LENZ Therapeutics, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of LENZ’s consolidated results of operations and financial condition. The discussion should be read together with the condensed consolidated financial statements and the accompanying notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. LENZ’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” as set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. Unless otherwise indicated or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to “LENZ OpCo,” “LENZ,” “the Company,” “we,” “us,” “our” and other similar terms refer to the business and operations of LENZ OpCo prior to the Merger and to LENZ and its consolidated subsidiary following the Merger. While the legal acquirer in the Merger was Graphite, for financial accounting and reporting purposes under U.S. GAAP, LENZ OpCo was the accounting acquirer and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by Graphite for LENZ OpCo’s stock) does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of LENZ OpCo in many respects. Accordingly, the consolidated assets, liabilities and results of operations of LENZ OpCo became the historical consolidated financial statements of the combined company, and Graphite’s assets, liabilities and results of operations were consolidated with those of LENZ OpCo beginning on the acquisition date. Operations prior to the Merger will be presented as those of LENZ OpCo in future reports. Graphite’s assets and liabilities were measured and recognized at their fair values as of the closing of the Merger. Overview We are a pre-commercial biopharmaceutical company focused on the development and commercialization of innovative therapies to improve vision. Our initial focus is the treatment of presbyopia, the inevitable loss of near vision that impacts the daily lives of nearly all people over 45. In the United States, the estimated addressable population who suffer from this condition, known as presbyopes, is 128 million, almost four times the number of individuals suffering from dry eye disease and three times the number of individuals suffering from childhood myopia, macular degeneration, diabetic retinopathy and glaucoma combined. We believe that a once-daily pharmacological eye drop that can effectively and safely improve near vision throughout the full workday, without the need for reading glasses, could be a highly attractive commercial product with an estimated U.S. market opportunity in excess of $3 billion. It is our goal to develop and commercialize such a product, and we have assembled an executive team with extensive clinical and commercial experience to execute this goal and become the category leader. Our lead product candidate LNZ100 is a preservative-free, single-use, once-daily eye drop containing aceclidine. We believe our product candidate is differentiated based on rapid onset, degree and duration of near vision improvement, its ability to be used across the full age range of presbyopes, from their mid-40s to well into their mid-70s, as well as a broad refractive range. Aceclidine’s pupil-selective mechanism of action was demonstrated in our clinical trials where near vision improved while avoiding blurry distance vision. Our product candidate was well-tolerated in clinical trials, and its active ingredient aceclidine has a favorable tolerability profile that have been well-established empirically. LNZ100 has patent protection until 2044 in the United States, at a minimum, due to a robust intellectual property portfolio underpinned by issued patents. In June 2024, LENZ hosted a Key Opinion Leader (“KOL”) event, highlighting capstone data from the Phase 3 CLARITY study, featuring real-world perspectives from lead investigators and prominent KOLs on the current treatment landscape for presbyopia and their perspectives on LNZ100 data from the Phase 3 CLARITY study. The capstone data results from the CLARITY Phase 3 study highlighted: • Robust Product Profile: Patients treated with LNZ100 achieved near universal response with rapid onset and long duration, highlighting a potential best-in-class product profile. • Rapid onset: At 30 minutes, LNZ100 reported 71% and 91% of participants achieved three- and two-lines or greater improvement in CLARITY 2, respectively. 22 Table of Contents • Primary Endpoint Achievement (3 Hours): LNZ100 reported 71% and 91% of participants achieved three- and two-lines or greater improvement in CLARITY 2, respectively. • Long duration: At 10 hours, LNZ100 reported 40% and 69% of participants achieved three-and two-lines or greater improvement in CLARITY 2, respectively. • Beyond 3-lines of improvement was observed: LNZ100 reported 84% of participants achieving at least 4 lines and 52% at least 5 lines of near vision improvement. • Statistically significant improvement in distance vision: 41% of participants achieved 1-line or more of distance vision improvement. • Safety profile: LNZ100 was well-tolerated, with no serious treatment-related adverse events reported in over 30,000 patient treatment days. Our other product candidate LNZ101, a preservative-free eye drop containing aceclidine and brimonidine, showed similar results, including achieving primary and secondary endpoints in both CLARITY 1 and 2, but did not show superiority to LNZ100. Based on these results, we selected LNZ100 as our lead product candidate, for which we submitted a New Drug Application (“NDA”) to Food and Drug