Upstream Bio, Inc. 10-K

Item 9A. Controls and Procedures. Management's evaluation of disclosure controls and procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. As required by Rule 13a-15(b) or Rule 15d-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial and Operating Officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K (this “Annual Report”). Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report at the reasonable assurance level. Management’s annual report on internal controls over financial reporting This Annual Report does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies. Additionally, our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act, and our unaffiliated market capitalization exceeds $700 million. Changes in internal control over financial reporting There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. O ther Information. (a) None. (b) During the quarter ended December 31, 2024, none of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408 of Regulation S-K. 119 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 120 PART III Item 10. Directors, E xecutive Officers and Corporate Governance. The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2024. Item 11. Executive Compensation. The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2024. Item 12. Security Own ership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2024. Item 13. Certain Relati onships and Related Transactions, and Director Independence. The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2024. Item 14. Principal Accounting Fees and Services. Our independent public accounting firm is PricewaterhouseCoopers LLP, Boston, Massachusetts, PCAOB Auditor ID 238 . The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended December 31, 2024. 121 PART IV Item 15. Exhibits and F inancial Statement Schedules. (1) Financial Statements. For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference. (2) Financial Statement Schedules. Certain schedules are omitted because they are not applicable, or are not required by smaller reporting companies. (3) Exhibits. Exhibit Number Description 3.1 Third Amended and Restated Certificate of Incorporation of Upstream Bio, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on October 15, 2024). 3.2 Second Amended and Restated Bylaws of Upstream Bio, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 15, 2024). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 4.2+ Amended and Restated Investors’ Rights Agreement, among the Company and certain of its stockholders, dated June 6, 2023 (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 4.3* Description of Securities. 10.1# 2021 Stock Option and Grant Plan, as amended, and form of award agreements thereunder (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 10.2# Upstream Bio, Inc. 2024 Stock Option and Incentive Plan and form of award agreements thereunder (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2024). 10.3# Upstream Bio, Inc. 2024 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2024). 10.4# Form of Indemnification Agreement, by and between the Company and each of its directors and executive officers (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2024). 10.5# Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2024). 10.6# Executive Severance Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2024). 10.7# Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 filed on September 18, 2024). 10.8# Separation Agreement, by and between the Company and Samantha Truex, MBA, dated March 13, 2024 (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 10.9# Separation Agreement, by and between the Company and Jennifer Beachell, dated February 26, 2024 (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 10.10# Form of Employment Agreement for Executive Officers (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 10.11 † + Asset Purchase Agreement, by and between the Company and Astellas Pharma Inc., dated October 14, 2021 (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 10.12 † Letter Agreement, by and among the Company, Astellas Pharma Inc. and Regeneron Pharmaceuticals Inc., dated October 19, 2021 (incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 122 10.13 † + Exclusive License Agreement, by and between the Company and Maruho Co., Ltd., dated October 14, 2021, as amended (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 10.14 † + License Agreement, by and between the Company and Lonza Sales AG, dated October 21, 2021, as amended (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 10.15+ Lease Agreement, by and between the Company and BXP Waltham Woods LLC, dated as of July 3, 2024 (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 19.1* Upstream Bio, Inc. Insider Trading Policy. 21.1 Subsidiary of the registrant (incorporated by reference to Exhibit 21.1 to the Company’s Registration Statement on Form S-1 filed on September 18, 2024). 23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. 24.1* Power of attorney (included on signature page). 31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1* Upstream Bio, Inc. Compensation Recovery Policy. 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document). * Filed herewith. ** The certifications furnished in Exhibit 32.1 hereto are deemed to be furnished with this Annual Report on Form 10-K and will not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. # Indicates a management contract or compensatory plan, contract or arrangement. + Certain exhibits and schedules to these agreements have been omitted pursuant to Item 601(a)(5) and (6) of Regulation S-K. The registrant will furnish copies of any of the exhibits and schedules to the Securities and Exchange Commission upon request. † Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Item 601(b)(10) of Regulation S-K. Item 16. Form 10-K Summary. None. 123 SIGNA TURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UPSTREAM BIO, INC. Date: March 12, 2025 By: /s/ E. Rand Sutherland Name: E. Rand Sutherland, M.D. Title: Chief Executive Officer POWER OF ATTORNEY Each individual whose signature appears below hereby constitutes and appoints each of E. Rand Sutherland, M.D. and Michael Paul Gray, M.B.A. as such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person in such person’s name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the date indicated. Name Title Date /s/ E. Rand Sutherland E. Rand Sutherland, M.D. Chief Executive Officer and Director ( Principal Executive Officer ) March 12, 2025 /s/ Michael Paul Gray Michael Paul Gray, M.B.A. Chief Financial and Operating Officer ( Principal Financial Officer and Principal Accounting Officer ) March 12, 2025 /s/ Ronald C. Renaud, Jr. Ronald C. Renaud, Jr., M.B.A. Director and Chairman March 12, 2025 /s/ Daniella Beckman Daniella Beckman Director March 12, 2025 /s/ Erez Chimovits Erez Chimovits, M.B.A., M.Sc. Director March 12, 2025 /s/ H. Edward Fleming, Jr. H. Edward Fleming, Jr., M.D. Director March 12, 2025 /s/ Liam Ratcliffe Liam Ratcliffe, M.B.Ch.B., Ph.D., M.B.A. Director March 12, 2025 /s/ Marcella Kuhlman Ruddy Marcella Kuhlman Ruddy, M.D., M.S. Director March 12, 2025 124 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 238) F- 2 Consolidated Balance Sheets as of December 31, 2024 and 2023 F- 3 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2024 and 2023 F- 4 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years ended December 31, 2024 and 2023 F- 5 Consolidated Statements of Cash Flows for the Years ended December 31, 2024 and 2023 F- 6 Notes to Consolidated Financial Statements F- 7 F- 1 Report of Independe nt Registered Public Accounting Firm Page To the Board of Directors and Stockholders of Upstream Bio, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Upstream Bio, Inc. and its subsidiary (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated 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 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 12, 2025 We have served as the Company’s auditor since 2022. F- 2 Upstream Bio, Inc. Consolidated balance sheets (Amounts in thousands, except share and per share amounts) December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 325,892 $ 25,833 Short-term investments 144,559 83,977 Accounts receivable - related party 613 98 Prepaid expenses and other current assets 8,096 7,088 Total current assets 479,160 116,996 Property and equipment, net 582 159 Operating lease right-of-use assets 1,783 43 Restricted cash 194 — Total assets $ 481,719 $ 117,198 Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $ 4,041 $ 1,990 Accrued expenses and other current liabilities 5,992 4,480 Operating lease liabilities, current portion 704 45 Total current liabilities 10,737 6,515 Operating lease liabilities, net of current portion 1,130 — Preferred stock tranche right liability — 2,874 Total liabilities 11,867 9,389 Commitments and contingencies (Note 13) Redeemable convertible preferred stock (Series A, B), $ 0.001 par value; no shares and 31,764,693 shares authorized at December 31, 2024 and December 31, 2023, respectively; no shares and 22,941,170 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively; aggregate liquidation preference of $ 0 and $ 267,718 at December 31, 2024 and December 31, 2023, respectively — 230,935 Stockholders’ equity (deficit): Preferred stock, $ 0.001 par value; 10,000,000 shares and no shares authorized at December 31, 2024 and December 31, 2023, respectively; no shares issued and outstanding at December 31, 2024 and December 31, 2023 — — Common stock, $ 0.001 par value; 500,000,000 shares and 40,664,346 shares authorized at December 31, 2024 and December 31, 2023, respectively; 53,603,398 and 2,992,479 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively 53 3 Additional paid-in capital 660,604 4,824 Accumulated other comprehensive income (loss) ( 25 ) 21 Accumulated deficit ( 190,780 ) ( 127,974 ) Total stockholders’ equity (deficit) 469,852 ( 123,126 ) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 481,719 $ 117,198 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Upstream Bio, Inc. Consolidated statements of operati ons and comprehensive loss (Amounts in thousands, except share and per share amounts) Year Ended December 31, 2024 2023 Collaboration revenue - related party $ 2,370 $ 2,380 Operating expenses: Research and development 62,966 31,799 General and administrative 17,168 10,695 Total operating expenses 80,134 42,494 Loss from operations ( 77,764 ) ( 40,114 ) Other income (expense): Change in fair value of preferred stock tranche right liabilities 2,859 15,527 Interest income 12,123 4,165 Other expense, net ( 24 ) ( 115 ) Total other income, net 14,958 19,577 Net loss $ ( 62,806 ) $ ( 20,537 ) Redeemable convertible preferred stock cumulative dividends ( 13,589 ) ( 17,718 ) Net loss attributable to