Kymera Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. 112 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2020 and 2019 F-4 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 2020 and 2019 F-7 Notes to Consolidated Financial Statements F-9 F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Kymera Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Kymera Therapeutics, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material aspects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. Boston, Massachusetts March 11, 2021 F-2 KYMERA THERAPEUTICS , INC. Consolidated Balance Sheets (In thousands, except share and per share amounts) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 31,004 $ 76,015 Marketable securities (Note 4) 265,198 15,942 Accounts receivable—due from related parties 577 — Contract assets—due from related parties 856 — Prepaid expenses and other current assets 4,704 888 Total current assets $ 302,339 $ 92,845 Marketable securities, non-current (Note 4) 162,531 — Property and equipment, net (Note 6) 10,841 3,794 Right-of-use assets, operating leases 9,845 18,289 Other assets 30 — Restricted cash 1,589 1,774 Total assets $ 487,175 $ 116,702 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 4,368 $ 3,276 Accrued expenses (Note 8) 10,330 4,568 Deferred revenue, current 92,552 23,349 Operating lease liabilities, current portion 2,572 2,696 Finance lease liabilities, current portion 689 681 Other current liabilities 106 — Total current liabilities $ 110,617 $ 34,570 Non-current liabilities Deferred revenue, net of current portion 77,838 29,642 Operating lease liabilities, net of current portion 14,128 16,651 Finance lease liabilities, net of current portion 604 1,165 Other non-current liabilities 100 — Total liabilities $ 203,287 $ 82,028 Commitments and contingencies (Note 9) Series Seed Convertible Preferred Stock, $0.0001 par value; 0 and 3,000,000 shares authorized, issued and outstanding at December 31, 2020 and December 31, 2019, respectively (liquidation preference of $3,000 at December 31, 2019) $ — $ 5,900 Series A Convertible Preferred Stock, $0.0001 par value; 0 and 14,886,305 shares authorized and issued at December 31, 2020 and December 31, 2019, respectively and 0 and 14,720,126 shares outstanding at December 31, 2020 and December 31, 2019, respectively (liquidation preference of $29,440 at December 31, 2019) — 29,237 Series B Convertible Preferred Stock, $0.0001 par value; 0 and 16,009,848 shares authorized at December 31, 2020 and December 31, 2019, respectively and 0 and 14,827,580 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively (liquidation preference of $60,200 at December 31, 2019) — 59,918 Series B-1 Convertible Preferred Stock, $0.0001 par value; 0 and 3,059,695 shares authorized, issued and outstanding at December 31, 2020 and December 31, 2019, respectively (liquidation preference of $20,000 at December 31, 2019) — 14,025 Stockholders’ equity (deficit): Preferred stock, $0.0001 par value; 10,000,000 and 0 shares authorized as of December 31, 2020 and December 31, 2019, respectively; 0 shares issued or outstanding as of December 31, 2020 and December 31, 2019 — — Common stock, $0.0001 par value; 150,000,000 and 45,000,000 shares authorized at December 31, 2020 and December 31, 2019, respectively, 44,592,288 and 2,208,982 shares issued at December 31, 2020 and December 31, 2019, respectively; 44,482,186 and 1,929,516 shares outstanding at December 31, 2020 and December 31, 2019, respectively 4 — Additional paid-in capital 412,777 2,044 Accumulated deficit (128,765 ) (76,456 ) Accumulated other comprehensive (loss) income (128 ) 6 Total stockholders’ equity (deficit) 283,888 (74,406 ) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 487,175 $ 116,702 The accompanying notes are an integral part of these consolidated financial statements. F-3 KYMERA THERAPEUTICS, INC. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share amounts) Year ended December 31, 2020 2019 Statement of Operations Data: Collaboration Revenue—from related party $ 34,034 $ 2,934 Operating expenses: Research and development $ 62,105 $ 37,158 General and administrative 18,233 7,981 Total operating expenses 80,338 45,139 Loss from operations (46,304 ) (42,205 ) Other income (expense): Interest Income 826 1,005 Interest Expense (115 ) (46 ) Total other income 711 959 Net loss $ (45,593 ) $ (41,246 ) Other comprehensive loss: Unrealized (loss) gain on marketable securities (134 ) 6 Total comprehensive loss $ (45,727 ) $ (41,240 ) Reconciliation of net loss to net loss attributable to common stockholders: Net Loss $ (45,593 ) $ (41,246 ) Deemed dividend from exchange of convertible preferred stock (9,050 ) — Net loss attributable to common stockholders $ (54,643 ) $ (41,246 ) Net loss per share attributable to common stockholders, basic and diluted $ (3.15 ) $ (24.28 ) Weighted average common stocks outstanding, basic and diluted 17,349,582 1,698,522 The accompanying notes are an integral part of these consolidated financial statements. F-4 KYMERA THERAPEUTICS, INC. Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (In thousands, except share and per share amounts) Series Seed Convertible Preferred Stock Series A Convertible Preferred Stock Series B Convertible Preferred Stock Shares Value Shares Value Shares Value Balance at December 31, 2018 3,000,000 $ 5,900 14,498,547 $ 28,794 9,605,905 $ 38,735 Vesting of Series A Preferred Stock in connection with collaboration arrangement (Note 5) — — 221,579 443 — — Issuance of Series B Convertible Preferred Stock, net of issuance costs of $17 — — — — 5,221,675 21,183 Issuance of Series B-1 Preferred Stock, net of issuance costs of $49 — — — — — — Exercise of Stock Options — — — — — — Vesting Restricted Stock — — — — — — Stock-based compensation expense — — — — — — Unrealized gain on marketable securities — — — — — — Net Loss — — — — — — Balance at December 31, 2019 3,000,000 $ 5,900 14,720,126 $ 29,237 14,827,580 $ 59,918 Vesting of Series A Preferred Stock in connection with collaboration arrangement (Note 5) — — 110,788 222 — — Issuance of Series B Preferred Stock, net of issuance costs of $0 — — — — 1,182,265 4,800 Issuance of Series C Preferred Stock, net of issuance costs of $320 — — — — — — Exchange of Series A Convertible Preferred Stock for Series C Preferred Convertible Preferred Stock — — (1,988,802 ) (3,950 ) — — Exercise of Stock Options — — — — — — Vesting Restricted Stock — — — — — — Stock-based compensation expense — — — — — — Unrealized loss on marketable securities — — — — — — Issuance of shares in connection with initial public offering net of underwriting discounts and offering costs of $17,003 — — — — — — Conversion of convertible preferred stock into common stock (3,000,000 ) (5,900 ) (12,842,112 ) (25,509 ) (16,009,845 ) (64,718 ) Issuance of shares in concurrent private placement — — — — — — Net Loss — — — — — — Balance at December 31, 2020 — $ — — $ — — $ — The accompanying notes are an integral part of these consolidated financial statements. F-5 Series B-1 Convertible Preferred Stock Series C Convertible Preferred Stock Common Stock Additional Paid in Accumulated Accumulated Other Comprehensive Consolidated Members’ and Stockholders’ Equity Shares Value Shares Value Shares Value Capital Deficit Income (Loss) (Deficit) Balance at December 31, 2018 — $ — — $ — 1,479,188 $ — $ 774 $ (35,210 ) $ — $ (34,436 ) Vesting of Series A Preferred Stock in connection with collaboration arrangement (Note 5) — — — — — — — — — — Issuance of Series B Convertible Preferred Stock, net of issuance costs of $17 — — — — — — — — — — Issuance of Series B-1 Preferred Stock, net of issuance costs of $49 3,059,695 14,025 — — — — — — — — Exercise of Stock Options — — — — 95,904 — 74 — — 74 Vesting Restricted Stock — — — — 354,424 — — — — — Stock-based compensation expense — — — — — — 1,196 — — 1,196 Unrealized gain on marketable securities — — — — — — — — 6 6 Net Loss — — — — — — — (41,246 ) — (41,246 ) Balance at December 31, 2019 3,059,695 $ 14,025 — $ — 1,929,516 $ — $ 2,044 $ (76,456 ) $ 6 $ (74,406 ) Vesting of Series A Preferred Stock in connection with collaboration arrangement (Note 5) — — — — — — — — — — Issuance of Series B Preferred Stock, net of issuance costs of $0 — — — — — — — — — — Issuance of Series C Preferred Stock, net of issuance costs of $320 — — 13,539,141 88,180 — — — — — — Exchange of Series A Convertible Preferred Stock for Series C Preferred Convertible Preferred Stock — — 1,988,802 13,000 — — (2,334 ) (6,716 ) — (9,050 ) Exercise of Stock Options — — — — 78,852 — 162 — — 162 Vesting Restricted Stock — — — — 184,410 — 112 — — 112 Stock-based compensation expense — — — — — — 5,190 — — 5,190 Unrealized loss on marketable securities — — — — — — — — (134 ) (134 ) Issuance of shares in connection with initial public offering net of underwriting discounts and offering costs of $17,003 — — — — 9,987,520 1 182,747 — — 182,748 Conversion of convertible preferred stock into common stock (3,059,695 ) (14,025 ) (15,527,943 ) (101,180 ) 31,625,534 3 211,329 — — 211,332 Issuance of shares in concurrent private placement — — — — 676,354 13,527 — — 13,527 Net Loss — — — — — — — (45,593 ) — (45,593 ) Balance at December 31, 2020 — $ — — $ — 44,482,186 $ 4 $ 412,777 $ (128,765 ) $ (128 ) $ 283,888 (Continued from previous page) The accompanying notes are an integral part of these consolidated financial statements. F-6 KYMERA THERAPEUTICS, INC. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2020 2019 Operating activities Net loss $ (45,593 ) $ (41,246 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 5,190 1,196 Depreciation and amortization 1,763 825 Non-cash research and development expense 332 443 Net amortization of premiums and discounts on investments 1,571 — Changes in operating assets and liabilities: Prepaid expenses and other assets (3,816 ) (564 ) Accounts receivable—due from related party (577 ) — Contract asset—due from related parties (856 ) — Other receivables—due from related parties — 148 Accounts payable 990 904 Accrued expenses and other current liabilities 5,754 2,248 Deferred revenue 117,400 52,991 Other non-current assets (30 ) — Operating lease right-of-use assets 8,444 1,350 Operating lease liabilities (2,647 ) (383 ) Other non-current liabilities 205 (7 ) Net cash provided by operating activities $ 88,130 $ 17,905 Investing activities Purchase of property and equipment, net (9,096 ) (532 ) Purchase of marketable securities (529,382 ) (15,954 ) Maturities of marketable securities 115,890 — Net cash used in investing activities $ (422,588 ) $ (16,486 ) Financing activities Proceeds from the issuance of Series B Convertible Preferred Stock, net of issuance costs — 21,183 Proceeds from the issuance of Series B-1 Convertible Preferred Stock, net of issuance costs 4,800 14,025 Proceeds from the issuance of Series C Convertible Preferred Stock, net of issuance costs 88,181 — Proceeds from stock option exercises 162 74 Payments on financing leases (554 ) (371 ) Proceeds from initial public offering, net of underwriting discounts and offering costs 183,146 — Proceeds from concurrent private placement 13,527 — Net cash provided by financing activities $ 289,262 $ 34,911 Net (decrease) increase in cash, cash equivalents and restricted cash (45,196 ) 36,330 Cash, cash equivalents and restricted cash at beginning of period 77,789 41,459 Cash, cash equivalents and restricted cash at end of period $ 32,593 $ 77,789 Supplemental disclosure of cash flow activities Cash paid for interest $ 115 $ 46 Supplemental disclosure of noncash investing and financing activities Purchases of property and equipment through finance and lease liabilities $ — $ 1,642 Property and equipment purchases included in accounts payable and accrued expenses $ 27 $ 315 Offering costs included in accounts payable $ 397 $ — Supplemental disclosure of noncash operating activities Right-of-use assets obtained in exchange for operating lease liabilities $ — $ 16,522 Tenant improvement receivable included in other assets $ — $ 287 Reduction of right-of-use asset and liability due to lease modification $ 2,161 $ — The accompanying notes are an integral part of these consolidated financial statements. F-7 The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of each of the periods shown above: December 31, 2020 2019 Cash and cash equivalents $ 31,004 $ 76,015 Restricted cash 1,589 1,774 Total cash, cash equivalents, and restricted cash $ 32,593 $ 77,789 F-8 KYMERA THERAPEUTICS, INC Notes to Consolidated Financial Statements Note 1. Description of Business and Summary of Significant Accounting Policies Kymera Therapeutics, Inc., together with its subsidiary Kymera Securities Corporation, is referred to on a consolidated basis as the “Company”. The Company is a biopharmaceutical company focused on discovering and developing small molecule therapeutics that selectively degrade disease-causing proteins by harnessing the body’s own natural cellular process, a method known as targeted protein degradation. The Company has devoted its efforts principally to research and development since formation. The Company has not yet completed product development, filed for or obtained regulatory approvals for any products, nor verified the market acceptance and demand for such products. As a result, the Company is subject to a number of risks common to emerging companies in the biotech industry. Principal among these risks are the uncertainties of the product discovery and development process, dependence on key individuals, development of the same or similar technological innovations by the Company’s competitors, protection of proprietary technology, compliance with government regulations and approval requirements, the Company’s ability to access capital and uncertainty of market acceptance of products. The Company has historical net losses and anticipates that it will continue to incur losses for the foreseeable future and had an accumulated deficit of $128.8 million as of December 31, 2020. The Company has funded these losses principally through issuance common stock, including its initial public offering (“IPO), which was completed in August 2020, preferred stock, convertible notes and from cash proceeds received in connection with the Company’s collaboration agreements with Vertex Pharmaceuticals Incorporated (“Vertex”) and Genzyme Corporation (“Sanofi”) (see Note 5). The Company expects to continue to incur operating losses and negative cash flows until such time as it generates a level of revenue that is sufficient to support its cost structure. As of December 31, 2020, the Company had cash, cash equivalents and marketable securities of $458.7 million. The Company believes these cash, cash equivalents and marketable securities will be sufficient to fund its operations and capital expenditure requirements through at least twelve months from the issuance of these consolidated financial statements. The Company expects to finance the future research and development costs of its product portfolio with its existing cash, cash equivalents and marketable securities, or through strategic financing opportunities that could include, but are not limited to future offerings of its equity, collaboration agreements, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or realized on favorable terms, if at all, and some could be dilutive to existing stockholders. If the Company fails to obtain additional future capital, it may be unable to complete its planned preclinical studies and clinical trials. Reverse Stock Split On August 20, 2020, the Board approved a 1-for-1.5949 reverse stock split of the Company’s issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each of the Company’s outstanding series of preferred stock. All share and per share amounts in the accompanying consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital. Initial Public Offering On August 20, 2020, the Company’s registration statement on Form S-1 relating to its initial public offering of its common stock was declared effective by the Securities and Exchange Commission (“SEC”). In the IPO, which closed on August 25, 2020, the Company issued and sold 9,987,520 shares of common stock, including full exercise of the underwriters’ over-allotment option to purchase an additional 1,302,720 shares, at a public offering price of $20.00 per share and the aggregate gross proceeds before deducting before deducting underwriting discounts and commissions, and other estimated offering expenses payable by the Company, were approximately $199.8 million. Concurrent with the IPO, the Company issued and sold 676,354 shares of common stock at $20.00 per share in a private placement to Vertex. Note 2. Summary of Significant Accounting Policies The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described in this note, and elsewhere in the accompanying consolidated financial statements and notes. F-9 Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Kymera Securities Corporation. All intercompany transactions and balances have been eliminated in consolidation. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of expenses during the reporting period. Management’s estimates and judgments are derived and continually evaluated based on available information, historical experience and various other assumptions that are believed to be reasonable under the circumstances. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates. In recording transactions and balances resulting from business operations, management makes estimates based on the best information available at the time the estimate is made. Significant estimates relied upon in preparing these financial statements include revenue recognized under our collaboration agreement with Sanofi and Vertex, accrual for research and development expenses, equity-based compensation expense, and the valuation of equity. As better information becomes available or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior estimates. Segment and Geographic Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company views its operations and manages its business in one operating segment. Cash and Cash Equivalents Cash equivalents are highly liquid investments that are readily convertible into cash with original maturities of three months or less when purchased. These assets include investments in money market funds that invest in U.S. Treasury obligations and corporate bonds. The Company maintains its bank accounts at major financial institutions. Restricted Cash Restricted cash represents the cash held to secure a letter of credit associated with the Company’s facility lease. Marketable Securities The Company classifies marketable securities with a remaining maturity of greater than three months when purchased as available-for-sale. The Company classifies investments available to fund current operations as current assets on its balance sheets. Marketable securities with a remaining maturity date greater than one year are classified as non-current. Available-for-sale securities are maintained by investment managers and consist of U.S. Treasury securities and corporate bonds. Available-for-sale securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other (expense) income, net. If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a charge to the Company’s statement of operations and comprehensive loss. F-10 Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: Level 1— Quoted prices in active markets for identical assets Level 2— Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar asset, or other inputs that are observable or can be corroborated by observable market data. Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets, including pricing models, discounted cash flow methodologies and similar techniques. The carrying values of the Company’s cash equivalents, prepaid expenses, accounts payable, and certain accruals approximate their fair value due to their short-term nature. Leases The Company adopted ASC Topic 842, Leases (“ASC 842”) on January 1, 2019. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases that are economically similar to the purchase of assets are generally classified as finance leases; otherwise the leases are classified as operating leases. The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as incentives received. The Company has elected as an accounting policy to combine lease and non- lease components, such as common area maintenance, for all classes of underlying assets. The interest rate implicit in lease contracts has not historically been readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. To estimate its incremental borrowing rate, a credit rating applicable to the Company is estimated using synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating. Property and Equipment Property and equipment are recorded at cost, net of accumulated depreciation. Major additions and betterments are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets, are charged to operations as incurred. Depreciation expense is recorded using the straight-line method over the estimated useful life of the related asset as follows: Estimated Useful Life (in years) Lab equipment 5 years Furnitures and fixtures 5 years Office equipment 5 years Computer equipment 3 years Leasehold improvements Shorter of life of lease or remaining lease term Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in loss from operations. F-11 Construction-in-progress is stated at cost, which includes direct costs attributable to the setup or construction of the related asset. Depreciation expense is not recorded on construction-in-progress until the relevant assets are completed and put into use. Impairment of Long-Lived Assets Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the years ended December 31, 2020 and 2019. Convertible Preferred Stock The Company classified convertible preferred stock as temporary equity in the accompanying consolidated balance sheet due to terms that allow for redemption of the shares in cash upon certain change in control events that are outside of the Company’s control, including the sale or transfer of the Company as holders of the convertible preferred stock which could trigger redemption of the shares. The Company did not accrete the value of the convertible preferred stock to the redemption values since a liquidation event was not considered probable as of December 31, 2019. Subsequent adjustments of the carrying values to the ultimate redemption values will be made only when it becomes probable that such liquidation events will occur. In connection with the Company’s initial public offering on August 21, 2020, all outstanding shares of convertible preferred stock converted to common stock. Research and Development Costs Research and development costs consist primarily of costs incurred in connection with the discovery and development of targeted protein degradation therapeutics, including those in the Company’s most advanced development programs, IRAK4, IRAKIMiD and STAT3. These research efforts and costs, which also support the development of, and enhancements to, the Company’s Pegasus targeted protein degradation platform, include external research costs, personnel costs, supplies, license fees and facility related expenses. The Company expenses research and development costs as incurred. Patent Costs All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recoverability of the expenditure. Amounts incurred are classified as general and administrative expenses. Financing Costs Costs incurred in connection with the issuance of equity units and shares are recorded as a reduction of proceeds to the equity carrying value. The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process financings as deferred offering costs until such financings are consummated. After consummation of the financing, these costs are recorded as a reduction of the proceeds received from the financing. If a planned financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the consolidated statement of operations and comprehensive loss. There was $0.4 million of deferred financing costs included in accounts payable on the Company’s consolidated balance sheet as of December 31, 2020. There was no deferred offering costs on the Company’s consolidated balance sheet at December 31, 2019. F-12 Revenue Recognition The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2017. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the contract(s) with the customer; (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations; (iii) measurement of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. As part of the accounting for these arrangements, the Company must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. In determining the stand-alone selling price of a license to the Company’s proprietary technology or a material right provided by a customer option, the Company considers market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements as well as internally developed estimates that include assumptions related to the market opportunity, estimated development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating its estimated stand-alone selling prices, the Company evaluates whether changes in the key assumptions used to determine its estimated stand-alone selling prices will have a significant effect on the allocation of arrangement consideration between performance obligations. The Company estimates the transaction price based on the amount of consideration the Company expects to be received for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of the potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate the transaction price based on which method better predicts the amount of consideration expected to be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation in order to determine whether the combined performance obligation is satisfied over time or at a point in time. The Company receives payments from customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. Amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets. F-13 Exclusive Licenses —If the license granted in the arrangement is determined to be distinct from the other promises or performance obligations identified in the arrangement, which generally include research and development services, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a license is distinct from the other promises, the Company considers relevant facts and circumstances of each arrangement, including the research and development capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can benefit from the license for its intended purpose without the receipt of the remaining promise, whether the value of the license is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the arrangement. Research and Development Services —The promises under the Company’s collaboration and license agreements generally include research and development services to be performed by the Company on behalf of the collaboration partner. For performance obligations that include research and development services, the Company generally recognizes revenue allocated to such performance obligations based on an appropriate measure of progress. The Company utilizes judgment to determine the appropriate method of measuring progress for purposes of recognizing revenue, which is generally an input measure, such as costs incurred. The Company evaluates the measure of progress each reporting period as described under Exclusive Licenses above. Reimbursements from the partner that are the result of a collaborative relationship with the partner, instead of a customer relationship, such as co-development activities, are generally recorded as a reduction to research and development expense. Customer Options —The Company’s arrangements may provide a collaborator with the right to certain optional purchases, such as the right to license a target either at the inception of the arrangement or within a pre-defined option period. Under these agreements, fees may be due to the Company at the inception of the arrangement as an upfront fee or payment or upon the exercise of an option to acquire a license. If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the inception of the arrangement. The Company allocates the transaction price to material rights based on the relative stand-alone selling price, which is determined based on the identified discount, and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or expires. Milestone Payments —At the inception of each arrangement that includes milestone payments based on certain events, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. If a milestone or other variable consideration relates specifically to the Company’s efforts to satisfy a single performance obligation or to a specific outcome from satisfying the performance obligation, the Company generally allocates the milestone amount entirely to that performance obligation once it is probable that a significant revenue reversal would not occur. Royalties —For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements. F-14 Collaboration revenue— The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of Topic 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606. For those elements of the arrangement that are accounted for pursuant to Topic 606, the Company applies the five-step model described above. Costs associated with License and Collaborative Arrangements Costs associated with licenses of technology acquired as part of collaborative arrangements are expensed as incurred and are generally included in research and development expense in the consolidated statements of operations. Stock-Based Compensation The Company accounts for all stock-based awards granted to employees, directors, and nonemployees based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. Stock-based payments include stock options and grants of common stock, including common stock subject to vesting. The measurement date for stock awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. The Company has issued stock options and restricted stock with performance-based vesting conditions and records the expense for these awards if the Company concludes that it is probable that the performance condition will be achieved. Stock-based compensation is classified in the accompanying consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. The Company recognizes stock-based compensation expense for the portion of awards that have vested. Forfeitures are accounted for as they occur. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes options-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield. Prior to the IPO, as there was no active market for the Company’s common stock, the Company estimated the fair value of common stock on the date of grant based on the then current facts and circumstances. Upon becoming a public company, the fair value of the underlying common shares equals the closing price of the Company’s stock on the date of grant. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of guideline companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of the Company’s common stock on that same date. Compensation expense for discounted purchases under the employee stock purchase plan is measured using the Black-Scholes model to compute the fair value of the lookback provision plus the purchase discount and is recognized as compensation expense over the offering period. Common and Preferred Stock Valuation The Company utilized significant estimates and assumptions in determining the fair value of its equity and equity-based awards. The Company utilized various valuation methodologies in accordance with the framework of the 2013 American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its equity awards. The Company used a hybrid of the probability-weighted expected returns method (“PWERM”), and the option pricing method (“OPM”) when allocating enterprise value to classes of securities. F-15 Under the probability-weighted expected return method, or PWERM, the value of an enterprise, and its underlying common securities, are estimated based on an analysis of future values for the enterprise, assuming various outcomes. The value of the common securities is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes and the rights of each class of equity. The future values of the common securities under the various outcomes are discounted back to the valuation date at an appropriate risk-adjusted discount rate and then probability weighted to determine the value for the common securities. The option pricing method, or OPM, treats common securities and preferred securities as call options on the enterprise’s equity value, with exercise prices based on the liquidation preferences of the preferred securities. Under this method, the common securities have value only if the funds available for distribution to shareholders exceed the value of the liquidation preferences at the time of a liquidity event. The Black-Scholes model is used to price the call option, and the model includes assumptions for the time to liquidity and the volatility of equity value. The hybrid method is a hybrid between the PWERM and OPM, estimating the probability-weighted value across multiple scenarios but using the OPM to estimate the allocation of value within one or more of those scenarios. Valuations performed in the year ended December 31, 2020 and 2019, used a hybrid of the PWERM and OPM when allocating the Company’s enterprise value to classes of securities. When using the hybrid method, the Company assumed two scenarios: an IPO scenario and a trade-sale scenario. The IPO scenario estimated an equity value based on the guideline public company method under a market approach. The guideline public companies considered for this scenario consist of biopharmaceutical companies with recently completed initial public offerings. The Company converted its estimated future value in an IPO to present value using a risk-adjusted discount rate. The equity value for the trade-sale scenario was estimated using the price of a recently issued preferred security, as well as a milestone-based tranche closing. The Company utilized an option pricing model to quantify or attribute value to these economic rights of convertible preferred stock vs. the common stock (e.g. liquidation preferences, dividend provisions, participation rights after liquidation preferences.) In the OPM, volatility is estimated based on the trading histories of selected guideline public companies. The relative probability of each scenario was determined based on an assessment of then-current market conditions and the Company’s expectations as to timing and prospects of an IPO. Each valuation methodology includes estimates and assumptions that require significant judgment. These estimates and assumptions include a number of objective and subjective factors, including the prices at which shares were traded between holders of the Company, external market conditions, the prices at which the Company sold convertible preferred shares, the superior rights and preferences of securities senior to common shares at the time, and the likelihood of achieving a voluntary or involuntary liquidity event. Significant changes to the key assumptions used in the valuations could result in different fair values of common shares at each valuation date, as applicable. Income Taxes Income taxes for Kymera Therapeutics, Inc. are recorded in accordance with FASB Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. Under this method, deferred income tax assets and liabilities are recognized based on future income tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities, and their respective income tax basis. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in income tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that a valuation allowance for any income tax benefits of which future realization is not more likely than not. The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions. The tax benefits recorded are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is “more likely than not” to be realized following resolution of any uncertainty related to the tax benefit, assuming that the matter in question will be raised by the tax authorities. F-16 Off Balance Sheet Risk and Concentration of Credit Risk The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and restricted cash. The Company’s cash, cash equivalents, and restricted cash are deposited in accounts at large financial institutions. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash, cash equivalents and restricted cash are held. The Company maintains its cash equivalents in money market funds that invest in U.S. Treasury securities and U.S. Treasury obligations and corporate bonds. The Company’s marketable securities primarily consist of corporate bonds and U.S. Treasury securities paper, and potentially subject the Company to concentrations of credit risk. The Company has adopted an investment policy that limits the amounts the Company may invest in any one type of investment. The Company has not experienced any credit losses and does not believe it is exposed to any significant credit risk on these funds. Comprehensive Loss Comprehensive loss includes net loss as well as unrealized gains on marketable securities and other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. Net Loss Per Share The Company applies the two-class method to compute basic and diluted net income (loss) per share attributable to common stockholders when it has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all income (loss) for the period had been distributed. The Company’s convertible preferred stock participates in any dividends declared by the Company and are therefore considered to be participating securities. The participating securities are not required to participate in the losses of the Company, and therefore during periods of loss there is no allocation required under the two-class method. Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) per share attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding options to purchase common stock, unvested restricted stock awards, and shares of convertible preferred stock are considered potential dilutive common shares. The Company has generated a net loss in all periods presented, and therefore the basic and diluted net loss per share attributable to common stockholders are the same as the inclusion of the potentially dilutive securities would be anti-dilutive. Emerging Growth Company Status The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use this exemption to delay adopting new or revised. Recent Accounting Pronouncements Recently Adopted Accounting Standards In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments . This update provides clarifications for three topics related to financial instruments accounting, some of which apply to the Company. The Company adopted as of January 1, 2020 and it did not have a significant impact on its financial position or results of operation F-17 In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . The new standard will align the requirements for capitalizing implementation costs for hosting arrangements (services) with costs for internal-use software (assets). As a result, certain implementation costs incurred in hosting arrangements will be deferred and amortized. The Company adopted as of January 1, 2020 and it did not have a significant impact on its financial position or results of operation. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new standard will be effective beginning January 1, 2020. The Company adopted as of January 1, 2020 and it did not have a significant impact on its financial position or results of operation. Recently Issued Accounting Standards Not Yet Adopted In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard will be effective beginning January 1, 2021. The Company is currently evaluating the potential impact ASU 2019-12 may have on its financial position and results of operations upon adoption. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements . The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. As an emerging growth company, the Company expects to delay adoption until January 1, 2023 and is evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements. Note 3. Fair Value Measurements The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of December 31, 2020 and December 31, 2019 (in thousands): Fair Value Measurements at December 31, 2020: Level 1 Level 2 Level 3 Total Assets: Cash equivalents Money market fund $ 19,943 $ — $ — $ 19,943 Corporate bonds — 10,499 — 10,499 Marketable securities, current US treasuries 192,275 — — 192,275 Corporate bonds — 72,923 — 72,923 Marketable securities, non-current US treasuries 132,589 — — 132,589 Corporate bonds — 29,942 — 29,942 Restricted cash 1,589 — — 1,589 Total $ 346,396 $ 113,364 $ — $ 459,760 Fair Value Measurements at December 31, 2019: Level 1 Level 2 Level 3 Total Assets: Marketable securities $ 15,942 $ — $ — $ 15,942 Restricted cash 1,774 — — 1,774 Total $ 17,716 $ — $ — $ 17,716 F-18 During the years ended December 31, 2020 and 2019, there were no transfers between Level 1, Level 2 and Level 3. Note 4. Marketable Securities The following table summarizes the available-for-sale debt securities held at December 31, 2020 and 2019 and (in thousands): Description Amortized Cost Unrealized Gains Unrealized Losses Fair Value December 31, 2020 U.S. treasury securities $ 324,917 $ — $ (53 ) $ 324,864 Corporate securities 102,946 — (81 ) 102,865 Total $ 427,863 $ — $ (134 ) $ 427,729 Description Amortized Cost Unrealized Gains Unrealized Losses Fair Value December 31, 2019 U.S. treasury securities $ 15,936 $ 6 $ — $ 15,942 Total $ 15,936 $ 6 $ — $ 15,942 As of December 31, 2020, the Company held 65 securities that had been in an unrealized loss position for less than 12 months with an aggregate fair value of $392.2 million. As of December 31, 2019, the Company did not hold any securities that were in an unrealized loss position. As of December 31, 2020, the Company had 48 securities with a fair value of $295.6 million with a contractual maturity of less than 12 months and 25 securities with a fair value of $162.5 million with a contractual maturity of greater than 12 months. As of December 31, 2019, all of the Company’s marketable securities had remaining contractual maturity dates of less than one year from the consolidated balance sheet date. During the year ending December 31, 2020, the Company sold one security prior maturity which resulted in an immaterial realized gain on the sale. There were no sales of marketable securities during the year ended December 31, 2019. The Company evaluates securities for other-than-temporary impairments based on quantitative and qualitative factors, and considered the decline in market value for the 65 securities in an unrealized loss position as of December 31 , 2020, to be primarily attributable to the then current economic and market conditions. The Company neither intends to sell these investments nor concludes that it is more-likely-than-not that the Company will have to sell them before recovery of their carrying values. The Company also believe that it will be able to collect both principal and interest amounts due to it at maturity. Note 5. Collaborations Sanofi Collaboration Arrangement Agreement Terms On July 7, 2020, the Company entered into a collaboration agreement, or the Sanofi Agreement, with Sanofi, to co-develop drug candidates directed to two biological targets. Under the Sanofi Agreement, the Company granted to Sanofi a worldwide exclusive license to develop, manufacture and commercialize certain lead compounds generated during the collaboration directed against IRAK4, or Collaboration Target 1, and one additional undisclosed target in an undisclosed field of use, or Collaboration Target 2. Such license is exercisable on a collaboration target-by-collaboration target basis only after specified milestones. For compounds directed against IRAK4, the field of use includes diagnosis, treatment, cure, mitigation or prevention of any diseases, disorders or conditions, excluding oncology and immune-oncology. Pursuant to the Sanofi Agreement, the Company is responsible for discovery and preclinical research and conducting a Phase 1 clinical trial for at least one degrader directed against IRAK4 plus up to three backup degraders. With respect to both targets, Sanofi is responsible for development, manufacturing, and commercialization of product candidates after a specified development milestone occurs with respect to each collaboration candidate. F-19 In addition, pursuant to the Sanofi Agreement, Sanofi will grant to the Company an exclusive option, or Opt-In Right, exercisable on a collaboration target-by-collaboration target basis that will include the right to ( i ) to fund 50% of the United States development costs for collaboration products directed against such target in the applicable field of use and (ii) share equally in the net profits and net losses of commercializing collaboration products directed against such target in the applicable field of use in the United States. In addition, if the Company exercises the Opt-In Right, Sanofi will grant to the Company an exclusive option, applicable to each collaboration target, which upon exercise will allow the Company to conduct certain co-promotion activities in the field in the United States. The Sanofi Agreement, unless earlier terminated, will expire on a product-by-product basis on the date of expiration of all payment obligations under the Sanofi Agreement with respect to such product. The Company or Sanofi may terminate the agreement upon the other party’s material breach or insolvency or for certain patent challenges. In addition, Sanofi may terminate the agreement for convenience or for a material safety event upon advance prior written notice, and the Company may terminate the agreement with respect to any collaboration candidate if, following Sanofi’s assumption of responsibility for the development, commercialization or manufacturing of collaboration candidates with respect to a particular target, Sanofi ceases to exploit any collaboration candidates directed to such target for a specified period. In consideration for the exclusive licenses granted to Sanofi under the Sanofi Agreement, Sanofi paid to the Company an upfront payment of $150.0 million. The Company will also be reimbursed for certain research activities for a certain backup degrader under the IRAK4 program, unless certain criteria are not met for an initial IRAK4 degrader. In addition to the upfront payment and the reimbursements, the Company is eligible to receive certain development milestone payments of up to $1.48 billion in the aggregate, of which more than $1.0 billion relates to the IRAK4 program, upon the achievement of certain developmental or regulatory events. The Company will be eligible to receive certain commercial milestone payments up to $700.0 million in the aggregate, of which $400 million relates to the IRAK4 program, which are payable upon the achievement of certain net sales thresholds. The Company will be eligible to receive tiered royalties for each program on net sales ranging from the high single digits to high teens, subject to low-single digits upward adjustments in certain circumstances. Accounting Treatment The Company analyzed the discovery and pre-clinical research activities as well as the exclusive license grants under the Sanofi Agreement and concluded that the arrangement was indicative of a vendor-customer relationship and would be accounted for under ASC 606. The Company identified the following material promises under the arrangement: (1) research services for Collaboration Target 1, (2) research license for Collaboration Target 1, (3) exclusive license for Collaboration Target 1, (4) research services for Collaboration Target 2, (5) research license for Collaboration Target 2, (6) exclusive license for Collaboration Target 2, (7) option to extend the research term, and (8) optional research services during the development period. The Company determined that Collaboration Targets 1 and 2 are distinct from each other. The research associated with degraders directed to each target is at different stages and the licensed field, should development activities be successful, are different from each other. As such, all promises associated with each target are considered distinct from promises associated with the other target. The research and development services for each collaboration target were determined not to be distinct from the research license and the exclusive license and have been combined into a single performance obligation for each collaboration target. That is, two performance obligations were identified, the combined research services, research license and exclusive license for Collaboration Target 1 and the combined research services, research license and exclusive license for Collaboration Target 2. The exclusive license for each target is not distinct from the pre-clinical and clinical research and development services under the Sanofi Agreement, primarily due to the highly specialized nature of the research and novel technology involved with developing protein degraders – the pre-clinical activities and studies and first phase 1 clinical trial could not be conducted by another party in the manner required. The option to extend the research term and optional research services during the development period were evaluated as material rights. The fees associated with each option are at or above the standalone selling price. As such, the underlying options are not performance obligations and fees associated with each option are excluded from the transaction price until the underlying option is exercised. F-20 The Company determined the total transaction price to be $ 150.0 million, which consists solely of the upfront payment. All milestones payments and option payments are constrained as the achievement of such milestones are contingent upon the success of the underlying research and development activities and are generally outside the control of the Company. The reimbursement of costs for the IRAK4 backup degrader is also treated as constrained variable consideration as the criteria for reimbursement may not always be met, under which circumstances the Company would be responsible for the costs related to the backup degrader. Upon becoming unconstrained, the reimbursement consideration will be added to the transaction price and allocated to Collaboration Target 1. The Company allocated the upfront payment to each performance obligation based on the relative standalone selling price, as follows: • Collaboration Target 1: $120.0 million • Collaboration Target 2: $30.0 million The Company determined the allocation of the $150.0 million transaction price between Collaboration Target 1 and Collaboration Target 2 based on the value of the research and development for the programs from projected research and development costs for each collaboration target plus a developer’s profit and the total potential milestones for each collaboration target. The Company recognizes revenue associated with each performance obligation as the research and development services are provided using an input method, according to costs incurred as related to the research and development activities for each individual program and the costs expected to be incurred in the future to satisfy that individual performance obligation. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying each performance obligation. The amounts received that have not yet been recognized as revenue are deferred as a contract liability on the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied. Reimbursement consideration added to the transaction price will be recognized as revenue on the same pattern as Collaboration Target 1, with a cumulative catch-up upon becoming unconstrained. The performance obligation has not been fully satisfied as of December 31, 2020. During the year ended December 31, 2020, the Company recognized $18.8 million in revenue under the Sanofi Agreement, of which $16.7 million was associated with Collaboration Target 1 and $2.1 million was associated with Collaboration Target 2. The aggregate amount of the transaction price allocated to the Company’s unsatisfied performance obligations and recorded in deferred revenue at December 31, 2020 is $132.6 million. As of December 31, 2020, the Company had not received cost reimbursement payments, and no milestone or royalty payments under the Sanofi Agreement. As of December 31, 2020, the Company recorded unbilled accounts receivable of $0.9 million related to reimbursable research and development costs under the Sanofi Agreement for activities performed during the three months ended December 31, 2020 and $0.6 million in accounts receivable for amounts billed under the Sanofi Agreement as of December 31, 2020. The Company will recognize the deferred revenue related to the performance obligations based on a cost input method, as described, over the remaining research term, which is a maximum of three years as of December 31, 2020. Any consideration related to performance-based milestones will be recognized when the risk of probable reversal is resolved, at which point the Company shall adjust the transaction price determined for the agreement accordingly and recognize revenue on a cumulative-catch up basis, reallocating the revised arrangement consideration to the performance obligations. Any consideration related to sales milestone payments and royalties will be recognized when the related milestone events or sales occur and therefore are recognized at the later of when the related sales occur or the relevant performance obligation is satisfied. As part of its evaluation of constraining the milestones, the Company considered numerous factors, including the fact that the achievement of the research and development milestones are contingent upon the results of the underlying research and development activities and are thus outside of the control of the Company. Sanofi participated in the Company’s Series B Convertible Preferred Stock offering and as a result of this, is considered a related party. Vertex Agreement On May 9, 2019 (the “Effective Date”), the Company entered into a collaboration agreement (the “Vertex Agreement”) with Vertex to advance small molecule protein degraders against up to six targets. Under the Vertex Agreement, Vertex has the exclusive option to license the rights to the product candidates developed for the designated targets at which point Vertex will control development and commercialization. Pursuant to the Vertex Agreement, the Company is only responsible for discovery and preclinical research on the targets, and Vertex is responsible for development, manufacturing, and commercialization of the product candidates after it exercises its option to license. The initial research term of the collaboration is four (4) years, extendable for an additional one (1) year period upon mutual agreement by the parties and payment by Vertex of certain per-target fees. F-21 Vertex provided the Company with a non-refundable upfront payment of $ 50.0 million and purchased 3,059,695 shares of the Company’s Series B-1 Convertible Preferred Stock (“Series B-1”) at $ 6.54 a share, pursuant to a separate, but simultaneously executed Share Purchase Agreement. The shares were purchased at a premium of $ 5.9 million, which was included in the transaction price and will be recognized as revenue over the period of performance. As a result of this purchase, Vertex is considered a related party. The Company is eligible to receive up to $170.0 million in payments per target, including development, regulatory and commercial milestones as well as option exercise payments. In addition, Vertex is obligated to pay the Company tiered royalties on future net sales on any products that may result from the Vertex Agreement. None of the payments under the Vertex Agreement are refundable. The Company may also perform follow-on research for an optioned target upon Vertex’s request and at Vertex’s expense. The term of the Vertex Agreement began on the Effective Date and expires upon the expiration of all payment obligations from Vertex to Company under the Vertex Agreement or, if Vertex does not exercise any of its options, the lapse of all Vertex’s option rights under the Vertex Agreement. Vertex also has the ability to terminate for convenience with prior written notice to the Company, and either party may terminate for an uncured material breach. Accounting Treatment The Company analyzed the joint research activities required under the Vertex Agreement and concluded that the arrangement was indicative of a vendor-customer relationship and would be accounted for under ASC 606. The Company identified the following material promises under the arrangement: (1) the non-exclusive, royalty-free research license; and (2) the research and development services to be performed on up to six targets; and (3) the option to license each of the targets for development, manufacturing, and commercialization efforts. The research and development services were determined not to be distinct from the research and development license and have been combined into a single performance obligation. The Company determined that the option to license the targets in the future was not priced at a discount, and that the option exercise fee for each target is at or above the standalone selling price for research at this stage of development; as such, the options and the underlying licenses are excluded from the performance obligation and the option exercise fees are excluded from the transaction price until the underlying option is exercised. As part of its evaluation of constraining the research and development milestones, the Company considered numerous factors, including the fact that the achievement of the research and development milestones are contingent upon the results of the underlying research and development activities and are thus outside of the control of the Company. At the commencement of the arrangement, two units of accounting were identified, the issuance of 3,059,695 shares of the Company’s Series B-1 Convertible Preferred Stock and the research activities the Company will perform over the Research Term. The Company determined the total transaction price to be $55.9 million, which consists of $5.9 million attributed to the premium from the Series B-1 shares sold to Vertex and the $50.0 million upfront payment. To determine the fair value of the Series B-1 issued to Vertex, the Company performed a valuation of the shares of the Company’s common and preferred stock, which took into consideration recent financings, and the Company’s recent development and future exit strategies, as well as a discount for lack of marketability. The Company recognizes revenue associated with the performance obligation as the research and development services are provided using an input method, according to the costs incurred as related to the research and development activities on each program and the costs expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The amounts received that have not yet been recognized as revenue are deferred as a contract liability on the Company’s consolidated balance sheet and will be recognized over the remaining research and development period until the performance obligation is satisfied. The performance obligation has not been fully satisfied as of December 31, 2020. During the years ended December 31, 2020 and 2019, the Company recognized $15.2 million and $2.9 million in revenue under the Vertex Agreement. All $15.2 million revenue recognized during the year ended December 31, 2020 was recognized from amounts that were recorded in deferred revenue as of December 31, 2019. The aggregate amount of the transaction price allocated to the Company’s unsatisfied performance obligation and recorded in deferred revenue at December 31, 2020 and 2019 is $37.7 million and $53.0 million, respectively. The Company will recognize the deferred revenue related to the research and development services based on a cost input method, over the remaining research term, which is a maximum of 2.0 years as of December 31, 2020. F-22 Any consideration related to sales milestone payments (including royalties) will be recognized when the related milestone events or sales occur and therefore are recognized at the later of when the related sales occur or the relevant performance obligation is satisfied. Compound Collaboration In October 2017, the Company entered into a collaboration agreement (the “Collaboration”) with a pharmaceutical company to jointly identify, research and conduct preclinical development of collaboration compounds against specified collaboration targets to identify drug candidates. Under the terms of the Collaboration, both parties provided one another with a non-exclusive, royalty-free, sub-licensable research and development license to each party’s intellectual property to develop five agreed-upon collaboration targets, as well as an exclusive, royalty-bearing development and commercialization license to sell any licensed products that stem from such research. The parties also have the ability to nominate additional collaboration targets if agreed-upon, as long as there are no more than five targets at any given time. In exchange for the non-exclusive license rights, the Company provided the pharmaceutical company with an equity grant and is required to make tiered royalty payments based on net sales of all products licensed under the agreement in the low single-digit percentages. In conjunction with the Collaboration, the Company initially issued 886,305 Series A Preferred Units (“Series A Preferred Units”) to the pharmaceutical company. On November 1, 2018, these Series A Preferred Units were exchanged on a one-for-one basis for shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”). These shares vest in equal installments over three years. The Company is recording expense over the remaining vesting period based on the fair value of the shares under the Collaboration. The Company recorded $0.3 million and $0.4 million to research and development expense related to the vesting of 166,183 and 221,579 shares of Series A Preferred Stock during the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, all shares under the Collaboration were fully vested and all expense had been recognized. The royalty payments are contingent and as such are not being recorded until incurred. The Company determined that the license is representative of an in-process research and development asset, with no future alternative use. As such, the Company records the expense related to the vesting of shares as research and development expense in the Company’s consolidated statements of operations and comprehensive loss. The Collaboration can be terminated by either party for convenience with 60-days written notice and may also be terminated in the event of a material breach. The following table presents the changes in accounts receivable, contract assets and liabilities for the year ended December 31, 2020 (in thousands) Balance at December 31, 2019 Additions Deductions Balance at December 31, 2020 Accounts receivable and contract assets: Billed receivables – Sanofi $ — $ 150,577 $ (150,000 ) $ 577 Unbilled receivables – Sanofi — 1,433 (577 ) 856 Total accounts receivable and contract assets $ — $ 152,010 $ (150,577 ) $ 1,433 Contract Liabilities: Deferred Revenue – Vertex $ 52,991 $ — $ (15,243 ) $ 37,748 Deferred Revenue – Sanofi — 151,433 (18,791 ) 132,642 Total contract liabilities $ 52,991 $ 151,433 $ (34,034 ) $ 170,390 F-23 Note 6. Property and equipment Property and equipment consist of the following as of December 31, 2020 and 2019 (in thousands): December 31, 2020 December 31, 2019 Lab and office equipment under and financing right-of-use asset $ 2,771 $ 2,751 Lab equipment 1,636 919 Computer equipment 89 71 Furniture & fixtures 861 104 Leasehold improvements 7,599 545 Assets not yet in service 32 453 Total property and equipment 12,988 4,843 Less accumulated depreciation (2,147 ) (1,049 ) Property and equipment, net $ 10,841 $ 3,794 Depreciation expense for the years ended December 31, 2020 and 2019 was $1.8 million and $0.9 million, respectively. Included in property and equipment is lab and office equipment right-of-use assets under financing leases with a cost basis of $2.8 million and accumulated amortization expense of $1.2 million and $0.5 million as of December 31, 2020 and 2019. Amortization expense related to right-of-use assets was $0.7 million and $0.4 million the years ended December 31, 2020 and 2019 and is included in depreciation expense. Note 7. Leases In February 2018, the Company entered into a noncancelable facility lease agreement (the “Lease”) for 9,836 square feet of research and development and office space in Cambridge, Massachusetts. In March 2020, the Company signed a termination agreement for this lease which was determined to be a lease modification that resulted in a reduction of the right-of-use asset and liability of $2.2 million. The lease termination was effective July 31, 2020 and the Company no longer has any obligations under the Lease. In accordance with the lease agreement, the Company was required to maintain a security deposit and provided a letter of credit to the landlord for $0.2 million, which was recorded in other assets as of December 31, 2019. In October 2020, the Company was released from the security deposit and letter of credit and collected the $0.2 million previously classified in other current assets. In April 2019, the Company entered into a facility sublease agreement (the “Sublease”) for 1,471 square feet of office space in Cambridge, Massachusetts. The term of the lease began on June 24, 2019 and terminated on June 30, 2020, and following termination, the Company had no further obligations under the Sublease. The Sublease required the Company to share in prorated operating expenses and property taxes based upon actual amounts incurred; those amounts were considered variable lease costs and, therefore, are not included in the measurement of the lease and are instead recognized to expense as incurred. In October 2019, the Company entered into a noncancelable facility lease agreement (the “New Lease”) for 34,522 square feet of research and development and office space in Watertown, Massachusetts. The term of the New Lease is 120 months and expires on March 31, 2030. The New Lease has an option to be extended for an additional five years. The lease is not reasonably certain to be extended and as such the additional term is not included in the measurement of the lease. The New Lease includes a rent escalation clause, and rent expense is being recorded on a straight-line basis. The Company received a tenant incentive allowance of $5.5 million in 2020 as the tenant improvements were completed all of which has been collected from its landlord as of December 31, 2020. In accordance with the lease agreement, the Company is required to maintain a security deposit and provided a letter of credit to the landlord for $1.6 million, which is recorded in other assets as of December 31, 2020. The Company’s financing lease obligations consist of certain property and equipment financed through capital leases. F-24 The components of the lease costs for the years ended December 31, 2020 and 2019 (in thousands): Year ended December 31, 2020 2019 Operating lease costs $ 2,719 $ 1,597 Financing lease costs: Amortization of right-to-use assets, financing leases 716 385 Interest expense for financing lease liabilities 121 46 Variable lease costs 621 340 Total lease costs $ 4,177 $ 2,368 Supplemental cash flow information relating to the Company’s leases for the years ended December 31, 2020 and 2019 was as follows (in thousands): Year ended December 31, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used in (provided by) operating leases $ (3,024 ) $ 635 Operating cash flows used in finance leases $ 587 $ 46 Financing cash flows used in finance leases $ 121 $ 385 Weighted average remaining lease terms and discount rates as of December 31, 2020 and 2019 were as follows: Year ended December 31, 2020 2019 Remaining lease term: Operating lease 9.3 9.3 Financing lease 2.8 Years 3.7 Years Discount Rate: Operating lease 10.5 % 10.3 % Financing lease 8.0 % 7.8 % The undiscounted future lease payments for operating and finance leases as of December 31, 2020, were as follows (in thousands): Fiscal Year Operating Leases Financing Leases 2021 2,691 712 2022 2,581 459 2023 2,659 245 2024 2,732 — 2025 2,814 — Thereafter 12,925 — Total minimum lease payments 26,402 1,416 Less amounts representing interest or imputed interest (9,702 ) (123 ) Present value of lease liabilities $ 16,700 $ 1,293 F-25 Note 8. Accrued Expenses Accrued expenses consist of the following as of December 31, 2020 and 2019 (in thousands): Year ended December 31, 2020 2019 Research and development expenses $ 5,821 $ 2,617 Payroll and payroll-related 2,918 1,256 Professional fees 1,585 606 Other 6 89 Accrued expenses $ 10,330 $ 4,568 Note 9. Other Commitments and Contingencies In the ordinary course of business, the Company may be subject to legal proceedings, claims and litigation as the Company operates in an industry susceptible to patent legal claims. The Company accounts for estimated losses with respect to legal proceedings and claims when such losses are probable and estimable. Legal costs associated with these matters are expensed when incurred. The Company is not currently a party to any legal proceedings. Indemnification Arrangements As permitted under Delaware law, the Company has agreements whereby it indemnifies its investors, employees, officers, and directors (collectively, the “Indemnified Parties”) for certain events or occurrences while the Indemnified Parties are, or were serving, at its request in such capacity. The term of the indemnification period is for the Indemnified Parties’ lifetime. The Company believes the estimated fair value of these indemnification agreements is minimal. The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations as of December 31, 2020 or 2019. Note 10. Convertible Preferred Stock Immediately prior to the IPO, the Company’s Articles of Association (the “Articles”), as further amended and restated (the “2018 Amended Articles”), authorized a total of 52,483,788 convertible preferred stocks with a par value of $0.0001 per share, of which 3,000,000 shares have been designated as Series Seed Preferred Stock, 14,886,305 shares have been designated as Series A Preferred Stock, 16,009,845 shares have been designated as Series B Preferred Stock, 3,059,695 shares have been designated as Series B-1 Preferred Stock and 15,527,943 shares have been designated as Series C Preferred Stock. The Series A, Series B, Series B-1 and Series C convertible preferred stocks will be collectively referred to as the Convertible Preferred Stock. In January 2020, the Company issued 1,182,265 shares of Series B Preferred Stock at $4.06 per share to complete the second closing of the Series B Preferred Stock issuance for total proceeds of $4.8 million. The issuance costs related to the second tranche were insignificant. In March 2020, the Company executed a Series C Preferred Stock Purchase Agreement (the “Series C SPA”) to issue 13,539,141 shares of Series C Preferred Stock at a purchase price of $6.5366 per share for a total consideration of $88.2 million, net of issuance costs of $0.3 million. In conjunction with the Series C SPA, the Company exchanged 1,988,802 shares of Series A Preferred Stock for an equal number of shares of Series C Preferred Stock related to a transaction amongst investors. This resulted in a total issuance of 15,527,943 shares of Series C Preferred Stock. The fair value of the shares of Series C Preferred Stock issued exceeded the carrying value of the shares of Series A Preferred Stock exchanged by $9.1 million, which was recognized as a deemed dividend through a reduction of $2.3 million to additional paid-in capital and an increase of $6.7 million to the accumulated deficit. The $9.1 million deemed dividend increased the net loss for the year ending December 31, 2020 to arrive at net loss attributable to common stockholders in the calculation of earnings per share. In connection with the Company’s August 21, 2020, IPO all issued and outstanding Convertible Preferred Stock of 50,439,595 were converted to 31,625,534 shares of the Company’s common stock and are no longer issued or outstanding as of December 31, 2020. F-26 Note 11. Equity-Based Compensation 2018 Stock Option and Grant Plan In November 2018, the Company adopted, and its stockholders approved, the 2018 Stock Option and Grant Plan (the “2018 Plan”), which provides for the granting of stock options and other equity-based awards at the discretion of the Board of Directors or any subcommittee of the Board of Directors to its employees, officers, directors, and independent contractors. No further grants will be made under the 2018 Plan. However, the 2018 Plan will continue to govern outstanding equity awards granted thereunder. To the extent outstanding options granted under the 2018 Plan are cancelled, forfeited or otherwise terminated without being exercised and would otherwise have been returned to the share reserve under the 2018 Plan, the number of shares underlying such awards will be available for future grant under the 2020 Stock Option and Incentive Plan. Following the completion of the Company’s initial public offering no additional shares will be granted under the 2018 Plan. However, the 2018 Plan will continue to govern outstanding equity awards granted thereunder. 2020 Stock Option and Incentive Plan In August 2020, the Company and its stockholders approved the 2020 Stock Option and Incentive Plan (the “2020 Plan”), which became effective on August 20, 2020. The 2020 Plan replaced the 2018 Plan as the Company’s board of directors has determined not to make additional awards under the 2018 Plan following the closing of the Company’s IPO. The 2020 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors and consultants. The Company has initially reserved 4,457,370 shares of its common stock for the issuance of awards under the 2020 Plan, which includes the shares of common stock remaining available for issuance under its 2018 Plan as of the business day immediately prior to the effective date of the registration statement. The 2020 Plan provides that the number of shares reserved and available for issuance will automatically increase on January 1, 2021 and each January 1 thereafter, by 4% of the Company’s outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. These limits are subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. As of December 31, 2020, there were an aggregate of 3,148,671 shares remaining available for future grants. 2020 Employee Stock Purchase Plan In August 2020, the Company and its stockholders approved the 2020 Employee Stock Purchase Plan (the “2020 ESPP”), which became effective August 20, 2020. The 2020 ESPP initially reserves and authorizes the issuance of up to a total of 445,653 shares of common stock to participating employees. The 2020 ESPP provides that the number of shares reserved and available for issuance will automatically increase on January 1, 2021 and each January 1 thereafter through January 1, 2030, by the least of (i) 438,898 shares of common stock, (ii) 1% of the Company’s outstanding number of shares of common stock on the immediately preceding December 31 or (iii) such lesser number of shares of common stock as determined by the administrator of the 2020 ESPP. The number of shares reserved under the 2020 ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. As of December 31, 2020, there were an aggregate of 445,653 shares remaining available for future grants. Stock Options A summary of stock option activity under the 2020 Stock Option and Grant Plan during the year ended December 31, 2020 is as follows (in thousands except share and per share data): Number of Options Outstanding Weighted Average Strike Price per Option Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at December 31, 2019 2,945,297 $ 2.03 8.93 $ 7,798 Granted 3,213,204 13.22 Exercised (78,852 ) 2.06 Forfeited (246,937 ) 2.55 Outstanding at December 31, 2020 5,832,712 $ 8.17 9.08 $ 314,001 Exercisable at December 31, 2020 1,580,924 $ 3.38 8.76 $ 92,674 F-27 The i ntrinsic value of stock options exercised during the years ended December 31, 2020 and 2019 was $1.6 million, $0.1 million, respectively. The weighted-average fair value of options granted during the years ended December 31, 2020 and 2019 was $8.35 and $1.69 per share, respectively. As of December 31, 2020, the total unrecognized stock-based compensation expense for unvested stock options was $25.6 million, which is expected to be recognized over 3.3 years. The total fair value of stock options vested during the years ended December 31, 2020 and 2019 was $4.0 million, $0.2 million, respectively. The following table outlines our equity-based compensation expense for stock options for the years ended December 31, 2020 and 2019: Year ending December 31, 2020 2019 Research and development $ 2,084 $ 380 General and administrative 2,864 212 Total equity-based compensation $ 4,948 $ 592 The weighted-average assumptions that the Company used in Black-Scholes option pricing model to determine the grant date fair value of stock options granted to employees and non-employees for the years ended December 31, 2020 and 2019: Year ending December 31, 2020 2019 Expected term (in years) 6.09 6.49 Volatility 70 % 71 % Risk-free interest rate 0.5 % 1.83 % Dividend yield 0.00 % 0.00 % Restricted Common Stock The Company has granted shares of restricted common stock with service-based and performance-based vesting conditions. A summary of restricted stock activity under the 2018 Plan during the year ended December 31, 2020 is as follows: Number of Units Outstanding Grant Date Fair Value per Share Unvested at December 31, 2019 232,434 $ 1.60 Granted — — Vested (102,651 ) 1.60 Forfeited (19,679 ) 1.60 Unvested at December 31, 2020 110,104 $ 1.60 There were no grants of restricted stock during the years ended December 31, 2020 and 2019. As of December 31, 2020, the total unrecognized stock-based compensation expense for unvested restricted stock was $0.3 million, which is expected to be recognized over 1.6 years. The total fair value of restricted stock vested during the years ended December 31, 2020 and 2019 was $0.1 million and $0.5 million, respectively. During the years ended December 31, 2020 and 2019, the Company recorded stock-based compensation expense for restricted stock of $0.2 million and $0.4 million, of which $0.2 million and $0.2 million was included in research and development expense and an immaterial amount and $0.2 million was included in general and administrative expense, respectively. Included within the 2019 general and administrative stock-based compensation expense was $0.1 million from a modification of an employee’s awards. F-28 Equity-Based Compensation Expense Total equity-based compensation expense recorded as research and development and general and administrative expenses for employees, directors, and non-employees during the years ended December 31, 2020 and 2019 is as follows (in thousands): Years ending December 31, 2020 2019 Research and development $ 2,305 $ 688 General and administrative 2,885 508 Total equity-based compensation $ 5,190 $ 1,196 Note 12. Related-Party Transactions In addition to the collaboration discussed in Note 5, the Company had the following related party transactions for the periods presented in the accompanying consolidated financial statements, which has not otherwise been discussed in these notes to the consolidated financial statement. The Company made payments of $0.8 million and $1.0 million to an investor for rent expenses for the years ended December 31, 2020 and 2019, respectively. Note 13. Income Taxes The Company records income tax expense related to profits realized by its U.S. operating subsidiaries. For the years ended December 31, 2020 and 2019, no income tax expense was recorded due the group’s net operating loss (“NOL”) and full valuation allowance. The rate reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate for the years ended December 31, 2020 and 2019 are as follows: December 31, 2020 2019 Tax effect at statutory rate 21.0 % 21.0 % State taxes 5.8 % 7.0 % Stock compensation (0.9 %) (0.6 %) Permanent differences 0.0 % 0.0 % Federal research and development credits 3.6 % 2.0 % Other (0.7 %) 0.0 % Change in valuation allowance (28.8 %) (29.4 %) Total 0.0 % 0.0 % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes are as follows (in thousands): December 31, 2020 2019 Deferred Tax Assets: Federal net operating loss carryforwards $ 15,621 $ 15,011 State net operating loss carryforwards 3,866 4,319 Research and development credit carryforwards 3,757 1,637 Lease liabilities 4,563 5,286 Deferred revenue 10,313 — Accruals and reserves, stock and other 1,589 525 Total deferred tax assets $ 39,709 $ 26,778 Valuation allowance $ (34,075 ) $ (20,949 ) Deferred tax assets $ 5,634 $ 5,829 Fixed and intangible assets (1,506 ) (754 ) Right-of-use assets (4,128 ) (5,075 ) Net deferred tax asset $ — $ — F-29 As required by ASC 740, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are composed principally of NOL carryforwards and research and development credit carryforwards. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and, as a result, a valuation allowance of $34.1 million and $20.9 million has been established at December 31, 2020 and 2019, respectively. During 2020, the valuation allowance increased by $13.1 million primarily due to the increase in the Company’s NOL during the period. The Company has incurred NOLs from inception. At December 31, 2020 and 2019, the Company has federal NOL carryforwards of approximately $74.4 million and $71.5 million, respectively, and state NOL carryforwards of approximately $61.2 million and $68.3 million, respectively. Of the federal net operating loss carryovers, $64.6 million is not subject to expiration and the remaining federal and state NOLs begin to expire in 2036. These loss carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. Utilization of net operating loss and research and development credit carryforwards may generally be subject to limitation under Sections 382 and 383 of the Internal Revenue Code due to ownership changes that have occurred previously, or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset any post-ownership change taxable income and tax, respectively. The latest Section 382 study was performed through December 31, 2020, noting that a historic ownership change has likely occurred. Nonetheless, the Company has determined that as of December 31, 2020 the prospective utilization of all net operating loss and tax credit carryforwards generated from inception through December 31, 2020, and therefore the corresponding Federal and Massachusetts deferred tax assets, should not be restricted by Sections 382 and 383, although ownership changes after December 31, 2020 could impact the Company’s ability to utilize these tax attributes in the future. At December 31, 2020 and 2019, the Company had federal research and development credit carryforwards of $2.7 million and $1.1 million, respectively, and state research and development credit carryforwards of $1.3 million and $0.7 million, respectively. These carryforwards begin to expire in 2036. The Company follows the provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2020, and 2019, the Company has not recorded any amounts for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of income. As of December 31, 2020 and 2019, the Company had no reserves for uncertain tax positions. For the years ended December 31, 2020 and 2019, no estimated interest or penalties were recognized on uncertain tax positions. The Company's tax returns for the years ended December 31, 2017 to December 31, 2020 remain open and subject to examination by the Internal Revenue Service and state taxing authorities. Note 14. Net Loss per Share Net Loss per Share Basic and diluted loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding (in thousands, except for share and per share data): December 31, 2020 2019 Numerator: Net loss $ (45,593 ) $ (41,246 ) Deemed dividend from exchange of convertible preferred stock (9,050 ) — Net loss attributable to common stockholders $ (54,643 ) $ (41,246 ) Denominator: Weighted average common shares outstanding, basic and diluted 17,349,582 1,698,522 Net loss per share, basic and diluted $ (3.15 ) $ (24.28 ) F-30 The Company’s potentially dilutive securities, which include convertible preferred stock, restricted stock, and stock options, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following from the computation of diluted net loss per share attributable to common stockholders at December 31, 2020 and 2019 because including them would have had an anti-dilutive effect: December 31, 2020 2019 Convertible Preferred Stock — 22,325,780 Unvested Restricted Stock 110,104 232,434 Options to purchase Common Stock 1,580,924 2,945,298 Total 1,691,028 25,503,512 F-31 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.