PLIANT THERAPEUTICS, INC. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting F ir m (PCAOB ID No. 34 ) 87 Balance Sheets as of December 31, 202 2 and 202 1 89 Statements of Operations and Comprehensive Loss for the Years ended December 31, 202 2 and 2021 90 Statements of Stockholders’ Equity for the Years ended December 31, 202 2 and 202 1 91 Statements of Cash Flows for the Years ended December 31, 202 2 and 202 1 93 Notes to Financial Statements 94 86 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, 2022 and 2021, the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the 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 Research and Development Liabilities and Prepaid Expenses and Other Current Assets – Accrued and Prepaid Research and Development Expenses — Refer to Notes 2 and 5 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 information obtained from third-party service providers and internal personnel on a quarterly basis. As of December 31, 2022, accrued research and development expenses were $11.2 million and prepaid research and development expenses were $3.4 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 87 Table of Contents 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: • 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, 2022. • We compared invoices received by the Company subsequent to December 31, 2022 to the accrued research and development expenses recognized by the Company as of that date. /s/ Deloitte & Touche LLP San Francisco, California March 9, 2023 We have served as the Company's auditor since 2018. 88 Table of Contents Pliant Therapeutics, Inc. Balance Sheets (In thousands, except number of shares and per share amounts) December 31, 2022 December 31, 2021 Assets Current assets Cash and cash equivalents $ 33,685 $ 51,665 Short-term investments 297,502 148,931 Accounts receivable 1,983 1,998 Tax credit receivable 83 83 Prepaid expenses and other current assets (Note 5) 7,058 6,764 Total current assets 340,311 209,441 Property and equipment, net 4,486 4,606 Operating lease right-of-use assets 5,422 6,330 Other non-current assets 394 838 Total assets $ 350,613 $ 221,215 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 1,580 $ 2,971 Accrued research and development 11,218 5,868 Accrued and other liabilities (Note 6) 8,658 6,123 Lease liabilities, current 2,457 1,869 Total current liabilities 23,913 16,831 Lease liabilities, non-current 3,429 5,325 Long-term debt (Note 7) 9,929 — Total liabilities 37,271 22,156 Commitments and contingencies (Note 12) Stockholders’ equity Common stock, $ 0.0001 par value; 300,000,000 shares authorized at December 31, 2022 and 2021; and 48,941,254 and 36,083,301 shares issued and outstanding at December 31, 2022 and 2021, respectively; 5 3 Additional paid-in capital 653,707 414,348 Accumulated deficit ( 338,412 ) ( 215,091 ) Accumulated other comprehensive loss ( 1,958 ) ( 201 ) Total stockholders’ equity 313,342 199,059 Total liabilities and stockholders’ equity $ 350,613 $ 221,215 The accompanying notes are an integral part of these financial statements. 89 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, 2022 2021 Revenue $ 9,685 $ 7,572 Operating expenses: Research and development ( 96,936 ) ( 77,549 ) General and administrative ( 39,949 ) ( 27,558 ) Total operating expenses ( 136,885 ) ( 105,107 ) Loss from operations ( 127,200 ) ( 97,535 ) Interest and other income (expense), net 4,670 272 Interest expense ( 791 ) — Net loss $ ( 123,321 ) $ ( 97,263 ) Net loss attributable to common stockholders $ ( 123,321 ) $ ( 97,263 ) Net loss per share, attributable to common stockholders: Basic $ ( 2.94 ) $ ( 2.71 ) Diluted $ ( 2.94 ) $ ( 2.71 ) Shares used in computing net loss per share attributable to common stockholders: Basic 42,015,908 35,846,421 Diluted 42,015,908 35,846,421 Comprehensive loss: Net loss $ ( 123,321 ) $ ( 97,263 ) Other comprehensive loss: Net unrealized loss on short-term investments ( 1,757 ) ( 169 ) Total other comprehensive loss ( 1,757 ) ( 169 ) Comprehensive loss $ ( 125,078 ) $ ( 97,432 ) The accompanying notes are an integral part of these financial statements. 90 Table of Contents Pliant Therapeutics, Inc. Statements of Stockholders’ Equity (In thousands, except number of shares and per share amounts) Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Common Stock Shares Amount Balance at December 31, 2021 36,083,301 $ 3 $ 414,348 $ ( 201 ) $ ( 215,091 ) $ 199,059 Vesting of restricted stock awards 21,841 — 2 — — 2 Option exercises 403,680 — 1,360 — — 1,360 Stock-based compensation expense — — 22,598 — — 22,598 Net unrealized loss on short-term investments — — — ( 1,757 ) — ( 1,757 ) Common stock issued in a public offering, net of offering expenses 12,432,432 2 215,399 — — 215,401 Net loss — — — — ( 123,321 ) ( 123,321 ) Balance at December 31, 2022 48,941,254 $ 5 $ 653,707 $ ( 1,958 ) $ ( 338,412 ) $ 313,342 The accompanying notes are an integral part of these financial statements. 91 Table of Contents Pliant Therapeutics, Inc. Statements of Stockholders’ Equity (In thousands, except number of shares and per share amounts) Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity Common Stock 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. 92 Table of Contents Pliant Therapeutics, Inc. Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 123,321 ) $ ( 97,263 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 1,823 1,535 Stock-based compensation expense 22,598 10,437 Noncash lease expense 1,858 1,669 (Accretion) amortization on short-term investments ( 1,806 ) 1,262 Changes in operating assets and liabilities: Accounts receivable 15 7,281 Prepaid expenses and other current assets ( 294 ) ( 2,266 ) Other non-current assets 201 70 Accounts payable ( 1,351 ) 891 Accrued liabilities 7,904 2,695 Operating lease liabilities ( 2,258 ) ( 1,754 ) Net cash used in operating activities ( 94,631 ) ( 75,443 ) Cash flows from investing activities: Purchase of short-term investments ( 325,716 ) ( 219,887 ) Maturity of short-term investments 177,272 295,539 Purchase of property and equipment ( 1,760 ) ( 1,953 ) Net cash (used in) provided by investing activities ( 150,204 ) 73,699 Cash flows from financing activities: Proceeds from sale of common stock in a public offering 216,201 — Proceeds term loan, net of issuance costs 9,850 — Proceeds from issuances of common stock under benefit plans 1,360 2,984 Payment of offering costs ( 557 ) ( 457 ) Net cash provided by financing activities 226,854 2,527 Net (decrease) increase in cash and cash equivalents ( 17,981 ) 783 Cash and cash equivalents at beginning of period 51,665 50,882 Cash and cash equivalents at end of period $ 33,684 $ 51,665 Supplemental disclosures of cash flow information: Cash paid for interest $ 615 $ — Supplemental disclosures of noncash investing and financing activities: Purchase of property and equipment in accounts payable and accrued liabilities $ — $ 57 Reclassification of restricted stock awards from liabilities to common stock upon vesting $ 2 $ 9 Net unrealized loss on short-term investments $ ( 1,757 ) $ ( 169 ) Right-of-use assets obtained in exchange for new operating lease liabilities $ 950 $ — The accompanying notes are an integral part of these financial statements. 93 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. Public Offering In July 2022, the Company completed a public offering of 12,432,432 shares of common stock, including the exercise in full of the underwriters' option to purchase 1,621,621 additional shares of common stock. The shares were offered at a price of $ 18.50 per share, resulting in aggregate proceeds of approximately $ 215.4 million, net of underwriting discounts, commissions and offering expenses. 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, 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. 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. 94 Table of Contents 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. 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, 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, U.S. Treasury securities, 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 95 Table of Contents of the customer base. During the years ended December 31, 2022 and 2021, 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 current assets in the Balance Sheets. As of December 31, 2022 and 2021, 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, 2022, the Company had not recorded any impairment related to other-than-temporary declines in the fair value of short-term investments and long lived assets. The Company records an allowance for credit losses using an expected loss model. Credit losses are 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. 96 Table of Contents 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 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 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, 2022 and 2021. 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 97 Table of Contents 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, restricted stock units ("RSUs"), performance-based restricted stock units ("PSUs"), and shares that will be issued under the Company’s 2020 Employee Stock Purchase Plan (“ESPP”). Stock-based compensation for awards that are granted to employees is accounted at fair value on the award grant date and the expense is recognized over the period the employee is required to provide service in exchange for the award, which is generally on a straight-line basis over the vesting period of the award. The expense is recorded in either research and development or general and administrative expenses in the statements of operations and comprehensive loss based on the function to which the related services are provided. Forfeitures are accounted for as they occur. The Company utilizes the Monte Carlo simulation model with significant inputs including volatility and closing price of stock on grant for estimating the fair value of equity awards with market-based vesting conditions and uses the closing price of common stock on the date of grant for PSUs and RSUs with a performance or service-based vesting condition. The Black-Scholes option-pricing model, used to estimate fair value of stock options with service-based vesting conditions, 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 . 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 98 Table of Contents 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 that result from transactions and economic events other than those with stockholders. The Company's comprehensive loss represents unrealized losses on short-term investments. Interest and other income Interest and other income includes interest income from our short-term investment portfolio. 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. 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, 2022 and 2021. 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. 99 Table of Contents 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 assets or liabilities recorded at fair value using Level 3 inputs as of December 31, 2022 and 2021. The following tables show the Company’s cash and cash equivalents and short-term investments by significant investment category as of December 31, 2022 and 2021 (in thousands): As of December 31, 2022 Adjusted Cost Unrealized Gains Unrealized Losses Market Value Level 1: Money Market Funds $ 28,312 $ — $ — $ 28,312 Level 2: U.S. Treasury securities included in cash and cash equivalents and short-term investments 4,446 — ( 5 ) 4,441 U.S. government agency securities included in short-term investments 28,746 — ( 111 ) 28,635 Corporate debt securities included in cash and cash equivalents and short-term investments 266,267 45 ( 1,887 ) 264,425 Total financial assets $ 327,771 $ 45 $ ( 2,003 ) $ 325,813 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 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, 2022: Adjusted Cost Market Value Mature in 1 year or less $ 252,238 $ 250,682 Mature in 1 to 2 years 47,222 46,820 Total $ 299,460 $ 297,502 There were no liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021. There have been no transfers between fair value measurement levels during the years ended December 31, 2022 and 2021. In 100 Table of Contents addition, there were no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2022 and 2021. As of December 31, 2022, 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 in its statement of operations and comprehensive loss. 4. Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2022 2021 Laboratory equipment $ 9,581 $ 7,947 Leasehold improvements 1,650 1,618 Construction-in-progress 66 38 Computer equipment and software 30 22 Total property and equipment 11,327 9,625 Less: Accumulated depreciation ( 6,841 ) ( 5,019 ) Total property and equipment, net $ 4,486 $ 4,606 Depreciation expense during the years ended December 31, 2022, and 2021 was $ 1.8 million and $ 1.5 million, respectively. 5. Prepaid expenses and other current assets Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2022 2021 Prepaid research and development $ 3,421 $ 2,819 Prepaid insurance 1,427 2,585 Prepaid licenses 959 819 Interest receivable 1,078 385 Other 173 156 Total prepaid expenses and other current assets $ 7,058 $ 6,764 6. Accrued and Other Liabilities Accrued liabilities consisted of the following (in thousands): December 31, 2022 2021 Accrued compensation and benefits 7,200 5,216 Other accrued liabilities 1,458 907 Total accrued and other liabilities $ 8,658 $ 6,123 Accrued compensation and benefits consist primarily of accrued bonuses and accrued vacation. 101 Table of Contents 7. Debt In May 2022, as amended in October 2022, we entered into a term loan facility (the “Oxford Loan Agreement”) with Oxford Finance LLC (the "Lender") for up to $ 100.0 million. At closing, we entered into a term loan for $ 10.0 million of an initial $ 25.0 million tranche, with the remaining $ 15.0 million available through mid-February 2023. The Oxford Loan Agreement provides for an additional $ 75.0 million over three tranches, $ 50.0 million of which is at our option upon the satisfaction of certain conditions related to the development of bexotegrast and one of our preclinical product candidates, and $ 25.0 million at the Lender's discretion. In connection with the Oxford Loan Agreement, we granted a security interest in substantially all of our current and future assets. There are no warrants or financial covenants associated with the Oxford Loan Agreement. Borrowings under the Oxford Loan Agreement bear interest at a rate per annum equal to 1-month term Secured Overnight Financing Rate (SOFR) plus 8.5 %, subject to an agreed upon floor and cap. The Oxford Loan Agreement requires the Company to make monthly interest-only payments until July 1, 2026 (extendable to July 1, 2027) with monthly interest and principal payments thereafter until the maturity date of May 1, 2027 (extendable to May 1, 2028). The estimated fair value of the term loan as of December 31, 2022 was measured using Level 3 inputs and approximates the carrying value recorded to the balance sheet. The effective interest rate for the term loan is 12.69 % and interest expense during the year ended December 31, 2022 was $ 0.8 million. We had no outstanding debt and did not incur interest expense in 2021. Future maturities of debt as of December 31, 2022 are as follows (in thousands): As of December 31, 2022 2023 $ — 2024 — 2025 — 2026 5,455 2027 4,545 Thereafter $ — Total $ 10,000 Less: unamortized debt issuance costs ( 133 ) Accretion of final payment 62 Total $ 9,929 8. 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 oral, 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 is funding up to $ 20.0 million associated with research and development services for PLN-1474 and up to $ 18.4 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 102 Table of Contents 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 $ 18.4 million, respectively, as of December 31, 2022, and the performance obligations associated with the aggregate unrecognized transaction price of $ 1.4 million would be satisfied in 2023. As of December 31, 2022, variable consideration associated with specified research and development milestones totaling $ 387.0 million have been constrained from the transaction prices. In February 2023, Novartis issued a termination notice for the collaboration and license agreement, and is returning global rights for PLN-1474 as well as the early research targets and associated compounds. P lease refer to Note 19 to our financial statements for additional information. 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. In the second quarter of 2022, Novartis exercised their right to opt-in to a research program and secured an exclusive license to compounds associated with an integrin research target, which entitled us to a $ 4.0 million payment, which was recognized in revenue and collected during 2022. To date, we have received $ 29.0 million in contingent payments and $ 387.0 million remain eligible for achievement. During the year ended December 31, 2022, we recognized revenue of $ 9.7 million which consisted of revenue generated from research and development services and recognition of one contingent payment of $ 4.0 million associated with the integrin research target program. During the year ended December 31, 2021, we recognized revenue of $ 7.6 million which consisted of revenue generated from research and development services. As of December 31, 2022 and 2021, there was a receivable of $ 2.0 million and $ 2.0 million, respectively, related to the Novartis Agreement. There were no contract assets or contract liabilities as of December 31, 2022 and 2021. 9. Common Stock As of December 31, 2022 and 2021, 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 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. 103 Table of Contents Shares reserved for future issuance December 31, 2022 2021 Outstanding stock option awards 5,569,567 3,620,180 Vesting of RSUs 507,925 — Vesting of PSUs* 531,796 — Shares of common stock available for future grants under the 2020 Stock Option and Incentive Plan 2,937,769 4,234,213 Shares of common stock available for future issuance under the 2020 Employee Stock Purchase Plan 888,184 613,098 Shares of common stock available for future issuance under the 2022 Inducement Plan 1,000,000 — Total shares reserved for future issuance 11,435,241 8,467,491 *PSUs granted and outstanding based on target level of achievement of 100 %. 10. 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, 2022, the 2020 Plan had 2,937,769 shares of common stock available for future issuance. In 2022, the Board of Directors adopted the 2022 Inducement Plan ("Inducement Plan"), under which the Company may grant restricted stock units, stock options, stock appreciation rights, and restricted stock awards. As of December 31, 2022, 1,000,000 shares of common stock were available for 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, 2022 and 2021, the Company recorded a liability included in accrued expenses and other liabilities of nil and $ 2,000 , respectively. There were no grants of restricted stock awards during the years ended December 31, 2022 and 2021. 104 Table of Contents The following table summarizes restricted stock activity during the year ended December 31, 2022: Number of Shares Weighted- Average Grant Date Fair Value Outstanding and unvested, as of December 31, 2021 21,841 $ 2.16 Vested ( 21,841 ) $ 2.16 Outstanding and unvested, as of December 31, 2022 — $ — The aggregate fair value of restricted stock awards vested during the years ended December 31, 2022 and 2021 was $ 47,000 and $ 0.2 million, respectively. Total intrinsic value of outstanding unvested restricted stock awards as of December 31, 2022 and 2021 was nil and $ 0.3 million, respectively. As of December 31, 2022, there was no unrecognized compensation costs related to restricted stock awards. 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, 2022 2021 Expected volatility 73.78 % - 80.64 % 74.83 % - 76.31 % Risk-free interest rate 1.64 % - 4.16 % 0.61 % - 1.39 % Expected dividend — — Expected term (in years) 5.33 - 6.08 5.44 - 6.08 Underlying common stock fair value 4.92 - 24.23 15.20 - 38.23 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 (in thousands) Outstanding as of December 31, 2021 3,620,180 $ 14.56 8.25 $ 16,735 Granted 2,517,884 $ 11.65 Exercised ( 140,443 ) $ 4.80 Forfeited ( 428,054 ) $ 16.50 Outstanding as of December 31, 2022 5,569,567 $ 13.34 7.96 $ 43,696 Exercisable as of December 31, 2022 2,517,687 $ 12.06 7.01 $ 23,522 As of December 31, 2022, there was $ 27.7 million of unrecognized compensation costs that is expected to be recognized over the weighted-average periods of 2.6 years related to stock options. The total intrinsic value of time-based stock options exercised was $ 2.0 million and $ 6.9 million for December 31, 2022 and 2021, respectively. Intrinsic value represents the difference between the current fair value of the underlying stock and the exercise price of the stock option. The weighted-average grant date fair value of options granted during years ended December 31, 2022 and 2021 was $ 7.82 per share and $ 16.94 per share, respectively. 105 Table of Contents Restricted Stock Units The service-based condition for restricted stock units ("RSUs") is generally satisfied over two years . The following table sets forth the outstanding RSUs and related activity for the year ended December 31, 2022: Restricted Stock Units Weighted Average Grant Date Fair Value Unvested balance as of December 31, 2021 — — Granted 525,825 17.43 Forfeited ( 17,900 ) 17.30 Unvested balance as of December 31, 2022 507,925 17.43 As of December 31, 2022, the Company had $ 6.9 million of unrecognized stock-based compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of 1.6 years. Performance-Based Restricted Stock Units Performance-based restricted stock units ("PSUs") vest upon the achievement of market and performance conditions. Market conditions include the Company's total shareholder return ("TSR") relative to the NASDAQ Biotechnology Index over the term of the award ending on June 30, 2024, and performance conditions consist of multiple clinical development milestones associated with bexotegrast. The performance vesting conditions generally must be satisfied within a two-year period and are forfeited if the vesting conditions are not met. Additionally, the number of shares of common stock issued upon vesting will range from 0 % to 200 % of the PSUs based on achievement of certain targets. The fair value of PSUs with clinical development vesting conditions were determined to be equal to the fair market value of the Company's share price on the date of grant. The fair value of the TSR PSUs were derived from a Monte Carlo simulation model that used the following key assumptions: Valuation date share price $ 17.57 Award term (years) 1.92 Volatility 70.62 % Correlation coefficient 0.3508 Average peer group volatility 79.69 % Average peer group correlation coefficient 0.4397 Risk free interest rate 2.84 % The following table sets forth the outstanding PSUs associated with the TSR goal and related activity for the year ended December 31, 2022: Performance Stock Units Weighted Average Grant Date Fair Value Unvested balance as of December 31, 2021 — — Granted* 354,532 29.15 Vested — — Unvested balance as of December 31, 2022* 354,532 29.15 *PSUs granted and outstanding based on target level of achievement of 100 %. 106 Table of Contents The following table sets forth the outstanding PSUs associated with clinical development milestones and related activity for the year ended December 31, 2022: Performance Stock Units Weighted Average Grant Date Fair Value Unvested balance as of December 31, 2021 — — Granted* 354,532 17.57 Vested ( 177,266 ) 17.57 Unvested balance as of December 31, 2022* 177,266 17.57 *PSUs granted and outstanding based on target level of achievement of 100 %. In December 2022, the first milestone applicable to PSUs with clinical development vesting conditions was achieved, resulting in a $ 3.1 million cumulative catch-up of stock-based compensation expense for such PSUs. As of December 31, 2022 the Company considered the remaining clinical development performance conditions probable of achievement. As of December 31, 2022, the Company had $ 15.4 million of unrecognized stock-based compensation expense related to outstanding PSUs expected to be recognized over a remaining weighted-average period of 1.6 years. 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 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 $ 0.4 million and $ 0.5 million in stock-based compensation expense for years ended December 31, 2022, and 2021, respectively. During the year ended December 31, 2022, 85,969 shares of common stock were issued under the 2020 ESPP. The Company used the Black-Scholes option pricing model to estimate stock-based compensation expense for the 2020 ESPP with the following assumptions: Year Ended December 31, 2022 2021 Risk-free interest rate 0.60 % - 3.34 % 0.06 % - 0.07 % Expected term of options (in years) 0.50 0.50 Expected stock price volatility 63.17 % - 82.02 % 67.16 % - 89.51 % Expected dividends — % — % 107 Table of Contents Stock-Based Compensation Expense The following table presents the classification of stock-based compensation expense during the years ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, 2022 2021 Restricted stock awards $ 36 $ 182 Stock options and ESPP $ 13,280 $ 10,255 Restricted stock units $ 1,892 $ — Performance-based restricted stock units $ 7,390 $ — Total stock-based compensation expense $ 22,598 $ 10,437 Research and development expenses $ 8,730 $ 3,928 General and administrative expenses 13,867 6,509 11. Income Taxes The Company had a pre-tax U.S. book loss of $ 123.3 million, and $ 97.3 million, for the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, 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. 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, 2022 2021 Income tax computed at federal statutory rate 21.0 % 21.0 % State taxes, net of federal tax benefit 7.3 % 7.7 % General business credit—federal 3.6 % 5.3 % Stock-based compensation ( 1.0 ) % ( 0.7 ) % Other permanent differences ( 0.4 ) % ( 0.1 ) % Change in valuation allowance ( 30.5 ) % ( 33.2 ) % Effective income tax rate 0.0 % — % 108 Table of Contents Net deferred tax assets and liabilities consisted of the following (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating losses $ 65,689 $ 51,554 Research and development credits 19,688 13,989 Accrued expenses 387 292 Other 1,706 775 Capitalized research and development 13,900 — Lease liability 1,638 2,000 Stock based compensation 5,073 1,816 Total deferred tax assets 108,081 70,426 Deferred tax liabilities: Fixed asset basis $ ( 258 ) $ ( 61 ) Prepaid expenses ( 630 ) ( 921 ) Right of use asset ( 1,509 ) ( 1,760 ) Total deferred tax liabilities ( 2,397 ) ( 2,742 ) Valuation allowance 105,684 67,684 Net deferred taxes $ — $ — Net operating losses and tax credit carryforwards were as follows (in thousands): December 31, 2022 Expiration Year Net operating losses, federal (starting from January 1, 2018) $ 190,697 Does not expire Net operating losses, federal (before January 1, 2018) $ 29,486 2035 - 2037 Net operating losses, state $ 278,930 2035 - 2042 Tax credits, federal $ 20,193 2036 - 2042 Tax credits, state $ 5,587 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, 2022 and does not expect any previous ownership changes to result in a limitation that will reduce the total amount of net operating loss and tax credit carryforwards disclosed that can be utilized. Subsequent ownership changes may affect the limitation in future years. During the years ended December 31, 2022 and 2021, 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, 2022 and 2021 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, 2022 2021 Valuation allowance at the beginning of the year $ 67,684 $ 35,441 Increases recorded to income tax provision 38,000 32,243 Valuation allowance at the end of the year $ 105,684 $ 67,684 109 Table of Contents 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, 2022. 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, 2022 and 2021, 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, 2022 2021 January 1 $ 3,505 $ 2,007 Additions based on tax positions related to current year 1,547 1,081 Additions for tax positions of prior year 144 417 December 31 $ 5,196 $ 3,505 Effective January 1, 2022, we are subject to mandatory capitalization of Section 174 research and development expenditures. The capitalized expenses are subject to amortization over five and fifteen years for expenses incurred within the U.S. and outside of U.S., respectively. 12. 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 Note 8. 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. 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. 110 Table of Contents 15. Leases On January 1, 2021, the Company adopted ASC 842 and the following disclosures as of and for the years ended December 31, 2022 and 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, 2022 and 2021. 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. In August 2022, the Company entered into a non-cancelable lease agreement for premises consisting of approximately 12,456 square feet located in South San Francisco, California. The premises is being used as additional office space for the Company. The term of the lease is 18 months, which commenced on August 1, 2022. Base rent is $ 0.1 million per month during the first year of the lease term, with specified annual increases of 3 % thereafter. The Company has the right to extend the lease term by 3 years with monthly payments equal to the market rate of rent. The exercise of lease renewal options is at the sole discretion of the Company and is not included in the right-of-use (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 years ended December 31, 2022 and 2021, the Company recognized expenses associated with the operating leases of $ 2.5 million and $ 2.3 million, respectively. Additionally for those same years, the Company incurred variable lease costs of $ 0.7 million and $ 0.9 million, respectively, 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 years ended December 31, 2022 and 2021. For the years ended December 31, 2022 and 2021, cash paid for amounts included in the measurement of operating lease liabilities was $ 2.7 million and $ 2.4 million, respectively. The undiscounted future non-cancellable lease payments of the Company's operating lease liability as of December 31, 2022 were as follows (in thousands): Year ending December 31: Operating Leases 2023 $ 2,836 2024 2,422 2025 1,202 2026 — 2027 — Total lease payments $ 6,460 Less: Present value discount 574 Total current operating lease liabilities $ 2,457 Total non-current operating lease liabilities $ 3,429 The weighted-average remaining lease terms and discount rates related to the Company's operating leases were as follows: As of December 31, 2022 2021 Weighted-average remaining lease term (in years) 2.30 3.40 Weighted-average discount rate 8.20 % 7.9 % 111 Table of Contents 16. Related Party Transactions In June 2022 and 2021, the Company granted 15,000 and 26,572 stock options with a grant date fair value of $ 0.1 million and $ 0.5 million to partners of Third Rock Ventures who were also serving as non-employee directors on the Company's Board of Directors. Both of the non-employee directors resigned from the Company's Board of Directors in 2022. 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. The stock-based compensation expense related to these options was immaterial during the years ended December 31, 2022, and 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 $ 0.8 million and $ 0.6 million during the years ended December 31, 2022 and 2021, respectively. 18. Net Loss Per Share Attributable to Common Stockholders The following common share equivalents 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, 2022 2021 Options to purchase common stock 5,569,567 3,620,180 Restricted stock units 507,925 — Performance-based restricted stock units* 354,532 — Unvested restricted shares — 21,841 Total 6,432,024 3,642,021 *PSUs outstanding based on target level of achievement of 100 %. 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, 2022 2021 Net loss per share: Numerator Net loss $ ( 123,321 ) $ ( 97,263 ) Net loss attributable to common stockholders $ ( 123,321 ) $ ( 97,263 ) Denominator Weighted-average common shares outstanding used to calculate net loss per share attributable to common stockholders: Basic 42,015,908 35,846,421 Diluted 42,015,908 35,846,421 Net loss per share attributable to common stockholders: Basic $ ( 2.94 ) $ ( 2.71 ) Diluted $ ( 2.94 ) $ ( 2.71 ) 19. Subsequent Events In January 2023, the Company completed a public offering of 9,583,334 shares of common stock, including the exercise in full of the underwriters' option to purchase 1,250,000 additional shares of common stock. The shares were 112 Table of Contents offered at a price of $ 30.00 per share, resulting in aggregate proceeds of approximately $ 269.9 million, net of underwriting discounts, commissions and offering expenses. On February 17, 2023, we received notice from Novartis Institutes for BioMedical Research, Inc. (“Novartis”) that Novartis has elected to exercise its right to terminate the Collaboration and License Agreement by and between the Company and Novartis, dated October 17, 2019 (the “Collaboration Agreement”), as amended by Amendment No. 1 to the Collaboration and License Agreement between the Company and Novartis, dated as of November 15, 2022 (“Amendment No. 1”). Novartis informed the Company of its decision, as part of its new strategy focusing on a limited number of therapeutic areas, to divest clinical NASH assets and, as a result, to discontinue the development of PLN-1474, a small molecule selective inhibitor of integrin αvß1, being developed for the treatment of liver fibrosis associated with NASH. The termination will take effect on April 18, 2023. Effective upon the termination of the Collaboration Agreement, all rights and licenses granted thereunder, including development candidates targeting the validated Research Target, PLN-1474 and the related IND, will revert back to the Company. The payment obligations of Novartis with respect to future milestones, royalties and research and development funding will also terminate. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.