common stockholders $ ( 76,395 ) $ ( 38,255 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 5.58 ) $ ( 12.95 ) Weighted-average common shares outstanding, basic and diluted 13,682,326 2,953,756 Comprehensive loss: Net loss $ ( 62,806 ) $ ( 20,537 ) Unrealized gain (loss) on investments, net of tax ( 46 ) 21 Total other comprehensive income (loss) ( 46 ) 21 Comprehensive loss $ ( 62,852 ) $ ( 20,516 ) The accompanying notes are an integral part of these consolidated financial statements. F- 4 Upstream Bio, Inc. Consolidated statements of redeemable conve rtible preferred stock and stockholders’ equity (deficit) (Amounts in thousands, except share amounts) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Shares Amount Capital Deficit Income (Loss) Equity (Deficit) Balances at December 31, 2022 12,000,000 $ 112,823 2,937,197 $ 3 $ 1,279 $ ( 107,437 ) $ — $ ( 106,155 ) Issuance of Series A redeemable convertible preferred stock in connection with the settlement of the tranche right liability 8,000,000 80,320 — — — — — — Issuance of Series B redeemable convertible preferred stock, net of preferred stock tranche right liability of $ 11,774 and issuance costs of $ 434 2,941,170 37,792 — — — — — — Exercise of stock options, net of tax withholding — — 34,302 — 118 — — 118 Stock-based compensation expense — — — — 3,325 — — 3,325 Stock-based compensation expense - related party — — 20,980 — 102 — — 102 Unrealized gain on available-for-sale securities, net of tax — — — — — — 21 21 Net loss — — — — — ( 20,537 ) — ( 20,537 ) Balances at December 31, 2023 22,941,170 $ 230,935 2,992,479 $ 3 $ 4,824 $ ( 127,974 ) $ 21 $ ( 123,126 ) Issuance of Series B redeemable convertible preferred stock in connection with the settlement of the tranche right liability, net of issuance costs of $ 75 8,823,523 149,939 — — — — — — Conversion of convertible preferred stock to common stock upon closing of initial public offering ( 31,764,693 ) ( 380,874 ) 33,321,149 33 380,841 — — 380,874 Issuance of common stock from initial public offering, net of issuance costs of $ 3.9 million and underwriting fee of $ 20.5 million — — 17,250,000 17 268,776 — — 268,793 Exercise of stock options, net of tax withholding — — 39,770 — 159 — — 159 Stock-based compensation expense — — — — 6,004 — — 6,004 Unrealized loss on available-for-sale securities, net of tax — — — — — — ( 46 ) ( 46 ) Net loss — — — — — ( 62,806 ) — ( 62,806 ) Balances at December 31, 2024 — $ — 53,603,398 $ 53 $ 660,604 $ ( 190,780 ) $ ( 25 ) $ 469,852 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Upstream Bio, Inc. Consol idated statements of cash flows (Amounts in thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 62,806 ) $ ( 20,537 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 89 60 Stock-based compensation expense 6,004 3,325 Stock-based compensation expense - related party — 102 Change in fair value of preferred stock tranche right liabilities ( 2,859 ) ( 15,527 ) Series B issuance costs allocated to tranche right liability — 134 Net amortization of premiums and accretion of discounts on short-term investments ( 1,655 ) ( 1,260 ) Non-cash lease expense 182 82 Changes in operating assets and liabilities: Accounts receivable - related party ( 515 ) 314 Prepaid expenses and other assets ( 1,008 ) ( 6,237 ) Accounts payable 2,017 1,278 Accrued expenses and other current liabilities 1,512 422 Operating lease liabilities ( 133 ) ( 82 ) Net cash used in operating activities ( 59,172 ) ( 37,926 ) Cash flows from investing activities: Purchases of short-term investments ( 290,609 ) ( 128,990 ) Maturities of short-term investments 231,635 46,292 Purchases of property and equipment ( 511 ) ( 144 ) Net cash used in investing activities ( 59,485 ) ( 82,842 ) Cash flows from financing activities: Proceeds from the issuance of Series A redeemable convertible preferred stock (1) — 80,000 Proceeds from the issuance of Series B redeemable convertible preferred stock including tranche right, net of issuance costs paid 149,924 49,432 Proceeds from initial public offering, net of underwriters discounts and commissions 272,723 — Proceeds from exercises of stock options 159 118 Payments of initial public offering costs ( 3,896 ) — Net cash provided by financing activities 418,910 129,550 Net increase in cash, cash equivalents and restricted cash 300,253 8,782 Cash, cash equivalents and restricted cash at beginning of period 25,833 17,051 Cash, cash equivalents and restricted cash at end of period $ 326,086 $ 25,833 Cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents $ 325,892 $ 25,833 Restricted cash 194 — Total cash, cash equivalents and restricted cash at end of period $ 326,086 $ 25,833 Supplemental cash flow information: Right-of-use asset obtained in exchange for operating lease liability $ 1,922 $ 36 Supplemental disclosure of non-cash investing and financing activities: Settlement of Series A preferred stock tranche right liability $ — $ 320 Settlement of Series B preferred stock tranche right liability $ 15 $ — Initial public offering costs included in accounts payable $ 34 $ — (1) Includes related party amount of $ 10.0 million for the year ended December 31, 2023 (Note 16). The accompanying notes are an integral part of these consolidated financial statements. F- 6 Upstream Bio, Inc. Notes to consolidated financial statements 1. Nature of the business and basis of presentation Upstream Bio, Inc. was incorporated in April 2021, under the laws of the State of Delaware, and along with its consolidated subsidiary (collectively, the “Company” or “Upstream”), is focused on developing treatments for inflammatory diseases, with an initial focus on severe respiratory disorders. Since its inception, the Company has devoted substantially all of its efforts to raising capital and incurring research and development expenses related to advancing verekitug, a clinical-stage monoclonal antibody that targets and inhibits the Thymic Stromal Lymphopoietin receptor. Risks and uncertainties The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, the successful development of verekitug, the development of new technological innovations by competitors, dependence on key personnel, the ability to attract and retain qualified employees, protection of proprietary technology, compliance with governmental regulations and the ability to secure additional capital to fund operations and commercial success of verekitug. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be maintained, that any therapeutic products developed will obtain required regulatory approval or that any approved or consumer products will be commercially viable. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate significant product sales. Stock split On October 4, 2024, the Company effected a 1.049 -for-one stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios of each series of the Company’s preferred stock (Note 8). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the preferred stock conversion ratios. Liquidity 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 from the issuance of these consolidated financial statements. The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has historically financed its operations principally through the issuance and sale of Series A redeemable convertible preferred stock (“Series A Preferred Stock”) and Series B redeemable convertible preferred stock (“Series B Preferred Stock”), which are collectively referred to as the “Preferred Stock”, and the proceeds from its initial public offering (“IPO”). In October 2024, the Company completed its IPO of its common stock. In connection with its IPO, the Company issued and sold 17,250,000 shares of common stock, including 2,250,000 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 17.00 per share. As a result of the IPO, the Company received $ 268.8 million in net proceeds, after deducting $ 20.5 million in underwriting discounts and commissions, and $ 3.9 million in other offering costs . The Company has incurred recurring losses and negative cash flows from operations since its inception and expects to continue to incur losses and negative cash flows for the foreseeable future as it continues the research and development of verekitug. The Company incurred net losses of $ 62.8 million and $ 20.5 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 , the Company had an accumulated deficit of $ 190.8 million. F- 7 Upstream Bio, Inc. Notes to consolidated financial statements The Company expects its cash, cash equivalents and short-term investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date of issuance of these consolidated financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant product revenue, if ever, the Company expects to fund its operations through equity offerings or debt financings, credit or loan facilities, potentially other capital resources, or a combination of one or more of these funding sources. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, the Company may be required to delay, reduce or eliminate clinical programs, obtain funds through arrangements with collaborators on terms unfavorable to the Company or pursue merger or acquisition strategies. There can be no assurances the Company will be able to obtain additional funding. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. Basis of presentation The accompanying consolidated financial statements reflect the operations of the Company. Intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). 2. Summary of Significant Accounting Policies Use of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates. Significant estimates and assumptions reflected within these consolidated financial statements include, but are not limited to, prepaid and accrued research and development expenses, including those related to contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”) and other third-party vendors, the valuation of the Company’s common stock prior to the Company’s IPO in October 2024 and stock-based awards and the valuation of the preferred stock tranche right liabilities. Changes in estimates are recorded in the period in which they become known. Concentration of credit risk and of significant suppliers Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company deposits its cash and cash equivalents in financial institutions in amounts that may exceed federally insured limits, and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company’s short-term investments consist of U.S. treasury bills and U.S. government agency bonds which the Company believes represent minimal credit risk. The Company is dependent on third-party manufacturers to supply products for research and development activities related to verekitug, including preclinical and clinical studies and testing. In particular, the Company relies and expects to continue to rely on a small number of manufacturers for the supply of verekitug. The Company’s preclinical and clinical studies and testing could be adversely affected by a significant interruption in the supply. Foreign currency gains and losses The functional currency and the reporting currency of the Company is the U.S. dollar. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the functional currency are included as foreign exchange gains and F- 8 Upstream Bio, Inc. Notes to consolidated financial statements losses in other expense, net in the consolidated statements of operations and comprehensive loss. The Company has not recognized material foreign currency transaction gains or losses during the years ended December 31, 2024 and 2023. Cash and cash equivalents The Company considers all short-term, highly liquid investments, with an original maturity of three months or less, to be cash equivalents, and as of December 31, 2024 and 2023, includes amounts held in money market funds in the amount of $ 321.0 million and $ 23.3 million, respectively and in U.S. treasury bills of $ 4.2 million and $ 0 , respectively. Restricted cash Restricted cash consisted of a letter of credit totaling $ 0.2 million as of December 31, 2024, that is required to be maintained in connection with the Company's lease arrangements. The letter of credit is in the name of the Company's landlord and is required to fulfill lease requirements in the event the Company should default on its lease obligations. As of December 31, 2024, the Company classified its restricted cash as non-current assets on the consolidated balance sheet based on the release date of the restriction. The Company did not hold a letter of credit as of December 31, 2023 . Short-term investments Available-for-sale securities consist of investments with original maturities greater than 90 days at acquisition date. The Company classifies any investments with maturities beyond one year as short term, based on their highly liquid nature and because such available-for-sale securities represent the investment of cash that is available for current operations. The Company’s debt security investments are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ deficit. Realized gains and losses and declines in fair value due to credit-related factors are based on the specific identification method and are included as other expense, net in the consolidated statements of operations and comprehensive loss. The Company recorded interest income on available-for-sale investments of $ 12.1 million and $ 4.2 million during the years ended December 31, 2024 and 2023, respectively, which is classified as interest income in the consolidated statements of operations and comprehensive loss. 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 in other expense, net. 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 expense, net. The portion that is not credit-related is treated in accordance with other unrealized losses as a component of accumulated other comprehensive income (loss) in stockholders’ deficit. There have been no impairment or credit losses recognized during any of the periods presented. Deferred offering costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds from the offering, either as a reduction of the carrying value of the Preferred Stock or in stockholders’ deficit as a reduction of additional paid-in-capital generated as a result of the offering. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss. The Company did no t have any deferred offering costs as of December 31, 2024 and December 31, 2023 . Fair value measurements Certain assets and liabilities of the Company are carried at fair value under U.S. 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 F- 9 Upstream Bio, Inc. Notes to consolidated financial statements 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 prices in active markets for identical assets or liabilities. Level 2 Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. Level 3 Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The carrying values of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. The Company’s cash equivalents, short-term investments and preferred stock tranche right liabilities are carried at fair value (Note 3). Property and equipment The Company records property and equipment at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows: Estimated Useful Life Computer equipment 3 years Office equipment 5 years Leasehold improvements Shorter of remaining lease term or estimated useful life Estimated useful lives are periodically assessed to determine if changes are appropriate. Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or its estimated economic useful life. Lease terms are based upon the initial lease agreement and do not consider potential renewals or extensions until such time that the renewals or extensions are contracted. Expenditures for maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance sheets and any resulting gains or losses are included in the consolidated statements of operations and comprehensive loss in the period of disposal. Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. Impairment of long-lived assets The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to 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 group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use 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. For the years ended December 31, 2024 and 2023, the Company did no t record any impairment losses on long-lived assets. Operating leases The Company determines if an arrangement is or contains a lease, as defined by ASU 2016-02, Leases (Topic 842) (“ASC 842”), at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. If an arrangement is determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company, based on the economic characteristics of the lease. F- 10 Upstream Bio, Inc. Notes to consolidated financial statements ASC 842 includes certain practical expedients that can be elected for new leases that are executed after the adoption of the new requirements. The Company elected the practical expedient to not separate lease and non-lease components. The Company also elected to apply the short-term lease recognition exemption which eliminates the requirement to present on the consolidated balance sheets leases with a term of 12 months or less. These two practical expedients were elected for all classes of underlying assets. At the lease commencement date, the Company recognizes a lease liability and a right-of-use (“ROU”) asset representing its right to use the underlying asset over the lease term. The initial measurement of the lease liability is calculated as the present value of the future lease payments in the contract and the ROU asset is measured as the lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor. The subsequent measurement of a lease is dependent on whether the lease is classified as an operating lease or a finance lease. Operating lease cost is recognized on a straight-line basis over the lease term in the consolidated statements of operations and comprehensive loss. The Company’s leases require other payments such as costs related to taxes, insurance, maintenance, and other expenses. These costs are generally variable in nature and based on the actual costs incurred and required by the lease. As the Company has elected to not separate lease and non-lease components for all classes of underlying asset, all variable costs associated with the lease are expensed in the period incurred and presented and disclosed as variable lease costs. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive financial covenants. ASC 842 requires that a lessee use the rate implicit in the lease when measuring the lease liability and ROU asset. If the rate implicit in the lease is not readily determinable, the Company is permitted to use its incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Since the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate when measuring its leases. The incremental borrowing rate is calculated by considering the Company’s credit standing, the lease term and the impact of collateral. Most leases include options to renew and, or, terminate the lease, which can impact the lease term. The exercise of these options is at the Company’s discretion. Periods covered by an option to extend a lease are not included in the lease term as the Company is not reasonably certain it will exercise this option. Additionally, periods covered by an option to terminate the lease are included in the lease term as it is reasonably certain that the Company will not exercise this option. Segment information Operating segments are defined as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s CODM, its Chief Executive Officer , views the Company’s operations and manages its business on a consolidated basis as a single operating segment, which is the business of developing treatments for inflammatory diseases, with an initial focus on severe respiratory disorders. Revenue is generated exclusively from transactions with a related party located in Japan, and all assets are held in the United States (Note 18). Classification and accretion of redeemable convertible preferred stock The holders of Preferred Stock have certain redemption rights in the event of a deemed liquidation event that, in certain situations, are not solely within the control of the Company and would call for the redemption of the then outstanding Preferred Stock (Note 8). Therefore, the Preferred Stock is classified as mezzanine equity outside of stockholders’ deficit on the consolidated balance sheets. The Company recorded the Preferred Stock at fair value upon issuance, net of tranche right liabilities (Note 8) and associated issuance costs. The Preferred Stock is not currently redeemable, and a deemed liquidation event is not currently probable. As such, the carrying values of the Preferred Stock are not being accreted to the redemption values. Subsequent adjustments to the carrying values of the Preferred Stock would be made only when a deemed liquidation event becomes probable. In connection with the IPO, all outstanding shares of convertible preferred stock converted into an aggregate of 33,321,149 shares of the Company’s common stock. Preferred stock tranche right liabilities The purchase agreements for the Company’s Preferred Stock provide the Company an obligation to issue additional Preferred Stock in subsequent closings upon the satisfaction of certain conditions (the “preferred stock tranche rights”) (Note 8). F- 11 Upstream Bio, Inc. Notes to consolidated financial statements The Company classified such preferred stock tranche rights as liabilities on its consolidated balance sheets (the “preferred stock tranche right liabilities”) as each preferred stock tranche right was determined to be a freestanding financial instrument that may require the Company to transfer assets to settle its obligation upon events outside of its control. The preferred stock tranche right liabilities were initially recorded at fair value upon the issuance date and are subsequently remeasured to fair value at each reporting date and immediately prior to being settled. Changes in fair value of the preferred stock tranche right liabilities are recognized as a component of other income, net in the consolidated statements of operations and comprehensive loss. Upon settlement of the tranche rights, the Company derecognized the related liability, and stopped recognizing changes in the fair value of the preferred stock tranche right liability. Any issuance costs allocated to the preferred stock tranche right liabilities were immediately expensed. Revenue recognition The Company enters into license arrangements, pursuant to which it may provide research and development services for third parties. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers, (“ASC 606”), the Company performs the following five steps: (i) identify the promised goods or services in the contract; (ii) determine whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measure the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when, or as, the Company satisfies each performance obligation. At contract inception, the Company assesses whether the goods or services promised within each contract are a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. The Company then allocates the transaction price, the amount of consideration the Company expects to be entitled to from a customer in exchange for the promised goods or services, to each performance obligation and recognizes the associated revenue when each performance obligation is satisfied. In determining the appropriate amount of revenue to be recognized, the Company uses judgment to determine: (a) the number of performance obligations; (b) the transaction price; (c) the stand-alone selling price for each performance obligation identified in the contract; and (d) the contract term and pattern of satisfaction of the performance obligations. The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price. The transaction price is allocated to the identified performance obligations on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At contract inception, the Company estimates the total costs required to satisfy the performance obligation and subsequently updates the estimate at each reporting period. Accordingly, the Company’s estimates may change in the future and those changes could result in a change in amounts of revenue recognized and could be material. During the years ended December 31, 2024 and 2023, the Company generated revenue from a research and development arrangement with Maruho Co., Ltd (“Maruho”), a related party, which is accounted for under ASC 606. Pursuant to the agreement, the Company provides to Maruho research and development services related to verekitug in Japan, and Maruho reimburses the Company for these costs incurred in performing the research and development services (Note 15). The Company records accounts receivable when its right to receive consideration is solely based on the passage of time. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated balance sheets. Amounts expected to be recognized as revenue within one year following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within one year following the balance sheet date are classified as deferred revenue, net of current portion. Payment terms and conditions generally require payment within 60 days of invoicing. Research and development expenses Research and development expenses are expensed as incurred. Research and development expenses include salaries and benefits, stock-based compensation expense, licensed technology, external costs of third-party vendors that conduct research and development activity on behalf of the Company, and other operational costs related to the Company’s research and development activities including costs related to a research and development arrangement with Maruho. F- 12 Upstream Bio, Inc. Notes to consolidated financial statements Prepaid and accrued research and development expenses The Company recognizes research and development expense and records accruals for estimated costs of research and development activities conducted by third-party service providers, which include CROs that conduct research, preclinical studies and clinical trials on the Company’s behalf, including in connection with the Company’s research and development arrangement, and CMOs that manufacture the Company’s product candidate for use in preclinical and clinical trials. The majority of the Company’s service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. The Company makes estimates of the accrued expenses and includes these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations and comprehensive loss based on facts and circumstances known to the Company at that time. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and in accordance with agreements established with its third-party service providers for such services. The Company makes significant judgments and estimates in determining the accrued research and development liabilities balance at each reporting period. As actual costs become known, the Company adjusts its accrued estimates. To date, there have been no material adjustments to the Company’s estimates of accrued research and development expenses. The Company records advance payments to service providers as prepaid expenses and other current assets, which are expensed as the contracted services are performed. If the actual timing of the performance of services varies from the estimate, then the Company adjusts the amount of the accrued expense or the prepaid expense accordingly. Asset acquisition and acquired in-process research and development expenses The Company accounts for acquisitions of assets or a group of assets as asset acquisitions when substantially all of the fair value of the gross assets acquired are concentrated in a single asset or group of assets or when the definition of a business is not met. The Company accounts for 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”) assets. Acquired IPR&D that has no alternative future use as of the acquisition date is recognized as acquired research and development expense as of the acquisition date. General and administrative expenses General and administrative expenses consist primarily of salaries and benefits, including stock-based compensation expense; professional fees for legal, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs. The Company expenses all general and administrative expenses as incurred. Patent and trademarks Costs to secure, defend and maintain patents, including those in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses. Stock-based compensation expense The Company measures all stock-based awards granted to employees, directors, and non-employee service providers based on fair value on the date of the grant, and recognizes the resulting fair value over the requisite service period. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The Company has elected to recognize stock-based compensation expense for service-based stock options with graded vesting on a straight-line basis over the requisite service period, which is generally the vesting period. The Company recognizes expense related to stock options that contain performance conditions only when it is considered probable that the performance condition will be achieved. Stock-based compensation expense for stock options with performance conditions is recognized using graded vesting. The Company accounts for forfeitures as they occur. F- 13 Upstream Bio, Inc. Notes to consolidated financial statements The Company classifies stock-based compensation expense in its 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 recipient’s service payments are classified. Comprehensive loss Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources, including unrealized gains and losses on marketable securities held as available for sale. For the year ended December 31, 2024 and 2023, comprehensive loss includes net loss and unrealized gains (losses) on short-term investments. Net loss per share The Company calculated basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company’s Preferred Stock is considered to be a participating security as the holders are entitled to receive dividends at a dividend rate payable in preference and priority to the holders of common stock. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. There is no allocation required under the two-class method during periods of loss since the participating securities do not have a contractual obligation to share in the losses of the Company. Under the two-class method, basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders is computed by (i) adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities and (ii) dividing the diluted net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. For purposes of this calculation, Preferred Stock and stock options to purchase common stock are considered potential dilutive common shares. The Company has generated a net loss for each of the periods presented. Accordingly, basic and diluted net loss per share attributable to common stockholders are the same because the inclusion of the potentially dilutive securities would be anti-dilutive. Income taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. 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 utilizes a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. F- 14 Upstream Bio, Inc. Notes to consolidated financial statements 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”). ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. ASU 2023-07 is effective for public business entities with fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 as of the required effective date, and applied the guidance retrospectively to all periods presented, and its adoption did not have a material impact on its consolidated financial statements. See Note 18, Segment Reporting , for further information and disclosures. Recently issued accounting pronouncements not yet adopted From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. The Company qualifies as an ‘‘emerging growth company,’’ as defined in the Jumpstart Our Business Startups Act of 2012, and has elected not to ‘‘opt out’’ of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and non-public companies, the Company can adopt the new or revised standard at the time non-public companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to ‘‘opt out’’ of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for non-public companies. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). In addition to new disclosures associated with the rate reconciliation, ASU 2023-09 requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The amendments are effective for public business entities for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the timing and impact of adopting ASU 2023-09 on its consolidated financial statements and related disclosures. In November 2024, the FASB issued an ASU to require more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and related disclosures. F- 15 Upstream Bio, Inc. Notes to consolidated financial statements 3. Fair value measurements The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands): Fair Value Measurements at December 31, 2024 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 321,047 $ — $ — $ 321,047 U.S. treasury bills 4,173 — — 4,173 Short-term investments: U.S. treasury bills — 77,165 — 77,165 U.S. government agency bonds — 67,394 — 67,394 $ 325,220 $ 144,559 $ — $ 469,779 Fair Value Measurements at December 31, 2023 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 23,314 $ — $ — $ 23,314 Short-term investments: U.S. treasury bills — 45,864 — 45,864 U.S. government agency bonds — 38,113 — 38,113 $ 23,314 $ 83,977 $ — $ 107,291 Liabilities: Preferred stock tranche right liability (Series B) $ — $ — $ 2,874 $ 2,874 There were no transfers between Level 1, Level 2 and Level 3 during the years ended December 31, 2024 and 2023. The Company classifies its U.S. treasury bills and U.S. government agency bonds as short-term based on each instrument’s availability for use in current operations. The fair value of the Company’s U.S. treasury bills and U.S. government agency bonds are classified as Level 2 because they are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Short-term investments consisted of the following (in thousands): December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-term investments: U.S. treasury bills $ 77,142 $ 37 $ ( 14 ) $ 77,165 U.S. government agency bonds 67,442 34 ( 82 ) 67,394 Total short-term investments: $ 144,584 $ 71 $ ( 96 ) $ 144,559 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-term investments: U.S. treasury bills $ 45,863 $ 9 $ ( 8 ) $ 45,864 U.S. government agency bonds 38,093 23 ( 3 ) 38,113 Total short-term investments: $ 83,956 $ 32 $ ( 11 ) $ 83,977 F- 16 Upstream Bio, Inc. Notes to consolidated financial statements The contractual maturities of the Company’s short-term investments in available-for-sale securities held were as follows (in thousands): December 31, 2024 December 31, 2023 Due within one year $ 109,943 $ 83,977 Due after one year through two years 34,616 — Total available-for-sale securities $ 144,559 $ 83,977 Valuation of preferred stock tranche right liabilities As of December 31, 2023, the preferred stock tranche right liability in the table above is composed of the fair value of the obligation to issue Series B Preferred Stock (Note 8). The fair value of the preferred stock tranche right liabilities was based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy. Series A preferred stock tranche right liability In February 2023, upon satisfaction of certain conditions, the second closing of the Series A Preferred Stock was completed. The Company issued and sold 8,000,000 shares of Series A Preferred Stock at a price of $ 10.00 per share, which resulted in the settlement of the associated Series A preferred stock tranche right liability. The fair value of Series A Preferred Stock was $ 10.04 per share upon the second closing. Series B preferred stock tranche right liability The fair value of the Series B preferred stock tranche right liability was determined using an option pricing model as it represents an option for the Series B Option Shares (as defined in Note 8). The valuation considered as inputs the estimated fair value of the Series B Preferred Stock as of each valuation date, the risk-free interest rate, volatility, expected dividends, and estimated time to the tranche closing. The most significant assumption in the valuation model impacting the fair value of the preferred stock tranche right liability is the fair value of the Company’s Series B Preferred Stock as of each measurement date. The Company determined the fair value per share of the underlying Series B Preferred Stock by taking into consideration the most recent sales of its Series B Preferred Stock, results obtained from third-party valuations and additional factors the Company deemed relevant. In June 2023, the initial tranche of the Series B Preferred Stock closed with a fair value of $ 13.00 per share. As of December 31, 2023 , the fair value of Series B Preferred Stock was $ 15.86 per share. In April 2024, upon satisfaction of certain conditions, the Company issued and sold 8,823,523 shares of Series B Preferred Stock at a price of $ 17.00 per share, which resulted in the settlement of the associated Series B preferred stock tranche right liability. The fair value of Series B Preferred Stock was $ 17.002 per share upon the closing. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining estimated time to the tranche closing. The volatility is based on the historical volatility of publicly traded peer companies adjusted for the seniority of the Series B Preferred Stock. The expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. Changes in these inputs can have a significant impact on the fair value of the preferred stock tranche right liability. The following table presents the assumptions used in the option-pricing model to determine the fair value of the Series B preferred stock tranche right liability during the periods presented: 2023 June (Issuance Date) December 31, Expected volatility 51.0 % 21.2 % Expected dividends 0.0 % 0.0 % Expected term (in years) 0.80 0.25 Risk-free rate 5.3 % 5.4 % F- 17 Upstream Bio, Inc. Notes to consolidated financial statements The following table presents a roll-forward of the aggregate fair value of the Series A and Series B preferred stock tranche right liabilities, for which fair value was determined using Level 3 inputs (in thousands): Preferred Stock Tranche Right Liability Series A Series B Fair value at December 31, 2022 $ 6,947 $ — Fair value of Series B preferred stock tranche right liability at issuance — 11,774 Change in fair value of preferred stock tranche right liabilities ( 6,627 ) ( 8,900 ) Final settlement of Series A preferred stock tranche right liability ( 320 ) — Fair value at December 31, 2023 — 2,874 Change in fair value of Series B preferred stock tranche right liability — ( 2,859 ) Final settlement of Series B preferred stock tranche right liability — ( 15 ) Fair value at December 31, 2024 $ — $ — 4. Prepaid expenses and other current assets Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2024 2023 Prepaid research and development expense $ 6,125 $ 6,436 Prepaid insurance 852 21 Interest receivable 567 138 Prepaid employee-related costs 58 123 Other 494 370 $ 8,096 $ 7,088 5. Property and equipment, net Property and equipment, net consisted of the following (in thousands): December 31, 2024 2023 Office equipment $ 465 $ 163 Computer equipment 202 36 Leasehold improvements 71 27 738 226 Less: Accumulated depreciation and amortization ( 156 ) ( 67 ) Property and equipment, net $ 582 $ 159 Depreciation and amortization expense related to property and equipment, net was less than $ 0.1 million for each of the years ended December 31, 2024 and 2023. F- 18 Upstream Bio, Inc. Notes to consolidated financial statements 6. Accrued expenses and other current liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2024 2023 Accrued external research and development expenses $ 2,807 $ 1,437 Accrued employee compensation and benefits 2,697 2,168 Accrued consultant and professional fees 488 875 $ 5,992 $ 4,480 7. Leases As of December 31, 2023, the Company was a party to a lease related to commercial real estate under a non-cancelable lease term and a short-term lease related to commercial real estate. In July 2024, the Company entered into an operating lease agreement for office space located at 890 Winter Street in Waltham, Massachusetts. The lease commenced in September 2024 and the Company began paying monthly rent starting one month after the lease commenced. The Company occupies approximately 16,801 square feet of space under a three-year agreement expiring in October 2027. Initial base rent is approximately $ 0.7 million for the first year and approximately $ 0.8 million for the second and third year. As of December 31, 2023, the Company had an operating lease for office space at 460 Totten Pond Road, Waltham, Massachusetts. In July 2024, the Company provided notice of termination. This notice became effective on October 9, 2024 , after which the Company’s rights and obligations under this lease ceased. The lease expired on June 30, 2024 , after which the Company continued to pay rent on a month-to-month basis until October 9, 2024. Under its lease, the Company pays a proportional share of operating expenses. Such operating expenses are subject to annual adjustment and are accounted for as variable payments in the period in which they are incurred. The components of lease cost, which are included in the consolidated statements of operations and comprehensive loss, were as follows (in thousands): December 31, 2024 2023 Lease Cost: Operating lease cost $ 256 $ 88 Short-term lease cost 202 202 Variable lease cost 19 9 Total lease cost $ 477 $ 299 Supplemental disclosure of cash flow information related to leases were as follows (in thousands): December 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities $ 207 $ 92 The weighted-average discount rate and remaining lease term were as follows: December 31, 2024 2023 Weighted-average discount rate — operating leases 11.7 % 15.7 % Weighted-average remaining lease term — operating leases 2.8 0.5 The maturities of operating lease liabilities were as follows (in thousands): F- 19 Upstream Bio, Inc. Notes to consolidated financial statements Year Ended December 31, Amount 2025 $ 742 2026 759 2027 644 Total lease payments 2,145 Less: imputed interest ( 311 ) Present value of lease liabilities 1,834 Less: operating lease liabilities, current portion ( 704 ) Operating lease liabilities, net of current portion $ 1,130 8. Redeemable convertible preferred stock The Company has issued Series A Preferred Stock and Series B Preferred Stock, which are collectively referred to as the Preferred Stock. As of December 31, 2024 and 2023, the Company authorized the issuance of 31,764,693 shares of Preferred Stock, par value of $ 0.001 per share, of which 20,000,000 have been designated Series A Preferred Stock and 11,764,693 have been designated Series B Preferred Stock. Immediately prior to the closing of the Company’s IPO on October 15, 2024, pursuant to the stock split and a proportional adjustment to the existing conversion ratios of each series of the Company’s Preferred Stock as discussed further below, all of the Company’s outstanding shares of convertible preferred stock were converted into an aggregate of 33,321,149 shares of common stock. Issuance and sale of Series A redeemable convertible preferred stock In October 2021, the Company issued and sold 11,000,000 shares of Series A Preferred Stock at $ 10.00 per share. Pursuant to the Series A Preferred Stock Purchase Agreement (the “Series A Agreement”), the Company was obligated to issue and the Series A investors were obligated to purchase an additional 9,000,000 shares of Series A Preferred Stock (“Milestone Shares”) at the same purchase price of $ 10.00 per share (the “Series A preferred stock tranche right”), after the initial closing and upon the satisfaction of certain conditions at a date which would occur at the earlier of (i) immediately prior to the Company’s first underwritten public offering of its common stock under the Securities Act; (ii) the resolution of the board of directors that the pharmacokinetics, pharmacodynamics, immunogenicity and safety profile of verekitug (formerly referred to as ASP7266), when administered as multiple ascending doses, supports further clinical development (“Second Closing Milestone”) has been achieved; or (iii) the written consent of the purchasers holding a majority of the Series A Preferred Stock that the Second Closing Milestone has been waived (collectively, the “Second Closing”). The board of directors may determine at any time prior to the Second Closing to issue and sell up to 1,000,000 of the Milestone Shares at a price of $ 10.00 per share for gross cash proceeds of $ 10.0 million (“Interim Second Closing”) and the number of Milestone Shares to be issued in the Second Closing will be reduced accordingly. In October 2022, the Interim Second Closing was completed and 1,000,000 of the Milestone Shares on a pro-rata basis to the purchasers of the Series A Preferred Stock were issued at a price of $ 10.00 per share. In February 2023, upon the satisfaction of the Second Closing Milestone, the remaining 8,000,000 of the Milestone Shares on a pro-rata basis to the purchasers of the Series A Preferred Stock were issued at a price of $ 10.00 per share, which resulted in gross cash proceeds of $ 80.0 million. As a result of this issuance, the Series A preferred stock tranche right liability of $ 0.3 million was settled and the Series A Preferred Stock was recorded at its fair value of $ 80.3 million. Issuance and sale of Series B redeemable convertible preferred stock In June 2023, the Company executed the Series B Stock Preferred Purchase Agreement (the “Series B Agreement”) to issue and sell up to 11,764,693 shares of Series B Preferred Stock at a price of $ 17.00 per share. In the initial closing in June 2023, the Company issued 2,941,170 shares of Series B Preferred Stock resulting in gross cash proceeds of $ 50.0 million and incurred $ 0.6 million of issuance costs, of which $ 0.1 million was allocated to the preferred stock tranche right liability and recognized in the consolidated statement of operations and comprehensive loss as general and administrative expense. Pursuant to the Series B Agreement, the Company has the right (“Series B Option”) to issue and sell an additional 8,823,523 shares of Series B Preferred Stock (“Series B Option Shares”) at the same price of $ 17.00 per share after the initial closing but prior to March 31, 2024 upon F- 20 Upstream Bio, Inc. Notes to consolidated financial statements approval of at least six ( 6 ) board of directors of which at least one ( 1 ) has to be appointed by the holders of Series B Preferred Stock. If the Company does not exercise the Series B Option prior or at a date which would occur at the earlier of (i) March 31, 2024 or (ii) the closing of an acquisition agreement signed prior to March 31, 2024, the holders of Series B Preferred Stock will have the right but not obligation to require the Company to issue and sell the Series B Option Shares at the same purchase price of $ 17.00 per share (the “Series B preferred stock tranche right”). Upon the initial closing of the Series B Preferred Stock, the Company recorded a preferred stock tranche right liability of $ 11.8 million and a corresponding reduction to the carrying value of the Series B Preferred Stock. The fair value of the Series B preferred stock tranche right was allocated from the gross cash proceeds of $ 50.0 million of the Series B Preferred Stock issuance, and the residual value was then allocated to the Series B Preferred Stock. In April 2024, pursuant to the satisfaction of the Series B Option contemplated in the Series B Agreement, the Company issued and sold 8,823,523 shares of Series B Preferred Stock at a price of $ 17.00 per share, which resulted in gross cash proceeds of $ 150.0 million. As a result of this issuance, the Series B preferred stock tranche right liability of less than $ 0.1 million was settled and the Series B Preferred Stock was recorded at its fair value of $ 150.0 million. The Company incurred less than $ 0.1 million of issuance costs in connection with the Series B Option closing. Upon issuance of the Preferred Stock, the Company assessed the embedded conversion and liquidation features of the securities and determined that such features did not require the Company to separately account for these features. Preferred Stock consisted of the following (dollar amounts in thousands): December 31, 2023 Preferred Stock Authorized Preferred Stock Issued and Outstanding Carrying Value Liquidation Preference Common Stock Issuable Upon Conversion Series A Preferred Stock 20,000,000 20,000,000 $ 193,143 $ 216,293 20,980,000 Series B Preferred Stock 11,764,693 2,941,170 37,792 51,425 3,085,280 31,764,693 22,941,170 $ 230,935 $ 267,718 24,065,280 As of December 31, 2024, in connection with the IPO, all outstanding shares of convertible preferred stock converted into an aggregate of 33,321,149 shares of the Company’s common stock. Through December 31, 2024 and 2023, no cash dividends have been declared or paid. Modification to Series A preferred stock In June 2023, in connection with the issuance of the Company’s Series B Preferred Stock, the rights of the Company’s Series A Preferred Stock were amended to entitle holders to a cumulative dividend from and after the date of the share issuance at the rate per annum of 5 % of the Original Issue Price (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock), provided that the total accrued amount will not exceed 15 % of the Original Issue Price in aggregate. The dividend replaced the original accrued return definition within the liquidation preference terms of the Series A Preferred Stock. Previously, holders were entitled to a liquidation preference per share equal to the greater of (a) the Original Issue Price, plus an accrued return of 5 % of the Original Issue Price per annum, provided that the total of such accrued return shall not exceed 15 % of the Original Issue Price in the aggregate, or (b) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted in common stock. The changes to the rights of the Company’s Series A Preferred Stock were not considered to be a significant change to the contractual terms of the Company’s Series A Preferred Stock because the accrued return of the liquidation preference and the cumulative dividend definitions will result in the same amount to be received in a liquidation event, and accordingly, the Company accounted for the change as a modification. 9. Common stock Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the Preferred Stock. F- 21 Upstream Bio, Inc. Notes to consolidated financial statements As of December 31, 2024 and 2023, the Company’s amended and restated certificate of incorporation authorized the issuance of 500,000,000 and 40,664,346 shares, respectively, of $ 0.001 par value common stock. As of December 31, 2024 and 2023, there were 53,603,398 shares and 2,992,479 shares of common stock issued and outstanding, respectively. In November 2023, the Company issued 20,980 shares of common stock to a related party investor. The Company recorded stock-based compensation expense of $ 0.1 million in connection with the issuance of these shares (Note 16). 10. Stock-based compensation 2021 Stock incentive plan The Company’s 2021 Stock Option and Grant Plan (the “2021 Plan”) provided for the Company to grant incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards and restricted stock units (collectively, the “Awards”) to among others, members of the board of directors, employees, consultants and other key persons to the Company and its affiliates. The 2021 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. In October 2024, the Company completed its IPO, and in connection with the closing, the board of directors determined that no further awards would be granted under the 2021 Plan and any remaining options available for grant would cease to be available. Awards outstanding under the 2021 Plan will continue to be governed by their existing terms. Shares of unused common stock underlying any awards that are forfeited, canceled or reacquired by the Company prior to vesting will again be available for the grant of awards under the 2024 Plan. 2024 Stock option and incentive plan On August 19, 2024, the Company’s board of directors adopted, and on October 4, 2024 its stockholders approved, the 2024 Stock Option and Incentive Plan (the “2024 Plan”), which became effective upon the date immediately preceding the date on which the IPO registration statement was declared effective by the SEC. The 2024 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors, and consultants. The 2024 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, restricted shares of common stock and other stock-based awards. The number of shares reserved under the 2024 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. In addition, the number of shares reserved and available for issuance under the 2024 Plan will automatically increase on January 1, 2025 and each January 1 thereafter, by five percent of the outstanding number of shares of its common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee. On January 1, 2025, the number of shares of common stock that may be issued under the 2024 Plan increased by 2,680,169 shares of common stock. The shares of common stock underlying any awards under the 2024 Plan and the 2021 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2024 Plan. As of December 31, 2024, the Company had a total of 9,411,177 shares of common stock reserved under the 2024 Plan and the 2021 Plan, and 2,920,606 shares available for future issuance under the 2024 Plan. 2024 Employee stock purchase plan On August 19, 2024, the Company’s board of directors adopted, and on October 4, 2024 its stockholders approved, the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), which became effective on the date immediately preceding the date on which the IPO registration statement was declared effective by the SEC. The 2024 ESPP provides that the number of shares reserved and available for issuance will automatically increase on January 1, 2025 and each January 1 thereafter through January 1, 2034, by the least of (i) 976,934 shares of common stock, (ii) one percent of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such lesser number of shares of common stock as determined by the administrator of the 2024 ESPP. The number of shares reserved under the 2024 ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. On January 1, 2025, there was no increase to the number of shares of common stock that may be issued under the 2024 ESPP Plan. F- 22 Upstream Bio, Inc. Notes to consolidated financial statements As of December 31, 2024, the Company had 488,467 shares available for issuance under the 2024 ESPP and no shares had been issued under the 2024 ESPP. Fair value inputs The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it 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 such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected option term is calculated based on the simplified method for awards with service-based conditions, which uses the midpoint between the vesting date and the contractual term, as the Company does not have sufficient historical data to develop an estimate based on participant behavior. 