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Item 7. Management’s Discussion and Analysis

2025-03-11 compared with 2024-03-07 · 127 added, 123 removed, 247 unchanged (50% of the section changed)

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We discuss factors we believe could cause or contribute to these differences below and elsewhere in this Annual Report, including those factors set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry Data” and in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report.

We are an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body’s immune system for the treatment of cancer.

We are an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body’s immune system for the treatment of cancer and other immune-mediated conditions.

We are leveraging our proprietary PREDATOR platform to design conditionally activated molecules that stimulate both adaptive and innate immunity with the goal of addressing the limitations of conventional proinflammatory immune therapies.

Our molecules, which we refer to as INDUKINE molecules, are intended to activate selectively in the tumor microenvironment.

Our molecules, which we refer to as INDUKINE molecules, are intended to activate selectively in the tumor microenvironment, or TME.

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

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

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

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

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

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

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

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

In June 2024, we reported updated interim data from the monotherapy dose-escalation arms of the Phase 1/1b clinical trial, selected a recommended dose for expansion and initiated monotherapy dose expansion arms, and reported initial data from the combination dose escalation cohorts of the Phase 1/1b clinical trial.

We have targeted full enrollment in the monotherapy dose expansion arm in the first half of 2025 and in the combination expansion arm in the second half of 2025.

We plan to meet with regulatory authorities to discuss potential registrational pathways in the second half of 2025 and to release a monotherapy and combination therapy clinical data update in the fourth quarter of 2025.

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

We announced the initiation of patient dosing in February 2023.

The trial is currently open for enrollment.

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

We reported initial data from the Phase 1 clinical trial in June 2024.

In March 2024, we received alignment from the U.S.

Food and Drug Administration, or the FDA, on the comparability path for WTX-330 for an improved manufacturing process.

In December 2024, we submitted an amended investigational new drug application, or IND, for WTX-330, and we expect to initiate a Phase 1/2 dose- and regimen-finding clinical trial of WTX-330 in the first quarter of 2025 in patients with selected advanced or metastatic solid tumors.

We presented updated interim safety and efficacy data from the Phase 1 clinical trial at the Society for Immunotherapy of Cancer Annual Meeting in November 2024.

We continue to further the development of our preclinical product candidates, WTX-518, a systemically delivered, conditionally activated Interleukin-18 INDUKINE molecule in development for the treatment of cancer designed to promote activation of immune cells in the TME, resulting in antitumor immunity, WTX-712, a systemically delivered, conditionally activated Interleukin-21, or IL-21, INDUKINE molecule that is being developed to minimize the severe toxicities that have been observed with recombinant IL-21 therapy and maximize clinical benefit when administered as monotherapy or in combination with checkpoint inhibitors in refractory and/or immunologically unresponsive tumors, and WTX-921, a novel Interleukin-10 INDUKINE molecule in development for the treatment of inflammatory bowel disease and potentially other inflammatory diseases.

In April 2024, we presented preclinical data for both WTX-518 and WTX-712 at the American Association for Cancer Research Annual Meeting.

Our preclinical models demonstrate that WTX-518 exhibits remarkable tumor-selective activation, resistance to IL-18BP and robust immune activation, while WTX-712 acts through a unique mechanism that robustly activates tumor-specific T lymphocytes with an expanded therapeutic window through its selective release of wild-type IL-21 in the TME.

In April 2022, we entered into a global collaboration and license agreement, or the Collaboration Agreement, with Jazz Pharmaceuticals Ireland Limited, or Jazz, under which Jazz acquired exclusive global development and commercialization rights related to Interferon alpha, or IFNα, INDUKINE molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria (each such product, a Licensed Product).

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

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

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

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

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

Jazz generally

reimbursed us for the cost of such activities.

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

In June 2024, we executed a transfer agreement, or the Transfer Agreement, to assign our rights in a development agreement with a contract manufacturer of JZP898 to Jazz.

The execution of this Transfer Agreement was the last material performance obligation required of us under the Collaboration Agreement.

Financial Operations Overview

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

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

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

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

During the year ended December 31, 2024, we re-evaluated this assessment for any milestones that continue to be excluded from the transaction price, and concluded not to recognize any adjustment to the transaction price associated with variable consideration previously excluded from the transaction price.

