PMV Pharmaceuticals, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks. We had cash, cash equivalents, and marketable securities of $314.1 million and restricted cash of $0.8 million as of December 31, 2021. The company’s cash equivalents consist of interest-bearing U.S. treasury securities and money market funds. Our exposure due to changes in interest rates is not material due to the nature and amount of our money-market funds and short-term marketable securities. We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we may contract with foreign vendors that are located outside the United States in the future. This may subject us to fluctuations in foreign currency exchange rates in the future. 116 Item 8 . Financial Stateme nts and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Audited Financial Statements Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 118 Balance Sheets as of December 31, 2021 and 2020 120 Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 , 2020, and 2019 121 Statements of Convertible Preferred Stock and Stockholders’ (Deficit) E quity for the Years Ended December 31, 2 021, 2020, and 2019 122 Statements of Cash Flows for the Years Ended December 31, 2 021, 2020, and 2019 123 Notes to Financial Statements 124 117 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of PMV Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of PMV Pharmaceuticals, Inc. (the “Company”) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ (deficit) equity 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 at 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 U.S. generally accepted accounting principles. We also have 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 issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2022 expressed an unqualified opinion thereon. 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 the critical audit matter 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. 118 Accounting for Research and Development Expenses Description of the Matter As disclosed in Note 2 to the financial statements, the Company is required to estimate research and development expenses from its obligations under contracts and purchase orders with vendors, clinical research organizations, clinical manufacturing organizations and others and for clinical site agreements at each balance sheet date. The Company recorded accrued expenses for the research and development expenses, which are included in accrued expenses on the December 31, 2021 balance sheet, and prepaid research and development expenses, which are included in prepaid expenses and other current assets on the December 31, 2021 balance sheet. The amounts recorded for accrued research and development expenses and for the related prepaid expenses, within the aforementioned balance sheet captions, represent the Company’s estimate of the unpaid and prepaid research and development expenses based on the progress of the research and development services compared to the amounts paid for those services through December 31, 2021. Auditing the Company’s accrued research and development expenses and related prepaid expenses involved a high degree of subjectivity due to the estimation required by management in determining the progress to completion of services that have been performed that will be invoiced by the vendors, clinical research organizations and consultants and under clinical site agreements subsequent to the date that the financial statements are issued. How We Addressed the Matter in Our Audit We obtained an understanding and evaluated the design and tested the operating effectiveness of controls over the accounting for research and development expenses. This included controls over management's assessment of the assumptions and accuracy of data underlying the research and development accruals and prepaid estimates. To test the research and development accruals and prepaid expenses, our audit procedures included, among others, reviewing a sample of agreements with the service providers to corroborate key financial and contractual terms, and testing the accuracy and completeness of the underlying data used in the accrual and prepaid expense computations. We also evaluated management’s estimates of the progress of a sample of research and development activities by making direct inquiries of the Company’s operations personnel that oversee the external research and development activities and obtaining information directly from certain service providers about the service providers’ estimate of costs that had been incurred through December 31, 2021. Additionally, we assessed the historical accuracy of management’s estimates when evaluating the current period estimate. To evaluate the completeness of the accruals, we also examined subsequent invoices from the service providers and cash disbursements to the service providers, to the extent such invoices were received, or payments were made prior to the date that the financial statements were issued. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2017. Philadelphia, Pennsylvania March 1, 2022 119 PMV Pharmaceuticals, Inc. Balance Sheets (in thousands, except share and per share amounts) December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 172,467 $ 361,422 Restricted cash 822 — Marketable securities, current 124,696 — Prepaid expenses and other current assets 3,301 3,339 Total current assets 301,286 364,761 Property and equipment, net 3,090 569 Marketable securities, noncurrent 16,911 — Right-of-use assets, operating leases 10,060 — Other assets 221 201 Total assets $ 331,568 $ 365,531 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 3,189 $ 1,607 Accrued expenses 8,627 4,803 Operating lease liability, current 403 — Total current liabilities 12,219 6,410 Operating lease liability, noncurrent 10,790 — Total liabilities 23,009 6,410 Stockholders' equity: Preferred stock, $ 0.00001 par value, 5,000,000 shares authorized as of December 31, 2021 and December 31, 2020. No shares issued or outstanding as of December 31, 2021 and December 31, 2020. — — Common stock, $ 0.00001 par value, 1,000,000,000 shares authorized; 45,433,684 and 44,777,818 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. — — Additional paid-in capital 476,363 469,001 Accumulated deficit ( 167,726 ) ( 109,880 ) Accumulated other comprehensive loss ( 78 ) — Total stockholders' equity 308,559 359,121 Total liabilities and stockholders’ equity $ 331,568 $ 365,531 The accompanying notes are an integral part of these financial statements. 120 PMV Pharmaceuticals, Inc. Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Operating Expenses: Research and development $ 36,493 $ 23,933 $ 20,759 General and administrative 21,800 11,009 5,878 Total operating expenses 58,293 34,942 26,637 Loss from operations ( 58,293 ) ( 34,942 ) ( 26,637 ) Other income (expense): Interest income, net 449 651 1,301 Other income (expense) 21 ( 143 ) ( 8 ) Total other income (expense) 470 508 1,293 Loss before provision for income taxes ( 57,823 ) ( 34,434 ) ( 25,344 ) Provision for income taxes 23 6 8 Net loss ( 57,846 ) ( 34,440 ) ( 25,352 ) Unrealized (losses) gains on marketable securities, net of tax ( 78 ) 3 10 Comprehensive loss $ ( 57,924 ) $ ( 34,437 ) $ ( 25,342 ) Net loss per share—basic and diluted $ ( 1.28 ) $ ( 2.40 ) $ ( 8.35 ) Weighted-average common shares outstanding 45,137,656 14,364,475 3,035,243 The accompanying notes are an integral part of these financial statements. 121 PMV Pharmaceuticals, Inc. Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity (in thousands except share amounts) Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders’ (Deficit) Equity Shares Amount Shares Amount Balances at December 31, 2018 17,396,640 $ 107,228 3,012,284 $ — $ 3,961 $ ( 13 ) $ ( 50,088 ) $ ( 46,140 ) Issuance of Series C convertible preferred stock, net of issuance costs of $ 168 5,469,606 61,705 — — — — — — Exercise of stock options — — 33,916 — 100 — — 100 Stock-based compensation expense — — — — 908 — — 908 Net loss — — — — — — ( 25,352 ) ( 25,352 ) Unrealized gain on available for sale investments — — — — — 10 — 10 Balances at December 31, 2019 22,866,246 $ 168,933 3,046,200 $ — $ 4,969 $ ( 3 ) $ ( 75,440 ) $ ( 70,474 ) Issuance of Series D convertible preferred stock, net of issuance costs of $ 208 5,321,864 69,790 — — — — — — Conversion of convertible preferred stock to common stock ( 28,188,110 ) ( 238,723 ) 28,188,110 — 238,723 — — 238,723 Exercise of warrants — — 9,688 — 194 — — 194 Issuance of common stock, net of issuance costs of $ 20,359 — — 13,529,750 — 223,176 — — 223,176 Exercise of stock options — — 4,070 — 6 — — 6 Stock-based compensation expense — — — — 1,933 — — 1,933 Net loss — — — — — — ( 34,440 ) ( 34,440 ) Unrealized gain on available for sale investments — — — — — 3 — 3 Balance at December 31, 2020 — $ — 44,777,818 $ — $ 469,001 $ — $ ( 109,880 ) $ 359,121 Exercise of stock options and common stock issued under the 2020 ESPP — — 655,866 — 2,022 — — 2,022 Stock-based compensation expense — — — — 5,340 — — 5,340 Net loss — — — — — — ( 57,846 ) ( 57,846 ) Unrealized loss on available for sale investments — — — — — ( 78 ) — ( 78 ) Balance As of December 31, 2021 — $ — 45,433,684 $ — $ 476,363 $ ( 78 ) $ ( 167,726 ) $ 308,559 The accompanying notes are an integral part of these financial statements. 122 PMV Pharmaceuticals, Inc. Statements of Cash Flows (in thousands) Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Cash flows from operating activities: Net loss $ ( 57,846 ) $ ( 34,440 ) $ ( 25,352 ) Adjustments to reconcile net loss to net cash used in operating activities: activities: Stock-based compensation 5,340 1,933 908 Depreciation 307 318 388 Amortization of premiums on marketable securities 550 152 62 Non-cash lease expense 974 — — Other ( 19 ) 143 8 Change in operating assets and liabilities: Prepaid expenses and other assets 38 ( 2,732 ) ( 275 ) Accounts payable 191 ( 1,230 ) 1,799 Accrued expenses 3,894 3,117 397 Net cash used in operating activities ( 46,571 ) ( 32,739 ) ( 22,065 ) Cash flows from investing activities: Acquisition of property and equipment ( 1,349 ) ( 148 ) ( 109 ) Purchase of marketable securities ( 256,845 ) ( 14,512 ) ( 43,452 ) Maturities of marketable securities 114,610 42,571 46,792 Net cash (used in) provided by investing activities ( 143,584 ) 27,911 3,231 Cash flows from financing activities: Proceeds from issuance of convertible preferred stock, net issuance costs — 69,790 61,705 Proceeds from the issuance of common stock, net — 223,176 — Proceeds from exercise of stock options 2,022 6 100 Net cash provided by financing activities 2,022 292,972 61,805 Net (decrease) increase in cash, cash equivalents, and restricted cash ( 188,133 ) 288,144 42,971 Cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash—beginning of period 361,422 73,278 30,307 Cash, cash equivalents, and restricted cash—end of period $ 173,289 $ 361,422 $ 73,278 Supplemental disclosures of noncash investing activities Lease incentives used for leasehold improvements $ ( 88 ) $ — $ — Accrued purchases of property and equipment $ 1,391 $ — $ — Supplemental disclosures of noncash financing activities Conversion of convertible preferred stock to common stock $ — $ 238,723 $ — Conversion of warrant liability to common stock $ — $ 194 $ — Supplemental disclosures of cash flow information Cash paid for income tax $ 23 $ 6 $ 8 The accompanying notes are an integral part of these financial statements. 123 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) 1. Formation and Business of the Company Organization PMV Pharmaceuticals, Inc. (the “Company”) was incorporated in the state of Delaware in March 2013. Since inception, the Company has devoted substantially all of its time and efforts to performing research and development activities and raising capital. The Company is a precision oncology company pioneering the discovery and development of small molecule, tumor-agnostic therapies targeting p53. The Company’s headquarters are located in Cranbury, New Jersey. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. On September 25, 2020, the Company completed an initial public offering (the “IPO”) of 13,529,750 shares of common stock, at a public offering price of $ 18.00 per share including the exercise in full by the underwriters of their option to purchase up to 1,764,750 additional shares of commons stock, for aggregate gross proceeds of $ 243,536 and its shares started trading on The Nasdaq Global Select Market under the ticker symbol “PMVP.” The Company received $ 223,176 in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. In connection with the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock automatically converted into 28,188,110 shares of common stock. The Company has incurred net losses and negative cash flows from operations since it’s inception. During the year ended December 31, 2021, the Company incurred a net loss of $ 57,846 and used $ 46,571 of cash for operations. As of December 31, 2021, the Company had an accumulated deficit of $ 167,726 . Cash, cash equivalents, and marketable securities were $ 314,074 as of December 31, 2021. Management expects to incur substantial additional operating losses for the next several years and may need to obtain additional debt or equity financings in order to complete development of its products, obtain regulatory approvals, launch and commercialize its products and continue research and development programs. The Company believes it has adequate cash and cash equivalents to operate for at least the next twelve months from the date of issuance of these financial statements. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the biotechnology industry. 124 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, research and development costs, accrued research and development costs and related prepaid expenses, and the fair values of common stock, convertible preferred stock and stock-based compensation. Actual results could differ materially from those estimates. The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including expense, the supply chain, clinical trials, research and development costs, and employee-related costs, depends on future developments that are highly uncertain, subject to change and are difficult to predict, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of the COVID-19 pandemic within our consolidated financial statements and there may be changes to those estimates in future periods. Reverse Stock Split In September 2020, the Company’s board of directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to affect a 5.2651 -for-1 reverse stock split of the Company’s common stock and convertible preferred stock , which was effected on September 24, 2020. The par value of the common stock and convertible preferred stock were not adjusted as a result of the reverse stock split. Accordingly, all common stock, convertible preferred stock, stock options, and related per share amounts in these financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split. Fair Value of Financial Instruments The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows: • Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active. • Level 3 - Inputs are unobservable in which there is little or no market data available, which require the reporting entity to develop its own assumptions that are unobservable. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input 125 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. Cash, Cash Equivalents and Marketable Securities Management considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s marketable debt securities have been classified and accounted for as available-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term. As of December 31, 2021, the company’s long-term marketable debt securities have maturity dates no more than two years. The Company’s marketable debt securities are carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive loss in stockholders’ equity. Premiums and discounts on marketable debt securities are amortized into earnings over the life of the security. For the years ending December 31, 2021, 2020, and 2019, the company recorded, $ 550 , $ 152 , and $ 62 of amortization, respectively. Restricted cash as of December 31, 2021 included a $ 822 deposit at the Company’s commercial bank underlying a stand-by letter of credit issued in favor of a landlord (See Note 6) and is classified in current assets. Leases At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines the initial classification and measurement of its operating right-of-use (“ROU”) assets and operating lease liabilities at the lease commencement date, and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. The Company’s policy is to not record leases with a lease term of 12 months or less on its balance sheets. The Company’s only existing leases are for office and laboratory space. The ROU asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated secured incremental borrowing rate for that lease term. Lease expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expense in the statements of operations. Payments due under each lease agreement include fixed and variable payments. Variable payments relate to the Company’s share of the lessor’s operating costs associated with the underlying asset and are recognized when the event on which those payments are assessed occurs. Neither of the Company’s leases contain residual value guarantees. The interest rate implicit in lease agreements is typically not readily determinable, and as such, the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. 126 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) Property and Equipment Property and equipment are recorded at cost net of accumulated depreciation. Property and equipment are depreciated using the straight‑line method over the estimated useful lives of the assets, generally five years , except for leasehold improvements, which are amortized over the remaining term of the lease. Upon retirement or sale of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Repairs and maintenance costs are charged to operations as incurred. Impairment of Long-Lived Assets Long-lived assets, are tested for recoverability whenever events or changes in the business environment indicate that the carrying amount of the assets may not be fully recoverable. Factors considered by the Company when deciding when to perform an impairment review include significant underperformance of the business against expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows resulting from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows resulting from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its current fair value. To date, the Company has not recorded any impairment losses on long-lived assets. Comprehensive Income/Loss The Company recorded $( 78 ), $ 3 , and $ 10 in other comprehensive (loss) income related to unrealized (losses) gains on marketable securities, net of tax for the years ended December 31, 2021, 2020, and 2019, respectively. The Company presents comprehensive income in a single statement within its financial statements. Research and Development Expenses All costs associated with research and development are expensed as incurred. Research and development expenses include costs directly attributable to the conduct of research and development programs, including compensation costs, which includes allocated stock-based compensation, salary payroll taxes, employee benefits; materials; supplies; depreciation on and maintenance of research equipment; the cost of services provided by outside contractors; and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. The Company records accruals for estimated research and development expenses, comprising payments for work performed by third party vendors, clinical research organizations, clinical manufacturing organizations and others. Some of these vendors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used or rendered. Research and development activities related to patient enrollment are accrued as patients enter and progress through the trial. In the event that we prepay fees, we record the prepayment as a prepaid asset and periodically evaluate the prepaid asset in conjunction with the related accrued research and development expenses. Convertible Preferred Stock The Company’s convertible preferred stock was classified outside of stockholders’ deficit because the shares contained deemed liquidation rights that were a contingent redemption feature not solely within the control of the 127 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) Company. The Company’s policy is not to accrete the carrying value and related issuance costs of the convertible preferred stock to its redemption value until it is probable that the security will become redeemable. The convertible preferred stock converted to common stock in connection with the Company’s Initial Public Offering (“IPO”) on September 25, 2020. Derivative Liabilities The Company may issue certain financial instruments with embedded features which may be accounted for as separate derivative assets or liabilities, dependent on their specific contractual terms or other conditions. These derivative assets or liabilities are required to be measured at fair value at issuance and remeasured at the end of each reporting period. To determine the fair value of these instruments the Company uses a discounted cash flow analysis, as these instruments are not quoted on an active market. Increases or decreases in fair value from initial measurement and each reporting period are recorded in the statement of operations and comprehensive loss as change in fair value of derivative liabilities. Stock‑Based Compensation The Company’s share-based compensation program allows for grants of stock options and restricted stock awards. Grants are awarded to employees and non-employees, including directors. The Company accounts for stock-based employee compensation arrangements in accordance with provisions of ASC 718, Compensation – Stock Compensation (“ASC 718”) . ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing or equity valuation model that is applied in a manner consistent with the fair value measurement objectives of ASC 718, is based on established principles of financial theory and reflects all of the substantive terms and conditions of the award. The Company uses the Black-Scholes option-pricing model (“Black-Scholes”) to value stock option grants to employees, non-employees and directors. The fair value of the Company’s common stock is used to determine the fair value of restricted stock awards and stock options. The Company’s stock-based compensation awards are subject to either service or performance-based vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is typically the vesting term. Compensation expense related to awards to employees with performance-based vesting conditions is recognized based on grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the of performance condition is probable. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. Due to the lack of a public market for the Company’s common stock until September 2020 and lack of company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The historical volatility is calculated based on a period of time commensurate with expected term assumption. The Company uses the simplified method to calculate the expected term for options granted to employees whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the options due to its lack of sufficient historical data. The risk-free interest rate is based on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company 128 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) has never paid dividends and has no current plans to pay any dividends on its common stock. The Company recognizes forfeitures as they occur. Prior to the Company’s IPO, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the exercise prices for options granted, the Company considered the estimated fair value of the common stock as of the measurement date. Prior to the Initial Public Offering, the estimated fair value of the common stock was determined at each grant date based upon a variety of factors, including the illiquid nature of the common stock, arm’s-length sales of the Company’s capital stock (including convertible preferred stock), the effect of the rights and preferences of the preferred shareholders, and the prospects of a liquidity event. Among other factors are the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition, and the current business climate in the marketplace. Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date. Segment Reporting Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the Company’s Chief Operating Decision Maker to make decisions with respect to resource allocation and assessment of performance. To date, the Company has viewed its operations and manages its business as one operating segment. Net Loss per Common Share Basic net loss per share is computed using the “two-class” method which includes the weighted average number of shares of common stock outstanding during the period and other securities that participate in dividends (a participating security). The Company’s convertible preferred stock are participating securities as defined by ASC 260-10, Earnings per Share . During the periods where the Company incurs net losses, the Company allocates no loss to participating securities because these securities have no contractual obligation to share in the losses of the Company. Under the two-class method, basic net loss per share applicable to common stockholders is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is increased to include the number of additional shares for the potential dilutive effects of a warrant, convertible preferred stock and stock options outstanding during the period calculated in accordance with the treasury stock method, or the two-class method, whichever is more dilutive. The Company allocates net earnings on a pari passu (equal) basis to both common and preferred stockholders. Net losses are not allocated to preferred stockholders as they do not have an obligation to share in the Company’s net losses. For all periods presented, basic and diluted net loss per share are the same, as any additional share equivalents would be anti-dilutive. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Under ASC 740, the liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and law that will be in effect when the differences are expected to reverse. ASC 740 also requires that deferred tax 129 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company evaluates annually the realizability of the deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In 20 2 1 and 20 20 , the Company recorded a full valuation allowance for the deferred tax assets based on the historical loss and the uncertainty regarding the ability to project future taxable income. In future periods if the Company is able to generate income, the Company may reduce or eliminate the valuation allowance. The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold. In accordance with this accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax. Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, Leases (Topic 842), as amended by multiple standards updates, in order to increase transparency and comparability among organizations by requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The most significant change arising from the new standard is the recognition of right of use assets and lease liabilities for leases classified as operating leases. The right-of-use lease liability for operating leases is based on the net present value of future minimum lease payments. Additionally, the right-of-use asset for operating leases is based on the lease liability adjusted for the reclassification of certain balance sheet amounts such as the long term portion of straight line rent liability and deferred lease incentives. Under the standard, disclosures are required to enable financial statement users to assess the amount, timing, and uncertainty of cash flows arising from the leases. Companies are also required to recognize and measure leases existing at, or entered into after, the adoption date using a modified retrospective approach, with certain practical expedients available. Comparative periods prior to adoption have not been retrospectively adjusted. The Company adopted the standard effective January 1, 2021 using the modified retrospective transition method. Upon adoption, the Company applied the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. The Company elected the practical expedient not to apply the recognition requirements to short-term leases, defined as a lease that at the commencement date has a lease term of 12 months or less that does not include a purchase option to purchase the underlying asset that the Company is reasonably certain to exercise. Furthermore, the Company has elected the practical expedient to not separate lease and non-lease components by class of underlying asset for its existing leases. As the Company enters into new leases, it will continue to evaluate this accounting policy for any new classes of underlying assets. Upon adoption, the Company recorded ROU assets of $ 970 and lease liabilities of $ 1,129 . The standard did not have a material impact on the statement of operations or statement of cash flows. In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect 130 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted this standard as of January 1, 2021 . The adoption did no t have a material impact on the Company’s financial statements. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents and marketable securities. Cash and cash equivalents include a checking account and a money market account held at one financial institution. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company’s marketable debt securities are carried at fair value and include any unrealized gains and losses. Any investments with unrealized losses are considered to be temporarily impaired. The Company’s future results of operations involve a number of 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, rapid technological change, uncertainty of market acceptance of the product, competition from substitute products and larger companies, protection of proprietary technology, any future strategic relationships and dependence on key individuals. Products developed by the Company require clearances from the U.S. Food and Drug Administration or other international regulatory agencies prior to commercial sales. There can be no assurance the Company’s product candidates will receive the necessary clearances. If the Company is denied clearance, clearance is delayed or it is unable to maintain clearance, it could have a materially adverse impact on the Company. In January 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a “Public Health Emergency of International Concern,” which continues to spread throughout the world. The outbreak has adversely impacted global commercial activity and contributed to significant volatility in financial markets. The COVID-19 outbreak and government responses are creating disruption in global supply chains and adversely impacting many industries. The outbreak could have a continued material adverse impact on economic and market conditions. The Company continues to monitor the impact of the COVID-19 outbreak closely. 131 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) 3. Financial Instruments and Fair Value Measurements The Company’s financial instruments consist of money market funds, U.S. government debt securities and corporate debt securities. The following tables show the Company’s cash equivalents and available-for-sale securities’ carrying amounts and fair values as of December 31, 2021 and 2020: As of December 31, 2021 Carrying Amount Fair Value Quoted priced in active markets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Financial assets Money market funds $ 40,960 $ 40,960 $ 40,960 $ – $ – Corporate securities 227,362 227,362 – 227,362 – Government securities 42,245 42,245 – 42,245 – Total financial assets $ 310,567 $ 310,567 $ 40,960 $ 269,607 $ – As of December 31, 2020 Carrying Amount Fair Value Quoted priced in active markets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Financial assets Money market funds $ 240,033 $ 240,033 $ 240,033 $ – $ – Corporate securities 120,008 120,008 – 120,008 – Total financial assets $ 360,041 $ 360,041 $ 240,033 $ 120,008 $ – Cash and Cash Equivalents – As of December 31, 2021, the company had cash of $ 3,508 and cash equivalents of $ 168,960 . Cash equivalents consisted of money market funds of $ 40,960 and corporate debt securities of $ 128,000 . Cash equivalents of $ 360,041 as of December 31, 2020 consisted of money market funds of $ 240,033 and corporate debt securities of $ 120,008 . Money market funds are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets, whereas corporate debt securities are classified within level 2 of the fair value hierarchy because they are valued using inputs other than quoted prices that are observable for the asset or liability either directly or indirectly. Marketable Securities – Marketable securities of $ 141,607 as of December 31, 2021 consisted of corporate debt securities of $ 99,362 and government debt securities of $ 42,245 . There were $ 124,696 current marketable securities and $ 16,911 noncurrent marketable securities as of December 31, 2021. There were no marketable securities as of December 31, 2020. 132 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) 4. Property and Equipment, Net December 31, 2021 2020 Machinery & equipment $ 2,261 $ 1,989 Computers 8 8 Furniture & fixtures 9 9 Leasehold improvements 161 73 Assets not placed in service 2,519 51 Total property and equipment 4,958 2,130 Less: Accumulated depreciation ( 1,868 ) ( 1,561 ) Property and equipment, net $ 3,090 $ 569 Depreciation expense for the years ended December 31, 2021, 2020, and 2019 was $ 307 , $ 318 , and $ 388 , respectively. 5. Accrued Expenses Accrued expenses consists of the following: December 31, 2021 2020 Accrued compensation $ 3,797 $ 3,109 Accrued research and development costs 4,734 1,595 Other accrued liabilities 96 99 Total $ 8,627 $ 4,803 6. Commitments and Contingencies Operating Leases In June 2015, the Company executed a noncancelable operating lease for approximately 13,000 square feet of laboratory, research and development, and office space in Cranbury, New Jersey for an initial base rent of $ 20.00 per square foot. This location operates as the Company’s current headquarters. In June 2017, the Company obtained an additional noncancelable operating lease for about 6,000 square feet of laboratory space in the same corporate center at an initial rental rate at $ 22.00 per square foot. As a result of the additional space, both leases will expire June 2022 , with an option to renew on a month-to-month basis, with an increase in base rent as per the lease, for up to an additional year. Both leases include a common area maintenance expense for $ 3.00 per square foot with an increase of 3% on the first month of each calendar year during the lease term and a management fee of 3 % of the base rent. The Company is obligated to pay, on a pro-rata basis, real estate taxes and operating costs related to the premises. In August 2018, the Company executed two noncancelable operating leases. One lease for approximately 6,000 square feet for vivarium, laboratory and general office space in South Brunswick, New Jersey. The initial annual base rent is $ 15.50 per square foot and a management fee of 3 % of the base rent. The Company is obligated to pay, on a pro-rata basis, insurance premiums, real estate taxes and operating costs related to the premises. The 133 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) lease expires in July 2022 , with an option to renew on a month-to-month basis , with an increase in base rent as per the lease, for up to an additional year . The second lease is for office space in Lexington, Massachusetts, that expires August 2023 , with an option to renew for a one-time, three-year extension. The initial annual base rent is $ 28.50 per square foot and will increase $ 1.00 per square foot at the end of each rent year. In 2018, the company received a lease incentive for the buildout of 420 Bedford Street in Lexington, MA. The Company was given an allowance for $ 165 on behalf of the lessor for construction of office space. Management recognizes this allowance as a lease incentive in its Right-of-Use asset and straight-lines the allowance throughout the term of the lease. As of December 31, 2021, the remaining rent incentive pertaining to the Lexington, MA lease totaled $ 64 . In January 2021, the Company signed a lease for 50,581 square feet of office and laboratory space at One Research Way in Princeton, New Jersey. The Company intends to complete the relocation of their headquarters from Cranbury, NJ to One Research Way in Princeton NJ in late 2022. That lease term extends through 2032 , has a five-year extension option, and is intended to replace our two existing facilities and the space is expected to become the Company’s future headquarters . Payment under this lease will total $ 19.6 million through May 2032 . The Company received a lease incentive of $ 4.1 million from the lessor for a buildout of laboratory, vivarium, and office space, to be reimbursed to the Company in 2022. Management estimated the timing and amounts of reimbursements and included them as a reduction of lease payments when initially measuring the lease liability and right-of-use asset upon commencement. The components of lease cost for the year ended December 31, 2021 are as follows: (in thousands) Year Ended December 31, 2021 Operating lease cost $ 1,691 Variable lease cost 704 Total lease cost $ 2,395 Amounts reported in the balance sheet for leases where the Company is the lessee as of December 31, 2021 were as follows, in thousands: Operating Leases: Year Ended December 31, 2021 Right-of-use assets, operating leases $ 10,060 Operating lease liabilities, current $ 403 Operating lease liabilities, non-current 10,790 Total operating lease liabilities $ 11,193 Weighted-average remaining lease term (years) 10.02 Weighted-average discount rate 5.75 % Other information related to leases for the year ended December 31, 2021 is as follows, in thousands: Cash paid for amounts included in the measurement of lease liabilities $ 717 Leased assets obtained in exchange for new operating lease liabilities 10,318 134 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) Future minimum lease payments, net of reimbursements, remaining as of December 31, 2021 under operating leases by fiscal year were as follows, in thousands: Fiscal year 2022 $ ( 2,609 ) 2023 1,833 2024 1,814 2025 1,869 2026 1,925 Thereafter 11,477 Total minimum lease payments $ 16,309 Less: Amounts representing imputed interest ( 5,116 ) Present value of lease liabilities $ 11,193 Rent expense recorded for the years ended December 31, 2021 and 2020 were $ 1,691 and $ 561 , respectively. The company currently subleases the office space at 420 Bedford Street in Lexington, MA to another company. This sublease agreement expires in August, 2023 . In April 2021, the company entered into a sublease agreement with the previous tenants of the office space at One Research Way in Princeton, NJ, from April 2021 to July 2021 . As of December 31, 2021, sublease income for the Company was $ 116 . Contingencies From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when future expenditures are probable and such expenditures can be reasonably estimated. Commitments As of December 31, 2021, there were no purchase commitments with third-party suppliers. 7. Convertible Preferred Stock As of December 31, 2019, the Company’s Certificate of Incorporation, as amended and restated, authorized the Company to issue up to 22,883,426 shares of convertible preferred stock with a par value of $ 0.00001 per share . 1,657,903 shares were designated as Series Seed convertible preferred stock (Series Seed Preferred), 8,076,985 shares were designated as Series A convertible preferred stock (Series A Preferred), 7,672,560 shares were designated as Series B convertible preferred stock (Series B Preferred) and 5,475,978 shares were designated as Series C convertible preferred stock (Series C Preferred). As of December 31, 2019, the Company had an aggregate of 22,866,246 shares of Series Seed Preferred, Series A Preferred, Series B Preferred and Series C Preferred (collectively, “Preferred Stock”) issued and outstanding. All share amounts presented are reverse-split adjusted. 135 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) As of December 31, 2019, the Preferred Stock consisted of the following (in thousands except for share data): Preferred stock authorized Preferred stock issued and outstanding Carrying value Liquidation preference Common stock issuable upon conversion Series Seed Preferred 1,657,903 1,647,102 $ 3,008 $ 3,050 1,647,102 Series A Preferred 8,076,985 8,076,982 30,593 30,734 8,076,982 Series B Preferred 7,672,560 7,672,556 73,627 73,728 7,672,556 Series C Preferred 5,475,978 5,469,606 61,705 61,873 5,469,606 22,883,426 22,866,246 $ 168,933 $ 169,385 22,866,246 In July 2020, the Company issued 5,321,864 shares of Series D Preferred Stock at a price of $ 13.1533 per share, resulting in gross proceeds of $ 70,000 . In connection with the IPO on September 25, 2020, all of the Company’s convertible preferred stock, including Series D Preferred Stock, outstanding at the time of the IPO automatically converted into an aggregate of 28,188,110 shares of common stock. The holders of Preferred Stock have the rights, preferences, privileges and restrictions as set forth below: Dividends: The holders of Preferred Stock are entitled to receive non-cumulative dividends prior to and in preference to any declaration of payment of dividends on common stock, when and if declared by the Board of Directors. Any additional dividends will be paid ratably to holders of common and Preferred Stock, with the holders of Preferred Stock participating on an as-if converted basis. No dividends have been declared or paid as of December 31, 2019. Voting Rights: The holders of each share of Preferred Stock are entitled to voting rights equal to the number of shares of common stock into which the shares could be converted. As long as any shares of Preferred Stock remain outstanding, the holders of Preferred Stock, voting together as a class, shall be entitled to elect four members of the Company’s Board of Directors. The holders of common stock, voting together as a single class, shall be entitled to elect two members of the Company’s Board of Directors. Remaining members of the Company’s Board of Directors will be elected by the holders of a majority of the shares of Preferred Stock and common stock, voting together as a single class. Liquidation Rights: In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Preferred Stock have liquidation preferences, before any distribution or payment is made to holders of any common stock, in an amount per share equal to the original issue price of $ 1.8517 for Series Seed Preferred, $ 3.7266 for Series A Preferred, $ 9.6093 for Series B Preferred and $ 11.3121 for Series C Preferred, as adjusted for stock splits, stock dividends, combinations, recapitalizations and the like, plus any declared but unpaid dividends. If the assets and funds to be distributed among the holders of Preferred Stock are insufficient to permit the payment to such holders, then the entire assets and funds of the Company legally available for distribution will be distributed ratably among the holders of Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. 136 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) Upon completion of the payment of the full liquidation preference of Preferred Stock, the remaining assets of the Company, if any, shall be distributed with equal priority and ratably to the holders of common stock and Preferred Stock, with the Preferred Stock being treated as if the Preferred Stock had been converted to shares of common stock at the then applicable conversion rate. Notwithstanding the foregoing, the aggregate distributions made with respect to any shares of Preferred Stock may not exceed the greater of (i) an amount equal to two times the original issue price plus any declared but unpaid dividends on such share or (ii) the amount the holder would have received if all shares of the Preferred Stock were deemed to have been converted into common stock as of immediately prior to such liquidation, dissolution or winding up of the Company. Conversion: Each share of Preferred Stock is convertible into shares of common stock, at the option of the holder, at any time after date of issuance. Each share of Preferred Stock automatically converts to the number of shares of common stock determined in accordance with the conversion rate upon the earlier of (i) written consent of two-thirds of the then outstanding shares of Preferred Stock, voting together as a single class, and written consent of the majority of the then outstanding shares of Series C Preferred or (ii) the closing of a public offering, in which the gross cash proceeds are at least $ 40,000 and the initial offering price to the public is at least $ 11.3121 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations, reorganizations, reclassifications or the like). As of December 31, 2019, the conversion price for each share of Series Seed Preferred, Series A Preferred, Series B Preferred and Series C Preferred is $ 1.8517 , $ 3.7266 , $ 9.6093 and $ 11.3121 , respectively. 8. Common Stock The Company is authorized to issue up to 1,000,000,000 shares of common stock with a par value of $ 0.00001 per share, and 5,000,000 shares of preferred stock with a par value of $ 0.00001 per share. As of December 31, 2021 and 2020, there were 45,433,684 and 44,777,818 shares of common stock issued and outstanding, respectively. Common stockholders are entitled to receive dividends if and when declared by the board of directors subject to the rights of any preferred stockholders. As of December 31, 2021, no dividends on common stock had been declared by the Company. As of December 31, 2021 and 2020, the Company had reserved shares of common stock for issuance as follows: December 31, 2021 2020 Options issued and outstanding 4,246,007 4,090,970 Shares available for future stock option grants 4,951,680 4,609,725 Shares available for employee stock purchase plan 801,464 400,752 Total 9,999,151 9,101,447 137 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) 9 Stock Plan 2020 Equity Incentive Plan The 2020 Equity Incentive Plan (the “2020 Plan”) was approved by the board of directors on September 24, 2020. The 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares of common stock initially reserved for issuance under the 2020 Plan is 4,406,374 , which shall be increased, upon approval by the board of directors, on January 1, 2021 and each January 1 thereafter, in an amount equal to the least of (i) 4,406,374 shares of common stock, (ii) five percent ( 5 %) of the outstanding common stock on the immediately preceding December 31 , or (iii) such number of common stock determined by the board of directors no later than the immediately preceding December 31. For 2021, the board of directors exercised its discretion under clause (iii) to increase the number of shares of common stock reserved for issuance under the 2020 Plan by a lesser amount of 1,363,084 shares, effective as of January 1, 2022. As of December 31, 2021, there were 4,951,680 shares available for issuance under the 2020 Plan. 2020 Employee Stock Purchase Plan The 2020 Employee Stock Purchase Plan (the “2020 ESPP”) was approved by the board of directors on September 24, 2020. A total of 400,752 shares of common stock were initially reserved for issuance under this plan, which shall be increased, upon approval by the board of directors, on January 1, 2021 and each January 1 thereafter, to the lesser of (i) 801,504 shares of common stock, (ii) 1 % of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (iii) an amount determined by the board of directors or any of its committees no later than the last day of the immediately preceding fiscal year. For 2021, the 2020 ESPP reserved shares were increased under clause (iii) by zero shares, effective as of January 1, 2022. On November 19, 2021, employees exercised their right to purchase 10,480 shares under the 2020 ESPP. As of December 31, 2021, 47,066 shares are issued or outstanding, and there were 801,464 shares available for issuance, under the 2020 ESPP. 2013 Equity Incentive Plan In 2013, the Company adopted the 2013 Stock Plan (the “2013 Plan”). On September 24, 2020, this plan was replaced by the 2020 Plan, and future issuances of incentive instruments will be governed by that plan. Subject to the provisions of the 2020 Plan, the Company had the option to either forfeit or repurchase remaining shares under the 2013 Equity Incentive Plan on or after the registration date. The Company chose to forfeit the remaining shares. 138 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) Stock-Based Compensation The following table summarizes option activity for the year ended December 31, 2021: Options Outstanding Weighted- Average Weighted Remaining Aggregate Shares Number Average Contractual Intrinsic Available of Exercise Life Value for Grant Options Price (in years) (in 000s) Balances, December 31, 2020 4,609,725 4,090,970 $ 3.14 7.13 $ 238,792 Shares reserved for issuance 1,343,334 – Options retired under 2013 Equity Plan ( 237,542 ) – Options granted ( 807,180 ) 807,180 $ 29.22 Options forfeited / cancelled 43,343 ( 43,343 ) $ 6.89 Options exercised – ( 608,800 ) $ 2.03 Balances, December 31, 2021 4,951,680 4,246,007 $ 8.22 6.86 $ 68,506 At December 31, 2021 Vested and expected to vest 4,246,007 $ 8.22 6.86 $ 68,506 Exercisable 2,668,149 $ 3.48 5.80 $ 52,952 The weighted average grant date fair value of stock options granted during the year ended December 31, 2021 and 2020 was $ 20.03 and $ 3.34 , respectively. The aggregate intrinsic value of options vested and exercisable as of December 31, 2021 and 2020 is calculated based on the difference between the exercise price and the fair value of our common stock. The intrinsic value of options exercised in 2021 and 2020 was $ 18,534 and $ 245 , respectively. As of December 31, 2021, the total compensation cost related to nonvested service-based awards not yet recognized is $ 15,708 . The weighted-average period over which the nonvested awards is expected to be recognized is 3.1 years. The Company estimated the fair value of stock options using the Black-Scholes options valuation model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions: Year Ended December 31, 2021 2020 2019 Risk-free interest rate 0.35% - 1.30% 0.31% - 1.51% 1.49% - 2.51% Expected life (in years) 5.50 - 6.44 4.92 - 6.40 5.27 - 6.37 Dividend yield 0 % 0 % 0 % Expected volatility 76.50% - 79.90% 70.70% - 77.60% 72.07% - 72.69% 139 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) The weighted average assumptions used to estimate the fair value of stock options granted and stock purchase rights under the ESPP are as follows: Year Ended December 31, 2021 Risk-free interest rate 0.04 % Expected life (in years) 0.50 Dividend yield 0 % Expected volatility 77.83 % Expected Term: The Company uses the simplified method to calculate expected term described in the SEC’s Staff Accounting Bulletin No. 107, which takes into account vesting term and expiration date of the options. Volatility: Volatility is based on an average of the historical volatilities of comparable publicly traded companies for the expected term. Risk Free Interest Rate: The risk-free rate is based on the U.S. Treasury yields in effect at the time of grant for periods corresponding with the expected term of the option. Dividend Yield: The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, used an expected dividend yield of zero in the valuation model. S tock-based compensation expense recorded under ASC 718 related to options granted was allocated to research and development and general and administrative expense as follows: For the Years Ended December 31, 2021 2020 2019 Research and development $ 1,440 $ 836 $ 302 General and administrative 3,900 1,097 606 Total stock-based compensation $ 5,340 $ 1,933 $ 908 10. Income Taxes The income tax provision for the years ended December 31, 2021, 2020, and 2019 are as follows (in thousands): For the Years Ended December 31, 2021 2020 2019 Current: Federal $ - $ - $ - State 23 6 8 Total current 23 6 8 Deferred: Federal $ - $ - $ - State - - - Total deferred - - - Total Provision $ 23 $ 6 $ 8 140 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) A reconciliation of income tax computed at the statutory federal income tax rate to the provision for income taxes included in the accompanying statements of operations for the Company is as follows: For the Years Ended December 31, 2021 December 31, 2020 December 31, 2019 Income tax provision at statutory rate 21 % 21 % 21 % State income taxes, net of federal benefit 9 % 8 % 7 % Tax credits 3 % 2 % 1 % Stock compensation 5 % ( 1 )% 0 % Other ( 1 )% 0 % 0 % Change in valuation allowance ( 37 )% ( 30 )% ( 29 )% Effective income tax rate 0 % 0 % 0 % For the years ended December 31, 2021, 2020, and 2019, the Company’s effective tax rate is below the federal statutory income tax rate of 21 % primarily due to state income taxes, net of federal benefit and the Company’s position to establish a full valuation allowance on its deferred tax assets. The tax effect of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and liabilities are presented below: As of December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 45,231 $ 27,511 Stock compensation 1,587 748 Research and development credits 4,593 2,414 Accruals and reserves 1,033 830 Operating lease liabilities 3,175 - Total deferred tax assets 55,619 31,503 Valuation allowance ( 52,728 ) ( 31,458 ) Deferred tax assets recognized 2,891 45 Deferred tax liabilities: Right-of-use assets ( 2,854 ) - Fixed assets and depreciation ( 37 ) ( 45 ) Total deferred tax liabilities ( 2,891 ) ( 45 ) Net deferred tax assets $ - $ - The Company has recorded a valuation allowance for its deferred tax assets that it does not believe will be realizable at a more likely than not level based on analysis of all available sources of taxable income. As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of $ 159,886 and $ 97,665 , respectively. As of December 31, 2021, the Company had state net operating loss carryforwards for New Jersey, California and Massachusetts of approximately $ 154,972 , $ 4,912 , and $ 4,640 respectively. At December 31, 2020, the Company had state net operating loss carryforwards for New Jersey, California and Massachusetts of approximately $ 92,805 , $ 4,912 and $ 950 , respectively. Federal net operating loss carryforwards of $ 27,515 expire beginning in the year 2033 . State net operating loss carryforwards begin to expire in the year 141 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) 2033 . Net operating loss carryforwards related to tax years after 2017 of $ 132,371 do not expire. The Company also has federal and state research and development credit carryforward of approximately $ 6,588 and $ 3,470 a s of December 31, 2021 and 20 20 , respectfully . The federal credits will begin to expire in 2034 if not utilized. The California state credits carryforward indefinitely and the New Jersey state credits expire starting in 202 2 . The above net operating losses and research and development credits are subject to Sections 382 and 383 of the Internal Revenue Code. In the event of a change in ownership as defined by these code sections, the usage of the net operating losses and research and development credits may be limited. The Company accrues interest and penalties related to unrecognized tax benefits in the Provision for income taxes line item in the statements of operations and comprehensive loss . As of December 31, 2021 and 2020, the Company had no t accrued any interest or penalties related to uncertain tax positions. If the ending balance of $ 1,654 and $ 877 of unrecognized tax benefits as of December 31, 2021 and 2020, respectively, were recognized, none of the recognition would affect the income tax rate. The following table summarized the activity related to the Company’s unrecognized tax benefits: For the Years Ended December 31, 2021 December 31, 2020 Unrecognized tax benefits, beginning of year $ 877 $ 543 Increases related to prior year tax positions 43 5 Increases related to current year tax positions 734 329 Unrecognized tax benefits, end of year $ 1,654 $ 877 The Company does not anticipate any material change in its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business. The Company files U.S. federal and state income tax returns with varying statutes of limitations. The Company’s tax years 2013 to 2021 will remain open for examination by the federal and state authorities for three and four years , respectively, from the date of utilization of any net operating loss credits. 11. Net Loss per Share The Company’s convertible preferred stock does not participate in losses. The Company excluded all outstanding stock options and restricted stock awards at each period end from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect. For the Years Ended December 31, 2021 2020 2019 Convertible preferred stock (as converted) – – 22,866,246 Warrants to purchase common stock – – 10,800 Common stock options issued and outstanding 4,246,007 4,090,970 2,767,868 Total 4,246,007 4,090,970 25,644,914 142 PMV Pharmaceuticals, Inc. Notes to Financial Statements December 31, 2021 and 2020 (in thousands except share and per share amounts) For the Years Ended December 31, 2021 2020 2019 Net loss $ ( 57,846 ) $ ( 34,440 ) $ ( 25,352 ) Weighted-average number of shares - basic and diluted 45,137,656 14,364,475 3,035,243 Net loss per share - basic and diluted $ ( 1.28 ) $ ( 2.40 ) $ ( 8.35 ) 12. Related Parties The Company has consulting agreements with two members of its board of directors. The total of consulting fees paid as of the years ended December 31, 2021 and December 31, 2020 were $ 110 and $ 112 , respectively. In May of 2021, the two members of the board of directors were awarded 5,781 options of company stock each, as per their updated Scientific Advisory Board agreements. There were no amounts owed under the consulting agreements as of December 31, 2021 or December 31, 2020. During the fiscal year ended December 31, 2020, an investor provided $ 65 of financial consulting services to the Company. The Company has paid the entirety of the fees as of December 31, 2020. No amounts were paid or owed to the investors as of the year ended December 31,2021. 143 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None .