What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-12 compared with 2025-05-15 · 98 added, 45 removed, 257 unchanged (36% of the section changed)

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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, and relapsing multiple sclerosis (“RMS”) and systemic lupus erythematosus (“SLE”) through ongoing Phase 2, double-blind, randomized, placebo-controlled trials, each of which are currently enrolling.

The first three indications we are pursuing include IgG4-RD through an ongoing registration-directed Phase 3 trial (the “INDIGO” trial), and relapsing multiple sclerosis (“RMS”) (the “MoonStone” trial) and systemic lupus erythematosus (“SLE”) (the “SunStone” trial) through ongoing Phase 2, double-blind, randomized, placebo-controlled trials.

In the fourth quarter of 2024, we completed the target enrollment of the INDIGO trial and expect to report topline results from the INDIGO trial around year-end 2025.

In the second quarter of 2025, we completed enrollment of the MoonStone trial and expect to report results from the MoonStone trial, including the 12-week primary endpoint results, early in the fourth quarter of 2025.

We expect to complete enrollment in the SunStone trial by year-end 2025 and to report topline results from the SunStone trial in mid-2026.

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.

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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 and related raw materials, and providing general and administrative support for these operations.

Through March 31, 2025, we have financed our operations primarily with the proceeds from the issuance of convertible preferred stock, our convertible notes, payments received under our license and collaboration agreements and from the sale of common stock in our IPO completed in September 2024.

Through June 30, 2025, we have financed our operations primarily with the proceeds from the issuance of convertible preferred stock, our convertible notes, payments received under our license and collaboration agreements 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 three months ended March 31, 2025 and 2024, were $33.6 million and $27.8 million, respectively.

As of March 31, 2025, we had an accumulated deficit of $421.0 million.

Our net losses for the three and six months ended June 30, 2025 and 2024, were $52.2 million and $38.0 million, respectively.

As of June 30, 2025, we had an accumulated deficit of $473.2 million.

We expect to continue to incur significant and increasing losses for the foreseeable future.

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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 March 31, 2025, we had $314.2 million in cash, cash equivalents and investments.

We believe that our cash, cash equivalents and investments as of March 31, 2025 will be sufficient to fund our operations and capital expenditure requirements into the fourth quarter of 2026.

As of June 30, 2025, we had $274.9 million in cash, cash equivalents and investments.

We believe that our cash, cash equivalents and investments as of June 30, 2025 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.

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The current geopolitical, trade, regulatory and economic environment, including, but not limited to the imposition of new tariffs or increases in tariff rates and other trade measures, may materially affect our business and operating results by increasing the costs of our clinical trial materials and supplies, which in turn increase our overhead costs.

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.

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.

Such economic conditions could increase our operating costs, including our labor costs and research and development costs.

For example, we import drug products and other

components from and into China for use in the manufacturing process and in our clinical studies, and such components and products are subject to tariffs, which we anticipate will result in increased costs.

For example, we import drug products and other components from and into China for use in the manufacturing process and in our clinical studies, and such components and products are subject to tariffs, which we anticipate will result in increased costs.

Our operating and labor costs and research and development 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.

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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.

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.

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.

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● the costs and timing of establishing or securing sales and marketing capabilities for our product candidates if approved;

● the imposition of new laws and regulations, including those relating to labor conditions and safety standards, information and data transfer, imports, duties, taxes, and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds, particularly new or increased tariffs imposed on imports, and as a result supply-related costs, from countries where our suppliers operate, as well as tariffs that impact the biopharmaceutical industry generally;

and restrictions on currency exchange or the transfer of funds, particularly new or increased tariffs imposed on imports, and as a result supply-related costs, from countries where our suppliers operate, as well as tariffs that impact the biopharmaceutical industry generally;

● 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;

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Results of Operations

Comparison of the Three Months Ended March 31, 2025 and 2024

Comparison of the Three Months Ended June 30, 2025 and 2024

The following table summarizes our results of operations for each of the periods presented (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Increase (Decrease)

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Income tax benefit

We recognized license and collaboration revenue of $10.0 million for the three months ended March 31, 2025, related to the one-time non-refundable upfront cash payment under the Zai License Agreement that was recognized upon delivery of the license and related technology transfer.

We did not recognize any license and collaboration revenue during the three months ended March 31, 2024.

We did not recognize any license and collaboration revenue for the three months ended June 30, 2025 and 2024.

Research and Development Expenses

The following table summarizes our research and development expenses for each of the periods presented (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Increase (Decrease)

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Total research and development expenses

Research and development expenses were $34.9 million for the three months ended March 31, 2025, compared to $22.6 million for the three months ended March 31, 2024.

Research and development expenses were $43.0 million for the three months ended June 30, 2025, compared to $33.8 million for the three months ended June 30, 2024.

The increase of $9.2 million was primarily attributable to the following:

● a $11.2 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $7.4 million increase in clinical trial costs and a $3.6 million increase in manufacturing costs for clinical trial materials;

● a $1.5 million decrease in costs related to our partnered regional programs, including a $0.9 million decrease related to ZB005, largely driven by a decrease in clinical activities and a $0.6 million decrease related to ZB001 as the ongoing clinical studies were out licensed;

● a $3.2 million increase in personnel costs, including a $1.9 million increase in salary and benefit related expense, primarily due to an increase in headcount, a $1.2 million increase in stock-based compensation expense, and a $0.1 million increase in external contractor expense and other personnel costs.

● a $7.1 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $5.5 million increase in manufacturing costs for clinical trial materials and a $1.0 million increase in clinical trial costs;

● a $2.6 million decrease in costs related to our partnered regional programs, including a $1.8 million decrease related to ZB005 and an $0.8 million decrease related to ZB001, as a result of transitioning these programs to Tenacia and Zai Lab, respectively;

● a $4.7 million increase in personnel costs, including a $3.1 million increase in salary and benefit related expense, primarily due to an increase in headcount, a $1.4 million increase in stock-based compensation expense, and a $0.2 million increase in external contractor expenses and other personnel costs.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Increase (Decrease)

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Total general and administrative expenses

General and administrative expenses were $12.4 million for the three months ended March 31,2025, compared to $4.9 million for the three months ended March 31,2025.

General and administrative expenses were $12.1 million for the three months ended June 30, 2025, compared to $5.9 million for the three months ended June 30, 2024.

The increase of $6.2 million was primarily attributable to the following:

a $5.5 million increase in personnel costs, including a $3.3 million increase in stock-based compensation expense, a $1.8 million increase in salary and benefit related expense, primarily due to an increase in headcount, personnel associated with pre-commercialization activities, and a $0.5 million increase in recruiting expense;

a $4.9 million increase in personnel costs, including a $3.1 million increase in stock-based compensation expense, and a $1.8 million increase in salary and benefit related expenses, primarily due to an increase in headcount associated with pre-commercialization activities.

a $0.4 million increase in professional fees, including legal, audit and tax expenses, primarily attributable to operating as a public company;

a $1.0 million increase in facilities and other expenses, is primarily attributable to facility, insurance and other variable costs related to operating as a public company.

a $0.9 million increase in facilities and other expenses, primarily attributable to facility, insurance and other variable costs related to operating as a public company.

Total Other Income (Expense), Net

For the three months ended March 31, 2025, total other income (expense), increased from the comparable period in the prior year primarily due to interest income as a result of higher cash, cash equivalents and investments.

Total other income (expense), net was $3.0 million for the three months ended June 30, 2025, and was primarily due to an increase in interest income and an increase in average balance of investments.