As of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement, and all deferred revenue related to the Collaboration Agreement has been recognized as of December 31, 2024.

In the future, our ability to generate revenue from the Collaboration Agreement will depend on successfully achieving the various development and regulatory and sales-based milestones.

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

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

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

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

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(in thousands)

JZP898 $ 7,380 $ 8,181

WTX-124 $ 15,481 $ 2,867

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WTX-712 1,389 1,040

JZP898 545 7,380

WTX-518 294 149

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Research and development activities are central to our business model.

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

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

We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we progress our clinical trials of WTX-124 and WTX-330, continue preclinical development of WTX-712, WTX-518 and WTX-921, and continue to discover and develop additional product candidates.

As a result of our entry into the Collaboration Agreement, which commenced in April 2022, our external preclinical development costs for JZP898 were generally reimbursed by Jazz until we completed all material performance obligations in June 2024.

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

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

development of our current or future product candidates.

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

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

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Interest Expense

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

Other (Expense) Income, Net

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

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

Interest expense represents interest incurred from our loan agreement, or the PWB Loan Agreement, with Pacific Western Bank, or PWB, until the extinguishment of the PWB term loan in May 2024, interest incurred from our loan and security agreement, or the K2HV Loan Agreement, with K2 HealthVentures LLC, or K2HV, and non-cash interest expense related to the amortization of debt issuance costs.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of any residual financial impact from the repayment of term loans with lenders, specifically the extinguishment of the PWB term loan in May 2024.

Other Income (Expense), Net

Other income (expense), net consists primarily of remeasurement gains or losses attributable to changes in the fair value of the conversion option derivative liability associated with the K2HV Loan Agreement and the gain or loss recognized on the change in the fair value of the success payment liability that was associated with our debt agreement with PWB.

Critical Accounting Policies and Estimates

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

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

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

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

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

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

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For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election.

For those elements of the arrangement that are accounted for pursuant to ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

For those elements of the arrangement that are accounted for pursuant to ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

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

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and (v) recognize revenue when (or as) we satisfy the performance obligations.

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

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

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

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

We then recognize 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, we must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract.

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

We do not assess whether a contract has a significant financing component if we expect at contract inception that the period between payment by the customer and the transfer of promised goods or services to the customer will be one year or less.

We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of promised goods or services to the customer will be one year or less.

Arrangements that include upfront payments may require deferral of revenue recognition to a future period until obligations under these arrangements are fulfilled.

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

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

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

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

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.

Leases with a term greater than twelve months are recognized on the balance sheet as right-of-use assets and current or non-current lease liabilities, as applicable.

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

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

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

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

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

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

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

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

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

As a result, we utilize our incremental borrowing rate, or IBR, which reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease

payments in the same currency, for a similar term, and in a similar economic environment.

The lease liability is measured as the value of the remaining lease payments, discounted to present value using the IBR for the lease.

All of our leases are classified as operating leases.

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

Accrued Research and Development Expenses

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Stock-based Compensation

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

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

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

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For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised

accounting standards until such time as those standards apply to private companies.

We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

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Interest expense (4,656) (3,139) (1,517)

(3,139) — (3,139)

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

Loss on extinguishment of debt (553) — — (553)

Other income (expense), net 1,615 (1,142) 2,757

Total other income

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$ (70,515) $ (37,368) $ (33,147)

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

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

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

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

Revenue was $1.9 million for the year ended December 31, 2024, which is comprised of partial recognition of the $15.0 million upfront payment received in April 2022 upon the execution of the Collaboration Agreement with Jazz and costs incurred for research services which were reimbursed by Jazz, and revenue related to the achievement of certain variable consideration components.

As a result of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement, and all deferred revenue related to the Collaboration Agreement has been recognized as of December 31, 2024.

Comparatively, we recognized $19.9 million in collaboration revenue during the year ended December 31, 2023 driven by elevated research and development activities related to and in preparation for the IND submission of JZP898 and a cumulative catch-up of revenue related to achieving a variable consideration component included in the Collaboration Agreement, which led to an additional $4.7 million in revenue recognized during the year ended December 31, 2023.

Research and Development Expenses

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(in thousands)

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

Manufacturing $ 17,458 $ 8,328 $ 9,130

Personnel 16,192 15,242 950

Clinical trial costs 11,710 6,020 5,690

Lab consumables 4,430 3,305 1,125

Contract research organization 3,607 4,146 (539)

Lab consumables 3,400 4,430 (1,030)

Facilities 3,346 2,870 476

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Research and development expenses for the year ended December 31, 2024 were $56.4 million, compared to $41.8 million for the year ended December 31, 2023.

The decrease of $12.0 million was primarily due to:

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

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

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

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

These decreases were partially offset by:

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

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

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

The increase of $14.7 million was primarily due to:

• $14.8 million of combined increases in manufacturing costs of $9.1 million and clinical trial costs of $5.7 million.

The increases in both our clinical trial and manufacturing costs are driven by an increase of $20.2 million in costs associated with our continued development efforts of WTX-124 and WTX-330, which continue to progress through their respective clinical trials, including manufacturing to support those clinical trials.

This increase was partially offset by a decrease of $6.3 million in manufacturing costs associated with JZP898 leading up to and following the execution of the Transfer Agreement with Jazz;

• $1.0 million of increased personnel costs, driven primarily by the timing and valuation of stock-based awards granted to employees, as well as the increased use of external consultants to help further the development of our product candidates;

• $0.5 million of increased facility costs due to higher costs associated with maintaining our leased office and laboratory space, including higher real estate taxes, utilities, and maintenance costs.

These increases were partially offset by:

• $1.0 million of decreased lab consumables costs and $0.5 million of decreased contract research costs, primarily due to a shift in focus from discovery efforts to furthering the development of existing product candidates in comparison to the prior period.

General and Administrative Expenses

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Professional services 5,151 4,710 441

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

Facility costs 1,446 1,260 186

Corporate insurance 1,151 1,780 (629)

IT costs 757 655 102

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Total general and administrative expenses $ 19,045 $ 18,670 $ 375

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

Significant fluctuations in general and administrative expenses include:

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

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

General and administrative expenses were $19.0 million for the year ended December 31, 2024 compared to $18.7 million for the year ended December 31, 2023.

The increase of $0.4 million was primarily due to:

• $0.5 million of increased personnel costs, driven by annual cost of living adjustments;

• $0.4 million of increased professional services costs, driven by costs incurred to protect our intellectual property and general corporate matters.

These increases were partially offset by:

• $0.6 million of decreased corporate insurance costs, driven by a reduction in associated premiums.

Interest Income

Interest income was $6.7 million for the year ended December 31, 2024, compared to $7.4 million for the year ended December 31, 2023.

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

This decrease in interest income was primarily a result of less cash equivalents being held in money market accounts combined with lower interest rates during the year ended December 31, 2024 compared to the year ended December 31, 2023.

Interest Expense

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

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

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

Other (Expense) Income, Net

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

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

Interest expense was $4.7 million for the year ended December 31, 2024, compared to $3.2 million for the year ended December 31, 2023.

This increase is in part due to the fact that our effective interest rate under the K2HV Loan Agreement is higher than the effective interest rate associated with our previous term loan with PWB.

Additionally, we did not draw down the PWB term loan until March 2023, resulting in interest expense being recognized for only a portion of the year ended December 31, 2023.

Loss on the Extinguishment of Debt

The extinguishment of the PWB term loan resulted in a one-time loss of $0.6 million for the year ended December 31, 2024.

As no corresponding finance activity occurred for the year ended December 31, 2023, we did not incur any gain or loss on a debt extinguishment during the prior period.

Other Income (Expense), Net

Other income (expense), net for the year ended December 31, 2024 primarily consisted of $1.6 million of gains r ecognized for the change in fair value of the conversion option derivative liability associated with the K2HV Loan Agreement.

Other income (expense), net for the year ended December 31, 2023 consisted of $1.0 million in losses recognized for the change in the fair value of the success payment liability during the period, which was settled during the second quarter of 2023, such that we incurred no such losses associated with the success liability in the PWB Loan Agreement during the year ended December 31, 2024.

Liquidity and Capital Resources

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

Additionally, the extent to which we use our at-the-market program as a source of future funding will depend on a number of factors, including the prevailing market price of our common stock, general market conditions, the extent to which we are able to secure funds from other sources, and whether we

are then subject to limitations on our ability to use Form S-3 to sell more than one-third of the aggregate market value of our public float in the trailing 12-month period, which limitations will remain in place until such time as our public float exceeds $75 million.

