What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 110 added, 187 removed, 207 unchanged (59% of the section changed)

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You should carefully read the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly 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 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 continue to enroll patients in the monotherapy and combination expansion arms of the Phase 1/1b clinical trial and expect to report initial efficacy data from the monotherapy expansion arms in the first half of 2025.

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

We announced the initiation of patient dosing in February 2023.

The trial is currently open for enrollment.

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

During the nine months ended September 30, 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, which we expect to integrate into our clinical development program.

We intend to present updated interim safety and efficacy data from the Phase 1 clinical trial at the Society for Immunotherapy of Cancer Annual Meeting to be held from November 6-10, 2024, in Houston, Texas.

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 tumor microenvironment, resulting in antitumor immunity, and 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.

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 tumor microenvironment.

In October 2024, we announced a new development candidate, WTX-921, a novel Interleukin-10

INDUKINE molecule in development for the treatment of inflammatory bowel disease and potentially other inflammatory diseases.

All expansion arms are actively enrolling patients in the ongoing Phase 1/1b clinical trial at a recommended dose of 18 mg administered intravenously every two weeks.

During the second half of 2025, we plan to present interim data from the monotherapy and combination expansion arms, including tolerability, response rate, and durability, and to engage with regulatory authorities to discuss potential registrational pathways for WTX-124, including strategies for accelerated approval.

We evaluated WTX-330 in a first-in-human Phase 1 clinical trial for the treatment of immunotherapy resistant advanced or metastatic solid tumors or lymphoma.

Phase 1 of this clinical trial was completed in the first quarter of 2025.

We reported initial data from the Phase 1 clinical trial in June 2024 and 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, highlighting the tolerability profile and monotherapy efficacy signals of WTX-330.

Guided by these data, we initiated a Phase 1b/2 clinical trial of WTX-330 in the first quarter of 2025 in patients with selected advanced or metastatic solid tumors and dosed our first patient in the second quarter of 2025.

We continue to further the development of our preclinical product candidates, WTX-712, WTX-518, and WTX-921.

WTX-712 is a systemically delivered, conditionally activated Interleukin-21 (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.

In April 2024, we presented preclinical data for WTX-712 at the American Association for Cancer Research, or AACR, Annual Meeting demonstrating that 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.

WTX-518 is a systemically delivered, conditionally activated Interleukin-18 (IL-18) INDUKINE molecule in development for the treatment of cancer and is designed to promote activation of immune cells in the TME, resulting in antitumor immunity.

In April 2024, we also presented preclinical data for WTX-518 at the AACR Annual Meeting demonstrating that WTX-518 exhibits remarkable tumor-selective activation, resistance to IL-18BP and robust immune activation.

WTX-921 is a systemically delivered, conditionally activated Interleukin-10 (IL-10) INDUKINE molecule for treatment of inflammatory bowel disease, or IBD, and potentially other inflammatory diseases.

We continue to build our PREDATOR platform to generate a pipeline of innovative therapeutics that cover a diversity of immune stimulating mechanisms with the potential to address significant unmet medical need in therapeutic areas including new immuno-oncology, autoimmune, and inflammatory diseases.

Our PREDATOR platform consists of our protein

engineering technologies and our know-how, which we use to generate INDUKINE molecules with multiple functional domains rationally engineered into a single protein to achieve the desired pharmaceutical profile.

Each of our lead INDUKINE molecules consists of four components:

a cytokine, an inactivation domain, a half-life extension domain and a proprietary protease-cleavable linker.

Our INDUKINE molecules for oncology contain cytokines that mediate pro-inflammatory, anti-cancer mechanisms within the TME, with full potency and functionality observed in preclinical studies.

The inactivation domain physically blocks the cytokine portion of the INDUKINE molecule in non-tumor tissue throughout the body, or the periphery, preventing it from binding to its receptor until it is cleaved and thereby activated in the TME.

The half-life extension domain enables high systemic and tumor tissue exposure for the INDUKINE molecule prior to its cleavage in the tumor.

After cleavage in the tumor, the half-life extension domain is removed, and the cytokine is released to activate immune cells.

We select the proprietary protease-cleavable linker to enable conditional release of the cytokine portion of the INDUKINE molecule within tumor tissue.

This selection is based on our extensive screening in preclinical studies to identify protease-cleavable linkers that are efficiently cleaved by a broad array of human tumor tissues with minimal cleavage in non-tumor tissues.

