Sionna Therapeutics, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements for the Years Ended December 31, 2024 and 2023: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) F- 2 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations and Comprehensive Loss F- 4 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit F- 5 Consolidated Statements of Cash Flows F- 6 Notes to Consolidated Financial Statements F- 7 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Sionna Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Sionna Therapeutics, Inc., and subsidiary (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' deficit, and cash flows, for the years then ended, 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, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, 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. /s/ Deloitte & Touche LLP Boston, Massachusetts March 20, 2025 We have served as the Company’s auditor since 2021. F-2 Table of Contents SIONNA THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) Year Ended December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 37,788 $ 38,521 Marketable securities, current 109,750 — Prepaid expenses and other current assets 3,455 686 Total current assets 150,993 39,207 Property and equipment, net 2,466 3,107 Marketable securities, noncurrent 20,505 — Restricted cash 962 962 Operating lease right-of-use asset 7,832 8,625 Other assets 2,994 44 Total assets $ 185,752 $ 51,945 Liabilities, convertible preferred stock and stockholders’ deficit Current liabilities: Accounts payable $ 1,186 $ 719 Accrued expenses 8,162 6,590 Operating lease liability, current 1,072 728 Total current liabilities 10,420 8,037 Operating lease liability, noncurrent 8,677 9,749 Total liabilities 19,097 17,786 Commitments and contingencies (Note 8) Series Seed convertible preferred stock, $0.001 par value, 3,963,963 shares authorized, issued and outstanding as of December 31, 2024 and 2023; liquidation value of $13,200 as of December 31, 2024 and 2023 13,014 13,014 Series A convertible preferred stock, $0.001 par value, 5,704,161 shares authorized, issued and outstanding as of December 31, 2024 and 2023; liquidation value of $25,263 as of December 31, 2024 and 2023 25,235 25,235 Series B convertible preferred stock, $0.001 par value, 11,370,621 shares authorized, issued and outstanding as of December 31, 2024 and 2023; liquidation value of $111,000 as of December 31, 2024 and 2023 110,791 110,791 Series C convertible preferred stock, $0.001 par value, 18,628,970 and 0 shares authorized, issued and outstanding as of December 31, 2024 and 2023, respectively; liquidation value of $181,856 as of December 31, 2024 181,328 — Total convertible preferred stock 330,368 149,040 Stockholders’ deficit: Common stock, $0.001 par value, 55,200,000 and 30,000,000 shares authorized as of December 31, 2024 and 2023, respectively; 4,798,721 and 3,313,012 shares issued, 4,722,763 and 3,050,863 shares outstanding as of December 31, 2024 and 2023, respectively 5 2 Additional paid-in capital 17,000 4,515 Accumulated other comprehensive income 368 — Accumulated deficit (181,086) (119,398) Total stockholders’ deficit (163,713) (114,881) Total liabilities, convertible preferred stock and stockholders’ deficit $ 185,752 $ 51,945 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents SIONNA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share data) Year Ended December 31, 2024 2023 Operating expenses: Research and development $ 57,288 $ 40,626 General and administrative 13,268 9,707 Total operating expenses 70,556 50,333 Loss from operations (70,556) (50,333) Other income: Interest income 8,170 2,769 Other income 698 301 Total other income 8,868 3,070 Net loss $ (61,688) $ (47,263) Net loss per share, basic and diluted $ (15.99) $ (16.11) Weighted-average common shares outstanding, basic and diluted 3,858,859 2,933,218 Comprehensive loss: Net loss $ (61,688) $ (47,263) Other comprehensive income: Unrealized gain on marketable securities 368 16 Comprehensive loss $ (61,320) $ (47,247) The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents SIONNA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (in thousands, except share amounts) Series Seed Series A Series B Series C Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Deficit Preferred Stock Preferred Stock Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2022 3,963,963 $ 13,014 5,704,161 $ 25,235 11,370,621 $ 110,791 — — 2,792,929 $ 2 $ 2,225 $ (16) $ (72,135) $ (69,924) Exercise of common stock options — — — — — — — — 35,552 — 31 — — 31 Vesting of restricted common stock awards — — — — — — — — 222,382 — — — — — Stock-based compensation expense — — — — — — — — — — 2,259 — — 2,259 Unrealized gain on marketable debt securities — — — — — — — — — — — 16 — 16 Net loss — — — — — — — — — — — — (47,263) (47,263) Balance at December 31, 2023 3,963,963 $ 13,014 5,704,161 $ 25,235 11,370,621 $ 110,791 — — 3,050,863 $ 2 $ 4,515 $ — $ (119,398) $ (114,881) Issuance of Series C Preferred Stock, net of issuance costs of $528 — — — — — — 18,628,970 181,328 — — — — — — Issuance of common stock from IPR&D acquisition — — — — — — — — 1,414,445 2 8,637 8,639 Exercise of common stock options — — — — — — — — 71,264 1 140 — — 141 Vesting of restricted common stock awards — — — — — — — — 186,191 — — — — — Stock-based compensation expense — — — — — — — — — — 3,708 — — 3,708 Unrealized gain on marketable debt securities — — — — — — — — — — — 368 — 368 Net loss — — — — — — — — — — — — (61,688) (61,688) Balance at December 31, 2024 3,963,963 $ 13,014 5,704,161 $ 25,235 11,370,621 $ 110,791 18,628,970 $ 181,328 4,722,763 $ 5 $ 17,000 $ 368 $ (181,086) $ (163,713) The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents SIONNA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ (61,688) $ (47,263) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash expense related to IPR&D acquisition 8,639 — Stock-based compensation expense 3,708 2,259 Non-cash operating lease expense 1,962 2,184 Amortization of discount on marketable securities (3,001) (679) Depreciation expense 668 583 Changes in operating assets and liabilities: Prepaid expenses and other current assets (2,760) 333 Accounts payable 467 162 Accrued expenses 1,080 (1,106) Operating lease liabilities (1,897) (172) Other assets 35 — Net cash used in operating activities (52,787) (43,699) Cash flows from investing activities: Purchases of property and equipment (27) (1,116) Purchases of marketable securities (182,841) (23,532) Maturities of marketable securities 55,955 52,000 Net cash (used in) provided by investing activities (126,913) 27,352 Cash flows from financing activities: Proceeds from issuance of Series C convertible preferred stock, net of issuance costs 181,328 — Payment of deferred offering costs (2,502) — Exercise of common stock options 141 31 Net cash provided by financing activities 178,967 31 Net decrease in cash, cash equivalents and restricted cash (733) (16,316) Cash, cash equivalents and restricted cash at beginning of period 39,483 55,799 Cash, cash equivalents and restricted cash at end of period $ 38,750 $ 39,483 Supplemental disclosure of non-cash investing and financing activities: Deferred offering costs in accrued expenses $ 492 $ — Right-of use asset obtained in exchange for new operating lease liability — 9,516 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 37,788 $ 38,521 Restricted cash 962 962 Total cash, cash equivalents, and restricted cash $ 38,750 $ 39,483 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents SIONNA THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business Organization Sionna Therapeutics, Inc. (the “Company”), formerly known as Sling Therapeutics, Inc., is a clinical-stage biopharmaceutical company dedicated to researching and developing novel medicines for cystic fibrosis. The Company was incorporated in Delaware in August 2019 and is headquartered in Waltham, Massachusetts. Risks and Uncertainties The Company is subject to a number of risks common to other companies in the biotechnology industry, including but not limited to, development by competitors of new technological innovations, risks of failure of preclinical studies and clinical trials, development and manufacturing of product candidates, obtaining regulatory approval for product candidates, competition from substitute products, the need to successfully commercialize and gain market acceptance of its product candidates, protection of proprietary technology, dependence on key personnel, the ability to attract and retain qualified employees, reliance on third party organizations compliance with government regulations, and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive clinical testing and regulatory approval, prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. Reverse Stock Split On January 31, 2025, the Company effected a 1-for-1.4611 reverse stock split of its issued and outstanding shares of common stock, which also resulted in a proportional adjustment to the conversion price for each series of its convertible preferred stock and to the exercise prices of the outstanding stock options. The par value and authorized number of shares of common stock and redeemable convertible preferred stock were not adjusted as a result. All share and per share amounts for all periods presented in the consolidated financial statements and notes thereto have been retroactively adjusted to reflect the effect of the reverse stock split. Initial Public Offering In February 2025, the Company completed its initial public offering ("IPO"), in which the Company sold an aggregate of 10,588,233 shares of its common stock at a public offering price of $18.00 per share and sold an additional 1,588,234 shares of its common stock to the underwriters of the IPO pursuant to the full exercise of their option to purchase additional shares, resulting in aggregate net proceeds of approximately $199.6 million, after deducting underwriter discounts, commissions and other offering expenses. Immediately prior to the closing of the IPO, the Company's outstanding redeemable convertible preferred stock automatically converted into 27,149,206 shares of common stock. Following the closing of the IPO, no shares of redeemable convertible preferred stock were outstanding. In connection with the closing of the IPO, the Company's certificate of incorporation was amended and restated to authorize 500,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. Liquidity and Going Concern The Company historically has funded its operations primarily with proceeds from the sale of convertible preferred stock and has not generated revenue from product sales or other sources. As of December 31, 2024, the Company has raised an aggregate of $330.4 million in net proceeds through the sale of convertible preferred stock. The Company has incurred annual net operating losses and has generated negative operating cash flows in every year since inception. As of December 31, 2024, the Company had an accumulated deficit of F-7 Table of Contents $181.1 million. The Company expects its operating losses to continue into the foreseeable future as it continues to pursue its research and development efforts. The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. The Company believes that its existing cash, cash equivalents, and marketable securities together with the additional proceeds received from the IPO will be sufficient to allow the Company to fund operations beyond twelve months from the date of issuance of these consolidated financial statements. 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as found in the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of Sionna Therapeutics, Inc., and its wholly owned subsidiary, Sionna Therapeutics Securities Corporation. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities and expenses and the related disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected within the consolidated financial statements include, but are not limited to, research and development expenses and accruals and the valuation of the Company’s common shares in connection with the accounting for stock-based awards. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances and facts. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with original maturities of ninety days or less at the time of purchase to be cash equivalents. Cash and cash equivalents typically include cash held in deposit accounts and money market funds. Cash accounts with any type of restriction are classified as restricted cash. As of December 31, 2024 and 2023, the Company had restricted cash of $1.0 million held to secure a letter of credit associated with the Company’s leased corporate headquarters. The restricted funds are maintained in a certificate of deposit account. The Company classified this amount as restricted cash in the accompanying consolidated balance sheets within other assets based on the release date of the restrictions. Marketable Securities The Company classifies marketable securities with a remaining maturity greater than three months at the time of purchase and less than one year from the balance sheet date as current. Marketable securities would be classified as long-term assets on the consolidated balance sheets if the maturity exceeded one year, and the Company did not intend to utilize the marketable securities to fund current operations. The Company classifies all of its investments as available-for-sale securities. Accordingly, these investments are recorded at fair value. Realized gains and losses and amortization of discounts and premiums are included in interest income, which is a component of other income. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive loss as a component of F-8 Table of Contents stockholders’ deficit until realized. Interest receivables earned on marketable securities are recorded as a component of prepaid expenses and other current assets. At each balance sheet date, the Company assesses available-for-sale debt securities in an unrealized loss position to determine whether the unrealized loss or any potential credit losses should be recognized. The Company evaluates whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. The Company also evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the severity of the impairment, any changes in interest rates, changes to the underlying credit ratings and forecasted recovery, among other factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in other income. There have been no impairment or credit losses recognized during any of the periods presented. Concentration of Credit Risk and Off-Balance Sheet Risk Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. The Company believes that it is not exposed to significant credit risk as its deposits are held at financial institutions that management believes to be of high credit quality and the Company has not experienced any losses on these deposits. The Company regularly invests excess cash with major financial institutions in money market funds, U.S. Treasury securities and government agency securities, and commercial paper, all of which can be readily purchased and sold using established markets. The Company believes that the market risk arising from its holdings of these financial instruments is mitigated based on the fact that many of these securities are either government-backed or of high credit rating. Fair Value of Financial Instruments Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: Level 1 —Quoted market prices in active markets for identical assets or liabilities. Level 2 —Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves. Level 3 —Unobservable inputs for the asset or liability (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of the fair value requires more judgement. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The carrying values of prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. F-9 Table of Contents Property and Equipment, net Property and equipment is stated at cost net of accumulated depreciation. Costs of major additions and betterments are capitalized. Maintenance and repairs to an asset that do not improve or extend its life are expensed in the period incurred. Depreciation expense is recognized using the straight-line method over the estimated useful life of each asset as follows: Estimated Useful Life (in years) Lab equipment 5 Furniture & fixtures 5 Hardware & software 3 Leasehold improvements Shorter of useful life or remaining lease term When an item is sold or retired, the costs and related accumulated depreciation are eliminated, and the resulting gain or loss, if any, is credited or charged to the consolidated statement of operations and comprehensive loss. Property and equipment to be disposed of is carried at fair value less costs to sell. Impairment of Long-Lived Assets Long-lived assets consist primarily of property and equipment and right-of-use assets. The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant revision or that the carrying value of these assets may be impaired. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use or disposition of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their fair values. The Company has not recognized any impairment charges during the years ended December 31, 2024 and 2023. Leases At the inception of an arrangement the Company determines whether the arrangement contains a lease. Operating leases are included in operating lease right-of-use lease asset (“ROU asset”), operating lease liability, current, and operating lease liability, noncurrent, on the Company’s consolidated balance sheets. Assets subject to finance leases are included in property and equipment, and the related lease obligation is included in other current liabilities and other long-term liabilities on the Company’s consolidated balance sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. As of December 31, 2024 and 2023, the Company did not have any finance leases. The Company has elected the short-term lease recognition exemption for short-term leases, which allows the Company not to recognize lease liabilities and ROU assets on the consolidated balance sheets for leases with an original term of twelve months or less. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities and their corresponding ROU assets are initially recognized based on the present value of lease payments over the expected remaining lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. Certain adjustments to the ROU asset may be required for items such as incentives received from the lessor. The interest rate implicit in lease contracts is typically not readily determinable. Therefore, the Company utilizes its incremental borrowing rate to discount lease payments. The incremental borrowing rate reflects the fixed rate at which the Company could borrow, on a collateralized basis, the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Leases generally provide for payments of non-lease components, such as common area maintenance, real estate taxes and other costs associated with the leased property. The Company accounts for non-lease components together with lease components. Variable lease payments, such as periodic adjustments for inflation, reimbursement of real estate taxes, and variable common area maintenance are expensed as incurred as variable lease costs and are not recorded on the consolidated balance sheets. F-10 Table of Contents Sublease income is recognized on a straight-line basis over the term of the sublease agreement and is recorded within Other Income on the consolidated statements of operations and comprehensive loss. Research and Development Expenses and Accruals Research and development costs include (i) employee-related expenses, including salaries, benefits, and stock-based compensation expense; (ii) external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CRO”) agreements, contract development and manufacturing organizations (“CDMOs”), consultants and scientific advisors; (iii) costs associated with preclinical and clinical activities and (iv) lab supplies, lab expenses and an allocation of rent, depreciation, and infrastructure. The Company recognizes research and development costs in the periods in which they are incurred. Typically, external expenses are recognized based on an evaluation of the progress to completion of specific tasks using information obtained from (i) internal personnel regarding the services that have been performed on the Company's behalf and estimating the associated cost incurred for those services or (ii) information provided to the Company by their service providers as of each reporting date . Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses, which are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered, or the services rendered. Significant judgments and estimates are made in determinin g accrued or prepaid expense balances at the end of any reporting period. Asset Acquisitions and Acquired In-Process Research and Development Expense The Company accounts for acquisitions of assets or a group of assets that do not meet the definition of a business as asset acquisitions based on the cost to acquire the asset or group of assets, which include certain transaction costs. In an asset acquisition, the cost to acquire is allocated to the identifiable assets acquired and liabilities assumed based on their relative fair values as of the acquisition date. No goodwill is recorded in an asset acquisition. Assets that are acquired in an asset acquisition for use in research and development activities that have an alternative future use are capitalized as in process research and development (“IPR&D”). Acquired IPR&D that has no alternative future use as of the acquisition date is recognized as research and development expense as of the acquisition date. The Company will recognize additional research and development expenses in the future if and when the Company becomes obligated to make contingent milestone or royalty payments which are governed by the terms of the agreements by which it acquired the IPR&D assets. Developmental and regulatory milestone payments will be recorded when the milestone is achieved, and commercial milestones, such as sales-based milestone payments, and royalties will be recorded when the underlying sale(s) occur. The Company presents the costs to acquire IPR&D as a component of operating activities in the consolidated statements of cash flows. Patent Costs All patent-related costs incurred in connection with filing and prosecuting patent applications such as direct application fees, and legal and consulting expenses are expensed as incurred due to the uncertainty about the recovery of the expenditure. Patent-related costs are classified as general and administrative expenses within the Company’s consolidated statements of operations and comprehensive loss. Deferred Offering Costs The Company capitalizes certain legal, professional accounting and other third-party fees that are direct and incremental costs associated with in-process equity financings as deferred offering costs until such financing is consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds generated as a result of the offering within additional paid-in capital. In the event that the equity financing is abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the condensed consolidated statements of operations and comprehensive loss. F-11 Table of Contents Convertible Preferred Stock The Company’s convertible preferred stock is classified as temporary equity in the accompanying consolidated balance sheets and excluded from stockholders’ deficit as the potential redemption of such stock is outside the Company’s control and would require the redemption of the then-outstanding convertible preferred stock. The convertible preferred stock is not redeemable except for in the event of a liquidation, dissolution, or winding up of the Company (see Note 10). Costs incurred in connection with the issuance of convertible preferred stock are recorded as a reduction of gross proceeds from issuance. Subsequent adjustments of the carrying values to the ultimate redemption values will be made only when it becomes probable that these events will occur. Fair Value of Common Stock The Company determined the estimated fair value of common stock prior to the completion of the IPO based on a number of objective and subjective factors, including, but not limited to, external market conditions affecting the biotechnology industry sector, the prices at which the Company sold shares of convertible preferred stock and the superior rights and preferences of securities senior to the Company’s common stock at the time, and the likelihood and potential timing of achieving a liquidity event, such as an initial public offering, in light of prevailing market conditions. The Company utilized valuation methodologies in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , to estimate the fair value of common stock. The methodologies utilized to estimate the fair value of common stock prior to the completion of the IPO included the option pricing method (“OPM”) or the hybrid method, both of which use a market approach to estimate the Company’s equity value. The OPM treats common stock and convertible preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under the OPM, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the convertible preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. The hybrid method is a probability-weighted expected return method ("PWERM") where the equity value in one or more of the scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the Company assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future invest returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock. Stock-Based Compensation The Company measures all stock options and other stock-based awards granted to employees, non-employees, and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. The Company’s stock-based payments include stock options and grants of restricted common stock awards. Generally, the Company issues stock-based awards with only service-based vesting conditions. The Company’s policy is to account for forfeitures when they occur. Stock-based compensation expense is classified in the accompanying consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients service payments are classified. Restricted common stock awards are subject to repurchase rights until such awards meet all vesting conditions. Accordingly, the Company has recorded the proceeds from the issuance of restricted common stock awards as a liability in the consolidated balance sheets. The restricted common stock liability is reclassified into stockholders’ equity as the restricted common stock vests. F-12 Table of Contents The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Board of Directors of the Company (the “Board”) determines the fair value of the Company’s common stock taking into consideration its most recently available third-party valuations of common stock as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through grant date. Due to the lack of company-specific historical and implied volatility information, the Company estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until it has adequate historical data regarding the volatility of its own traded stock price. The Company uses the simplified method as prescribed by the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, Share-Based Payment , to calculate the expected term for options granted to employees and non-employees as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero because the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future. Income Taxes The Company’s provision for income taxes, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated future taxes to be paid. Significant judgments and estimates based on interpretations of existing tax laws or regulations in the United States are required in determining our provision for income taxes. Changes in tax laws, statutory tax rates, and estimates of our future taxable income could impact the deferred tax assets and liabilities provided for in the consolidated financial statements and would require an adjustment to the provision for income taxes. The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, which are considered appropriate as well as the related net interest and penalties. Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period and, if dilutive, the weighted-average number of potential shares of common shares. Net loss per share attributable to common stockholders is calculated using the two-class method, which is an earnings allocation formula that determines net loss per share for the holders of the Company’s common shares and participating securities. The Company’s convertible preferred stock contains participation rights in any dividend paid by the Company and is deemed to be a participating security. The participating securities do not include a contractual obligation to share in losses of the Company and are not included in the calculation of net loss per share in the periods in which a net loss is recorded. F-13 Table of Contents Diluted net loss per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method. The Company allocates earnings first to preferred stockholders based on dividend rights and then to common and preferred stockholders based on ownership interests. The weighted-average number of common shares included in the computation of diluted net loss per share gives effect to all potentially dilutive common equivalent shares. Common stock equivalent shares are excluded from the computation of diluted net loss 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 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. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholder’s deficit that result from transactions and events other than those with stockholders. The Company’s unrealized gains and losses on marketable securities represent the only component of other comprehensive loss that are excluded from the reported net loss and that are presented in the consolidated statements of operations and comprehensive loss. Segment Information The Company is managed as one operating segment, and thus reports as a single reportable segment. This operating segment is focused on the research and development of cystic fibrosis therapies. Management assessed the financial information routinely reviewed by the Company's Chief Operating Decision Maker ("CODM"), its President and Chief Executive Officer, to monitor the Company's operating performance and support decision making regarding allocation of resources to its operations, and determined that performance is continuously monitored at the consolidated level. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. The measure used by the CODM in assessing performance and deciding how to allocate resources is based on consolidated net loss, as reported on the consolidated statement of operations and comprehensive loss. The CODM uses consolidated net loss to monitor budget versus actual results to identify deviations from expected results, which is used in assessing performance, making operating decisions, allocating resources, and planning and forecasting for future periods. Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280: Improvements to Reportable Segment Disclosures) (“ASU 2023-07”). The amendments in this update improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. All disclosure requirements of the update are required for entities with a single reportable segment. The Company has adopted this standard as of January 1, 2024. Recently Issued Accounting Pronouncements Not Yet Adopted In December 2024, the FASB issued ASU 2023-09, Income Taxes (Topic 740: Improvements to Income Tax Disclosures) (“ASU 2023-09”). ASU 2023-09 provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and incomes taxes paid information. For public companies, the amendments are effective for annual periods beginning after F-14 Table of Contents December 15, 2024, and should be applied prospectively. The Company has determined that the effects of adopting the amendments in ASU 2023-09 will not have a material impact on its consolidated financial position, the results of its operations, or related disclosures when such amendment is adopted. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses ("ASU 2024-03"), which requires entities to disclose additional information about specific expense categories in the notes to the financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. ASU 2024-03 may be applied retrospectively or prospectively. The Company is currently evaluating the effect of this update on its consolidated financial statements and related disclosures. 