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

Term Loan Facility

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

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

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

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

Term Loan Facilities

PWB Loan Agreement

In April 2022, we entered into the PWB Loan Agreement with PWB and subsequently drew down an aggregate of $40.0 million in term loans.

The term loans accrued interest on the outstanding daily balance at a floating annual rate equal to greater of:

(i) 0.5% above the prime rate then in effect or (ii) 4.5%.

If the prime rate changes throughout the term, the interest rate is adjusted effective on the date of the prime rate change.

All interest chargeable under the Loan Agreement is computed on a 360-day year for the actual number of days elapsed, with interest payable monthly.

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

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

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

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

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

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

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

Under the Loan Agreement, we are required to comply with certain negative covenants, which among other things, restrict us from incurring future debt or granting liens, effectuating a merger or consolidation with or into any other business organization,

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

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

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

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

If the prime rate changed throughout the term, the interest rate would have been adjusted effective on the date of the prime rate change.

All interest chargeable under the PWB Loan Agreement was computed on a 360-day year for the actual number of days elapsed, with interest payable monthly.

We recognized interest expense related to the PWB Loan Agreement of $1.3 million during the year ended December 31, 2024.

In May 2024, we repaid all amounts outstanding under the PWB Loan Agreement, using $29.5 million in net loan proceeds received under the K2HV Loan Agreement, as described below, together with $10.5 million in existing cash.

We recognized a total loss on extinguishment of debt in the amount of $0.6 million during the second quarter of 2024 primarily due to the write off of unamortized debt issuance costs.

K2HV Loan Agreement

In May 2024, we, as borrower, entered into the K2HV Loan Agreement with K2HV (which we refer to, together with any other lender from time to time, as the Lenders);

K2HV, as administrative agent for the Lenders;

and Ankura Trust Company, LLC, as collateral trustee for the Lenders.

The K2HV Loan Agreement provides up to $60.0 million principal in term loans.

We received $30.0 million in gross loan proceeds at closing;

$25.0 million from the first tranche commitment and $5.0 million from the second tranche commitment.

A third tranche commitment of up to $10.0 million is available to be drawn at our option between January 1, 2025 and June 30, 2025, subject to the achievement, as determined by the administrative agent in its discretion, of certain time-based, clinical and regulatory milestones and receipt of not less than $60.0 million in net cash proceeds from certain financing activities, with at least $50.0 million from a single offering of common stock.

A fourth tranche commitment of up to $20.0 million is available to be drawn down at our option through May 1, 2026 or if the third tranche is funded, May 1, 2027, subject to Lender’s review of our clinical, financial and operating plan and subject to the Lender’s consent in its sole and absolute discretion.

The term loan matures on May 1, 2028, and we are obligated to make interest only payments for the first 24 months, or 36 months if the third tranche is funded, and then interest and equal principal payments each month thereafter through the maturity date.

The term loan bears a variable interest rate equal to the greater of (i) 10.3%, and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 1.8%.

We may prepay, at our option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the term loans, subject to a prepayment premium to which the Lenders are entitled and certain notice requirements.

We are obligated to pay a final fee equal to 6.95% of the aggregate amount of the term loans funded, or the Final Fee, to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans.

The Final Fee is being accreted to interest expense using the effective interest method over the life of the debt.

Pursuant to the terms of the K2HV Loan Agreement, the lenders thereto may elect, prior to the full repayment of the term loans, to convert up to $5.0 million of the outstanding principal of the term loans into shares of our common stock at a conversion price of the lesser of $6.3182 per share, or the Fixed Price Conversion, and the lowest effective price per share of our first equity financing following the closing of the K2HV Loan Agreement, or the Variable Price Conversion, subject to customary adjustments and 9.99% and 19.99% beneficial ownership limitations.

There will be no prepayment penalty for any principal amount converted into common stock.

We determined that the Fixed Price Conversion and the Variable Price Conversion within the K2HV Loan Agreement are required to be bifurcated as an embedded derivative under ASC Topic 815 at fair value, and recorded as a discount on the debt on the date of issuance, with subsequent changes in fair value recognized in the accompanying consolidated statements of operations.

