PLIANT THERAPEUTICS, INC. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 107 Balance Sheets as of December 31, 202 1 and 20 20 109 Statements of Operations and Comprehensive Loss for the Years ended December 31, 20 21 , 2020 and 20 19 110 Statements of Stockholders’ Equity (Deficit) for the Years ended December 31, 202 1 , 20 20 and 20 19 111 Statements of Cash Flows for the Years ended December 31, 202 1 , 2020 and 20 19 114 Notes to Financial Statements 116 106 Table of Contents 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, 2021 and 2020, the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases effective January 1, 2021 due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) Topic 842, Leases (“ASC 842”), using the modified retrospective approach. 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 PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accrued Liabilities and Prepaid Expenses and Other Current Assets – Accrued and Prepaid Research and Development Expenses — Refer to Notes 2, 5 and 6 to the financial statements Critical Audit Matter Description The Company records accrued expenses for costs of research and development activities which include the conduct of clinical studies and preclinical studies by third-party service providers, based upon the estimated amount of services provided but not yet invoiced. Any payments made in advance of services provided are recorded as prepaid assets, which are expensed as the contracted services are performed. The Company estimates the amount of work completed through review of detailed budgets and timelines included in its contracts and agreements, and updates these estimates with 107 Table of Contents information obtained from third-party service providers and internal personnel on a quarterly basis. As of December 31, 2021, accrued research and development expenses were $5.9 million and prepaid research and development expenses were $2.8 million. Given the significant judgments made by management in estimating the progress or stage of completion of the services, auditing the Company’s accrued and prepaid research and development expenses was especially challenging. Specifically, because the amount of accrued and prepaid research and development expenses is dependent on management’s receipt of timely and accurate reporting from third-party service providers, management’s estimates of work completed as of the balance sheet date, and management’s estimates of the period over which this work will be performed, auditing accrued and prepaid research and development expenses required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s accrued and prepaid research and development expenses included the following, among others: • We tested the design and operating effectiveness of internal controls related to the estimation of accrued and prepaid research and development expenses. • For a sample of agreements and contracts, we read the related statement of work, purchase order, and inspected information the Company received from its third-party service providers. We tested the accuracy and completeness of the underlying information used in the estimates and evaluated the significant assumptions that are used by management to estimate the recorded amounts by performing the following procedures: ◦ Performed corroborating inquiries with the Company’s research and development personnel that oversee the preclinical and clinical studies to obtain information regarding the nature and extent of progress of preclinical and clinical studies. ◦ Obtained external written confirmations from the Company’s third-party service providers regarding the accuracy and completeness of contracted amounts and percentage of completion. ◦ Evaluated management’s judgments using the evidence obtained. • For a sample of agreements and contracts, we obtained the corresponding invoices and evidence of payment to test the Company’s disbursements made to third-party service providers as of December 31, 2021. • We compared invoices received by the Company subsequent to December 31, 2021 to the accrued research and development expenses recognized by the Company as of that date. /s/ Deloitte & Touche LLP (PCAOB ID No. 34 ) San Francisco, California February 28, 2022 We have served as the Company's auditor since 2018. 108 Table of Contents Pliant Therapeutics, Inc. Balance Sheets (In thousands, except number of shares and per share amounts) December 31, 2021 December 31, 2020 Assets Current assets Cash and cash equivalents $ 51,665 $ 50,882 Short-term investments 148,931 226,012 Accounts receivable 1,998 9,279 Tax credit receivable 83 83 Prepaid expenses and other current assets (Note 5) 6,764 4,498 Total current assets 209,441 290,754 Property and equipment, net 4,606 4,321 Operating lease right-of-use assets 6,330 — Other non-current assets 838 451 Total assets $ 221,215 $ 295,526 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 2,971 $ 2,023 Accrued liabilities (Note 6) 11,991 9,576 Lease liabilities, current 1,869 — Total current liabilities 16,831 11,599 Lease liabilities, non-current 5,325 — Other long-term liabilities (Note 6) — 866 Total liabilities 22,156 12,465 Commitments and contingencies (Note 14) Stockholders’ equity (deficit) Common stock, $ 0.0001 par value; 300,000,000 shares authorized at December 31, 2021 and 2020; and 36,083,301 and 35,552,795 shares issued and outstanding at December 31, 2021 and 2020, respectively; 3 3 Additional paid-in capital 414,348 400,918 Accumulated deficit ( 215,091 ) ( 117,828 ) Accumulated other comprehensive loss ( 201 ) ( 32 ) Total stockholders’ equity 199,059 283,061 Total liabilities and stockholders’ equity $ 221,215 $ 295,526 The accompanying notes are an integral part of these financial statements. 109 Table of Contents Pliant Therapeutics, Inc. Statements of Operations and Comprehensive Loss (In thousands, except number of shares and per share amounts) Year Ended December 31, 2021 2020 2019 Revenue $ 7,572 $ 41,817 $ 57,052 Operating expenses: Research and development ( 77,549 ) ( 66,193 ) ( 47,353 ) General and administrative ( 27,558 ) ( 17,269 ) ( 10,930 ) Total operating expenses ( 105,107 ) ( 83,462 ) ( 58,283 ) Loss from operations ( 97,535 ) ( 41,645 ) ( 1,231 ) Interest and other income (expense), net 272 112 600 Net loss $ ( 97,263 ) $ ( 41,533 ) $ ( 631 ) Accretion to redemption value and dividends on redeemable convertible preferred stock — — ( 6,225 ) Net loss attributable to common stockholders $ ( 97,263 ) $ ( 41,533 ) $ ( 6,856 ) Net loss per share, attributable to common stockholders: Basic $ ( 2.71 ) $ ( 1.95 ) $ ( 4.22 ) Diluted $ ( 2.71 ) $ ( 1.95 ) $ ( 4.22 ) Shares used in computing net loss per share attributable to common stockholders: Basic 35,846,421 21,344,236 1,623,358 Diluted 35,846,421 21,344,236 1,623,358 Comprehensive loss: Net loss $ ( 97,263 ) $ ( 41,533 ) $ ( 631 ) Other comprehensive loss: Net unrealized loss on short-term investments ( 169 ) ( 31 ) ( 1 ) Total other comprehensive loss ( 169 ) ( 31 ) ( 1 ) Comprehensive loss $ ( 97,432 ) $ ( 41,564 ) $ ( 632 ) The accompanying notes are an integral part of these financial statements. 110 Table of Contents 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 Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Series A Series B Series C Common Stock Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2020 — $ — — $ — — $ — 35,552,795 $ 3 $ 400,918 $ ( 32 ) $ ( 117,828 ) $ 283,061 Vesting of restricted stock awards — — — — — — 103,164 — 9 — — 9 Option exercises — — — — — — 427,342 — 2,984 — — 2,984 Stock-based compensation expense — — — — — — — — 10,437 — — 10,437 Net unrealized loss on short-term investments — — — — — — — — — ( 169 ) — ( 169 ) Net loss — — — — — — — — — — ( 97,263 ) ( 97,263 ) Balance at December 31, 2021 — $ — — $ — — $ — 36,083,301 $ 3 $ 414,348 $ ( 201 ) $ ( 215,091 ) $ 199,059 The accompanying notes are an integral part of these financial statements. 111 Table of Contents 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 Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity (Deficit) Series A Series B Series C Common Stock Shares Amount Shares Amount Shares Amount Shares Amount 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 founders’ common stock and 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. 112 Table of Contents 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 Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity (Deficit) Series A Series B Series C Common Stock Shares Amount Shares Amount Shares Amount Shares Amount 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 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. 113 Table of Contents Pliant Therapeutics, Inc. Statements of Cash Flows (In thousands) 114 Table of Contents Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 97,263 ) $ ( 41,533 ) $ ( 631 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 1,535 1,310 1,113 Stock-based compensation expense 10,437 3,895 1,829 Noncash lease expense 1,669 — — Other 1,262 266 — Changes in operating assets and liabilities: Tax credit receivable — 250 167 Accounts receivable 7,281 ( 2,227 ) ( 7,052 ) Prepaid expenses and other current assets ( 2,266 ) ( 2,756 ) ( 1,458 ) Other non-current assets 70 ( 70 ) 232 Accounts payable 891 922 ( 1,255 ) Accrued liabilities 2,695 2,689 4,255 Operating lease liabilities ( 1,754 ) — — Deferred rent and other long-term liabilities — ( 17 ) 50 Net cash used in operating activities ( 75,443 ) ( 37,271 ) ( 2,750 ) Cash flows from investing activities: Purchase of short-term investments ( 219,887 ) ( 322,605 ) ( 51,713 ) Accretion on short-term investments — — ( 254 ) Maturity of short-term investments 295,539 113,271 35,000 Purchase of property and equipment ( 1,953 ) ( 1,532 ) ( 964 ) Net cash used in investing activities 73,699 ( 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 issuances of common stock 2,984 442 174 Payment of deferred offering costs ( 457 ) — ( 2,582 ) Net cash provided by financing activities 2,527 213,212 45,539 Net increase (decrease) in cash and cash equivalents 783 ( 34,925 ) 24,858 Cash and cash equivalents at beginning of period 50,882 85,807 60,949 Cash and cash equivalents at end of period $ 51,665 $ 50,882 $ 85,807 Supplemental disclosures of noncash investing and financing activities: Purchase of property and equipment in accounts payable and accrued liabilities $ 57 $ 188 $ 159 Reclassification of restricted stock awards from liabilities to common stock upon vesting $ 9 $ 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 $ ( 169 ) $ ( 31 ) $ ( 1 ) The accompanying notes are an integral part of these financial statements. 115 Table of Contents Pliant Therapeutics, Inc. Notes to Financial Statements 1. Organization and Description of Business Pliant Therapeutics, Inc. (the “Company” or "Pliant" or “we” or “our” or “us”) 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-β. 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 On May 22, 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 had been converted into common stock. Initial Public Offering In June 2020, the Company completed its initial public offering (the “IPO”), in which the Company issued and sold an aggregate of 10,350,000 shares of common stock, which consisted of 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. 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 Institutes for Biomedical Research, Inc. (“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 immediately after the IPO. 2. Summary of Significant Accounting 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”). Certain prior year reported amounts have been reclassified to conform with the current period presentation. 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 in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development costs, fair value of assets and liabilities, stock-based compensation, income taxes and uncertain tax positions. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances, however, actual results may differ from those estimates. 116 Table of Contents Revenue Recognition The Company accounts for revenues in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ( Topic 606). To determine revenue recognition for arrangements that fall within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. To date, our revenues have been generated solely from the Collaboration and License Agreement with Novartis (the “Novartis Agreement”). The Novartis Agreement includes licenses of intellectual property, cost reimbursements, research and development services, upfront signing fees, milestone payments and royalties on future licensee’s product sales. As part of accounting for this arrangement, we must apply judgment to determine whether the performance obligations are distinct, and develop assumptions in determining the stand-alone selling price for each distinct performance obligation identified in the contract. To determine the stand-alone selling price, we rely on assumptions which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. Licenses of Intellectual Property If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenues. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Milestone Payments At the inception of an arrangement that includes development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and license revenue in the period of adjustment. Research and development services Amounts related to research and development services are recognized as the related services or activities are performed, in accordance with the contract terms. The cost associated with full-time equivalent researchers is estimated each period and billable to Novartis based at specified full-time equivalent rates. Royalties: The sales-based royalties, including milestone payments based on the level of sales, are considered to be predominately related to the license included in the arrangement, and we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue from the Novartis Agreement. We recognize contract assets when we have 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). 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. 117 Table of Contents Receivables cannot be netted against contract liabilities and would be presented separately from contract assets. Contract assets and contract liabilities are netted at the contract level. 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 years ended December 31, 2021, 2020 and 2019, Novartis accounted for 100 % of the Company’s revenue 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 118 Table of Contents current assets in the Balance Sheets. As of December 31, 2021 and 2020, all of the Company’s short-term investments were classified as available-for-sale and were carried at fair market value with unrealized losses recorded in other comprehensive loss in the statements of operations and comprehensive loss. See Note 3 for further details. 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, 2021, the Company had not recorded any impairment related to other-than-temporary declines in the fair value of short-term investments. The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) as of January 1, 2021, which did not have a significant impact on its financial statements. For available-for-sale debt securities in unrealized loss positions, ASU 2016-13 requires the Company to record an allowance for credit losses using an expected loss model, which replaces the incurred loss model required under the previous guidance. A credit loss is limited to the amount by which the amortized cost of an investment exceeds its fair value. A previously recognized credit loss may be decreased in subsequent periods if the Company’s estimate of fair value for the investment increases. To determine whether to record a credit loss, the Company considers issuer specific credit ratings and historical losses as well as current economic conditions and its expectations for future economic conditions. 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. Leases Upon adoption of Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), the Company determines if an arrangement contains a lease at the inception of the contract and a records right-of-use (“ROU”) asset and lease liability on the balance sheet at lease commencement based on the present value of remaining lease payments over the lease term. The Company only considers payments that are fixed and determinable at the time of commencement. For leases with an initial term greater than 12 months, lease liabilities are recognized based on the present value of the future minimum lease payments discounted by the Company’s estimated incremental borrowing rate. The Company measures ROU assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) tenant incentives under the lease. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company calculates the present value of future minimum lease payments using its estimated incremental borrowing rate when the discount rate implicit in the lease is not known. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. In determining its incremental borrowing rate, the Company gives consideration to its credit risk, term of the lease, total lease payments and an analysis of peer companies with profiles similar to its own. The Company has elected the short-term lease practical expedient to exclude leases with a term less than 12 months from its ROU assets and lease liabilities. The Company records rent expense for short-term leases in its statements 119 Table of Contents of operations on a straight-line basis over the lease term and records variable lease payments as incurred. The Company has also elected to not separate lease and non-lease components and, as a result, accounts for any lease and non-lease components as a single lease component. 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, 2021, 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 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. We estimate the amount of work completed through review of detailed budgets and timelines included in our contracts and agreements, and update these estimates with information obtained from third-party service providers and internal personnel on a quarterly basis. 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. 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. 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. 120 Table of Contents 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 utilizing the simplified method, which represents the average of the weighted-average vesting term and the contract period of the awards. 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, the Company 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, the Company uses our stock price traded on NASDAQ to determine its fair value. 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. The Company's comprehensive loss represents unrealized losses on short-term investments. 121 Table of Contents 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 during the years ended December 31, 2021, 2020 and 2019. Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-2, Leases (“Topic 842”), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. Subsequent to this, the FASB issued various amendments to ASC 842, which affected certain aspects of the previously issued guidance. One of the amendments included an additional transition option that allowed entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings. These updates were effective for public companies for annual periods beginning after December 15, 2018, including interim periods therein. Because the Company lost its EGC status on December 31, 2021, the standard became effective for the Company for its annual period beginning January 1, 2021. Amounts prior to January 1, 2021 were not adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840, Leases . The Company adopted ASC 842 and all related amendments effective January 1, 2021 using the modified retrospective transition approach. The Company elected the package of practical expedients upon adoption, which permitted the Company to not reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected the short-term lease exception policy, permitting it to exclude the recognition requirements of this standard from leases with initial terms of 12 months or less. The adoption of ASC 842 effective January 1, 2021 resulted in the recognition of operating lease ROU assets of $ 8.0 million and operating lease liabilities of $ 8.9 million in the Company’s balance sheet. In connection with the adoption, pre-existing liabilities for deferred rent and lease incentives totaling $ 0.9 million were reclassified as an offset to the operating lease ROU assets. The Company’s financial position and operating results for reporting periods prior to January 1, 2021 have not been adjusted and continue to be presented in accordance with the accounting standard in effect at that time. The adoption of ASC 842 did not have a material impact on the 2021 quarterly or annual results of operations or cash flows and had no impact on retained earnings. In 2016, the FASB issued ASU 2016-13, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, ASU 2016-13 requires 122 Table of Contents allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 became effective on January 1, 2021. The adoption of ASU 2016-13 did not have an impact on the Company’s financial statements. 3. Financial Instruments The Company’s short-term investments consist of U.S. Treasury securities, U.S. Government agency securities and highly rated, investment-grade corporate debt securities with original 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 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. There were no Level 3 assets or liabilities as of December 31, 2021 and 2020. 123 Table of Contents The following tables show the Company’s cash and cash equivalents, Money Market Funds and short-term investments by significant investment category as of December 31, 2021 and 2020 (in thousands): As of December 31, 2021 Adjusted Cost Unrealized Gains Unrealized Losses Market Value Level 1: Money Market Funds $ 15,329 $ — $ — $ 15,329 Level 2: U.S. government agency securities included in short-term investments 5,003 — — 5,003 Corporate debt securities included in cash and cash equivalents and short-term investments 163,626 1 ( 202 ) 163,425 Total financial assets $ 183,958 $ 1 $ ( 202 ) $ 183,757 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 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 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, 2021: Adjusted Cost Market Value Mature in 1 year or less $ 114,076 $ 113,974 Mature in 1 to 2 years 35,054 34,956 Total $ 149,130 $ 148,930 There were no liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020. There have been no transfers between fair value measurement levels during the years ended December 31, 2021 and 2020. In addition, there were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2021 and 2020. As of December 31, 2021, the Company had not recorded any impairment related to other-than-temporary declines in the fair value of short-term investments. 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 and other income (expense), net in its statement of operations and comprehensive loss. 124 Table of Contents 4. Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2021 2020 Laboratory equipment $ 7,947 $ 6,540 Leasehold improvements 1,618 947 Construction-in-progress 38 300 Computer equipment and software 22 22 Total property and equipment 9,625 7,809 Less: Accumulated depreciation ( 5,019 ) ( 3,488 ) Total property and equipment, net $ 4,606 $ 4,321 Depreciation expense during the years ended December 31, 2021, 2020 and 2019 was $ 1.5 million, $ 1.3 million, $ 1.1 million, respectively. 5. Prepaid expenses and other current assets Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2021 2020 Prepaid research and development $ 2,819 $ 1,898 Prepaid insurance 2,585 1,459 Prepaid licenses 819 665 Interest receivable 385 386 Other 156 90 Total prepaid expenses and other current assets $ 6,764 $ 4,498 6. Accrued Liabilities and Other Long-Term Liabilities Accrued Liabilities Accrued liabilities consisted of the following (in thousands): December 31, 2021 2020 Accrued research and development expenses $ 5,868 $ 3,274 Accrued compensation and benefits 5,216 4,542 Other accrued liabilities 907 1,675 Deferred rent — 85 Total accrued liabilities $ 11,991 $ 9,576 Accrued compensation and benefits consist primarily of accrued bonuses and accrued vacation. 125 Table of Contents Other Long-Term Liabilities Other long-term liabilities consisted of the following (in thousands): December 31, 2021 2020 Deferred rent $ — $ 581 Leasehold incentive obligation — 283 Other liabilities — deposits — 2 Total other long-term liabilities $ — $ 866 7. Novartis Collaboration and License Agreement (the "Novartis Agreement") In 2019, we entered into 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 αvβ1, currently being developed for the treatment of liver fibrosis associated with nonalcoholic steatohepatitis (“NASH”). Pursuant to the agreement, we received an upfront, non-refundable license fee of $ 50.0 million and were eligible to receive additional payments of $ 416.0 million contingent upon achievement of specified research, development, regulatory and commercial events and royalties on world-wide net sales thereafter. Additionally, Novartis agreed to fund up to $ 19.6 million associated with research and development services for PLN-1474 and up to $ 13.4 million for research and development services on the integrin research targets. We assessed the Novartis Agreement in accordance with ASC 606 and determined that Novartis is a customer and identified the following performance obligations: (1) to provide worldwide license rights to PLN-1474, (2) to provide research and development services for PLN-1474, (3) to provide non-exclusive license rights to integrin research targets, and (4) to provide research and development services on integrin research targets. We determined that the license to PLN-1474 was functional intellectual property and distinct as Novartis is capable to benefit from the license on its own or together with other resources that are readily available, and the research and development services we promise to deliver are not transformative in nature. Additionally, we concluded that the non-exclusive license rights to integrin research targets were not distinct in the context of the arrangement as the promised research and development services on integrin research targets were expected to significantly modify the license and Novartis could not benefit from the non-exclusive license without such services. Therefore, the non-exclusive license rights and research and development services on integrin research targets were considered a single performance obligation. We determined the transaction price of the PLN-1474 research and development services and integrin target research and development services was $ 20.0 million and $ 13.4 million, respectively, as of December 31, 2021, and the performance obligations associated with the aggregate unrecognized transaction price of $ 2.0 million would be satisfied in 2022. As of December 31, 2021, variable consideration associated with specified research and development milestones totaling $ 391 million have been constrained from the transaction prices but remain eligible for achievement. We are utilizing a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. We believe this is the best measure of progress because other measures do not reflect how we transfer the performance obligation to our counterparty. In applying the cost-based input method of revenue recognition, we use actual costs incurred relative to budgeted costs to fulfill the performance obligation. These costs consist primarily of third-party contract costs and internal full-time equivalent effort. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the performance obligations. The cumulative effect of revisions to estimated costs to complete the performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods. During the year ended December 31, 2021, we recognized revenue of $ 7.6 million which consisted of revenue generated from research and development services. During the year ended December 31, 2020, we recognized revenue of $ 41.8 million, which consisted of $ 25.0 million 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. During the year ended December 31, 2019, Company recognized revenue of $ 50.0 million related to the license fee and $ 7.1 million from research and development services. As of December 31, 2021 and 2020, there was a receivable of $ 2.0 million and $ 9.3 million, respectively, related to the Novartis Agreement. There were no contract assets or contract liabilities as of December 31, 2021 and 2020. 126 Table of Contents 8. Regents of the University of California License Agreement (the “UC Agreement”) In 2015, we entered into the UC Agreement to obtain an exclusive, worldwide license relating to the use of certain patents and technology relating to αvß1 compound in fibrosis indications. Pursuant to the UC Agreement, we made a $ 2.4 million milestone payment upon the close of our IPO in June 2020. Subsequently, we determined the licensed technology was no longer relevant to the development of our product candidates and, therefore, we exercised our right to terminate the UC Agreement which became effective in the first quarter of 2021. No further obligations or financial commitments survive the termination. 9. Adimab Development and Option Agreement (the "Adimab Agreement") In 2018, we entered into a development and option agreement with Adimab, LLC (“Adimab”) for the discovery and optimization of proprietary antibodies as potential therapeutic product candidates. Under the Adimab Agreement, we 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. We are required to pay Adimab 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. We have 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 24 antibodies of our selection. During the years ended December 31, 2021, 2020 and 2019, we recognized research and development expenses associated with full-time employee costs of $ 28,000 , $ 0.2 million and $ 0.2 million, respectively. 10. 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. These rights preferences and terms could include dividend rights, conversion rights, voting rights, terms of redemptions, liquidation preferences and sinking fund terms. As a result of the IPO in June 2020, all then outstanding convertible preferred stock was converted into shares of common stock. There are no outstanding shares of preferred stock as of December 31, 2021. 11. Common Stock As of December 31, 2021 and 2020, the Company had 300,000,000 authorized shares of common stock, 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. 127 Table of Contents Shares reserved for future issuance December 31, 2021 2020 Outstanding stock option awards 3,620,180 2,993,855 Shares of common stock available for future grants under the 2020 Stock Option and Incentive Plan 4,234,213 3,644,459 Shares of common stock available for future issuance under the 2020 Employee Stock Purchase Plan 613,098 700,000 Total shares reserved for future issuance 8,467,491 7,338,314 12. Stock-Based Compensation Equity Incentive Plans In 2015, the Company's Board of Directors adopted the 2015 Equity Incentive Plan, as amended in 2018, 2019 and 2020 (the “2015 Plan”), which provided 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. In May 2020, the Board of Directors adopted the 2020 Stock Option and Incentive Plan (the “2020 Plan”) and suspended the 2015 Plan. Awards outstanding under either the 2015 Plan or 2020 Plan that are cancelled, expire or otherwise terminated subsequent to May 2020 will become available for issuance as common stock under the 2020 Plan. Additionally, the 2020 Plan is subject to automatic increases 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 of the Company. 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. As of December 31, 2021, the 2020 Plan had 4,234,213 shares of common stock available for future issuance. 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 % shareholder shall not be less than 110 % 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 Company's 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 common stock shareholders and have dividends and voting rights. 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, 2021 and 2020, the Company recorded a liability included in accrued expenses and other liabilities of $ 2,000 and $ 10,000 , respectively. There were no grants of restricted stock awards during the years ended December 31, 2021 and 2020. 128 Table of Contents The following table summarizes restricted stock activity during the year ended December 31, 2021: Number of Shares Weighted- Average Grant Date fair value Outstanding and unvested, as of December 31, 2020 126,522 $ 1.85 Issued — $ — Vested ( 103,164 ) $ 1.78 Repurchases ( 1,517 ) $ 2.12 Outstanding and unvested, as of December 31, 2021 21,841 $ 2.16 The aggregate fair value of restricted stock awards vested during the years ended December 31, 2021 and 2020 was $ 0.2 million each year. Total intrinsic value of outstanding unvested restricted stock awards as of December 31, 2021 and 2020 was $ 0.3 million and $ 2.9 million, respectively. Incentive Stock Options and Nonqualified Stock Options Stock options issued under either the 2015 Plan or the 2020 Plan generally vest over four years 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, 2021 2020 2019 Expected volatility 74.83 % - 76.31 % 72.10 % - 77.50 % 74.80 % - 82.53 % Risk-free interest rate 0.61 % - 1.39 % 0.27 % - 0.82 % 1.43 % - 2.59 % Expected dividend — — — Expected term (in years) 5.44 - 6.08 5.26 - 6.75 5 - 6.08 Underlying common stock fair value 15.2 - 38.23 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, 2020 2,993,855 $ 8.18 8.84 $ 43,890 Granted 1,520,391 $ 26.03 Exercised ( 336,340 ) $ 5.21 Forfeited ( 557,726 ) $ 16.4 Outstanding as of December 31, 2021 3,620,180 $ 14.56 8.25 $ 16,735 Exercisable as of December 31, 2021 1,368,543 $ 9.76 7.66 $ 9,426 Vested and expected to vest as of December 31, 2021 3,620,180 $ 14.56 7.66 $ 16,735 Aggregate intrinsic value represents the difference between the fair value of the underlying common stock and the exercise price as of December 31, 2021 and 2020. The weighted-average grant date fair value of options granted during years ended December 31, 2021 and 2020 was $ 16.94 per share and $ 7.27 per share, respectively. 2020 Employee Stock Purchase Plan In June 2020, the Company adopted the Company's 2020 Employee Stock Purchase Plan (the "2020 ESPP"). The Company reserved 700,000 shares of common stock for future issuance under the plan. The 2020 ESPP provides that the 129 Table of Contents 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 of the Company. 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, $ 0.5 million and nil in stock-based compensation expense for year ended December 31, 2021, 2020 and 2019. As of December 31, 2021, 86,902 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, 2021 2020 2019 Risk-free interest rate 0.06 % - 0.07 % 0.11 % — Expected term of options (in years) 0.50 0.58 — Expected stock price volatility 67.16 % - 89.51 % 83.72 % — Expected dividends — — — Stock-Based Compensation Expense The following table presents the classification of stock-based compensation expense during the years ended December 31, 2021 and 2020 (in thousands): Year Ended December 31, 2021 2020 2019 Research and development expenses $ 3,928 $ 1,719 $ 584 General and administrative expenses 6,509 2,176 1,245 Total stock-based compensation expense $ 10,437 $ 3,895 $ 1,829 As of December 31, 2021, there was $ 37,000 of unrecognized compensation costs that is expected to be recognized over the weighted-average periods of 0.38 years related to restricted stock awards. As of December 31, 2021, there was $ 24.2 million of unrecognized compensation costs that is expected to be recognized over the weighted-average periods of 2.5 years related to stock options. 13. Income Taxes The Company had a pre-tax U.S. book loss of $ 97.3 million, $ 41.5 million, and $ 0.6 million for the years ended December 31, 2021, 2020 and 2019 respectively. During the years ended December 31, 2021, 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 assets will not be realized. 130 Table of Contents 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, 2021 2020 2019 Income tax computed at federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal tax benefit 7.7 % 7.4 % 2.7 % General business credit—federal 5.3 % 5.3 % 295.9 % Stock-based compensation ( 0.7 ) % ( 1.0 ) % ( 50.0 ) % Other permanent differences ( 0.1 ) % ( 0.1 ) % ( 2.4 ) % Change in valuation allowance ( 33.2 ) % ( 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, 2021 2020 Deferred tax assets: Net operating losses $ 51,554 $ 27,047 Research and development credits 13,989 7,617 Accrued expenses 292 291 Other 775 474 Deferred rent — 266 Lease liability 2,000 — Stock based compensation 1,816 428 Total deferred tax assets 70,426 36,123 Deferred tax liabilities: Fixed asset basis $ ( 61 ) $ ( 124 ) Prepaid expenses ( 921 ) ( 558 ) Right of use asset ( 1,760 ) — Total deferred tax liabilities ( 2,742 ) ( 682 ) Valuation allowance 67,684 35,441 Net deferred taxes $ — $ — Net operating losses and tax credit carryforwards were as follows (in thousands): December 31, 2021 Expiration Year Net operating losses, federal (starting from January 1, 2018) $ 155,231 Does not expire Net operating losses, federal (before January 1, 2018) $ 29,486 2035 - 2037 Net operating losses, state $ 182,964 2035 - 2041 Tax credits, federal $ 14,094 2036 - 2041 Tax credits, state $ 4,069 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, 2021 and does not expect any previous ownership changes to result in a limitation that will reduce the total amount of net operating loss and 131 Table of Contents tax credit carryforwards disclosed that can be utilized. Subsequent ownership changes may affect the limitation in future years. During the years ended December 31, 2021 and 2020, 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, 2021 and 2020 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, 2021 2020 Valuation allowance at the beginning of the year $ 35,441 $ 21,929 Increases recorded to income tax provision 32,243 13,512 Valuation allowance at the end of the year $ 67,684 $ 35,441 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, 2021. 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's accounting policy is to include interest and penalties as a component of tax expense. During the years ended December 31, 2021, 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, 2021 2020 2019 January 1 $ 2,007 $ 1,355 $ 855 Additions based on tax positions related to current year 1,081 513 570 Additions (reductions) for tax positions of prior year 417 139 ( 70 ) December 31 $ 3,505 $ 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. 14. Commitments and Contingencies Purchase Commitments The Company has contractual arrangements with research and development organizations and suppliers; however, these contracts are generally cancellable 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. Legal Proceedings From time to time, the Company may become involved in legal proceedings arising from the ordinary course of business. The Company 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. 132 Table of Contents 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. 15. Leases On January 1, 2021, the Company adopted ASC 842 and the following disclosures as of and for the year ended December 31, 2021 are presented under ASC 842. 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, 2021 and 2020. 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. The exercise of lease renewal options is at the sole discretion of the Company and is not included in the ROU asset and lease liability as it is not reasonably certain of exercise. This lease does not contain material variable rent payments, residual value guarantees, covenants, or other restrictions. For the year ended December 31, 2021, the Company recognized expenses associated with the operating leases of $ 2.3 million. Additionally, the Company incurred variable lease costs of $ 0.9 million which is comprised primarily of the Company's proportionate share of operating expenses, property taxes, and insurance. Short-term lease expense and variable lease payments recorded in operating expenses were immaterial for the year ended December 31, 2021. Cash paid for amounts included in the measurement of operating lease liabilities was $ 2.4 million. Maturities of the Company's operating lease liability as of December 31, 2021 were as follows: Year ending December 31: Operating Lease 2022 $ 2,360 2023 2,295 2024 2,365 2025 1,202 2026 — Total lease payments $ 8,222 Less: Present value discount 1,028 Total operating lease liabilities $ 7,194 The weighted-average remaining lease terms and discount rates related to the Company's operating leases were as follows: As of December 31, 2021 Weighted-average remaining lease term (in years) 3.40 Weighted-average discount rate 7.90 % Total rent expense under ASC 840 was $ 2.5 million during each of the years ending December 31, 2020 and 2019. 133 Table of Contents Future minimum lease payments under the Lease as of December 31, 2021 were as follows (in thousands): Year ending December 31: Operating Lease 2022 $ 2,098 2023 2,171 2024 2,247 2025 1,144 Total lease payments $ 7,660 16. 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 years ended December 31, 2021 and 2020. The Company recorded Third Rock Ventures consulting expenses to general and administrative expense of $ 36,000 during the year ended December 31, 2019. In June 2021, the Company granted 26,572 stock options with a grant date fair value of $ 0.5 million to partners of Third Rock Ventures who are also serving as non-employee directors on the Company's Board of Directors. The shares of common stock subject to these options ve st 25 % on the first day of each calendar quarter for three quarters with the final vest date being the earlier of (i) the one-year anniversary of the grant date or (ii) the next Annual Meeting of Stockholders. 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, 2021. 17. 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 $ 0.6 million, $ 0.4 million and $ 0.2 million during the years ended December 31, 2021, 2020 and 2019, respectively. 18. 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, 2021 2020 2019 Redeemable convertible preferred stock (on an as-converted basis) — — 18,442,233 Options to purchase common stock 3,620,180 2,993,855 1,337,501 Restricted stock awards granted and not purchased — 4,195 4,195 Unvested restricted shares 21,841 126,522 302,211 Total 3,642,021 3,124,572 20,086,140 134 Table of Contents 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, 2021 2020 2019 Net loss per share: Numerator Net loss $ ( 97,263 ) $ ( 41,533 ) $ ( 631 ) Less: accretion to redemption value and dividends on redeemable convertible preferred shares — — ( 6,225 ) Net loss attributable to common stockholders $ ( 97,263 ) $ ( 41,533 ) $ ( 6,856 ) Denominator Weighted-average common shares outstanding used to calculate net loss per share attributable to common stockholders: Basic 35,846,421 21,344,236 1,623,358 Diluted 35,846,421 21,344,236 1,623,358 Net loss per share attributable to common stockholders: Basic $ ( 2.71 ) $ ( 1.95 ) $ ( 4.22 ) Diluted $ ( 2.71 ) $ ( 1.95 ) $ ( 4.22 ) Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.