3. Marketable Securities The following table summarizes the amortized cost and estimated fair value of the Company’s current and noncurrent marketable securities (in thousands): December 31, 2024 Amortized Cost Unrealized Gain Unrealized Loss Fair Value Marketable securities, current: U.S. Treasury securities $ 55,154 $ 176 $ — $ 55,330 Government agency securities 31,198 62 (1) 31,259 Corporate debt 17,205 22 — 17,227 Commercial paper 5,931 3 — 5,934 Total marketable securities, current 109,488 263 (1) 109,750 Marketable securities, noncurrent: U.S. Treasury securities 15,266 83 — 15,349 Government agency securities 5,133 23 — 5,156 Total marketable securities, noncurrent 20,399 106 — 20,505 Total marketable securities $ 129,887 $ 369 $ (1) $ 130,255 There were no unrealized gains or losses on marketable securities as of December 31, 2023. The Company has determined that there were no material changes in the credit risk, therefore the Company has not recognized any allowance for credit losses on its debt securities. As of December 31, 2024, the Company holds marketable securities with an aggregate fair value of $20.5 million that had remaining maturities between one and two years. All other securities had a contractual maturity of less than a year. There were no realized gains or losses during the year ended December 31, 2024 or 2023. F-15 Table of Contents 4. Fair Value Measurements The following table presents information about the Company’s financial instruments that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the inputs the Company utilized to determine such fair value (in thousands): December 31, 2024 Total Level 1 Level 2 Level 3 Assets Cash equivalents: Money market funds $ 37,288 $ 37,288 $ — $ — Marketable securities: U.S. Treasury securities 70,679 70,679 — — Government agency securities 36,415 — 36,415 — Corporate debt 17,227 — 17,227 — Commercial paper 5,934 — 5,934 — Total financial assets $ 167,543 $ 107,967 $ 59,576 $ — December 31, 2023 Total Level 1 Level 2 Level 3 Assets Cash equivalents: Money market funds $ 23,660 $ 23,660 $ — $ — Commercial paper 989 — 989 — Total financial assets $ 24,649 $ 23,660 $ 989 $ — During the year ended December 31, 2024 and 2023, there were no transfers or reclassifications between fair value measurement levels of assets or liabilities. 5. Property and Equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2024 2023 Deposits on lab and office equipment $ — $ 116 Laboratory equipment 1,461 1,329 Leasehold improvements 1,854 1,854 Furniture & fixtures 722 722 Total property and equipment 4,037 4,021 Less: accumulated depreciation (1,571) (914) Property and equipment, net $ 2,466 $ 3,107 Depreciation expense was $0.7 million and $0.6 million for the years ended December 31, 2024 and 2023, respectively. F-16 Table of Contents 6. Accrued Expenses Accrued expenses consisted of the following (in thousands): December 31, 2024 2023 Accrued research and development $ 3,961 $ 3,065 Accrued compensation and benefits 2,972 3,112 Accrued professional fees 737 362 Accrued deferred offering costs 492 — Accrued other — 51 Total accrued expenses $ 8,162 $ 6,590 7. Leases Operating Leases Summary Waltham, Massachusetts In May 2022, the Company entered into a noncancelable facility lease agreement to lease 24,051 square feet of office and laboratory space in Waltham, Massachusetts (“Waltham Lease”), which became the Company headquarters in January 2023 following the completion of construction of the prebuilt office and lab space, and when the Company received full access and control over the leased space. At commencement of the lease the right-of-use asset was $9.5 million, which was reduced by $0.4 million of lease incentives, offset by $0.2 million of lease prepayments, and the lease liability was $9.7 million. The original term for the Waltham Lease is for the period from January 2023 through November 2030, and the Company has the option to extend the Waltham Lease for an additional five-year term at market-based rates. The renewal option is not reasonably certain to occur, and as such, it was not considered in the measurement of the right-of-use asset and lease liability. The Waltham Lease has escalating base rent payments, which commenced in September 2023 and continue through the expiration of the lease. The Company received eight months of free rent and five additional months of 50% rent abatement. The Company is responsible for other fixed and variable payments including operating expenses and property taxes. Sublease Agreement In June 2023, the Company entered into a sublease agreement to sublet 6,399 square feet of its office and laboratory space under the Waltham Lease (the “Sublease”). The Company was not relieved of its obligation to the lessor for the head lease as a result of its entry into the Sublease. The Sublease is classified as an operating lease and commenced in July 2023 and will expire in September 2025. The Sublease has escalating rent payments and is secured by a letter of credit of $0.1 million w ith the Company named as the beneficiary. Sublease income is recognized on a straight-line basis and the rental income and reimbursement for operating expenses and taxes is included in other income on the consolidated statements of operations and comprehensive loss. For the years ended December 31, 2024 and 2023, the Company recognized $0.7 million and $0.3 million, respectively, of sublease income within other income on the consolidated statements of operations and comprehensive loss. F-17 Table of Contents Operating Lease Tables The following table presents inputs used in the calculation of the Company’s right of use asset and lease liabilities at the end of each reporting period: December 31, 2024 2023 Weighted average remaining lease term (years) 5.9 6.9 Weighted average discount rate 11.0 % 11.0 % Cash paid for amounts included in the measurement of operating lease liabilities (in thousands) $ 1,897 $ 172 The components of lease costs were as follows (in thousands): December 31, 2024 2023 Operating lease costs $ 1,962 $ 1,824 Variable lease costs 513 468 Short-term lease costs — 88 Total lease cost $ 2,475 $ 2,380 Lease commitments Future minimum lease payments were as follows (in thousands): Year ended December 31, Amount 2025 $ 2,128 2026 2,190 2027 2,253 2028 2,319 2029 2,386 Thereafter 2,245 Total future minimum lease payments 13,521 Less imputed interest (3,772) Present value of operating lease liabilities $ 9,749 8. Commitments and Contingencies Legal Proceedings The Company was not subject to any material legal proceedings during the years ended December 31, 2024 and 2023, and the Company is not aware of any material legal proceedings that are currently pending or threatened. Other Contracts The Company is party to various contracts with CROs and CDMOs that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement. Indemnification Agreements In the ordinary course of business the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including arising out of the relationship between such parties and the Company. In addition, the Company has entered into F-18 Table of Contents indemnification agreements with members of its board of directors and senior management that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date however, the Company has not incurred any material costs as a result of such indemnifications nor experienced any losses related to them. As of December 31, 2024 and 2023, the Company was not aware of any claims under indemnification arrangements and it has not accrued any liabilities related to such obligations. 9. License Agreements Sanofi License Agreement In December 2019, the Company entered into a license agreement, which has been subsequently amended (as amended, the “Sanofi License Agreement”), with Sanofi SA (f/k/a Genzyme) (“Sanofi”), pursuant to which the Company has been granted an exclusive, sub-licensable, royalty-bearing, worldwide license to develop and commercialize products using the licensed compounds and know-how for cystic fibrosis transmembrane conductance regulator (“CFTR”) correctors. As initial consideration for the license, the Company paid a non-refundable, upfront payment of $1.5 million, as well as a reimbursement of $0.3 million for Sanofi’s research and development expenses, which was previously recorded as research and development expense because the acquired license represented in-process research and development with no alternative future use. In addition, the Company is required to pay Sanofi a total of up to $40.0 million upon achievement of certain late-stage developmental and commercial milestones. As of December 31, 2024, no milestones have been achieved. The Company is also required to pay royalties to Sanofi in the low single-digit percentage range based on net sales of licensed products, subject to customary reductions and offsets. Such royalty payments shall be reduced for products covered by derived patents. CFF Payment Agreement In December 2019, the Company entered into a payment agreement (the “CFF Payment Agreement”) with the Cystic Fibrosis Foundation (“CFF”), pursuant to which the Company agreed to provide CFF with compensation in exchange for the grant of, or forbearance from exercising, certain of CFF’s rights existing under the license agreement by and between CFF (through an assignment by Cystic Fibrosis Foundation Therapeutics, Inc.) and Genzyme Corporation, an affiliate of Sanofi (the “CFFT-Genzyme