As security for our obligations under the K2HV Loan Agreement, we granted the Lenders a first priority security interest on substantially all of our assets (other than intellectual property), subject to certain exceptions.

The K2HV Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, dispose of assets, make changes to our business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, incur additional liens, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions.

Upon the occurrence of an event of default, a default interest rate of an additional 5.0% per annum

may be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the K2HV Loan Agreement and under applicable law.

As of December 31, 2024, we are in compliance with all covenants.

Subject to certain conditions, we granted the Lenders the right, prior to repayment of the term loans, to invest up to $5.0 million in the aggregate in future offerings of capital stock, at market terms, subject to certain exceptions and conditions.

We incurred debt issuance costs of $0.7 million in connection with the term loans, composed of the facility fee of $0.4 million and other expenses paid to the Lenders of $0.2 million and external legal fees of $0.1 million.

These debt issuance costs, together with fair value of the embedded derivative of $4.5 million, resulted in a debt discount of $5.1 million which is being amortized to interest expense over the term of the K2HV Loan Agreement using the effective interest method.

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

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

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

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

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

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

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

We were initially entitled to offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million in the ATM Offering.

On February 9, 2024, we filed a prospectus supplement, or the Prospectus Supplement, under our shelf registration statement for the offer and sale of shares of our common stock having an offering price of up to an additional $25.0 million in the ATM Offering.

Following our filing of the Prospectus Supplement, we are entitled to offer and sell shares of our common stock with an aggregate offering price of up to $75.0 million pursuant to the Sales Agreement.

During the year ended December 31, 2024, we had sold an aggregate of 5,272,538 shares under the ATM Offering at an average price of $4.71 per share for net proceeds of $23.5 million after deducting sales commissions and offering expenses.

Jazz Collaboration

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In addition, we are eligible to receive tiered mid-single digit royalties based on Jazz’s, and any of its affiliates’ and sublicensees’, annual net sales of Licensed Products, subject to reduction in specified circumstances.

Plan of Operation and Future Funding Requirements

As of December 31, 2024, we had cash and cash equivalents of $111.0 million.

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

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

We expect that our existing cash and cash equivalents at December 31, 2024, will be sufficient to fund our operational expenses and capital expenditure requirements through at least the second quarter of 2026.

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

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Investing activities

(769) (3,611)

Financing activities

13,080 58,429

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

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

$ (43,362) $ 25,048

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Net cash used in operating activities for the year ended December 31, 2024 was $56.2 million, compared to $32.6 million for the year ended December 31, 2023.

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

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

The benefit of a lower net loss was partially

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

This increase of approximately $23.6 million was primarily attributable to a decrease in revenue from our Collaboration Agreement of $18.1 million, combined with an increase in research and development expenses of $14.7 million, primarily driven by our continued development efforts of our product candidates.

The change in net loss outlined above is partially offset by a net increase of $9.6 million in non-cash charges and changes in operating assets and liabilities.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2024 was $0.3 million, compared to $0.8 million for the year ended December 31, 2023.

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

The activity for both periods represents capital expenditures of property and equipment used in our operations.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2024 was $13.1 million, compared to $58.4 million for the year ended December 31, 2023.

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

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

Cash provided by financing activities for the year ended December 31, 2024 primarily consisted of net proceeds from our ATM Offering during the period of $23.6 million, as well as the drawdown of the new term loan under the K2HV Loan Agreement of $30.0 million offset by the repayment of the previous PWB term loan of $40.0 million.

Comparatively, cash provided by financing activities for the year ended December 31, 2023 consisted of proceeds from the $40.0 million drawdown of the PWB term loan combined with $18.3 million in net proceeds from our ATM Offering during the period.

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

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

Term Loan Facility

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

Term Loan Facilities

See “Liquidity and Capital Resources – Sources of Liquidity – Term Loan Facilities” for a descriptions of the PWB Loan Agreement and the K2HV Loan Agreement.

Lease Agreements

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

In April 2019, we entered into a lease for office and laboratory space.

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

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

Crossbow is obligated to pay all real estate taxes and costs related to the subleased premises, including cost of operations, maintenance, repair, replacement, and property management.

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

Both our lease and the sublease with Crossbow expired in March 2024.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis