and issuance costs.

The Company had reserved shares of common stock for issuance as follows:

As of December 31,

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Shares reserved for exercises of warrants 58,904 58,904

Shares reserved for issuance under the 2021 Employee Stock Purchase Plan

507,113 244,000

Shares reserved for future issuance under the 2021 Stock Incentive Plan 1,911,660 938,587

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Preferred Stock

The Company is authorized to issue 5.0 million shares of undesignated preferred stock in one or more series.

The Company is authorized to issue 5,000,000 shares of undesignated preferred stock in one or more series.

As of December 31, 2023, no shares of preferred stock were issued or outstanding.

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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.

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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 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 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, 2023, a total of 2,956,150 additional shares have been added to the total shares authorized for issuance under the 2021 Plan in accordance with these terms.

As of December 31, 2023, there were 1,911,660 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.

The 2021 ESPP permits eligible employees to purchase shares of the Company’s common stock at a discount and consists of consecutive six-month offering periods, each containing a single six-month purchase period.

On the first day of each offering period, each employee who is enrolled in the 2021 ESPP will automatically receive an option to purchase up to a whole number of shares of the Company’s common stock.

The purchase price of each of the shares purchased, in a given purchase period, will be equal to 85 % of the lesser of the closing price of a share of the Company’s common stock on (i) the first day of the offering period, or (ii) the last day of the offering period.

During the year ended December 31, 2023, 52,037 shares of the Company’s common stock were purchased by participants of the 2021 ESPP for total proceeds of $ 0.1 million.

No shares of the Company’s common stock were purchased by participants of the 2021 ESPP during year ended December 31, 2022.

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):

Total stock-based compensation expense recognized in the consolidated statements of operations was as follows:

Year Ended December 31,

(in thousands)

Research and development

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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):

The following table summarizes RSA activity during the year ended December 31, 2023:

Shares/Units Weighted-Average

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Unvested at December 31, 2023 — $ —

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.

The aggregate fair value of RSAs that vested during the years ended December 31, 2023 and 2022, based upon the fair value of the stock underlying the RSAs on the day of vesting, was $ 0.2 million and $ 1.2 million, respectively.

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):

The following table summarizes RSU activity during the year ended December 31, 2023:

Shares/Units Weighted-Average

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150,000 $ 2.45

( 105,000 ) $ 2.96

( 6,225 ) $ 4.97

Unvested at December 31, 2023 361,500 $ 3.92

As of December 31, 2023, there was unrecognized stock-based compensation expense related to unvested RSUs of $ 0.6 million, which the Company expects to recognize over a weighted-average period of approximately 0.63 years.

No RSUs vested during the years ended December 31, 2022 or 2021.

The aggregate fair value of RSUs that vested during the year ended December 31, 2023, based upon the fair value of the stock underlying the RSUs on the day of vesting was $ 0.2 million.

No RSUs vested during the year ended December 31, 2022.

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.

These stock options would have vested only upon achievement of specified performance targets related to certain business objectives prior to December 31, 2023.

These performance targets were not achieved, and accordingly these awards expired without vesting on December 31, 2023.

No stock-based compensation expense has been recognized during the year ended December 31, 2023 or 2022 based on the Company’s assessment about the probability that the performance targets would be achieved prior to expiration.

The fair value of stock options granted during the years ended December 31, 2023 and 2022 was calculated on the date of grant using the following weighted-average assumptions:

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Expected term (in years)

Dividend yield

Expected annual dividend yield

Expected volatility

82.7 % 77.0 %

The valuation assumptions were determined as follows:

• Risk-free interest rate:

The yield on zero-coupon U.S.

Treasury securities for a period that was commensurate with the expected term of the awards.

• Expected term (in years):

The expected term of the awards represents the period of time that the awards were expected to be outstanding.

The Company uses the simplified method to estimate the expected term due to a lack of sufficient historical exercise data to provide a reasonable basis on which to estimate the expected term.

Under this method, the expected term equals the average of the vesting term and the original contractual term of the option.

• Expected annual dividend yield:

The estimated dividend yield was zero because the Company has no history of paying dividends, and does not intend to do so in the foreseeable future.

• Expected volatility:

The expected term of stock options granted by the Company is generally longer than the trading history of the Company’s common stock since the IPO on April 30, 2021.

Accordingly, the Company estimated the expected volatility based on the historical volatility of a group of publicly-traded companies with similar characteristics to the Company, including stage of product development and therapeutic focus within the life sciences industry.

The historical volatility of these companies was calculated over a period of time commensurate with the expected term of the stock option.

Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted during the years ended December 31, 2023 and 2022 was $ 1.56 and $ 5.98 per share, respectively.

The following table summarizes stock option activity during the year ended December 31, 2022 (in thousands, except per share amounts):

The following table summarizes stock option activity during the year ended December 31, 2023:

Options Outstanding

Number of Options Weighted-Average Exercise Price Weighted-Average Remaining

Number of Options Weighted-Average Exercise Price per Share

Weighted-Average Remaining

Contractual Life

(in years) Aggregate Intrinsic Value (in millions)

Outstanding at December 31, 2022 5,244,121 $ 7.86

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( 2,956 ) $ 1.98

( 1,159,875 ) $ 4.68

Outstanding, December 31, 2023 5,700,070 $ 6.89 7.81 $ 3.6

Exercisable at December 31, 2023 3,169,212 $ 7.60 7.43 $ 1.5

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.

The aggregate intrinsic fair value of stock options exercised during the year ended December 31, 2023 was nominal .

The aggregate intrinsic fair value of stock options exercised during the year ended December 31, 2022 was $ 0.4 million.

As of December 31, 2023, there was unrecognized stock-based compensation expense related to unvested stock options of $ 9.9 million, which the Company expects to recognize over a weighted-average period of approximately 2.0 years.

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(“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.

The total rent due to the Company for the subleased premises over the term of the sublease is approximately $ 2.1 million, which is greater than the annual rent paid by the Company to the landlord for the leased premises over the same term.

Rent expense associated with the April 2019 operating lease is recognized net of the lease income generated from the sublease agreement.

Lease income is allocated to either research and development expense or general and administrative expense in the same manner that the associated rent expense is allocated.

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.

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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):

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 and cash equivalents, net of current portion as of December 31, 2023 and 2022.

The following table summarizes operating lease costs:

Year Ended December 31,

(in thousands)

Operating lease costs $ 2,442 $ 2,537

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Total $ 2,090 $ 2,768

Cash paid for amounts included in the measurement of lease liabilities were $ 3.0 million and $ 2.1 million during the years ended December 31, 2023 and 2022, respectively.

The following table summarizes the lease term and discount rate for operating leases:

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Weighted-average discount rate 8.0 % 8.1 %

As of December 31, 2022, the future minimum lease payments due under the Company’s leases are as follows (in thousands):

As of December 31, 2023, the future minimum lease payments due under the Company’s leases for each of the next five years ended December 31, and thereafter are as follows:

Operating Leases

(in thousands)

Thereafter 3,716

Total remaining minimum rental payments 19,108

effect of discounting ( 4,424 )

Total future minimum lease payments

imputed interest

Total lease liability $ 12,600

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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.

As of December 31, 2023, 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 Agreement.

Adimab 2022 Collaboration

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During the years ended December 31, 2023 and 2022, 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:

A reconciliation of the expected income tax expense (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Year Ended December 31,

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Permanent differences ( 0.6 ) 0.2

Section 382 net operating loss adjustments

Effective income tax rate 0.0 % 0.0 %

The Company’s deferred tax assets consist of the following (in thousands):

The Company’s deferred tax assets and liabilities consist of the following:

As of December 31,

(in thousands)

Deferred tax assets:

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Fixed assets and depreciation ( 1,208 ) ( 1,433 )

Construction in progress — ( 533 )

Deferred tax liabilities ( 3,201 ) ( 3,791 )

Net deferred tax assets $ — $ —

Net deferred taxes

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.

This rule became effective for the Company during 2022 and resulted in the capitalization of R&E expenditures of $ 27.9 million and $ 36.1 million during the years ended December 31, 2023 and 2022, respectively.

The Company amortizes these costs for tax purposes over 5 years for research and development (“R&D”) performed in the U.S.

and over 15 years for R&D 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, 2023 and 2022.

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Accordingly, a full valuation allowance was established against the net deferred tax assets as of December 31, 2023 and 2022.

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.

The valuation allowance increased by $ 4.6 million during the year ended December 31, 2023 primarily due to an increase in deferred tax assets related to capitalized R&E expenditures, and as the result of operating losses generated with no corresponding financial statement benefit.

These increases were offset by a decrease in deferred tax assets as the result of the Company’s Section 382 study that was completed for the period of January 22, 2018, through December 31, 2022, which resulted in limitations being identified on historical net operating losses and research and development tax credits.

The valuation allowance increased by $ 16.3 million during the year ended December 31, 2022.

primarily due to the change in the

tax regulation described above resulting in the capitalization of R&E expenditures that previously were fully deductible in the year incurred, and as a result of operating losses generated with no corresponding financial statement benefit.

The Company has incurred net operating losses since inception.

As of December 31, 2023 and 2022, the Company had federal net operating loss carryforwards of $ 96.6 million and $ 92.1 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.