We are also utilizing this PREDATOR platform know-how and expertise to develop conditionally activated immune cell engagers.

Immune cell engagers, such as T cell engagers, are typically bispecific antibodies that redirect immune cells to cancer cells via engagement with tumor associated cell surface antigens, leading to immune cell mediated killing of the cancer cells.

We have provided initial preclinical data for our proprietary INDUCER T cell engager molecules demonstrating that our PREDATOR masking technology silenced peripheral activity and prevented cytokine release.

We expect to nominate our first INDUCER development candidate in the second quarter of 2025.

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 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

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

For the nine months ended September 30, 2024, we recognized $1.9 million of revenue.

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

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

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

During the nine months ended September 30, 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 September 30, 2024.

During the three months ended March 31, 2025, we re-evaluated this assessment as it pertains to 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 remaining deferred revenue related to the Collaboration Agreement was recognized upon execution of the Transfer Agreement.

Accordingly, we recognized no revenue related to the Collaboration Agreement during the three months ended March 31, 2025.

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 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 ability to successfully meet the criteria for payment of the remaining development and regulatory milestones, and the timing and amount of 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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Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

(in thousands)

2 unchanged sentences

WTX-712 87 206

WTX-518 68 — 251 —

JZP898 14 791 538 6,960

Pre-development candidates 581 248

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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.

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.

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

• the scope, rate of progress and expenses of our ongoing research activities as well as any preclinical studies and clinical trials, including our ongoing Phase 1/1b clinical trial for WTX-124 and Phase 1 clinical trial for WTX-330, and other research and development activities;

• the scope, rate of progress and expenses of our ongoing research activities as well as any preclinical studies and clinical trials, including our ongoing Phase 1/1b clinical trial for WTX-124 and the Phase 1b/2 clinical trial for WTX-330, as well as other research and development activities;

• establishing an appropriate safety profile;

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

Other (Expense) Income

Interest Income

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Interest Expense

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 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 primarily consists of the gain or loss recognized on the change 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 Pacific Western Bank, or PWB.

Other income (expense), net primarily consists of the unrealized gain or loss recognized on the change in the fair value of the derivative liability associated with the K2HV Loan Agreement.

Results of Operations

Comparison of the Three Months Ended September 30, 2024 and 2023

Comparison of the Three Months Ended March 31, 2025 and 2024

The following table summarizes our results of operations:

Three Months Ended

September 30, $ Change

March 31, $ Change

(in thousands)

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(17,991) (17,162) (829)

Other income:

Other (expense) income:

Interest income 997 1,973 (976)

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Other income (expense), net 168 (1) 169

Total other income

451 966 (515)

Total other (expense) income (98) 969 (1,067)

$ (18,089) $ (16,193) $ (1,896)

No revenue was recognized during the three months ended September 30, 2024.

No revenue was recognized during the three months ended March 31, 2025.

Following the execution of the Transfer Agreement with Jazz in June 2024, the only significant sources of revenue expected to be generated from the Collaboration Agreement are the remaining development and regulatory and sales-based milestones.

Based on our assessment that there continues to be a high level of uncertainty of achieving these milestones, no revenue from the remaining milestones has been recognized during the period.

Comparatively, we recognized $0.7 million during the three months ended March 31, 2024 related to the Collaboration Agreement with Jazz prior to the execution of the Transfer Agreement.

Research and Development Expenses

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Three Months Ended

September 30, $ Change

(in thousands)

Personnel $ 3,642 $ 3,635 $ 7

Clinical trial costs 2,986 1,715 1,271

Manufacturing 2,392 2,152 240

Contract research organization 1,366 1,188 178

Lab consumables 1,081 1,202 (121)

Facility costs 886 777 109

Other 175 169 6

Total research and development expenses $ 12,528 $ 10,838 $ 1,690

Research and development expenses for the three months ended September 30, 2024 were $12.5 million, compared to $10.8 million for the three months ended September 30, 2023.

The increase of $1.7 million was primarily due to $1.5 million of combined increases in clinical trial costs of $1.3 million and manufacturing costs of $0.2 million.

The increases in both our clinical trial and manufacturing costs are driven by an increase of $2.2 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 is partially offset by a decrease of $0.9 million in manufacturing costs associated with JZP898 following the execution of the Transfer Agreement with Jazz.

