Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investors should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contain forward-looking statements based upon current beliefs, plans, and expectations related to future events and our future performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth in the section titled “Risk Factors.” See also the section titled “Special Note Regarding Forward-Looking Statements.”
Overview
We are a clinical stage global biopharmaceutical company committed to being a leader in the development and commercialization of transformative immunology-based therapies for patients in need. With the evolving understanding of the pathogenesis of autoimmune diseases, along with the expansion of promising immunology-based pharmacologic targets, we are building an immunology and inflammation (“I&I”) focused biopharmaceutical company. Our core business strategy combines disciplined product candidate acquisition with strategic deployment of internal expertise and effective use of external resources. We leverage our experienced executive management team and our established networks throughout the biopharmaceutical industry to identify, acquire and develop product candidates that we believe can provide superior clinical benefits to patients living with autoimmune diseases.
Our lead I&I product candidate, obexelimab, is a bifunctional monoclonal antibody designed to bind both CD19 and FcγRIIb, which are broadly present across B cell lineage, in order to inhibit the activity of cells that are implicated in many autoimmune diseases without depleting them. Based on existing clinical data generated to date, we believe that targeting B cell lineage via CD19 and FcγRIIb can inhibit B cells and has been shown to be well-tolerated.
We are developing obexelimab as a potential I&I franchise for patients in several autoimmune diseases, representing substantial commercial opportunities individually and in the aggregate. The first three indications we are pursuing include IgG4-RD through an ongoing registration-directed Phase 3 trial, RMS and SLE through ongoing Phase 2, double-blind, randomized, placebo-controlled trials, each of which are currently enrolling.
Beyond our lead product candidate, obexelimab, we have two other programs for the potential treatment of other I&I indications that we may continue to advance and ultimately commercialize with partners. These consist of ZB002 and ZB004. We retain global rights for both assets. In addition, we hold the development and commercialization rights to one regional program, ZB001, and related programs, which were recently exclusively sublicensed to a partner in greater China.
On September 16, 2024, we completed our IPO in which we issued and sold an aggregate of 15,220,588 shares of our common stock, including 1,985,294 shares of common stock sold pursuant to the full exercise of the underwriter’s option to purchase additional shares, at a public offering price of $17.00 per share, for aggregate gross proceeds of $258.7 million. We received $234.3 million in net proceeds after deducting underwriting discounts, commissions and other offering costs payable by us. In connection with the IPO, all outstanding shares of convertible preferred stock (“Preferred Stock”) converted into an aggregate of 24,978,715 shares of common stock.
On October 21, 2024, we entered into the Novation Agreement with Tenacia, under which we transferred our rights and obligations under our agreements with Dianthus to Tenacia for ZB005. As partial consideration for the Tenacia Agreement, we received a non-creditable, non-refundable upfront fee of $5.0 million from Tenacia. In addition, we are eligible to receive up to $86.0 million upon the achievement of certain future regulatory and commercial milestones.
Since inception, our operations have focused on research and development activities with respect to our product candidates as described above, as well as raising capital, business planning, organizing and staffing our company, establishing our intellectual property portfolio, establishing arrangements with third parties for the manufacture of our product candidates
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and related raw materials, and providing general and administrative support for these operations. Through December 31, 2024, we have financed our operations primarily with the proceeds from the issuance of Preferred Stock and convertible notes, payments received from our license and collaboration agreement and from the sale of common stock in our IPO completed in September 2024.
We have incurred significant operating losses and negative cash flows since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net losses for the years ended December 31, 2024 and 2023 were $157.0 million and $37.1 million, respectively. As of December 31, 2024, we had an accumulated deficit of $387.4 million. We expect to continue to incur significant and increasing losses for the foreseeable future. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
● continue clinical development of obexelimab and our other programs;
● advance our obexelimab program and our other product candidates through preclinical development and clinical trials;
● identify additional product candidates and acquire rights from third parties to those product candidates through licenses or acquisitions and conduct development activities, including preclinical studies and clinical trials;
● make royalty, milestone or other payments under current, and any future, license or collaboration agreements;
● procure the manufacturing of preclinical, clinical and commercial supply of our current or any future product candidates;
● seek marketing regulatory approvals for our current or any future product candidates that successfully complete clinical trials;
● commercialize our current or any future product candidates, if approved;
● take steps toward our goal of being an integrated biopharma company capable of supporting commercial activities, including establishing sales, marketing and distribution infrastructure;
● continue to develop, maintain and defend our intellectual property portfolio, including against third-party interference, infringement and other intellectual property claims, if any;
● seek to attract, hire and retain qualified clinical, scientific, operations and management personnel;
● add and maintain operational, financial and information management systems;
● attempt to address any competing therapies and market developments;
● experience delays in our preclinical studies, clinical trials or regulatory approval for our current or any future product candidates, including with respect to failed studies, inconclusive results, safety issues or other regulatory challenges;
● establish agreements with contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), and
● incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with an exchange listing and the SEC requirements, director and officer insurance premiums and investor relations costs.
