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 related notes included in “Item 8. Financial Statements and Supplementary Data.” in this Annual Report on Form 10-K (this Annual Report). Some of the information contained in this discussion and analysis or set forth elsewhere in the Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve substantial risks and uncertainties. As a result of many factors, including those factors set forth in Part I, Item 1A. “Risk Factors” of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For further information regarding our forward-looking statements, see “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.
Effective on October 2, 2024, we amended our Amended and Restated Certificate of Incorporation to effect a change of our name from “Eliem Therapeutics, Inc.” to “Climb Bio, Inc.”. Unless the context requires otherwise, references in this Annual Report on Form 10-K to “we,” “us,” and “our” refer to Climb Bio, Inc. and its wholly owned subsidiaries.
Overview
We are a clinical-stage biotechnology company committed to developing potential best-in-class therapeutics that address significant unmet need for the millions of patients living with immune-mediated diseases. We have built our pipeline by strategically acquiring or in-licensing product candidates that we believe have clear biological rationale and the potential to treat multiple indications.
We are developing our product candidates for multiple immune-mediated diseases, as summarized in the pipeline figure below.
We acquired the rights to our product candidates through license and asset purchase agreements. We have worldwide rights to develop and commercialize budoprutug for all indications, except for oncology. We have rights to develop and commercialize CLYM116 for all indications worldwide outside of mainland China, Hong Kong, Macau, and Taiwan (Greater China).
Our cornerstone product candidate, budoprutug (formerly referred to as TNT119), is a clinical-stage anti-CD19 monoclonal antibody (mAb) which has the potential to address a broad range of B-cell mediated diseases. Budoprutug is designed to deplete CD19-positive B cells, including antibody secreting cells (plasma blasts), in order to directly reduce pathogenic autoantibodies. This reduction of autoantibodies has the potential to be a disease-modifying approach in the treatment of immune-mediated diseases. We believe we are well-positioned to advance budoprutug across three distinct opportunity sets in immune-mediated disease: primarily IgG4-mediated diseases, primarily single organ IgG1-3 mediated diseases and complex systemic diseases.
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We are initially developing budoprutug in lead indications representing each of these three opportunity sets, namely primary membranous nephropathy (pMN), a primarily IgG4-mediated disease, immune thrombocytopenia (ITP), a primarily single organ IgG1-3 mediated disease, and systemic lupus erythematosus (SLE), a complex systemic disease, where we believe budoprutug has the potential to be differentiated from other therapies in development and improve patient outcomes.
In March 2025, we received clearance from the U.S. Food and Drug Administration (FDA) for a Phase 2, dose range finding clinical trial of budoprutug in pMN. We anticipate dosing the first patient in our Phase 2 clinical trial for pMN in the second half of 2025. Budoprutug was previously evaluated in a Phase 1b clinical trial in pMN, the results of which suggest that budoprutug may offer the opportunity to induce remission of pMN in patients with moderate to severe disease. In that clinical trial, three out of five patients (60%) that received four doses of budoprutug and completed at least 48-weeks of follow-up achieved a complete remission of proteinuria, an important clinical endpoint in pMN. Notably, the FDA has granted budoprutug orphan drug designation for the treatment of pMN. Separately, in March 2025, we received clearance from the FDA for our investigational new drug (IND) application to evaluate budoprutug in a Phase 1b/2a clinical trial in ITP. We are in the process of activating investigational sites for the Phase 1b/2a clinical trial and anticipate dosing our first patient in the first half of 2025. In October 2024, we received clearance from the FDA for our IND to evaluate budoprutug in a Phase 1b clinical trial in SLE. We are in the process of activating investigational sites for our planned Phase 1b clinical trial in SLE and anticipate dosing our first patient in the first half of 2025. Each of these clinical trials of budoprutug in pMN, ITP and SLE will be conducted using an intravenous (IV) formulation of budoprutug. In parallel, we are advancing a subcutaneous formulation of budoprutug, which may provide the opportunity for a patient-tailored approach to treatment. We plan to announce preclinical data relating to the subcutaneous formulation of budoprutug in the first half of 2025 and currently plan to initiate clinical development of the subcutaneous formulation in the second half of 2025.
In addition to budoprutug, we are also developing CLYM116, a preclinical stage anti-APRIL (A PRoliferation-Inducing Ligand) mAb for patients with IgA nephropathy (IgAN) and other B-cell mediated diseases. CLYM116 utilizes a novel mechanism of action to prevent APRIL signaling, potently blocking binding of APRIL to its receptors and also promoting lysosomal APRIL degradation via a pH-dependent bind-and-release design. Through its unique binding profile, CLYM116 has the potential to enable more rapid, deep and durable inhibition of APRIL signaling. We are currently evaluating CLYM116 in IND-enabling studies and expect to announce preclinical data from the program in the second half of 2025.
Previously, we focused primarily on developing novel therapies for neuronal excitability disorders to address unmet needs in psychiatry, epilepsy, chronic pain, and other disorders of the peripheral and central nervous systems, and our lead program was ETX-123, a Kv7.2/3 potassium channel opener. ETX-123 is designed to harness the efficacy of the Kv7.2/3 channel mechanism while attempting to improve the safety and tolerability relative to earlier molecules, based on our insights into the mechanisms of toxicity and the potency and selectivity profile. In July 2023, we made the determination to pause further development of our Kv7 program, and we continue to evaluate our Kv7 program, including seeking a partner for further development.
We have incurred significant operating losses since inception, as we have devoted substantially all of our resources to organizing and staffing our company, identifying potential product candidates, business planning, raising capital, undertaking research, executing preclinical studies and clinical development trials, and providing general and administrative support for business activities. We incurred net losses of $73.9 million and $35.1 million for the years ended December 31, 2024 and 2023, respectively. We had an accumulated deficit of $229.9 million and $156.0 million as of December 31, 2024 and December 31, 2023, respectively.
Since our inception, we have primarily funded our operations with an aggregate of $328.0 million in net proceeds from the sale and issuance of shares of our redeemable convertible preferred stock, our initial public offering of our common stock, and the sale and issuance of shares in a private placement of our common stock that was completed in June 2024. We had cash, cash equivalents and marketable securities of $212.5 million and $106.8 million as of December 31, 2024 and December 31, 2023, respectively. Based on our current operating plan, we estimate that our cash, cash equivalents and marketable securities will be sufficient to fund our planned operations through 2027. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently anticipate, in which case we would be required to obtain additional financing, which may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate significant revenue from product sales, we may finance our operations through equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Adequate funding may not be available when needed or on terms acceptable to us, or at all.
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If we are unable to raise additional capital as needed, we may have to significantly delay, scale back or discontinue any future development of our product candidates. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States (U.S.) and worldwide, resulting from increased volatility in the trading prices for shares in the biopharmaceutical industry, or otherwise.
If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.
Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose.
We do not have any products approved for sale and have not generated any revenue from product sales since our inception. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates, if approved. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. We expect to continue to incur operating losses for the foreseeable future.
Tenet Acquisition
On June 27, 2024, we acquired 100% of the share capital of Tenet Medicines, Inc. (Tenet) in exchange for 5,560,047 shares of our common stock, valued at $41.9 million, or $7.53 per share (the Acquisition). The Acquisition is accounted for as an asset acquisition. The total cost of the asset acquisition was $52.8 million, which also included (i) $5.8 million of direct transaction costs incurred and (ii) $5.0 million related to a loan provided to Tenet prior to the closing of the Acquisition that was effectively settled upon the closing of the Acquisition. We recognized in-process research and development (IPR&D) expense of $51.7 million for the year ended December 31, 2024, as the IPR&D was determined to have no future alternative use.
Restructuring Costs
As a part of our shift in focus from developing therapeutics for neuronal excitability disorders to immune-mediated diseases we ceased our operations in the United Kingdom (U.K.) and separated from our seven U.K. employees in the third quarter of 2024.
We incurred restructuring costs of $3.3 million in connection with this headcount reduction, which related to severance payments, healthcare benefits, and stock-based compensation. The costs associated with this headcount reduction were fully recognized and all of the related payments were made by December 31, 2024.
On February 7, 2023, our board of directors approved a restructuring plan to conserve financial resources and align our workforce with current business needs. This plan resulted in a 55% workforce reduction, mostly completed in the first half of 2023. We further reduced our workforce by 10 employees in October 2023.
We incurred restructuring costs of $18.8 million in connection with these prior year restructuring activities, substantially all of which were recognized in 2023 and were fully recognized as of March 31, 2024. These costs related to severance payments, healthcare benefits and stock-based compensation. In addition, substantially all of the related restructuring payments were made by April 2024.
Components of Operating Results
Operating Expenses
Our operating expenses consist of (i) acquired IPR&D expense, related party, (ii) research and development expenses, and (iii) general and administrative expenses.
Acquired In-Process Research and Development, Related Party
Our acquired IPR&D expense consists of the relative fair value of the assets acquired and consideration transferred in connection with the Acquisition. As the assets acquired were in the research and development phase and were determined to not have any alternative future use, it was expensed as IPR&D.
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Research and Development
Our research and development expenses consist of direct and indirect costs incurred in connection with our discovery efforts, preclinical studies, and clinical trial activities related to our pipeline, including budoprutug and our previous product candidates ETX-123 and ETX-155.
Our direct research and development expenses include:
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expenses incurred in connection with research, laboratory consumables and preclinical and clinical trial activities;
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the cost to manufacture drug products for use in our preclinical studies and clinical trials; and
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consulting fees.
Our indirect research and development expenses include:
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personnel-related expenses, such as salaries, bonuses, benefits, stock-based compensation expense, and termination benefits, for our scientific personnel performing research and development activities; and
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facility rent.
We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed.
Given our stage of development and the utilization of our resources across our current and legacy programs, we have not historically tracked our indirect research and development costs by program or indication. Research and development expenses are presented net of refundable research and development tax credits from the U.K. government.
The following table sets forth our disaggregated research and development expenses (in thousands):
Year Ended December 31,
Acquired in-process research & development, related party $ 51,659 $ —
Direct research and development expenses:
Indirect research and development expenses:
Other research and development expenses 3 163 340
Research and development tax credits — (1,971 )
Total research and development expenses $ 65,995 $ 15,411
1 Includes expenses related to our legacy product candidates ETX-123 and ETX-155.
2 Includes severance expense of $1.8 million and $2.9 million and stock-based compensation expense of $3.0 million and $2.8 million for the years ended December 31, 2024, and 2023, respectively.
3 Includes indirect expenses related to facility rent.
We expect our research and development expenses to increase substantially for the foreseeable future as we conduct our ongoing research and development activities. The process of conducting preclinical studies, acquiring drug product supply, and conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for budoprutug, CLYM116, or any product candidate we may develop.
The timelines and costs associated with research and development activities are uncertain and can vary significantly among product candidates and development programs due to the inherently unpredictable nature of preclinical and clinical development. We anticipate that we will make determinations as to which indications to pursue in connection with our clinical development of budoprutug, CLYM116, or any product candidates we may develop and how much funding to direct to each such indication on an ongoing basis in response to preclinical and clinical results, regulatory developments, and ongoing assessments as to each such indication’s commercial potential. We will need to raise substantial additional capital in the future.
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Our future research and development costs may vary significantly based on factors such as:
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the timing, cost and progress of our research, preclinical, and clinical development activities;
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the progress, costs and results of our clinical trials of budoprutug in pMN, ITP, and SLE and any future clinical trials of our product candidates;
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the number and scope of development, preclinical and clinical programs we decide to pursue;
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the terms of any collaborations and/or research and development agreements we may enter into, which may impact the cost, timing and development plans of one or more of our product candidate programs;
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the costs involved in prosecuting and enforcing patent and other intellectual property claims;
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the costs of manufacturing our product candidates by third parties;
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the cost of regulatory requirements, regulatory submissions and timing of regulatory approvals;
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the potential delays in our preclinical studies, our development programs and our ongoing and planned clinical trial activities due to the effects of global events, including macroeconomic conditions and continued supply chain disruptions;
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the impact of inflationary pressures on salaries and wages, and costs of goods and transportation expenses, among other things;
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the cost of commercialization activities if budoprutug, CLYM116, or any product candidates we may develop are approved for sale, including marketing, sales and distribution costs; and
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our efforts to enhance operational systems and hire personnel to support development of budoprutug, CLYM116, or any product candidates we may develop.
A change in the outcome of any of these variables with respect to the development of budoprutug, CLYM116, or any product candidates we may develop could significantly change the costs and timing associated with the development.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related expenses such as salaries, bonuses, benefits, stock-based compensation, and termination benefits, for our personnel in executive, finance and accounting, human resources, business development and other administrative functions. Other significant general and administrative expenses include legal fees relating to corporate matters and intellectual property, professional fees for accounting, audit, regulatory, tax and consulting services, insurance costs, as well as investor and public relations costs.
Other Income (Expense)
Foreign Currency (Loss) Gain
Our foreign currency (loss) gain consists of foreign exchange losses resulting from remeasurement and foreign currency transactions between foreign currency and the U.S. Dollar.
Interest Income, net
Our interest income consists of interest earned on our cash, cash equivalents and marketable securities and adjustments related to amortization of purchase premiums and accretion of discounts of marketable securities.
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Results of Operations
The following table sets forth our results of operations (in thousands):
Year EndedDecember 31, Change
Operating expenses:
Research and development, related party 160 — 160 100.0 %
Other income (expense):
Comparison of the Years Ended December 31, 2024 and 2023
Operating Expenses
Acquired In-Process Research and Development, Related Party
Acquired IPR&D expense, related party was $51.7 million for the year ended December 31, 2024. This amount represents the recognition of IPR&D expense from the Acquisition completed on June 27, 2024.
Research and Development and Research and Development, Related Party
Research and development expenses decreased 8% from $15.4 million for the year ended December 31, 2023 to $14.2 million for the year ended December 31, 2024. Research and development expenses, related party increased by $0.2 million for the year ended December 31, 2024. In total, research and development expenses decreased 7% from $15.4 million for the year ended December 31, 2023 to $14.3 million for the year ended December 31, 2024.
The decrease was driven by (i) a $2.9 million decrease in personnel-related expenses, primarily due to a $1.8 million decrease from reduced headcount, and a $1.1 million decrease in restructuring costs, and (ii) a $0.2 million decrease in facility rent. This decrease was partially offset by a $2.0 million decrease in the refundable research and development tax credits from the U.K. government due to a reduction in qualifying research and development expenses.
Direct research and development expenses were largely consistent for the years ended December 31, 2024 and 2023, as the increase driven by $6.0 million of expenses related to our budoprutug program in 2024 was offset by a $5.9 million decrease in expenses related to our legacy programs.
General and Administrative
General and administrative expenses decreased 35.5% from $24.9 million for the year ended December 31, 2023 to $16.0 million for the year ended December 31, 2024. This decrease was due to (i) a $12.3 million reduction in personnel-related expenses, primarily driven by a decrease in restructuring costs of $14.2 million, and partially offset by an increase of $1.9 million from increased headcount and offset by (ii) a $3.4 million increase in other general and administrative expenses, largely due to an increase in consulting fees, legal expenses, and human resource costs.
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Other Income (Expense)
Foreign Currency (Loss) Gain
Foreign currency (loss) gain decreased 101.7% from a $0.5 million gain for the year ended December 31, 2023 to a $9,000 loss for the year ended December 31, 2024. The decrease was driven primarily by a reduction of our foreign currency denominated balances as well as unfavorable changes in foreign currency exchange rates for the year ended December 31, 2024.
Interest Income, net
Interest income, net increased 76% from $4.6 million for the year ended December 31, 2023 to $8.1 million for the year ended December 31, 2024, which was driven by an increase in marketable securities for the year ended December 31, 2024.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have primarily funded our operations with an aggregate of $328.0 million in net proceeds from the sale and issuance of shares of our redeemable convertible preferred stock, our initial public offering of our common stock and the sale and issuance of shares of our common stock in a private placement in June 2024. We have not generated any revenue from product sales or otherwise. We have incurred net losses from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of December 31, 2024 and December 31, 2023, we had cash, cash equivalents and marketable securities of $212.5 million and $106.8 million, respectively, and an accumulated deficit of $229.9 million and $156.0 million, respectively.
Funding Requirements
We believe our cash, cash equivalents and marketable securities of $212.5 million as of December 31, 2024 will be sufficient to fund our operations through 2027. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.
We anticipate that our expenses will increase for the foreseeable future as we continue to advance our current product candidates and any product candidates we may develop, expand our corporate infrastructure, and incur costs associated with potential commercialization.
We are subject to all of the risks typically related to the development of biopharmaceutical candidates, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.
Our future funding requirements will depend on many factors, including the following:
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the timing, cost and progress of our research, preclinical, and clinical development activities;
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the progress, costs and results of our clinical trials of budoprutug in pMN, ITP, and SLE and any future clinical trials of our product candidates;
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the number and scope of development, preclinical and clinical programs we decide to pursue;
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the terms of any collaborations and/or research and development agreements we may enter into, which may impact the cost, timing and development plans of one or more of our product candidate programs;
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the costs involved in prosecuting and enforcing patent and other intellectual property claims;
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the costs of manufacturing our product candidates by third parties;
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the cost of regulatory requirements, regulatory submissions and timing of regulatory approvals;
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the potential delays in our preclinical studies, our development programs and our ongoing and planned clinical trial activities due to the effects of global events, including macroeconomic conditions and continued supply chain disruptions;
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the impact of inflationary pressures on salaries and wages, and costs of goods and transportation expenses, among other things;
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•
the cost of commercialization activities if budoprutug, CLYM116, or any product candidates we may develop are approved for sale, including marketing, sales and distribution costs; and
•
our efforts to enhance operational systems and hire personnel to support development of budoprutug, CLYM116, or any product candidates we may develop.
Furthermore, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures. Until such time, if ever, as we can generate substantial revenue from product sales, we may finance our operations through equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or our product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market budoprutug, CLYM116, or any product candidates we may develop even if we would otherwise prefer to develop and market such product candidates ourselves.
Cash Flows
The following table sets forth our cash flows (in thousands):
Year EndedDecember 31,
Net cash used in operating activities $ (15,562 ) $ (20,599 )
Net cash (used in) provided by investing activities (121,092 ) 68,981
Net cash provided by financing activities 130,729 841
Operating activities
In 2024, net cash used in operating activities was $15.6 million. This consisted primarily of a net loss of $73.9 million, which was partially offset by (i) non-cash charges of $56.6 million that consisted primarily of IPR&D and stock-based compensation expense and (ii) changes in our operating assets and liabilities that resulted in a net increase in cash of $1.7 million.
In 2023, net cash used in operating activities was $20.6 million. This consisted primarily of a net loss of $35.1 million, which was partially offset by (i) non-cash charges of $10.8 million that consisted of stock-based compensation expense of $12.8 million, right-of-use (ROU) asset impairment expense of $0.2 million, and non-cash lease expense of $0.4 million, partially offset by accretion of discounts on investments of $2.3 million and foreign currency gain on remeasurement of $0.3 million and (ii) changes in our operating assets and liabilities that resulted in a net increase in cash of $3.7 million, primarily related to receipt of research and development tax credits from the U.K. government.
Investing activities
In 2024, net cash used in investing activities was $121.1 million. This consisted of purchases of $132.2 million of marketable securities, the issuance of a promissory loan of $5.0 million and cash paid of $4.6 million in connection with the Acquisition, partially offset by $20.8 million in proceeds received from maturities of marketable securities.
In 2023, net cash provided by investing activities was $69.0 million. This consisted of $127.4 million in proceeds received from maturities of investments in marketable securities, partially offset by purchases of $58.4 million of investments in marketable securities.
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Financing activities
In 2024, net cash provided by financing activities was $130.7 million. This consisted of $119.7 million in proceeds received from the issuance of our common stock in a private placement in June 2024 and $11.0 million in proceeds from exercises of stock options.
In 2023, net cash provided by financing activities was $0.8 million, attributable to proceeds from the exercise of stock options.
Contractual Commitments and Obligations
In the normal course of business, we enter into contracts with contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), and other third parties for preclinical studies and clinical trials, research and development supplies, and other testing and manufacturing services. These contracts do not contain material minimum purchase commitments and generally provide us with the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. However, it is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each agreement.
We lease operating spaces in the U.S. under non-cancelable operating lease arrangements that expire on various dates through January 31, 2027. As discussed further in Note 8 in our consolidated financial statements, we entered into a non-cancellable sublease agreement for office space in Bellevue, Washington in July 2023 and into a non-cancellable lease agreement for office space in Wellesley Hills, Massachusetts in October 2024. As of December 31, 2024, our undiscounted future minimum lease payments under non-cancelable lease agreements (net of sublease income) was approximately $0.5 million.
Following the Acquisition, we have obligations under an asset purchase agreement and certain license agreements that obligate us to make specified milestone and royalty payments. The payment obligations under these agreements are contingent upon future events, such as our achievement of specified development, regulatory and commercial milestones, or generating product sales. We are unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. See Note 7 in our consolidated financial statements included herein for a discussion of these milestone and royalty obligations.
Critical Accounting Policies and Estimates
A summary of the significant accounting policies is provided in Note 2 to our consolidated financial statements.
This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management considers an accounting estimate to be critical if:
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it requires a significant level of estimation uncertainty; and
•
changes in the estimate are reasonably likely to have a material effect on our financial condition or results of operations.
We believe the following critical accounting policies and estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements.
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Stock-Based Compensation
We measure our stock-based awards granted to employees, non-employee directors, consultants and independent advisors based on the estimated grant-date fair value of the awards. We use the Black-Scholes option pricing model to estimate the fair value of our stock option awards. The Black-Scholes option pricing model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term, expected volatility of our common stock, risk-free interest rate and expected dividend yield. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation is recognized. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation recognized in future periods could be materially different.
Refer to Notes 2 and 9 in our consolidated financial statements for further details regarding the development and evaluation of the assumptions used to estimate the fair value of our stock-based awards, and the related effect of stock-based compensation expense on the consolidated financial statements.
Internal Controls over Financial Reporting
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2020, we identified material weaknesses in our internal control over financial reporting, two of which remain unremediated as of December 31, 2024. The material weaknesses, and our remediation plan, are disclosed in Item 9A of this Annual Report on Form 10-K.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years audited consolidated financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.24 billion or more, (ii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years, (iii) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates, or (iv) December 31, 2026.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 305(e) of Regulation S-K.
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Item 8. Financial Statements and Supplementary Data.
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) 113
Consolidated Balance Sheets 114
Consolidated Statements of Operations and Comprehensive Loss 115
Consolidated Statements of Stockholders’ Equity 116
Consolidated Statements of Cash Flows 117
Notes to Consolidated Financial Statements 118
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Climb Bio, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Climb Bio, Inc. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
March 25, 2025
We have served as the Company’s auditor since 2021.
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Climb Bio, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
As of December 31,
Assets
Current assets:
Prepaid expenses and other current assets 3,953 3,457
Operating lease right-of-use assets 490 199
Long-term marketable securities 61,610 —
Other long-term assets 215 15
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 705 $ 66
Accrued expenses and other current liabilities 4,069 2,433
Operating lease liabilities 157 334
Total current liabilities $ 4,931 $ 2,833
Operating lease liabilities, net of current portion 375 15
Other long-term liabilities — 22
Commitments and contingencies (Note 8)
Stockholders’ equity
Accumulated other comprehensive income (loss) 23 (2 )
Total liabilities and stockholders’ equity $ 217,187 $ 110,469
The accompanying notes are an integral part of these consolidated financial statements.
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Climb Bio, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Year Ended December 31,
Operating expenses:
Acquired in-process research and development, related party $ 51,659 $ —
Research and development, related party 160 —
Other income (expense):
Foreign currency (loss) gain (9 ) 536
Net loss per share, basic and diluted $ (1.53 ) $ (1.30 )
Comprehensive loss:
Other comprehensive income (loss):
Unrealized gain on investments, net of tax of $0 25 356
The accompanying notes are an integral part of these consolidated financial statements.
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Climb Bio, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
Shares Amount Capital Income (Loss) Deficit Equity
Vesting of restricted stock awards and units 124,737 — — — — —
Other comprehensive income — — — 356 — 356
Vesting of restricted stock awards and units 154,599 — — — — —
Stock-based compensation — — 5,557 — — 5,557
Other comprehensive income — — — 25 — 25
The accompanying notes are an integral part of these consolidated financial statements.
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Climb Bio, Inc.
Consolidated Statements of Cash Flows
(In thousands)
As of December 31,
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Right-of-use asset impairment — 180
Non-cash operating lease expense 220 405
In-process research and development, related party 51,659 —
Foreign currency gain from remeasurement (42 ) (304 )
Changes in operating assets and liabilities:
Prepaid expenses and other assets 1,942 7,370
Accounts payable and accrued liabilities, related party (177 ) —
Accrued expenses and other liabilities 1,445 (2,613 )
Long-term liabilities (22 ) 22
Operating lease liabilities (327 ) (444 )
Net cash used in operating activities $ (15,562 ) $ (20,599 )
Cash flows from investing activities:
Issuance of promissory loan in connection with asset acquisition (5,000 ) —
Cash paid in connection with asset acquisition, net of cash acquired (4,645 ) —
Proceeds from maturities of marketable securities 20,750 127,430
Net cash (used in) provided by investing activities $ (121,092 ) $ 68,981
Cash flows from financing activities:
Proceeds from exercise of stock options 10,979 841
Net cash provided by financing activities $ 130,729 $ 841
Effect of exchange rate changes on cash 42 304
Net change in cash and cash equivalents $ (5,883 ) $ 49,527
Cash and cash equivalents at beginning of period 93,112 43,585
Cash and cash equivalents at end of period $ 87,229 $ 93,112
Supplemental disclosure of cash flow information:
Cash paid for leases included in operating cash outflows $ 350 $ 507
Supplemental disclosure of non-cash investing and financing activities:
Settlement of promissory loan in connection with asset acquisition $ 5,036 $ —
Right-of-use assets obtained in exchange for lease liabilities $ 510 $ 313
The accompanying notes are an integral part of these consolidated financial statements.
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CLIMB BIO, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Basis of Presentation
Organization
Climb Bio, Inc. (the Company), formerly known as Eliem Therapeutics, Inc., is a clinical-stage biotechnology company developing therapeutics for patients with immune-mediated diseases. The Company's pipeline includes budoprutug (previously referred to as TNT119) and CLYM116.
Budoprutug is an anti-CD19 monoclonal antibody designed to treat a broad range of B-cell mediated diseases. The Company is currently developing budoprutug for the treatment of primary membranous nephropathy, immune thrombocytopenia, and systemic lupus erythematosus. CLYM116 is an anti-APRIL (A PRoliferation-Inducing Ligand) monoclonal antibody currently being developed for the treatment of immunoglobin A nephropathy (IgAN). The Company was incorporated on October 18, 2018 in Delaware and in October 2024, relocated its corporate headquarters to Massachusetts.
On June 27, 2024, the Company completed its acquisition of Tenet Medicines, Inc. (the Acquisition). In connection with the closing of the Acquisition, the Company issued and sold 31,238,282 shares of its common stock at a price of $3.84 per share in a private placement to several accredited institutional investors (the Private Placement). The Company received aggregate gross proceeds from the Private Placement of approximately $120.0 million, before deducting offering costs of $0.3 million. For additional information on the Acquisition and Private Placement, please refer to Note 3, Asset Acquisition and Private Placement with a Related Party, in these consolidated financial statements.
In 2024, the Company shifted its focus from developing therapeutics for neuronal excitability disorders to immune-mediated diseases. In connection with this shift, the Company ceased its operations in the United Kingdom (U.K.) and separated from seven U.K. employees.
On January 8, 2025, the Company entered into a technology transfer and exclusive license agreement (the Mabworks Agreement) with Beijing Mabworks Biotech Co., Ltd. (Mabworks), for rights to develop and commercialize CLYM116. For additional information on the Mabworks Agreement, please refer to Note 15, Subsequent Events, in these consolidated financial statements.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements of the Company and its wholly owned subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP). All intercompany transactions and balances have been eliminated in consolidation.
Liquidity
Since inception, the Company has experienced recurring losses from operations and generated negative cash flows from operations. The Company has an accumulated deficit of $229.9 million and expects to incur additional losses from operations in the future. In June 2024, the Company received net proceeds of $119.7 million from the sale and issuance of shares of common stock in the Private Placement.
The Company believes the available cash, cash equivalents and marketable securities of $212.5 million as of December 31, 2024 will be sufficient to meet its projected operating requirements for at least the next twelve months from the filing date of these consolidated financial statements, and the Company anticipates that it will need to raise substantial financing in the future to fund its operations.
The Company may finance future cash needs through equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. There are no assurances that the Company will be able to raise sufficient amounts of funding in the future on acceptable terms, or at all.
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Note 2. Summary of Significant Accounting Policies
A summary of the significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements follows:
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Key management estimates include those related to the accrual of research and development expenses, recoverable research and development tax credits from the U.K. government, and the valuation of stock-based awards. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company’s cash is held by one financial institution in the United States (U.S.) and one financial institution in the U.K. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company’s deposits held in the U.S. and U.K. may exceed the Federal Depository Insurance Corporation’s and Financial Services Compensation Scheme’s, respectively, insured limits. As of December 31, 2024, the Company had investments in money market funds and marketable securities, which are held in a segregated account at a third-party custodian. The Company has established guidelines relative to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. Through December 31, 2024, and the date of this filing, the Company has not experienced any losses on such investments.
Comprehensive Loss
Comprehensive loss consists of net loss and unrealized gains or losses on available-for-sale investments. The Company presents comprehensive loss and its components as part of the statements of operations and comprehensive loss.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on single-source vendors and collaborators, availability of raw materials, patentability of the Company’s product candidates and processes and clinical efficacy and safety of the Company’s product candidates, compliance with government regulations and the need to obtain additional financing to fund operations. Budoprutug, CLYM116, or any product candidate the Company may develop will require significant additional research and development efforts, including extensive preclinical studies, clinical trials, and regulatory approval, prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.
There can be no assurance that any future research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any product candidates developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if any future product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid technological change and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.
Segments
The Company has one operating and reportable segment. Financial information about the Company’s operating segment and the evaluation of segment results is discussed further in Note 14, Segments, to these consolidated financial statements.
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Asset Acquisitions
In accordance with the guidance in Topic 805, Business combinations, in the Financial Accounting Standards Board’s (the FASB) Accounting Standards Codification (ASC), the Company evaluates acquisitions of assets and related liabilities and other similar transactions to assess whether or not a transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If the screen test is met, a transaction is accounted for as an asset acquisition. If the screen test is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs that would meet the requirements of a business. The Company accounts for an asset acquisition by recognizing net assets based on the cost to the acquiring entity on a relative fair value basis. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the non-monetary identifiable assets and liabilities assumed based on relative fair values. In-process research and development acquired in an asset acquisition is expensed provided there is no alternative future use.
The Company accounts for future payments such as those upon achievement of certain regulatory, development or sales milestones in an asset acquisition when the underlying milestones are achieved. Milestone payments made to third parties subsequent to regulatory approval may be capitalized as intangible assets, if deemed to have alternative future use, and amortized over the estimated remaining useful life of the related product.
Fair Value Measurement
Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company measures fair value based on a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liabilities. These include quotedprices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In determining fair value, the Company utilizes quoted market prices, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as counterparty credit risk in its assessment of fair value.
There were no transfers into or out of Level 3 for any of the periods presented.
The Company’s fair value measurements as of December 31, 2024 and 2023 were as follows (in thousands):
Level 1 Level 2 Balance
Assets:
Cash equivalents:
Marketable securities:
U.S. government agency debt securities — 3,501 3,501
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Level 1 Level 2 Balance
Assets:
Cash equivalents:
Marketable securities:
U.S. government agency debt securities — 4,724 4,724
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. As of December 31, 2024 and 2023, the Company’s cash equivalents consisted of money market funds.
Investments in Marketable Securities
Marketable securities are classified as available-for-sale, primarily consisting of U.S. Treasury securities, government agency debt securities, and corporate bonds, and are reported at fair value. Unrealized holding gains and losses are reflected as a separate component of stockholders’ equity in accumulated other comprehensive loss until realized. The cost of debt securities is adjusted for amortization of purchase premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income, net in the statements of operations and comprehensive loss. Realized gains and losses on the sale of these securities are recognized in interest income, net in the consolidated statement of operations and comprehensive loss. The cost of marketable securities sold is based on the specific identification method.
The Company periodically reviews its available-for-sale securities to assess for credit losses. Some of the factors considered in assessing whether an allowance for credit losses is necessary include the extent to which the fair value is less than the amortized cost basis, adverse conditions related to the security, an industry or geographic area, changes to security rating or sector credit ratings, and other relevant market data.
Research and Development Expenses
Research and development expenses consist of research and development services and personnel-related expenses such as salaries, bonuses, benefits, stock-based compensation, termination benefits, professional service fees, and other related costs such as facility rent, partially offset by fully refundable research and development tax credits from the U.K. government.
Research and development expenses include estimates of the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual costs. Management estimates accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known at that time. Examples of estimated accrued research and development expenses include fees paid to:
•
vendors in connection with preclinical and clinical development activities;
•
contract research organizations (CROs) in connection with preclinical studies and clinical trials; and
•
contract development and manufacturing organizations (CDMOs) in connection with the production of preclinical and clinical trial materials.
All research and development costs are expensed in the period incurred, based on the estimates of the services received and efforts expended considering a number of factors, including, progress towards completion of the research, development and manufacturing activities, invoicing to date under the contracts, communication from the CROs, CDMOs and other companies of any actual costs incurred during the period that have not yet been invoiced and the costs included in the contracts and purchase orders. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which advance payments are made or payments made to vendors will exceed the level of services provided and result in a prepayment of the expense.
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Research and Development Tax Credits
The Company received research and development tax credits from the U.K. government based on claims made under the Small Medium Enterprises (SME) research and development tax relief program in 2023. Qualifying expenditures largely related to research and development activities performed by third parties on the Company's behalf, as well as employment costs for research staff and consumables incurred.
The Company evaluated its eligibility for the SME program based on criteria established by HM Revenue and Customs and recorded a reduction to research and development expense for the amount of the credit estimated to be claimed based on qualifying expenses and information available at that time. The Company qualified for tax credits under the SME program for the year ended December 31, 2023. The research and development tax credits were recognized when the qualifying expenditure was incurred and there was reasonable assurance that the reimbursement would be received. As of December 31, 2023, the research and development tax credit was $2.0 million, all of which is classified within the prepaid expenses and other current assets in the consolidated balance sheets and was collected in 2024. No research and development tax credits from the U.K. government were recognized for the year ended December 31, 2024.
General and Administrative Expenses
The Company's general and administrative expenses consist primarily of personnel-related expenses such as salaries, bonuses, benefits, stock-based compensation, and termination benefits, for personnel in executive, finance and accounting, human resources, business development and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, audit, regulatory, tax and consulting services, insurance costs, as well as investor and public relations costs. General and administrative expenses are expensed as incurred.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of operating expenses paid in advance, investment interest receivable, and receivables from refundable research and development tax credits from the U.K. government.
Leases
The Company determines if a contract is or contains a lease at the inception of the contract and classifies that lease as a finance lease if it meets certain criteria or as an operating lease if it does not. The Company reassesses if a contract is or contains a lease upon modification of the contract.
The Company leases office space in the U.S. under non-cancelable operating leases. Operating lease right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term at the commencement date of the lease. ROU assets also include any initial direct costs incurred and any lease payments made on or before the lease commencement date, less any lease incentive received. The Company uses the rate implicit in the lease in determining the present value of lease payments and, if that rate is not readily determinable, the Company uses its incremental borrowing rate commensurate with the lease term based on the information available at the date of lease commencement. The incremental borrowing rate reflects the rate of interest that a lessee would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company does not have material short-term lease costs. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For real estate leases, the Company does not separate lease and non-lease components. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company’s non-lease components are primarily related to property taxes, insurance, and common area maintenance, which vary based on future outcomes, and are recognized as rent expense when incurred.
As discussed further in Note 8, Commitments and Contingencies, to these consolidated financial statements, in October 2024, the Company entered into a non-cancellable lease agreement for office space in Wellesley Hills, Massachusetts and, in July 2023, a non-cancellable sublease agreement for office space in Bellevue, Washington. Sublease income is presented as a reduction of rent expense in the consolidated statement of operations and comprehensive loss.
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Stock-Based Compensation
The Company measures its stock-based awards granted to employees, non-employee directors, consultants and independent advisors based on the estimated grant-date fair value of the awards. For awards with only service conditions, including stock options, restricted stock awards, and restricted stock units, compensation expense is recognized over the requisite service period using the straight-line method. For awards with performance-based conditions, including restricted stock units, compensation expense is recognized when it is probable that the performance conditions will be achieved. The Company uses the Black-Scholes option pricing model to estimate the fair value of its stock option awards. The Black-Scholes option pricing model requires the Company to make assumptions and judgments about the variables used in the calculations, including the expected term, expected volatility of the Company’s common stock, risk-free interest rate and expected dividend yield. As the stock-based compensation is based on awards ultimately expected to vest, it is reduced by forfeitures, which the Company accounts for as they occur.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
Foreign Currency
The Company’s reporting currency is the U.S. dollar. The functional currency of the Company and its subsidiaries is the U.S. dollar. Monetary assets and liabilities resulting from transactions denominated in currencies other than the functional currency are remeasured in the functional currency at exchange rates prevailing at the balance sheet date, and income items and expenses are translated into U.S. dollars at the average exchange rate in effect during the period. Exchange gains and losses resulting from remeasurement and foreign currency transactions are included in the determination of net loss.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase. As of December 31, 2024, there were no outstanding shares subject to repurchase.
Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per share is the same as basic net loss per share, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
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Emerging Growth Company Status
The Company is an emerging growth company (EGC), as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to avail itself of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06 (ASU 2020-06), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity. The standard simplified accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments are reported as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removed certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which permitted more equity contracts to qualify for it. The standard also simplified the diluted net income per share calculation in certain areas. The effective date of this update for non-public companies was for fiscal years beginning after December 15, 2023, including interim periods therein. Early adoption was permitted for fiscal years beginning after December 15, 2020 and interim periods therein. The Company adopted ASU 2020-06 on January 1, 2024, which did not have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07 (ASU 2023-07), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which required, among other things, the following: (i) enhanced disclosures about significant segment expenses that are regularly provided to the CODM and included in a segment’s reported measure of profit or loss; (ii) disclosure of the amount and description of the composition of other segment items, as defined in ASU 2023-07, by reportable segment; and (iii) reporting the disclosures about each reportable segment’s profit or loss and assets on an annual and interim basis. The provisions of ASU 2023-07 were effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 on December 31, 2024, and applied the amendments retrospectively to all prior periods presented in these consolidated financial statements (see Note 14, Segments, to these consolidated financial statements).
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09 (ASU 2023-09), Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires, among other things, the following for public business entities: (i) enhanced disclosures of specific categories of reconciling items included in the rate reconciliation, as well as additional information for any of these items meeting certain qualitative and quantitative thresholds; (ii) disclosure of the nature, effect and underlying causes of each individual reconciling item disclosed in the rate reconciliation and the judgment used in categorizing them if not otherwise evident; and (iii) enhanced disclosures for income taxes paid, which includes federal, state, and foreign taxes, as well as for individual jurisdictions over a certain quantitative threshold. The amendments in ASU 2023-09 eliminate the requirement to disclose the nature and estimate of the range of the reasonably possible change in unrecognized tax benefits for the 12 months after the balance sheet date. The effective date of this update for non-public companies is for fiscal years beginning after December 15, 2025; early adoption is permitted. The Company expects ASU 2023-09 to require additional disclosures in the notes to its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03 (ASU 2024-03), Disaggregation of Income Statement Expenses, which requires additional disclosures about specific types of expenses included in the expense captions presented on the face of the income statement, as well as, disclosures about selling expenses. The provisions of ASU 2024-03 are effective for public business entities for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The guidance is to be applied prospectively, with the option for retrospective application. The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements.
There were no other significant updates to the recently issued accounting standards other than as disclosed herewith for the year ended December 31, 2024.
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Although there are several other new accounting pronouncements issued or proposed by the FASB, the Company does not believe any of those accounting pronouncements have had or will have a material impact on its financial position or operating results.
Note 3. Asset Acquisition and Private Placement with a Related Party
Background
The Company entered into (i) an Agreement and Plan of Merger and Reorganization, dated as of April 10, 2024 (the Acquisition Agreement), by and among the Company, Tango Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (Transitory Subsidiary), Tenet Medicines, Inc. (Tenet), a Delaware corporation, and, solely in his capacity as Tenet equityholder representative, Stephen Thomas, providing for the acquisition of Tenet by the Company through the merger of Transitory Subsidiary into Tenet, with Tenet surviving as a wholly owned subsidiary of the Company, (ii) a Securities Purchase Agreement, dated as of April 10, 2024 (the Securities Purchase Agreement), by and among the Company and several accredited institutional investors (the PIPE Investors) including funds affiliated with RA Capital Management, L.P. (RA Capital Management), pursuant to which the Company agreed to issue and sell to the PIPE Investors in the Private Placement an aggregate of 31,238,282 shares (the PIPE Shares) of the Company’s common stock, and (iii) a registration rights agreement with the PIPE Investors, pursuant to which the Company agreed to register for resale the PIPE Shares.
On June 27, 2024, the Company completed its acquisition of Tenet in accordance with the terms of the Acquisition Agreement. Tenet was a private, development stage biotechnology company that was majority-owned by funds affiliated with RA Capital Management prior to the closing of the Acquisition. Immediately prior to the closing of the Acquisition and Private Placement, RA Capital Management beneficially owned approximately 43.9% of the Company’s outstanding common stock. The Private Placement closed immediately following the closing of the Acquisition. The Company received aggregate gross proceeds from the Private Placement of approximately $120.0 million, before deducting offering costs of $0.3 million. The offering costs were recorded as a reduction of additional paid-in capital generated in connection with the Private Placement.
At the effective time of the Acquisition, by virtue of the Acquisition and without any action on the part of the holders of common stock of Tenet, (i) all issued and outstanding shares of the common stock of Tenet and (ii) all securities convertible into shares of common stock of Tenet were converted into the right to receive, in the aggregate, 5,560,047 shares of the Company’s common stock.
Basis of Presentation
In accordance with the ASC Topic 805, Business Combinations, the Company first evaluated the initial screen test to determine if substantially all of the fair value of the gross assets acquired of Tenet was concentrated in a single asset or a group of similar assets. The Company concluded that substantially all of the fair value of the gross assets being acquired of Tenet was concentrated in the IPR&D related to the budoprutug asset. Accordingly, the Company accounted for the Acquisition as an asset acquisition. In accordance with the asset acquisition method of accounting, the cost of the asset acquisition, which reflects the consideration transferred, (i) was allocated to the assets acquired and liabilities assumed on a relative fair value basis, (ii) no goodwill was recorded and (iii) all direct transaction costs were included in the total consideration transferred.
As illustrated further below, the amount of the consideration transferred that was allocated to the IPR&D was $51.7 million, which was expensed on the consolidated statements of operations and comprehensive loss, as the IPR&D was determined to have no future alternative use at the closing of the Acquisition.
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Consideration Transferred
The fair value of the total consideration was approximately $52.8 million and was comprised of the following components (in thousands):
Equity consideration $ 41,867
Settlement of pre-existing loan 5,036
Direct transaction costs 5,849
Total consideration $ 52,752
•
Equity consideration: Based on: (i) the issuance of 5,560,047 shares of the Company’s common stock issued to the equityholders of Tenet and (ii) the closing stock price of the Company’s common stock on the Nasdaq Global Market on June 27, 2024, which was $7.53 per share.
•
Settlement of pre-existing loan: In May 2024, the Company and Tenet entered into a Senior Secured Promissory Note (the Note) providing for the Company to make short-term loans to Tenet up to an aggregate principal amount of $15.0 million. Pursuant to the Note, the Company made a loan (the Loan) of $5.0 million to Tenet in order to provide it with sufficient cash to fund its operations prior to the consummation of the Acquisition. The Loan included simple interest at a fixed rate per annum of 6%. Upon closing of the Acquisition, the Loan and accrued interest were eliminated in the consolidated financial statements as the preexisting relationship was effectively settled and included in consideration transferred. Further, as the carrying value of the Loan was determined to approximate fair value at the time of the Acquisition, no gain or loss was recorded upon the effective settlement.
•
Transaction costs: Represents the direct transaction costs, primarily legal and advisory services incurred by the Company in connection with the Acquisition.
Purchase Price Allocation
The following is the allocation of the purchase consideration for the Acquisition based on the fair value of the net assets acquired by the Company (in thousands):
Assets acquired
In-process research and development $ 51,659
Cash and cash equivalents 1,204
Prepaid expenses and other current assets 1,861
Total assets acquired $ 54,724
Liabilities assumed
Accounts payable (1,603 )
Accounts payable, related party (101 )
Accrued expenses and other current liabilities (192 )
Accrued expenses, related party (76 )
Total liabilities assumed $ (1,972 )
Net assets acquired $ 52,752
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Note 4. Investments
Investments consisted of available-for-sale securities as follows (in thousands):
Amortized Cost Unrealized Gain Unrealized Loss Estimated FairValue
Short-term marketable securities:
Total short-term marketable securities $ 63,649 $ 50 $ (9 ) $ 63,690
Long-term marketable securities:
U.S. government agency debt securities 3,500 1 — 3,501
Amortized Cost Unrealized Gain Unrealized Loss Estimated FairValue
Short-term marketable securities:
U.S. Treasury securities $ 8,962 $ — $ — $ 8,962
U.S. government agency debt securities 4,726 — (2 ) 4,724
Total short-term marketable securities $ 13,688 $ — $ (2 ) $ 13,686
The Company's corporate bonds, and U.S. Treasury securities which are designated as short-term marketable securities have a contractual maturity date that is equal to or less than one year from the respective balance sheet date. The Company's corporate bonds, U.S. Treasury securities, and U.S. government agency debt securities which are designated as long-term marketable securities have a contractual maturity date that is more than one year from the respective balance sheet date.
The unrealized losses on the Company’s available-for-sale securities as of December 31, 2024 and 2023 were not material and were caused by fluctuations in market values and interest rates as a result of the economic environment. The Company concluded that an allowance for credit losses was unnecessary as of December 31, 2024 and 2023 because the decline in the market value was attributable to changes in market conditions and not credit quality, and that it is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value. There was no material realized gain or loss on available-for-sale securities in the periods presented.
The Company excludes accrued interest from both the fair value and the amortized cost basis of its available-for-sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. The Company presents the accrued interest receivable balance in prepaid expenses and other current assets in the consolidated balance sheets. Accrued interest receivable related to marketable securities as of December 31, 2024 and 2023 was $0.8 million and $0.4 million, respectively.
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Investments in a continual unrealized loss position for less than 12 months consisted of the following (in thousands):
Fair Value Fair Value
Corporate bonds $ 23,375 $ —
U.S. government agency debt securities — 2,234
Total available-for-sale securities $ 36,454 $ 8,201
The Company did not have any investments in a continual unrealized loss position for greater than 12 months as of December 31, 2024 and 2023.
Note 5. Certain Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
Prepaid research and development deposits and expenses $ 1,856 $ 34
Investment interest receivable 1,119 440
Recoverable research and development tax credits — 2,024
Total prepaid expenses and other current assets $ 3,953 $ 3,457
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Accrued research and development expenses 1,237 28
Other accrued expenses 804 90
Other current liabilities 31 138
Accrued restructuring expenses — 1,066
Total accrued expenses and other current liabilities $ 4,069 $ 2,433
Note 6. Related Party Transactions
As a result of the Acquisition, the following legacy Tenet agreements effectively became agreements of the Company.
Services Agreement with Sera Services, Inc.
In November 2023, Tenet entered into an agreement (the Sera Services Agreement) with Sera Services, Inc. (Sera Services), a wholly-owned subsidiary of Sera Medicines, LLC (Sera Medicines), which was subsequently transferred to the Company by operation of law upon the closing of the Acquisition, pursuant to which Sera Services provides research and other services to the Company. Sera Medicines is an entity controlled by RA Capital Management. Dr. Stephen Thomas, a current board member of the Company, owns a minority ownership in and is also a board member of Sera Medicines.
Under the terms of the Sera Services Agreement, the Company compensates Sera Services on a fully burdened cost basis for personnel time devoted to Company projects.
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In addition, the Company reimburses Sera Services on a cost basis for any subcontractor costs incurred. The Company pays Sera Services on a monthly basis, in arrears, for services performed and costs incurred.
The Sera Services Agreement has a term of two years and will automatically renew on its anniversary date for additional one-year terms. The Company may terminate the Sera Services Agreement by giving 30 days’ prior notice to Sera Services. The Company paid approximately $0.1 million to Sera Services for services provided under the Sera Services Agreement for the year ended December 31, 2024.
Services Agreement with Blackbird Clinical, Inc.
Tenet was a party to a service agreement with Blackbird Clinical, Inc. (Blackbird), an entity controlled by RA Capital Management (the Blackbird Services Agreement). Under the terms of the Blackbird Services Agreement, Blackbird provided consulting services to Tenet in connection with its clinical trials, including study strategy, clinical operations and patient operations. For the year ended December 31, 2024, the Company paid approximately $0.1 million to Blackbird under the Blackbird Service Agreement. In October 2024, the Company terminated the Blackbird Service Agreement.
Refer to Note 3, Asset Acquisition and Private Placement with a Related Party, in these consolidated financial statements for additional related party transactions.
Note 7. License Agreements
As a result of the Acquisition, the following legacy Tenet agreements effectively became agreements of the Company.
Acelyrin Asset Purchase Agreement
On January 11, 2024, Tenet entered into an asset purchase agreement (the Asset Purchase Agreement) with Acelyrin, Inc. (Acelyrin) and WH2, LLC, which was subsequently transferred to the Company by operation of law upon the closing of the Acquisition, providing for the acquisition of certain assets of Acelyrin related to budoprutug (the Transferred Assets), including certain assigned contracts. Under these assigned contracts, the Company (i) received worldwide licenses (with the right to sublicense) to certain patents, know-how and other intellectual property rights to develop, manufacture, use and commercialize budoprutug for any non-oncology indication, and (ii) assumed certain liabilities of Acelyrin arising from (1) governmental authority action or notification relating to budoprutug, (2) contracts assigned to the Company pursuant to the Asset Purchase Agreement and (3) the Company’s ownership, lease or operation of the Transferred Assets.
In addition, the Company inherited the rights and obligations, including financial obligations, under the CRH Agreement (as defined below) and the ProBioGen Agreement (as defined below). In consideration for the license and other rights the Company received under the Asset Purchase Agreement, the Company is obligated to (i) make total payments of up to $157.5 million to Acelyrin upon the achievement of various development, regulatory and commercial milestones, (ii) pay royalties in the single-digit percentages, subject to specified reductions, to Acelyrin on worldwide net sales in a given calendar year, and (iii) make non-refundable and non-creditable payments to Acelyrin on sublicense income with rates ranging from the low single digit to mid teen percent depending on the stage of development of the most advanced Products (as defined below) at the time of such sublicense. The royalty term continues for each licensed product incorporating or comprising budoprutug (a Product) on a country-by-country and Product-by-Product basis beginning on the first commercial sale of such Product and ending on the latest of (a) the date when such Product is no longer covered by a valid claim of a royalty-bearing patent in such country, (b) the expiration of any regulatory exclusivity period for such Product in such country, and (c) the twelfth anniversary of the first commercial sale of such Product in such country.
The Company is obligated to use commercially reasonable efforts to commercialize at least one Product in the U.S. and to achieve specified development, regulatory and commercial milestones set forth in the Asset Purchase Agreement. If Acelyrin asserts that the Company has failed to meet one or more of these diligence obligations within specified time periods, and such failure is finally determined through a dispute resolution process, Acelyrin shall have the right to repurchase the Transferred Assets at the then-fair market value of such Transferred Assets, as Acelyrin’s sole and exclusive remedy for such breach.
If, within a specified period, the Company receives a bona fide offer or proposal from a third party to sell, transfer or otherwise divest all or substantially all of the rights to the Transferred Assets or Products, or grant an exclusive license or exclusive sublicense to such third party to develop and commercialize Products under specified terms, then prior to entering into any discussions or negotiations with any third party in relation to such a transaction, the Company shall provide written notice to Acelyrin of such intent or receipt of proposal. Acelyrin shall have the right to negotiate with the Company the terms for a definitive agreement with respect to such sale, transfer or grant of the rights to Products for a specified period of time.
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If Acelyrin does not exercise its right to negotiate or the parties are unable to agree on the terms of a definitive agreement, the Company shall have the right to negotiate or enter into an agreement with a third party with respect to such transaction, subject to specified conditions.
The Company may not sell, assign or transfer all or substantially all of the rights to develop or commercialize a Product unless, as a condition to such sale, assignment or transfer, the purchaser, assignee or transferee (as applicable) assumes in writing all obligations of the Company as set forth in the Asset Purchase Agreement with respect to the applicable Products.
As of December 31, 2024, the Company has not recognized milestone payments under the Asset Purchase Agreement as the underlying milestones were not achieved and are not assessed as probable.
CRH Agreement
In connection with the Asset Purchase Agreement, in January 2024 Tenet was assigned a license agreement with Cancer Research Technology Limited (CRH) and, in connection with such assignment, Tenet entered into an amended and restated license agreement with CRH (the CRH Agreement) which was subsequently transferred to the Company by operation of law upon the closing of the Acquisition. The CRH Agreement granted the Company a worldwide exclusive license (other than specified patent rights and materials, which are licensed to the Company on a non-exclusive basis) under certain know-how, patents and materials, or the licensed rights, to research, develop, test, manufacture or sell certain licensed products related to budoprutug, for all therapeutic uses except for oncology indications. The Company is permitted to grant a sublicense under these licenses with CRH’s prior written consent.
CRH retains, on behalf of itself and the charitable company Cancer Research U.K., a worldwide, fully paid-up, perpetual and irrevocable right in the licensed rights and in certain intellectual property owned or controlled by the Company that is necessary to exploit the licensed products and used, conceived or generated in the course of exercising the license or exploiting any licensed product, or product-specific foreground intellectual property, for the purpose of non-commercial, non-clinical scientific research.
The Company is obligated to use commercially reasonable efforts to perform all activities set forth in a mutually agreed-upon development plan within the timelines set forth therein. The Company is also obligated to develop at least one licensed product in an autoimmune indication and to pursue worldwide regulatory authorization for licensed products. The Company must use commercially reasonable efforts to commercialize each licensed product throughout each of the specified major markets as soon as practicable following receipt of regulatory authorization for such product in such market. Additionally, the Company must make the licensed product available through the U.K. and negotiate with relevant regulatory authorities to make each licensed product available through the National Health Service in England and Wales within a specified time of the licensed product being made available elsewhere in the territory. If the Company fails to meet one or more of these diligence obligations, and such failure is not remedied within the specified cure period, CRH shall have the right to terminate the CRH Agreement with respect to the relevant licensed product.
The Company is obligated to pay CRH a mid-five figure digit fee on each anniversary of the effective date. The Company is obligated pay up to an aggregate of £106.8 million ($134.1 million) upon the achievement of specified development, regulatory, commercial and sales milestone events, including: (i) payments of up to mid-six figure digits in pounds sterling for certain development milestones, (ii) payments of up to low-eight figures in pounds sterling per indication (for up to three indications) for certain regulatory and commercial milestones and (iii) payments up to mid-eight figures in pounds sterling for certain sales milestones. The Company is also obligated to pay tiered royalties ranging from a rate in the mid-single digit to high-single digit percentage on net sales.
The royalty term continues for each licensed product on a country-by-country basis beginning on the first commercial sale of such licensed product and ending on the latest of (a) the date when such licensed product is no longer covered by a valid claim of a licensed patent in such country, (b) the expiration of the exclusivity period for such licensed product in such country, and (c) the tenth anniversary of the first commercial sale of such licensed product in such country.
The Company is also responsible for a sublicensing revenue payment ranging from a rate in the mid-single digit to mid-double digits for any sublicense revenue.
The CRH Agreement shall remain in effect in each country in the territory until the expiry of the Company’s obligation to pay royalties in such country. Either party may terminate the CRH Agreement if the other party is in material breach that has not been remedied within the specified cure period or if the other party becomes insolvent.
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CRH also has the right to terminate the CRH Agreement if the Company or one of the Company’s sublicensees or affiliates challenges a licensed patent, or if the Company is acquired by a tobacco company.
As of December 31, 2024, the Company has not recognized milestone payments under the CRH Agreement as the underlying milestones were not achieved and are not assessed as probable.
ProBioGen Agreement
Under the Asset Purchase Agreement, Tenet was assigned a cell line development, manufacturing services and license agreement (the ProBioGen Agreement) originally entered into by ValenzaBio, Inc. and ProBioGen AG (ProBioGen) in February 2021, which was subsequently transferred to the Company by operation of law upon the closing of the Acquisition.
The ProBioGen Agreement granted the Company a non-exclusive license under certain know-how, patents and materials, to use cell lines in which ProBioGen’s proprietary technology is applied, to research, develop, manufacture, use, sell, offer to sell, import or export budoprutug. This license includes a non-exclusive sublicense by ProBioGen of certain third-party patent rights, limited to the use of budoprutug.
The Company is obligated to (i) make payments of up to €10.0 million ($10.4 million) upon the achievement of certain development, manufacturing and commercial milestones, including the start of a Phase 2 clinical trial for budoprutug, and (ii) make milestone payments of up to €7.0 million ($7.3 million) upon the achievement of certain sales milestones.
If the Company elects to contract ProBioGen to perform certain manufacturing services for budoprutug, the milestone payments would be reduced by €1.1 million ($1.1 million).
The ProBioGen Agreement will remain in effect until the services are completed for the service-related component and until the payment obligations expire in connection with the commercial license component. Both parties have the right to terminate the ProBioGen Agreement if the other party becomes insolvent or materially breaches the ProBioGen Agreement and fails to remedy such default within the specified cure period.
As of December 31, 2024, the Company has not recognized milestone payments under the ProBioGen Agreement as the underlying milestones were not achieved and are not assessed as probable.
Note 8. Commitments and Contingencies
Operating Leases
The Company leases office space in the U.S. under non-cancelable operating leases and leased office space in the U.K. from May 2021 until June 30, 2024.
In October 2024, the Company agreed to lease approximately 4,000 square feet of office space in Wellesley Hills, Massachusetts. The term of this lease is 24 months, which commenced on November 1, 2024. The lease contains rent escalation clauses and an option to extend the term of the lease for an additional 12-month period at a market rate determined according to the lease. At the lease’s inception and as of December 31, 2024, the Company expects to exercise its option to extend the lease, and therefore the period covered by this option is included in the lease term.
In May 2021, the Company entered into an agreement for office space in Cambridge, U.K. The term of this lease was for a period of 24 months, which commenced on July 1, 2021. In March 2023, the Company agreed to extend this lease until June 30, 2024. This extension was accounted for as a lease modification under ASC 842, Leases, and the ROU asset and lease liability were remeasured at the modification date. The remeasurement of the lease resulted in an increase in both the operating ROU asset and the operating lease liability of approximately $0.3 million.
In November 2021, the Company agreed to lease approximately 5,000 square feet of office space in Bellevue, Washington. The term of this lease is 39 months, which commenced on November 1, 2021. The lease contains rent escalation clauses and an option to extend the term of the lease for an additional 3-year period at a market rate determined according to the lease. At the lease’s inception and as of December 31, 2024, the Company does not expect that it will exercise its option to extend the lease, and therefore the period covered by this option is not included in the lease term.
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In July 2023, the Company entered into a non-cancellable sublease agreement for the Bellevue office space, under the terms of which the Company is entitled to receive $0.2 million in lease payments over the term of the sublease, which commenced in July 2023 and ends concurrently with the original lease in January 2025.
In advance of the sublease, the Company ceased use of and vacated the Bellevue office space in June 2023.
The Company considered these circumstances to be an indicator of impairment and recorded an ROU asset impairment loss of $0.2 million in 2023, which was the amount by which the carrying value of the lease ROU asset exceeded the fair value. The fair value is based on the discounted cash flows of anticipated net rental income for the office space subleased. The ROU asset impairment loss is included in general and administrative expense in the consolidated statements of operations and comprehensive loss.
As of December 31, 2024, the weighted-average lease term was 2.9 years and the weighted-average incremental borrowing rate used to determine the operating lease liabilities was 8.5%.
The Company incurred $0.1 million and $0.4 million in rent expense for the years ended December 31, 2024 and 2023, respectively. Sublease income was $0.1 million and $48,000 for the years ended December 31, 2024 and 2023, respectively, which was classified as a reduction in rent expense.
As of December 31, 2024, the annual future minimum lease payments due under the Company’s non-cancelable operating leases were as follows (in thousands):
Operating Lease Sublease Net Operating
Year Ending December 31, Payments Income Lease Payments
Total undiscounted lease payments $ 603 $ (11 ) $ 592
Present value adjustment (71 )
Total operating lease liabilities $ 532
Legal Proceedings
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. As of the date of these consolidated financial statements, the Company is not party to any material legal matters or claims.
Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless, and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company intends to enter into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is immaterial.
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Note 9. Stock-Based Compensation
2019 Plan
In 2019, the Company adopted the 2019 Equity Incentive Plan (the 2019 Plan). The 2019 Plan provided for the Company to grant qualified stock options, non-qualified stock options, and restricted stock awards to employees, non-employee directors and consultants of the Company under terms and provisions established by the Company’s board of directors. Under the terms of the 2019 Plan, options were granted at an exercise price no less than fair value of the Company’s common stock on the grant date, except in certain cases related to employees outside of the U.S. Option awards granted typically had 10-year terms measured from the option grant date. While no shares are available for future issuance under the 2019 Plan, it continues to govern outstanding equity awards granted thereunder.
2021 Plan and ESPP
The compensation committee of the Company’s board of directors adopted and the Company’s stockholders approved the 2021 Equity Incentive Plan (the 2021 Plan) and the 2021 Employee Stock Purchase Plan (the ESPP), which became effective in August 2021. The 2021 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards. The Company’s employees, officers, directors and consultants are eligible to receive awards under the 2021 Plan. Under the terms of the 2021 Plan, options are granted at an exercise price no less than fair value of the Company’s common stock on the grant date, except in certain cases related to significant corporate transactions. Option awards granted typically have 10-year terms measured from the option grant date. As of December 31, 2024, the total number of shares authorized for issuance under the 2021 Plan was 6,785,350. Any shares that are returned under the 2019 Plan as a result of cancellation or forfeiture become available under the 2021 Plan. Further, the number of shares of common stock reserved for issuance under the 2021 Plan automatically increases on January 1 of each year, beginning on January 1, 2022, and continuing through and including January 1, 2031, by 5% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year, or a lesser number of shares determined by the Company’s board of directors prior to the applicable January 1st.
The ESPP allows employees, including executive officers, to contribute up to 15% of their earnings, subject to certain limitations, for the purchase of the Company’s common stock at a price per share equal to the lower of (a) 85% of the fair market value of a share of common stock on the first day of the offering period, or (b) 85% of the fair market value of a share of common stock on the last day of the offering period. As of December 31, 2024, there were1,064,225 shares of common stock reserved for future issuance under the ESPP. The number of shares of common stock reserved for issuance under the ESPP automatically increases on January 1 of each calendar year, beginning on January 1, 2022 and continuing through and including January 1, 2031, by the lesser of (1) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (2) a number of shares determined by the Company’s board of directors. Shares subject to purchase rights granted under the ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under the ESPP.
As of December 31, 2024, no shares have been granted or purchased under the ESPP.
Stock Options
Awards with vesting conditions under both plans typically vest 25% on the first anniversary of the grant date with the remainder vesting monthly over the following three years.
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The activity for stock options is as follows:
Weighted
Average
Weighted Remaining Aggregate
Average Contract Intrinsic
Options Exercise Terms Values
Outstanding Price (in years) (in thousands)
The aggregate intrinsic value disclosed in the above table is based on the difference between the exercise price of the stock option and the fair value of the Company’s common stock as of the respective period-end dates. The weighted-average grant date fair value of stock options granted during the years ended December 31, 2024 and 2023 was $5.56 per share and $2.25 per share, respectively.
The Black-Scholes option pricing model for employee and nonemployee stock options incorporates the following assumptions:
•
Fair Value of Common Stock — The fair value of each share of common stock is based on the closing price of the Company’s common stock on the date of grant as reported on the Nasdaq Global Market.
•
Volatility — The expected stock price volatilities are estimated based on the historical and implied volatilities of comparable publicly tradedcompanies as the Company does not have sufficient history of trading in its common stock.
•
Risk-free Interest Rate — The risk-free interest rates are based on US Treasury yields in effect at the grant date for notes with comparable termsas the awards.
•
Expected Term — The expected term represents the period that the Company’s stock options are expected to be outstanding and is determinedusing the simplified method (based on the mid-point between the vesting date and the end of the contractual term).
•
Dividend Yield — The expected dividend yield assumption is based on the Company’s current expectations about its anticipated dividend policy.
The fair value of the Company’s stock option awards was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for the years ended December 31, 2024 and 2023:
Year Ended December 31,
Expected dividend yield 0.00% 0.00%
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Restricted Stock
The Company has: (i) restricted stock awards with service conditions that vest 25% on the first anniversary of the grant date and the remainder vesting monthly over the following three years and (ii) restricted stock units (RSUs) that vest quarterly over a two and a half year period or vest 25% annually over a four year period, and (iii) RSUs with performance-based vesting conditions. The restricted stock awards are subject to repurchase by the Company at the original purchase price in the event that the award recipient’s employment or relationship is terminated prior to the shares vesting. As of December 31, 2024, all restricted stock awards were fully vested.
Upon the closing of the Acquisition, the Company granted a total of 803,000 RSUs to certain consultants. Of these RSUs, 401,500 are subject to service conditions, with 50% of such RSUs vesting on January 1, 2025, 25% of such RSUs vesting on March 27, 2025 and the remaining 25% of such RSUs vesting on June 27, 2025. The remaining 401,500 RSUs will vest subject to the satisfaction of performance conditions, including the achievement of specific operational milestones before September 30, 2025 (Performance-Based RSUs). For the Performance-Based RSUs, no stock-based compensation expense has been recognized because the vesting conditions are not probable of being achieved.
The activity for restricted stock awards and units is as follows:
Weighted-Average
Number of Shares Grant-Date Fair Value
The fair value of restricted stock awards and units vested during the years ended December 31, 2024 and 2023 was approximately $0.9 millionand $0.4 million, respectively.
Modifications & Accelerations
Certain equity awards are subject to provisions in which the vesting of these awards is automatically accelerated upon the occurrence of events such as an involuntary termination in connection with a reduction in force. Further, in connection with the Company’s restructuring activities in 2023 and the U.K. headcount reduction in 2024, the Company modified the terms of certain equity awards for impacted employees including partial or full acceleration of vesting of stock options and restricted stock awards upon separation and extension of exercise periods for stock options post-separation.
As a result of: (i) the contractual acceleration and (ii) the discretionary modification of equity awards in connection with the U.K. headcount reduction in 2024, the Company recorded incremental stock-based compensation expense of $1.1 million for the year ended December 31, 2024, of which $0.9 million and $0.2 million was included in research and development expense and general and administrative expense, respectively.
As part of the restructuring plan approved by the Company’s board of directors in February 2023 and workforce reduction in October 2023, the Company recorded incremental stock-based compensation expense of $9.6 million for the year ended December 31, 2023, of which $0.9 million and $8.7 million was included in research and development expense and general administrative expense, respectively.
Stock-Based Compensation
The following table shows stock-based compensation expense for stock options, restricted stock awards, and RSUs included in the Company’s consolidated statements of operations and comprehensive loss (in thousands):
Year Ended December 31,
Research and development expense $ 3,032 $ 2,778
General and administrative expense 2,525 10,028
Total stock-based compensation expense $ 5,557 $ 12,806
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As of December 31, 2024, there was $9.6 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 3.5 years. Further, there was $4.0 million of unrecognized compensation cost related to unvested restricted stock awards and RSUs, which is expected to be recognized over a weighted average period of 2.2 years.
Note 10. Net Loss Per Share
The following table shows the computation of basic and diluted net loss per share (in thousands, except share and per share data):
Year Ended December 31,
Net loss per share, basic and diluted $ (1.53 ) $ (1.30 )
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive:
Year Ended December 31,
Note 11. Income Taxes
The components of net loss before tax provision from income taxes are as follows (in thousands):
Year Ended December 31,
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