General and Administrative Expenses

The following table summarizes our general and administrative expenses:

Three Months Ended

September 30, $ Change

(in thousands)

Personnel $ 2,295 $ 2,204 $ 91

Professional services 1,281 1,024 257

Facility costs 388 358 30

Corporate insurance 281 330 (49)

Information technology costs 149 174 (25)

Other 202 220 (18)

$ 4,596 $ 4,310 $ 286

General and administrative expenses were $4.6 million for the three months ended September 30, 2024, compared to $4.3 million for three months ended September 30, 2023.

The increase of $0.3 million was primarily due to an increase in professional services fees of $0.3 million.

The increase in these costs is driven by a combination of higher costs to protect our intellectual property and increased use of external consultants during the period.

Interest Income

Interest income was $1.6 million for the three months ended September 30, 2024, compared to $2.0 million for the three months ended September 30, 2023.

This decrease in interest income was primarily a result of less cash equivalents being held in money market accounts during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Interest Expense

Interest expense was $1.2 million for the three months ended September 30, 2024, compared to $1.0 million for the three months ended September 30, 2023.

This increase in interest expense was primarily the result of higher effective interest rates under the K2HV Loan Agreement, which was executed in May 2024 after the extinguishment of the PWB term loan.

Other Income (Expense), Net

Other income (expense), net for the three months ended September 30, 2024 consisted of $0.1 million of gains recognized for the change in fair value of the conversion option derivative liability associated with the K2HV Loan Agreement.

Other income (expense), net for the three months ended September 30, 2024 and 2023 also consists of foreign currency gains and losses related to services performed by foreign vendors.

No material foreign currency gains or losses were recognized during either period.

Results of Operations

Comparison of the Nine Months Ended September 30, 2024 and 2023

The following table summarizes our results of operations:

Nine Months Ended

September 30, $ Change

(in thousands)

Collaboration revenue $ 1,885 $ 18,442 $ (16,557)

Operating expenses:

Research and development

40,707 32,127 8,580

General and administrative

14,424 13,856 568

Total operating expenses

55,131 45,983 9,148

Operating loss

(53,246) (27,541) (25,705)

Other income:

Interest income

5,364 5,441 (77)

Interest expense

(3,389) (2,129) (1,260)

Loss on extinguishment of debt

(553) — (553)

Other income (expense), net

1,709 (1,136) 2,845

Total other income

3,131 2,176 955

$ (50,115) $ (25,365) $ (24,750)

Revenue was $1.9 million for the nine months ended September 30, 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, costs incurred for research services to be 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 September 30, 2024.

Comparatively, we recognized $18.4 million in collaboration revenue during the nine months ended September 30, 2023 driven by elevated research and development activities related to and in preparation for the IND submission of JZP898 during the nine months ended September 30, 2023.

Research and Development Expenses

The following table summarizes our research and development expenses:

Nine Months Ended

September 30, $ Change

March 31, $ Change

(in thousands)

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Clinical trial costs 2,792 1,769 1,023

Contract research organization 3,188 3,624 (436)

Lab consumables 942 750 192

Facility costs 805 892 (87)

Contract research organization 672 1,059 (387)

Other 115 159 (44)

Total research and development expenses $ 13,120 $ 12,908 $ 212

Research and development expenses for the nine months ended September 30, 2024 were $40.7 million, compared to $32.1 million for the nine months ended September 30, 2023.

Research and development expenses for the three months ended March 31, 2025 were $13.1 million, compared to $12.9 million for the three months ended March 31, 2024.

The increase of $0.2 million was primarily due to:

• $8.6 million of combined increases in manufacturing costs of $4.3 million and clinical trial costs of $4.3 million.

The increases in both our clinical trial and manufacturing costs are driven by an increase of $14.1 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 $5.8 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;

• $0.4 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.

• $1.0 million of increased clinical trial costs, driven by costs associated with the continued enrollment in our ongoing Phase 1/1b clinical trial of WTX-124 and the initiation of a Phase 1b/2 clinical trial of WTX-330;

• $0.2 million of increased lab consumables for supplies procured in our efforts to further the development of our preclinical candidates.

These increases were partially offset by:

• $0.9 million of decreased lab consumables costs and $0.4 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.

• $0.4 million of decreased contract research organization costs due to costs incurred during the three months ended March 31, 2024 associated with improving the manufacturing process for WTX-330, which were non-recurring during the three months ended March 31, 2025;

• $0.3 million of decreased manufacturing costs driven primarily by a decrease in costs associated with JZP898 following the execution of the Transfer Agreement with Jazz;

• $0.1 million of decreased personnel costs, driven primarily by the timing and valuation of stock-based awards granted to employees.

General and Administrative Expenses

The following table summarizes our general and administrative expenses:

Nine Months Ended

September 30, $ Change

Three Months Ended

March 31, $ Change

(in thousands)

1 unchanged sentence

Professional services 1,137 1,263 (126)

Facilities 1,084 954 130

Facility costs 331 383 (52)

Corporate insurance 273 322 (49)

IT costs 556 486 70

Information technology costs 171 180 (9)

Other 309 249 60

Total general and administrative expenses

General and administrative expenses were $14.4 million for the nine months ended September 30, 2024, compared to $13.9 million for the nine months ended September 30, 2023.

The increase of $0.6 million was primarily due to:

• $0.6 million of increased professional services costs, driven by a combination of higher costs to protect our intellectual property, as well as costs incurred to facilitate our new debt agreement and corresponding legal and consulting needs;

• $0.3 million of increased personnel costs driven primarily by the timing and valuation of stock-based awards granted to employees, as well as an increase in headcount throughout both periods in order to support general and administrative needs of our business and annual cost of living adjustments.

These increases were partially offset by

• $0.6 million of decreased corporate insurance costs, driven by a reduction in associated premiums in the current period compared to the prior period.

$ 4,871 $ 4,996 $ (125)

General and administrative expenses were $4.9 million for the three months ended March 31, 2025, compared to $5.0 million for three months ended March 31, 2024.

The decrease of $0.1 million was primarily due to a moderate decrease in professional services fees of $0.1 million.

Interest Income

Interest income was $5.4 million for both the nine months ended September 30, 2024 and 2023, but decreased marginally during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The slight decrease in interest income was primarily a result of less cash equivalents being held in money market accounts during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Interest income was $1.0 million for the three months ended March 31, 2025, compared to $2.0 million for the three months ended March 31, 2024.

This decrease in interest income was primarily a result of less cash equivalents being held in money market accounts during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Interest Expense

Interest expense was $3.4 million for the nine months ended September 30, 2024, compared to $2.1 million for the nine months ended September 30, 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 make any draws from the PWB term loan until March 2023, resulting in interest expense being recognized for only a portion of the nine months ended September 30, 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 nine months ended September 30, 2024.

As no corresponding finance activity occurred for the nine months ended September 30, 2023, we did not incur any gain or loss on a debt extinguishment during the prior period.

Interest expense was $1.3 million for the three months ended March 31, 2025, compared to $1.0 million for the three months ended March 31, 2024.

This increase in interest expense was primarily the result of a higher effective interest rate under the K2HV Loan Agreement, compared to the effective interest rate associated with our previous term loan with PWB.

Other Income (Expense), Net

Other income (expense), net for the nine months ended September 30, 2024 primarily consisted of $1.7 million of gains recognized for the change in fair value of the conversion option derivative liability associated with the K2HV Loan Agreement.

Other income (expense), net for the nine months ended September 30, 2023 consisted of $1.1 million in losses recognized for the change in the fair value of the success payment liability during the period and 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 nine months ended September 30, 2024.

The remaining portion of other income (expense), net for both periods consists of foreign currency gains and losses related to services performed by foreign vendors.

No material foreign currency gains or losses were recognized during either period.

Other income (expense), net for the three months ended March 31, 2025 consisted of $0.2 million of gains recognized for the change in fair value of the derivative liability associated with the K2HV Loan Agreement.

As we entered into the K2HV Loan Agreement during the second quarter of 2024, no similar activity existed for the three months ended March 31, 2024.

Liquidity and Capital Resources

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and enabling manufacturing for our development programs.

Our net loss was $16.7 million and $8.3 million for the three months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, we had an accumulated deficit of $394.2 million.

Our net loss was $18.1 million for the three months ended March 31, 2025.

As of March 31, 2025, we had an accumulated deficit of $432.7 million.

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

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

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

Because our product candidates are in clinical development and the outcome of our efforts is uncertain, we cannot

estimate the actual costs necessary to successfully complete the development and commercialization of our product candidates, or when we may achieve profitability, if at all.

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

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

Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a

combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements.

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

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

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.

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

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 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 nine months ended September 30, 2024.

We did not recognize interest expense related to the PWB Loan Agreement during the three months ended September 30, 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 loan and security agreement, or the K2HV Loan Agreement, with K2 HealthVentures LLC, or K2HV, as described below, together with $10.5 million in existing cash.

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.

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

$25.0 million from the first tranche commitment upon closing 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.

$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 through 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.

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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.

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 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.

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 condensed 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 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 the 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 Loan Agreement and under applicable law.

As of September 30, 2024, we are in compliance with all covenants.

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.

As of March 31, 2025, 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.

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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.

During the nine months ended September 30, 2024, we sold 4,350,820 shares of our common stock at an average price of $5.10 per share for net proceeds of $21.1 million after deducting sales commissions and offering expenses.

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, 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.

During the three months ended March 31, 2025, we did not sell any shares of our common stock under the ATM offering.

Jazz Collaboration

As of September 30, 2024, we have received $20.0 million in payments from Jazz, excluding payments for reimbursed costs, under the terms of the Collaboration Agreement.

As of March 31, 2025, we have received $20.0 million in payments from Jazz, excluding payments for reimbursed costs, under the terms of the Collaboration Agreement.

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

There is no guarantee of when the conditions necessary to receive the milestone payments will be met, if at all.

Plan of Operation and Future Funding Requirements

As of September 30, 2024, we had cash and cash equivalents of $122.8 million.

We also had restricted cash and cash equivalents of $1.2 million as of September 30, 2024.

We believe that our existing cash and cash equivalents at September 30, 2024, will be sufficient to fund our operational expenses and capital expenditure requirements through at least the second quarter of 2026.

As of March 31, 2025, we had cash and cash equivalents of $92.0 million.

We also had restricted cash and cash equivalents of $1.2 million as of March 31, 2025.

We believe that our existing cash and cash equivalents at March 31, 2025, will be sufficient to fund our operational expenses and capital expenditure requirements into the fourth 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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The timing and amount of our operating expenditures will depend largely on:

• the scope, progress, timing, costs and results of researching and developing our current product candidates or any future product candidates, including with respect to our clinical trials of WTX-124 and WTX-330 and the costs associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase;

associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase;

• the cost of manufacturing our product candidates WTX-124, WTX-330, and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale;

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The following table provides information regarding our cash flows:

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

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Financing activities

10,533 49,356

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

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Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2024 was $41.9 million, compared to $28.0 million for the nine months ended September 30, 2023.

This increase of $13.9 million was primarily attributable to a decrease in revenue from our Collaboration Agreement of $16.6 million, combined with an increase in research and development expenses of $8.6 million, primarily driven by our continued development efforts of our product candidates.

The change in net loss outlined above is partially offset by an increase of $10.8 million in non-cash charges and changes in operating assets and liabilities.

Net cash used in operating activities for the three months ended March 31, 2025 was $18.9 million, compared to $15.3 million for the three months ended March 31, 2024.

This increase of $3.7 million was primarily attributable to a decrease in revenue from our Collaboration Agreement of $0.7 million, combined with a decrease in interest income of $1.0 million and an increase in interest expense of $0.3 million.

The change in net loss outlined above is also increased by a decrease of $1.8 million in non-cash charges and changes in operating assets and liabilities.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 was $0.1 million, compared to $0.6 million for the nine months ended September 30, 2023.

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

Net cash used in investing activities for the three months ended March 31, 2024 was $0.1 million, which represents capital expenditures of property and equipment used in our operations during the period.

No such expenditures occurred during the three months ended March 31, 2025.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2024 was $10.5 million, compared to $49.4 million for the nine months ended September 30, 2023.

Cash provided by financing activities for the nine months ended September 30, 2024 primarily consisted of net proceeds from our ATM Offering during the period of $21.1 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 nine months ended September 30, 2023 consisted of proceeds from the $40.0 million drawdown of the PWB term loan combined with $9.3 million in net proceeds from our ATM Offering during the period.

Net cash provided by financing activities for the three months ended March 31, 2024 primarily consisted of $20.2 million in net proceeds from our ATM Offering during the period.

No such proceeds were received during the three months ended March 31, 2025.

Contractual Obligations

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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

Term Loan Facilities

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

Lease Agreements

Lease Agreement

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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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 the fair value of the derivative liability, 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.

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.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our 2024 Annual Report, which was filed with the SEC on March 11, 2025.

During the three and nine months ended September 30, 2024, there were no material changes to our critical accounting policies from those previously disclosed.

During the three months ended March 31, 2025, there were no material changes to our critical accounting policies from those previously disclosed.

Quantitative and Qualitative Disclosures about Market Risk.

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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-Q

Item 2. Management’s Discussion and Analysis