Administration (“FDA”) in August 2024. In October 2024, the FDA assigned a Prescription Drug User Fee Act (“PDUFA”) target action date of August 8, 2025, which, if approved, will be immediately followed by a commercial launch in the United States, with the product anticipated to be available in the market in the fourth quarter of 2025. The FDA notified the Company in its letter to notify its acceptance to review the NDA that they do not plan to hold an advisory committee meeting, which was reiterated during the mid-cycle and late-cycle review. We believe that LNZ100 could be the first and only aceclidine-based product approved by the FDA and would then be eligible for five years of new chemical entity (“NCE”) exclusivity in the United States. As of June 30, 2025 , we had $209.6 million of cash, cash equivalents, restricted cash, and marketable secu rities. We believe that our existing cash, cash equivalents and marketable securities as of June 30, 2025 will allow us to continue to build infrastructure and commercialize LNZ100, subject to FDA approval, and will be sufficient to fund the Company to positive operating cash flow subsequent to such commercial launch. We do not expect to generate any revenue from product sales unless and until we suc cessfully obtain regulatory approval for LNZ100 . We have incurred net losses in each year since inception, and as of June 30, 2025 , we had an accumulated deficit of $174.5 million . These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses as we seek FDA approval and begin commercialization. These costs include expenses associated with the regulatory approval process and, subject to such approval, preparation for the potential commercial launch of LNZ100, subject to FDA approval. Additionally, we anticipate incurring expenses related to product sales, marketing, manufacturing, and distribution, and additional costs associated with being a public company, including audit, legal, regulatory and tax-related services associated with maintaining compliance with an exchange listing and SEC requirements. As a result of these and other factors, while we believe that our existing cash, cash equivalents and marketable securities as of June 30, 2025 will fund the Company to positive operating cash flow subsequent to commercial launch, if LNZ100 is approved, it is possible that we may require additional financing to fund our operations and planned growth. Through the completion of the Merger, L ENZ OpCo financed its operations primarily through private placements of its common stock and convertible preferred stock. Concurrent with the closing of the Merger on March 21, 2024, we completed the March 2024 PIPE Financing of 3,559,565 shares of common stock for an aggregate gross purchase price of $53.5 million. Additionally, on July 17, 2024, we completed a private placement (the “July 2024 PIPE Financing”) with Ridgeback Capital Investments, L.P. of 1,578,947 shares of common stock for an aggregate gross purchase price of $30.0 million. The Company has also sold an aggregate of 920,500 shares of common stock under the sales agreement with TD Securities (USA) LLC , resulting in net proceeds to the Company of $26.1 million. If we are unsuccessful in generating sufficient revenue and operating cash flow from sales of LNZ100, if approved, we may be required to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements if and when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. 23 Table of Contents License Agreements CORXEL License and Collaboration Agreement In April 2022, we entered into a License and Collaboration Agreement with CORXEL Pharmaceuticals (formerly known as Ji Xing Pharmaceuticals Hong Kong Limited) (“CORXEL”) granting CORXEL an exclusive license (the “CORXEL License” formerly referred to as the “Ji Xing License”) to certain of our intellectual property rights to develop, use, import, and sell products containing LNZ100 (“Products”) for use in the treatment of presbyopia in humans in mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan (collectively, “Greater China”). We also granted CORXEL (i) the right to negotiate in good faith and enter into agreements to purchase Products from us for clinical and commercial uses at cost plus a negotiated percentage and (ii) the right of first negotiation to obtain a regional license from us on other products we might develop outside of the field of presbyopia for commercialization in Greater China. We received nonrefundable, non-creditable upfront payments totaling $15.0 million as initial consideration under the CORXEL License during the year ended December 31, 2022. In addition, we are also eligible to receive (i) up to $95.0 million in regulatory and sales milestone payments, (ii) tiered, escalating royalties in the range of 5% to 15% on net sales of Products in Greater China by CORXEL, its affiliates and sublicensees, and (iii) tiered, deescalating royalties in the range of 15% to 5% of sublicensing income received by CORXEL prior to the regulatory approval of the first Product in Greater China. The $15.0 million upfront payments allocated to that single performance obligation was recognized on execution of the CORXEL License during the year ended December 31, 2022. No contractual milestones were met under the CORXEL License during the six months ended June 30, 2025 or 2024. On October 27, 2024, CORXEL and the Company announced positive topline data from the Phase 3 JX07001 clinical