Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and analysis contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section entitled “Risk Factors” and in other parts of this Annual Report on Form 10-K. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”
Overview
We are a biotechnology innovator developing novel therapies to treat severe autoimmune and inflammatory disorders with the mission to develop life-changing therapeutics for patients. Our primary goal is to advance EQ504, our novel aryl hydrocarbon receptor, or AhR, modulator, into and through clinical development.
As of December 31, 2025, we had $30.3 million in cash and cash equivalents, excluding the gross proceeds of approximately $35.0 million from the closing of the March Private Placement (defined below). From inception through December 31, 2025, substantially all of our efforts have been focused on research, development and the advancement of our clinical and preclinical product candidates. We have not yet generated product sales and as a result have incurred significant operating losses and negative cash flows from operations. As a result, we had an accumulated deficit of $216.2 million as of December 31, 2025. We expect to incur additional losses in the future to conduct research and development for which we will need to raise additional capital to implement.
On August 10, 2025, we entered into a Securities Purchase Agreement, the Purchase Agreement, with certain institutional and accredited investors, the Investors, pursuant to which we agreed to sell and issue shares of our common stock, par value $0.0001 per share, and pre-funded warrants to purchase shares of common stock, in up to two closings in a private placement transaction, the Private Placement. The initial closing of the Private Placement occurred on August 12, 2025. At the Initial Closing, we issued and sold 21,814,874 shares of common stock at a purchase price of $0.57 per share and pre-funded warrants to purchase up to 30,816,705 shares of common stock at a purchase price of $0.5699 per warrant share, the Warrant Price, to the Investors for gross proceeds to us of approximately $30.0 million. The Purchase Agreement also provides for a potential second closing for up to approximately $20.0 million in gross proceeds in exchange for up to approximately 35,087,717 shares of common stock, subject to achieving certain specified milestones related to clinical study initiation and stock price conditions or waiver thereof. For additional information, see Note 9 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
On March 11, 2026, we entered into a Securities Purchase Agreement, the March Purchase Agreement, with a certain institutional and accredited investor, the March Investor, pursuant to which we agreed to sell and issue shares of our common stock and a pre-funded warrant to purchase shares of common stock, the March Private Placement. The initial closing of the March Private Placement occurred on March 13, 2026. At the Closing, we issued and sold 1,179,508 shares of common stock at a purchase price of $1.854 per share and a pre-funded warrant to purchase up to 17,698,593 shares at a purchase price of $1.8539 per warrant share to the March Investor for gross proceeds to us of approximately $35.0 million.
We intend to use the net proceeds from the Private Placement and the March Private Placement to fund the further development of EQ504, working capital and general corporate purposes.
We intend to commence a Phase 1 proof-of-mechanism study for EQ504, a preclinical stage, novel AhR modulator, in mid-2026, with data expected to follow approximately six months thereafter; provided, however, we cannot provide any assurances that we will be able to obtain data within those time frames or that the data which may be obtained will be favorable to the further clinical development of EQ504. Modulation of AhR, in multiple translational models, has been shown to have a therapeutically beneficial impact inducing anti-inflammatory cells and cytokines while reducing proinflammatory cells and cytokines and improving intestinal barrier function and repair. We initially intend to develop EQ504 for the treatment of ulcerative colitis, or UC, and other gastrointestinal, or GI, diseases with potential indication expansion opportunities for the treatment of inflammatory lung diseases. We acquired the exclusive worldwide rights to EQ504 through the acquisition of Ariagen, Inc., or Ariagen, in October 2024.
We acquired the exclusive worldwide rights to EQ302 and a proprietary platform for discovering additional, novel multi-cytokine targeting product candidates, such as EQ302, through the acquisition of Bioniz Therapeutics, Inc., or Bioniz, in February 2022. That product discovery platform can be leveraged to design novel peptides to target and inhibit multiple cytokines that are involved in validated biological and disease pathways.
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EQ302 is a preclinical-stage, first-in-class, selective, bi-specific inhibitor of IL-15 and IL-21 formulated for oral delivery. Inhibiting IL-15 and IL-21 is believed to be an effective treatment approach for certain GI indications, including celiac disease. Preclinical and translational data has shown that EQ302 is a potent inhibitor of those two cytokines and is stable and permeable in the gut. Based on the unique mechanism of action of EQ302 and its product profile, including the advantage of oral delivery, we believe that EQ302 has the potential to be an attractive therapeutic option for GI diseases, such as celiac disease. We are evaluating further advancement of EQ302, including product manufacturing and toxicology studies capable of supporting a potential IND filing and a first-in-human clinical study.
On September 30, 2025, the Termination Date, we entered into a termination agreement with Biocon Limited, Biocon and the agreement, the Termination Agreement, pursuant to which we terminated that certain (i) collaboration and license agreement with Biocon, dated May 22, 2017, as amended September 28, 2018, April 22, 2019, December 10, 2019, and April 14, 2021 (the Biocon License), (ii) the Memorandum of Understanding dated April 7, 2022, the MoU, and (iii) certain other corresponding agreements, collectively with the Biocon License and MoU, the Biocon Agreements, with all licenses granted by Biocon to us under the Biocon Agreements, including with respect to itolizumab, terminating and reverting to Biocon. As consideration for certain technical services that we were obligated to provide to Biocon following the Termination Date, Biocon agreed to pay us a technical service fee of $0.4 million. In lieu of Biocon paying the technical service fee to us, Biocon agreed to set off amounts which we owed to Biocon under or in connection with the Biocon Agreements through the Termination Date, with the amount of such set-off to equal such technical service fee, plus any other amount that have been or may be invoiced by us to Biocon for work performed by us with respect to itolizumab through the Termination Date, and to be limited to the aggregate amounts that have been or may be invoiced by Biocon to us, or are or may be otherwise owed to Biocon, under or in connection with the Biocon Agreements through the Termination Date. We completed our performance obligations under the Termination Agreement in the fourth quarter of 2025, resulting in the set off of amounts owed by us to Biocon totaling $0.4 million which was recorded as a reduction of research and development expense in our consolidated statement of operations in the year ended December 31, 2025.
Since our inception, substantially all of our efforts have been focused on organizing and staffing our company, business planning, raising capital, in-licensing product rights, conducting preclinical development, filing INDs, conducting clinical development, conducting CMC and formulation development activities, conducting business development activities and the general and administrative activities associated with operating a public biotech company focused on advancing novel therapeutics. We have generated revenue from our Asset Purchase Agreement with Ono, related to a one-time, upfront payment from Ono in exchange for an exclusive option to acquire our rights to itolizumab (EQ001), or the Option, as well as from itolizumab (EQ001) development funding from Ono. Ono made a strategic business decision to allow its Option to expire on October 30, 2024 and, as a result, the Asset Purchase Agreement automatically terminated on that date pursuant to its terms. We have not generated any revenue from product sales, milestone payments or royalties. Since inception, we have primarily financed our operations through debt and equity financings and revenue generated from the Asset Purchase Agreement.
We have incurred losses since our inception. For the years ended December 31, 2025 and 2024, our net losses were $22.4 million and $8.1 million, respectively. As of December 31, 2025, we had an accumulated deficit of $216.2 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development activities, preclinical and clinical activities and general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and operating losses into the foreseeable future. We anticipate our expenses will increase substantially as we advance our research and development activities for EQ504, potentially pursue any future development of EQ302, potentially expand the indications for which we conduct clinical development of our product candidates, potentially acquire or develop new product candidates, including preclinical drug candidates identified through our multi-cytokine targeting drug discovery platform, seek regulatory approval for and potentially commercialize any approved product candidates, hire additional personnel, protect our intellectual property, and incur general corporate costs. We expect that our existing cash and cash equivalents as of December 31, 2025 plus the gross proceeds from the March Private Placement will enable us to fund our operations into 2029.
