PLIANT THERAPEUTICS, INC. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 114 Balance Sheets as of December 31, 2020 and 2019 115 Statements of Operations and Comprehensive Loss for the Years ended December 31, 2020 and 2019 116 Statements of Stockholders’ Equity (Deficit) for the Years ended December 31, 2020 and 2019 117 Statements of Cash Flows for the Years ended December 31, 2020 and 2019 119 Notes to Financial Statements 120 113 Report of Independent Registered Public Accounting Firm To the stockholders and the Board of Directors of Pliant Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Pliant Therapeutics, Inc. (the "Company") as of December 31, 2020 and 2019 and the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. 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 Company 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 audits 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 risks 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/ Deloitte and Touche LLP San Francisco, California March 16, 2021 We have served as the Company's auditor since 2018. 114 Pliant Therapeutics, Inc. Balance Sheets (In thousands, except number of shares and per share amounts) December 31, 2020 December 31, 2019 Assets Current assets Cash and cash equivalents $ 50,882 $ 85,807 Short-term investments 226,012 16,966 Accounts receivable 9,279 7,052 Tax credit receivable 83 333 Prepaid expenses and other current assets 4,498 1,742 Total current assets 290,754 111,900 Property and equipment, net 4,321 4,079 Other non-current assets 451 3,085 Total assets $ 295,526 $ 119,064 Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current liabilities Accounts payable $ 2,023 $ 1,250 Accrued liabilities (Note 5) 9,576 6,922 Total current liabilities 11,599 8,172 Other long-term liabilities (Note 5) 866 912 Total liabilities 12,465 9,084 Commitments and Contingencies (Note 13) Series A redeemable convertible preferred stock, $0.0001 par value; 0 and 56,000,000 shares authorized at December 31, 2020 and 2019, respectively; 0 and 56,000,000 shares issued and outstanding at December 31, 2020 and 2019, respectively; aggregate liquidation preference of $0 and $62,468 at December 31, 2020 and 2019, respectively; — 62,468 Series B redeemable convertible preferred stock, $0.0001 par value; 0 shares and 49,501,221 shares authorized at December 31, 2020 and 2019, respectively; 0 shares and 49,501,221 shares issued and outstanding at December 31, 2020 and 2019, respectively; aggregate liquidation preference of $0 and $75,860 at December 31, 2020 and 2019, respectively; — 75,860 Series C redeemable convertible preferred stock, $0.0001 par value; 0 shares and 44,000,000 shares authorized at December 31, 2020 and 2019, respectively; 0 shares and 26,360,745 shares issued and outstanding at December 31, 2020 and 2019, respectively; aggregate liquidation preference of $0 and $47,947 at December 31, 2020 and 2019, respectively; — 47,947 Stockholders’ equity (deficit) Preferred stock, $0.0001 par value; 10,000,000 shares and 0 shares authorized at December 31, 2020 and 2019, respectively; 0 shares issued and outstanding at December 31, 2020 and 2019; — — Common stock, $0.0001 par value; 300,000,000 and 181,000,000 shares authorized at December 31, 2020 and 2019; and 35,552,795 and 1,846,024 shares issued and outstanding at December 31, 2020 and 2019, respectively; 3 1 Additional paid-in capital 400,918 — Accumulated deficit (117,828 ) (76,295 ) Accumulated other comprehensive loss (32 ) (1 ) Total stockholders’ equity (deficit) 283,061 (76,295 ) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 295,526 $ 119,064 The accompanying notes are an integral part of these financial statements. 115 Pliant Therapeutics, Inc. Statements of Operations and Comprehensive Loss (In thousands, except number of shares and per share amounts) Year Ended December 31, 2020 2019 Revenue — related party $ 41,817 $ 57,052 Operating expenses: Research and development (66,193 ) (47,353 ) General and administrative (17,269 ) (10,930 ) Total operating expenses (83,462 ) (58,283 ) Loss from operations (41,645 ) (1,231 ) Interest income 478 816 Other expense, net (366 ) (216 ) Net loss $ (41,533 ) $ (631 ) Accretion to redemption value and dividends on redeemable convertible preferred stock — (6,225 ) Net loss attributable to common stockholders $ (41,533 ) $ (6,856 ) Net loss per share, attributable to common stockholders: Basic $ (1.95 ) $ (4.22 ) Diluted $ (1.95 ) $ (4.22 ) Shares used in computing net loss per share attributable to common stockholders: Basic 21,344,236 1,623,358 Diluted 21,344,236 1,623,358 Comprehensive loss: Net loss $ (41,533 ) $ (631 ) Other comprehensive loss: Net unrealized loss on short-term investments (1) (31 ) (1 ) Total other comprehensive loss (31 ) (1 ) Comprehensive loss $ (41,564 ) $ (632 ) __________________ (1) Tax effect is nil for all periods presented. The accompanying notes are an integral part of these financial statements. 116 Pliant Therapeutics, Inc. Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (In thousands, except number of shares and per share amounts) Redeemable Convertible Preferred Stock Additional Accumulated Other Total Stockholders’ Series A Series B Series C Common Stock Paid-In Comprehensive Accumulated Equity Shares Amount Shares Amount Shares Amount Shares Amount Capital Loss Deficit (Deficit) Balance at December 31, 2019 56,000,000 $ 62,468 49,501,221 $ 75,860 26,360,745 $ 47,947 1,846,024 $ 1 $ — $ (1 ) $ (76,295 ) $ (76,295 ) Issuance of Series C redeemable preferred stock, net of issuance costs — — — — 28,527,313 52,019 — — — — — — Issuance of common stock upon initial public offering, net of issuance costs — — — — — — 10,350,000 1 148,277 — — 148,278 Issuance of common stock upon private placement — — — — — — 625,000 — 10,000 — — 10,000 Conversion of Series A, B, C convertible preferred stock to common stock (56,000,000 ) (62,468 ) (49,501,221 ) (75,860 ) (54,888,058 ) (99,966 ) 22,432,029 1 238,293 — — 238,294 Vesting of restricted stock awards — — — — — — 163,544 — 11 — — 11 Option exercises — — — — — — 136,198 — 442 — — 442 Stock-based compensation expense — — — — — — — — 3,895 — — 3,895 Net unrealized loss on short-term investments — — — — — — — — — (31 ) — (31 ) Net loss — — — — — — — — — — (41,533 ) (41,533 ) Balance at December 31, 2020 — $ — — $ — — $ — 35,552,795 $ 3 $ 400,918 $ (32 ) $ (117,828 ) $ 283,061 The accompanying notes are an integral part of these financial statements. 117 Pliant Therapeutics, Inc. Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (In thousands, except number of shares and per share amounts) Redeemable Convertible Preferred Stock Additional Accumulated Other Total Stockholders' Series A Series B Series C Common Stock Paid-In Comprehensive Accumulated Equity Shares Amount Shares Amount Shares Amount Shares Amount Capital Loss Deficit (Deficit) Balance at December 31, 2018 56,000,000 $ 61,516 49,501,221 $ 70,587 — $ — 1,363,000 $ 1 $ — $ — $ (71,470 ) $ (71,469 ) Issuance of Series C redeemable preferred stock, net of issuance costs — — — — 26,360,745 47,947 — — — — — — Vesting of founders’ common stock and restricted stock awards — — — — — — 440,964 — 28 — — 28 Option exercises — — — — — — 42,060 — 174 — — 174 Accretion to redemption value and cumulative dividends on redeemable convertible preferred stock — 952 — 5,273 — — — — (2,031 ) — (4,194 ) (6,225 ) Stock-based compensation expense — — — — — — — — 1,829 — — 1,829 Net unrealized loss on short- term investments — — — — — — — — — (1 ) — (1 ) Net loss — — — — — — — — — — (631 ) (631 ) Balance at December 31, 2019 56,000,000 $ 62,468 49,501,221 $ 75,860 26,360,745 $ 47,947 1,846,024 $ 1 $ — $ (1 ) $ (76,295 ) $ (76,295 ) The accompanying notes are an integral part of these financial statements. 118 Pliant Therapeutics, Inc. Statements of Cash Flows (In thousands) Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (41,533 ) $ (631 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 1,310 1,113 Stock-based compensation expense 3,895 1,829 Other losses 266 — Changes in operating assets and liabilities: Tax credit receivable 250 167 Accounts receivable (2,227 ) (7,052 ) Prepaid expenses and other current assets (2,756 ) (1,458 ) Other non-current assets (70 ) 232 Accounts payable 922 (1,255 ) Accrued liabilities 2,689 4,255 Deferred rent and other long-term liabilities (17 ) 50 Net cash used in operating activities (37,271 ) (2,750 ) Cash flows from investing activities: Purchase of short-term investments (322,605 ) (51,713 ) Accretion on short-term investments — (254 ) Maturity of short-term investments 113,271 35,000 Purchase of property and equipment (1,532 ) (964 ) Net cash used in investing activities (210,866 ) (17,931 ) Cash flows from financing activities: Proceeds from issuance of common stock upon initial public offering, net of issuance costs 150,751 — Proceeds from issuance of common stock upon completion of private placement 10,000 — Proceeds from issuance of Series C preferred stock, net of issuance costs 52,019 47,947 Proceeds from exercise of stock options 442 174 Payment of deferred offering costs — (2,582 ) Net cash provided by financing activities 213,212 45,539 Net (decrease) increase in cash and cash equivalents (34,925 ) 24,858 Cash and cash equivalents at beginning of period 85,807 60,949 Cash and cash equivalents at end of period $ 50,882 $ 85,807 Supplemental disclosures of noncash investing and financing activities: Purchase of property and equipment in accounts payable and accrued liabilities $ 188 $ 159 Reclassification of restricted stock awards from liabilities to common stock upon vesting $ 11 $ 30 Accretion to redemption value and dividends on redeemable convertible preferred stock $ — $ 6,225 Deferred offering costs in accounts payable and accrued liabilities $ — $ 230 Net unrealized loss on short-term investments $ (31 ) $ (1 ) The accompanying notes are an integral part of these financial statements. 119 Pliant Therapeutics, Inc. Notes to Financial Statements 1. Description of Business Pliant Therapeutics, Inc. (the “Company”) is a clinical stage biopharmaceutical company focused on discovering and developing novel therapies for the treatment of fibrosis with an initial focus on treating fibrosis by inhibiting integrin-mediated activation of TGF-ß. Fibrosis refers to the abnormal thickening and scarring of connective tissue due to the production and deposition of excess collagen in the extra-cellular matrix. Fibrosis can occur in many different tissues including lung, liver, kidney, muscle, skin and the GI tract, and often causes severe and debilitating disease leading to organ failure. The Company is located in South San Francisco, California, and was incorporated in the state of Delaware in June 2015. Reverse Stock Split In May 2020, the Company implemented a 1-for-7.15 reverse stock split of the Company’s common stock. Stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares. All share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of the Company’s Convertible Preferred Stock were proportionately reduced and the respective conversion prices were proportionately increased. As of June 3, 2020, all outstanding preferred stock have been converted into common stock. Initial Public Offering In June 2020, the Company completed its initial public offering (“IPO”), in which the Company issued and sold an aggregate of 10,350,000 shares of common stock, which included 9,000,000 shares of common stock and 1,350,000 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares, at a public offering price of $16.00 per share. The aggregate net proceeds received by the Company from the offering were $148.3 million, net of underwriting discounts, commissions and offering expenses of $5.7 million, of which $2.6 million were paid in 2019 and $3.1 million paid in the current year. Upon the closing of the IPO, 160,389,279 shares of the Company’s outstanding convertible preferred stock were automatically converted to common stock on a 7.15:1 basis and the related carrying amount of $238.3 million was reclassified to common stock and additional paid-in capital within stockholders’ equity (deficit). Concurrent with the completion of the IPO, the Company also issued 625,000 shares of its common stock to Novartis (“Novartis”), a strategic partner and existing stockholder of the Company, in a private placement at a price of $16.00 per share for proceeds of $10.0 million, which resulted in Novartis owning approximately 6.1% of the Company’s outstanding shares of common stock (Note 6). 2 . Summary of Significant Accounting Policies Policies Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses as well as the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, useful lives assigned to property and equipment, the fair values of common and redeemable convertible preferred stock, stock-based compensation expense, accruals for research and development costs, income taxes and uncertain tax positions. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates. Revenue Recognition Effective January 1, 2018 the Company adopted the provision of Accounting Standards Update or ASU, ASU 2014-09, Topic 606 Revenue from Contracts with Customers (“Topic 606”) using the full retrospective transition method. ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. This standard contains principles for the determination of the measurement of revenue and the timing of when such revenue is recognized. Revenue recognition will reflect the 120 transfer of goods or services to customers at an amount that is expected to be earned in exchange for those goods or services. Subsequently, the FASB has issued the following guidance to amend ASU 2014-09: ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ; ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ; and ASU 2016-20, Technical Corrections and Improvements to Topic 606 , which clarifies narrow aspects of Topic 606 or corrects unintended application of the guidance. The Company must adopt ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 with ASU 2014-09, which are referred to collectively as the “Topic 606”. The FASB issued ASU 2018-18, “Collaborative Arrangements (Topic 808)” issued in November 2018. The Company assessed and concluded that they are not under Topic 808 and as the Novartis Agreement is not considered a collaboration under its provisions. The Company’s revenue is generated solely from the Collaboration and License Agreement with Novartis (the “Novartis Agreement”). The Company’s licensing agreement includes upfront signing fees, cost reimbursements, research and development services, milestone payments and royalties on future licensee’s product sales. The Company has both fixed and variable consideration. Non-refundable upfront fees are considered fixed, while funding of research and development activities and milestone payments are identified as variable consideration. A contract liability is an obligation to transfer goods or services for which the Company has received consideration, or for which an amount of consideration is due from the customer. A contract asset is a right to consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditional on something other than the passage of time. A receivable will be recorded on the balance sheet when the Company has unconditional rights to consideration (i.e., only the passage of time is required before payment becomes due). Receivables cannot be netted against contract liabilities and are presented separately from contract assets. Contract assets and contract liabilities are netted at the contract level and are then aggregated and presented separately each reporting period. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under its agreements, the Company performs the following steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when (or as) we satisfy each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company’s performance obligations include providing the worldwide license rights to compound PLN-1474, provide research and development services for PLN-1474 through Phase 1 of its development, achieving certain development or regulatory milestones and provide research and development services on initial candidate targets, which services are combined with a non-exclusive license to the initial candidate targets. The Company concluded that the worldwide license was distinct because the customer can benefit from the license on its own or together with other resources that are readily available, and the research and development services are not transformative in nature. The Company concluded the research and development services on initial candidate targets were not distinct from a non-exclusive license for the initial candidate targets, primarily as a result of (i) Pliant being unable to benefit on its own or together with other resources that are readily available as the license and (ii) the research and development services, including manufacturing in support of such services, were expected to significantly modify the initial license. Therefore, the promised goods and services were considered a single performance obligation. Significant management judgment is required in the identification of performance obligations and to determine the level of effort required under an arrangement and the period over which the Company expects to complete our performance obligations under the arrangement. If the Company cannot reasonably estimate when the performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. The Company estimates the transaction price and records revenue in the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. The estimated period of performance and project costs are reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of our deliverables. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The Company has never sold the performance obligations separately; therefore, an observable stand-alone selling price does not exist. Accordingly, the Company estimates a stand-alone selling price through maximizing the use of observable inputs such as market data, project cost estimates, and targeted margins. The Company determined that each of the performance obligations is priced and delivered at the stand-alone selling price. Therefore, no reallocations are needed since there is no material right and the license and services are provided at the stand-alone selling price. During the years ended December 31, 2020 and 2019, the entirety of the Company’s revenue—related party is related to the Collaboration and License Agreement with Novartis. The Company did not have any prior revenue agreements and did not recognize 121 revenue prior to 2019 . Receivables from collaborations are typically unsecured and are concentrated in the biopharmaceutical industry. Accordingly, the Company may be exposed to credit risk generally associated with biopharmaceutical companies or specific to the Novartis Agreement. An allowance on the receivables will be recorded if circumstances indicate collection is doubtful for a particular receivables balance. To date, the Company has not experienced any losses related to these receivables. Fair Value Measurements The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which to transact and the market-based risk. Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The carrying amount of the Company’s financial instruments, including cash and cash equivalents, short-term investments, tax credit receivable, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their short-term maturities. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, short-term investments and accounts receivable. The Company invests in money market funds, treasury bill and notes, government notes and corporate debt securities. The Company limits its credit risk associated with its cash and cash equivalents by placing them with banks and institutions it believes are highly credit worthy and in highly rated investments. However, the Company had deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000. The Company performs credit evaluations of its customer, and the risk with respect to accounts receivable is further mitigated by the short duration of customer payment terms, generally within 60 days, and the pedigree of the customer base. During the year ended December 31, 2020, Novartis accounted for 100% of the Company’s revenue—related party and accounts receivable. The Company’s future results of operations involve several other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products, including those that may be developed or marketed by larger companies, securing and protecting intellectual property, strategic relationships and dependence on key individuals and sole source suppliers. The Company’s product candidates require approvals from the U.S. Food and Drug Administration (“FDA”) and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company. Segments The Company operates and manages its business as one reportable and operating segment, which is the business of developing and commercializing novel therapies for fibrotic diseases. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance. All long-lived assets are maintained in the United States of America. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in Money Market Funds, United States (“U.S.”) treasury securities, U.S. government agency securities and corporate debt securities and are stated at fair value. Short-Term Investments The Company’s short-term investments consist of U.S. Treasury securities, U.S. government agency securities and corporate debt securities with remaining maturities beyond three months at the date of purchase. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time even prior to maturity and such investments represent cash available for current operations. As a result, short-term investments may include securities with maturities beyond twelve months that are classified within current assets in the Balance Sheets. As of December 31, 2020 and 2019, all of the Company’s short-term investments were classified as available-for-sale and were carried at fair market value with unrealized losses or income recorded in other comprehensive loss in the statements of operations and comprehensive loss. See Note 3 for further details. 122 Short-term investments are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its short-term investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost and its intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge will be recorded to other expense, net, in the statements of operations and comprehensive loss and a new cost basis in the short-term investment will be established. As of December 31 , 2020, the Company had not recorded any impairment related to other-than-temporary declines in the fair value of short-term investments. Property and Equipment, Net Property and equipment are recorded at cost net of accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. The useful lives of property and equipment are as follows: Laboratory equipment 5 years Computer equipment and software 3 years Leasehold improvements Shorter of remaining lease term or estimated useful life Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the balance sheets and the resulting gain or loss is recorded to the statements of operations and comprehensive loss. Repairs and maintenance are expensed as incurred. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There was no impairment of long-lived assets during the years ended December 31, 2020 and 2019. Redeemable Convertible Preferred Stock All preferred stock was automatically converted into common stock upon the Company’s IPO in June 2020. Prior to this conversion, the Company classified redeemable convertible preferred stock outside of stockholders’ equity (deficit) because, upon the occurrence of certain change in control events that were outside the Company’s control, including liquidation, sale or transfer of the Company’s assets, holders of the redeemable convertible preferred stock could have caused redemption for cash. At any time on or after December 19, 2024, the holders of a majority of the outstanding redeemable convertible preferred stock could also have required the Company to redeem the redeemable convertible preferred stock by providing the Company a written notice requesting such redemption. The Company recognized changes in the redemption value immediately as they occurred, for example changes in fair value of preferred stock, and adjustments in the carrying amount of the redeemable convertible preferred stock to equal the redemption value at the end of each reporting period up through December 19, 2019, when the Company entered into the Series C Preferred Stock Purchase Agreement. See Note 9 for further details. In the absence of retained earnings these accretion charges were recorded against additional paid in capital, if any, and then to accumulated deficit. The Company analyzed all embedded derivatives and beneficial conversion features for its redeemable convertible preferred stock and concluded that none required bifurcation. Research and Development Expenses Research and development costs are expensed as incurred. Research and development expenses consist primarily of personnel costs for the Company’s research and product development employees. Also included are non-personnel costs such as fees paid to consultants and third parties for preclinical and clinical studies, research and development services, laboratory supplies and equipment maintenance costs, license costs, contract manufacturing costs and allocations of facility related costs. The Company estimates preclinical and clinical studies and research expenses based on the services performed, pursuant to contracts with research institutions that conduct and manage preclinical and clinical studies and research services on its behalf. The Company estimates these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and are expensed as services are rendered. 123 Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred. Tax Credit Receivable The Company was eligible for federal and California research and development credits for its research and development activities performed within the United States and California, respectively. The Company was eligible to apply up to $250,000 of the federal R&D credits to offset the Federal Insurance Contribution Act (“FICA”) portion of its payroll taxes each year prior to fiscal year 2019. Starting in the fourth quarter of 2019, the Company was no longer eligible to apply its federal R&D credits to offset its FICA taxes as it generated revenue in excess of $5 million of gross receipts during that year. The Company, however, is still eligible for future federal and California research and development credits for its research and development activities performed within the United States and California. Stock-Based Compensation The Company’s stock-based equity awards include restricted stock awards, stock options and shares that will be issued under the Company’s 2020 Employee Stock Purchase Plan (“ESPP”). Stock-based compensation for awards that are granted to employees is accounted at fair value on the award grant date and the expense is recognized over the period the employee is required to provide service in exchange for the award, which is generally on a straight-line basis over the vesting period of the award. The expense is recorded in either research and development or general and administrative expenses in the statements of operations and comprehensive loss based on the function to which the related services are provided. Forfeitures are accounted for as they occur. The Black-Scholes option-pricing model, used to estimate fair value of stock-based awards, requires the use of the following assumptions: • Expected term —The expected term represents the period that the stock-based awards are expected to be outstanding. The expected term for the Company’s stock options was calculated based on the weighted-average vesting term of the awards and the contract period, or simplified method. The expected term for the ESPP is the offering period. • Expected volatility —Prior to the Company being public, the Company did not have any trading history for its common stock, the expected volatility was estimated based on the average historical volatilities of common stock of comparable publicly traded entities over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their size, stage in the life cycle or area of specialty. As the Company went public in June 2020, we will continue to apply this process for stock options and ESPP awards until enough historical information regarding the volatility of its stock price becomes available. • Risk-free interest rate —The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards. • Expected dividend —The Company has never paid dividends on the common stock and has no plans to pay dividends on the common stock. Therefore, the Company used an expected dividend yield of zero. Prior to our IPO, the fair value of our common stock has been determined using independent third-party valuations based on relevant valuation methodologies as outlined in the American Institute of Certified Public Accountants (AICPA) Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation ”. The Company also considered the amount of time between the independent third-party valuation dates and the grant dates and used interpolation of the fair value between the two valuation dates to estimate common stock fair value at each grant date. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date. Following our IPO, we use our stock price traded on NASDAQ to determine its fair value. Deferred Offering Costs Deferred offering costs, consisting of direct legal, accounting, filing and other fees directly related to the Company’s IPO were capitalized and reclassified to additional paid in capital upon completion of the IPO in June 2020. As of December 31, 2019, $2.8 million in deferred offering costs were recorded as other non-current assets in the Balance Sheets. Leases and Rent Expense The Company records rent expense on a straight-line basis over the life of the lease. In cases where there is a free rent period or future fixed rent escalations, the Company records a deferred rent liability. Additionally, the receipt of any lease incentives is recorded as a deferred rent liability which is amortized over the lease term as a reduction of rent expense. Building improvements made with the lease incentives or tenant allowances are capitalized as leasehold improvements and included in property and equipment, net in the balance sheets. 124 Income Taxes The Company provides for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax basis of assets and liabilities and net operating loss and credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all the tax benefits will not be realized. The Company accounts for uncertain tax positions in accordance with ASC No. 740 , Income Taxes . The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. The Company includes any penalties and interest expense related to income taxes as a component of income tax expense, as necessary. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. Net Loss Per Share Basic net loss per share is computed by dividing net loss attributed to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock. Prior to the conversion of our preferred stock in our IPO, net loss or income per share attributable to common stockholders was calculated using the two-class method, which is based on an earnings allocation formula that determines net loss or income per share for the Company’s common stockholders and holders of participating securities. The holders of preferred stock were entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock. Under this method, net loss or income is increased or reduced by the amount of any dividends earned and accretion of redeemable convertible preferred stock to its redemption value, if any, during the period. The undistributed earnings are allocated to common stock and each series of redeemable convertible preferred stock to the extent that each preferred security may share in the earnings as if all of the earnings for the period had been distributed. Net loss or income attributable to common stockholders and participating preferred shares are allocated to each share on an as-converted basis as if all the earnings for the period had been distributed. The participating securities do not include a contractual obligation to share in losses of the Company and are not included in the calculation of net loss per share in the periods in which a net loss is recorded. Diluted net loss or income per share is computed using the more dilutive of (a) the two-class method or (b) the as-converted method. The Company allocated earnings first to redeemable convertible preferred shares stockholders based on dividend rights and then to common and preferred stockholders based on ownership interests. The weighted-average number of shares of common stock included in the computation of diluted net loss or income gives effect to all potentially dilutive common equivalent shares, including outstanding stock options and preferred stock. Common stock equivalent shares are excluded from the computation of diluted net loss or income per share if their effect is antidilutive. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is generally the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is antidilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2020 and 2019. Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (“Topic 842” ), which requires an entity to recognize assets and liabilities arising from a lease for both finance and operating leases. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, 125 and uncertainty of cash flows arising from leases. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company in the fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-02 on the Company’s financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The new standard amends guidance on measuring and reporting credit losses for financial assets held at amortized cost basis, including accounts receivable and investments classified as available for sale, such as our debt securities. This ASU requires a new forward-looking model based on expected credit losses rather than the current one based on incurred losses. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date for certain ASUs including ASU 2016-13. This standard is effective for the Company’s fiscal year beginning after December 15, 2022. Early adoption is permitted for all entities. The Company does not expect the adoption of ASU 2016-13 to have a material impact on the Company’s financial statements. In December 2019, the FASB issued Accounting Standards Update 2019-12 (“ASU 2019-12”), Income Taxes (topic 740): Simplifying the Accounting for Income Taxes . The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 removes the exception for intraperiod tax allocations when there is a loss from continuing operations and income or a gain from other items (other comprehensive income). ASU 2019-12 is effective for fiscal years beginning after December 15, 2021. Early adoption of the amendments is permitted. The Company has early adopted the new standard effective January 1, 2020, and its adoption did not have a material impact on our condensed financial statements. 3. Financial Instruments The Company’s short-term investments consist of U.S. Treasury securities, U.S. Government agency securities and corporate debt securities with remaining maturities beyond three months at the date of purchase. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time even prior to maturity and such investments represent cash available for current operations. As a result, short-term investments may include securities with maturities beyond twelve months that are classified within current assets in the Balance Sheets. The Company’s short-term investments classified as available-for-sale are carried at fair market value with unrealized losses or income recognized in other comprehensive income (loss). Assets and liabilities recorded at fair value on a recurring basis in the Balance Sheets and assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows: • Level 1 —Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; • Level 2— Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and • Level 3— Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. The Company’s cash equivalent Money Market Funds are classified as Level 1 because they are valued using quoted market prices. The fair value of the Company’s U.S. Treasury securities, U.S. government agency securities and corporate debt securities are classified as Level 2 because they are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency and include U.S. government agency securities, U.S. Treasury securities and corporate debt securities. These Level 2 instruments require more management judgment and subjectivity compared to Level 1 instruments which include determining which instruments are most similar to the instrument being priced, determining whether the market is active and determining which model-derived valuations are to be used when calculating fair value. The Company performs its analysis with the assistance of investment advisors. 126 The following tables show the Company’s cash equivalents Money Market Funds and short-term investments by significant investment category (in thousands): As of December 31, 2020 Adjusted Cost Unrealized Gains Unrealized Losses Market Value Level 1: Money Market Funds $ 27,686 $ — $ — $ 27,686 Level 2: U.S. Treasury securities included in cash and cash equivalents and short-term investments 63,101 4 (1 ) 63,104 U.S. government agency securities included in short-term investments 54,183 10 — 54,193 Corporate debt securities included in cash and cash equivalents and short-term investments 118,759 1 (46 ) 118,714 Total financial assets $ 263,729 $ 15 $ (47 ) $ 263,697 As of December 31, 2019 Adjusted Cost Unrealized Gains Unrealized Losses Market Value Level 1: Money Market Funds $ 16,366 $ — $ — $ 16,366 Level 2: U.S. Treasury securities included in short-term investments 2,998 — — 2,998 U.S. government agency securities included in short-term investments 34,204 1 (2 ) 34,203 Total financial assets $ 53,568 $ 1 $ (2 ) $ 53,567 The Company may sell certain of its short-term securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation. The following summarizes the remaining contractual maturities of the Company’s short-term investments as of December 31, 2020: Adjusted Cost Market Value Mature in 1 year or less $ 220,980 $ 220,946 Mature in 1 to 2 years 5,064 5,066 Total $ 226,044 $ 226,012 There were no liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019. There have been no transfers between fair value measurement levels during the years ended December 31, 2020 and 2019. In addition, there were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2020 and 2019. As of December 31, 2020, the Company had not recorded any impairment related to other-than-temporary declines in the fair value of short-term investments. Short-term investments are considered impaired when a decline in fair value is judged to be other-than-temporary. The Company consults with its investment managers and considers available quantitative and qualitative evidence in evaluating potential impairment of its short-term investments on a quarterly basis. If the cost of an individual investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is less than cost and its intent and ability to hold the investment. The Company records interest income and accretion income earned on Money Market Funds and U.S. Treasury, U.S. government agency and corporate debt securities to interest income in its statement of operations and comprehensive loss. 127 4. Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2020 2019 Computer equipment and software $ 22 $ 22 Laboratory equipment 6,540 5,580 Leasehold improvements 947 657 Construction-in-progress 300 8 Total property and equipment, gross 7,809 6,267 Less: Accumulated depreciation (3,488 ) (2,188 ) Total property and equipment, net $ 4,321 $ 4,079 Depreciation expense for the years ended December 31, 2020 and 2019 was $1.3 million and $1.1 million, respectively. 5. Accrued Liabilities and Other Long-Term Liabilities Accrued Liabilities Accrued liabilities consisted of the following (in thousands): December 31, 2020 2019 Accrued compensation and benefits $ 4,542 $ 2,971 Accrued research and development expenses 3,274 2,624 Other accrued liabilities 1,675 1,263 Deferred rent/leasehold incentive obligation-current 85 64 Total accrued liabilities $ 9,576 $ 6,922 Accrued compensation and benefits consist primarily of accrued bonuses and accrued vacation. Other Long-Term Liabilities Other long-term liabilities consisted of the following (in thousands): December 31, 2020 2019 Deferred rent $ 581 $ 458 Leasehold incentive obligation 283 444 Other liabilities — deposits 2 10 Total other long-term liabilities $ 866 $ 912 6. Novartis Agreement In October 2019, the Company entered into a Collaboration and License Agreement with Novartis (the “Novartis Agreement”), for the development and commercialization of our preclinical product candidate, PLN-1474 and up to three additional integrin research targets. PLN-1474 is an internally discovered small molecule selective inhibitor of integrin αvß1, currently being developed for the treatment of liver fibrosis associated with nonalcoholic steatohepatitis (“NASH”). In accordance with the Novartis Agreement, on December 7, 2019, Novartis paid to Pliant an upfront non-refundable license fee of $50.0 million for the worldwide exclusive license to PLN-1474. Novartis will fund the Company’s research and development services for PLN-1474 through Phase 1 after which Novartis will assume responsibility for all future development, manufacturing and commercialization costs of PLN-1474. Novartis will also fund the research and development services associated with integrin research targets as outlined in the Novartis Agreement. The Company is scheduled to receive up to $19.6 million in funding for PLN-1474 development services through Phase 1 and up to $13.4 million for optional research and development services on the integrin research targets. The Company is initially obligated to perform research and development services on the integrin research targets for sixty days. Novartis has the option to continue the research and 128 development services through 2022, with the option to terminate the services with 60 days’ notice. If any of the targets achieves target validation and are deemed a research target, Novartis holds the rights to exercise its license options to obtain an exclusive license for those deemed research targets on a research target-by-research target basis by paying an option exercise fee for each target (up to three in total), including all license compounds that are the subject of the applicable research program. Novartis will also pay the Company a certain specified target validation fee of $ 4.0 million for each candidate target that achieves target validation and is deemed a research target, for up to three candidate targets. Upon exercise of an option, Novartis will be responsible for global clinical development and commercialization of each licensed research target. Under the Novartis Agreement, the Company is eligible for developmental, regulatory and commercial milestone payments related to PLN-1474 and the integrin research targets of up to $416.0 million if defined development and commercialization milestones are achieved and tiered royalties ranging from the mid-single digits to low teens on product sales upon commercialization. Upon execution of the Novartis Agreement, Pliant also entered into a Financing Side Letter with Novartis (the “Financing Side Letter”), whereby Novartis committed to provide up to $30.0 million in equity financing of which $20.0 million was satisfied by the issuance of 10,928,962 shares of Series C Redeemable Convertible Preferred Stock on December 19, 2019 and the remaining $10.0 million was satisfied by the issuance of shares of common stock through a concurrent private placement with the Company’s IPO. The Company determined that the Novartis Agreement and the Financing Side Letter are separate agreements and should not be combined as they were not entered into for a single commercial objective and the consideration in each agreement are tied to separate and different types of obligations. The Series C Redeemable Preferred Stock was issued to Novartis at fair value of $1.83 per share in conjunction with its issuance to other investors at the same price. In addition, the contingent issuance of shares upon an Initial Public Offering would also be at fair value. Further, Novartis became a related party to the Company following its purchase of 10.9 million shares of our Series C Redeemable Convertible Stock on December 19, 2019, representing holdings of 6.1% and 7.4% of our outstanding shares of common stock on a fully diluted basis as of December 31, 2020 and December 31, 2019, respectively. See Notes 9 and 14 to these financial statements for additional information. The Company evaluated the Novartis Agreement under the revenue standard Topic 606 and concluded that Novartis is a customer. The Company identified the following performance obligations at the inception of the contract. • Provide Novartis worldwide license rights to PLN-1474. • Provide research and development services for PLN-1474 through Phase 1 of its development. • Provide non-exclusive license rights to integrin research targets and research and development services on integrin research targets, together as a single performance obligation. The Company determined the transaction price at inception of the Novartis Agreement is the $69.6 million consisting of the license fee of $50.0 million and research and development funding of $19.6 million payment to be allocated to the various performance obligations. The Novartis Agreement includes variable consideration for the funding of research and development services and potential future milestones and royalties that were contingent on future success factors for development programs. The Company used the “most likely” method to determine the variable consideration. None of the regulatory or development milestones were included in the transaction price. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur. The Company considered the license to PLN-1474 as functional intellectual property, as when control of the license was transferred to Novartis at the inception of the Novartis Agreement, Novartis had the right to access its technology and it was functional. The Company determined the $50.0 million was the standalone selling price PLN-1474 license and was recognized as revenue when control of the license transferred to Novartis, which was at or near inception of the Novartis Agreement. The Company estimated the standalone selling price of each research program based on internal and external costs to perform the research plus a reasonable profit margin. The total estimated cost of the research and development services reflects the nature of the services to be performed and the Company’s best estimate of the length of time required to perform the services. The Company selected an input method of costs incurred to measure progress toward complete satisfaction of its performance obligation to provide research and development services as such method faithfully depicts the Company’s performance in transferring control of the research and development service to Novartis. Changes in estimates of total internal and external costs expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment. There have been no changes to the Company’s estimates to date. During the years ended December 31, 2020, the Company recognized revenue—related party of $41.8 million, which consists of $25.0 million of revenue from the achievement of the first patient dosing milestone of the Novartis agreement in the first quarter of 2020 and $16.8 million of revenue generated from research and development services performed during the year ended December 31, 129 2020. During the year ended December 31, 2019, Company recognized revenue - related party of $ 50.0 million related to the license fee and revenue - related party of $ 7.1 million generated from research and development services performed during 2019. As of December 31, 2020 and 2019, there was a receivable of $9.3 million and $7.1 million, respectively, related to the Novartis Agreement. There were no contract assets or contract liabilities as of December 31, 2020 and 2019. 7. License Agreements UC Regents In August 2015, the Company entered into an exclusive, worldwide license agreement (the “UC Agreement”) with the Regents of the University of California (the “UC Regents”) relating to the use of certain patents and technology relating to αvß1 compound in fibrosis indications. Pursuant to the UC Agreement, the Company is obligated to (i) make a non-refundable upfront license fee payment of $0.4 million and annual license maintenance fee payments of $10,000 per year beginning on the first anniversary of the UC Agreement escalating to $25,000 per year thereafter (ii) make royalty payments to the UC Regents of 3% of net sales of a therapeutic licensed product or 1% of net sales of a method of use licensed product, subject to an annual minimum of $1.0 million, (iii) make milestone payments up to an aggregate of $18.2 million to the UC Regents upon the occurrence of certain events, (iv) make a milestone payment based on the number of outstanding shares and a price per share as defined in the UC Agreement within 30 days of the closing of an IPO or change of control, and (v) reimburse the UC Regents for prosecution and maintenance expenses of the licensed patents without limitation. As a result of the IPO in June 2020, the Company made a $2.4 million milestone payment to the UC Regents. The Company will expense any payments for milestones to research and development expenses prior to receiving FDA approval for any of its product candidates. The UC Agreement can be terminated at any time upon the material breach of contract terms by either party to the agreement. The Company has the right to terminate the agreement at any time upon providing written notice to the UC Regents. Unless terminated early, the UC Agreement will remain in effect from the effective date until the later of (i) the expiration or abandonment of the patent rights licensed under the UC Agreement, or (ii) ten years from the date of the first commercial sale of the first licensed product under the agreement. In November 2020, the technology licensed through the agreement was deemed to no longer be relevant to the Company’s product candidates and, therefore, the Company exercised its rights to terminate the UC Agreement with the termination taking effect in January 2021, which complied with the 60-day notice period specified under the agreement. 8. Research Agreement Adimab Development and Option Agreement In October 2018, the Company and Adimab LLC (“Adimab”) entered into a development and option agreement (the “Adimab Agreement”) for the discovery and optimization of proprietary antibodies as potential therapeutic product candidates. Under the Adimab Agreement, the Company will select biological targets against which Adimab will use its proprietary platform technology to research and develop antibody proteins using a mutually agreed upon research plan. Upon the Company’s selection of a target, the Company and Adimab will initiate a research plan and the discovery term begins. During the discovery term, Adimab will grant the Company a non-exclusive, non-sublicensable license under its technology with respect to the target, to research, design and preclinically develop and use antibodies that were modified or derived using Adimab technology, solely to evaluate such antibodies, perform the Company’s responsibilities under the research plan and use such antibodies for certain diagnostic purposes. The Company will also grant to Adimab a non-exclusive, non-sublicensable and non-transferable license with respect to the target under the Company’s technology that covers or relates to such target, solely to perform its responsibilities under the research plan during the discovery period. The Company is required to pay Adimab at an agreed upon rate for its full-time employees during the discovery period while Adimab performs research on each target under the applicable research plan. Adimab granted the Company an exclusive option to obtain a worldwide, royalty-bearing, sublicensable license under Adimab platform patents and other Adimab technology to research, develop and commercialize up to twenty-four antibodies selected by the Company (the “Program Antibodies”) against specific biological targets (the “Commercialization Option”). Upon the exercise of a Commercialization Option, and payment of the applicable option fee to Adimab, Adimab will assign the patents that cover the Program Antibodies to Company. The Company will be required to use commercially reasonable efforts to develop, seek market approval of, and commercialize at least one antibody against the target covered by the Commercialization Option in specified markets upon the exercise of a Commercialization Option. 130 Pursuant to the Adimab Agreement, the Company is obligated to (i) make a nonrefundable upfront license fee payment for access to Adimab’s technology; (ii) pay Adimab at an agreed upon rate for each full-time employee (“FTE”) during the research period; (iii) make additional payments upon the Company making other research related elections; (iv) pay up to a dollar amount in the low double digit millions for the achievement of certain research and development milestones for each research target program which can vary by target type; (v) make royalty payments to Adimab on Company net sales of its products covered under the Adimab Agreement, subject to varying royalty payments on certain product types. Currently, no product types have been selected by the Company. During the years ended December 31, 2020, the Company recognized research and development expenses under the Adimab Agreement of $0.2 million related to FTE costs. During the years ended December 31, 2019, the Company recognized research and development expense under the Adimab Agreement of $0.1 million related to antibody discovery fees and $0.2 million related to the FTE costs. 9. Redeemable Convertible Preferred Stock Under the Company’s Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), the Company is authorized to issue two classes of shares: preferred and common stock. The preferred stock may be issued in series, and the Company’s board of directors is authorized to determine the rights, preferences, and terms of each series. Upon the closing of the Company’s IPO in June 2020, all outstanding convertible preferred stock was converted into common shares of the Company, as a result there was no authorized or outstanding redeemable convertible preferred stock as of December 31, 2020. The following is a summary of the Company’s redeemable convertible preferred stock as of December 31, 2019 (in thousands except share amounts): Preferred Shares Authorized Shares Issued and Outstanding Redemption Value/ Liquidation Preference Carrying Value Series A 56,000,000 56,000,000 $ 62,468 $ 62,468 Series B 49,501,221 49,501,221 75,860 75,860 Series C 44,000,000 26,360,745 47,947 47,947 149,501,221 131,861,966 $ 186,275 $ 186,275 Series A Preferred In August 2015, the Company entered into a Series A Preferred Stock Purchase Agreement (the “Series A Purchase Agreement”) in which the Company agreed to sell up to $45.0 million of Series A Redeemable Convertible Preferred Stock (“Series A Preferred”) in three anticipated tranches. In March 2018, the Series A Purchase Agreement was amended to allow the Company to sell an additional $11.0 million of Series A Preferred. Under the Series A Purchase Agreements, the Company issued a total of 56.0 million shares of Series A Preferred for cash proceeds of approximately $56.0 million. Series B Preferred In July 2018, the Company entered into a Series B Preferred Stock Purchase Agreement (the “Series B Purchase Agreement”) in which the Company agreed to sell up to $70.0 million of Series B Redeemable Convertible Preferred Stock (“Series B Preferred”). Under the Series B Purchase Agreements, the Company issued a total of 49.5 million shares of Series B Preferred for cash proceeds of approximately $68.1 million. Series C Preferred In December 2019, the Company entered into a Series C Preferred Stock Purchase Agreement (the “Series C Purchase Agreement”) in which the Company agreed to sell up to $80.5 million of Series C Redeemable Convertible Preferred Stock (“Series C Preferred”). Under the Series C Purchase Agreements, the Company issued 26.4 million shares of Series C Preferred for cash proceeds of approximately $48.2 million. Novartis purchased 10.9 million shares of this allotment of Series C Preferred for cash proceeds of $20.0 million. Novartis became a related party following its purchase of our Series C Preferred. Novartis holdings represent of 6.1% 131 and 7.4 % of our outstanding shares of common stock on a fully diluted basis as of December 31, 2020 and December 31, 2019, respectively. In February 2020, the Company issued an additional 28.5 million additional shares of Series C Preferred at $1.83 per share in exchange for gross cash proceeds of $52.2 million and incurred $0.2 million of issuance costs. The Series A Preferred, Series B Preferred and Series C Preferred (collectively, the “Preferred Stock”) had the following rights and privileges prior to the Preferred Stock being converted to common stock: Voting Each holder of shares of Preferred Stock was entitled to the number of votes equal to the number of shares of common stock into which such shares could have been converted and had voting rights and powers equal to the voting rights and powers of the common stock, and except as provided by law or by other provisions of the Company’s Certificate of Incorporation, as amended, could have voted together with the common stock as a single class on an as-converted basis on all matters as to which holders of common stock have the right to vote. Conversion Shares of the Preferred Stock were convertible at any time at the option of the holder into such number of shares as is determined by dividing the original issuance price by the conversion price in effect at the time. The conversion price was the original issuance price for each series of Preferred Stock, as adjusted for the 1-for-7.15 reverse stock split of the Common Stock. Following such adjustment, the per-share conversion price was $7.15 for Series A Preferred, $9.843405 for Series B Preferred and $13.0845 for Series C Preferred, subject to certain adjustments. All outstanding shares of Preferred Stock converted to shares of common stock upon the completion of the Company’s IPO. Dividends The holders of Series A Preferred were originally entitled to receive cumulative dividends from their respective dates of issuance at the rate of 8.0% on their original issue price. In July 2018, in conjunction with the execution of the Series B Purchase Agreement, the Series A Preferred accreted dividends were cancelled. Under the Series B Purchase Agreement, the holders of both shares of Series A and Series B Preferred were entitled to receive cumulative dividends commencing on July 10, 2018, the issuance date of Series B Preferred, at an annual rate of 8.0% on their original issuance price. The Series A Preferred and Series B Preferred dividends accrue from day-to-day, whether declared or not, and were payable only when and if declared by the Company’s board of directors. As such, the Company recorded accretion charges to adjust the carrying values of the Series A Preferred and Series B Preferred to their redemption values up until the date the Series C Purchase Agreement was executed. In December 2019, in conjunction with the execution of the Series C Purchase agreement, the Series A preferred and Series B preferred accreted dividends were cancelled. Under the Series C Purchase Agreement, the holders of Series A, Series B and Series C Preferred were entitled to receive non-cumulative dividends commencing on December 19, 2019 at an annual rate of 8.0% on their original issuance price. The Series A, Series B and Series C Preferred dividends accrue from day-to-day, whether declared or not, and were payable only when and if declared by the Company’s board of directors. The holders of all shares of preferred stock were entitled to receive dividends prior and in preference to any declaration or payment of any dividend on the common stock. Since inception, the Company has never declared or paid any dividends. Liquidation Preferences Upon liquidation, dissolution, or winding up of the Company or a deemed liquidation event as defined in the Company’s Certificate of Incorporation, the holders of shares of Series C and Series B Preferred Stock were entitled to receive, on a pari passu basis, a per share amount equal to the Series C purchase price of $1.83 (plus any declared but unpaid dividends) and equal to the original Series B purchase of $1.3767 (plus any declared but unpaid dividends), collectively (the “Series C and Series B Liquidation Preference”) or such amount per share as would have been payable had all shares of Series C and Series B been converted into common stock immediately prior to such liquidation event. The payment of Series C and Series B Liquidation Preference was to be made before any payment made to the holders of Series A Preferred Stock and Common Stock. Thereafter, the Series A Preferred holders were entitled to receive their liquidation preference before any distributions were made to common stockholders, a per share amount equal to $1.00 (plus any declared but unpaid dividends) (the “Series A Liquidation Preference”) or such amount per share as would have been payable had all shares of Series A had been converted into common stock immediately prior to such liquidation event. After payments of the full liquidation preferences of the Series C and Series B Liquidation Preference and the Series A 132 Liquidation Preference described above, any remaining assets of the Company would have been distributed to the holders of the common stock in proportion to the number of shares of common stock that they held. Redemption In December 2019, in conjunction with the execution of the Series C Preferred Purchase Agreement, the Series A Preferred and Series B Preferred redemption provisions were modified as follows: All outstanding shares of Preferred Stock shall be redeemed by the Company at a price equal to the original issuance price per share, plus any dividends declared but unpaid, in three annual installments commencing not more than sixty (60) days after receipt by the Company at any time on or after five years from the Series C Preferred original issuance date, December 19, 2019, a written notice from the holders of a majority of the shares of Preferred Stock. The Company accounted for the changes in Series A Preferred redemption and Series B Preferred redemption provisions as a modification as there was no significant difference in Series A Preferred and Series B Preferred fair values before and after the modification. 10. Common Stock The voting, dividend, and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers, and preferences of the holders of the Preferred Stock. As of December 31, 2020 and 2019, the Company had 300,000,000 and 181,000,000 authorized shares of common stock, respectively, at a par value of $0.0001 per share. The common stock has the following rights and privileges: Voting The holders of shares of common stock are entitled to one vote for each share of common stock held at any meeting of stockholders and at the time of any written action in lieu of a meeting. Dividends The holders of shares of common stock are entitled to receive dividends, when declared by the Company’s board of directors. Cash dividends may not be declared or paid to holders of shares of common stock until all unpaid dividends on the Preferred Stock have been paid in accordance with their terms. No dividends have been declared or paid by the Company since its inception. Liquidation After payment of the respective liquidation preferences to the holders of shares of Preferred Stock, the holders of shares of common stock are entitled to share ratably in the Company’s remaining assets available for distribution to its stockholders in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or upon occurrence of a deemed liquidation event. Shares reserved for future issuance December 31, 2020 2019 Conversion of redeemable convertible preferred stock — 18,442,233 Exercises of outstanding stock option awards 2,993,855 1,337,501 Shares of common stock available for future grants under the 2015 Equity Incentive Plan, as amended — 567,110 Shares of common stock available for future grants under the 2020 Equity Incentive Plan 3,644,459 — Shares of common stock available for future issuance under the 2020 ESPP 700,000 — Total shares reserved for future issuance 7,338,314 20,346,844 Founders’ Common Stock Awards During 2015, the Company’s board of directors granted common stock awards to the Company’s founders in exchange for services provided to the Company. The purchase price of the common stock awards was the estimated fair value at the issuance date. The shares vest from one to four years and vesting could be accelerated upon a change in control. The vesting of certain performance- 133 based grants of restricted stock awards were contingent upon the filing of an Investigational New Drug Application by the Company with the FDA. If the holder of founders’ common stock award terminates their relationship with the Company during the vesting period, the Company may repurchase any unvested restricted common stock held by these individuals at their original purchase price. During the vesting term, holders of founders’ common stock awards are deemed to be common stockholders and have dividend and voting rights. The Company issued 745,244 shares of founders’ common stock during 2015. No founders’ common stock awards were granted in subsequent years. Total compensation expense was $25,000 for these founders’ common stock awards, which are recorded to operating expenses in the statements of operations over their respective vesting period. As of December 31, 2019, all shares of founders’ common stock awards were fully vested. 11. Equity Incentive Plans and Stock-Based Compensation In August 2015, the board of directors adopted the 2015 Equity Incentive Plan, as amended (the “2015 Plan”), which provides for the grant of incentive stock options, nonqualified stock options or other awards including stock appreciation rights and restricted stock awards to the Company’s employees, officers, directors, advisors, and consultants for the purchase of up to 1.5 million shares of the Company’s common stock. In July 2018 and January 2019, the 2015 Plan was amended to increase the number of shares reserved thereunder by 1.0 million and 0.4 million shares, respectively. In March 2020, the Company’s board of directors and stockholders voted to increase the number of shares reserved for issuance under the 2015 Plan by 1.4 million shares. In May 2020, the board of directors adopted the 2020 Stock Options and Incentive Plan (the “2020 Plan”). The 2015 plan was suspended and no further grants may be issued under the 2015 Plan. The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options or other awards including stock appreciation rights, restricted stock awards and restricted stock units to the Company’s employees, officers, directors, advisors, and consultants for the purchase of up to 4.2 million shares of the Company’s common stock. In addition, to the extent that awards outstanding under the 2020 Plan or the 2015 Plan are cancelled, forfeited or held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the registrant prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) subsequent to May 2020, the shares of common stock reserved for issuance pursuant to such awards will become available for issuance as shares of common stock under the 2020 Plan. The 2020 Plan provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2020 Plan on January 1 of each year beginning January 1, 2021. The number of shares added each January 1 will be equal to the lesser of: (i) 5% of the outstanding shares on the immediately preceding December 31 or (ii) such amount as determined by the administrator of the 2020 Plan, which is the compensation committee of the board of directors. As of December 31, 2020, 3.6 million shares remained available for issuance under the 2020 Plan. Prior to the adoption of the 2020 Plan, options under the 2015 Plan could be granted for periods of up to 10 years and at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an incentive stock option granted to a 10.0% shareholder could not be less than 110.0% of the estimated fair value of the shares on the date of grant and the option was not exercisable after the expiration of five years from the date of grant. Options under the 2020 Plan may be granted for periods of up to 10 years and at prices no less than the market price of the Company’s common stock on the date of grant, provided, however, that the exercise price of an incentive stock option granted to a 10.0% shareholder shall not be less than 110.0% of the estimated fair value of the shares on the date of grant and the option is not exercisable after the expiration of five years from the date of grant. Restricted Common Stock Awards The Company granted restricted stock awards under the 2015 Plan. The purchase price of the restricted common stock awards was the estimated fair value as determined by the board of directors at the issuance date. The shares vest from one to four years and vesting could be accelerated upon a change in control. A holder of an award may pay a total purchase price or a part of the purchase price for granted shares at any time during the vesting periods. Upon termination of employment, the Company has the right to repurchase any unvested restricted shares. The repurchase price for unvested shares of common stock will be the lower of (i) the fair market value on the date of repurchase or (ii) their original purchase price. During the vesting term, holders of restricted stock awards are deemed to be a common stock shareholder and have dividends and voting rights. 134 The Company accounted for restricted stock awards as early exercised options and recognized a liability in other liabilities when cash was received for the purchase of shares of restricted stock. As shares of restricted stock vested, the Company reclassified the liability to common stock and additional paid in capital. As of December 31, 2020 and 2019, the Company recorded a liability included in accrued expenses and other liabilities of $ 1 0 ,000 and $ 22,000 , respectively. There have been no restricted stock awards granted during the years ended December 31, 2020 and 2019. The following table summarizes restricted stock activity during the year ended December 31, 2020: Number of Shares Weighted- Average Grant Date fair value Outstanding and unvested, as of December 31, 2019 302,211 $ 1.51 Issued — $ — Vested (163,568 ) $ 1.30 Repurchases (12,121 ) $ 1.22 Outstanding and unvested, as of December 31, 2020 126,522 $ 1.85 Restricted stock awards of 4,195 shares with a weighted-average grant date fair value of $0.08 per share, were not purchased by the award holders as of December 31, 2020. As these shares of the restricted common stock awards were not issued, they are not included in the table above. The aggregate fair value of restricted stock awards vested during the years ended December 31, 2020 and 2019 was $0.2 million and $0.4 million, respectively. Total intrinsic value of outstanding unvested restricted stock awards as of December 31, 2020 and 2019 was $2.9 million and $2.1 million, respectively. Incentive Stock Options and Nonqualified Stock Options Stock options issued under either the 2015 Plan or the 2020 Plan generally vest over a four-year period and expire ten years from the date of grant. Certain options provide for accelerated vesting if there is a change in control, as defined in the respective plans. The Company used Black-Scholes option pricing model to estimate stock-based compensation expense for stock option awards with the following assumptions: Year Ended December 31, 2020 2019 Expected volatility 72.10% - 77.50% 74.80% - 82.53% Risk-free interest rate 0.27% - 0.82% 1.43% - 2.59% Expected dividend — — Expected term (in years) 5.26 - 6.75 5.00 - 6.08 Underlying common stock fair value 6.22 - 28.79 5.15 - 7.08 A summary of option activity under the 2015 Plan and the 2020 Plan is as follows: Number of Options Weighted- Average Exercise Price per Share Weighted- Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value Outstanding as of December 31, 2019 1,337,501 $ 3.22 9.18 $ 5,157 Granted 1,830,738 $ 11.43 Exercised (136,223 ) $ 3.25 Forfeited (38,161 ) $ 8.13 Outstanding as of December 31, 2020 2,993,855 $ 8.18 8.84 $ 43,890 Exercisable as of December 31, 2020 736,601 $ 4.19 8.22 $ 13,664 Vested and expected to vest as of December 31, 2020 2,993,855 $ 8.18 8.84 $ 43,890 135 Aggregate intrinsic value represents the difference between the fair value of the underlying common stock and the exercise price as of December 31, 2020 and 2019. The weighted-average grant date fair value of options granted during years ended December 31, 2020 and 2019 was $7.27 per share and $4.37 per share, respectively. As of December 31, 2020, there was $0.2 million of unrecognized compensation costs that is expected to be recognized over the weighted-average periods of 1.22 years related to restricted stock awards. As of December 31, 2020, there was $14.3 million of unrecognized compensation costs that is expected to be recognized over the weighted-average periods of 2.72 years related to stock options. 2020 Employee Stock Purchase Plan In June 2020, the Company adopted the 2020 ESPP. The Company reserved 700,000 shares of common stock for future issuance under the plan. The 2020 ESPP provides that the number of shares reserved and available for issuance will automatically increase on January 1 of each calendar year, beginning January 1, 2021, by the least of (i) 1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, (ii) 700,000 shares or (iii) such lesser amount as determined by the administrator of the 2020 ESPP, which is the compensation committee of the board of directors. Under the 2020 ESPP, eligible employees may purchase shares of our common stock through payroll deductions that cannot exceed 15% of each employee’s salary. The 2020 ESPP provides for a six-month offering period. At the end of the purchase period, eligible employees are permitted to purchase shares of common stock at the lower of 85% of the fair market value at the beginning of the offering period or 85% of the fair market value at the end of the purchase period, subject to tax limitations on the total value of the purchase. The 2020 ESPP is considered a compensatory plan, and the Company recorded $0.5 million in stock-based compensation expense for year ended December 31, 2020. There was no stock-based compensation expense attributed to the 2020 ESPP for the year ended December 31, 2019 as the 2020 ESPP was adopted in 2020. As of December 31, 2020, no shares of common stock were issued under the 2020 ESPP. The Company used Black-Scholes option pricing model to estimate stock-based compensation expense for the 2020 ESPP with the following assumptions: Year Ended December 31, 2020 2019 Risk-free interest rate 0.11 % — Expected term of options (in years) 0.58 — Expected stock price volatility 83.72 % — Expected dividends — — Stock-Based Compensation Expense The following table presents the classification of stock-based compensation expense for the years ended December 31, 2020 and 2019 (in thousands): Year Ended December 31, 2020 2019 Research and development expenses $ 1,719 $ 584 General and administrative expenses 2,176 1,245 Total stock-based compensation expense $ 3,895 $ 1,829 136 12. Income Taxes The Company had a pre-tax U.S. book loss of $41.5 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively. For the years ended December 31, 2020 and 2019, the Company did not record an income tax provision. The Company will continue to maintain a 100% valuation allowance on total deferred tax assets. The Company believes it is more likely than not that the related deferred tax asset will not be realized. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2020 2019 Income tax computed at federal statutory rate 21.0 % 21.0 % State taxes, net of federal tax benefit 7.4 % 2.7 % General business credit—federal 5.3 % 295.9 % Stock-based compensation (1.0 )% (50.0 )% Other permanent differences (0.1 )% (2.4 )% Change in valuation allowance (32.6 )% (267.7 )% Effective income tax rate 0.0 % (0.5 )% Net deferred tax assets and liabilities consisted of the following (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating losses $ 27,047 $ 16,655 Research and development credits 7,617 4,949 Accrued expenses 291 130 Other 474 247 Deferred rent 266 124 Stock based compensation 428 73 Total deferred tax assets 36,123 22,178 Deferred tax liabilities: Asset basis $ (124 ) $ (110 ) Prepaid expenses (558 ) (139 ) Total deferred tax liabilities (682 ) (249 ) Valuation allowance 35,441 21,929 Net deferred taxes $ — $ — Net operating losses and tax credit carryforwards were as follows (in thousands): December 31, 2020 Expiration Year Net operating losses, federal (starting from January 1, 2018) $ 66,963 Does not expire Net operating losses, federal (before January 1, 2018) $ 29,486 2035-2037 Net operating losses, state $ 97,273 2035-2040 Tax credits, federal $ 7,518 2036-2040 Tax credits, state $ 2,540 Does not expire Utilization of the net operating loss carryforwards and research credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code (“IRC”) and similar state provisions. Annual limitations may result in the expiration of the net operating losses and tax credit carryforwards before they are utilized. The Company performed a IRC Section 382 analysis through December 31, 2020 and does not expect any previous ownership changes to result in a limitation that will reduce the total amount of net operating loss and tax credit carryforwards disclosed that can be utilized. Subsequent ownership changes may affect the limitation in future years. 137 During the years ended December 31, 20 20 and 2019, the Company recorded a full valuation allowance on federal and state deferred balances since management does not forecast the Company to be in a profitable position in the near future. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 20 20 and 2019 related primarily to the increases in net operating loss carryforwards and research and development tax credit carryforwards and were as follows (in thousands): Year Ended December 31, 2020 2019 Valuation allowance at the beginning of the year $ 21,929 $ 20,240 Increases recorded to income tax provision 13,512 1,689 Valuation allowance at the end of the year $ 35,441 $ 21,929 The Company’s U.S. federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2017 through December 31, 2020. There are currently no pending income tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period. The entire amount of the unrecognized tax benefits would not impact the Company’s effective tax rate if recognized. The Company has elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2020 and 2019, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease during the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): Year Ended December 31, 2020 2019 January 1 $ 1,355 $ 855 Additions based on tax positions related to current year 513 570 Additions (reductions) for tax positions of prior year 139 (70 ) December 31 $ 2,007 $ 1,355 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "Cares Act") was enacted. The CARES Act changed net loss carryforward and back provisions and the business interest expenses limitation. The Company has evaluated the impact of the CARES Act and determined that none of the changes would result in a material cash benefit to the Company. 13. Commitments and Contingencies Purchase Commitments The Company has contractual arrangements with research and development organizations and suppliers; however, these contracts are generally cancelable on 30 days’ notice and the obligations under these contracts are largely based on services performed. License and Collaboration Agreements Potential payments related to the Company’s license and research agreements, including milestone and royalty payments, are detailed in Notes 6 and 7. Leases In February 2018, the Company entered into a non-cancelable lease agreement (the “Lease”) for premises consisting of approximately 32,974 square feet located in South San Francisco, California (the “Premises”). The Company moved into the Premises in July 2018. The Premises is being used for the Company’s corporate headquarters and principal operating facility. The term of the Lease is eighty-four months, which commenced on July 1, 2018. Base rent was abated for the first two months of the lease term and thereafter is $0.2 million per month during the first year of the lease term, with specified annual increases thereafter. The Company paid a refundable security deposit of approximately $0.4 million, which is included in other non-current assets in the Balance Sheets at December 31, 2020 and 2019. The Company has the right to extend the lease term by seven years upon written notice not more than twelve months nor less than nine months prior to the expiration of the original lease term, with monthly payments equal to the “fair rental value” as defined in the Lease. 138 R ent expense, including common area maintenance expense, was $ 2.5 million for each of the year ended December 31, 2020 and 2019 . Future minimum lease payments under the Lease as of December 31, 2020 were as follows (in thousands): Year ending December 31: Operating Lease 2021 $ 2,027 2022 2,098 2023 2,171 2024 2,247 2025 1,144 Total $ 9,687 Legal Proceedings From time to time, we may become involved in legal proceedings arising from the ordinary course of business. We record a liability for such matters when it is probable that future losses will be incurred and that such losses can be reasonably estimated. Significant judgment by us is required to determine both probability and the estimated amount. Management is currently not aware of any legal matters that could have a material adverse effect on our financial position, results of operations or cash flows. Indemnification In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance. 14. Related Party Transactions In 2019, certain employees of Third Rock Ventures, a stockholder of the Company, provided consulting services to the Company. Commencing January 2020, Third Rock Ventures ceased providing management consulting services to the Company. The Company recorded no consulting expenses for consulting services provided by Third Rock Ventures during the year ended December 31, 2020. The Company recorded Third Rock Ventures consulting expenses to general and administrative expense of $36,000 for the year ended December 31, 2019. In March 2020, the Company granted 26,573 stock options with a grant date fair value of $0.1 million to a partner at Third Rock Ventures, who is also serving as a non-employee director on the Company’s Board of Directors. The common shares subject to these options vest 1/12th on the last day of each calendar quarter over a three-year period and commenced vesting upon our IPO. In order to vest at each calendar quarter end date, the shareholder must be providing continuous service to the Company through such vesting date. The stock-based compensation expense related to these options was immaterial during the years ended December 31, 2020. From time to time, the Company makes charitable contributions to the University of California, San Francisco Foundation (the “UCSF Foundation”), which are directed to support research performed in the laboratories of three of the Company’s scientific founders. The Company made charitable contributions to the UCSF Foundation in the amount of $0.7 million and $0.4 million during the years ended December 31, 2020 and 2019, respectively. The Company paid its scientific founders, who are members of the Company’s scientific advisory board, $0.2 million during the years ended December 31, 2020 and 2019. In October 2019, the Company entered into the Novartis Agreement with Novartis covering the development and commercialization of Pliant’s preclinical product candidate, PLN-1474 and up to three additional targets. Upon execution of the Agreement, Pliant also entered into a financing side letter with Novartis, whereby Novartis committed to provide up to $30.0 million in equity financing of which $20.0 million was provided for preferred shares as a part of a Series C equity offering and the remaining $10.0 million was completed in a private placement for common shares upon the Company’s IPO. As of December 31, 2020 and 139 2019, Novartis owned approximately 6.1 % and 7.4 %, respectively, of our outstanding shares of common stock on a fully diluted basis. See Notes 6 and Note 9 for additional information . 15. Defined Contribution Plan The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all full-time U.S. employees. Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. The Company made contributions to the plan of $0.4 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively. 16. Net Loss Per Share Attributable to Common Stockholders The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been antidilutive: Year Ended December 31, 2020 2019 Redeemable convertible preferred stock (on an as-converted basis) — 18,442,233 Options to purchase common stock 2,993,855 1,337,501 Restricted stock awards granted and not purchased 4,195 4,195 Unvested restricted shares 126,522 302,211 Total 3,124,572 20,086,140 A reconciliation of the numerator and denominator used in the calculation of the basic and diluted net loss per share attributable to common stockholders is as follows (in thousands, except share and per share amounts): Year Ended December 31, 2020 2019 Net loss per share: Numerator Net loss $ (41,533 ) $ (631 ) Less: accretion to redemption value and dividends on redeemable convertible preferred shares — (6,225 ) Net loss attributable to common stockholders $ (41,533 ) $ (6,856 ) Denominator Weighted-average common shares outstanding used to calculate net loss per share attributable to common stockholders: Basic 21,344,236 1,623,358 Diluted 21,344,236 1,623,358 Net loss per share attributable to common stockholders: Basic $ (1.95 ) $ (4.22 ) Diluted $ (1.95 ) $ (4.22 ) 140 I tem 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.