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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-12 · 99 added, 52 removed, 168 unchanged (47% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion an d Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024.

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Varegacestat, formerly AL102, is an investigational gamma secretase inhibitor, or GSI, currently under evaluation in a Phase 3 clinical trial for the treatment of desmoid tumors.

IM-1021, a receptor tyrosine kinase-like orphan receptor 1, or ROR1, antibody-drug conjugate, received investigational new drug, or IND, clearance in December 2024, and the Phase 1 trial is ongoing with the first patient dosed in February 2025.

IM-1021, a receptor tyrosine kinase-like orphan receptor 1, or ROR1, antibody-drug conjugate, is currently under evaluation in a Phase 1 trial with the first patient dosed in February 2025.

IM-3050, a fibroblast activation protein, or FAP, targeted radioligand therapy, or RLT, received IND clearance in April 2025 and we expect to initiate a Phase 1 trial in the second half of 2025.

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In addition, we have multiple ADCs currently undergoing lead optimization in advance of future development decisions.

At present, our internal discovery efforts center on designing ADCs against novel or underexplored targets.

Currently, our internal discovery efforts center on designing ADCs against novel or underexplored targets.

We believe that pursuing differentiated targets provides a path to significant clinical benefit and meaningful market opportunities.

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We have efforts underway to develop additional linkers and payloads and believe that a broad toolbox of linkers and payloads supports our mission to design and develop a diverse pipeline of ADCs.

To expand and advance our innovative portfolio of therapeutics, we draw on leadership that previously played key roles in the design, development, and commercialization of cutting-edge targeted cancer therapies, including the first ADCs commercialized for Hodgkin and T-cell lymphoma, urothelial cancer and cervical cancer.

Our current programs

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The Phase 2 data also show a safety profile consistent with the GSI class.

Varegacestat received Orphan Drug Designation from the European Medicines Agency, or EMA, in July 2025, and

previously received this designation from the U.S.

Food and Drug Administration, or FDA, in November 2023.

Enrollment in a Phase 3 registrational trial was completed in February 2024, and we expect to report topline data from this trial in the second half of 2025.

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The target is a receptor tyrosine kinase that promotes tumor cell survival and mediates immune cell exclusion, providing potential for a secondary mechanism of action.

IND-enabling work for IM-1617 was initiated in the fourth quarter of 2024.

IND-enabling work for IM-1617 is ongoing.

IM-1340 (Solid Tumor ADC)

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It has a unique expression profile that spans neuroendocrine tumors, or NETs, and other carcinomas, including lung and prostate tumors, with limited expression in normal tissue.

IND-enabling work for IM-1340 was initiated in the fourth quarter of 2024.

IND-enabling work for IM-1340 is ongoing.

IM-1335 (Solid Tumor ADC)

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We identified limitations that we expect contributed to the failure of the prior ADC against this target, and we believe that IM-1335 overcomes these limitations.

IND-enabling work for IM-1335 was initiated in the fourth quarter of 2024.

IND-enabling work for IM-1335 is ongoing.

Other Programs and Platforms

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Collaboration revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future.

To date, we have generated our revenue through a Collaboration and Option Agreement, or the Collaboration Agreement, with AbbVie Global Enterprises Ltd., or AbbVie.

Our collaboration revenue to date consists of payments from AbbVie that we recognize over the expected performance period under this agreement.

We expect that revenues for the foreseeable future will be derived primarily from this agreement and any additional collaborations into which we may enter.

We have not received any royalties under the Collaboration Agreement to date.

We have not generated any revenue from product sales and do not expect to do so for the foreseeable future.

To date, we have generated our revenue through a Collaboration and Option Agreement, or the Collaboration Agreement, with AbbVie Global Enterprises Ltd., or AbbVie, which terminated in accordance with its terms in July 2025.

Revenue recognized under the Collaboration Agreement consisted of payments received from AbbVie and was recognized over the performance period.

No further collaboration revenue will be recognized under the Collaboration Agreement.

In-process research and development expenses

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Results of operations

Comparison of the three months ended March 31, 2025 and 2024

Comparison of the three months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the periods presented (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Collaboration revenue

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(1) Amounts include non-cash share-based compensation expense as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Research and development

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Collaboration revenue

Collaboration revenue increased by $1.9 million, from $1.0 million for the three months ended March 31, 2024 to $2.9 million for the three months ended March 31, 2025.

The increase was primarily due to an increase in certain research and development activities allocated to AbbVie during the three months ended March 31, 2025 compared to the same period in 2024.

Collaboration revenue increased by $1.7 million, from $2.4 million for the three months ended June 30, 2024 to $4.0 million for the three months ended June 30, 2025.

The increase was primarily due to an increase in certain research and development activities allocated to AbbVie during the three months ended June 30, 2025 compared to the same period in 2024.

As of June 30, 2025, we have recognized all revenue and costs associated with our performance obligation under the agreement.

In-process research and development expense

There was no IPR&D expense for the three months ended March 31, 2025.

IPR&D expense for the three months ended March 31, 2024 was related to the write-off of IPR&D assets that were acquired from Zentalis and Ayala and determined to have no alternative future use .

There was no IPR&D expense for the three months ended June 30, 2025.

IPR&D expense for the three months ended June 30, 2024 was related to the write-off of IPR&D assets that were determined to have no alternative future use.

Research and development expenses

Research and development expenses increased by $21.5 million, from $15.4 million for the three months ended March 31, 2024 to $36.9 million for the three months ended March 31, 2025.

The table below shows our research and development expenses incurred with respect to each active program (in thousands):

Three Months Ended March 31,

Research and development expenses increased by $11.4 million, from $29.1 million for the three months ended June 30, 2024 to $40.5 million for the three months ended June 30, 2025.

The table below summarizes the components of our research and development expenses for the periods presented (in thousands):

Three Months Ended June 30,

Varegacestat (1)

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Indirect research and development (5)

(1) The increase for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was due primarily to manufacturing and clinical trial activities related to varegacestat, which we acquired from Ayala in March 2024.

(2) The increase for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was due primarily to increased clinical trial activities as we initiated our Phase 1 trial in February 2025.

(3) The decrease for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was due primarily to the timing of outsourced research, manufacturing and IND-enabling activities.

(1) The increase for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was due primarily to increases in manufacturing and clinical trial activities related to varegacestat, which we acquired from Ayala in March 2024.

(2) The decrease for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was due primarily to the timing of outsourced research, manufacturing and IND-enabling activities, partially offset by an increase in clinical trial activities as we initiated our Phase 1 trial in February 2025.

(3) The decrease for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was due primarily to the timing of outsourced research, manufacturing and IND-enabling activities, partially offset by an increase in clinical trial start up activities as we prepare to initiate our Phase 1 trial.

We received IND clearance for this program in April 2025.

(4) The increase for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was due primarily to increased ADC discovery activities.

(5) The increase for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was due primarily to an increase in personnel and personnel-related costs in support of varegacestat, IM-1021, IM-3050 and other development and discovery programs.

(4) The increase for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was due primarily to increased manufacturing activities for our product candidates, partially offset by reductions in professional and contract laboratory services due to the replacement of certain outsourced services with internal resources.

(5) The increase for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was due primarily to an increase in personnel and personnel-related costs in support of our product candidates and discovery programs.

General and administrative expenses

General and administrative expenses increased by $4.7 million, from $6.0 million for the three months ended March 31, 2024 to $10.7 million for the three months ended March 31, 2025.

General and administrative expenses increased by $3.1 million, from $7.0 million for the three months ended June 30, 2024 to $10.0 million for the three months ended June 30, 2025.

The increase was primarily a result of a $2.0 million increase in personnel-related costs from an increase in headcount, including a $0.9 million increase in share-based compensation.

Interest income

Interest income increased by $0.2 million from $2.8 million for the three months ended March 31, 2024 to $3.0 million for the three months ended March 31, 2025.

The increase was primarily a result of higher marketable security balances, partially offset by lower interest rates during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Interest income decreased by $0.8 million from $3.9 million for the three months ended June 30, 2024 to $3.1 million for the three months ended June 30, 2025.

The decrease was primarily a result of lower interest rates during the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Comparison of the six months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the periods presented (in thousands):

Six Months Ended June 30,

Collaboration revenue

Operating expenses:

In-process research and development

Research and development (1)

General and administrative (1)

Total operating expenses

Loss from operations

Interest income

(1) Amounts include non-cash share-based compensation expense as follows (in thousands):

Six Months Ended June 30,

Research and development

General and administrative

Total share-based compensation expense

Collaboration revenue

Collaboration revenue increased by $3.5 million, from $3.4 million for the six months ended June 30, 2024 to $6.9 million for the six months ended June 30, 2025.

The increase was primarily due to an increase in certain research and development activities allocated to AbbVie during the six months ended June 30, 2025 compared to the same period in 2024.

As of June 30, 2025, we have recognized all revenue and costs associated with our performance obligation under the agreement.

In-process research and development expenses

There was no IPR&D expense for the six months ended June 30, 2025.

IPR&D expense for the six months ended June 30, 2024 primarily related to the write-off of IPR&D assets that were acquired from Zentalis, Ayala and others and determined to have no alternative future use.

Research and development expenses

Research and development expenses increased by $32.9 million, from $44.5 million for the six months ended June 30, 2024 to $77.3 million for the six months ended June 30, 2025.

The table below summarizes the components of our research and development expenses for the periods presented (in thousands):

Six Months Ended June 30,

Varegacestat (1)

Other product candidates (4)

Indirect research and development (5)

(1) The increase for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was due primarily to manufacturing and clinical trial activities related to varegacestat, which we acquired from Ayala in March 2024.

(2) The decrease for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was due primarily to the timing of outsourced research, manufacturing and IND-enabling activities, partially offset by an increase in clinical trial activities as we initiated our Phase 1 trial in February 2025.

(3) The decrease for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was due primarily to the timing of outsourced research, manufacturing and IND-enabling activities, partially offset by an increase in clinical trial start up activities as we work to initiate our Phase 1 trial.

We received IND clearance for this program in April 2025.

(4) The increase for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was due primarily to increased manufacturing activities for our product candidates, partially offset by reductions in recruiting, professional and contract laboratory services due to the replacement of certain outsourced services with internal resources.

(5) The increase for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was due primarily to an increase in personnel and personnel-related costs in support of our product candidates and discovery programs.

General and administrative expenses

General and administrative expenses increased by $7.7 million, from $13.0 million for the six months ended June 30, 2024 to $20.7 million for the six months ended June 30, 2025.

The increase was primarily a result of a $5.2 million increase in personnel-related costs from an increase in headcount, including a $2.4 million increase in share-based compensation.

Interest income

Interest income decreased by $0.6 million from $6.7 million for the six months ended June 30, 2024 to $6.1 million for the six months ended June 30, 2025.

The decrease was primarily a result of lower interest rates during the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Liquidity and capital resources

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Since inception, we have incurred significant operating losses and negative cash flows from operations.

Our net losses were $41.6 million and $129.5 million for the three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, we had cash, cash equivalents and marketable securities of $317.3 million and an accumulated deficit of $557.4 million.

Our net losses were $43.4 million and $36.1 million for the three months ended June 30, 2025 and 2024, respectively, and $85.0 million and $165.6 million for the six months ended June 30, 2025 and 2024, respectively.

As of June 30, 2025, we had cash, cash equivalents and marketable securities of $268.0 million and an accumulated deficit of $600.8 million.

In January 2025, we issued 22,258,064 shares of our common stock at $7.75 per share for net proceeds of $161.7 million, after deducting underwriting discounts and commissions and offering expenses payable by us, or the 2025 Financing.

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We have agreed to pay TD Cowen a commission of up to 3.0% of the aggregate gross proceeds from any ATM Shares sold through the 2024 ATM Agreement.

As of March 31, 2025, we had sold an aggregate of 2,030,431 shares of common stock under the 2024 ATM Agreement for gross proceeds of $20.0 million and net proceeds of approximately $19.6 million, with approximately $180.0 million remaining available for future offerings.

No shares of common stock were sold under the 2024 ATM Agreement during the three months ended March 31, 2025.

The following table summarizes our sources and uses of cash for the three months ended March 31, 2025 and 2024 (in thousands):

Three Months Ended March 31,

As of June 30, 2025, we had sold an aggregate of 2,030,431 shares of common stock under the 2024 ATM Agreement for gross proceeds of $20.0 million and net proceeds of approximately $19.6 million, with approximately $180.0 million remaining available for future offerings.

No shares of common stock were sold under the 2024 ATM Agreement during the six months ended June 30, 2025.

The following table summarizes our sources and uses of cash for the six months ended June 30, 2025 and 2024 (in thousands):

Six Months Ended June 30,

Cash used in operating activities

Cash provided by (used in) investing activities

Cash used in investing activities

Cash provided by financing activities

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Operating activities

Net cash used in operating activities for the three months ended March 31, 2025 was $53.1 million, consisting primarily of our net loss of $41.6 million and a net change in operating assets and liabilities of $17.0 million, partially offset by noncash charges of $5.6 million.

Net cash used in operating activities for the six months ended June 30, 2025 was $102.5 million, consisting primarily of our net loss of $85.0 million and a net change in operating assets and liabilities of $28.8 million, partially offset by noncash charges of $11.4 million.

The noncash charges primarily consisted of $11.1 million of share-based compensation.

The change in operating assets and liabilities primarily consisted of a decrease in accrued expenses and other current liabilities of $7.9 million, a decrease in accounts payable of $8.8 million, a decrease in deferred revenue of $6.9 million and an increase in prepaid expenses and other assets of $5.3 million.

Net cash used in operating activities for the three months ended March 31, 2024 was $11.2 million, consisting primarily of our net loss of $129.5 million, partially offset by noncash charges of $113.8 million and a net change in operating assets and liabilities of $4.5 million.

The noncash charges primarily consisted of $112.0 million of IPR&D assets acquired without alternative future use and $2.2 million of share-based compensation.

The change in operating assets and liabilities primarily consisted of a decrease in prepaid expense and other current assets of $2.5 million, an increase in accounts payable of $2.4 million, and an increase in accrued expenses and other current liabilities of $0.7 million, partially offset by a decrease in deferred revenue of $1.0 million.

Net cash used in operating activities for the six months ended June 30, 2024 was $34.6 million, consisting primarily of our net loss of $165.6 million, partially offset by noncash charges of $123.7 million and a net change in operating assets and liabilities of $7.3 million.

The noncash charges primarily consisted of $118.3 million of in-process research and development assets acquired without alternative future use and $5.4 million of share-based compensation.

The change in operating assets and liabilities primarily consisted of an increase in accrued expenses and other current liabilities of $7.6 million, an increase in accounts payable of $2.4 million and a decrease in prepaid expenses and other assets of $0.9 million, partially offset by a decrease in deferred revenue of $3.4 million.

Investing activities

Net cash provided by investing activities for the three months ended March 31, 2025 was $5.1 million, consisting of $15.0 million from maturities of marketable securities, partially offset by $6.2 million of upfront and milestone payments related to IPR&D assets and $3.7 million of purchases of property and equipment.

Net cash used in investing activities for the three months ended March 31, 2024 was $37.2 million, consisting of $35.1 million in IPR&D assets acquired from Zentalis and Ayala and $2.2 million of purchases of property and equipment.

Net cash used in investing activities for the six months ended June 30, 2025 was $59.1 million, consisting of $123.3 million of purchases of marketable securities, $6.2 million of purchases of IPR&D assets and $4.6 million of purchases of property and equipment, partially offset by $75.0 million from maturities of marketable securities.

Net cash used in investing activities for the six months ended June 30, 2024 was $118.9 million, consisting primarily of $112.7 million of purchases of marketable securities, $41.7 million of purchases of IPR&D assets and $4.5 million of purchases of property and equipment, partially offset by $40.0 million from maturities of marketable securities.

Financing activities

Net cash provided by financing activities for the three months ended March 31, 2025 was $162.2 million, consisting of gross proceeds of $172.5 million from the 2025 Financing and $0.2 million from the exercise of options, partially offset by offering costs of $10.5 million from the 2025 Financing.

Net cash provided by financing activities for the three months ended March 31, 2024 was $219.4 million, consisting of gross proceeds of $230.0 million from our issuance of 11,500,000 shares of our common stock at $20.00 per share in a public offering, or the 2024 Financing, and $3.6 million from the exercise of options and common stock warrants, partially offset by offering costs of $14.2 million from the 2024 Financing.

Net cash provided by financing activities for the six months ended June 30, 2025 was $162.2 million, consisting of gross proceeds of $172.5 million from the 2025 Financing and $0.4 million from the exercise of options, partially offset by offering costs of $10.8 million from the 2025 Financing.

Net cash provided by financing activities for the six months ended June 30, 2024 was $220.1 million, consisting of gross proceeds of $230.0 million from a follow-on public offering we completed in February 2024, or the 2024 Financing, and $4.8 million from the exercise of options and common stock warrants, partially offset by offering costs of $14.6 million from our 2024 Financing and 2024 ATM Agreement.

Funding requirements

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We expect that our primary uses of capital will be for clinical development services, non-clinical research, strategic transactions, manufacturing, legal and other regulatory compliance expenses, compensation and related expenses, risk management and general overhead costs.

We expect that our existing cash, cash equivalents and marketable securities as of March 31, 2025 will be sufficient to fund our current and planned operating expenses and capital expenditures for at least 12 months from the filing date of this Quarterly Report on Form 10-Q.

We expect that our existing cash, cash equivalents and marketable securities as of June 30, 2025 will be sufficient to fund our current and planned operating expenses and capital expenditures for at least 12 months from the filing date of this Quarterly Report on Form 10-Q.

We will need additional financing to support our continuing operations and pursue our research and development strategy.

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See Note 2, Summary of significant accounting policies , to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding recently issued accounting pronouncements.

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

We currently qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of our initial public offering (i.e., December 31, 2025) or such earlier time that we are no longer an emerging growth company.

We would cease to be an emerging growth company earlier if we have more than $1.235 billion in annual revenue during our most recently completed fiscal year, we have more than $700.0 million in market value of our stock held by non-affiliates as of the last business day of our most recently completed second fiscal quarter, or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies.

We may choose to take advantage of some, but not all, of the available exemptions.

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Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.

Quantitative and Qualitative Disclosures About Market Risk

The information under this item is not required to be provided by smaller reporting companies.

As of June 30, 2025, the market value of our common stock held by non-affiliates exceeded $700.0 million.

As a result, effective December 31, 2025, we will be a large accelerated filer and thus will cease to be an emerging growth company.

Additionally, we will no longer qualify as a smaller reporting company beginning with our first Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2026.

As a result of this transition, we will be subject to certain disclosure and compliance requirements that apply to other public companies that did not previously apply to us due to our status as an emerging growth company and smaller reporting company.

These requirements include, but are not limited to:

the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002;

the requirement that we provide more detailed disclosures regarding executive compensation;

and the requirement that we hold a non-binding advisory vote on executive compensation and obtain shareholder approval of any golden parachute payments not previously approved.

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