trial of LNZ100 in patients with presbyopia in China. In this China Phase 3 safety and efficacy trial, LNZ100 achieved the primary endpoint and key secondary endpoints, with statistically significant three-lines or greater improvement in Best Corrected Distance Visual Acuity (“BCDVA”) at near, without losing one-line or more in distance visual acuity. In July 2025, a regulatory milestone was achieved upon the submission of the NDA for LNZ100 to the National Medical Products Administration (“NMPA”) in Greater China for the treatment of presbyopia. Lotus Pharmaceutical Co., LTD. License and Commercialization Agreement On May 7, 2025 the Company entered into a license and commercialization agreement providing an exclusive license (the “Lotus License”) to certain of the Company's IP to commercialize LNZ100 for the treatment of presbyopia in humans in the Republic of Korea, the Kingdom of Thailand, Republic of the Philippines, the Socialist Republic of Vietnam, Malaysia, Negara Brunei Darussalam, the Republic of Indonesia, and the Republic of Singapore (collectively, “Southeast Asia”). Under the terms of the Lotus License, the Company received a $5.0 million nonrefundable, non-creditable upfront payment, and is eligible to receive up to $120.0 million of regulatory and sales milestones, as well as tiered, double-digit royalties on future net sales in Southeast Asia. Laboratoires Théa License and Commercialization Agreement On July 7, 2025, the Company entered into a license and commercialization agreement providing an exclusive license (the “Théa License”) to register and commercialize LNZ100 for the treatment of presbyopia in Canada. Under the terms of the Théa License, the Company is eligible to receive up to $70.0 million in upfront, regulatory and commercial milestone payments, as well as tiered, double-digit royalties on future net sales in Canada. Key Trends and Factors Affecting Comparability Between Periods • Our research and development costs increased during the three months ended June 30, 2025, relative to the comparative period in 2024 due to an increase in pre-approval and contingent product manufacturing to support the potential commercial launch of LNZ100, which is recorded in research and development prior to approval. Our research and development costs decreased during the six months ended June 30, 2025, relative to the six months ended June 30, 2024, primarily as a result of reduced clinical research expenses related to the substantial completion of our Phase 3 CLARITY trials in March 2024. We expect our research and development costs will decrease in 2025, relative to 2024, given the completion of the CLARITY trials and subsequent wind-down of clinical activities over 2024. 24 Table of Contents • We expect that selling, general and administrative expenses will continue to increase in 2025, relative to 2024, as we have built a cross-functional commercial team consisting of marketing and commercial operations and will continue to strategically build our sales and commercial infrastructure with capabilities designed to scale when necessary to support a potential commercial launch of LNZ100, subject to FDA approval. These expenses increased during the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, and we expect such expenses to continue to increase for the foreseeable future. • License revenue increased during the three and six months ended June 30, 2025 relative to the three and six months ended June 30, 2024 as a result of an upfront payment received under the Lotus License. The Company may generate future revenue from additional license and collaboration agreements to commercialize LNZ100 outside the U.S. The Company has not recorded any product sales revenue for the periods presented. Recent Developments Hiring of Sales Force During the three months ended June 30, 2025, we recruited and hired eighty-eight sales specialists, who, combined with our inside sales team, are expected to target approximately 15,000 eye care professionals. Our sales force has completed onboarding activities in anticipation of a potential commercial launch of LNZ100, subject to FDA approval. Recently Executed License Agreements The Company executed two additional license agreements to out-license the commercialization rights for LNZ100 in the Republic of Korea and certain countries in Southeast Asia to Lotus Pharmaceutical Co., LTD., and to Laboratoires Théa in Canada. Under these licensing agreements, the Company is eligible to receive up to $195 million in upfront, regulatory and commercial milestone payments, as well as tiered, double-digit royalties on future net sales in the respective contractual territories. CORXEL New Drug Application Submission In July 2025, a regulatory milestone was achieved upon the submission of the NDA for LNZ100 to the NMPA in Greater China for the treatment of presbyopia. Basis of Presentation The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the unaudited condensed consolidated balance sheets and statements of operations and comprehensive loss presented herein. The following discussion and analysis are based on our unaudited condensed consolidated financial statements and related notes thereto, which we have prepared in accordance with U.S. GAAP. You should read the discussion and analysis together with such unaudited condensed consolidated financial statements and the related notes thereto. Components of Statements of Operations and