Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K (“Annual Report"). This discussion and analysis and other parts of this Annual Report contain forward-looking statements. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections of this Annual Report titled “Special Note Regarding Forward-Looking Statements and Market and Industry Data” and “Risk Factors,” under Part I, Item 1A.
We are a clinical-stage biopharmaceutical company pioneering the discovery and development of a new class of RNA-based therapeutics with the goal of upregulating gene expression and restoring healthy protein levels to treat a broad range of genetic diseases. Regulatory RNAs (“regRNAs”) play a central role in the regulation of every protein-coding gene by contributing to gene activation and suppression. Our approach is designed to amplify messenger RNA (“mRNA”) expression by harnessing the power of regRNAs that form localized complexes with transcription factors and regulate gene expression. Our proprietary RNA Actuating Platform, or RAP Platform, allows us to rapidly and systematically identify and characterize the active regulatory elements controlling every expressed gene and tens of thousands of druggable enhancer and promoter regRNA sequences that control protein-coding genes. Once a disease-associated target gene is identified, we apply our RAP Platform to identify the controlling regRNA and rapidly generate novel antisense oligonucleotide (“ASO”) candidates, which we also refer to as RNA Actuators. These ASOs are designed to bind to the identified regRNA and amplify the expression of the target gene in a specific and controllable way. We are currently focused on metabolic diseases and diseases of the central nervous system with validated disease biology, and we believe our RAP Platform allows us to address a broad range of rare and prevalent genetic diseases in which a modest increase in protein expression has the potential to be clinically meaningful.
Since our inception in 2015, we have focused substantially all of our resources primarily on developing our RAP Platform, identifying, developing and progressing our product candidates through preclinical and clinical development, organizing and staffing our company, research and development (“R&D”) activities, establishing and protecting our intellectual property portfolio, and raising capital. To date, we have primarily funded our operations with proceeds from the sale of convertible preferred stock and common stock, including in our initial public offering (“IPO”), which closed on October 15, 2024, as well as through revenues from our license and collaboration agreements. Through December 31, 2024, we have received gross proceeds of $72.4 million from our IPO and $188.3 million from the sale of our convertible preferred stock. In addition, through December 31, 2024, we have recognized $18.0 million in research collaboration and license revenue through our development and license agreements. Our ability to generate any product revenue and, in particular, our ability to generate product revenue sufficient to achieve profitability, will depend on the successful development and eventual commercialization of product candidates.
We have incurred significant operating losses and negative cash flows from operations since our inception. Our net losses were $51.8 million and $49.3 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $211.8 million. Substantially all of our net losses have resulted from costs incurred in connection with our R&D programs and, to a lesser extent, from general and administrative (“G&A”) costs associated with our operations. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and preclinical studies, our other R&D activities and capital expenditures, and the timing and amount of any milestone or royalty payments due under our existing or future license or collaboration agreements. In addition, following the closing of our IPO, we expect to incur additional costs associated with operating as a public company, including significant legal, audit, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and requirements of the Securities and Exchange Commission (“SEC”), director and officer liability insurance costs, investor and public relations costs, and other expenses that we did not incur as a private company. If we obtain regulatory approval for our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. We anticipate that our expenses will increase substantially if and as we:
•advance our lead product candidate, CMP-CPS-001, through clinical trials;
•finalize preclinical development for our program in SYNGAP1-related disorders;
•conduct preclinical studies and clinical trials for our GBA1 discovery program for the treatment of Parkinson’s Disease (“PD”) and any future product candidates we may develop;
•expand the capabilities of our RAP Platform and seek to identify and develop additional product candidates;
•seek marketing approvals for any product candidates that successfully complete clinical trials;
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•obtain, expand, maintain, defend and enforce our intellectual property portfolio;
•hire additional clinical, regulatory and scientific personnel;
•contract with third-party manufacturers for preclinical and clinical drug supply supporting any future product candidates we may develop, and commercial supply with respect to any such product candidates that receive regulatory approval;
•ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and
•add operational, legal, compliance, financial and management information systems and personnel to support our research, product development and future commercialization efforts, as well as to support our operations as a public company.
Because of the numerous risks and uncertainties associated with the development of therapeutics, we are unable to accurately predict the timing or amount of increased expenses and 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. 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 as planned and may be forced to reduce or terminate our operations.
We do not have any products approved for sale and have not generated any revenue from product sales. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our current or any future product candidates, which we expect will take a number of years or may never occur. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity offerings, debt financings, or other capital sources, including current and potential future collaborations, license agreements, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements or arrangements as, and when needed, we may delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise develop and market ourselves, or even cease operations.
As of December 31, 2024, we had cash and cash equivalents of $64.0 million. Based on our current operating plan, we estimate that our cash and cash equivalents as of December 31, 2024 will be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2026. However, we have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we currently expect. Our capital resources may not be sufficient to fund operations through at least the next twelve months from the date the accompanying audited consolidated financial statements as of December 31, 2024 are issued based on our expected cash needs, which raises substantial doubt about our ability to continue as a going concern. See the sections titled “—Liquidity and Capital Resources” and “Risk Factors—Risks Related to our Financial Position and Need for Additional Capital” included elsewhere in this Annual Report.
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for clinical supply as well as commercial supply if we obtain marketing approval. In addition, we rely on third parties to package, label, store, and distribute our clinical supply and we intend to rely on third parties to conduct the same activities for our commercial products if we obtain regulatory approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of product candidates and continued enhancement of our RAP Platform.
Collaboration and License Agreements
Below is a summary of the key terms and financial statement impact of certain of our license and collaboration agreements. For a more detailed description of these agreements, see the section titled “Business—License and Collaboration Agreements” included elsewhere in this Annual Report.
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In-License Agreements
Children’s Medical Center Corporation
In April 2018, we entered into a development and license agreement (the “CMCC Agreement”) with Children’s Medical Center Corporation (“CMCC”). The CMCC Agreement allows us to use CMCC’s proprietary intellectual property to conduct research, development and commercialization of products utilizing CMCC’s proprietary intellectual property in return for specified payments. The proprietary intellectual property licensed pursuant to this agreement is related to certain legacy programs we are not pursuing and which were subsequently sublicensed to Fulcrum Therapeutics, Inc. (“Fulcrum”), as described below. As part of the CMCC Agreement, we issued a total of 15,123 shares of common stock to CMCC and its affiliates based on the fair value of the common stock on the date of issuance.
We are obligated to pay potential development milestone payments under the terms of the CMCC Agreement of up to $7.7 million for the first licensed target, $3.9 million for the second licensed target and $1.9 million for the third licensed target upon the achievement of certain specified contingent events. If commercial sales of a licensed product commence, we will pay CMCC royalties at percentage rates ranging in the low- to mid-single digits on net sales of licensed products in countries where such product is protected by patent rights. We incurred de minimis royalties owed to CMCC for each of the years ended December 31, 2024 and 2023 under the CMCC Agreement and recorded the amounts in R&D expense in the consolidated statement of operations and comprehensive loss. Further, under the terms of the CMCC Agreement, we are required to pay 10% of any upfront payment received under a sublicensing agreement entered into prior to the initiation of the first investigational new drug study. As such, we recorded de minimis amounts for each of the years ended December 31, 2024 and 2023, which is presented in R&D expenses on the consolidated statements of operations and comprehensive loss. We reevaluate the likelihood of achieving future milestones at the end of each reporting period. As of December 31, 2024, we determined that the likelihood of achieving future milestones was not probable.
Whitehead Institute for Biomedical Research
In October 2019, we entered into a patent license agreement (as subsequently amended, the “Whitehead Agreement”) with the Whitehead Institute for Biomedical Research (“Whitehead”). Under the Whitehead Agreement, we were granted a worldwide, royalty-bearing, sublicensable license under certain patent rights owned or controlled by Whitehead. Upon entering into the Whitehead Agreement, we paid an initial $0.1 million license issuance fee, and paid de minimis additional fees in connection with subsequent amendments to the Whitehead Agreement. We are obligated to pay annual license maintenance fees for the term of the Whitehead Agreement. In addition, we are obligated to pay certain filing, prosecution and maintenance fees with respect to certain patent rights licensed.
We are also obligated to pay potential development milestone payments to Whitehead of up to $1.9 million upon the achievement of certain specified contingent events. In addition, if we successfully commercialize a product under the Whitehead Agreement, we are obligated to pay tiered royalties at percentage rates ranging from less than one percent to the mid-single digits of net sales or of running royalties of net sales, subject to specified reductions, until either the last-to-expire valid claim of a Whitehead patent covering the product or seven years after the first commercial sale, in each case on a product-by-product and country-by-country basis. We incurred fees of $0.3 million under the Whitehead Agreement during the year ended December 31, 2024. During the year ended December 31, 2023, the fees were de minimis. The fees are recorded in our R&D expense in our consolidated statements of operations and comprehensive loss.
Out-license Agreement
Fulcrum Therapeutics, Inc.
In July 2023, we entered into a license agreement (the “Fulcrum Agreement”) with Fulcrum. Under the Fulcrum Agreement, we granted an exclusive license related to our intellectual property (“IP”) and granted a non-exclusive sublicense for IP obtained through the CMCC Agreement. In exchange for the license rights, Fulcrum paid us a $0.4 million upfront payment. In the event that Fulcrum achieves certain development and commercial milestones, Fulcrum will be obligated to pay us one-time milestone payments ranging from $0.6 million to $20.0 million, depending on the product developed and milestone achieved. In addition, under the Fulcrum Agreement there are potential de minimis minimum annual royalty payments as well as sales-based royalties of up to the low-double digits upon commercialization.
During the year ended December 31, 2023, we recorded $0.4 million in license revenue pursuant to the Fulcrum Agreement and none in the year ended December 31, 2024.
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Collaborative Arrangement
Eli Lilly and Company
In July 2023, we executed a Material Transfer Agreement (as amended, the “MTA”), with Eli Lilly and Company (“Eli Lilly”). As part of the MTA, we and Eli Lilly agreed to perform R&D activities to generate up to three ASOs in accordance with a prescribed workplan. We and Eli Lilly are jointly overseeing the R&D activities under the MTA. In addition, both parties are exposed to the significant risks and potential rewards under the MTA. During each of the years ended December 31, 2024 and 2023, we recorded $0.5 million as a reduction in R&D expense in the consolidated statement of operations and comprehensive loss as a result of the earned R&D reimbursement from Eli Lilly. Additionally, we had an unbilled receivable of $0.1 million recorded within prepaid expenses and other current assets on our consolidated balance sheet as of December 31, 2023 and a de minimis deferred liability as of December 31, 2024.
Research and Collaboration Agreement
BioMarin Pharmaceutical, Inc.
In September 2024, we entered into a Collaboration and License Agreement (the “BioMarin Agreement”) with BioMarin Pharmaceutical Inc. (“BioMarin”), pursuant to which we and BioMarin agreed to collaborate with respect to the research and discovery of regulatory RNA-targeting ASOs using our proprietary RAP Platform to modulate the expression of two undisclosed genetic targets under two distinct programs. Under the terms of the BioMarin Agreement, BioMarin paid us an upfront, nonrefundable payment of $1.0 million, and will reimburse us for certain research activities. On a per-program basis, we will be eligible to receive up to $5.0 million in future contingent preclinical milestones, up to $75.0 million in future contingent development and regulatory milestones and up to $105.0 million in commercial sales milestones. We will be further eligible to receive tiered royalties at percentage rates ranging from low to high single digits of net sales, subject to specified reductions, until either the last-to-expire valid claim of a patent covering the product, ten years after the first commercial sale, or the expiration of any applicable regulatory exclusivity obtained for the product, in each case on a product-by-product and country-by-country basis. The agreement may be terminated in its entirety or on a program-by-program basis for convenience by BioMarin. The agreement may also be terminated by either us or BioMarin under certain other circumstances, including material breach, as set forth in the agreement. The notice periods for termination provisions range from 30 days to 270 days depending on the reason for termination. During the year ended December 31, 2024, we recognized $0.7 million in collaboration revenue under the BioMarin Agreement.
Components of Our Results of Operations
Revenue
For the years ended December 31, 2024 and 2023, we recognized $0.7 million and $0.4 million, respectively, in research and collaboration revenue through our collaboration and license agreements. We have not generated any revenue from the sale of products, however, and do not expect to generate any revenue from the sale of products in the foreseeable future, if at all. If our or our collaborators’ development efforts for product candidates and any future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales, payments from existing or potential future collaboration or license agreements with third parties, or any combination thereof.
Operating Expenses
Our operating expenses consist of R&D expenses and G&A expenses.
Research and Development Expenses
Our R&D expenses consist primarily of external and internal costs incurred in performing clinical and preclinical development activities as follows:
•external costs incurred under agreements with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), consultants and other third parties to conduct and support our clinical trials and preclinical studies;
•internal costs, including R&D personnel-related expenses such as salaries and stock-based compensation and benefits, as well as allocated facilities costs and depreciation; and
•costs associated with our licensing activities.
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We expense R&D costs as incurred. Certain third-party costs for R&D activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our management and scientific personnel, vendors and third-party service providers. Non-refundable advance payments for goods and services that will be used over time for R&D are deferred and capitalized as R&D prepaid expenses on our consolidated balance sheets. The capitalized amounts are recognized as an expense as the goods are delivered or as the related services are performed. Since our inception, substantially all of our external costs have been related to the development of product candidates. We use internal resources for platform development, early pipeline discovery, preclinical development, management of clinical development activities, technical operations and oversight of manufacturing partners. We do not track our R&D expenses on a program-by-program basis. Our third-party R&D expenses consist primarily of fees paid to outside consultants, CROs, CMOs and academic research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our other R&D costs are internal costs primarily associated with our discovery efforts, laboratory supplies, and facilities, including depreciation, that are allocated across multiple programs.
Although R&D activities are central to our business model, the successful development of any future product candidates is highly uncertain. There are numerous factors associated with the successful development of any product, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and longer duration of later-stage clinical trials. As a result, we expect our R&D expenses will increase substantially in connection with our ongoing and planned clinical and preclinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of our current product candidates and any future product candidates. Our future R&D expenses may vary significantly based on a wide variety of factors such as:
•the number and scope, rate of progress, expense and results of our clinical trials and preclinical studies and any future product candidates we may choose to pursue, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities;
•per patient trial costs;
•the number of trials required for approval;
•the number of sites included in the trials;
•the countries in which the trials are conducted;
•the length of time required to enroll eligible patients;
•the number of patients that participate in the trials;
•the number of doses that patients receive;
•the drop-out or discontinuation rates of patients;
•the potential additional safety monitoring requested by regulatory agencies;
•the duration of patient participation in the trials and follow-up;
•the cost and timing of manufacturing clinical supply;
•the extent of changes in government regulation and regulatory guidance;
•the timing, receipt, and terms of any approvals from applicable regulatory authorities; and
•the extent to which we establish additional collaboration, license, or other arrangements.
A change in the outcome of any of these variables with respect to the development of our product candidates or any future product candidates could significantly change the costs and timing associated with the development of that product candidate.
General and Administrative Expenses
G&A expenses consist primarily of personnel-related expenses such as salaries and stock-based compensation and benefits for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. G&A expenses also include legal fees relating to patent and corporate matters and professional fees paid for accounting,
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audit, consulting and tax services, as well as facilities-related costs not otherwise included in R&D expenses and other costs such as insurance costs and travel expenses.
We anticipate our G&A expenses will increase substantially in the future as we expand our operations, including increasing our headcount to support our continued R&D activities and continue to advance the development of our product candidates. We also anticipate we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a public company.
Other Income, Net
Other income, net primarily consists of interest income earned on our invested cash and cash equivalent balances and interest expense incurred on our finance lease and financing liabilities, as well as other insignificant amounts.
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023 (in thousands):
Revenue
Research and collaboration revenue $ 652 $ 350 $ 302
Operating expenses
Other income, net:
Research and Collaboration Revenue
Research and collaboration revenue was $0.7 million for the year ended December 31, 2024, compared to $0.4 million for the year ended December 31, 2023. The increase of $0.3 million was primarily due to $0.7 million of revenue recognized under the BioMarin Agreement in the year ended December 31, 2024, compared to $0.4 million of revenue recognized under the Fulcrum Agreement in the year ended December 31, 2023.
Research and Development Expenses
The following table summarizes our R&D expenses for the years ended December 31, 2024 and 2023 (in thousands):
R&D expenses were $38.8 million for the year ended December 31, 2024, compared to $40.6 million for the year ended December 31, 2023. The decrease of $1.8 million was primarily due to a decrease of $2.0 million in clinical and preclinical expenses primarily due to fewer external preclinical research activities, partially offset by an increase in clinical
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trial expenses. In addition, there was a $1.1 million decrease in personnel-related expenses primarily due to decreased average headcount. These decreases were partially offset by an increase of $0.8 million in professional and consulting fees associated with preclinical, regulatory and clinical affairs and continued development of our lead product candidate and $0.6 million in facilities and overhead expenses primarily due to increased repairs and maintenance as well as increased utilities and information technology expenses.
General and Administrative Expenses
The following table summarizes our G&A expenses for the years ended December 31, 2024 and 2023 (in thousands):
Facilities-related and overhead expense 1,600 1,538 62
G&A expenses were $14.9 million for the year ended December 31, 2024, compared to $11.6 million for the year ended December 31, 2023. The increase of $3.3 million was primarily due to an increase in personnel-related expenses of $1.9 million attributable to an increase of $0.8 million in stock-based compensation and $0.8 million in cash grants to offset the tax impact to certain executive officers associated with the forgiveness of promissory notes. In addition, professional and consulting fees increased by $1.2 million, primarily due to an increase in accounting and consulting fees as well as fees paid to maintain patents.
Other Income, Net
Other income, net was $1.3 million for the year ended December 31, 2024, compared to $2.6 million for the year ended December 31, 2023. The decrease of $1.3 million was primarily due to a decrease in interest income due to lower average invested cash equivalent balances in 2024.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations. We expect to incur significant expenses and operating losses in the foreseeable future as we advance the development of product candidates. Through December 31, 2024, we have primarily funded our operations with proceeds from the sale of our equity securities and revenues from our license and collaboration agreements. During the year ended December 31, 2024, we received aggregate gross proceeds of $72.4 million from the sale of shares of our equity securities. In addition, for the year ended December 31, 2024, we recognized $0.7 million in research and collaboration revenue through our collaboration and license agreements.
As of December 31, 2024, we had cash and cash equivalents of $64.0 million. Based on our current operating plan, we estimate that our cash and cash equivalents as of December 31, 2024 will be sufficient to fund our operating expenses and capital expenditure requirements into the second quarter of 2026. However, we have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we currently expect. Our capital resources may not be sufficient to fund operations through at least the next twelve months from the date the accompanying audited consolidated financial statements as of December 31, 2024 are issued based on our expected cash needs, which raises substantial doubt about our ability to continue as a going concern. In their report accompanying our audited financial statements for the years ended December 31, 2024 and 2023, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. Our future viability is dependent on our ability to generate cash from our operating activities or to raise additional capital to finance our operations. There is no assurance that we will succeed in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
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Future Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue our development of, seek regulatory approval for, and potentially commercialize our product candidates and seek to discover and develop additional product candidates, conduct our ongoing and planned clinical trials and preclinical studies, continue our R&D activities, hire additional personnel, expand and protect our intellectual property, and incur additional costs associated with being a public company.
The timing and amount of our funding requirements will depend on many factors, including:
•the scope, timing and progress of our ongoing CMP-CPS-001 clinical trial;
•the initiation, type, number, scope, progress, expansions, results, costs and timing of preclinical studies and clinical trials of our product candidates and any future product candidates we may choose to pursue, including the costs of modification to clinical development plans based on feedback that we may receive from regulatory authorities and any third-party products used as combination agents in our clinical trials;
•the costs and timing of manufacturing for our product candidates, including commercial manufacturing at sufficient scale, if any product candidate is approved;
•the costs, timing and outcome of regulatory meetings and reviews of product candidates or any future product candidates, including requirements of regulatory authorities in any additional jurisdictions in which we may seek approval and any future product candidates;
•the costs of obtaining, maintaining, enforcing and protecting our patents and other intellectual property and proprietary rights;
•our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal control over financial reporting;
•the costs associated with hiring additional personnel and consultants as our clinical and preclinical activities increase and as we operate as a public company;
•the timing and payment of milestone, royalty or other payments we must make or may receive pursuant to our existing and potential future license or collaboration agreements with third parties;
•the costs and timing of establishing or securing sales and marketing capabilities if our product candidates or any future product candidate is 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;
•patients’ ability and willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;
•the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and
•costs associated with any products or technologies that we may in-license or acquire.
Our operating plans and other demands for our cash resources may change because of many factors currently unknown to us, and we may need to seek additional funds sooner than planned.
We have no other committed sources of capital. Until such time, if ever, we can generate substantial product revenues, we expect to finance our operations through the sale of equity securities, debt financings, working capital lines of credit, strategic alliances and/or license arrangements, grant funding, interest income earned on invested cash balances or a combination of two or more of these sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms or at all. To the extent we raise additional capital through the sale of equity or convertible debt securities, investors’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, engaging in acquisition, merger or collaboration transactions, selling or licensing our assets, making capital expenditures, redeeming our stock, making certain investments or declaring dividends. If we raise additional funds through collaborations or license agreements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when
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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 product candidates that we would otherwise prefer to develop and market ourselves, or even cease operations.
Material Cash Requirements for Known Contractual and Other Obligations
Leases
We have entered into two non-cancellable operating leases for our office and lab space in Cambridge, Massachusetts and Boulder, Colorado, which expire on June 30, 2027 and September 30, 2028, respectively. See Note 7 to our consolidated financial statements for additional details related to our noncancellable operating leases.
Restricted Cash
In connection with our operating leases, we are required to maintain security deposits, which were issued in the form of letters of credit with a bank. See Note 2 to our consolidated financial statements for additional details related to our restricted cash.
Research and Development Expenses
We are continuing to invest in the clinical development of CMP-CPS-001 and have entered into contractual obligations with CROs relating to the performance of clinical trial services. Each contract shall continue until the completion of the trial. Our clinical trial costs are dependent on, among other things, the size and length of our clinical trial. We also incur R&D costs related to the enhancement of our existing product candidates.
Other Capital Requirements and Additional Royalty Obligations
We enter into agreements in the normal course of business with various vendors, which are generally cancellable with a contractually defined notice period. Payments due upon cancellation typically consist of payments for services provided or expenses incurred, as well as non-cancellable obligations of service providers, up to the date of cancellation.
The timing of when we will pay or receive royalty payments is uncertain as the payments are contingent upon future activities, including the successful discovery, development, regulatory approval and commercialization of product candidates.
Cash Flows
The following table provides information regarding our cash flows for the years ended December 31, 2024 and 2023 (in thousands):
Net cash used in operating activities $ (45,562) $ (44,155)
Net cash used in investing activities (441) (678)
Net cash provided by financing activities 71,662 301
Operating Activities
During the year ended December 31, 2024, operating activities used $45.6 million of cash, primarily resulting from our net loss of $51.8 million and net cash used in changes in our operating assets and liabilities of $1.3 million, partially offset by non-cash charges of $7.6 million, including depreciation and amortization, stock-based compensation expense and non-cash operating lease expense.
During the year ended December 31, 2023, operating activities used $44.2 million of cash, primarily resulting from our net loss of $49.3 million and net cash used in changes in our operating assets and liabilities of $1.3 million, partially offset by non-cash charges of $6.4 million, including stock-based compensation expense and non-cash operating lease expense.
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In each of the years ended December 31, 2024 and 2023, cash used in operations was primarily related to clinical and preclinical efforts, compensation and benefits for our employees, consulting and other professional fees, and rent for our Cambridge and Boulder leases.
Investing Activities
During the years ended December 31, 2024 and 2023, net cash used in investing activities was $0.4 million and $0.7 million, respectively, due to purchases of property and equipment.
Financing Activities
During the year ended December 31, 2024, net cash provided by financing activities was $71.7 million, consisting primarily of proceeds of $72.4 million from our IPO net of offering costs. These proceeds were partially offset primarily with financing liability and finance lease principal payments totaling $0.8 million.
During the year ended December 31, 2023, net cash provided by financing activities was $0.3 million, consisting primarily of net proceeds of $0.7 million from a financing obligation. These proceeds were partially offset by financing liability and finance lease principal payments totaling $0.6 million.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and the disclosure of our contingent liabilities. We base our estimates on historical experience, known trends and events and various other factors that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report, we believe the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses and Related Prepaid and Accrued Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our R&D expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our 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 the actual cost. We make estimates of our R&D expenses as of each balance sheet date based on facts and circumstances known to us at that time. The significant estimates in our R&D expenses include the costs incurred for services performed by our vendors in connection with services for which we have not yet been invoiced. We base our R&D expenses on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct R&D 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.
There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the R&D expense. 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 or prepaid expense accordingly. Advance payments for goods and services that will be used in future R&D activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from the amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
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Stock-Based Compensation
We periodically grant equity-based awards in the form of stock options and restricted stock awards to employees, directors and non-employees and record stock-based compensation expenses based on their estimated fair value at the grant date. We estimate the fair value of stock options using the Black-Scholes option-pricing model as of the grant date. Stock-based compensation expenses are recognized on the accompanying consolidated statement of operations and comprehensive loss on a straight-line basis over the requisite service period, which is typically the vesting period. Determining the appropriate fair value model and related input assumptions requires judgment.
The inputs to the Black-Scholes option-pricing model, excluding fair value of common stock discussed further below, include the following:
•the risk-free interest rate used is based on the published U.S. Department of Treasury interest rates in effect at the time of stock option grant for zero coupon U.S. Treasury notes with maturities approximating each grant’s expected term;
•the dividend yield is zero as we have not paid dividends and do not anticipate paying a cash dividend in the foreseeable future;
•the expected term for options granted is calculated using the simplified method and represents the average time that options are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award; and
•expected volatility is derived from the historical volatilities of a select group of representative public companies, for a look-back period commensurate with the expected term of the stock options, as we have no trading history of common stock.
See Note 10 to our consolidated financial statements for weighted-average assumptions used to estimate the fair value of the stock options granted during the years ended December 31, 2024 and 2023.
The intrinsic value of all outstanding options as of December 31, 2024 was $0.8 million, of which approximately $0.7 million was related to vested options and a de minimis amount was related to unvested options.
Determination of Fair Value of our Common Stock
Prior to our IPO, given the absence of a public trading market, the fair value of our common stock was determined by our board of directors at the time of each option grant, with input from management, considering contemporaneous independent third-party valuations of common stock, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant, including: the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions, and the superior rights, preferences, and privileges of the convertible preferred stock relative to the common stock at the time of each grant; the progress of our company’s R&D programs, including their stages of development, and our company’s business strategy; operating and financial performance; the lack of liquidity of the common stock and trends in the broader economy and biotechnology industry also impact the determination of the fair value of the common stock; the likelihood of achieving a liquidity event for our company’s security holders, such as an IPO or a sale of the company, taking into consideration prevailing market conditions; and the hiring of key personnel and the experience of management.
These independent third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Auditing and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “Guide”). The methodology to determine the fair value of our common stock included estimating the fair value of the enterprise using a market approach, which estimates the fair value of a company by including an estimation of the value of the business based on guideline public companies under several different scenarios. The Guide identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date.
In accordance with the Guide, we considered the following methods:
•Option Pricing Method (“OPM”). Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the convertible preferred stock and common stock are inferred by analyzing these options. This method is appropriate to use when the range of possible future outcomes is so difficult to predict that estimates would be highly speculative, and dissolution or liquidation is not imminent.
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•Probability-Weighted Expected Return Method (“PWERM”). The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.
•Hybrid Method. The Hybrid Method is a hybrid between PWERM and OPM, where the equity value is estimated based on probability-weighted value across multiple scenarios where the OPM is used to estimate the allocation of value within one or more of those scenarios.
Prior to our IPO, based on our early stage of development, the difficulty in predicting the range of specific outcomes (and their likelihood), and other relevant factors, we determined the OPM scenario was most appropriate for valuations through August 15, 2024, the date of the last grant prior to our IPO. Our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
•the prices at which we sold shares of convertible preferred stock and the superior rights and preferences of the convertible preferred stock relative to our common stock at the time of each grant;
•the progress of our R&D programs, including the status and results of clinical and preclinical studies for our product candidates;
•our stage of development and our business strategy;
•external market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry;
•our financial position, including cash on hand, and our historical and forecasted performance and operating results;
•the lack of an active public market for our common stock and our convertible preferred stock;
•the likelihood of achieving a liquidity event, such as an IPO or sale of our company considering prevailing market conditions; and
•the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.
The assumptions underlying these valuations were highly complex and subjective and represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could be materially different.
After our IPO, the fair value of our common stock is determined on the date of grant based on the closing price of our common stock as reported on the Nasdaq, the primary stock exchange on which our common stock is traded.
Recently Issued Accounting Standards
A description of recently issued accounting standards that may potentially impact our financial position, cash flows, and results of operations is included in Note 2 to our consolidated financial statements.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may remain an emerging growth company until December 31, 2029 or until such earlier time that we are no longer an emerging growth company. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved and an exemption from compliance with the requirements regarding the communication of critical audit matters in the auditor’s report on financial statements.
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. We have elected to avail ourselves of this extended transition period, which means that when a standard is issued or revised and it has different application dates for
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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. As a result of this election, our financial statements may not be comparable to those of companies that are not emerging growth companies.
We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; (ii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the prior three-year period; and (iv) December 31, 2029.
We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700.0 million and our annual revenue was 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 shares held by non-affiliates is less than $250.0 million; or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our shares 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to a smaller reporting company.
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CAMP4 Therapeutics Corporation
Item 8. Financial Statements
Index to Consolidated Financial Statements
Page
Financial statements for the years ended December 31, 2024 and 2023:
Report of Independent Registered Public Accounting Firm 121
Notes to consolidated financial statements 126
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CAMP4 Therapeutics Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CAMP4 Therapeutics Corporation (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and 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 consolidated 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 U.S. generally accepted accounting principles.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Boston, Massachusetts
March 27, 2025
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CAMP4 Therapeutics Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31,
Current assets:
Prepaid expenses and other current assets 2,344 1,633
Operating lease right-of-use assets 6,015 7,764
Finance lease right-of-use assets 427 748
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accrued expenses and other current liabilities 4,833 3,302
Deferred revenue 385 —
Operating lease liabilities, current portion 2,994 2,704
Finance lease liabilities, current portion 91 354
Financing liability, current portion 85 405
Operating lease liabilities, net of current portion 5,493 8,487
Finance lease liabilities, net of current portion 70 148
Financing liability, net of current portion — 85
Other long-term liabilities 2 2
Commitments and contingencies (Note 7)
Stockholders’ equity (deficit):
The accompanying notes are an integral part of these consolidated financial statements.
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CAMP4 Therapeutics Corporation
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except for share and per share data)
Year ended December 31,
Revenue
Research and collaboration revenue $ 652 $ 350
Operating expenses
Other income, net:
The accompanying notes are an integral part of these consolidated financial statements.
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CAMP4 Therapeutics Corporation
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
Shares Amount Shares Amount
Vesting of restricted common stock — — 60,919 — — — —
Stock-based compensation expense — — — — 2,907 — 2,907
Vesting of restricted common stock — — 58,300 — — — —
Stock-based compensation expense — — — — 4,032 — 4,032
The accompanying notes are an integral part of these consolidated financial statements.
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CAMP4 Therapeutics Corporation
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31,
Operating Activities
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,696 1,678
Stock-based compensation expense 4,032 2,907
Non-cash interest expense 83 92
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (711) (420)
Accrued expenses and other liabilities 1,531 (136)
Operating lease assets and liabilities (2,704) 402
Deferred revenue 385 —
Net cash used in operating activities (45,562) (44,155)
Investing Activities
Purchases of property and equipment (441) (678)
Net cash used in investing activities (441) (678)
Financing Activities
Proceeds from issuance of common stock, net of issuance costs 76,353 —
Proceeds from exercise of common stock options 113 185
Proceeds from financing obligation, net of issuance costs — 706
Principal payments on financing obligation (460) (268)
Principal payments on finance leases (364) (322)
Payments of deferred offering costs (3,980) —
Net cash provided by financing activities 71,662 301
Cash, cash equivalents and restricted cash at beginning of year 40,004 84,536
Cash, cash equivalents and restricted cash at end of period $ 65,663 $ 40,004
Supplemental disclosure of cash flow information:
Finance lease right-of-use asset converted to fixed asset $ 127 $ —
The accompanying notes are an integral part of these consolidated financial statements.
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CAMP4 Therapeutics Corporation
Notes to Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Description of Business
CAMP4 Therapeutics Corporation, formerly Marauder Therapeutics, Inc., and its subsidiary (collectively, the “Company”), is a clinical-stage biopharmaceutical company pioneering the discovery and development of a new class of RNA-based therapeutics with the goal of upregulating gene expression and restoring healthy protein levels to treat a broad range of genetic diseases. The Company is currently focusing on metabolic diseases and diseases of the central nervous system. The Company was organized in September 2015 and began operations in 2016.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity 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 standards of U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The Company’s consolidated financial statements include the accounts of CAMP4 Therapeutics Corporation and its wholly owned subsidiary, CAMP4 Therapeutics Pty Ltd (“CAMP4 AUS”), which was established on September 15, 2023. All intercompany balances and transactions have been eliminated in consolidation.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or balance sheets.
Reverse Stock Split
On October 3, 2024, the Company effected a one-for-11.2158 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s convertible preferred stock. 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 reverse stock split and adjustment of the preferred stock conversion ratios. The par value and the number of authorized shares of the convertible preferred stock and common stock were not adjusted in connection with the reverse stock split.
Initial Public Offering
On October 15, 2024, the Company completed its initial public offering (“IPO”), pursuant to which it issued and sold an aggregate of 6,820,000 shares of its common stock at a price to the public of $11.00 per share, resulting in net proceeds of $65.8 million, after deducting underwriting discounts and commissions of $5.3 million and other offering expenses of $4.0 million. In addition, on November 1, 2024, the Company received additional proceeds of $6.6 million, after deducting underwriting discounts and commissions of $0.5 million, pursuant to the partial exercise by the underwriters of their option to purchase additional shares in the IPO. Collectively, the Company received aggregate net proceeds of $72.4 million. Upon the closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into 11,648,582 shares of common stock (see Note 9).
In connection with the completion of its IPO, on October 15, 2024, the Company’s certificate of incorporation was amended and restated to authorize 175,000,000 shares of common stock, par value $0.0001 per share and 25,000,000 shares of preferred stock, par value of $0.0001 per share.
Liquidity and Going Concern
As of December 31, 2024, the Company had approximately $64.0 million of cash and cash equivalents and working capital of approximately $56.8 million. The Company has a relatively limited operating history, and the revenue and income potential of the Company’s business and market are unproven. The Company has experienced net losses and negative cash flows from operations since its inception and, as of December 31, 2024, the Company had an accumulated deficit of $211.8 million. During the year ended December 31, 2024, the Company incurred a net loss of $51.8 million and had negative cash flows from operations of $45.6 million. The Company will continue to incur significant costs and
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expenses related to its ongoing operations until it successfully develops, obtains regulatory approval for and gains market acceptance of a product candidate and achieves revenues adequate to support the Company’s operations.
From inception to December 31, 2024, the Company has funded its operations primarily with proceeds from the sale of convertible preferred stock and common stock, including in its IPO, as well as through revenues from its license and collaboration agreements. Based on its current operating plan, the Company estimates that its cash and cash equivalents as of December 31, 2024 will be sufficient to fund its operating expenses and capital expenditure requirements into the second quarter of 2026. However, the Company has based this estimate on assumptions that may prove to be wrong, and could deplete its capital resources sooner than it currently expects. The Company's capital resources may not be sufficient to fund operations through at least the next twelve months from the date that these audited consolidated financial statements as of December 31, 2024 are issued based on its expected cash needs, which raises substantial doubt about the Company's ability to continue as a going concern. As the Company continues to pursue its business plan, it expects to finance its operations through potential public or private equity offerings, debt financings or other capital sources, including current or potential future collaborations, licenses and other similar arrangements. However, there can be no assurance that any additional financing or strategic arrangements will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may be necessary to significantly reduce its scope of operations to reduce the current rate of spending through actions such as reductions in staff and the need to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself, which could have a material adverse effect on the Company’s business, results of operations or financial condition.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
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 assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures in the accompanying notes. The Company bases its estimates, assumptions and judgments on historical experience when available and on various factors that it believes to be reasonable under the circumstances as of the date of the accompanying consolidated financial statements, including the fair value of common stock prior to the Company’s IPO, stock-based compensation expense, accrued expenses, lease accounting and the recoverability of the Company’s net deferred tax assets and related valuation allowance. In addition, other factors may affect estimates, including the expected business and operational changes, the sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Actual results could differ materially from the estimates and assumptions used in the preparation of the accompanying consolidated financial statements under different assumptions or conditions.
Cash and Cash Equivalents
The Company considers all highly liquid investments and instruments with original maturities of 90 days or less that can be liquidated without prior notice or penalty to be cash equivalents. Cash equivalents primarily represent funds invested in readily available money market accounts. As of December 31, 2024 and 2023, the Company had cash and cash equivalents balances deposited at one major financial institution.
Restricted Cash
In connection with its operating leases, the Company is required to maintain security deposits totaling $1.5 million, which were issued in the form of letters of credit with a bank. As of December 31, 2024 and 2023, the Company held cash in this amount in separate restricted bank accounts as collateral for the letters of credit. The restricted cash balance is classified as long-term restricted cash on the accompanying consolidated balance sheets. In addition, the Company held less than $0.1 million in money market accounts as of each of December 31, 2024 and 2023 as collateral for the Company’s credit card obligation and increased letter of credit due to an amendment to the leases.
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets to the corresponding amounts shown in the consolidated statements of cash flows as of December 31, 2024 and 2023 (in thousands):
Total cash, cash equivalents and restricted cash $ 65,663 $ 40,004
Concentration of Credit Risks
Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company deposits cash and cash equivalents with high credit quality financial institutions in the United States. These deposits are held in checking and money market accounts and may, from time to time, exceed the federally insured amounts. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant risk in its cash and cash equivalents. The primary objectives of the Company’s investment portfolio are the preservation of capital and maintenance of liquidity.
The Company is subject to risks common to companies in the biopharmaceutical industry, including, but not limited to, risks related to the successful development and commercialization of product candidates, fluctuations in operating results and financial risks, the ability to successfully raise additional funds when needed, protection of proprietary rights and patent risks, patent litigation, compliance with government regulations, dependence on key personnel and collaboration partners, dependence on third-party manufacturers and competition from competing products in the marketplace.
Fair Value Measurements
The Company applies fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is measured as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. A framework is used for measuring fair value utilizing a three-tier hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are as follows:
Level 1—Observable inputs such as unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities the Company has the ability to access;
Level 2—Inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
Financial instruments are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the investment. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. The Company reviews the fair value hierarchy classification at each reporting date. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the years presented.
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Foreign Currency Remeasurement
The Company’s reporting currency and the functional currency of its foreign subsidiary, CAMP4 AUS, is the United States Dollar (“USD”). At the date a foreign currency denominated transaction is recognized, each asset, liability, revenue, expense, gain or loss arising from the transaction is measured initially in USD based on the exchange rate in effect at that date. Subsequently, at each balance sheet date, balances related to monetary assets and liabilities are adjusted to reflect the current exchange rate, which is the rate at which the related receivable or payable could be settled at that date.
Foreign exchange transaction gains and losses are included in other income, net in the accompanying consolidated statements of operations and comprehensive loss and were de minimis for the years ended December 31, 2024 and 2023.
Comprehensive Loss
There were no differences between net loss and comprehensive loss presented in the consolidated statements of operations for the years ended December 31, 2024 and 2023.
Property and Equipment, Net
Property and equipment, which are all located in the United States, are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:
Description Useful Life
Computer and software Three years
Laboratory equipment Five years
Furniture and fixtures Seven years
Leasehold improvements Shorter of asset life or remaining lease term
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, which consist of property and equipment, operating lease right-of-use (“ROU”) assets, and finance lease ROU assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset 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 the asset is impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. The Company recognized no impairment losses for the years ended December 31, 2024 and 2023.
Commitments and Contingencies
Contractual Commitments
The Company enters into contracts in the normal course of business with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), academic institutions and other third parties for preclinical and clinical research studies, testing and manufacturing services. These contracts generally do not contain minimum purchase commitments and are cancellable by the Company upon prior written notice, although purchase orders for preclinical materials are generally non-cancellable. Payments due upon cancellation consist primarily of payments for services provided or expenses incurred, including non-cancellable obligations from the Company’s service providers, up to the date of cancellation or upon the completion of a manufacturing run.
Indemnifications
Indemnification Obligations
The Company has entered into indemnification agreements with its officers and directors that require the Company to indemnify such individuals for certain events or occurrences while each such officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential future payments the Company could be required to make is, in many cases, unlimited. The Company has directors’ and officers’ liability insurance coverage that limits its exposure and enables the Company to recover a portion of any future amounts paid.
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The Company leases office and laboratory space under operating leases. The Company has standard indemnification arrangements under the leases that require it to indemnify the landlords against all costs, expenses, fines, suits, claims, demands, liabilities and actions directly resulting from any breach, violation or nonperformance of any covenant or condition of the Company’s leases.
In the ordinary course of its business, the Company enters into indemnification agreements with certain suppliers and business partners pursuant to which the Company has certain indemnification obligations limited to the costs, expenses, fines, suits, claims, demands, liabilities and actions directly resulting from the Company’s gross negligence or willful misconduct, and in certain instances, breaches, violations or nonperformance of covenants or conditions under the agreements.
As of December 31, 2024 and 2023, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
The Company is subject to the possibility of loss contingencies arising in the ordinary course of business. Management considers the likelihood of loss related to an asset, or the incurrence of a liability, as well as its ability to reasonably estimate the amount of the loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired, or a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.
Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising from the ordinary course of business. Management believes that there are no claims or actions pending against the Company currently, the ultimate disposition of which would have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows.
Leases
In accordance with ASC 842, Leases, the Company determines if an arrangement is or contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. The Company classifies leases at the lease commencement date as operating or finance leases and records a ROU asset and a lease liability on the consolidated balance sheet for all leases with an initial lease term of greater than 12 months. Leases with an initial term of 12 months or less are not recorded in the balance sheet, but payments are recognized as expense on a straight-line basis over the lease term.
A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases.
The Company enters into contracts that contain both lease and non-lease components. Non-lease components may include maintenance, utilities and other operating costs. The Company combines the lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities or maintenance costs, are not included in the measurement of ROU assets and lease liabilities, but rather are expensed when the event determining the amount of variable consideration to be paid occurs.
Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate implicit is not readily determinable, the Company utilizes an estimate of its incremental borrowing rate based upon the available information at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued lease payments. Operating lease assets are expensed using the straight-line method as an operating expense over the lease term. Finance lease assets are amortized to depreciation expense using the straight-line method. Finance lease payments are bifurcated into (i) a portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance liability associated with the lease.
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Certain of the Company’s leases provide a lease incentive in the form of reimbursable leasehold improvements. Due to the unpredictability of the payout of leasehold improvement reimbursements, the Company recognizes a reduction to the ROU asset and the lease liability once it has incurred costs that qualify as reimbursable by the lessor. The reduction to the ROU asset is recognized prospectively over the remainder of the lease term.
Certain of the Company’s leases include options to extend or terminate the lease. The amounts determined for the Company’s ROU assets and lease liabilities generally do not assume that renewal options or early-termination provisions, if any, are exercised, unless it is reasonably certain that the Company will exercise such options.
In addition, the Company examines other contracts with suppliers, vendors and outside parties to identify whether such contracts contain an embedded lease and, as applicable, records such embedded leases in accordance with ASC 842, Leases.
Financing Obligation (Failed Sale-Leaseback)
In accordance with ASC 842, Leases, for potential sale-leaseback transactions, the Company assesses the contract to identify if a sale occurred in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Sale-and-leaseback transactions occur when the Company sells assets to a third-party and simultaneously leases them back. The resulting leases that qualify for sale-and-leaseback accounting are evaluated and accounted for as operating leases. A transaction that does not qualify for sale-and-leaseback accounting as a result of finance lease classification or the failure to meet certain revenue recognition criteria is accounted for as a financing transaction. For a financing transaction, the Company will retain the assets sold within Property, plant and equipment, net and record a financing obligation equal to the amount of cash proceeds received. Rental payments under such transactions are recognized as a reduction of the financing obligation and as interest expense using an effective interest method. To date, the Company has entered into one failed sale-leaseback transaction. See additional discussion in Note 7. Commitments and Contingencies.
Revenue Recognition and Accounting for Collaboration Agreements
Revenue from Contracts with Customers
The Company recognizes revenue in accordance with ASC 606. The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company uses judgment to determine: (a) the performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; and (c) the recognition of revenue as services are performed under step (v) above. The Company also uses judgment to determine whether development milestones or other variable consideration except for royalties and sales-based milestones, should be included in the transaction price as described further below.
The Company applies the five-step model to contracts when the arrangement is not a collaboration pursuant to ASC Topic 808, Collaborative Arrangements (“ASC 808”), and it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Collaborative Agreements
The Company analyzes its collaboration agreements to assess whether they are within the scope of ASC 808 by determining whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company assesses whether aspects of the arrangement between the Company and the collaboration partner are within the scope of other accounting literature. If the Company concludes that some or all aspects of the arrangement represent a transaction with a customer, the Company
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accounts for those aspects of the arrangement within the scope of ASC 606. If the Company concludes that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, the Company recognizes the Company’s share of the allocation of the shared costs incurred with respect to the jointly conducted activities as a component of the related expense in the period incurred.
Research and Development Expenses
Research and development (“R&D”) expenses are recorded to operating expenses when incurred. The Company’s R&D expenses consist primarily of costs incurred in performing R&D activities, including personnel-related expenses such as salaries, stock-based compensation and benefits, facilities costs, depreciation and external costs of outside vendors engaged to conduct clinical and preclinical development activities and to manufacture a product candidate. The Company accrues expenses related to development activities performed by third parties based on an evaluation of services received and efforts expended pursuant to the terms of the contractual arrangements. Payments under some of these contracts depend on preclinical trial milestones. Non-refundable advance payments for goods and services that will be used over time for R&D are deferred and capitalized as R&D prepaid expenses on the Company’s consolidated balance sheets. The capitalized amounts are recognized as an expense as the goods are delivered or as the related services are performed. In accruing service fees, the Company estimates the 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 the estimate, the Company will adjust the accrual or prepaid expense accordingly. Costs to acquire technologies to be used in R&D that have not reached technological feasibility and have no alternative future use are also expensed as incurred.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist primarily of personnel-related expenses, including salaries, bonuses, benefits, travel and stock-based compensation expenses for employees in executive, accounting and finance, business development, human resources, legal, and other administrative functions. Other significant G&A expenses include allocated facility-related costs, legal fees relating to corporate and intellectual property matters, professional fees for accounting, audit and tax services, consulting fees and insurance costs. G&A costs are expensed as incurred.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts are classified as G&A expenses.
Offering Costs
The Company complies with the requirements of ASC 340, Other Assets and Deferred Costs, with regards to offering costs. Prior to the completion of an offering of common stock, direct offering costs are capitalized as deferred offering costs. The deferred offering costs are charged to additional paid-in capital for offerings of common stock or as a reduction in the carrying value of preferred stock for offerings of preferred stock. As of December 31, 2024 and 2023, the Company had no deferred offering costs recorded. During the year ended December 31, 2024, the Company recorded $4.0 million of offering costs related to the issuance of common stock in the IPO and recognized this amount as a reduction in the carrying value of the common stock issued in the IPO.
Stock-Based Compensation
The Company periodically grants equity-based awards in the form of stock options and restricted stock to employees, directors and non-employees and records stock-based compensation expenses based on their estimated fair value at the grant date. The Company estimates the fair value of stock options using the Black-Scholes option-pricing model as of the grant date. Stock-based compensation expenses are recognized in the accompanying consolidated statements of operations and comprehensive loss on a straight-line basis over the requisite service period, which is typically the vesting period. Determining the appropriate fair value model and related input assumptions requires judgment.
Prior to the IPO, the fair value of the Company’s common stock was determined by the Company’s Board of Directors (the “Board”) at the time of each option grant by considering several objective and subjective factors. These factors included the valuation of a select group of representative public companies within the industry that focus on biotechnology that the Board believed was comparable to the Company’s operations; operating and financial performance; the lack of liquidity of the common stock and trends in the broader economy and biotechnology industry also impact the determination of the fair value of the common stock. For awards granted after the Company’s IPO, the grant date fair value of common stock was determined by using the closing price per share of the Company’s common stock.
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The other inputs to the Black-Scholes option-pricing model include the following:
•The risk-free interest rate used is based on the published U.S. Department of Treasury interest rates in effect at the time of stock option grant for zero coupon U.S. Treasury notes with maturities approximating each grant’s expected term;
•The dividend yield is zero as the Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future;
•The expected term for options granted is calculated using the simplified method and represents the average time that options are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award; and
•Expected volatility is derived from the historical volatility of a select group of representative companies, for a look-back period commensurate with the expected term of the stock options, as the Company has limited trading history of common stock.
The Company recognizes forfeitures related to stock-based compensation awards as they occur.
The Company classifies stock-based compensation expense in the consolidated statement of operations and comprehensive loss in the same way the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). ASC 740 requires the use of the asset and liability method of accounting for income taxes. The current or deferred tax consequences of a transaction are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable currently or in future years. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statements and tax basis of assets and liabilities and expected future tax consequences of events that have been included in the consolidated financial statements or tax returns using enacted tax rates in effect for the year in which the differences are expected to reverse. Under this method, a valuation allowance is used to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets may not be realized. Management evaluates the recoverability of deferred taxes and the adequacy of the valuation allowance at each reporting period (see Note 12, Income Taxes).
The Company follows the provisions of ASC 740 relative to accounting for uncertain tax positions. These provisions provide guidance on the recognition, de-recognition and measurement of potential tax benefits associated with tax positions. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company had no reserves related to uncertain tax positions as of December 31, 2024 and 2023. As applicable, the Company recognizes accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2024 and 2023, the Company did not accrue any potential interest or penalties.
The Company is required to file federal and state income tax returns in the U.S. and foreign income tax returns in Australia. The preparation of tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company.
The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities for the tax years ended December 31, 2020 through December 31, 2024. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.
Classification of Convertible Preferred Stock
The Company’s convertible preferred stock was classified as temporary equity in the accompanying consolidated balance sheet as of December 31, 2023 and was excluded from stockholders’ equity (deficit) as the potential redemption of such stock was outside the Company’s control. The convertible preferred stock was not redeemable except for in the event of a liquidation, dissolution or winding up of the Company. The Company did not accrete the carrying values of the preferred stock to the redemption values since the occurrence of these events was not considered probable.
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Net Loss Per Share Attributable to Common Stockholders
The Company determined all of its convertible preferred stock qualified as participating securities, as defined in ASC 260, Earnings Per Share (“ASC 260”). Under ASC 260, securities are considered participating securities if the securities may participate in undistributed earnings with common stock, whether that participation is conditioned upon the occurrence of a specified event or not. In accordance with ASC 260, a company is required to use the two-class method when computing net income (loss) per share when a company has securities that qualify as participating securities. The two-class method is an earnings allocation formula that determines net income (loss) per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Diluted net loss per share for the Company’s common stock is computed using the more dilutive of the two-class method or the if-converted method.
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss per share attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding options to purchase common stock, unvested restricted stock awards, and shares of convertible preferred stock are considered potential dilutive common shares. The Company has generated a net loss in all periods presented, and therefore the basic and diluted net loss per share attributable to common stockholders are the same as the inclusion of the potentially dilutive securities would be anti-dilutive.
Emerging Growth Company Status
The Company is an emerging growth company (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not an EGC. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s consolidated financial statements may not be comparable to companies that comply with public company FASB standards’ effective dates.
Recently Adopted Accounting Pronouncements
In November 2023, FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The standard expands reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit (referred to as the “significant expense principle”). The Company has adopted this standard for the fiscal year 2024 annual financial statements and has applied this standard retrospectively for all prior periods presented in the financial statements (see Note 13).
Recently Issued Accounting Standards
Accounting standards not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (“Topic 740”): Improvements to Income TaxDisclosures. The guidance includes the requirement that public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative 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). It also requires that all entities disclose, on an annual basis, the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received) and requires that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. Lastly, the guidance eliminates the requirement for all entities to disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months or make a statement that an estimate of the range cannot be made. For public business entities, the guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual
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consolidated financial statements that have not yet been issued or made available for issuance. The guidance should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the impact that this guidance may have on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The standard requires that public business entities disclose additional information about specific expense categories in the notes to financial statements for interim and annual reporting periods. For public business entities, the guidance is effective for interim and annual periods beginning after December 15, 2026. Early adoption is permitted for annual consolidated financial statements that have not yet been issued or made available for issuance. The guidance may be applied on a prospective basis or retrospectively for all prior periods presented in the financial statements. The Company is currently evaluating the impact that this guidance may have on its consolidated financial statements.
3. Fair Value Measurements
The following tables present the financial instruments carried at fair value on a recurring basis as of December 31, 2024 and 2023 (in thousands):
Level 1 Level 2 Level 3 Total
Assets
Level 1 Level 2 Level 3 Total
Assets
The carrying amounts reflected in the consolidated balance sheet for prepaid expenses and other current assets, accounts payable and accrued expenses and other liabilities are shown at their historical values which approximate their fair values.
4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of December 31, 2024 and 2023 (in thousands):
Software and subscriptions expense 337 287
Variable lease expenses 118 105
Federal R&D tax credit receivable 108 442
Prepaid expenses and other current assets $ 2,344 $ 1,633
5. Property and Equipment, Net
Property and equipment, net consisted of the following as of December 31, 2024 and 2023 (in thousands):
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Less: accumulated depreciation and amortization (6,231) (4,505)
Property and equipment, net $ 3,858 $ 4,797
During the year ended December 31, 2024, title of a finance lease ROU asset for laboratory equipment with cost totaling $0.3 million transferred to the Company. The laboratory equipment had accumulated depreciation of $0.2 million. The Company incurred depreciation and amortization expense of $1.5 million and $1.6 million for the years ended December 31, 2024 and 2023, respectively. Depreciation and amortization expense for the years ended December 31, 2024 and 2023 includes $0.2 million and $0.1 million of finance lease ROU asset amortization, respectively (see Note 7).
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of December 31, 2024 and 2023 (in thousands):
Employee compensation and benefits $ 3,111 $ 1,937
7. Commitments and Contingencies
Operating Leases
The Company currently leases approximately 30,000 square feet of office space and laboratory space in Cambridge, Massachusetts (the “Cambridge Lease”) and approximately 5,300 square feet of office and lab space in Boulder, Colorado (the “Boulder Lease”). The Cambridge Lease expires on June 30, 2027. The Cambridge Lease provided a lease incentive in the form of reimbursable leasehold improvements of up to $3.6 million. As of December 31, 2024 and 2023, the Company had capitalized $4.5 million of leasehold improvement costs under this lease. $3.6 million was reimbursed through the lease incentive of which the final $2.7 million was received during the year ended December 31, 2023. Amounts received for lease incentives were included in the changes in operating lease assets and liabilities line in the consolidated statement of cash flows. As of December 31, 2024, the Cambridge Lease accounted for $4.9 million of operating lease ROU assets, $2.7 million of current operating lease liabilities and $4.6 million of non-current operating lease liabilities.
The Boulder Lease is a five-year lease that commenced on September 1, 2023 and expires on September 30, 2028. As the rate implicit for the Boulder Lease was not readily determinable, the Company used its incremental borrowing rate of 7.12% as of the commencement date. At commencement of the Boulder Lease, the Company recorded $1.4 million of operating ROU assets, $0.2 million of current operating lease liabilities and $1.2 million of non-current operating lease liabilities. As of December 31, 2024, the Boulder Lease accounted for $1.1 million of operating lease ROU assets, $0.3 million of current operating lease liabilities and $0.9 million of non-current operating lease liabilities.
The table below summarizes the Company’s operating lease costs for the years ended December 31, 2024 and 2023 (in thousands except for lease terms and borrowing rates):
Lease cost
Short-term lease cost 54 119
Other information
Operating cash flows used for operating leases $ 3,390 $ 601
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Weighted-average remaining lease term in years 2.7 3.7
Weighted-average incremental borrowing rate 6.72 % 6.72 %
Maturities of operating lease liabilities as of December 31, 2024 were as follows (in thousands):
Total lease payment 9,256
Less: amount representing imputed interest (769)
Total future minimum lease obligations $ 8,487
Finance Leases
The Company leases certain specialized lab equipment under several finance lease agreements with maturities ranging from April 2025 to November 2028. As of December 31, 2024, these finance leases account for $0.4 million of finance lease ROU assets, $0.1 million of current finance lease liabilities and $0.1 million of non-current finance lease liabilities.
The table below summarizes the Company’s finance lease costs for the years ended December 31, 2024 and 2023 (in thousands except for lease terms and borrowing rates):
Finance lease cost
Amortization of ROU assets Depreciation and amortization $ 189 $ 146
Interest on lease liabilities Other Expense 26 33
Total finance lease cost $ 215 $ 179
Other information
Operating cash flows used for finance leases $ 364 $ 322
Weighted-average remaining lease term in years 2.5 1.8
Weighted-average incremental borrowing rate 8.28 % 8.14 %
Maturities of finance lease liabilities as of December 31, 2024 were as follows (in thousands):
Total lease payment 173
Less: amount representing imputed interest (12)
Total future minimum lease obligations $ 161
Financing Obligation
In April 2023, the Company (seller-lessee) sold certain laboratory equipment to an unrelated third-party (buyer-lessor) and simultaneously entered into a 26-month lease agreement for the laboratory equipment with the buyer-lessor through June 2025. The lease requires monthly payments of less than $0.1 million and provides a fixed price repurchase option at the end of the lease term of $0.1 million.
The repurchase option precludes accounting for the transfer of the asset to the buyer-lessor as a sale under ASC 842 since the exercise price of the repurchase option is fixed and, therefore, is not the fair value of the asset on the exercise date of the option. Thus, the agreement is considered a financing transaction (i.e., failed sale-leaseback) as the Company is reasonably certain to exercise the repurchase option at the end of the lease. The net proceeds received amounted to $0.7 million, which is recorded as a financing liability in the Company’s consolidated balance sheet. The Company imputes
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interest at a rate of 0.86% monthly. For each of the years ended December 31, 2024 and 2023, the Company recorded less than $0.1 million of interest expense related to this financing transaction in other expense in the consolidated statement of operations and comprehensive loss.
Legal Proceedings
A liability for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources is recorded in the consolidated financial statements if it is determined that it is probable that a loss has been incurred and the amount (or range) of the loss can be reasonably estimated. There are no matters currently outstanding for which any liabilities have been accrued or require disclosure.
8. Collaboration and License Agreements
In-License Agreements
Children’s Medical Center Corporation
In April 2018, the Company entered into a development and license agreement (the “CMCC Agreement”) with Children’s Medical Center Corporation (“CMCC”). The CMCC Agreement allows the Company to use CMCC’s proprietary intellectual property to conduct research, development and commercialization of products utilizing CMCC’s proprietary intellectual property in return for specified payments. The proprietary intellectual property licensed pursuant to this agreement is related to certain legacy programs the Company is not pursuing which were subsequently sublicensed to Fulcrum Therapeutics, Inc. (“Fulcrum”), as described below. As part of the CMCC Agreement, the Company issued a total of 15,123 shares of common stock to CMCC and its affiliates based on the fair value of the common stock on the date of issuance.
The Company is obligated to pay potential development milestone payments under the terms of the CMCC Agreement of up to $7.7 million for the first licensed target, $3.9 million for the second licensed target and $1.9 million for the third licensed target upon the achievement of certain specified contingent events. If commercial sales of a licensed product commence, the Company will pay CMCC royalties at percentage rates ranging in the low- to mid-single digits on net sales of licensed products in countries where such product is protected by patent rights. The Company incurred de minimis royalties owed to CMCC for each of the years ended December 31, 2024 and 2023 under the CMCC Agreement and recorded the amounts in R&D expense in the consolidated statement of operations and comprehensive loss. Further, under the terms of the CMCC Agreement, the Company is required to pay ten percent of any upfront payment received under a sublicensing agreement entered into prior to the initiation of the first investigational new drug study. As such, the Company recorded de minimis amounts for each of the years ended December 31, 2024 and 2023, which is presented in R&D expenses on the consolidated statements of operations and comprehensive loss. The Company re-evaluates the likelihood of achieving future milestones at the end of each reporting period. As of December 31, 2024, the Company determined that the likelihood of achieving future milestones was not probable.
Whitehead Institute for Biomedical Research
In October 2019, the Company entered into a patent license agreement (as subsequently amended, the “Whitehead Agreement”), with the Whitehead Institute for Biomedical Research, (“Whitehead”). Under the Whitehead Agreement, the Company was granted a worldwide, royalty-bearing, sublicensable license under certain patent rights owned or controlled by Whitehead. Upon entering into the Whitehead Agreement, the Company paid an initial $0.1 million license issuance fee, and paid de minimis additional fees in connection with subsequent amendments to the Whitehead Agreement. The Company is obligated to pay annual license maintenance fees for the term of the Whitehead Agreement. In addition, the Company is obligated to pay certain filing, prosecution and maintenance fees with respect to certain patent rights licensed.
The Company is also obligated to pay potential development milestone payments to Whitehead of up to $1.9 million upon the achievement of certain specified contingent events. In addition, if the Company successfully commercializes a product under the Whitehead Agreement, it is obligated to pay tiered royalties at percentage rates ranging from less than one percent to the mid-single digits of net sales or of running royalties of net sales, subject to specified reductions, until either the last-to-expire valid claim of a Whitehead patent covering the product or seven years after the first commercial sale, in each case on a product-by-product and country-by-country basis.
The Company incurred fees of $0.3 million under the Whitehead Agreement during the year ended December 31, 2024. During the year ended December 31, 2023, the fees were de minimis. These fees are recorded in R&D expense in the Company’s consolidated statement of operations and comprehensive loss.
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Out-license Agreement
Fulcrum Therapeutics, Inc.
In July 2023, the Company entered into a license agreement (the “Fulcrum Agreement”) with Fulcrum. Under the Fulcrum Agreement, the Company granted an exclusive license related to the Company’s intellectual property (“IP”) and granted a non-exclusive sublicense for IP obtained through the CMCC Agreement. In exchange for the license rights, Fulcrum paid the Company a $0.4 million upfront payment. In the event that Fulcrum achieves certain development and commercial milestones, Fulcrum will be obligated to pay the Company one-time milestone payments ranging from $0.6 million to $20.0 million depending on the product and milestone achieved. In addition, under the Fulcrum Agreement there are potential de minimis minimum annual royalty payments as well as sales-based royalties of up to the low-double digits upon commercialization.
The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Fulcrum, is a customer. In accordance with ASC 606, the Company determined that there is one performance obligation in the Fulcrum Agreement, consisting of the exclusive and non-exclusive license rights granted to Fulcrum. The transaction price was comprised of the fixed consideration of $0.4 million and was recognized upon transfer of control of the licenses at a point in time upon contract execution. The arrangement includes significant variable consideration primarily in the form of milestone payments, which is fully constrained at the inception of the contract. All variable consideration is remeasured and reassessed each reporting period. As of and for the years ended December 31, 2024 and 2023, the Company determined the variable consideration was fully constrained.
The sales-based royalty fee is considered variable consideration and will be recognized as revenue as such sales occur. The sales-based royalty fee qualifies for the royalty constraint exception and does not require an estimate of the future transaction price.
During the year ended December 31, 2023, the Company recorded $0.4 million in license revenue pursuant to the Fulcrum Agreement and none in the year ended December 31, 2024.
Collaborative Arrangement
Eli Lilly and Company
In July 2023, the Company executed a Material Transfer Agreement (as amended, the “MTA”) with Eli Lilly and Company (“Eli Lilly”). As part of the MTA, the Company and Eli Lilly agreed to perform R&D activities to generate up to three antisense oligonucleotides (“ASOs”) in accordance with a prescribed workplan. The Company evaluated the MTA under ASC 808 and concluded that it is a collaboration arrangement. The Company and Eli Lilly are jointly overseeing the R&D activities under the MTA. In addition, both parties are exposed to significant risks and potential rewards under the MTA. During each of the years ended December 31, 2024 and 2023, the Company recorded $0.5 million as a reduction in R&D expense in the consolidated statement of operations and comprehensive loss as a result of the earned R&D reimbursement from Eli Lilly. Additionally, the Company had an unbilled receivable of $0.1 million recorded within prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2023 and a de minimis deferred liability as of December 31, 2024.
Research and Collaboration Arrangement
BioMarin Pharmaceutical Inc.
In September 2024, the Company entered into a Collaboration and License Agreement (the “BioMarin Agreement”) with BioMarin Pharmaceutical Inc. (“BioMarin”). Under the terms of the BioMarin Agreement, BioMarin paid the Company an upfront, nonrefundable payment of $1.0 million, and will reimburse the Company for certain research activities. On a per-program basis, the Company will be eligible to receive up to $5.0 million in future contingent preclinical milestones, up to $75.0 million in future contingent development and regulatory milestones and up to $105.0 million in commercial sales milestones. The Company will be further eligible to receive tiered royalties at percentage rates ranging from low to high single digits of net sales, subject to specified reductions, until either the last-to-expire valid claim of a patent covering the product, ten years after the first commercial sale, or the expiration of any applicable regulatory exclusivity obtained for the product, in each case on a product-by-product and country-by-country basis. The agreement may be terminated in its entirety or on a program-by-program basis for convenience by BioMarin. The agreement may also be terminated by either the Company or BioMarin under certain other circumstances, including material breach, as set forth in the agreement. The notice periods for termination provisions range from 30 days to 270 days depending on the reason for termination.
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The Company assessed this arrangement in accordance with ASC 606 and concluded that BioMarin is a customer and there is one performance obligation, which includes performance of R&D activities in accordance with a contractual work plan, participation in a joint steering committee, the grant of an exclusive license to BioMarin, the grant of a non-exclusive license to the data resulting from performance of the R&D activities, and providing quarterly progress reports. The transaction price was determined to be fixed consideration of $3.8 million, comprised of $1.0 million upfront consideration and expected $2.8 million reimbursable R&D expenses, and will be recognized over time based upon a cost-to-cost method. Any deferred revenue recorded will be classified as short-term. The Company believes this work will be completed within 12 months of contract execution and thus, the related revenue will be recognized over that period.
The arrangement includes significant variable consideration primarily in the form of milestone payments, which is fully constrained at the inception of the contract. All variable consideration is remeasured and reassessed each reporting period. As of and for the year ended December 31, 2024, the Company determined the variable consideration was fully constrained.
During the year ended December 31, 2024, the Company recognized $0.7 million in collaboration revenue under the BioMarin Agreement. Additionally, the Company had deferred revenue of $0.3 million recorded on the consolidated balance sheet as of December 31, 2024.
9. Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Convertible Preferred Stock
Upon the closing of the IPO, all of the currently outstanding convertible preferred stock automatically converted into 11,648,582 shares of common stock. As of December 31, 2023, the Company’s convertible preferred stock consisted of the following (in thousands, except share amounts):
Common and Preferred Stock
The Company’s amended and restated certificate of incorporation authorizes the issuance of up to 175,000,000 shares of $0.0001 par value common stock and up to 25,000,000 shares of $0.0001 par value undesignated preferred stock. The Board may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, and number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on the Company’s common stock, diluting the voting power of the Company’s common stock, impairing the liquidation rights of the Company’s common stock, or delaying or preventing a change in control. As of December 31, 2024, no shares of preferred stock were outstanding.
Each share of common stock entitles the holder to one vote, together with the holders of any preferred stock, on all matters submitted to the stockholders for a vote. Common stockholders are also entitled to receive dividends. As of December 31, 2024, no cash dividends have been declared or paid.
As of December 31, 2024, the Company has reserved the following shares of common stock for future issuance:
Restricted stock vesting 15,943
Warrant outstanding 142
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10. Stock-Based Compensation
2024 Equity Incentive Plan
In October 2024, the Company adopted the 2024 Equity Incentive Plan (the “2024 Plan”), which became effective in connection with the Company’s IPO. The 2024 Plan provides for the grant of stock options, stock appreciation rights, restricted and unrestricted stock awards, restricted stock unit awards, and other stock-based awards to employees, directors, and non-employee service providers of the Company.
Awards granted under the 2024 Plan expire no later than ten years from the date of grant. The price of stock options shall not be less than 100% of the estimated fair value on the date of grant and typically vest over a four-year period, although awards may be granted with different vesting terms. The 2024 Plan initially reserved 2,143,039 shares of common stock for the issuance of future awards and provides for an automatic annual increase in the number of shares of common stock reserved for future issuance by the lesser of (i) 5% of the number of shares of the Company’s common stock outstanding as of the close of business on the immediately preceding December 31 and (ii) the number of shares determined by the Company’s Board of Directors on or prior to such date for such year. As of December 31, 2024, there were 2,079,045 shares of common stock reserved and available for issuance pursuant to the 2024 Plan.
2024 Employee Stock Purchase Plan
In October 2024, the Company adopted the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), which became effective in connection with the Company’s IPO. The 2024 ESPP initially reserved 214,303 shares of common stock for the issuance of future awards and provides for an automatic annual increase in the number of shares of common stock reserved for future issuance by the lesser of (1) 1% of the number of shares of the Company’s common stock outstanding as of the close of business on the immediately preceding December 31 and (2) the number of shares determined by the Company’s Board of Directors on or prior to such date for such year. As of December 31, 2024, there were 214,303 shares of common stock reserved and available for issuance pursuant to the 2024 ESPP.
The 2024 ESPP permits eligible employees to enroll in six-month offering periods. Participants may purchase shares of the Company’s common stock, through payroll deductions, at a price equal to 85% of the fair market value of the common stock on the first or last day of the applicable offering period, whichever is lower. Purchase dates under the 2024 ESPP occur on or about January 1 and July 1 each year. As of December 31, 2024, there have been no offering periods.
2016 Equity Incentive Plan
In 2016, the Company adopted the Marauder Therapeutics, Inc. 2016 Stock Option and Grant Plan (the “2016 Plan”) that provided for the grant of stock options, restricted stock units, and other stock-based awards to employees, directors, and non-employee service providers of the Company. The 2016 Plan was suspended in connection with the Company’s IPO and no further grants will be made. The 2016 Plan continues to govern the terms and conditions of outstanding awards granted under the 2016 Plan.
Stock Option Activity
The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The weighted-average assumptions used to estimate the fair value of the stock options granted during the years ended December 31, 2024 and 2023 were as follows:
Risk-free interest rate 3.98% 3.84%
Expected dividend yield 0% 0%
Expected term (in years) 5.99 5.97
The weighted average fair value of stock options granted during the years ended December 31, 2024 and 2023 was $8.09 and $6.73 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $6.6 million and $0.2 million, respectively.
The Company issued $1.0 million of promissory notes to certain executives during the year ended December 31, 2021 in order for them to early exercise stock options. Management concluded the promissory notes are recourse in form but non-recourse in substance as the Company does not intend to seek repayment beyond the shares issued. The promissory notes are therefore treated as an option for accounting purposes and are not recorded on the consolidated balance sheet.
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Stock-based compensation expense is recorded, accordingly. The exercise price used in determining the fair value of the stock options includes the interest earned on the notes and the expected term is five years, reflecting the term of the notes. The early exercised shares were not outstanding for accounting purposes before repayment of the notes. During the year ended December 31, 2024, the promissory notes were forgiven, resulting in 491,110 shares of common stock that had been exercised early being treated as outstanding for accounting purposes. These shares are included in the exercised options in the table below.
The following table summarizes stock option activity for the year ended December 31, 2024 (in thousands, except share and per share amounts):
The Company recorded stock-based compensation expense related to stock options of $3.8 million and $2.8 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was $6.8 million of unrecognized stock option stock-based compensation expense which is expected to be recognized over a weighted average period of 2.7 years.
A summary of restricted stock award activity for the year ended December 31, 2024 is a follows:
Number of shares Weighted averagefair value
All restricted common stock awards were initially issued at a price determined to be fair value on the date of grant. The Company recognizes forfeitures of restricted common stock as they occur. As of December 31, 2024, there was a de minimis amount of unrecognized restricted stock-based compensation expense which is expected to be recognized over a weighted average period of 0.3 years. The fair value of shares that vested during the years ended December 31, 2024 and 2023 was $0.1 million and $0.5 million, respectively.
Stock-based compensation expense related to stock options and restricted stock recorded in the accompanying consolidated statements of operations for the years ended December 31, 2024 and 2023 is as follows (in thousands):
The Company has not recognized and does not expect to recognize in the near future, any tax benefit related to employee stock-based compensation expense as a result of the full valuation allowance related to its net deferred tax assets.
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11. Employee Benefit Plan
On January 1, 2017, the Company’s board of directors approved the Company’s 401(k) retirement plan (the “401(k) Plan”). Employees of the Company are eligible to participate in the 401(k) Plan. Participants may contribute up to 100% of their annual compensation to the 401(k) Plan, subject to statutory limitations. Effective January 1, 2022, under the 401(k) Plan “Safe Harbor Match,” the Company matches 100% of the first 3% of employee contributions and these contributions vest in full at the time of match.
For the years ended December 31, 2024 and 2023, the Company made matching contributions of $0.3 million and $0.4 million, respectively.
12. Income Taxes
For the years ended December 31, 2024 and 2023, no income tax expense was recorded due to the Company’s net operating loss (“NOL”) and full valuation allowance. The Company’s effective tax rate of zero differs from the U.S. statutory tax rate of 21% primarily because of the valuation allowance maintained against the Company’s net deferred tax assets. A reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2024 and 2023:
Income tax computed at federal statutory rate 21.00 % 21.00 %
State taxes, net of federal benefit 6.78 7.49
Foreign rate differential (0.06) 0.04
Permanent differences (1.07) (0.57)
Effective income tax rate 0.00 % 0.00 %
The Company’s net deferred tax assets as of December 31, 2024 and 2023, consisted of the following (in thousands):
Deferred tax assets:
Capitalized Sec. 59 (e ) R&D expenditures 1,833 2,337
Deferred tax liabilities:
Operating lease ROU assets (1,653) (2,118)
Total gross deferred tax liabilities (1,653) (2,118)
Net deferred tax asset less valuation allowance $ — $ —
As of December 31, 2024 and 2023, the Company had U.S. federal NOL carryforwards of $102.3 million and $69.8 million, respectively, which may be available to offset future income tax liabilities. Of the $102.3 million carryforwards, approximately $4.8 million will begin to expire in 2036 and approximately $97.5 million are carried forward indefinitely. As of December 31, 2024 and 2023, the Company had state NOL carryforwards of $97.6 million and $66.7 million, respectively, which will begin to expire in 2036.
As of December 31, 2024 and 2023, the Company had U.S. federal R&D tax credit carryforwards of $6.7 million and $5.2 million, respectively, which begin to expire in 2036. As of December 31, 2024 and 2023, the Company had state R&D tax credit carryforwards of $3.3 million and $2.6 million, respectively, which begin to expire in 2036. As of
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