We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for EQ504, EQ302, or any future product candidate, which is unlikely to happen within the next 12 months, if ever. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements. However, we may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. As a result of the conflict between Russia and Ukraine, the conflict in the Middle East, government shutdowns, bank failures, tariffs, inflationary pressures on the economy and monetary policy responses by
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government agencies and other macroeconomic factors, the global credit and financial markets have experienced extreme volatility, including from diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Financial Overview
Revenue
To date, we have not generated any revenues from therapeutic product sales, developmental milestones or royalties. In 2022, 2023 and 2024, our revenues were derived from an upfront payment under the Asset Purchase Agreement as well as from development funding from Ono. In the future, we may generate revenue from collaboration or license agreements we may enter into with respect to our product candidates, as well as product sales from any approved product, which approval is unlikely to happen within the next 12 months, if ever. Our ability to generate product revenues will depend on the successful development and eventual commercialization of EQ504 and any future product candidates. If we fail to complete the development of EQ504, or any future product candidates in a timely manner, or to obtain regulatory approval for our product candidates, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected.
Asset Purchase Agreement with Ono Pharmaceutical Co., Ltd.
On December 5, 2022, we entered into the Asset Purchase Agreement pursuant to which we granted Ono the Option in exchange for a one-time, upfront payment of an amount equal to JPY 3.5 billion, or $26.4 million. These rights included all therapeutic indications and the rights to commercialize itolizumab in the United States, Canada, Australia, and New Zealand.
We were responsible for conducting all research and development of itolizumab, which was funded by Ono on a quarterly basis from July 1, 2022, through October 30, 2024, the end of the option period. On October 30, 2024, the option period expired and the Asset Purchase Agreement automatically terminated pursuant to its terms.
As of December 31, 2024, there was no further deferred revenue related to the Asset Purchase Agreement.
Research and Development Expenses
Research and development expenses primarily consist of costs associated with our nonclinical research and clinical development of our product candidates. Our research and development expenses include:
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salaries and other related costs, including stock-based compensation and benefits, for personnel in research and development functions;
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per patient clinical study costs;
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external research and development expenses incurred under arrangements with third parties, such as consultants and advisors for research and development;
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costs of services performed by third parties, such as contract research organizations, or CROs, that conduct research and development activities on our behalf;
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costs related to preparing and filing INDs with the FDA and other regulatory interactions and submissions;
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pharmacovigilance costs related to global drug safety monitoring and reporting;
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external expenses related to CMC and supply of drug product; and
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costs related to general overhead expenses such as travel, insurance, rent expenses, lab supplies and equipment associated with our research and development activities.
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We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.
Our direct research and development expenses consist principally of external costs, such as fees paid to CROs and consultants in connection with our nonclinical research and clinical development.
Equillium Australia Pty Ltd, or Equillium Australia, a wholly-owned subsidiary of Equillium, Inc., is eligible under the Australian Research and Development Tax Incentive Program, or the Tax Incentive, to obtain a cash refund from the Australian Taxation Office, or ATO, for eligible research and development expenditures. The cash refund is received by Equillium Australia, upon filing of a claim in connection with Equillium Australia’s annual income tax return. The Tax Incentive is a self-assessed program whereby Equillium Australia must assess its eligibility each year to determine (i) if the entity is eligible, (ii) if the specific research and development activities are eligible and (iii) if the individual research and development expenditures have nexus to such research and development activities. Equillium Australia evaluates its eligibility under the Tax Incentive as of each balance sheet date based on the most current and relevant data available. Equillium Australia is able to continue to claim the Tax Incentive for as long as it remains eligible and continues to incur eligible research and development expenditures. The estimated Tax Incentive refund amounts are recognized as a reduction to research and development expense when there is reasonable assurance that the Tax Incentive refund amounts will be received, the relevant expenditure has been incurred, and the amount can be reliably measured.
We plan to continue to incur substantial research and development expenses for the foreseeable future as we advance the development of EQ504, and potentially EQ302, potentially expand the number of indications for which we are developing those product candidates, and potentially acquire or develop new product candidates. The successful development of EQ504 and EQ302 is highly uncertain. At this time, due to the inherently unpredictable nature of preclinical and clinical development, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of our product candidates or the period, if any, in which material net cash inflows from the sales from our product candidates may commence. Clinical development timelines, the probability of success, and development costs can differ materially from expectations.
Completion of planned of future clinical studies may take several years or more, and the length of time generally varies according to the type, complexity, novelty, and intended use of a product candidate. The cost of clinical studies may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:
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per patient clinical study costs;
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the number of planned or future clinical studies required for approval;
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the number of sites and the number of countries included in our planned or future clinical studies;
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the length of time required to enroll suitable patients;
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the inefficiencies and additional costs related to any delays and potential restarts of planned or future clinical studies;
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the number of doses that patients receive;
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the number of patients that participate in our clinical studies;
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the drop-out or discontinuation rates of patients in our clinical studies;
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the duration of patient follow-up;
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potential additional safety monitoring or other studies requested by regulatory agencies;
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the number and complexity of procedures, analyses and tests performed during our planned or future clinical studies;
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the costs of procuring drug product for our planned or future clinical studies;
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the phase of development of the product candidate; and
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the efficacy and safety profile of the product candidate.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation and benefits, and consulting fees for executive, human resources, investor relations, finance, and accounting functions. Other significant costs include legal fees relating to patent and corporate matters, insurance, travel, board expenses, facility costs and taxes.
We anticipate that our general and administrative expenses will increase in future periods, reflecting an expanding infrastructure, increased legal, audit, tax and other professional fees associated with being a public company and maintaining compliance with stock exchange listing and SEC requirements, director and officer insurance premiums associated with being a public company, and accounting and investor relations costs. In addition, if we obtain regulatory approval for any product candidate, we expect to incur expenses associated with building the infrastructure and capabilities to commercialize such product. However, the timing of any such approval is highly uncertain, and it may be several years, if ever, that we receive any such regulatory approval.
Interest Income
Interest income consists primarily of interest income earned on cash, cash equivalents and short-term investments, and is recognized when earned.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency transaction gains and losses related to our Australian subsidiary.
Income Tax Expense
Income tax expense consists of federal and state income tax expense.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table sets forth our results of operations for the years ended December 31, 2025 and 2024 (in thousands):
Year EndedDecember 31,
Income tax expense - 361 (361 )
Revenue
During the year ended December 31, 2025, there was no revenue recognized under our Asset Purchase Agreement with Ono. During the year ended December 31, 2024, we recognized revenue of $41.1 million under our Asset Purchase Agreement with Ono. For the year ended December 31, 2024, development funding represented $28.3 million and amortization of the upfront payment represented $12.8 million.
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Research and Development Expenses
Year EndedDecember 31,
Direct external expenses:
Itolizumab - Biocon ulcerative colitis study - related party (115 ) 602 (717 )
Indirect expenses:
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We separate our research and development costs into two broad categories: direct and indirect. Additionally, with respect to direct research and development expenses, we further divide expenses into the following product candidate categories: Itolizumab (EQ001), EQ101, EQ102, EQ504 and EQ302. Itolizumab (EQ001) includes sub-categories for the clinical studies associated with itolizumab (EQ001) including our EQUATOR, EQUALISE and UC study with Biocon. For direct research and development expenses, we track specific project research and development expenses that are directly attributable to our preclinical and clinical development product candidates that have been selected for further development. Such direct research and development expenses include nonclinical and clinical trial activities, external expenses related to CMC and supply of drug product and consulting expenses.
All remaining research and development expenses are categorized as indirect research and development expenses. Such indirect research and development expenses include employee compensation and benefits (including stock-based compensation expenses) and general overhead costs such as costs associated with our facilities and lab supplies. These expenses are not directly tied to any individual product candidate or clinical study and are generally deployed across multiple studies. As such, we do not maintain information regarding those costs incurred on an individual product candidate or clinical study basis.
Research and development expenses were $12.8 million for the year ended December 31, 2025, compared to $37.4 million for the year ended December 31, 2024.
Research and development expenses decreased by $24.6 million for the year ended December 31, 2025. Direct external expenses decreased significantly for the year ended December 31, 2025 compared to the same period in 2024 due to the wind down of our clinical studies in 2025 including lower clinical development expenses, lower CMC activities with Biocon and lower consulting expenses primarily related to the wind down of our EQUATOR study. In addition, we negotiated discounts with our clinical vendors on outstanding accounts payable which were recorded as a reduction to research and development expense during the year ended December 31, 2025. Indirect expenses decreased for the year ended December 31, 2025 compared to the same period in 2024 driven by lower employee compensation and benefits due to lower headcount caused by the wind down of our clinical studies.
We expect research and development expenses in future periods to increase primarily due to the advancement of EQ504, our novel AhR modulator, into and through clinical development.
General and Administrative Expenses
General and administrative expenses were $10.8 million for the year ended December 31, 2025, compared to $11.9 million for the year ended December 31, 2024.
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The decrease of $1.1 million in general and administrative expenses for the year ended December 31, 2025, compared to the same period in 2024, was primarily related to decreases of (i) $0.6 million in overhead primarily due to lower franchise taxes, directors and officers insurance costs and travel and (ii) $0.5 million in legal expenses.
Interest Income
Interest income was $0.8 million for the year ended December 31, 2025, compared to $1.4 million for the year ended December 31, 2024. The decrease in interest income was primarily due to lower average cash, cash equivalents and short-term investment balances in 2025 compared to 2024.
Other Income (Expense), Net
Other income (expense), net was other income of $0.4 million for the year ended December 31, 2025, compared to other expense of $0.8 million for the year ended December 31, 2024. The change in other income (expense), net for the year ended December 31, 2025, compared to the same period in 2024, was primarily due to fluctuations in net foreign currency transaction unrealized gains and losses.
Income Tax Expense
There was no income tax expense for the year ended December 31, 2025. Income tax expense was $0.4 million for the year ended December 31, 2024. Our 2024 income tax expense was primarily attributable to domestic cash tax expense resulting from differences between book and tax treatment of certain items. We do not record a deferred tax provision as there is a full valuation allowance offsetting our deferred tax assets.
Liquidity and Capital Resources
From inception through December 31, 2025, we have financed our operations primarily through the sale of equity and debt securities and income generated from our Asset Purchase Agreement with Ono as described in more detail in the Sources of Liquidity section below. As of December 31, 2025, we had an accumulated deficit of $216.2 million and anticipate that we will continue to incur net losses for the foreseeable future. As of December 31, 2025, we had $30.3 million in cash and cash equivalents, excluding the gross proceeds of approximately $35.0 million from the Company's equity financing in March 2026.
Sources of Liquidity
August Securities Purchase Agreement
On August 10, 2025, we entered into the Purchase Agreement with the Investors, pursuant to which we agreed to sell and issue shares of our common stock, par value $0.0001, and pre-funded warrants to purchase shares of common stock, in up to two closings in the Private Placement.
The Initial Closing of the Private Placement occurred on August 12, 2025. At the Initial Closing, we issued and sold 21,814,874 shares of common stock at a purchase price of $0.57 per share and pre-funded warrants to purchase up to 30,816,705 shares of common stock at a purchase price of $0.5699 per warrant share, the Warrant Price, to the Investors for gross proceeds to us of approximately $30.0 million. Net proceeds from the Private Placement were $27.9 million, after deducting placement agent fees and offering expenses totaling $2.1 million.
The Purchase Agreement also provides for a potential second closing for up to approximately $20.0 million in gross proceeds in exchange for up to approximately 35,087,717 shares of common stock, subject to achieving certain specified milestones related to clinical study initiation and stock price conditions or waiver thereof. There can be no assurance that the specified milestones will be met or that the investors will purchase additional shares of common stock or pre-funded warrants in a second closing. For additional information, see Note 9 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
2023 ATM Facility
In October 2023, we entered into an at-the-market facility with Jefferies LLC, or Jefferies, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $21.95 million from time to time through Jefferies acting as our sales agent, or the 2023 ATM Facility. There were no shares sold under the 2023 ATM Facility from October
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2023 through December 31, 2024. In March 2025, there were 109,410 shares sold under the 2023 ATM Facility for gross proceeds of $55,000. Issuance costs related to the 2023 ATM Facility totaled $0.5 million through March 31, 2025.
On August 3, 2025, we entered into Amendment No. 1 to the 2023 ATM Facility pursuant to which Jefferies was replaced by LifeSci Capital LLC as the sales agent under the 2023 ATM Facility. During the year ended December 31, 2025, there were 1,610,075 shares of common stock sold under the 2023 ATM Facility, as amended, for gross proceeds of approximately $0.9 million. During the year ended December 31, 2025, issuance costs related to the 2023 ATM Facility, as amended, totaled $0.2 million.
On September 19, 2025, we filed a prospectus supplement with the SEC under which we may offer and sell shares of our common stock having an aggregate offering price of up to $75.0 million, pursuant to the 2023 ATM Facility, as amended.
As of December 31, 2025 and through the date of the filing of this Annual Report on Form 10-K, there were no additional shares of common stock sold under the 2023 ATM Facility, as amended.
March Securities Purchase Agreement
On March 11, 2026, we entered into the March Purchase Agreement with the March Investor, pursuant to which we agreed to sell and issue shares of our common stock, par value $0.0001, and a pre-funded warrant to purchase shares of common stock. The closing of the March Private Placement occurred on March 13, 2026. At the closing, we issued and sold 1,179,508 shares at a purchase price of $1.854 per share and a pre-funded warrant to purchase up to 17,698,593 shares at a purchase price of $1.8539 per warrant share to the March Investor for gross proceeds to us of approximately $35.0 million.
Funding Requirements
We expect our expenses to increase substantially as we advance our research and development activities, including resuming development of our preclinical asset, EQ504 and potentially resuming development of EQ302. We expect that our primary uses of capital will be for nonclinical research, clinical development, CMC activities, formulation development, product supply, potential acquisition of new products, legal and other regulatory compliance expenses, employee compensation and related expenses, insurance premiums, working capital and other general overhead costs.
We believe that our cash and cash equivalents as of December 31, 2025 plus with proceeds from the March Private Placement can fund operations into 2029. We have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Furthermore, our operating plans may change, and we may need additional funds sooner than planned. Additionally, the process of testing product candidates in clinical studies is costly, and the timing of progress in these studies is uncertain. Because the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of EQ504 and EQ302, or any of our other product candidates or whether, or when, we may achieve profitability.
Our future capital requirements will depend on many factors, including:
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the initiation, progress, timing, costs and results of our planned or future nonclinical and clinical studies of EQ504 and EQ302 and other future product candidates, including as such activities may be adversely impacted by public health epidemics or outbreaks, the evolving conflict between Russia and Ukraine, the conflict in the Middle East, bank failures, tariffs and inflationary pressures on the economy;
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the advancement and cost of preclinical research of EQ504, EQ302 and other novel preclinical drug candidates;
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the number and scope of indications we decide to pursue for the development of our product candidates;
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the cost, timing and outcome of regulatory review of any NDA we may submit for our product candidates;
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the costs and timing of manufacturing EQ504 and other product candidates;
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the costs of drug formulation research and device development;
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;
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the costs associated with being a public company;
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our ability to enter into partnerships or otherwise monetize our pipeline through strategic transactions on a timely basis, on terms that are favorable to us, or at all;
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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
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the extent to which we acquire or in-license other product candidates and technologies or engage in in-house discovery and preclinical research of new product candidates;
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the legal and other transactional costs associated with our business development activities; and
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the cost associated with commercializing EQ504 or any of our other product candidates, if approved for commercial sale.
Until such time as we can generate product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, and collaboration and license agreements. The sale of additional equity or convertible debt could result in additional dilution to our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. The incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our operations. As a result of the conflict between Russia and Ukraine, the conflict in the Middle East, government shutdowns, bank failures, tariffs, inflationary pressures on the economy and monetary policy responses taken by government agencies and other macroeconomic factors, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. If we raise additional funds through collaboration or license agreements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or that may reduce the value of our common stock. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or other operations. Any of these actions could have a material effect on our business, financial condition and results of operations. We have experienced net losses and negative cash flows from operating activities since our inception and expect to continue to incur net losses into the foreseeable future. We had an accumulated deficit of $216.2 million as of December 31, 2025. We expect operating losses and negative cash flows to continue for at least the next several years as we incur costs related to the development of EQ504, EQ302 and any of our other product candidates.
Material Cash Requirements
Our expected material cash requirements are comprised of contractually obligated expenditures, including amounts due under our operating leases. For additional information relating to our leases, see Note 6 and 10 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. We have no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis. Our expected material cash requirements do not include potential contingent payments upon the achievement by us of regulatory and commercial milestones that we may be required to make under the terms of the merger agreement pursuant to which we acquired Bioniz or potential contingent payments upon the achievement by us of regulatory milestones that we may be required to make under the terms of our stock purchase agreement with Ariagen, nor do they include potential contingent payments upon the achievement by us of regulatory and commercial milestones or royalty payments that we may be required to make under license agreements we may enter into with various entities.
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Cash Flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods set forth below (in thousands):
Year EndedDecember 31,
Net cash provided by (used in):
Effect of exchange rate changes on cash 47 (83 )
Net increase (decrease) in cash and cash equivalents $ 12,192 $ (5,131 )
Operating Activities
During the year ended December 31, 2025, cash used in operating activities was $22.7 million compared to $19.0 million during the year ended December 31, 2024. Cash used in operating activities during the year ended December 31, 2025 primarily related to our net loss of $22.4 million, adjusted for non-cash items of $2.0 million, primarily consisting of non-cash stock-based compensation expenses, and net cash outflows from changes in other operating assets and liabilities of $2.3 million. Cash used in operating activities during the year ended December 31, 2024 primarily related to our net loss of $8.1 million, adjusted for non-cash items of $3.9 million, primarily consisting of non-cash stock-based compensation expenses, and net cash outflows from changes in deferred revenue and other operating assets and liabilities of $14.9 million.
Investing Activities
Net cash provided by investing activities was $4.5 million during the year ended December 31, 2025 and primarily consisted of maturities of our short-term investments.
Net cash provided by investing activities was $13.8 million during the year ended December 31, 2024. Maturities of our short-term investments totaled $31.5 million, which was offset by purchases of short-term investments totaling $17.6 million during the period. Purchases of property and equipment for the year ended December 31, 2024 totaled $0.1 million.
Financing Activities
Net cash provided by financing activities totaled $30.4 million during the year ended December 31, 2025 and primarily consisted of net proceeds from the sale of shares under the Private Placement transaction totaling $27.9 million, proceeds totaling $1.8 million from the exercise of stock options and net proceeds from the sale of shares under our 2023 ATM Facility totaling approximately $0.7 million.
Net cash provided by financing activities totaled $0.2 million during the year ended December 31, 2024 and was primarily attributed to cash received from employee stock purchases related to our Employee Stock Purchase Plan.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, and similarly did not and do not have any holdings in variable interest entities. We do have certain contingent consideration liabilities in the form of potential milestone payments that are included in our merger agreement with Bioniz and our stock purchase agreement with Ariagen which are not reflected in our balance sheet. However, based on our current operating plans and our assessment of the probability and potential timing of such payments, we believe those payments, if any, are remote and highly unlikely to come due within the next 12 months.
87
Critical Accounting Policies and Estimates
Our 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 generally accepted accounting principles in the United States. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. We evaluate these estimates on an ongoing basis. We base our estimates on historical experience, known trends and events, financial models and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying 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.
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Accrued Research and Development Expense
We are required to estimate our expenses resulting from our obligations under contracts with vendors, consultants and contract research organizations, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses in our consolidated financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the nonclinical study or clinical study as measured by the timing of various aspects of the study or related activities. We determine accrual estimates through review of the underlying contracts along with preparation of financial models taking into account discussions with research and other key personnel as to the progress of studies, or other services being conducted. During the course of a study or clinical study, we adjust our rate of expense recognition if actual results differ from our estimates.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Stock-based Compensation Expense
We measure employee and non-employee stock-based awards, including stock options and stock purchase rights, at grant-date fair value and record compensation expense on a straight-line basis over the vesting period of the award. We use the Black-Scholes option pricing model to value our stock option awards. Estimating the fair value of stock option awards requires management to apply judgment and make estimates of certain assumptions, including the volatility of our common stock, the expected term of our stock options and the expected dividend yield on the measurement date. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information concerning recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
88
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this item are included after the signature page of this Annual Report on Form 10-K beginning on page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As of December 31, 2025, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act. Based on this evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2025.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer, principal financial officer and principal accounting officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2025, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of December 31, 2025, our internal control over financial reporting was effective based on those criteria.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
89
Item 9B. Other Information.
Trading Arrangements
During the three months ended December 31, 2025, an officer (as defined in Rule 16a-1(f) under the Exchange Act) adopted a contract, instruction or written plan for the sale of our securities set forth in the table below:
Type of Trading Arrangement Total Sharesof Common
(1) Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
(2) “Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act.
(3) Represents the adoption of a written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) adopted on December 12, 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Except as set forth below, the information required by this item will be contained in our definitive proxy statement, or the Proxy Statement, to be filed with the SEC in connection with the Annual Meeting of Stockholders within 120 days after the conclusion of our fiscal year ended December 31, 2025, under the sections entitled “Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance,” “Information Regarding Committees of the Board of Directors,” “Executive Officers” and is incorporated in this Annual Report on Form 10-K by reference.
We have adopted a Code of Business Conduct and Ethics that applies to all officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics is available on our website at www.equilliumbio.com. The information on our website is not incorporated by reference into this Annual Report on Form 10-K. If we make any substantive amendments to the Code of Business Conduct and Ethics or grants any waiver from a provision of the code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website or in a Current Report on Form 8-K.
We have adopted insider trading policies and procedures governing the purchase, sale and/or other dispositions of our securities by our directors, officers and employees that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to us. A copy of our insider trading policy is filed with this Annual Report on Form 10-K as Exhibit 19.1.
Item 11. Executive Compensation.
The information required by this item will be contained in the Proxy Statement under the section entitled “Executive and Director Compensation” and is incorporated in this Annual Report on Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be contained in the Proxy Statement under the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” and is incorporated in this Annual Report on Form 10-K by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be contained in the Proxy Statement under the sections entitled “Transactions with Related Persons and Indemnification” and “Information Regarding the Board of Directors and Corporate Governance” and is incorporated in this Annual Report on Form 10-K by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item will be contained in the Proxy Statement under the section entitled “Principal Accountant Fees and Services” and is incorporated in this Annual Report on Form 10-K by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Consolidated Financial statements:
The Consolidated Financial Statements of Equillium, Inc. and Report of Independent Registered Public Accounting Firm are included after the Signatures page of this Annual Report on Form 10-K beginning on page F-1.
(a)(2) Financial Statement Schedules:
These schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not applicable or not required.
(a)(3) Exhibits
Exhibit Index
ExhibitNumber Description
92
19.1 Insider Trading Policy, as amended.
21.1 Subsidiaries of Equillium, Inc.
23.1 Consent of Independent Registered Public Accounting Firm.
23.2 Consent of Independent Registered Public Accounting Firm.
24.1 Power of Attorney. Reference is made to the signature page hereto.
93
101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
* Schedules and exhibits to the agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
** This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
+ Indicates management contract or compensatory plan.
† Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
†† Certain information in this exhibit has been omitted pursuant to Item 601 of Regulation S-K.
Item 16. Form 10-K Summary.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
EQUILLIUM, INC.
Date: March 25, 2026 By: /s/ Bruce D. Steel
Bruce D. Steel
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bruce D. Steel as his or her true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Bruce D. Steel (Principal Executive Officer and Principal Financial Officer)
/s/ Penny Tom Senior Vice President, Finance March 25, 2026
Penny Tom (Principal Accounting Officer)
/s/ Daniel M. Bradbury Chairman of the Board of Directors March 25, 2026
Daniel M. Bradbury
/s/ Peter Colabuono Member of the Board of Directors March 25, 2026
Peter Colabuono
/s/ Martha J. Demski Member of the Board of Directors March 25, 2026
Martha J. Demski
/s/ Charles McDermott Member of the Board of Directors March 25, 2026
Charles McDermott
/s/ Mark Pruzanski, M.D. Member of the Board of Directors March 25, 2026
Mark Pruzanski, M.D.
/s/ Barbara Troupin, M.D. Member of the Board of Directors March 25, 2026
Barbara Troupin, M.D.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EQUILLIUM, INC.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 173) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185) F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Stockholders’ Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Equillium, Inc.
La Jolla, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Equillium, Inc. (the "Company") as of December 31, 2025, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Crowe LLP
We have served as the Company’s auditor since 2025.
Costa Mesa, California
March 25, 2026
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Equillium, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Equillium, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered significant operating losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ KPMG LLP
We have served as the Company’s auditor since 2018.
San Diego, California
March 27, 2025
F-3
Equillium, Inc.
Consolidated Balance Sheets
(In thousands, except share and par value data)
December 31,
Assets
Current assets:
Short-term investments - 4,490
Prepaid expenses and other current assets 761 2,403
Operating lease right-of-use assets 658 364
Property and equipment, net 164 262
Other assets 27 -
Liabilities and stockholders' equity
Current liabilities:
Current portion of operating lease liabilities 363 197
Long-term operating lease liabilities 356 187
Commitments and contingencies
Stockholders' equity:
Accumulated other comprehensive income 363 781
Total liabilities and stockholders' equity $ 31,887 $ 25,604
See accompanying notes.
F-4
Equillium, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Year EndedDecember 31, Year EndedDecember 31,
Operating expenses:
Other income, net:
Other income (expense), net 403 (818 )
Loss before income tax expense (22,398 ) (7,706 )
Income tax expense - 361
Other comprehensive (loss) income, net:
Unrealized loss on available-for-sale securities, net (3 ) (15 )
Foreign currency translation (loss) gain (415 ) 656
Total other comprehensive (loss) income, net (418 ) 641
Net loss per share, basic and diluted $ (0.39 ) $ (0.23 )
See accompanying notes.
F-5
Equillium, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
Additional AccumulatedOther Total
Common Stock Paid-in Comprehensive Accumulated Stockholders'
Shares Amount Capital Income Deficit Equity
Exercise of stock options 6,375 - 4 - - 4
Stock-based compensation expense - - 3,750 - - 3,750
Other comprehensive income - - - 641 - 641
Stock-based compensation expense - - 2,322 - - 2,322
Other comprehensive loss - - - (418 ) - (418 )
See accompanying notes.
F-6
Equillium, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year EndedDecember 31, Year EndedDecember 31,
Operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of property and equipment 19 -
Net unrealized (gain) loss on foreign currency transactions (474 ) 794
Amortization of investments, net (14 ) (754 )
Deferred revenue - (15,728 )
Changes in operating assets and liabilities:
Accounts receivable - 3,735
Prepaid expenses and other current assets 1,263 2,275
Right-of-use assets and lease liabilities, net 42 (9 )
Net cash used in operating activities (22,746 ) (19,026 )
Investing activities:
Purchases of property and equipment (48 ) (85 )
Proceeds from disposal of property and equipment 12 -
Purchases of short-term investments - (17,601 )
Maturities of short-term investments 4,500 31,500
Net cash provided by investing activities 4,464 13,814
Financing activities:
Proceeds from exercise of stock options 1,836 4
Proceeds from issuance of common stock under employee stock purchase plan - 160
Net cash provided by financing activities 30,427 164
Effect of exchange rate changes on cash and cash equivalents 47 (83 )
Net increase (decrease) in cash and cash equivalents 12,192 (5,131 )
Cash and cash equivalents at beginning of period 18,085 23,216
Cash and cash equivalents at end of period $ 30,277 $ 18,085
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for lease obligations $ 548 $ -
ATM facility issuance costs reclassed from other current assets $ 392 $ -
Exercise of stock options issuance costs in accounts payable $ 5 $ -
Supplemental cash flow information:
Cash paid for income taxes, net of refunds $ 352 $ -
See accompanying notes.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Accounting Pronouncements
Description of Business
Equillium, Inc., together with its wholly owned subsidiaries (the Company), was incorporated in the state of Delaware on March 16, 2017.
The Company is a biotechnology innovator developing novel therapies to treat severe autoimmune and inflammatory disorders with the mission to develop life-changing therapeutics for patients. The Company's primary goal is to advance EQ504, its novel aryl hydrocarbon receptor modulator, into and through clinical development.
The Company is headquartered in La Jolla, California, and it manages its business as one operating segment. Refer to Note 14 for additional information.
Liquidity and Business Risks
As of December 31, 2025, the Company had $30.3 million in cash and cash equivalents, excluding the gross proceeds of approximately $35.0 million from the Company's equity financing in March 2026. From inception through December 31, 2025, substantially all of the Company’s efforts have been focused on research, development and the advancement of the Company’s clinical and preclinical product candidates. The Company has not yet generated product sales and as a result has incurred significant operating losses and negative cash flows from operations. As a result, the Company has an accumulated deficit of $216.2 million as of December 31, 2025. The Company expects to incur additional losses in the future to conduct research and development for which it will need to raise additional capital to implement.
During the third quarter of 2025, the Company completed an equity financing with gross proceeds of approximately $30 million with the ability to raise an additional $20 million subject to achieving certain clinical and pricing related milestones. Refer to Note 9 for additional information. In March 2026, the Company completed an equity financing with gross proceeds of approximately $35.0 million. Refer to Note 15 for additional information. Management believes that the Company's cash and cash equivalents will be sufficient to fund operations for at least the next 12 months from the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission (SEC).
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the SEC. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated by the Financial Accounting Standards Board (FASB).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Foreign Currency Translation
The Company’s wholly-owned subsidiary in Australia uses its local currency as its functional currency. Assets and liabilities are translated into U.S. dollars at quarter-end exchange rates and revenues and expenses are translated at average exchange rates during the year-to-date periods. Foreign currency translation adjustments for the reported periods are included in accumulated other comprehensive (loss) income, net in the Company’s consolidated statements of comprehensive loss, and the cumulative effect is included in the stockholders’ equity section of the Company’s consolidated balance sheets.
Recently Issued and Adopted Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires annual disclosures of specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold and a disaggregation of income taxes paid, net of refunds. ASU 2023-09 also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. ASU 2023-09 is effective for the Company beginning with the Company's Annual Report on Form 10-K for the year ended December 31, 2025. Early adoption is permitted. ASU 2023-09 should be applied prospectively. Retrospective adoption is permitted. The Company adopted ASU 2023-09 during the year ended December 31, 2025, on a prospective
F-8
basis. The adoption did not have a material impact on the Company's consolidated financial statements, as the amendments relate to disclosure requirements only. See Note 11 for more information on the effects of the adoption of ASU 2023-09.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, to improve disclosures around an entity's expenses. Upon adoption, companies will be required to disclose in the notes to the financial statements a disaggregation of certain expense categories included within the expense captions on the face of the income statement. The standard is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted, and can be applied either prospectively or retrospectively. The Company plans to adopt the standard in its 2027 annual period and is currently assessing the impact this standard will have on the Company's consolidated financial statement disclosures.
No other new accounting pronouncements or legislation issued or effective as of December 31, 2025 have had, or are expected to have, a material impact on the Company’s consolidated financial statements.
2. Summary of Significant Accounting Policies
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, which is the business of developing novel therapies to treat severe autoimmune and inflammatory disorders with the mission to develop life-changing therapeutics for patients. See Note 14 for more information on the Company's segment reporting.
Use of Estimates
The preparation of the Company’s consolidated financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Significant estimates in the Company’s consolidated financial statements relate to accrued research and development expenses, revenue recognition and the valuation of equity awards. Management evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current events, and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.
Concentration of Credit Risk and Off-Balance Sheet Risk
Financial instruments which potentially subject the Company to significant concentration of credit risk consist of cash and cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company’s investment policy includes guidelines for the quality of the related institutions and financial instruments and defines allowable investments that the Company may invest in, which the Company believes minimizes the exposure to concentration of credit risk.
Comprehensive Loss
The Company is required to report all components of comprehensive loss, including net loss, in the consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency translation gains and losses. Other comprehensive (loss) income, net includes unrealized gains or losses on short-term investments as well as foreign currency translation gains or losses.
Cash and Cash Equivalents
Cash and cash equivalents include cash in readily available checking and savings accounts, and money market funds. The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents. At December 31, 2025 and 2024, the Company's cash and cash equivalents were primarily comprised of money market funds.
F-9
Short-Term Investments
Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in comprehensive loss. The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
December 31,
Australian research and development tax incentive $ - $ 966
Prepaid clinical development - 35
Total prepaid expenses and other current assets $ 761 $ 2,403
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally three to five years).
Leases
The Company determines if an arrangement is a lease at inception. Lease right-of-use 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. For operating leases with an initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the lease when the Company is reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option will not be exercised. For the Company's operating leases, if the interest rate used to determine the present value of future lease payments is not readily determinable, the Company estimates its incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to not separate lease and non-lease components.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Company’s current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses since inception.
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Accrued Research and Development Expense
The Company is required to estimate its expenses resulting from its obligations under contracts with vendors, consultants and contract research organizations, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company reflects research and development expenses in its consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the nonclinical or clinical study as measured by the timing of various aspects of the study or related activities. The Company determines accrual estimates through review of the underlying contracts along with preparation of financial models taking into account discussions with research and development personnel as to the progress of studies, or other services being conducted. During the course of a study, the Company adjusts its rate of expense recognition if actual results differ from its estimates. The Company classifies its estimates for accrued research and development expenses as accrued expenses on the accompanying consolidated balance sheets.
Australian Research and Development Tax Incentive
Equillium Australia Pty Ltd (Equillium Australia), a wholly-owned subsidiary of Equillium, Inc., is eligible under the Australian Research and Development Tax Incentive Program (the Tax Incentive) to obtain a cash refund from the Australian Taxation Office (ATO) for eligible research and development expenditures. The cash refund is received by Equillium Australia upon filing of a Tax Incentive claim in connection with Equillium Australia’s annual income tax return.
The Tax Incentive is a self-assess program whereby Equillium Australia must assess each year (i) if the entity is eligible, (ii) if the specific research and development activities are eligible and (iii) if the individual research and development expenditures have nexus to such research and development activities. Equillium Australia evaluates its eligibility under the Tax Incentive as of each balance sheet date based on the most current and relevant data available. Equillium Australia is able to continue to claim refunds under the Tax Incentive for as long as it remains eligible and continues to incur eligible research and development expenditures.
Although Equillium Australia believes that it has complied with all relevant conditions of eligibility under the program for all periods claimed, the ATO has the right to review Equillium Australia’s qualifying programs and related expenditures for a period of up to four years. Additionally, the period open for review is indefinite if the ATO suspects fraud. If such a review were to occur, the ATO may have different interpretations of certain eligibility requirements. If the ATO disagreed with Equillium Australia’s assessments and any related subsequent appeals, it could require adjustment to and potential repayment of current or previous years’ claims already received. If Equillium Australia was unable to demonstrate a reasonably arguable position taken on such claims, the ATO could also assess penalties and interest on potential adjustment amounts. The Company has not provided any allowance for any such potential adjustments, should they occur in the future.
The estimated Tax Incentive refund amounts are recognized as a reduction to research and development expense when there is reasonable assurance that the Tax Incentive refund amounts will be received, the relevant expenditure has been incurred, and the amount can be reliably measured. During the year ended December 31, 2025, the Company did not record a reduction to research and development expenses related to the Tax Incentive due to the substantial completion of its EQ101 and EQ102 clinical trials in Australia. During the year ended December 31, 2024, the Company recorded $1.7 million as a reduction to research and development expenses related to the Tax Incentive. The Company classifies its estimate for the Tax Incentive as prepaid expenses and other current assets on the accompanying consolidated balance sheets. As of December 31, 2025, there were no amounts recorded within prepaid and other current assets attributed to the Tax Incentive. As of December 31, 2024, the Company recorded $1.0 million within prepaid and other current assets attributed to the Tax Incentive.
Distinguishing Liabilities from Equity
The Company evaluates equity or liability classification for freestanding financial instruments, including warrants and options, pursuant to the guidance under ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480). The Company classifies as liabilities all freestanding financial instruments that are (i) mandatorily redeemable, (ii) represent an obligation to repurchase the Company’s equity shares by transferring assets, or (iii) represent an unconditional obligation (or conditional obligation if the financial instrument is not an outstanding share) to issue a variable number of shares predominantly based on a fixed monetary amount, variations in something other than the fair value of the Company’s equity shares, or variations inversely related to changes in fair value of the Company’s equity shares.
If a freestanding financial instrument does not represent an outstanding equity share and does not meet liability classification under ASC 480, the Company then assesses whether the freestanding financial instrument is indexed to its own stock and meets equity classification pursuant to ASC 815-40, Derivatives and Hedging (ASC 815). The Company further assesses whether the freestanding financial instruments should be classified as temporary equity. Freestanding financial instruments that are redeemable for cash or other assets at a fixed or determinable date, at the option of the holder, or upon the occurrence
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of an event are classified in temporary equity in accordance with ASC 480. Otherwise, the freestanding financial instruments are classified in permanent equity.
See Note 9, Stockholders' Equity, for additional information on the freestanding financial instruments assessed under ASC 480 and ASC 815-40 for equity or liability classification.
Revenue Recognition
The Company recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration the Company is entitled to receive in exchange for such product or service. In doing so, the Company follows a five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control of the product or service. The Company considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. The Company applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.
Research and Development
Research and development expenses include salaries and related overhead expenses, non-cash stock-based compensation expense, external research and development expenses incurred under arrangements with third parties, costs of services performed by consultants and contract research organizations, and regulatory costs including those related to preparing and filing INDs with the FDA. Research and development costs are expensed as incurred.
Patent Costs
The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss.
Stock-Based Compensation
The Company measures employee and nonemployee stock-based awards, including stock options and purchase rights, at grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the award. The Company uses the Black-Scholes option pricing model to value its stock option awards. Estimating the fair value of stock option awards requires management to apply judgment and make estimates of certain assumptions, including the volatility of the Company’s common stock, the expected term of the Company’s stock options, the expected dividend yield and the fair value of the Company’s common stock on the measurement date. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Pursuant to the Internal Revenue Code of 1986, as amended (IRC), specifically Sections 382 and 383, the Company’s ability to use tax attribute carryforwards to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period. The Company completed an ownership change analysis through December 31, 2024 pursuant to IRC Section 382 and determined that the Company’s ability to offset taxable income in 2024 is not expected to be impacted by ownership changes occurring prior to that date. If ownership changes within the meaning of IRC Section 382 occur in the future, the amount of remaining tax attribute carryforwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, the Company's
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deferred tax assets associated with such tax attributes could be significantly reduced or eliminated upon realization of an ownership change within the meaning of IRC Section 382. If eliminated, the related asset would be removed from the deferred tax asset schedule, with a corresponding reduction in the valuation allowance. Additionally, limitations on the utilization of the Company's tax attribute carryforwards can increase the amount of taxable income and current income tax expense recognized. Due to the existence of the valuation allowance, ownership change limitations that are not significant may not impact the Company's effective tax rate.
The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more- likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.
Net Loss per Share
Basic and diluted net loss per share is determined by dividing the net loss by the weighted-average number of common shares outstanding for the period. For all periods presented, the Company’s potentially dilutive securities include outstanding options under the Company’s 2018 Equity Incentive Plan, 2024 Inducement Plan and outstanding warrants to purchase common stock, each of which have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. Pre-funded warrants to purchase 30,816,705 shares of common stock are included in the computation of basic and diluted net loss per share for the year ended December 31, 2025, as the pre-funded warrants are exercisable for nominal consideration. There were no pre-funded warrants to purchase common stock in the year ended December 31, 2024. For all periods presented, there is no difference in the number of shares of common stock or common stock equivalents used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
Potentially dilutive securities not included in the calculation of diluted net loss per share attributable to common stockholders because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
Year EndedDecember 31,
3. Fair Value of Financial Instruments
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3—Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term investments. Cash equivalents consisted of money market funds and short-term investments consisted of U.S. treasury securities. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bid and/or offers.
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The following tables summarize the Company’s assets that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):
Fair Value Measurements Using
Quoted Prices in Significant Significant
Active Markets Other Unobservable
December 31, for Identical Observable Inputs
2025 Assets (Level 1) Inputs (Level 2) (Level 3)
Assets:
Total assets at fair value $ 29,733 $ 29,733 $ - $ -
Fair Value Measurements Using
Quoted Prices in Significant Significant
Active Markets Other Unobservable
December 31, for Identical Observable Inputs
2024 Assets (Level 1) Inputs (Level 2) (Level 3)
Assets:
U.S. treasury securities (b) 4,490 4,490 - -
Total assets at fair value $ 18,947 $ 18,947 $ - $ -
(a) Money Market funds included in cash and cash equivalents in the consolidated balance sheets, are valued at quoted market prices in active markets.
(b) U.S. treasury securities included in short-term investments in the consolidated balance sheet as of December 31, 2024, are recorded at fair market value, which is determined based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable. There were no short-term investments as of December 31, 2025.
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities.
The Company did not hold any Level 1, 2 or 3 financial liabilities that are recorded at fair value on a recurring basis as of December 31, 2025 or 2024.
4. Short-term Investments
The following table summarizes the Company’s short-term investments (in thousands):
Maturity Amortized Unrealized Unrealized Estimated
(in years) Cost Gains Losses Fair Value
U.S. treasury securities 1 or less $ 4,487 $ 3 $ - $ 4,490
The Company does not have any available-for-sale securities as of December 31, 2025. All of the Company’s available-for-sale securities are available to the Company for use in its current operations. As a result, the Company categorizes all of these securities as current assets.
There were no impairments considered other-than-temporary during the periods presented, as it is management’s intention and ability to hold the securities until a recovery of the cost basis or recovery of fair value. Unrealized gains and losses are included in accumulated other comprehensive income in the Company's consolidated balance sheets.
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5. Property and Equipment
Property and equipment consisted of the following (in thousands):
December 31,
Furniture & fixtures $ 58 $ 58
Machinery & lab equipment 656 660
Computer equipment 9 23
Leasehold improvements 3 20
Less accumulated depreciation and amortization (562 ) (499 )
Property and equipment, net $ 164 $ 262
Depreciation expense related to property and equipment was $0.1 million for each of the years ended December 31, 2025 and 2024. During the year ended December 31, 2025, the Company disposed of property and equipment with a net book value totaling $31,000 for cash proceeds of $12,000. As a result, the Company recognized a loss on disposal of property and equipment of $19,000, which is included in other income (expense), net in the consolidated statement of operations and comprehensive loss. No material gains or losses on the disposal of property and equipment were recorded for the year ended December 31, 2024.
6. Leases
In September 2025, the Company entered into a non-cancelable operating lease for laboratory space in San Diego, California which expires in January 2028. Upon lease commencement, the Company recognized a right-of-use asset and a corresponding lease liability of $0.5 million. The Company's lease for laboratory space in La Jolla, California expired in August 2025 and the Company did not renew that lease. The Company also leases office space located in La Jolla that expires in February 2027.
The terms of the Company’s non-cancelable operating lease arrangements typically contain fixed lease payments which increase over the term of the lease at fixed rates and include rent holidays and provide for additional renewal periods. Lease expense is recognized over the term of the lease on a straight-line basis. All of the Company’s leases are classified as operating leases. The Company has determined that periods covered by options to extend the Company’s leases are excluded from the lease term as the Company is not reasonably certain the Company will exercise such options. Operating lease expense, including expenses related to short-term leases, was $0.5 million for each of the years ended December 31, 2025 and 2024.
Under the lease arrangements, the Company may be required to pay directly, or reimburse the lessor for real estate taxes, insurance, utilities, maintenance and other operating costs. Such amounts are variable and therefore not included in the measurement of the right-of-use assets and related lease liability but are instead recognized as variable lease expense in the Company's consolidated statements of operations and comprehensive loss when they are incurred. Variable lease expense, including expenses related to short-term leases, was $0.3 million for each of the years ended December 31, 2025 and 2024.
The Company records its right-of-use-assets within other assets (long term) and its operating lease liabilities within other current and long-term liabilities.
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Additional information related to the Company’s leases as of and for the years ended December 31, 2025 and 2024 is as follows (in thousands, except lease term and discount rate):
Balance sheet information
Right-of-use assets $ 658 $ 364
Lease liabilities, current $ 363 $ 197
Lease liabilities, non-current 356 187
Total lease liabilities $ 719 $ 384
Other information
Weighted average remaining lease term 1.85 years 1.88 years
Weighted average discount rate 9.74 % 8.25 %
Supplemental cash flow information
Operating cash outflows from operating leases $ 244 $ 478
Maturities of lease liabilities as of December 31, 2025, were as follows (in thousands):
Year ending December 31,
Total undiscounted lease payments 796
Less: imputed interest (77 )
Total lease liabilities $ 719
As of December 31, 2025, the Company did not have any leases that have not yet commenced that create significant rights and obligations.
7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
December 31,
Accrued payroll and other employee benefits $ 1,464 $ 437
Nonclinical research 98 150
Income tax accruals - 365
8. Partnerships
Asset Purchase Agreement with Ono Pharmaceutical Co., Ltd.
On December 5, 2022, the Company and Ono, a Japan kabushiki kaisha, entered into an Asset Purchase Agreement pursuant to which the Company granted Ono the exclusive right, but not the obligation, to acquire the Company’s rights to itolizumab (the Option). These rights included all therapeutic indications and the rights to commercialize itolizumab in the United States, Canada, Australia, and New Zealand. In exchange for the Option, Ono paid the Company a one-time, upfront payment of an amount equal to JPY 3.5 billion, or $26.4 million.
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The Company was responsible for conducting all research and development of itolizumab, which had been funded by Ono from July 1, 2022 through October 30, 2024, the end of the option period. On October 30, 2024, the option period expired and the Asset Purchase Agreement automatically terminated pursuant to its terms.
During the year ended December 31, 2025, there was no revenue recognized under the Asset Purchase Agreement. During the year ended December 31, 2024, the Company recognized revenue of $41.1 million under the Asset Purchase Agreement. Such revenue was comprised of $28.3 million associated with development funding and $12.8 million associated with the amortization of the upfront payment during the year ended December 31, 2024.
Termination of Biocon Collaboration and License Agreement
On September 30, 2025 (the Termination Date), the Company entered into a termination agreement with Biocon Limited (Biocon and the agreement, the Termination Agreement) pursuant to which the Company and Biocon terminated the License Agreement, the Memorandum of Understanding dated April 7, 2022 and certain other corresponding agreements (collectively Biocon Agreements), with all licenses granted by Biocon to the Company under the Biocon Agreements, including with respect to itolizumab, terminating and reverting to Biocon. See Note 13 for additional details regarding the Biocon Agreements. As consideration for certain technical services the Company was obligated to provide to Biocon following the Termination Date, Biocon agreed to pay the Company a technical service fee of $0.4 million. In lieu of Biocon paying the technical service fee to the Company, Biocon set off amounts owed by the Company to Biocon under or in connection with the Biocon Agreements through the Termination Date, with the amount of such set-off to equal such technical service fee, plus any other amount that has been or may be invoiced by the Company to Biocon for work performed by the Company with respect to itolizumab through the Termination Date, and to be limited to the aggregate amounts that have been or may be invoiced by Biocon to the Company, or are or may be otherwise owed by the Company to Biocon, under or in connection with the Biocon Agreements through the Termination Date. The Company completed its performance obligations under the Termination Agreement in the fourth quarter of 2025, resulting in the set off of amounts owed by the Company to Biocon totaling $0.4 million which was recorded as a reduction of research and development expense in its consolidated statement of operations and comprehensive loss in the year ended December 31, 2025.
9. Stockholders’ Equity
As of December 31, 2025, the Company’s authorized capital stock consisted of 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.
The Company had 61,464,368 and 35,557,563 shares of common stock outstanding as of December 31, 2025 and 2024, respectively.
Securities Purchase Agreement
On August 10, 2025, the Company entered into a Securities Purchase Agreement (the Purchase Agreement) with certain institutional and accredited investors (the Investors), pursuant to which the Company agreed to sell and issue shares (Shares) of the Company’s common stock and pre-funded warrants to purchase shares of common stock (Warrant Shares), in up to two closings in a private placement transaction (the Private Placement).
The initial closing of the Private Placement occurred on August 12, 2025, (the Initial Closing). At the Initial Closing, the Company issued and sold 21,814,874 Shares at a purchase price of $0.57 per share (the Share Price) and pre-funded warrants to purchase up to 30,816,705 Warrant Shares at a purchase price of $0.5699 per Warrant Share (the Warrant Price) to the Investors for gross proceeds to the Company of approximately $30.0 million. Net proceeds from the Private Placement were $27.9 million, after deducting placement agent fees and offering expenses totaling $2.1 million.
Pursuant to the Purchase Agreement, subject to the occurrence of the Milestone Closing Trigger (defined below), the Investors have agreed to purchase at a closing (the Milestone Closing) up to 35,087,717 Shares or pre-funded warrants in lieu thereof at a purchase price per Share and pre-funded warrant equal to the Share Price and the Warrant Price, respectively, for gross proceeds to the Company of up to approximately $20.0 million. The Milestone Closing trigger means: (A) the achievement of either of the following prior to the five-year anniversary of the date of the Purchase Agreement (i) the clearance of an investigational new drug application for EQ504 or (ii) the dosing of the first patient in a single ascending dose or a multiple ascending dose trial of EQ504 in Australia or New Zealand (the first such event to occur, the Milestone Event), and (B) (x) the achievement of a volume weighted average price per share of $2.50 (subject to appropriate, proportional adjustment for any stock splits or combinations of the common stock occurring after the date of the Purchase Agreement) measured during any 10 consecutive trading days during the 30 trading days following the date the Company first announces via a press release or Current Report on Form 8-K the occurrence of the Milestone Event (such period the Measurement Period and such price threshold requirement, the Price Threshold), or (y) the Company’s receipt of a waiver of
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the Price Threshold signed by the Investors who hold a majority of the securities issued in the Private Placement (determined as if all of the Warrant Shares underlying pre-funded warrants then outstanding have been issued without regard to any limitations on the exercise of such pre-funded warrants) and delivered to the Company during the Measurement Period (the achievement or occurrence of (A) and (B) are collectively, the Milestone Closing Trigger). In the event the Milestone Closing Trigger occurs as a result of a Price Threshold Waiver, only the waiving Investors will be obligated to purchase Shares or pre-funded warrants at the Milestone Closing.
The pre-funded warrants have an exercise price of $0.0001 per Warrant Share, subject to customary adjustments, and are exercisable at any time and will not expire until exercised in full. The pre-funded warrants will also be exercisable on a net exercise “cashless” basis. The pre-funded warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof immediately following such exercise would exceed a specified beneficial ownership limitation, not to exceed 19.99%.
The Company assessed the 30,816,705 pre-funded warrants issued at the Initial Closing and the 35,087,717 Shares or pre-funded warrants in lieu thereof to be issued at the Milestone Closing subject to the occurrence of the Milestone Closing Trigger and determined that they do not require liability classification pursuant to ASC 480. The pre-funded warrants at the Initial Closing and the Shares or pre-funded warrants contingent to be issued at the Milestone Closing do not have any net cash settlement provisions that would preclude equity classification under ASC 815-40. Accordingly, the pre-funded warrants were recorded to additional paid-in capital in the consolidated balance sheet. As of December 31, 2025 and through the date of the filing of this Annual Report on Form 10-K, the pre-funded warrants issued at the Initial Closing have not been exercised.
Registration Rights Agreement
In connection with the Private Placement, the Company entered into a Registration Rights Agreement (the Registration Rights Agreement) with the Investors at the Initial Closing, pursuant to which the Company agreed to prepare and file, within 30 days of the Initial Closing and, if applicable, the Milestone Closing, subject to certain allowable delays, one or more registration statements with the SEC to register for resale the Shares and, as applicable, the Warrant Shares, in each case that were issued under the Purchase Agreement, and generally to cause the applicable registration statements to promptly become effective. Certain cash penalties will apply to the Company in the event of registration failures.
On September 9, 2025, the Company filed a registration statement on Form S-3 (File No. 333-290138) for the resale of the Shares as well as the shares of common stock issuable upon the exercise of the pre-funded warrants that were issued at the Initial Closing, and it was declared effective on September 18, 2025.
2023 ATM Facility
In October 2023, the Company entered into an at-the-market facility with Jefferies LLC (Jefferies) under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $21.95 million from time to time through Jefferies acting as the Company's sales agent (the 2023 ATM Facility). There were no shares sold under the 2023 ATM Facility from October 2023 through December 31, 2024. On August 3, 2025, the Company entered into Amendment No. 1 to the 2023 ATM Facility pursuant to which Jefferies was replaced by LifeSci Capital LLC as the sales agent under the 2023 ATM Facility. During the year ended December 31, 2025, there were 1,719,485 shares of common stock sold under the 2023 ATM Facility for gross proceeds of $1.0 million and net proceeds totaling $0.3 million, after deducting for issuance costs incurred inception-to-date of $0.7million.
On September 19, 2025, the Company filed a prospectus supplement with the SEC under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $75.0 million, pursuant to the 2023 ATM Facility, as amended.
As of December 31, 2025 and through the date of the filing of this Annual Report on Form 10-K, there were no additional shares sold under the 2023 ATM Facility, as amended.
2018 Equity Incentive Plan
In October 2018, the Company adopted the 2018 Plan which replaced the Company’s legacy 2017 Plan. The 2018 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other forms of stock awards. As of December 31, 2025, the 2018 Plan had a maximum of 292,972 total shares available for issuance. The number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each calendar year through January 1, 2028, in an amount equal to 5.0% of the total number of shares of the Company’s capital stock outstanding, including, for purposes of this calculation, shares issuable upon exercise of outstanding pre-funded warrants, on