The carryforwards generated from losses incurred prior to January 1, 2018 will expire in 2037.

The carryforwards generated from losses incurred after December 31, 2017 do not expire.

As of December 31, 2023, federal net operating loss carryforwards includes $ 96.5 million of carryforwards that do not expire.

The TCJA enacted on December 22, 2017 limits a taxpayer’s ability to utilize a net operating loss deduction in a year to 80% taxable income for federal net operating losses arising in tax years beginning after December 31, 2017.

As of December 31, 2023 and 2022, the Company had state net operating loss carryforwards of $ 44.9 million and $ 86.1 million, respectively, available to reduce future state taxable income, which expire at various dates beginning in 2037.

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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.

The Company completed a Section 382 study for the period of January 22, 2018, 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.

Due to the unlimited carryover period for net operating losses generated after December 31, 2017, none of the Company’s federal net operating losses will expire unused.

A portion of the Company’s state net operating losses, and federal and state research and development tax credits are expected to expire unused.

The Company has analyzed the impact of these limitations on its attributes and included the impact of these limitations in its deferred tax assets as of December 31, 2023.

The Company has not recorded any reserves for uncertain tax positions as of December 31, 2023 and 2022.

The Company has conducted a study of research and development tax credit for tax years 2018 - 2020.

The Company has conducted a study of research and development tax credit for tax years 2018 through 2020.

The amounts of federal and state research and development tax credit carryforwards presented above have reflected the results from the study.

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There are currently no pending tax examinations.

The Company’s tax years are still open under statute from inception to the present.

The statute of limitations for assessment by the Internal Revenue Service, or IRS, and state tax authorities is closed for tax years prior to 2020, although carryforward attributes that were generated prior to 2020 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period.

Related Parties

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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.

Briggs Morrison, who serves on the Company’s board of directors, serves as Executive Partner of MPM Capital and Chief Executive Officer of Crossbow.

The term of the sublease agreement commenced in June 2022 and ends in March 2024, with no option to extend (see Note 10, 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.

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.

The Company received cash payments under its sublease of $ 1.6 million and $ 0.8 million during the years ended December 31, 2023 and 2022, respectively.

In addition, the Company received $ 0.2 million from Crossbow in June 2022 as a security deposit.

The security deposit is included within accrued expenses and other current liabilities in the accompanying consolidated balance sheet as of December 31, 2023 and is included within other liabilities in the accompanying consolidated balance sheet as of December 31, 2022.

Defined Contribution Benefit Plan

The Company sponsors a defined contribution benefit 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 contribute a portion of their annual compensation, subject to statutory limitations.

The Company matches 50 % of each participant’s contribution up to a maximum of 6 % of such participant’s eligible compensation paid in a calendar year.

During each of the years ended December 31, 2023 and 2022, the Company recognized expense of $ 0.2 million related to matching contributions.

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):

Outstanding stock options 5,700,070 5,244,121

Unvested RSAs 81 295

Unvested RSUs 361,500 322,725

Warrants to purchase common stock 58,904 58,904

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.

Common stock to be issued under the 2021 ESPP 22,611 29,332

Unvested RSAs — 81,343

Total 6,143,085 5,736,425

EXHIBIT INDEX

1 unchanged sentence

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.

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.

Second Amended and Restated Bylaws 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 June 27, 2023).

Specimen Stock Certificate evidencing the shares of common stock of the Registrant (incorporated by reference to Exhibit 4.1 to Amendment No.

23 unchanged sentences

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.

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.

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.

Lease Agreement dated as of June 1, 2021, by and between the Registrant and ARE-MA Region No.

10 unchanged sentences

1 to the Registrant’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 26, 2021, File No.

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.

Employment Agreement dated as of April 23, 2021, by and between the Registrant and Ellen Lubman, M.B.A.

7 unchanged sentences

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).

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).

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).

First Amendment, dated as of March 16, 2023, to 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 March 22, 2023).

F orm of Restricted Stock Unit Agreement under 202 1 Stock Incentive Plan

Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to Amendment No.

1 unchanged sentence

Consent of Ernst & Young LLP, Independent Registered Accounting Firm.

Consent of Deloitte & Touche LLP, Independent Registered Accounting Firm.

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.

2 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

D od d-Frank Compensation Reco very P olicy

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.

24 unchanged sentences

Financial and Accounting Officer) March 7, 2024

Chair of the Board of Directors

/s/ Luke Evnin

Chair of the Board of Directors March 7, 2024

Luke Evnin, Ph.D.

/s/ Michael B.

March 7, 2024

/s/ Meeta Chatterjee Director March 7, 2024

11 unchanged sentences

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 9A. Controls and Procedures