Comprehensive Loss Revenue LENZ currently has no products approved for sale, and it has not generated any revenue from product sales to date. It has generated revenue related to various license and collaboration agreements, and in the future may generate revenue from payments received under licenses or collaboration agreements LENZ may enter into with respect to its product candidate. Operating Expenses Research and Development Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of: (i) employee related costs, including salaries, benefits and share-based compensation expense for employees engaged in research and development activities; (ii) third-party contract costs relating to research, formulation, manufacturing, nonclinical studies and clinical trial activities; (iii) external costs of outside consultants who assist with technology development, regulatory affairs, clinical development and quality assurance; and (iv) allocated facility-related costs. 25 Table of Contents Costs for certain activities, such as manufacturing, nonclinical studies and clinical trials are generally recognized based on the evaluation of the progress of completion of specific tasks using information and data provided by our vendors and collaborators. Research and development activities are central to our business. Selling, General and Administrative Selling, general and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, business development, sales and marketing, human resources, and other corporate functions. Other selling, general and administrative expenses include marketing and advertising costs, professional fees for legal, tax and business consulting services, public company related expenses such as audit fees and insurance costs, intellectual property and patent costs, facility costs and travel costs. Other Income, Net Other income, net consists of interest income earned on cash, cash equivalents, and short-term investments, changes in the fair value of long-term investments due to observable price changes in orderly transactions for an identical or similar investment, and the change in fair value of preferred stock warrants liability. Upon completion of the Merger, the preferred stock warrants became exercisable into shares of common stock and will no longer continue to be remeasured at each reporting date. Results of Operations Comparison of the Three Months Ended June 30, 2025 and 2024 The following table presents the results of operations for the periods indicated (amounts in thousands, except percentages): Three Months Ended June 30, 2025 2024 $ Change % Change License revenue $ 5,000 $ — $ 5,000 N/A Research and development expenses 9,061 6,945 2,116 30 % Selling, general and administrative expenses 12,796 7,407 5,389 73 % Other income, net 2,445 4,098 (1,653) (40) % License Revenue License revenue increased during the three months ended June 30, 2025 due to revenue recognized from the upfront payment under the Lotus License. There was no license revenue in the three months ended June 30, 2024. Research and Development Research and development expenses incurred for the three months ended June 30, 2025 were primarily driven by pre-approval and contingent product manufacturing activities to support the potential commercial launch of LNZ100, which is recorded in research and development prior to approval, while research and development expenses for the three months ended June 30, 2024 were substantially all related to the development of LNZ100 in our Phase 3 CLARITY trials. Research and development expenses increased by $2.1 million, or 30%, to $9.1 million for the three months ended June 30, 2025 compared to $6.9 million for the three months ended June 30, 2024. The increase was primarily driven by increases of $2.5 million in non-clinical regulatory and chemistry, manufacturing, and control (“CMC”) expenses and $0.2 million in travel related expenses, partially offset by a $0.7 million decrease in regulatory consulting costs as we ramped up regulatory activities in the prior year in advance of our NDA submission. Selling, General and Administrative Selling, general and administrative expenses increased $5.4 million, or 73%, to $12.8 million for the three months ended June 30, 2025 compared to $7.4 million for the three months ended June 30, 2024. The change was primarily driven by increases of $3.9 million in employee salaries and related expenses due to a rise in headcount, including the hiring of eighty-eight sales specialists, and $1.4 million in pre-commercial marketing, advertising and sales infrastructure expenses as we prepare for a potential commercial launch of LNZ100, subject to FDA approval. 