Agreement”). Under the CFF Payment Agreement, the Company is obligated to compensate CFF in connection with the Company’s development and commercialization of licensed products under the Sanofi License Agreement. As initial consideration for CFF’s grant of, and forbearance from exercising, its rights under the CFFT-Genzyme Agreement, the Company paid an upfront fee of $0.2 million and issued CFF shares of preferred stock, valued at $1.0 million which were previously recorded as research and development expenses. In addition, the Company agreed to pay CFF a sub-teen double-digit percentage of any amounts paid by it to Sanofi under the Sanofi License Agreement, other than milestone, royalty or reimbursement payments. In addition, the Company is required to pay CFF a total of up to $40.0 million upon achievement of certain late-stage developmental and commercial milestones. As of December 31, 2024, no milestones have been achieved. The Company is also required to pay revenue-shares of royalty payments to CFF in the low single-digit percentage range based on net sales of licensed products subject to customary reductions and offsets. Such milestone and royalty payments shall be reduced for products covered by derived patents. Further, a side letter was executed between the Company and Sanofi, which clarifies the relationship between the Company, Sanofi and CFF, under which the Company is obligated to pay Sanofi 20% of the milestones it would have been obligated to pay CFF, net of the milestone amounts it is obligated to pay under the Sanofi License Agreement. AbbVie Agreement In July 2024, the Company entered into a license agreement (the “AbbVie License Agreement”) with AbbVie Global Enterprises Ltd. (“AbbVie”), pursuant to which the Company has been granted an exclusive worldwide, royalty-bearing, sublicensable license to research, develop and commercialize certain CFTR F-19 Table of Contents compounds. The licensed rights are directed, among other things, to three clinical-stage CFTR modulator assets. The license granted to us under the AbbVie License Agreement is subject to certain preexisting rights held by AbbVie and Galapagos NV (“Galapagos”). In particular, certain of the licensed patents and other intellectual property rights were developed by or on behalf of Galapagos and are sublicensed to us subject to the terms of the second amended and restated collaboration agreement between Galapagos and AbbVie in October 2018 (the “Galapagos License Agreement”), as amended by a side letter between Galapagos and AbbVie in July 2024. As initial consideration for the license, the Company paid a non-refundable, upfront payment of $5.0 million and issued shares of its common stock with a fair value of $8.6 million to AbbVie . The Company determined that the AbbVie License Agreement represented an asset acquisition as it did not meet the definition of the business. The Company recorded the total initial consideration of $13.6 million as research and development expense during the year ended December 31, 2024, because the acquired license represented in-process research and development with no alternative future use. In addition, the Company is required to pay AbbVie a total of up to $360.0 million upon achievement of certain development and commercial milestones, consisting of up to $70.0 million in late-stage development milestones and up to $290.0 million in commercial milestones. The Company is also required to pay royalties to AbbVie in the low to mid single-digit percentage range based on net sales of licensed products, subject to customary reductions and offsets. In addition, the Company is required to pay AbbVie up to $130.0 million in commercial and sales-based milestone payments, mid to high single-digit royalties on the licensed products, or other payments due to Galapagos pursuant to the Galapagos License Agreement, to the extent such payments are triggered by the Company’s use of the licensed rights owned by Galapagos under the AbbVie License Agreement. As of December 31, 2024, none of such milestones under the AbbVie License Agreement and Galapagos License Agreement have been achieved. 10. Convertible Preferred Stock Series Seed In December 2019, the Company issued and sold 2,762,762 shares of Series Seed convertible preferred stock, par value $0.001 per share (“Series Seed Preferred Stock”) to certain investors at a purchase price of $3.33 per share, for gross proceeds of $8.2 million (the “Series Seed Financing”) . As disclosed in Note 9, the Company issued Series Seed Preferred Stock to CFF in connection with the CFF Payment Agreement. One investor was also issued 684,415 shares of common stock in connection with the initial Series Seed Financing closing. The proceeds from that investor were allocated between the Series Seed Preferred Stock and common stock on a relative fair value basis. There were no material issuance costs incurred related to this financing. In June 2020, upon the Board’s approval, the Company issued an additional 1,201,202 shares of Series Seed Preferred Stock to an additional investor at $3.33 per share for gross proceeds of $4.0 million. The Company incurred $38,887 of issuance costs in connection with this issuance. Series A In September 2020, the Company issued and sold 5,704,161 shares of Series A convertible preferred stock, par value $0.001 per share (“Series A Preferred Stock”), at a purchase price of $4.4289 per share, for gross proceeds of $25.3 million (the “Series A Financing”). The Company incurred $0.1 million of issuance costs in connection with the Series A Financing. Series B In February 2022, the Company issued and sold 11,370,621 shares of Series B convertible preferred stock, par value $0.001 per share (“Series B Preferred Stock”), at a purchase price of $9.762 per share, for gross proceeds of $111.0 million (the “Series B Financing”). The Company incurred $0.2 million of issuance costs in connection with the Series B Financing. F-20 Table of Contents Series C In March 2024, the Company issued and sold 18,628,970 shares of Series C convertible preferred stock, par value $0.001 per share (“Series C Preferred Stock”) at a purchase price of $9.762 per share, for gross proceeds of $181.9 million (the “Series C Financing”). The Company incurred $0.5 million of issuance costs in connection with the Series C Financing. Upon the issuance of Series Seed Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (the “Preferred Stock”), the Company assessed the embedded conversion and liquidation features of the shares and determined that the Company was not required to separately account for these features. Preferred Stock consists of the following (in thousands, except share amounts): December 31, 2024 Preferred Stock Authorized Preferred Stock Issued and Outstanding Carrying Value Liquidation Value Stock Issuable Upon Conversion Series Seed Preferred Stock 3,963,963 3,963,963 $ 13,014 $ 13,200 2,712,998 Series A Preferred Stock 5,704,161 5,704,161 25,235 25,263 3,904,017 Series B Preferred Stock 11,370,621 11,370,621 110,791 111,000 7,782,230 Series C Preferred Stock 18,628,970 18,628,970 181,328 181,856 12,749,961 Total 39,667,715 39,667,715 $ 330,368 $ 331,319 27,149,206 December 31, 2023 Preferred Stock Authorized Preferred Stock Issued and Outstanding Carrying Value Liquidation Value Stock Issuable Upon Conversion Series Seed Preferred Stock 3,963,963 3,963,963 $ 13,014 $ 13,200 2,712,998 Series A Preferred Stock 5,704,161 5,704,161 25,235 25,263 3,904,017 Series B Preferred Stock 11,370,621 11,370,621 110,791 111,000 7,782,230 Total 21,038,745 21,038,745 $ 149,040 $ 149,463 14,399,245 The holders of Preferred Stock have the following rights, preferences and privileges: Voting Rights The holders of each series of Preferred Stock are entitled to vote on all matters and shall have the number of votes equal to the number of shares of common stock into which the Preferred Stock is convertible. Dividends Dividends shall be payable only when, as, and if declared by the Board of Directors, and the Company shall be under no obligation to pay any dividends. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock unless the Preferred Stockholders then outstanding first receive the dividend amounts calculated based upon the dividend on the class or series of capital stock that would result in the highest Preferred Stock dividend. Liquidation Preference The holders of the Preferred Stock have first preference in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, including a merger or sale of the Company. The amount to be paid is equal to greater of the Series C Preferred Stock original issue price in the case of the Series C Preferred Stock, Series B Preferred Stock original issue price in the case of the Series B Preferred Stock, the Series A Preferred Stock original issue price in the case of the Series A Preferred Stock, and the Series Seed Preferred Stock original issue price in the case of the Series Seed Preferred Stock, plus any dividends declared F-21 Table of Contents but unpaid thereon, or such amount per share as would have been payable had all shares of the Preferred Stock been converted into common stock. Redemption The Preferred Stock does not have redemption rights, except for the contingent redemption upon the occurrence of a liquidation event, which would constitute a merger or consolidation, or the sale, lease, transfer, exclusive license, or other disposition, of all or substantially all of the Company’s or its subsidiaries assets. Conversion Each share of Preferred Stock shall be convertible, at the option of the holder (without payment) into common stock as determined by dividing the Preferred Stock’s original issue price by the conversion price in effect at the time of conversion. The Series C Preferred Stock and Series B Preferred Stock conversion price shall initially be equal to $9.762, the Series A Preferred Stock conversion price shall initially be equal to $4.4289, and the Series Seed Preferred Stock conversion price shall initially be equal to $3.33. In the event of a liquidation, dissolution or winding up of the Company or a Deemed Liquidation Event, the conversion right shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock. All shares of Preferred Stock automatically converted into shares of common stock on a 1-to-1.4611 basis in connection with the Company's IPO in February 2025 (see Note 1). 11. Common Stock The voting, dividend and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preference of the holders of the Preferred Stock set forth in Note 10 above. The number of shares of common stock that have been reserved for the potential conversion of preferred stock, exercise of stock options, and vesting of restricted common stock is as follows: Year Ended December 31, 2024 2023 Convertible preferred stock 27,149,206 14,399,245 Options to purchase common stock 3,700,335 1,914,362 Remaining shares reserved for future issuance 1,035,891 775,423 Unvested restricted common stock 75,958 262,149 Total 31,961,390 17,351,179 12. Stock-Based Compensation 2020 Stock Option and Grant Plan The Company’s 2020 Stock Option and Grant Plan, as amended (the “2020 Plan”), provides for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the Board and consultants of the Company. The 2020 Plan is administered by the Board, or at the discretion of the Board, by a committee of the Board. The exercise prices, vesting and other restrictions are determined at the discretion of the Board, or their committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years. The total number of shares of common stock that may be issued under the 2020 Plan is 6,067,289 shares, of which 1,035,891 remained available for future grant as of December 31, 2024. Vesting periods are determined at the discretion of the Board. Stock options and restricted common awards granted to- F-22 Table of Contents date typically vest over four years. Certain stock options and restricted common awards are subject to accelerated vesting upon a change in control, as defined in the respective grant agreements. If a restricted common stockholder ceases to have a business relationship with the Company, the Company may repurchase any unvested shares of common stock held by these individuals at their original purchase price. The unvested shares of common stock are not considered outstanding shares for accounting purposes and are recorded as a liability until the shares vest. Accordingly, the common stock outstanding as reported on the consolidated statement of convertible preferred stock and stockholder's deficit excludes unvested restricted common stock as of each reporting date. Restricted Common Stock A summary of the Company’s restricted common stock activity during the year ended December 31, 2024, is presented below: Number of Restricted Shares Weighted-Average Per-Share Grant-Date Fair Value Unvested at December 31, 2023 262,149 $0.78 Vested (186,191) $0.78 Unvested at December 31, 2024 75,958 $0.78 The Company did not issue shares of restricted common stock to founders and officers during the years ended December 31, 2024 or 2023. For the years ended December 31, 2024 and 2023, the liability related to the payments received for shares of unvested restricted common stock was de minimis. The aggregate fair value of restricted common stock awards that vested during the years ended December 31, 2024 and 2023, was $1.3 million and $1.4 million, respectively. Stock Option Valuation The weighted average assumptions used to determine the fair values of stock options granted to employees and directors during the years ended December 31, 2024 and 2023, are presented as follows: Year Ended December 31, 2024 2023 Expected term (in years) 6.0 6.0 Volatility 83.9 % 107.0 % Interest rate 4.2 % 4.1 % Dividend yield — — Stock Option Activity The following table summarizes the Company’s stock option activity under the 2020 Plan for the year ended December 31, 2024: Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in years) (in thousands) Outstanding at December 31, 2023 1,914,362 $5.30 7.9 $1,549 Granted 1,935,663 6.29 Exercised (71,264) 1.98 Cancelled or forfeited (78,426) 6.11 Outstanding at December 31, 2024 3,700,335 $5.87 8.3 $16,522 Exercisable at December 31, 2024 1,486,009 $5.37 7.5 $7,371 F-23 Table of Contents The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The weighted-average grant date fair value of options granted during the years ended December 31, 2024 and 2023, was $4.61 and $5.10, respectively. The total intrinsic value of options exercised in the years ended December 31, 2024 and 2023, was $0.4 million and $0.2 million, respectively. Stock-Based Compensation Expense During the years ended December 31, 2024 and 2023, the Company recorded stock-based compensation in the accompanying consolidated statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2024 2023 Research and development expense $ 1,500 $ 1,135 General and administrative expense 2,208 1,124 Total $ 3,708 $ 2,259 As of December 31, 2024, there was $9.8 million of unrecognized stock-based compensation expense that is expected to be recognized over a weighted average period of 2.7 years that is related to unvested stock options. As of December 31, 2024, the unrecognized stock-based compensation expense for restricted common stock awards is de minimis. 13. Income Taxes The Company had no federal or state income tax expense due to operating losses incurred for the years ended December 31, 2024 and 2023. A reconciliation of income tax expense (benefit) from continuing operations to the amount computed by applying the statutory federal income tax rate to the net loss from continuing operations is summarized as follows: Year Ended December 31, 2024 2023 Tax expense (benefit) at the statutory rate 21.0 % 21.0 % State income taxes, net of federal benefit 6.0 % 6.3 % Other permanent differences (0.5 %) (0.4 %) Changes in tax rates (1.2 %) 0.7 % Tax credits 3.0 % 2.4 % Change in valuation allowance (28.3 %) (30.0 %) Effective tax rate 0.0 % 0.0 % F-24 Table of Contents The components of the Company’s deferred tax assets and liabilities are comprised of the following (in thousands): Year Ended December 31, 2024 2023 Net operating loss carryforward $ 18,075 $ 13,249 Tax credits 4,056 2,204 Fixed assets 36 21 Stock-based compensation 885 296 Capitalized research costs 23,229 16,737 Accrued expenses 524 465 Intangibles 4,362 830 Lease liability 2,582 2,862 Other temporary differences 21 8 Total deferred tax assets $ 53,770 $ 36,672 Less valuation allowance (51,606) (34,297) Net deferred tax asset $ 2,164 $ 2,375 Right of use assets $ (2,083) $ (2,375) Other deferred tax liabilities (81) — Total deferred tax liabilities $ (2,164) $ (2,375) Net deferred tax asset (liability) $ — $ — As of December 31, 2024 and 2023, the Company had federal net operating loss carryforwards of approximately $65.6 million and $48.2 million, respectively, which may be available to offset future income tax liabilities. The 2017 Tax Cuts and Jobs Act (“TCJA”) will generally allow losses incurred after 2017 to be carried over indefinitely but will generally limit the net operating loss deduction to the lesser of the net operating loss carryover or 80% of a corporation’s taxable income (subject to Section 382 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”)). Also, there is no carry back for losses incurred after 2017. All net operating loss carryforwards were generated after 2017. In addition, the Company has state net operating loss carryforwards of $68.2 million and $47.1 million as of December 31, 2024 and 2023, respectively, which will expire at various dates through 2044. As of December 31, 2024 and 2023, the Company had federal research and development tax credit (“Federal R&D Tax Credit”) carryforwards of $2.7 million and $1.5 million, respectively, available to reduce future tax liabilities, which will expire at various dates through 2044. As of December 31, 2024 and 2023, the Company had state research and development credit (“State R&D Tax Credit”) carryforwards of approximately $1.7 million and $1.4 million, respectively, available to reduce future tax liabilities, which will expire at various dates through 2039. The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which are comprised primarily of net operating loss carryforwards, the capitalization of research and experimental expenditures, and tax credits. Management has considered the Company’s history of cumulative net losses in the United States, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its U.S. federal and state deferred tax assets. Accordingly, a full valuation allowance of $51.6 million and $34.3 million has been established against these net deferred tax assets as of December 31, 2024 and 2023, respectively. The Company reevaluates the positive and negative evidence at each reporting period. The Company’s valuation allowance increased during 2024 by approximately $17.3 million, primarily due to the capitalization of research and experimental expenditures and the increase in net operating loss and tax credit carryforwards. Under the provision of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net F-25 Table of Contents operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative change in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership change may further affect the limitation in future years. The Company has not yet completed a change in control analysis, as defined under Section 382 and 383 of the Internal Revenue Code, through December 31, 2024, and the Company has not determined whether the future utilization of net operating loss carryforwards may be materially limited based on past financings. In addition, the Company may complete future financings that could result in a change in control in the future which may limit the amount of tax attributes available to offset future tax liabilities. The Company accounts for income taxes by evaluating a probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company didn’t have any unrecognized tax benefits as of December 31, 2024 or 2023, respectively. The Company does not expect its unrecognized tax benefits to change significantly over the next year. Realization of the future tax benefits is dependent on the many factors, including the Company’s ability to generate taxable income. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024 and 2023, the Company’s balance of interest and penalties was zero. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In a normal course of business, the Company is subject to examination by U.S. federal and states. The Company’s tax years are still open since inception. To the extent that the Company has tax attribute carryforwards, the tax year in which the attributes were generated may still be adjusted upon examination by the U.S. Internal Revenue Services or state tax authorities to the extent utilized in a future period. The Company is not currently under examination by any tax authorities. F-26 Table of Contents 14. Segment Information The following table presents segment net loss, including significant expense categories (in thousands): Year Ended December 31, 2024 2023 Research and development expenses: External research and development expenses (1) $ 31,873 $ 29,871 Fees paid to licensors (2) 5,525 25 Personnel-related expenses, excluding stock-based compensation 7,628 7,564 Facility and information technology allocated expenses 1,838 1,796 General and administrative expenses: Personnel-related expenses, excluding stock-based compensation 5,634 4,801 General corporate and facility expenses (3) 4,222 3,068 Other segment items (4) 4,968 138 Net loss $ 61,688 $ 47,263 (1) External research and development expenses consist primarily of costs paid to third-parties including CROs, CDMOs, consultants, advisors and lab-related vendors. (2) Fees paid to licensors consists primarily of upfront and annual licensing fees paid pursuant to our license agreements (Note 9). The fair value of equity issued pursuant to the AbbVie License Agreement (Note 9) is included in other segments items. (3) General corporate and facility expenses consists primarily of professional services fees for legal, finance, human resources, in addition to information technology expenses and rent expense, net of sublease income. (4) Other segment items consists primarily of interest income partially offset by non-cash expenses such as stock-based compensation, depreciation, the fair value of equity issued pursuant to the AbbVie License Agreement (Note 9), and amortization of discounts and premiums on marketable securities. 15. Net Loss Per Share The Company excluded the following shares from the computation of diluted net loss per share attributable to common stockholders as of December 31, 2024 and 2023, because including them would have had an anti-dilutive effect: Year Ended December 31, 2024 2023 Convertible preferred stock 27,149,206 14,399,245 Options to purchase common stock 3,700,335 1,914,362 Unvested restricted common stock 75,958 262,149 Total 30,925,499 16,575,756 16. Employee Benefit Plan The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers all employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Board. For the years ended December 31, 2024 and 2023, no contributions have been made to the plan by the Company. F-27 Table of Contents 17. Subsequent Events Except for the matters discussed below and in Note 1 the Company has concluded that there are no additional subsequent events that occurred after December 31, 2024, through the date of issuance of this Annual Report. 2025 Equity Plans In January 2025, the Board and the Company's stockholders adopted and approved the 2025 Stock Option and Incentive Plan (the "2025 Plan"), which became effective on February 5, 2025, the date immediately preceding the date that the registration statement on Form S-1 for the Company's IPO was declared effective by the SEC. The 2025 Plan initially reserved 5,060,000 shares of common stock for future issuances and is subject to automatic increases in the number of shares of common stock reserved for future issuances in accordance with the evergreen provisions in the 2025 Plan. The shares reserved for future issuance under the 2020 Plan ceased to be available for issuance at the time the 2025 Plan became effective. Any shares underlying outstanding stock awards granted under the 2020 Plan that subsequently expire or are repurchased, forfeited, cancelled, or withheld will return to the 2025 Plan and be reserved and available for issuance. The Company granted 1,946,388 of common stock options subject to service-based vesting to certain executive officers, directors, and employees at the time of effectiveness of the 2025 Plan with an exercise price equal to $18.00 per share. In January 2025, the Board and the Company's stockholders adopted and approved the 2025 Employee Stock Purchase Plan (the "2025 ESPP"), which became effective on February 5, 2025, the date immediately preceding the date that the registration statement on Form S-1 for the Company's IPO was declared effective by the SEC. The 2025 ESPP initially reserved 390,127 shares of common stock for future issuance and is subject to automatic increases in the number of shares of common stock reserved for future issuances in accordance with the evergreen provisions in the 2025 ESPP. F-28 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.