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We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate, and we cannot assure investors that we will ever generate significant revenue or profits. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. We expect to continue to incur significant losses for the foreseeable future as we continue to advance the development of our product candidates and incur additional costs associated with being a public company. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical studies and expenditures related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued research and development and other current liabilities.
We will need to continue to raise substantial additional capital to support our continuing operations and pursue our growth strategy as a public company. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other capital sources, which could include collaborations with other companies, or other strategic transactions and licensing agreements. We may be unable to obtain financing on acceptable terms, or at all, and we may be unable to enter into collaborations or other arrangements. Our failure to raise capital or enter into such agreements as, and when, needed, could have a material adverse effect on our business, prospects, results of operations, and financial condition, including requiring us to have to delay, reduce or eliminate product development or future commercialization efforts, or grant rights to develop and market potential future product candidates that we would otherwise prefer to develop and market ourselves.
As there are numerous risks and uncertainties associated with development of I&I therapeutics, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. We will need to generate significant revenue to achieve profitability, and we may never do so. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of December 31, 2024, we had $350.8 million in cash, cash equivalents and short-term investments. We believe that our cash, cash equivalents and short-term investments as of December 31, 2024 will be sufficient to fund our operations and capital expenditure requirements into the fourth quarter of 2026. We have based this estimate on our current assumptions, which may prove to be wrong, and we may exhaust our available capital resources sooner than we expect. See section titled “Liquidity and Capital Resources.”
Significant Risks and Uncertainties
The current inflationary environment may materially affect our business and operating results by increasing the costs of our clinical trial materials and supplies, driving the U.S. Federal Reserve system to increase interest rates, which in turn increase our overhead costs. Rising interest rates could make it more difficult to obtain traditional financing on acceptable terms, if at all. Additionally, the ongoing recession risk together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term and, as a result could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation has had a material impact on our financial positions or results of operations to date, additional high inflation could increase our operating costs, including our labor costs and research and development costs. These costs may also be negatively impacted due to supply chain constraints, global geopolitical tensions, worsening macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital. We import from China drug product and other components for use in our clinical studies, and such products are subject to tariffs. Increases in tariffs could result in increased costs.
Additionally, we are subject to other challenges and risk specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the clinical stage biopharmaceutical industry.
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Components of Our Results of Operations
Revenue
To date, we have no product candidates approved for commercial sale in any country, and we have not generated any revenues from the sale of products. Our revenue has been derived from collaboration arrangements and license fees.
License and Collaboration Revenue
License and collaboration revenue is generated from our Bristol-Myers Squibb (“BMS”) Agreement and our Tenacia Agreement.
Pursuant to the BMS Agreement, we sublicensed the rights to develop and commercialize obexelimab in Japan, South Korea, Taiwan, Singapore, Hong Kong and Australia (the “BMS Territory”). We retain exclusive rights to commercialize the licensed products containing obexelimab outside of the BMS Territory. The revenue recognized to date pursuant to this arrangement relates to the license of obexelimab and the related technology transfer, which was recognized upon delivery of the license. This arrangement includes the participation by BMS in certain joint global studies of obexelimab in accordance with the terms of the BMS Agreement, in which BMS will reimburse us for its share of the related study costs. Such reimbursements will be classified as a reduction to research and development expense in the period such costs are incurred. We will recognize development and regulatory milestones defined in the BMS Agreement when the achievement of the underlying milestone events is deemed probable, which is expected to be upon achievement. Sales milestones and royalties on future sales will be recognized in the period the related sales occur.
Pursuant to the Tenacia Agreement, we transferred our rights, title, interest, liabilities, duties and obligations under the Option and License Agreements with Dianthus to Tenacia for ZB005. The revenue recognized to date pursuant to this arrangement relates to the novation of the ZB005 license, asset transfer and technology transfer, which was recognized upon delivery of the license, related assets and technology transfer. We will recognize development and regulatory milestones as defined in the Tenacia Agreement when the achievement of the underlying milestone events is deemed probable, which is expected to be upon achievement. Sales milestones and royalties on future sales will be recognized in the period the related sales occur.
For a more detailed description of this agreement, see Note 7, License and Collaboration Revenue , to our consolidated financial statements included elsewhere in this Annual Report.
Operating Expenses
Our operating expenses consist of (i) research and development expenses, (ii) general and administrative expenses and (iii) acquired in-process research and development expenses.
Research and Development Expenses
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the preclinical and clinical development of obexelimab, ZB002, ZB004, ZB001 and ZB005, and include:
Direct Costs:
● external research and development expenses incurred under agreements with CROs and consultants that conduct our clinical studies and other scientific development services;
● costs incurred under agreements with CMOs for manufacturing material for our preclinical studies and clinical trials;
● costs to obtain and maintain licenses to intellectual property, and related future payments should milestones described in those agreements be achieved; and
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● costs related to compliance with regulatory requirements.
Indirect Costs:
● employee-related expenses including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in research and development activities; and
● costs of outside consultants, including their fees, stock-based compensation and related travel expenses.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors or our estimate of the level of service that has been performed at each reporting date. Payments for these external development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid expenses or accrued expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
A significant portion of our research and development costs have been external costs, which we track on an individual product candidate basis after a clinical product candidate has been identified. We utilize third party contractors for our research and development activities and CMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities. Therefore, we have no material facilities expenses attributed to research and development. Our internal research and development costs are primarily personnel-related costs and other indirect costs. We do not track internal costs on a program specific or stage of program basis because these costs are deployed across multiple programs and, as such, are not separately classified.
Where we share costs with our collaboration partners, such as in our BMS Agreement, research and development expenses may include cost sharing reimbursements from our partner.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we advance clinical trials for our product candidates, pursue additional indications, continue to develop additional product candidates, expand our headcount and maintain, expand and enforce our intellectual property portfolio. We also expect our manufacturing costs to increase with our CMOs as we scale up our processes for commercial manufacturing. Product candidates in later stages of clinical development will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and additional manufacturing activities. There are numerous factors associated with the successful development and commercialization of any product candidates we may develop, including the safety and efficacy of our product candidates, investment in our clinical programs, manufacturing capability and competition with other products, and future commercial and regulatory factors beyond our control that will impact our clinical development program and plans.
The successful development of our current product candidates, or any product candidates we may develop in the future is highly uncertain. Therefore, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of our product candidates, if approved, and any other product candidates that we may develop. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of any current or future product candidate, if approved. This is due to the numerous risks and uncertainties associated with product development, including the uncertainty of:
● the scope, timing and progress of our ongoing obexelimab clinical studies and other research and development activities associated with the development of our other and future product candidates;
● the number and scope of preclinical and clinical programs we decide to pursue;
● our ability to maintain our current research and development programs and to establish new programs;
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● the timing of and successful patient enrollment in, and the initiation and completion of, clinical trials;
● the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration (“FDA”), or any comparable foreign regulatory authority;
● the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
● our ability to establish new licensing or collaboration arrangements;
● the performance of our future collaborators, if any;
● our ability to establish and maintain arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any;
● development and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercialization;
● obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
● our ability to hire additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, chemistry, manufacturing and controls (“CMC”), quality and commercial personnel;
● commercializing product candidates, if approved, whether alone or in collaboration with others;
● the costs and timing of establishing or securing sales and marketing capabilities for our product candidates if approved;
● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; and
● maintaining a continued acceptable safety profile of the product candidates following approval.
Any changes in the outcome of any of these variables with respect to the development of our current product candidates or any future product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently anticipate would be required for the completion of clinical development, or if we experience significant delays in enrollment in any clinical trials following the FDA’s acceptance and clearance of an Investigational New Drug Application (“IND”), we could be required to expend significant additional financial resources and time to complete clinical development than we currently expect. We may never obtain regulatory approval for any product candidates that we develop.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation expenses for personnel in executive, finance, accounting, human resources and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, tax and consulting and other professional services, and expenses for rent, insurance and other operating costs not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase in the next few years as we increase our headcount to support our continued research and development activities of our product candidates. These increases will likely include
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increased costs related to the hiring of additional personnel and fees to outside consultants, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with the rules and regulations of the SEC, listing standards applicable to companies listed on a national securities exchange, director and officer insurance costs, and investor and public relations costs. In addition, if we obtain regulatory approval for our current product candidates or any product candidates we may develop in the future and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.
Acquired In-Process Research and Development Expenses
We expense acquisition costs for assets purchased for use in research and development activities that have no alternative future use as in-process research and development (“IPR&D”) expense as of the acquisition date. When we become obligated to make contingent milestone payments under the terms of the agreements by which we acquired the IPR&D assets, we will recognize additional IPR&D expense. We measure and recognize contingent consideration in the period in which the related milestone is achieved and becomes payable.
Total Other Income, Net
Other Income, Net
Other income, net primarily consists of interest income generated from cash equivalents and investments, and realized and unrealized gains and losses on foreign currency transactions.
Change in Fair Value of Convertible Notes
In August 2023, we issued a convertible note to BMS (the “BMS Note”) in connection with the BMS Agreement, (see Note 7, License and Collaboration Revenue to our audited consolidated financial statements). We elected to record the BMS Note at fair value upon issuance and to subsequently remeasure the note at fair value at the end of each reporting period with the change in fair value being recorded as a component of other expense in our consolidated statement of operations and comprehensive loss. In May 2024, in connection with our Series C convertible preferred stock (“Series C Preferred Stock”) financing, the BMS Note plus accrued interest was automatically converted into 12,284,686 shares of Series C Preferred Stock. We reassessed the estimated fair value of the BMS Note immediately prior to the conversion utilizing the fair value of the shares of Series C Preferred Stock for which the note subsequently converted into and recorded the change in fair value as a component of other income (expense), net in our consolidated statement of operations and comprehensive loss during the years ended December 31, 2024 and 2023.
Income Taxes
Since our inception, we have not recorded income tax benefits for any of our deferred tax assets, including the net operating losses (“NOLs”) incurred or the research and development tax credits generated in each year, as we have concluded that it is more likely than not that these deferred tax assets will not be realized.
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Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations for each of the periods presented (in thousands):
Years Ended December 31,
Increase (Decrease)
2024
2023
$
Revenue:
License and collaboration revenue
$
5,000
$
50,000
$
(45,000)
Total revenue
5,000
50,000
(45,000)
Operating expenses:
Research and development
$
139,139
$
60,033
$
79,106
General and administrative
29,749
17,114
12,635
Acquired in-process research and development
—
10,000
(10,000)
Total operating expenses
168,888
87,147
81,741
Loss from operations
(163,888)
(37,147)
(126,741)
Other income, net:
Fair value adjustments to convertible notes
(846)
(300)
(546)
Other income (expense), net
8,175
624
7,551
Total other income (expense), net
7,329
324
7,005
Loss before income taxes
(156,559)
(36,823)
(119,736)
Income tax provision
(429)
(301)
(128)
Net loss
$
(156,988)
$
(37,124)
$
(119,864)
Revenue
For the year ended December 31, 2024, we recognized revenue of $5.0 million, related to the upfront payment under the Tenacia Agreement. For the year ended December 31, 2023, we recognized revenue of $50.0 million, related to the upfront payment under the BMS Agreement.
Research and Development Expenses
The following table summarizes our research and development expenses for each of the periods presented (in thousands):
Years Ended December 31,
Increase (Decrease)
2024
2023
$
Direct research and development expenses by program:
Obexelimab
$
94,563
$
25,446
$
69,117
Other programs (ZB002 & ZB004)
2,115
6,242
(4,127)
Partnered regional programs (ZB001 & ZB005)
6,737
6,738
(1)
Unallocated research and development expenses:
Personnel expenses (including stock-based compensation)
34,364
20,458
13,906
Other expenses
1,360
1,149
211
Total research and development expenses
$
139,139
$
60,033
$
79,106
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Research and development expenses were $139.1 million for the year ended December 31, 2024, compared to $60.0 million for the year ended December 31, 2023. The increase of $79.1 million was primarily attributable to the following:
● a $69.1 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $36.6 million increase in manufacturing costs for clinical trial materials and also a $32.0 million increase clinical trial costs;
● a $4.1 million decrease in costs related to our other programs, including a $2.3 million decrease related to ZB002 and a $1.8 million decrease related to ZB004; and
● a $13.9 million increase in personnel costs, including a $9.5 million increase in salary and benefit related expense, primarily due to an increase in headcount, a $2.5 million increase in stock-based compensation expense, and a $1.9 million increase in external contractor expense and other personnel costs.
General and Administrative Expense
The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):
Years Ended December 31,
Increase
2024
2023
$
Personnel related expenses (including stock-based compensation)
$
18,613
$
9,859
$
8,754
Legal and professional fees
6,318
4,626
1,692
Facilities and supplies
2,375
1,825
550
Other expenses
2,443
804
1,639
Total general and administrative expenses
$
29,749
$
17,114
$
12,635
General and administrative expenses were $29.7 million for the year ended December 31, 2024, compared to $17.1 million for the year ended December 31, 2023. The increase of $12.6 million was primarily attributable to the following:
● a $8.8 million increase in personnel costs, including a $4.9 million increase in stock-based compensation expense, a $3.8 million increase in salary and benefit related expense, primarily due to an increase in headcount, and a $0.1 million increase in recruiting expense, partially offset by a $0.1 million decrease in external contractor expense;
● a $1.7 million increase in professional fees, including legal, audit and tax expenses, primarily attributable to operating as a public company; and
● a $1.6 million increase in other expenses, including insurance and other variable costs related to operating as a public company.
Acquired In-Process Research and Development Expenses
There was no acquired IPR&D expense recorded for the year ended December 31, 2024. Acquired IPR&D for the year ended December 31, 2023 was comprised of a $10.0 million development milestone expense related to obexelimab.
Total Other Income (Expense), Net
For the year ended December 31, 2024, total other income (expense), net increased from the comparable period in the prior year primarily due to interest earnings as a result of higher cash, cash equivalents and short-term investments due to proceeds from the Series C Preferred Stock and IPO.
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Liquidity and Capital Resources
Overview
We have incurred significant operating losses since inception. We have not yet commercialized any product candidates, and we do not expect to generate revenue from sales of any product candidates or from other sources for several years, if at all. As of December 31, 2024, we had $350.8 million in cash, cash equivalents and short-term investments and we had an accumulated deficit of $387.4 million. Through December 31, 2024, we have funded our operations primarily with gross proceeds of $358.0 million through the sale and issuance of our Preferred Stock, our convertible notes, as well as $55.0 million through our BMS Agreement and Tenacia Agreement, and most recently, from the sale of common stock in our IPO.
Future Funding Requirements
We believe that our available cash, cash equivalents and short-term investments, as of December 31, 2024, are sufficient to fund existing and planned cash requirements for at least the next 12 months, from the filing of this Form 10-K. Our primary uses of capital are, and we expect to continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect.
Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:
● the scope, timing, progress results and costs of our ongoing obexelimab clinical studies and other research and development activities associated with the development of our other and future product candidates;
● the costs, timing and outcome of regulatory review of product candidates;
● the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any product candidates for which we receive marketing approval;
● the costs of establishing and maintaining arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any;
● the costs and timing of manufacturing for obexelimab and other product candidates, including commercial manufacturing at sufficient scale, if any product candidate is approved, including as a result of inflation, any supply chain issues or component shortages;
● the revenue, if any, received from commercial sale of our products, should any product candidates receive marketing approval;
● the cash requirements of any future acquisitions or discovery of product candidates;
● the cost and timing of attracting, hiring and retaining skilled personnel to support our operations and continued growth;
● the cost of implementing operational, financial and management systems;
● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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● our ability to establish and maintain collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties on favorable terms, if at all;
● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
● the timing, receipt and amount of sales of, or milestone payments related to or royalties on, current or future product candidates, if any; and
● the costs associated with operating as a public company, including legal, accounting or other expenses in operating our business.
A change in the outcome of any of these or other variables with respect to the development of obexelimab or any other product candidate could significantly change the costs and timing associated with our operating plans. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
We have no products approved for commercial sale and have not generated any product revenues from product sales to date. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financing and additional funding from license, strategic alliances and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity.
We have incurred losses and cumulative negative cash flows from operations since our inception. We anticipate that we will continue to incur significant losses for at least the next several years. We expect our research and development, general and administrative expenses will continue to increase. As a result, we will need additional capital to fund our operations, which we may raise through a combination of the sale of our equity, debt financings, or other sources, including potential collaborations. To the extent that we raise capital through the future sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we enter into debt financing arrangements, if available, they may involve restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business.
If we raise additional funds through license, strategic alliances or collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise funds through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
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Cash Flows
The following table provides information regarding our cash flows for each of the periods presented (in thousands):
Years Ended
December 31,
2024
2023
Net cash used in operating activities
$
(119,674)
$
(30,529)
Net cash used in investing activities
(30,552)
(17)
Net cash provided by financing activities
412,958
20,116
Effect of exchange rate changes on cash and restricted cash
157
78
Net increase (decrease) in cash, cash equivalents and restricted cash
$
262,889
$
(10,352)
Net Cash Used in Operating Activities
Net cash used in operating activities for the year ended December 31, 2024 was $119.7 million, and was primarily due to our net loss of $157.0 million adjusted for non-cash items including stock-based compensation of $10.8 million, an investment accretion of $0.6 million and non-cash operating lease of $0.7 million, and an increase in assets and liabilities of $25.3 million. The significant items of the increase in operating assets and liabilities include an increase in accrued expenses and accounts payable of $33.8 million and prepaid expenses and other assets of $7.7 million.
Net cash used in operating activities for the year ended December 31, 2023 was $30.5 million, and was primarily due to our net loss of $37.1 million, adjusted for non-cash items including acquired in-process research and development expense related to a milestone payment of $10.0 million, stock-based compensation of $3.5 million and non-cash operating lease of $0.7 million, offset by a decrease in assets and liabilities of $8.0 million. The significant items of the decrease in operating assets and liabilities include a $4.0 million decrease in accrued expense and accounts payable and an increase of $3.3 million decrease in prepaid expenses and other assets.
Net Cash Used in Investing Activities
Net cash used in investing activities for the year ended December 31, 2024 was $30.6 million and was due to the purchase of $36.4 million of investments, partially offset by $6.0 million in proceeds from the maturities of investments.
Net cash used in investing activities for the year ended December 31, 2023 was less than $0.1 million and consisted of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2024 was $413.0 million, resulting from $178.4 million in net proceeds received from the issuance and sale of shares of our Series C Preferred Stock, proceeds of $240.6 million from our IPO, net of underwriting discounts and commissions, and $0.3 million of proceeds received from the exercise of stock options, partially offset by a $6.3 million payment of offering costs related to our IPO.
Net cash provided by financing activities for the year ended December 31, 2023 was $20.1 million, resulting from $20.0 million in proceeds received from the sale of the BMS Note and $0.1 million in proceeds received from the exercise of stock options.
Contractual obligations and commitments
Leases
We have entered into lease arrangements for facilities, which are comprised of office space, through April 30, 2026. As of December 31, 2024, our total fixed lease payment obligations outstanding are $1.1 million of which $0.9 million is payable within 12 months.
For additional information on our lease obligations, please see Note 6, Leases , to these consolidated financial statements.
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License and Option Agreements
We have entered into license agreements under which we may be obligated to make milestone and royalty payments, which are contingent upon future events, such as achieving certain development, regulatory, and commercial milestones or generating product sales. As of December 31, 2024 and 2023, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.
For additional information on our license and option agreements, please see Note 8, License and Option Agreements , to these consolidated financial statements.
Purchase and Other Obligations
We enter into contracts in the normal course of business with CROs, CMOs, and other third-party vendors for clinical trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancellable by us upon written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including non-cancelable obligations of our service provided up to one year after the date of cancellation. As of December 31, 2024, our total clinical manufacturing contract payment obligations are $15.3 million of which the full obligation is payable within 12 months.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”), requires us to make judgments, assumptions and estimates that may affect the reported amounts of assets and liabilities, equity and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reported periods. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experiences. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates. Other significant accounting policies are outlined in Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements.
We have listed below our critical accounting estimates that we believe to have the greatest potential impact on our consolidated financial statements. Our assumptions, judgements and estimates relative to our critical accounting estimates have not differed materially from actual results.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and vendor agreements, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. We make estimates of our accrued and prepaid clinical expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to CROs, and investigative sites in connection with clinical studies and to vendors related to product manufacturing and development of clinical supplies.
We base our expenses related to clinical study and trial costs on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors out of our control, as such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual
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accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period.
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included elsewhere in this Annual Report.
Implications of Being an Emerging Growth Company and Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold nonbinding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We may take advantage of these exemptions until December 31, 2029 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least twelve months and have filed one Annual Report on Form 10-K) or we issue more than $1.0 billion of nonconvertible debt securities over a three year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We may choose to take advantage of some, but not all, of the available exemptions.
In addition, the JOBS Act provides that, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates following the IPO is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. We may continue to be a smaller reporting company until the fiscal year following the determination that we no longer meet the requirements necessary to be considered a smaller reporting company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Under SEC rules and regulations, because we are considered to be a “smaller reporting company,” we are not required to provide the information required by this item in this report.
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