26 Table of Contents Other Income, net Other income, net for the three months ended June 30, 2025, was $2.4 million, compared to $4.1 million for the three months ended June 30, 2024. Interest income earned on our cash, cash equivalents, and marketable securities were materially consistent in the comparative periods. During the three months ended June 30, 2024, we recorded other income of $1.3 million due to a change in the fair value of the Company’s equity investment without a readily determinable fair value. Comparison of the Six Months Ended June 30, 2025 and 2024 The following table presents the results of operations for the periods indicated (amounts in thousands, except percentages): Six Months Ended June 30, 2025 2024 $ Change % Change License revenue $ 5,000 $ — $ 5,000 N/A Research and development expenses 14,879 17,482 (2,603) (15) % Selling, general and administrative expenses 23,909 12,958 10,951 85 % Other income, net 4,757 3,538 1,219 34 % License Revenue License revenue increased during the six months ended June 30, 2025 due to revenue recognized from the upfront payment under the Lotus License. There was no license revenue in the six months ended June 30, 2024. Research and Development Research and development expenses incurred for the six months ended June 30, 2025 were primarily driven by pre-approval and contingent product manufacturing activities to support the potential commercial launch of LNZ100, while research and development expenses incurred for the six months ended June 30, 2024 were substantially all related to the development of LNZ100 in our Phase 3 CLARITY trials. Research and development expenses decreased $2.6 million, or 15%, to $14.9 million for the six months ended June 30, 2025 compared to $17.5 million for the six months ended June 30, 2024. The decrease was primarily driven by a $6.1 million decrease in clinical and nonclinical research expense for our clinical trials, and a $1.0 million decrease in contract regulatory consulting expenses associated with the prior period preparation and filing of our NDA for LNZ100. The decrease was partially offset by a $2.4 million increase in employee salaries and related expenses due to increased non-clinical regulatory and CMC headcount, a $1.6 million increase in contract manufacturing expenses, and a $0.3 million increase in travel expenses. Selling, General and Administrative Selling, general and administrative expenses increased $11.0 million, or 85%, to $23.9 million for the six months ended June 30, 2025 compared to $13.0 million for the six months ended June 30, 2024. Increases in the comparative period included $6.6 million in employee salaries and related expenses due to a rise in headcount, $3.2 million in pre-commercial marketing, advertising and sales infrastructure as we expanded our pre-commercial planning initiatives for a potential commercial launch of LNZ100, subject to FDA approval, and $0.7 million in travel expenses. Other Income, net Other income, net for the six months ended June 30, 2025, was $4.8 million, compared to $3.5 million for the six months ended June 30, 2024. Interest income earned on our cash, cash equivalents, and marketable securities increased by $1.3 million as a result of an overall increase in cash on-hand in 2025 over the comparative period. During the six months ended June 30, 2024, we recorded a $1.0 million charge due to an increase in the fair value of the preferred stock warrants liability, resulting in a non-recurring, non-cash charge at the close of the Merger, and $1.3 million in other income related to an increase in the fair value of the Company's equity investment without a readily determinable fair value. 27 Table of Contents Liquidity and Capital Resources Sources of Liquidity As of June 30, 2025, we had $209.6 million of cash, cash equivalents, restricted cash, and marketable securities. We have incurred net losses in each year since inception and as of June 30, 2025, we had an accumulated deficit of $174.5 million. Our net losses were $14.9 million and $10.3 million for the three months ended June 30, 2025 and 2024, respectively, and $29.5 million and $26.9 million for the six months ended June 30, 2025 and 2024, respectively. These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses as we seek approval and pursue the potential commercialization of LNZ100. These costs include expenses associated with the regulatory approval process for LNZ100, and the preparation for the potential commercial launch of our product, subject to FDA approval. From inception through June 30, 2025, we received funding of $13.0 million from our initial seed financing, $47.0 million from the sale of Series A Convertible Preferred stock, $10.0 million from the sale of Series A-1 Convertible Preferred Stock, gross proceeds of $83.5 million from the sale of Series B Convertible Preferred stock, approximately $117.8 million in cash and cash equivalents from the Merger, approximately $53.5 million in gross cash proceeds from the March 2024 PIPE Financing, and $30.0 million in gross cash proceeds from the July 2024 PIPE Financing. On April 4, 2025, we entered into a sales agreement (the “Sales Agreement”) with TD Securities (USA) LLC (“TD Cowen”) under which we may offer and sell up to $150.0 million of shares of our common stock from time to time through an “at the market” offering program under which TD Cowen will act as sales agent. Under the Sales Agreement, we set the parameters for the sale of shares, including the number or dollar amount of shares to be issued, the time period during which sales are requested to be made, limitations on the number or dollar amount of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the Sales Agreement, TD Cowen may sell the shares by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. We have no obligation to sell any shares under the Sales Agreement and may at any time suspend solicitation and offers under the Sales Agreement. The shares will be issued pursuant to our shelf registration statement on Form S-3, including the prospectus supplement contained therein, which was declared effective by the SEC on April 14, 2025. During the three and six months ended June 30, 2025 , the Company sold an aggregate of 920,500 shares of common stock at a weighted-average price of $28.75 under the Sales Agreement, resulting in net proceeds of $26.1 million . As of June 30, 2025, the Company had $123.5 million of capacity remaining under the Sales Agreement. Funding Requirements We believe that our cash, cash equivalents, and marketable securities as of June 30, 2025 will allow us to continue to build infrastructure and commercialize LNZ100, subject to FDA approval, and such funds are anticipated to fund the Company to positive operating cash flow subsequent to such commercial launch. This belief is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than expected. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than currently anticipated, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including but not limited to: • the costs and timing of manufacturing for LNZ100 and commercial manufacturing if LNZ100 is approved; • the results, costs, and timing of any additional clinical trials we are required to complete for LNZ100; • costs associated with establishing a sales, marketing, and distribution infrastructure to commercialize LNZ100 if we obtain marketing approval; • our ability to generate positive operating cash flow from sales of LNZ100 subsequent to commercial launch of LNZ100, if LNZ100 is approved; • the costs, timing, and outcome of regulatory review of LNZ100; • the legal costs of obtaining, maintaining, and enforcing our patents and other intellectual property rights; • our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company; 28 Table of Contents • the terms and timing of establishing and maintaining licenses and other similar arrangements; • our ability to achieve sufficient market acceptance and adequate market share and revenue for LNZ100, if approved; and • costs associated with any products or technologies that we may in-license or otherwise acquire or develop. We intend to evaluate financing opportunities from time to time, and our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing. We cannot be assured that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity or equity-linked securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution. If we raise additional funds through the incurrence of indebtedness, then we may be subject to increased fixed payment obligations and could be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Cash Flows The following table summarizes our cash flows for the periods presented (amounts in thousands): Six Months Ended June 30, 2025 2024 Net cash (used in) provided by: Operating activities $ (27,557) $ (39,732) Investing activities 18,475 (80,390) Financing activities 26,532 169,131 Net increase in cash and cash equivalents $ 17,450 $ 49,009 Net Cash Used in Operating Activities Net cash used in operating activities primarily results from net loss adjusted for non-cash expenses, changes in working capital components, amounts due to contract research organizations to conduct our clinical programs, manufacturing of drug product and employee-related expenditures for research and development and selling, general and administrative activities. Cash flows from operating activities will continue to be impacted by spending to develop and pursue regulatory approval for LNZ100 and commercialization activities, if approval is obtained, and will also be impacted by any potential future revenue from commercialization activities and licensing arrangements. Cash flows will also continue to be affected by other operating and general administrative activities, including operating as a public company. For the six months ended June 30, 2025, cash used in operating activities was $27.6 million and resulted from a net loss of $29.5 million, in addition to a $1.2 million increase in operating assets, offset by $3.5 million in non-cash adjustments primarily driven by share-based compensation expense. For the six months ended June 30, 2024, cash used in operating activities was $39.7 million primarily resulting from a net loss of $26.9 million in addition to a $13.4 million cash outflow from the payment of accounts payable and accrued liabilities associated with the Merger and accrued clinical activities, offset by $1.0 million in non-cash adjustments primarily driven by share-based compensation expense and the change in the fair value of preferred warrants. Net Cash Provided by Investing Activities Cash provided by investing activities for the six months ended June 30, 2025 was $18.5 million, primarily due to $110.2 million in proceeds from maturities of marketable securities, and partially offset by $91.4 million of purchases of marketable securities and $0.4 million in purchases of property and equipment. Cash used in investing activities for the six months ended June 30, 2024 was $80.4 million, primarily due to $111.3 million of purchases of marketable securities, and partially offset by $31.0 million in proceeds from maturities of marketable securities. Net Cash Provided by Financing Activities Cash provided by financing activities for the six months ended June 30, 2025 was primarily driven by $26.1 million in net proceeds from common stock sold under the Sales Agreement. 29 Table of Contents For the six months ended June 30, 2024, cash provided by financing activities was $169.1 million and includes $117.8 million in cash and cash equivalents acquired in the Merger, $53.5 million in gross cash proceeds from the March 2024 PIPE Financing, and approximately $3.8 million in net cash proceeds from exercises of stock options. Material Cash Requirements from Contractual Obligations In February 2022, we entered into a lease for 2,930 square feet of office space in Del Mar, California. In March 2023, we entered into a lease amendment for a 647 square feet expansion of our office space at the same facility. The term of the lease, as amended, is forty-eight months from the original commencement date, terminating March 31, 2026, unless terminated sooner. In April 2024, we entered into a lease for 9,795 square feet of office space in Solana Beach, California. The term of the lease is thirty-nine months from the commencement date of July 1, 2024, ending September 30, 2027. See Note 6 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details related to our office leases. We also have contracts with various organizations to conduct research and development activities, including clinical trial organizations to manage regulatory and any remaining clinical trial activities, and manufacturing companies to manufacture the drug product used in the regulatory process and clinical trials. The scope of the services under these research and development contracts can be modified and the contracts cancelled by us upon written notice. In the event of a cancellation, the company would be liable for the cost and expenses incurred to date as well as any close out costs of the service arrangement. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC. Critical Accounting Policies and Estimates Our management’s discussion and analysis of the financial condition and results of operations is based on our consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of expenses during the periods presented. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our condensed consolidated financial statements. While our significant accounting policies are described in more detail in the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements. Stock-Based Compensation Expense Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. We determine the inputs and assumptions to the Black-Scholes option pricing model in the following manner: Fair Value of Common Stock —The fair market value of our common stock is based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded, adjusted for special dividends, if any. Expected Term —The Company uses the simplified method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment , to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. 30 Table of Contents Expected Volatility —Given our limited historical stock price volatility data, we derived the expected volatility from the average historical volatilities over a period approximately equal to the expected term of comparable publicly traded companies within our peer group that were deemed to be representative of future stock price trends as we have limited trading history for our common stock. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. Risk-Free Interest Rate —The risk-free interest rate is based on a United States Treasury instrument whose term is consistent with the expected term of the stock options. Expected Dividend Yield —The expected dividend yield is based on the Company’s historical and expected dividend payouts. The Company has historically paid no dividends, other than the special dividend paid by Graphite immediately prior to the close of the Merger, and does not anticipate dividends to be paid in the future. Other Company Information Jumpstart Our Business Startups Act ( “ JOBS Act ” ) We are an emerging growth company, as defined in the JOBS Act, and we may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the initial public offering of Graphite’s common stock (i.e., December 31, 2026). For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company disclosure and reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Accordingly, the information we disclose in our SEC filings may not be comparable with the information stockholders receive from other public companies in which they may hold stock. Additionally, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Prior to the Merger, Graphite elected to use, and we intend to continue to use, this extended transition period for complying with certain or new or revised accounting standards until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of Graphite's initial public offering (i.e., December 31, 2026), (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period, or (iii) if we affirmatively and irrevocably opt out of the extended transition period provided by the JOBS Act. We are also a “smaller reporting company” because the market value of our stock held by non-affiliates was less than $700 million as of June 30, 2025 and the Company's annual revenue was less than $100 million during the fiscal year ended December 31, 2024. We may continue to be a smaller reporting company in any given year if either (i) the market value of our stock held by non-affiliates is less than $250 million as of the last day of the most recently completed second quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of the last day of the most recently completed second quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Recent Accounting Pronouncements See Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not required to provide the information required under this item. 31 Table of Contents