Comparison of the Six Months Ended June 30, 2025 and 2024

The following table summarizes our results of operations for each of the periods presented (in thousands):

Six Months Ended June 30,

Increase (Decrease)

License and collaboration revenue

Total revenue

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense), net:

Fair value adjustments to convertible notes

Other income, net

Total other income (expense), net

Loss before income taxes

Income tax benefit

For the six months ended June 30, 2025, revenue increased $10.0 million, compared to the same period in 2024.

The increase is related to the one-time non-refundable upfront cash payment under the Zai License Agreement that was recognized upon delivery of the license and related technology transfer.

We did not recognize any license and collaboration revenue during the six months ended June 30, 2024.

Research and Development Expenses

The following table summarizes our research and development expenses for each of the periods presented (in thousands):

Six Months Ended June 30,

Increase (Decrease)

Direct research and development expenses by program:

Other programs (ZB002 & ZB004)

Partnered regional programs (ZB001 & ZB005)

Unallocated research and development expenses:

Personnel expenses (including stock-based compensation)

Other expenses

Total research and development expenses

Research and development expenses were $78.0 million for the six months ended June 30, 2025, compared to $56.5 million for the six months ended June 30, 2024.

The increase of $21.5 million was primarily attributable to the following:

● a $18.2 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $9.2 million increase in manufacturing costs for clinical trial materials and an $8.4 million increase in clinical trial costs;

● a $4.1 million decrease in costs related to our partnered regional programs, including a $2.8 million decrease related to ZB005 and a $1.3 million decrease related ZB001, as a result of transitioning these programs to Tenacia and Zai Lab, respectively;

● a $7.9 million increase in personnel costs, including a $5.0 million increase in salary and benefit related expenses, primarily due to an increase in headcount, a $2.6 million increase in stock-based compensation expense, and a $0.3 million increase in external contractor expenses and other personnel costs.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):

Six Months Ended June 30,

Increase (Decrease)

Personnel related expenses (including stock-based compensation)

Legal and professional fees

Other expenses

Total general and administrative expenses

General and administrative expenses were $24.6 million for the six months ended June 30, 2025, compared to $10.8 million for the six months ended June 30, 2024.

The increase of $13.7 million was primarily attributable to the following:

a $10.4 million increase in personnel costs, including a $6.4 million increase in stock-based compensation expense, a $3.6 million increase in salary and benefit related expense, primarily due to an increase in headcount associated with pre-commercialization activities, a $0.6 million increase in recruiting expense and a $0.2 million decrease in contractor-related expenses;

a $1.4 million increase in professional fees, including legal, audit and tax expenses, primarily attributable to operating as a public company;

a $2.0 million increase in facilities and other expenses, primarily attributable to facility, insurance and other variable costs related to operating as a public company.

Total Other Income (Expense), Net

Total other income (expense), net was $6.5 million for the six months ended June 30, 2025, and was primarily due to an increase in interest income and an increase in average balance of investments.

Liquidity and Capital Resources

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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 March 31, 2025, we had $314.2 million in cash, cash equivalents, and investments and we had an accumulated deficit of $421.0 million.

Through March 31, 2025, 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 $65.0 million through our BMS Agreement, Tenacia Agreement and Zai Agreement, and most recently, from the sale of common stock in our IPO for which we received $234.3 million in net proceeds, after deducting underwriting discounts, commissions and other offering expenses.

As of June 30, 2025, we had $274.9 million in cash, cash equivalents, and investments and we had an accumulated deficit of $473.2 million.

Through June 30, 2025, 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 $65.0 million through our BMS Agreement, Tenacia Agreement and Zai Agreement, and from the sale of common stock in our IPO for which we received $234.3 million in net proceeds, after deducting underwriting discounts, commissions and other offering expenses.

Future Funding Requirements:

We believe that our available cash, cash equivalents and investments, as of March 31, 2025, are sufficient to fund our operations and capital expenditure requirements for at least the next 12 months from the filing of this Quarterly Report.

We believe that our available cash, cash equivalents and investments, as of June 30, 2025, are sufficient to fund our operations and capital expenditure requirements for at least the next 12 months from the filing of this Quarterly Report.

We estimate that our existing cash, cash equivalents and investments will be sufficient to fund our projected operations and capital expenditure requirements into the fourth quarter of 2026.

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The following table provides information regarding our cash flows for each of the periods presented (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2025 was $37.1 million, and was primarily due to our net loss of $33.6 million, partially offset by $5.4 million of stock-based compensation expense, $2.9 million increase in accounts payable, a $0.4 million increase in prepaid expenses and other assets and a $11.2 million decrease in accrued expenses.

The net decrease in accounts payable and accrued expenses was primarily due to the timing of vendor payments.

Net cash used in operating activities for the three months ended March 31, 2024 was $19.1 million, and was primarily due to our net loss of $27.8 million, partially offset by a $3.4 million increase in accounts payable, a $1.8 million increase in prepaid expenses and other assets, a $1.5 million increase in other current liabilities, $0.9 million of stock-based compensation expense, $0.7 million increase in the fair value of our BMS Note Liability and a $0.3 million increase in accrued expenses.

The increase in accrued expenses and accounts payable was primarily due to an increase in research and development expenses, while the increase in prepaid expenses and other assets was primarily due to the timing of vendor payments.

Net cash used in operating activities for the six months ended June 30, 2025 was $78.8 million, and was primarily due to our net loss of $85.8 million and a decrease of $9.2 million in accounts payable and a decrease of $0.8 million decrease in prepaid expenses and other assets, partially offset by $11.4 million of stock-based compensation expense and a $5.1 million increase in accrued expenses.

The net increase in accrued expenses was primarily due to an increase in clinical study expenses, while the decrease in accounts payable and prepaid expenses and other assets was primarily due to the timing of vendor payments.

Net cash used in operating activities for the six months ended June 30, 2024 was $50.1 million, and was primarily due to our net loss of $65.8 million, and a $1.3 million decrease in prepaid expenses and other assets, partially offset by a $2.9 million increase in accounts payable, a $0.5 million increase in other current liabilities, a $10.2 million increase in accrued expenses, a $0.8 million increase in the fair value of our BMS Note liability and $2.5 million of stock-based compensation expense.

The increase in accrued expenses and accounts payable was primarily attributable to an increase in research and development expenses, while the decrease in prepaid expenses and other assets was primarily due to the timing of vendor payments.

Net Cash Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2025 was $86.3 million and consisted primarily of proceeds from sales and maturities of investments of $12.9 million, offset by purchases of investments of $99.1 million.

Net cash used in investing activities for the three months ended March 31, 2024 was less than $0.1 million and consisted of purchases of property and equipment.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2025 was $0.1 million, resulting from $0.1 million of proceeds received from the exercise of stock options.

Net cash used in financing activities for the three months ended March 31, 2024 was $0.6 million, resulting from a $0.7 million in payment of offering costs, partially offset by less than $0.1 million of proceeds received from the exercise of stock options.

Net cash used in investing activities for the six months ended June 30, 2025 was $198.6 million and consisted primarily of purchases of investments of $225.7 million, offset by proceeds from sales and maturities of investments of $27.1 million.

Net cash used in investing activities for the six months ended June 30, 2024 was $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 six months ended June 30, 2025 was $1.8 million, resulting from $1.8 million of proceeds received from the exercise of stock options.

Net cash provided by financing activities for the six months ended June 30, 2024 was $177.1 million, resulting from $178.4 million in proceeds received from the issuance and sale of shares of our Series C Preferred Stock, net of issuance costs, and $0.2 million of proceeds received from the exercise of stock options, partially offset by a $1.4 million payment of offering costs.

Material Cash Requirements for Known Contractual and Other Obligations

During the three months ended March 31, 2025, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

During the three months ended June 30, 2025, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Critical Accounting Policies and Significant Judgments and Estimates

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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.

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.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis