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 our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.
Overview
We are a clinical-stage biopharmaceutical company dedicated to delivering on the promise of TPD science to create a new generation of small-molecule medicines that transform patients’ lives. By leveraging our proprietary TORPEDO platform, we have the capability to efficiently design and optimize small molecule protein degraders that are highly active against their desired targets by harnessing the body’s natural process for destroying unwanted proteins. To date, our platform has produced several novel, oral, highly catalytic degraders that have demonstrated robust target degradation, some of which are brain penetrant and all of which have the potential to overcome drug resistance often seen with inhibitors and improve patient outcomes.
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Currently, our solely-owned pipeline is focused on oncology and our partnership strategy allows us to explore other disease areas with unmet needs.
Our most advanced product candidate, cemsidomide, is an orally bioavailable MonoDAC degrader of protein targets called IKZF1 and IKZF3. Cemsidomide is currently in clinical development for multiple myeloma, or MM, and non-Hodgkin lymphoma, or NHL. With a strong mechanistic rationale and well-defined biology of targeting IKZF1 and IKZF3 cemsidomide has the opportunity to address a significant unmet need. In August 2021, the United States Food and Drug Administration, or FDA, granted orphan drug designation to cemsidomide for the treatment of MM. In December 2024, we shared data evaluating cemsidomide in combination with dexamethasone in MM that demonstrated a well-tolerated profile with compelling anti-myeloma activity. We have also shared cemsidomide monotherapy data in MM where cemsidomide activates immune cells at clinically relevant doses. Additionally, in December 2024, we shared data evaluating cemsidomide as a monotherapy in NHL that demonstrated a well-tolerated profile and compelling anti-lymphoma activity in NHL and, in particular, in PTCL. We continue to progress the ongoing Phase 1/2 clinical trial in MM and NHL.
Our next most advanced product candidate, CFT1946, is an orally bioavailable BiDAC degrader designed to be potent and selective against BRAF V600 mutant proteins to treat melanoma, colorectal cancer, or CRC, and other malignancies that harbor V600 mutations. In preclinical studies, CFT1946 has demonstrated the ability to cross the blood-brain barrier with Kpuu values ranging from 0.34 to 0.88, an important feature as a portion of patients with BRAF V600 mutant solid tumors develop brain metastases. Additionally, CFT1946 is more efficacious than the standard of care therapies in CRC BRAF V600X xenograft models and in a melanoma patient-derived xenograft, or PDX, BRAF inhibitor resistance model. In September 2024, at the European Society of Medical Oncology Congress, we presented monotherapy data from the ongoing Phase 1/2 trial, which demonstrated that CFT1946 was well tolerated with initial signs of anti-tumor activity across all dose levels. We continue to progress the ongoing Phase 1/2 clinical trial in BRAF V600 mutant protein cancers, including melanoma and CRC.
Additionally, we are developing CFT8919, an orally bioavailable, allosteric, mutant-selective BiDAC degrader of epidermal growth factor receptor, or EGFR, with an L858R mutation in non-small cell lung cancer, or NSCLC. In preclinical studies, CFT8919 demonstrated equipotent anti-proliferation activity against EGFR mutations resistant to EGFR inhibition, including L858R-C797S, L858R-T790M, and L858R-T790M-C797S compared to L858R single mutation in Ba/F3 cell models in vitro. In May 2023, we entered into a license and collaboration agreement with Betta Pharma to collaborate on the development and commercialization of CFT8919 in mainland China, Hong Kong SAR, Macau SAR and Taiwan, with us retaining rights to develop and commercialize CFT8919 in the rest of the world. In November 2024, Betta Pharma initiated a Phase 1 clinical trial of CFT8919 in EGFR L858R NSCLC in Greater China and is continuing to progress the trial. Data generated from this trial will inform our ex-China clinical development strategy.
Beyond these initial product candidates, we are further diversifying our pipeline by developing new degraders for our own proprietary pipeline and for the pipeline we are developing in collaboration with MKDG, Merck, Biogen and Roche. We have engineered degraders that have successfully achieved blood-brain barrier penetration in preclinical studies, which is a key step in developing medicines with the potential to treat brain metastases in oncology, as well as in therapeutic areas such neurodegenerative diseases. We also believe there are many therapeutic areas and indications where leveraging our TORPEDO platform to develop novel degraders may be advantageous.
Recent Developments
On December 8, 2024, we presented data from our ongoing first-in-human clinical trial for cemsidomide in combination with at the Annual Society of Hematology meeting that demonstrated compelling safety and anti-tumor activity across the MM and NHL arms.
On November 20, 2024, we announced the appointment of Steve Hoerter to our board of directors.
On November 6, 2024, we announced that our partner, Betta Pharma, had dosed the first patient in its Phase 1 clinical trial of CFT8919 in Greater China.
Components of Operating Results
Revenues
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future. Our revenues to date have been generated through research collaboration and license agreements. We recognize revenue over the expected performance period under each agreement. We expect that our revenue for the next several years will be derived primarily from our current collaboration agreements and any additional
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collaborations that we may enter into in the future. To date, we have not received any royalties under any of our existing collaboration agreements.
For a description of our collaboration agreements with MKDG, Merck, Betta Pharma, Roche, Biogen, and Calico Life Sciences LLC, or Calico, please see Note 8, Collaboration and license agreements, to the consolidated financial statements in this Annual Report on Form 10-K.
Research and development expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include:
•salaries, benefits, and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•expenses incurred under agreements with third parties, including contract research organizations and other third parties that conduct research, preclinical, and clinical activities on our behalf as well as third parties that manufacture our product candidates for use in our preclinical and clinical trials;
•costs of outside consultants, including their fees, and related travel expenses;
•the costs of laboratory supplies and acquiring materials for preclinical studies and clinical trials;
•facility-related expenses, which include direct depreciation costs of equipment and allocated expenses for rent and maintenance of facilities and other operating costs; and
•third-party licensing fees.
We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.
We expect that our research and development expenses will continue to increase substantially in connection with our planned preclinical and clinical development activities.
General and administrative expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, legal, business development, and administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will continue to increase in the future to support increased research and development activities. These increases will likely include higher costs related to the hiring of additional personnel; fees to outside consultants, lawyers, and accountants; and investor and public relations.
Restructuring
Restructuring expenses consists of one-time costs incurred under a reduction plan to align with the needs of the business. These costs include employee severance, benefits and related termination costs.
Other income (expense)
Other income (expense), net primarily consists of the following:
•interest expense and amortization of our long-term debt;
•loss on extinguishment of debt; and
•interest and other income earned on our cash, cash equivalents, and marketable securities and accretion of discount on marketable securities.
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Results of operations
Comparison of years ended December 31, 2024 and 2023
Revenue
Revenue from our collaboration and license agreements consisted of the following (in thousands):
Years Ended December 31,
Revenue from collaboration agreements:
MKDG Agreement $ 7,304 $ —
Merck Agreement 3,979 —
Betta Agreement 3,415 —
Calico Agreement — 1,070
Total revenue from collaboration agreements $ 35,584 $ 20,756
The $14.8 million increase in revenue in the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily driven by:
•a $14.7 increase in revenue recognized from the MKDG, Merck and Betta Pharma collaborations that had activities commence in 2024; and
•a $6.3 million increase in revenue recognized under the Biogen Agreement primarily as a result of our receipt of two $8.0 milestones earned for the accepted delivery of two separate development candidates in undisclosed indications in 2024, offset by reduced revenue due to the research term being fully satisfied as of June 30, 2024.
These were partially offset by:
• a $5.1 million decrease in revenue recognized under the Roche Agreement, resulting from our 2023 completion of research activities for a nominated target; and
•a $1.1 million decrease in revenue recognized under the Calico Agreement, as a result of the performance obligation and transaction price becoming fully satisfied as of March 31, 2023.
Research and Development Expenses
The following table summarizes our research and development expenses (in thousands):
Years Ended December 31,
Research and development expenses:
Intellectual property and other expenses 4,633 5,067
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The $7.1 million decrease in research and development expense in the year ended December 31, 2024 from the year ended December 31, 2023 is primarily driven by:
•a $6.0 million decrease in personnel expenses as a result of our restructuring activities;
•a $1.9 million decrease in professional fees; and
•a $1.2 million decrease in facilities and supply expenses.
These were partially offset by a $1.6 million increase in clinical expenses due to continued progress on our cemsidomide and CFT1946 programs.
General and Administrative Expenses
The following table summarizes our general and administrative expenses (in thousands):
Years Ended December 31,
General and administrative expenses:
Total general and administrative expenses $ 42,124 $ 42,081
General and administrative expense in the year ended December 31, 2024, as compared to the year ended December 31, 2023 was flat as a result of a $1.0 million increase in personnel expenses, partially offset by a $1.0 million decrease in other expenses.
Other Income (Expense)
The following table summarizes our other income (expense) (in thousands):
Years Ended December 31,
Other income (expense), net
Interest and other income, net $ 14,429 $ 9,812
Interest expense and amortization of long-term debt—related party — (1,373)
Loss on extinguishment of long-term debt — (621)
Total other income (expense), net $ 14,429 $ 7,818
The $6.6 million increase in other income (expense) for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was driven by a $4.6 million increase in interest and other income resulting from higher interest earned on our investments during 2024 and a $1.4 million decrease in interest expense as a result of the extinguishment of our Term Loan with Perceptive Credit Holdings III, LP, an affiliate of Perceptive Advisors LLC, or Term Loan, in 2023.
Income tax expense
For the year ended December 31, 2024, there was $0.1 million income tax expense, compared to $1.3 million income tax expense in the year ended December 31, 2023. This was primarily the result of the $1.2 million withholding tax paid to the Chinese tax authority related to the Betta Pharma collaboration in 2023 (see Note 8 and Note 11).
Liquidity and capital resources
Sources of liquidity
Since inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we continue the development of our programs. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily through the sale of preferred stock, public offerings of our common stock, and payments from collaboration partners. As of December 31, 2024, we had cash, cash equivalents and marketable securities of approximately $267.3 million.
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In November 2021, we filed an automatically effective registration statement on Form S-3, or the Registration Statement, with the SEC which registers the offering, issuance, and sale of an unspecified amount of common stock, preferred stock, debt securities, warrants, and/or units of any combination thereof. We simultaneously entered into a sales agreement with Cowen and Company, LLC (now TD Securities (USA) LLC), as sales agent, to provide for the issuance and sale by us of up to $200.0 million of common stock from time to time in “at-the-market” offerings under the Registration Statement and related prospectus filed with the Registration Statement, or the 2021 ATM Program. Under this Registration Statement, the Company sold a total of 15,318,264 shares of its common stock at an average price of $5.54 per share for proceeds, net of commissions and fees, of $82.3 million. For the year ended December 31, 2024, 4,132,122 shares of common stock, for net proceeds of $24.4 million, settled under the 2021 ATM Program (see Note 9).
In October 2024, the Company filed a registration statement on Form S-3, or the Registration Statement, with the SEC that became effective on November 13, 2024 and registered the offering, issuance and sale of an unspecified amount of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. Simultaneously, the Company entered into a sales agreement with TD Securities (USA) LLC, as sales agent, to provide for the issuance and sale by the Company of up to $200.0 million of common stock from time to time in “at-the-market” offerings under the Registration Statement and related prospectus filed with the Registration Statement, or the 2024 ATM Program. For the year ended December 31, 2024, no sales were made under the 2024 ATM Program.
In connection with the execution of the Betta Pharma License Agreement, we entered into a stock purchase agreement dated May 29, 2023, or the Betta Stock Purchase Agreement, with Betta Pharma and an affiliate of Betta Pharma, (Betta Investment (Hong Kong) Limited, or Betta Investment), pursuant to which Betta Investment agreed to purchase 5,567,928 shares of the Company's common stock, or the Shares, for an aggregate purchase price of approximately $25.0 million, or $4.49 per share, which represented a 25% premium over the 60-trading-day volume weighted average closing price as of two trading days prior to the effective date of the Betta Stock Purchase Agreement. The $25.0 million of proceeds that we received were recorded as $20.0 million for the issuance of shares, with the remaining $5.0 million of premium paid on the share price recorded as consideration for revenue under the Betta Pharma License and Collaboration Agreement. The Betta Stock Purchase Agreement has certain restrictions customary to agreements of this nature. Closing under the Betta Stock Purchase Agreement occurred in January 2024 (see Note 8).
Cash flows
The following table summarizes our sources and uses of cash for the period presented (in thousands):
Years Ended December 31,
Net change in cash, cash equivalents and restricted cash:
Net cash used in operating activities $ (65,157) $ (106,838)
Net cash (used in) provided by investing activities (51,270) 158,349
Net cash provided by financing activities 45,336 45,489
Net change in cash, cash equivalents and restricted cash $ (71,091) $ 97,000
Operating activities
Net cash used in operating activities was $65.2 million for the year ended December 31, 2024 and was driven primarily by:
•our net loss of $105.3 million;
•a $5.2 million decrease in the operating lease liability;
•a $4.3 million increase in prepaid expenses and current and long-term assets; and
•a $1.3 million decrease in accrued expenses and other current liabilities.
These amounts were partially offset by:
•$37.9 million of non-cash expense related to stock compensation expense, depreciation and amortization, and reduction in carrying amount of our right-of-use asset;
•a $9.9 million increase in deferred revenue due to our new collaboration agreements; and
•an $8.7 million decrease in accounts receivable.
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Net cash used in operating activities for the year ended December 31, 2023 was driven primarily by:
•our net loss of $132.5 million;
•a $10.3 million increase in accounts receivable; and
•a $4.7 million decrease in the operating lease liability;
These amounts were partially offset by:
•a $35.3 million of non-cash expense related to stock compensation expense, depreciation, and reduction in carrying amount of our right-of-use asset;
•a $3.8 million increase in deferred revenue due to the recognition of revenue under our collaboration agreements;
•a $2.7 million decrease in prepaid expenses and current and long-term assets; and
•a $1.3 million increase in accrued expenses and other liabilities.
Investing activities
The $51.3 million of net cash used in investing activities for the year ended December 31, 2024 was attributable to $51.1 million for the purchases of marketable securities, net of sales and proceeds from maturities.
The $158.3 million of net cash provided by investing activities for the year ended December 31, 2023 was attributable to $160.1 million for the proceeds from marketable securities, net of purchases, and was offset by $1.7 million for the purchases of property and equipment.
Financing activities
The $45.3 million of net cash provided by financing activities for the year ended December 31, 2024 is primarily driven by:
•$24.4 million of net proceeds from our at-the-market offering; and
•$20.0 million in proceeds for the closing of the Betta Stock Purchase Agreement.
The $45.5 million of net cash provided by financing activities for the year ended December 31, 2023 is primarily driven by $57.7 million of net proceeds from our 2021 ATM Program, offset by the prepayment of the remaining principal balance on the Term Loan of $12.5 million.
Funding requirements
Since our inception, we have incurred significant operating losses, and we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. In addition, we expect to continue to incur costs associated with operating as a public company.
Specifically, we anticipate that our expenses will increase in the future, if and as we:
•continue our ongoing first-in-human Phase 1/2 trials;
•advance additional product candidates into preclinical and clinical development;
•continue to invest in our proprietary TORPEDO platform;
•advance, expand, maintain, and protect our intellectual property portfolio;
•manage staffing needs to meet the changing needs of the business as we advance additional product candidates or continue to develop existing product candidates.
•seek marketing approvals for any product candidates that successfully complete clinical trials; and
•ultimately establish a sales, marketing, and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain marketing approval.
Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital and operating costs associated with our current and anticipated preclinical and clinical development. Our future capital requirements will depend on many factors, including:
•the progress, costs, and results of ongoing and planned first-in-human Phase 1/2 trials for our lead product candidates and any future clinical development of those lead product candidates;
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•the scope, progress, costs, and results of preclinical and clinical development for our other product candidates and development programs;
•the number and development requirements of other product candidates that we pursue;
•the progress and success of our existing and any future collaborations with third party partners, including whether or not we receive additional research support or milestone payments from our collaboration partners upon the achievement of milestones;
•the costs, timing, and outcome of regulatory review of our product candidates;
•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
•our willingness and ability to establish additional collaboration arrangements with other biotechnology or pharmaceutical companies on favorable terms, if at all, for the development or commercialization of current or additional future product candidates;
•the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; and
•the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval.
As a result of the anticipated expenditures described above, we will need to obtain substantial additional financing to support our continuing operations and pursue our long-term business plan. Until such time, if ever, that we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt offerings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Although we may receive potential future milestone and royalty payments under our collaborations with MKDG, Merck, Betta Pharma, Roche, and Biogen, we do not have any committed external source of funds as of December 31, 2024. Adequate additional funds may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we may be required to delay, limit, reduce or terminate our research, 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.
If we raise additional capital through the sale of equity securities, each investor’s ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as making acquisitions or capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements 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.
Contractual obligations
The following is a summary of our significant contractual obligations as of December 31, 2024 (in thousands):
Total Less than1 Year 1 to 3Years 4 to 5Years More than5 Years
We enter into contracts in the normal course of business with third-party CROs for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material, and they are not included in the table above. We have not included milestone or royalty payments or other contractual payment obligations in the table above if the timing and amount of such obligations are unknown or uncertain.
Critical accounting estimates
This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience,
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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, Summary of significant accounting policies, to our consolidated financial statements in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenues from contracts
We account for our revenue in accordance with Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, or ASC 606. Under ASC 606, an entity 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. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps at inception of the agreement or upon material modification of the agreement: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
We consider the pattern of satisfaction of the performance obligations under step (v) above to be a critical accounting estimate. More specifically, the determination of the level of achievement of research and development service performance obligations, whose pattern of satisfaction is measured using costs incurred to date as compared to total costs incurred and expected to be incurred in the future is driven by a critical accounting estimate.
In estimating the costs expected to be incurred in the future, management uses its most recent budget and long-range plan, adjusted for any pertinent information. While this is our best estimate as of the reporting period, costs expected to be incurred in the future require management judgment as the scope and timing of research and development activities may change significantly over time. We may adjust the scope of our research and development activities based on several factors, such as additional work needed to support advancement of product candidate or change in the number of patients in trials. Further, research and development services may no longer be within the scope of a collaboration agreement, as has been the case with certain of our programs. The timing of when research and development costs are expected to be incurred may change as a result of external factors, such as delays caused by manufacturing or supply chain, or difficulty in enrolling patients; or internal factors, such as prioritization of programs. Our estimate of the scope and timing of research and development services performed relative to the actual scope and timing may have a significant impact on revenue recognition.
Prepaid and accrued research and development expenses
As part of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing quotations and contracts, identifying 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 the accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. In addition, 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 expense, in which case such amounts are reflected as prepaid expenses and other current assets. 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 the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could have a significant impact on reported amounts.
Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized in prepaid expenses and other current assets. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
Operating leases (incremental borrowing rate)
We account for leases in accordance with ASC Topic 842, Leases, or ASC 842. Under ASC 842, at inception or upon modification of a lease arrangement, we may be required to remeasure our lease liabilities and the corresponding right-of-use assets. The lease liability is measured by calculating the present value of lease payments under the lease arrangement
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using the incremental borrowing rate. Incremental borrowing rate is the rate of interest that we would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term equal to the lease term in a similar economic environment.
Since the incremental borrowing rates implicit in our leases are not readily determinable, we use the estimated incremental borrowing rates based on the information available at commencement date in determining the discount rate used to calculate the present value of lease payments. As we have no recent external borrowings, the incremental borrowing rates are determined using information on indicative borrowing rates that would be available to us based on the value and borrowing term provided by financial institutions, adjusted for company and market specific factors. This determination requires management judgement, including when determining peer groups, our own risk profile, and when adjusting for company and market specific factors.
Although we do not expect our estimates of the incremental borrowing rates to generate material differences within a reasonable range of sensitivities, judgement is involved in selecting an appropriate rate, and the rate selected for our leases will have an impact on the value of the lease liability and corresponding right-of-use asset in the consolidated balance sheets.
Stock options
We account for all stock-based awards granted to employees and non-employees as stock-based compensation expense at fair value. Our stock-based payments include stock options, restricted stock units, and grants of common stock, including common stock subject to vesting. The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis. Stock-based compensation expense is classified in the consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model includes various assumptions, including the expected term of the award, the expected volatility and the expected risk-free interest rate over the expected term of the award, expected dividend payments, and the fair value of the common stock underlying the stock-based award.
We consider the expected volatility to be a critical accounting estimate. As we do not have sufficient trading history, we use the average historical volatility of a representative group of publicly traded biopharmaceutical companies, including our own, to calculate the expected volatility for use in the Black-Scholes option pricing model. This assumption reflects our best estimate, but it involves inherent uncertainties based on market conditions generally outside our control. As a result, if a different volatility had been used, stock-based compensation cost could have been materially impacted.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. Our interest-earning assets consist of cash, cash equivalents, and marketable securities. Our interest income is sensitive to changes in the general level of interest rates, primarily United States interest rates. As of December 31, 2024, we had marketable securities of $211.8 million. Our marketable securities are short-term in nature with a weighted-average maturity date of 0.5 years. As such, while these interest-earning instruments carry a degree of interest rate risk, historical fluctuations in interest income have not been significant for us.
Item 8. Financial Statements and Supplementary Data.
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements is found in Item 15, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
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submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States GAAP. Our internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect our transactions and dispositions of our assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in its 2013 Internal Control – Integrated Framework. Based on our assessment, our management has concluded that, as of December 31, 2024, our internal control over financial reporting is effective based on those criteria.
Changes in Internal Control over Financial Reporting
We continuously seek to improve the efficiency and effectiveness of our internal controls. This results in refinements to processes throughout the company. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but there can be no assurance that such improvements will be sufficient to provide us with effective internal control over financial reporting. See “Risk Factors—We will continue to incur additional costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.”
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Item 9B. Other Information.
Rule 10b5-1 Trading Plans
During the fiscal quarter ended December 31, 2024, none of our directors and officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item 10 will be included in our definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, with respect to our 2025 Annual Meeting of Stockholders within 120 days after the end of the year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
We have adopted a Company Policy on Insider Trading and Disclosure (the Insider Trading Policy), together with Special Trading Procedures for Insiders and a Rule 10b5-1 Trading Plan Policy, governing the purchase, sale and/or other dispositions of our securities by our directors, individuals who qualify as officers within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder, and certain designated employees, consultants, and contractors. A copy of the Insider Trading Policy is filed as an exhibit to this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The information required by this Item 11 will be included in our definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12 will be included in our definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Annual Report on Form 10-Kwith respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 will be included in our definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item 14 will be included in our definitive proxy statement to be filed with the SEC within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
1. Financial Statements
For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference.
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto.
3. Exhibits
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21.1 Subsidiaries of the Registrant X
23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm X
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101.INS Inline XBRL Instance Document X
101.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
_____________________________________
Item 16. Form 10-K Summary
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
C4 Therapeutics, Inc.
Date: February 27, 2025 By: /s/ Andrew J. Hirsch
Andrew J. Hirsch
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name Title Date
Andrew J. Hirsch (Principal Executive Officer)
/s/ Kendra R. Adams Chief Financial Officer and Treasurer February 27, 2025
Kendra R. Adams (Principal Financial Officer)
/s/ Mark Mossler Chief Accounting Officer February 27, 2025
Mark Mossler (Principal Accounting Officer)
/s/ Ronald Cooper Chairman and Director February 27, 2025
Ronald Cooper
/s/ Kenneth C. Anderson, M.D. Director February 27, 2025
Kenneth C. Anderson, M.D.
/s/ Laura Bessen, M.D. Director February 27, 2025
Laura Bessen, M.D.
/s/ Bruce Downey Director February 27, 2025
Bruce Downey
/s/ Stephen Fawell, Ph.D Director February 27, 2025
Stephen Fawell, Ph.D
/s/ Donna Grogan, M.D. Director February 27, 2025
Donna Grogan, M.D.
/s/ Utpal Koppikar Director February 27, 2025
Utpal Koppikar
/s/ Stephen L. Hoerter Director February 27, 2025
Stephen L. Hoerter
/s/ Owen Hughes Director February 27, 2025
Owen Hughes
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Stockholders’ Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
C4 Therapeutics, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of C4 Therapeutics, Inc. and subsidiary (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits 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 consolidated 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 consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition for certain research and development services
As discussed in Notes 2 and 8 to the consolidated financial statements, the Company is party to collaboration agreements which have various performance obligations, including the promise to perform research and development (R&D) services for or on behalf of the customer. For certain collaboration agreements, the Company recognizes revenue for the transaction price allocated to each of the R&D performance obligations as the R&D services are provided, using an input method, according to costs incurred as related to the research and development target and the total costs incurred and expected to be incurred in the future to satisfy that individual performance obligation. Amounts received by the Company prior to satisfying the revenue recognition criteria are recorded as deferred revenue. For the year ended December 31, 2024, the Company recognized revenue from collaboration agreements of $35.6 million, a portion of which related to R&D services performed. In addition, as of December 31, 2024, a portion of the Company’s current and net of current deferred revenue related to R&D services to be performed.
We identified the evaluation of revenue recognition for certain R&D services as a critical audit matter. Specifically, evaluating the estimate of costs expected to be incurred in satisfying certain R&D performance obligations, including the assessment of the nature of the R&D services to be performed, involved especially challenging auditor judgment.
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The following are the primary procedures we performed to address this critical audit matter. For a selection of R&D performance obligations, we evaluated the estimate of total contract costs expected to be incurred by:
•inspecting the underlying contract with the customer to gain an understanding of the nature of the R&D services to be performed
•comparing the Company’s prior period estimates to actual R&D service costs incurred to assess the Company’s ability to estimate accurately
•inspecting underlying documentation and third-party evidence and comparing it to management’s estimate of total R&D service costs incurred and expected to be incurred
•inquiring of R&D personnel of the Company to evaluate factors related to the nature of the R&D services to be performed and their impact on the total R&D service costs to be incurred, including progress to date and the estimate of remaining R&D service costs.
We have served as the Company’s auditor since 2016.
Boston, Massachusetts
February 27, 2025
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C4 Therapeutics, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 9,761 5,709
Liabilities and stockholders’ equity
Current liabilities:
Accrued expenses and other current liabilities 19,363 20,630
Operating lease liability, current 5,774 5,219
Operating lease liability, net of current 59,982 65,757
Commitments and contingencies (See Note 6 and Note 9)
Stockholders’ equity:
Accumulated other comprehensive income (loss) 53 (127)
Total liabilities and stockholders’ equity $ 349,602 $ 376,451
The accompanying notes are an integral part of these consolidated financial statements.
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C4 Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Years Ended December 31,
Revenue from collaboration agreements $ 35,584 $ 20,756
Operating expenses:
Restructuring 2,437 —
Other income (expense), net
Interest expense and amortization of long-term debt—related party — (1,373)
Loss on early extinguishment of debt — (621)
Net loss per share - basic and diluted $ (1.52) $ (2.67)
Other Comprehensive income (loss):
Unrealized gain on marketable securities 180 4,010
The accompanying notes are an integral part of these consolidated financial statements.
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C4 Therapeutics, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
Shares Amount
Exercise of stock options and release of stock units 13,096 — 58 — — 58
Unrealized gain on marketable securities — — — 4,010 — 4,010
Exercise of stock options and release of stock units 149,818 778 — — 778
Unrealized gain on marketable securities — — — 180 — 180
The accompanying notes are an integral part of these consolidated financial statements.
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C4 Therapeutics, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
Cash flows used in operating activities:
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 1,818 1,880
Reduction in carrying amount of right-of-use asset 6,421 6,159
Accretion of premium on marketable securities (5,396) (3,784)
Amortization of debt discount—related party — 405
Loss on early extinguishment of debt — 621
Changes in operating assets and liabilities:
Prepaid expenses and other current and long-term assets (4,328) 2,723
Accrued expenses and other current liabilities (1,267) 1,316
Operating lease liability (5,219) (4,695)
Net cash used in operating activities (65,157) (106,838)
Cash flows provided by investing activities:
Proceeds from maturities of marketable securities 233,231 289,955
Purchases of property and equipment (180) (1,708)
Net cash (used in) provided by investing activities (51,270) 158,349
Cash flows provided by financing activities:
Payment of long-term debt − related party — (12,500)
Proceeds from exercises of stock options 778 58
Payments for repurchase of common stock for tax withholding (194) (110)
Net cash provided by financing activities 45,336 45,489
Net change in cash, cash equivalents and restricted cash (71,091) 97,000
Cash, cash equivalents and restricted cash at beginning of period 130,033 33,033
Cash, cash equivalents and restricted cash at end of period $ 58,942 $ 130,033
Reconciliation of cash, cash equivalents and restricted cash:
Cash, cash equivalents and restricted cash at end of year $ 58,942 $ 130,033
Cash and cash equivalents at end of the year $ 55,499 $ 126,590
The accompanying notes are an integral part of these consolidated financial statements.
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C4 Therapeutics, Inc.
Consolidated Statements of Cash Flows — Continued
(in thousands)
Years Ended December 31,
Supplemental disclosure of cash flow information:
Deferred revenue in accounts receivable $ — $ 10,000
Cash paid for interest - related party $ — $ 990
Cash paid for income taxes $ — $ 1,003
Supplemental disclosures of non-cash investing and financing activities:
Capital expenditures in accounts payable and accrued expenses $ — $ 18
The accompanying notes are an integral part of these consolidated financial statements.
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements
Note 1. Nature of the business
C4 Therapeutics, Inc., or, together with its subsidiary, the Company, is a clinical-stage biopharmaceutical company dedicated to delivering on the promise of targeted protein degradation science to create a new generation of medicines that transforms patients’ lives. The Company is progressing targeted oncology programs through clinical studies and leveraging its TORPEDO platform to efficiently design and optimize small-molecule medicines to address difficult-to-treat diseases. The Company's degrader medicines are designed to harness the body’s natural protein recycling system to rapidly degrade disease-causing proteins, offering the potential to overcome drug resistance, drug undruggable targets and improve patient outcomes. The Company was incorporated in Delaware on October 7, 2015 and has its principal office in Watertown, Massachusetts.
Liquidity and capital resources
Since its inception, the Company’s primary activities have been focused on performing research and development activities, building the Company’s intellectual property, recruiting personnel, and raising capital to support these activities. To date, the Company has funded its operations primarily with proceeds received from the sales of redeemable convertible preferred stock, public offerings of the Company’s common stock, equity issuances, through its collaboration agreements, and debt financing.
The Company has incurred recurring losses since its inception, including net losses of $105.3 million and $132.5 million for the years ended December 31, 2024 and 2023, respectively. In addition, as of December 31, 2024, the Company had an accumulated deficit of $633.7 million. To date, the Company has not generated any revenue from product sales as none of its product candidates has been approved for commercialization. The Company expects to continue to generate operating losses for the foreseeable future.
The Company expects that its cash, cash equivalents, and marketable securities of $267.3 million as of December 31, 2024 will be sufficient to fund its operations for at least the next twelve months from the date of issuance of these consolidated financial statements. Accordingly, theconsolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Risks and uncertainties
The Company is subject to risks common to other life science companies in the early development stage including, but not limited to, uncertainty of ability to raise additional financing, product development and commercialization, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, lack of marketing and sales history, product liability, protection of proprietary technology and intellectual property, and compliance with the Food and Drug Administration, or the FDA, and other government regulations. If the Company does not successfully advance its programs into and through human clinical trials and commercialize any of its product candidates either directly or through collaborations with other companies, the Company may be unable to produce product revenue or achieve profitability. There can be no assurance that the Company’s research and development efforts will be successful, adequate protection for the Company’s intellectual property will be obtained, any products developed will obtain necessary government regulatory approval, or any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.
Note 2. Summary of significant accounting policies
Basis of presentation
The Company has prepared the accompanying consolidated financial statements in conformity with generally accepted accounting principles in the United States of America, or U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.
Principles of consolidation
The Company’s consolidated financial statements include the accounts of C4 Therapeutics, Inc. and its wholly owned subsidiary, C4T Securities Corporation, a Massachusetts securities corporation. All significant intercompany balances and transactions have been eliminated in consolidation.
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. This process may result in actual results differing materially from those estimated amounts used in the preparation of the consolidated financial statements if these results differ from historical experience or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Areas where management uses subjective judgement include, but are not limited to, amounts and timing of revenues recognized under the Company’s research and development collaboration arrangements, prepaid and accrued research and development expense, estimates of the useful lives of long-lived assets, assessments of the impairment of long-lived assets, measurement of right-of-use assets and lease liabilities, incremental borrowing rate used in the measurement of lease liability, and valuation and recognition of share-based compensation expense. The Company assesses estimates on an ongoing basis, and bases its estimates on historical experience, known trends and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgements about the carrying values of assets and liabilities. Actual results could materially differ from those estimates.
Segments
Operating segments are defined as components of an enterprise for which separate and discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance. The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purpose of allocating resources. All of the Company’s long-lived assets are held in the United States.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s cash equivalents are measured at fair value on a recurring basis.
Restricted cash
Restricted cash consists of cash placed in a separate restricted bank account as required under the terms of the Company’s lease agreement for its Watertown, Massachusetts facilities, as further described within Note 6, Leases.
Marketable securities
The Company classifies marketable securities with a remaining maturity of greater than three months at the date of purchase as available-for-sale. Marketable securities with a remaining maturity date greater than one year are classified as non-current assets. Available-for-sale securities are carried at fair value with the unrealized gains and losses included in accumulated other comprehensive (loss) income as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other income (expense).
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and restricted cash. The Company may maintain deposits in financial institutions in excess of government insured limits. The Company believes that it is not exposed to significant credit risk as its deposits are held at financial institutions that management believes to be of high credit quality, and the Company has not experienced any losses on these deposits. Additionally, the Company has established guidelines relative to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. The Company maintains its funds in accordance with its investment policy, which defines allowable investments, specifies credit quality standards and is designed to limit credit exposure to any single issuer.
Fair value of financial instruments
ASC Topic 820, Fair Value Measurement, or ASC 820, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are those that market participants would use in pricing the asset or
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier value hierarchy that distinguishes between the following:
•Level 1—Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities in active markets.
•Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable in the marketplace.
•Level 3—Unobservable inputs, which are supported by little or no market activity, and may be developed using estimates of assumptions developed by the Company, which reflect those that a market participant may use.
To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company evaluates transfers between levels at the end of each reporting period.
Property and equipment
Property and equipment are recorded at cost, less accumulated depreciation. Expenditures for repairs and maintenance are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are derecognized from the accounts, and any resulting gain or loss is included in the determination of net loss.
Depreciation on equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:
Asset category Estimated useful life
Laboratory equipment 5 years
Computer equipment 3 years
Office equipment, furniture and fixtures 5 years
Leasehold improvements Lesser of useful life or remaining lease term
Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases, or ASC 842. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances present, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. As provided by ASC 842, the Company elected to combine lease and non-lease components as a single component for all leases. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The Company typically only includes an initial lease term in its assessment of a lease arrangement; options to renew a lease are not included in the assessment unless there is reasonable certainty that the Company will renew. The interest rate implicit in lease contracts is typically not readily determinable. As such, in calculating the lease liability, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Lease expense is recognized over the expected lease term on a straight-line basis.
Impairment of long-lived assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred, and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Revenue recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.
The Company enters into collaboration and licensing agreements with strategic partners, which are within the scope of ASC 606, under which it may exclusively license rights to research, develop, manufacture, and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: (1) non-refundable, upfront license fees; (2) reimbursement of certain costs; (3) customer option fees for additional goods or services; (4) development milestone payments; (5) regulatory and commercial milestone payments; and (6) royalties on net sales of licensed products.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of 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. As part of the accounting for these arrangements, the Company must use its judgment to determine: (a) the number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and (d) the contract term and pattern of satisfaction of the performance obligations under step (v) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.
Amounts due to the Company for satisfying the revenue recognition criteria or that are contractually due based upon the terms of the collaboration agreements are recorded as accounts receivable in the Company’s consolidated balance sheet. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Upfront license fees
If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other promises, the Company considers factors such as the research, manufacturing, and commercialization capabilities of the customer; the retention of any key rights by the Company; and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the customer can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company exercises judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
Customer options
If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. If an option is not exercised and the target is terminated, the Company will accelerate and recognize all remaining revenue related to the material right performance obligation.
Research and development services
The promises under the Company’s collaboration agreements may include research and development services to be performed by the Company for or on behalf of the customer. Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts. Reimbursements from and payments to the customer that are the result of a collaborative relationship with the customer, instead of a customer relationship, such as co-development activities, are recorded as a reduction to research and development expense.
Milestone payments
At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
For further discussion of accounting for collaboration revenues, see Note 8. Collaboration and license agreements.
Research and development expenses
Research and development costs are expensed as incurred and consist of the costs associated with conducting preclinical studies and clinical trials, which primarily include salaries, stock-based compensation and other employee benefit expenses, lab related supplies and other operational costs related to the Company’s research and development activities, including allocated facility-related expenses and external costs of outside vendors engaged to conduct research and development activities.
Clinical trial costs are a significant component of the Company's research and development expenses. The Company historically has contracted with third parties that perform various clinical trial activities on behalf of the Company in the ongoing development of the Company's product candidates. As part of the process of preparing the consolidated financial statements, the Company is required to estimate their accrued research and development expenses. The Company makes estimates of the accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known at that time, and include reviewing open contracts and purchase orders, communicating with its personnel to identify services that have been performed on its behalf and estimating the level of service performed and the associated costs incurred for the services when the Company has not yet been invoiced or otherwise notified of the actual costs. If contracted amounts with third parties are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), the Company will modify the related accruals accordingly on a prospective basis. Revisions in the scope of a contract are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
In addition, there may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense, in which case such amounts are reflected as prepaid expenses and other
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
current assets. In accruing service fees, the Company estimates 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 the estimate, the Company adjusts the accrual or the amount of prepaid expenses accordingly. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized in prepaid expenses and other current assets. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
Stock-based compensation
The Company applies ASC Topic 718, Compensation - Stock Compensation, or ASC 718, to account for its stock-based payments. In accordance with the ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award. All of the Company's grants of stock-based awards to employees were classified as equity awards and are recognized in the Company's financial statements based on the grant date fair value measured using the Black-Scholes option pricing model. The Black-Scholes option pricing model estimates the fair value of the equity award using the expected term, expected volatility, risk-free interest rate, dividend rate, and the fair value of the common stock underlying the stock-based award.
•The Company estimates the expected term using the “simplified” method, whereby, the expected term equals the arithmetic average of the vesting term and the contractual term of the option.
•Due to the lack of sufficient company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus.
•The risk-free interest rates for periods within the expected life of the option were based on the U.S. Treasury yield curve in effect during the period the options were granted.
•The expected dividend yield is assumed to be zero as the Company has never paid dividends and currently has no plans to pay any dividends on its common stock.
•The fair value of the common stock underlying shared based awards is the quoted market price of the Company’s common stock on the date of the grant.
•The Company recognizes forfeitures as they occur.
The fair value of the awards are recognized as stock-based compensation expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. For awards subject to both performance and service-based vesting conditions, we recognize stock-based compensation expense over the remaining service period if the performance condition is considered probable of achievement using management’s best estimates. Stock-based compensation expense is classified in the consolidated statement of operations and comprehensive loss in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified.
A change in any of the terms or conditions of an equity award is accounted for as a modification of the award. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified, measured based on the fair value of the awards and other pertinent factors at the modification date. For vested awards, the Company recognizes incremental compensation cost in the period the modification occurs. For unvested awards, the Company recognizes the expense over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date. If the fair value of the modified award is lower than the fair value of the original award immediately before modification, the minimum compensation cost the Company recognizes is the cost of the original award.
Income taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the consolidated financial statements or the Company’s tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established.
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
The Company evaluates its uncertain tax positions using the provisions of ASC Topic 740, Income taxes, or ASC 740, which prescribes a recognition threshold that a tax position is required to meet before being recognized in the consolidated financial statements by using a "more-likely-than-not" criteria for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, which are considered appropriate as well as the related net interest and penalties.
Comprehensive loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss includes net loss as well as other changes in stockholders’ equity which includes certain changes in equity that are excluded from net loss. The Company’s only element of other comprehensive income is unrealized gains and losses on marketable securities.
Net loss per share
Basic and diluted net loss per share are computed using the weighted-average number of shares of common stock outstanding for the period. The Company computes diluted (loss) earnings per share after giving consideration to the dilutive effect of stock options and unvested restricted stock that are outstanding during the period, except where such securities would be anti-dilutive.
Common stock equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive. In periods in which the Company reports a net loss, diluted net loss per share is generally the same as basic net loss per share since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Going concern
At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs and comparing those needs to the current cash, cash equivalent, and marketable securities balances.
Recently adopted accounting standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, or ASU 2023-07. ASU 2023-07 requires enhanced disclosures about significant segment expenses, enhanced interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. ASU 2023-07 is effective for the Company’s annual reporting period beginning after December 15, 2023, and subsequent interim periods, with early adoption permitted. ASU 2023-07 requires retrospective application to all prior periods presented in the financial statements. See Note 16 for a discussion of the Company's adoption of ASU 2023-07.
Recently issued accounting standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, or ASU 2023-09. ASU 2023-09 requires a company's annual financial statements to include consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company’s annual reporting periods beginning after December 15, 2025. Adoption is either with a prospective method or a fully retrospective method of transition. Early adoption is permitted. The Company is currently evaluating the effect that adoption of ASU 2023-09 will 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, or ASU 2024-03. ASU 2024-03 requires enhanced disclosures of disaggregated income statement expenses. Disclosure within the notes of the financial statements for each annual and interim period should include: employee compensation, depreciation, and intangible asset amortization, included in each relevant expense caption; certain amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirement; a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; and the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning December 15, 2027. Early adoption is permitted. The Company is currently evaluating the effect that adoption of ASU 2024-03 will have on its consolidated financial statements.
Note 3. Fair value measurements
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of December 31, 2024 (in thousands):
Fair Value Level 1 Level 2 Level 3
Cash equivalents:
Marketable securities:
U.S. government debt securities 6,531 — 6,531 —
The following table sets forth the fair value of the Company’s financial assets by level within the fair value hierarchy at December 31, 2023 (in thousands):
Fair Value Level 1 Level 2 Level 3
Cash equivalents:
Corporate debt securities 7,588 — 7,588 —
Marketable securities:
The Company classifies its money market funds, which are valued based on quoted market prices in active markets, with no valuation adjustment, as Level 1 assets within the fair value hierarchy.
Marketable securities consist of U.S. Treasury securities, U.S. government debt securities, and corporate debt securities, all of which are classified as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities. Marketable securities are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined using models or other valuation methodologies on a recurring basis.
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Table of Contents
C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
Note 4. Marketable securities
Marketable securities at December 31, 2024 consisted of the following (in thousands):
AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue
Marketable securities, current:
U.S. government debt securities 6,527 4 — 6,531
Marketable securities, non-current
Marketable securities at December 31, 2023 consisted of the following (in thousands):
AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue
Marketable securities, current:
Marketable securities, non-current
Marketable securities classified as current have maturities of less than one year. Marketable securities classified as non-current are those that: (i) have a maturity of greater than one year, and (ii) we do not intend to liquidate within the next twelve months, although these funds are available for use and, therefore, are classified as available-for-sale. No available-for-sale debt securities held as of December 31, 2024 or December 31, 2023 had remaining maturities greater than five years.
Marketable securities in unrealized loss positions as of December 31, 2024 consisted of the following (in thousands, except number of securities):
Number ofSecurities FairValue GrossUnrealizedLosses
U.S. Treasury securities 2 2,981 (1)
U.S. government debt securities 1 1,986 —
Total marketable securities in unrealized loss position 44 $ 67,414 $ (164)
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
Marketable securities in unrealized loss positions as of December 31, 2023 consisted of the following (in thousands, except number of securities):
Number ofSecurities FairValue GrossUnrealizedLosses
U.S. government debt securities 9 11,914 (22)
U.S. government debt securities 3 5,979 (21)
Total marketable securities in unrealized loss position 94 $ 108,594 $ (278)
Based on factors such as historical experience, market data, issuer-specific factors, and current economic conditions, the Company did not record an allowance for credit losses at December 31, 2024 and 2023, related to these securities.
Note 5. Property and equipment
Property and equipment consisted of the following (in thousands):
As of December 31,
Property and equipment
Computer equipment 98 98
Less: accumulated depreciation (9,236) (7,763)
Total property and equipment, net $ 5,842 $ 7,132
Depreciation expense related to property and equipment was as follows (in thousands):
Years Ended December 31,
Note 6. Leases
In July 2017, the Company entered into a lease of office and laboratory space for its headquarters in Watertown, Massachusetts, or the Watertown Lease. The Watertown Lease had a non-cancelable term of ten years with an option to extend for one additional five-year period and is subject to rent escalation throughout the term. Additionally, the Watertown Lease required the Company to provide collateral, which was recorded as restricted cash on the consolidated balance sheets. The Watertown Lease commenced in April 2018. The Watertown Lease was classified as an operating lease and, upon the commencement in April 2018, the Company recorded a lease liability of $15.1 million and a right-of-use asset of $16.7 million, which is inclusive of $1.5 million of construction costs funded by the Company. In initially calculating the lease liability and the right-of-use asset, the Company did not include the additional five-year period option as management did not believe there was reasonable certainty that the Company would exercise the option. In addition to rent, the Company is also responsible for paying its pro rata share of costs incurred for common area maintenance, real estate taxes and property insurance related to the leased space, which are accounted for as variable lease costs.
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C4 Therapeutics, Inc.
Notes to Consolidated Financial Statements — Continued
In November 2021, the Company entered into an amendment to the Watertown Lease, or the Amended Lease. The Amended Lease serves to extend the lease term of the Company’s existing leased space, or the Existing Leased Space, and provides additional office and laboratory space, or the Newly Leased Space. The Amended Lease commenced in January 2022 and the Company’s obligation to pay rent on the Newly Leased Space commenced in March 2022, with the amount of this new rent obligation added to the Company’s continuing obligation to pay rent on the Existing Leased Space. The Amended Lease terminates in March 2032, which is 10 years from the rent commencement date for the Newly Leased Space. The Amended Lease is subject to fixed rate rent escalations, provides for up to $2.6 million in tenant improvements, and provides an option for the Company to extend the lease term of the Amended Lease for one additional five-year period. Upon executing the Amended Lease, the Company increased its collateral to $3.3 million, which is recorded as restricted cash on the accompanying consolidated balance sheets as of December 31, 2024 and 2023. In addition to rent, under the terms of the Amended Lease, the Company is also responsible for paying its pro rata share of costs incurred for common area maintenance, real estate taxes and property insurance related to the leased space, including both the Existing Leased Space and, as of January 2022, the Newly Leased Space, which amounts are accounted for as variable lease costs.
Accounting for the amended lease