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 based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted: Year Ended December 31, 2024 2023 Per share fair value of common stock $ 7.12 $ 4.52 Expected volatility 79.1 % 77.0 % Expected dividends 0 % 0 % Expected term (in years) 6.2 6.3 Risk-free rate 3.41 % 1.94 % Stock options The Company generally grants stock-based awards with service-based vesting. During the year ended December 31, 2024, the Company granted performance-based stock options to certain employees and directors for the purchase of an aggregate 1,206,249 shares of common stock with a vesting commencement date contingent upon the achievement of the Series B Option closing, which was achieved in April 2024. The Company determined that it met all the conditions to establish a grant date for these performance-based stock options at the original issuance date and that the performance condition was deemed probable of achievement, as the board of directors had approved the Series B Option closing prior to the grant date. The vesting of the performance-based stock options is also subject to the grantees’ continued service until the fourth anniversary of the Series B Option closing. The following table summarizes the activity of stock options with service-based and performance-based vesting conditions during the year ended December 31, 2024: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Intrinsic Value (in thousands) Outstanding as of December 31, 2023 4,166,107 $ 3.75 8.5 $ 4,648 Granted 3,472,281 7.12 Exercised ( 39,770 ) 4.01 Forfeited ( 1,104,280 ) 3.82 Expired ( 3,767 ) 4.01 Outstanding as of December 31, 2024 6,490,571 $ 5.54 7.9 $ 71,266 Options exercisable December 31, 2024 1,993,278 $ 3.64 5.3 $ 25,507 Vested and expected to vest December 31, 2024 6,490,571 $ 5.54 7.9 $ 71,266 F- 23 Upstream Bio, Inc. Notes to consolidated financial statements The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2024 and 2023 was $ 0.3 million and less than $ 0.1 million, respectively. The weighted-average grant-date fair value of options granted during the years ended December 31, 2024 and 2023 was $ 5.10 and $ 3.08 , respectively. As of December 31, 2024 , there was $ 15.6 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.9 years. Modification of certain stock-based compensation awards In February 2024, the Company entered into a separation agreement with the Company’s former Chief Operating Officer (“COO”), effective March 2024. Under the terms of the separation agreement, stock options for the purchase of 142,935 shares of common stock, representing all of the vested options held by the former COO as of the date of her termination, became exercisable for one year following her termination. In March 2024, the Company entered into a separation agreement with the Company’s former Chief Executive Officer (“CEO”), effective March 2024. Under the terms of the separation agreement, vesting of options for the purchase of 38,245 shares of common stock held by the former CEO were accelerated with no change to the exercise price of such options. In addition, stock options for the purchase of 532,553 shares of common stock, representing all of the vested options held by the former CEO as of the date of her termination, became exercisable for two years following her termination. As a result of these modifications, the Company recognized $ 0.7 million of incremental stock-based compensation during the year ended December 31, 2024. The following table illustrates the classification of stock-based compensation in the consolidated statements of operations and comprehensive loss (in thousands): Year Ended December 31, 2024 2023 General and administrative (1) $ 4,842 $ 2,354 Research and development 1,162 1,073 $ 6,004 $ 3,427 (1) Includes related party amounts of $ 0.1 million for the year ended December 31, 2023 (Note 16) 11. Income Taxes The Company's entire pretax loss for the year ended December 31, 2024 and 2023 was from its U.S. domestic operations. During the years ended December 31, 2024 and 2023, the Company did no t record a provision for income taxes because it has incurred net operating losses since inception and maintains a full valuation allowance against its deferred tax assets. F- 24 Upstream Bio, Inc. Notes to consolidated financial statements A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2024 2023 US Federal statutory income tax rate ( 21.0 )% ( 21.0 )% State income taxes, net of federal benefit ( 7.5 ) ( 12.6 ) Change in fair value of financial instruments ( 1.0 ) ( 15.9 ) Research and development tax credits ( 4.2 ) ( 3.1 ) Change in deferred tax asset valuation allowance 33.4 51.6 Stock-based compensation 0.3 1.2 Other permanent differences 0.0 ( 0.2 ) Effective income tax rate ( 0.0 )% ( 0.0 )% The significant components of the Company’s deferred tax assets and liabilities are summarized as follows (in thousands): Year Ended December 31, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 10,994 $ 6,985 Research and development tax credit carryforward 3,754 736 Operating lease liability 501 12 Accrued expenses 705 590 Stock-based compensation 2,261 861 Capitalized research and development expense 25,525 11,618 Amortization of acquired IPR&D 17,412 18,905 Total deferred tax assets before valuation allowance 61,152 39,707 Valuation allowance ( 60,664 ) ( 39,695 ) Total deferred tax assets - net of valuation allowance $ 488 $ 12 Deferred tax liabilities: ROU asset ( 488 ) ( 12 ) Total deferred tax liabilities $ ( 488 ) $ ( 12 ) Net deferred tax asset (liability) $ — $ — As of December 31, 2024, the Company had federal and state net operating loss (“NOLs”) carryforwards of $ 37.6 million and $ 49.1 million, respectively. As of December 31, 2023, the Company had federal and state NOLs carryforwards of $ 25.0 million and $ 27.6 million, respectively. The federal NOLs are not subject to expiration and are limited in utilization to 80 % of taxable income and the state NOLs begin to expire in 2041 . The Company also has federal and state research and development credits of $ 3.5 million and $ 0.3 million, respectively, which will, if not utilized, begin to expire in 2043 and 2037 , respectively. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets. Accordingly, a full valuation allowance of $ 60.7 million and $ 39.7 million has been established as of December 31, 2024 and 2023, respectively. Changes in valuation allowance for deferred tax assets during the years ended December 31, 2024 and 2023 related primarily to the increase in NOL carryforwards and research and development tax credit carryforwards, offset by amortization of acquired IPR&D in 2024 and were as follows (in thousands): Year Ended December 31, 2024 2023 Valuation allowance at beginning of year $ ( 39,695 ) $ ( 29,086 ) Increases recorded to income tax provision ( 20,969 ) ( 10,609 ) Valuation allowance at end of year $ ( 60,664 ) $ ( 39,695 ) F- 25 Upstream Bio, Inc. Notes to consolidated financial statements Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation, due to the significant cost and complexity associated with a study. There could also be additional ownership changes in the future which may result in additional limitations on the utilization of NOL carryforwards and credits. As of December 31, 2024, the Company has no t recorded any amounts for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its consolidated statements of operations and comprehensive loss. For the years ended December 31, 2024 and 2023, no estimated interest or penalties were recognized on uncertain tax positions. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from December 31, 2021, to the present. The resolution of tax matters is not expected to have a material effect on the Company's consolidated financial statements. 12. Net loss per share Basic and diluted net loss per share attributable to common stockholders was calculated as follows (dollar amounts in thousands): Year Ended December 31, 2024 2023 Numerator: Net loss $ ( 62,806 ) $ ( 20,537 ) Preferred Stock cumulative dividends ( 13,589 ) ( 17,718 ) Net loss attributable to common stockholders $ ( 76,395 ) $ ( 38,255 ) Denominator: Weighted-average common shares outstanding, basic and diluted 13,682,326 2,953,756 Net loss per share attributable to common stockholders, basic and diluted $ ( 5.58 ) $ ( 12.95 ) Prior to June 2023, the Company’s Series A Preferred Stockholders were not entitled to cumulative dividends. In connection with the Series B Agreement in June 2023, the Company modified the dividend rights for its Series A Preferred Stockholders such that they became entitled to cumulative dividends based on the original issuance dates of the respective Series A Preferred Stock (Note 8). As such, the Company calculated its net loss attributable to common stockholders for the year ended December 31, 2023 and for the year ended December 31, 2024 up through the date of the IPO when the Preferred Stock converted to common stock by adjusting its net loss for the aggregate cumulative dividends that had accrued since the original issuances dates in the period in which the Preferred Stockholders became legally entitled to such dividends. The Company’s potentially dilutive securities, which include stock options to purchase common stock and Preferred Stock as of December 31, 2023, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect: As of December 31, 2024 2023 Preferred Stock (as converted to common stock) (1) — 24,065,280 Stock options to purchase common stock 6,490,571 4,166,107 6,490,571 28,231,387 F- 26 Upstream Bio, Inc. Notes to consolidated financial statements (1) As of December 31, 2023, the Preferred Stock excludes 8,823,523 shares of Series B Preferred Stock (or 9,255,869 shares as converted to common stock) that were contingently issuable upon settlement of the Series B preferred stock tranche right liability (Note 8). 13. Commitments and contingencies Legal matters The Company is subject to contingent liabilities, such as legal proceedings and claims, that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the consolidated balance sheets. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it discloses the range of reasonably possible losses. As of December 31, 2024 and 2023, the Company was not a party to any material legal proceedings or claims and no liabilities were recorded for loss contingencies. Contracts The Company enters into contracts in the normal course of business with various third parties for preclinical research studies, clinical trials, testing, manufacturing, and other services. These contracts generally provide for termination upon notice and are cancellable without significant penalty or payment, and do not contain any minimum purchase commitments. Guarantees and indemnifications 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, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with all board of directors 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. 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, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements that could have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2024 and 2023. 14. License agreements License agreement with Lonza In October 2021, in connection with an asset purchase agreement entered into with Astellas Pharma, Inc. (“Astellas”), the Company and Lonza Sales AG (“Lonza”) entered into a license agreement (as amended, the “Lonza License Agreement”). Pursuant to the Lonza License Agreement, the Company obtained a worldwide, non-exclusive, sublicensable (subject to Lonza’s right of pre-approval with respect to any sublicense of manufacturing activities) license to certain intellectual property rights owned by Lonza. Lonza was the originator of the master cell bank for verekitug (formerly referred to as ASP7266 and UPB-101, collectively referred to as “the Compound”) developed by Astellas. As consideration for the rights and licenses granted to the Company under the Lonza License Agreement, the Company agreed to pay Lonza certain royalties and annual payments, both payable in Swiss francs, in respect of the manufacturing and sale of the Compound, such amounts to be determined by the party manufacturing the Compound, and range from no annual payment to up to a mid-six-figure annual payment, and a less-than-one percent to a low-single-digit percentage royalty on net sales of the Compound. In accordance with the Lonza License Agreement, the Company entered into a sublicense with Wuxi Biologics (Hong Kong) Limited to manufacture the Compound, requiring the Company to pay a mid-six-figure annual fee to Lonza pursuant to this provision. Any royalties due under the Lonza License Agreement are payable on a country-by-country basis until ten years from the first commercial sale of the Compound in that particular country. F- 27 Upstream Bio, Inc. Notes to consolidated financial statements During the years ended December 31, 2024 and 2023, the Company did no t make any royalty payments to Lonza under the Lonza License Agreement. The Lonza agreement continues for an indefinite period of time unless otherwise terminated. The Company has the right to terminate the Lonza License Agreement at any time by providing prior written notice to Lonza. During the years ended December 31, 2024 and 2023, the Company made an annual payment in the amount of $ 0.5 million and $ 0.4 million, respectively, to Lonza pursuant to the Lonza License Agreement and recognized it as research and development expense in the consolidated statements of operations and comprehensive loss. 15. Revenue Maruho agreement In October 2021, in connection with an asset purchase agreement entered into with Astellas, the Company entered into an agreement (as amended, the “Maruho Agreement”), under which it granted Maruho an exclusive, irrevocable, perpetual, royalty-free, sublicensable (subject to its right of first negotiation) license. Pursuant to the Maruho Agreement, the Company maintains its responsibility for and controls the global research and development of the Maruho license product, including in Japan. The Company will conduct specified clinical trial activities for Japan as part of its global research and development plan. Maruho will reimburse the Company for the costs of these research and development activities, including the cost of drug supply. Maruho has the right to terminate the Maruho Agreement at any time by providing 60 days prior written notice to the Company with no substantial penalty. The Company concluded that Maruho is a customer under the Maruho Agreement, and as such, the Maruho Agreement falls within the scope of ASC 606. The Company identified one performance obligation under the Maruho Agreement related to the performance of research and development services, which are an output of the Company’s ordinary activities, in Japan. The Company determined that the transaction price of the Maruho Agreement as of December 31, 2024 consisted solely of variable consideration. The variable consideration was estimated using the expected value method based on the Company’s experience and best judgment of the total reimbursable costs expected to be incurred through the period of performance. The transaction price is being recognized as revenue over time using the cost-to-cost input method, which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred in Japan to the total estimated costs expected to satisfy the performance obligation. The calculation of the total estimated costs to fulfill the performance obligation includes costs associated with employees, clinical and development, manufacturing, and out-of-pocket costs expected to be paid to third parties. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting period as a change in estimate. The Company excludes disclosures related to the aggregate amount of the transaction price allocated to the performance obligation that are unsatisfied as of the end of the reporting period because the contract has an initial expected term of one year or less. The Company currently expects to continue providing research and development services to Maruho under the Maruho Agreement through the completion of its Phase 2 clinical trials, and if successful, through any Phase 3 clinical trials. During the year ended December 31, 2023, the Company received a prepayment of $ 2.4 million from Maruho for research and development services to be provided by the Company under the Maruho Agreement. During the year ended December 31, 2023, the Company recognized $ 2.4 million of related revenue from the prepayments, resulting in no deferred revenue as of December 31, 2023 . The Company did no t receive any prepayments or recognize any deferred revenue during the year ended December 31, 2024. 16. Related parties In October 2021, the Company entered into the Maruho Agreement (Note 15). Maruho is considered to be a related party because it is one of the co-founders of the Company and has representation on the Company’s board of directors. During the years ended December 31, 2024 and 2023, the Company received payments of $ 1.9 million and $ 2.7 million, respectively, in cost reimbursements from Maruho. The Company recorded related party collaboration revenue of $ 2.4 million during each of the years ended December 31, 2024 and 2023. As of December 31, 2024 and 2023, there was $ 0.6 million and $ 0.1 million in related party accounts receivable, respectively, representing amounts due for qualifying reimbursable expenses related to the Maruho Agreement. F- 28 Upstream Bio, Inc. Notes to consolidated financial statements In February 2023, the Company issued 1,000,000 shares of Series A Preferred Stock to Maruho for gross proceeds of $ 10.0 million. In November 2023, the Company issued 20,980 shares of common stock to a related party investor. The Company recorded stock-based compensation expense of $ 0.1 million in connection with the issuance of these shares (Note 9). 17. 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 who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Matching contributions to the plan may be made at the discretion of the Company’s board of directors. The Company made $ 0.2 million in contributions to the plan during each of the years ended December 31, 2024 and 2023. 18. Segment reporting The Company currently has a single reportable operating segment and revenue generated exclusively from transactions with a related party located in Japan. The Company’s chief executive officer , who is the CODM, manages the Company on a consolidated basis and utilizes consolidated net loss as a basis for resource allocation and decision making. The CODM considers budget-to-actual variances for each of the disaggregated components of operating expenses when making decisions about allocating resources and evaluating performance. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. In addition, the CODM is regularly provided information on total cash, which is inclusive of cash, cash equivalents and short-term investments, as a measure of segment assets. As of December 31, 2024, the Company’s cash, cash equivalents and short-term investments were $470.5 million. The Company's consolidated and segment net loss, including disaggregated components of operating expenses is as follows (in thousands): Year Ended December 31, 2024 2023 Collaboration revenue - related party $ 2,370 $ 2,380 Operating expenses: Research and development: Verekitug program: Asthma indication 28,069 14,537 CRSwNP indication 10,524 3,330 COPD indication 3,115 — Personnel expenses (including stock-based compensation of $ 1,162 and $ 1,073 , respectively) 9,911 7,588 Manufacturing costs 6,580 3,373 Professional fees and other 4,767 2,971 Total research and development expenses 62,966 31,799 General and administrative: Personnel expenses (including stock-based compensation of $ 4,842 and $ 2,354 , respectively) 10,842 6,352 Professional fees 4,349 3,347 Other (including depreciation of $ 89 and $ 60 , respectively) 1,977 996 Total general and administrative expenses 17,168 10,695 Total operating expenses 80,134 42,494 Loss from operations ( 77,764 ) ( 40,114 ) Other income (expense): Change in fair value of preferred stock tranche right liabilities 2,859 15,527 Interest income 12,123 4,165 Other expense, net ( 24 ) ( 115 ) Total other income, net 14,958 19,577 Segment and consolidated net loss $ ( 62,806 ) $ ( 20,537 ) F- 29