Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Annual Report on Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties, assumptions, and other important factors. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in Part I. Item 1A. Risk Factors and the section titled “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “will,” “would,” and similar expressions to identify forward-looking statements.
Business Overview
We are a metabolic therapeutics company focused on breaking the pattern of treatment of metabolic diseases, including obesity and T2D. We aim to develop durable disease-modifying therapies that are designed to provide long-term maintenance of metabolic health without requiring lifetime treatment by targeting the organ-level root causes of obesity and T2D.
Since our formation in 2010, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our product candidates. We are evaluating Revita in a two-part, parallel cohort, randomized, open-label clinical study, the REMAIN-1 pivotal study, for weight maintenance in patients with obesity who have lost at least 15% of their total body weight on GLP-1 therapy and wish to discontinue their GLP-1 without weight regain. The open label cohort is called the REVEAL-1 cohort. In addition, we had been enrolling our pivotal REVITALIZE-1 pivotal study in patients with inadequately controlled T2D despite being on at least one GLA. On January 31, 2025, we announced a Strategic Reprioritization pursuant to which we intend to prioritize our REMAIN-1 pivotal study and advance Rejuva. We have paused investment in our Revita programs for T2D consisting of the REVITALIZE-1 pivotal study and the Germany Real-World Registry study. For the REVITALIZE-1 pivotal study, patients with inadequately controlled T2D, who are on at least one GLA and previously randomized, will continue to be followed per protocol to 48 weeks. Patients randomized to the sham arm will be offered an opportunity to receive the Revita DMR procedure (crossover) once unblinded. Patients who crossover and undergo the Revita DMR procedure will be followed per protocol. We intend to follow the existing patients in the Germany Real-World Registry study per protocol and continue to report on clinical, health economic, and patient-relevant outcomes from this study on an ongoing basis. We do not have any products approved for sale in the United States. To date, we have financed our operations primarily through the proceeds from sales of our convertible preferred stock, sales of our common stock in our IPO and debt financing.
We have incurred significant operating losses since our inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and commercialization of one or more of our current or future product candidates in the United States. For the years ended December 31, 2024 and 2023, we incurred net losses of $68.7 million and $77.1 million respectively. As of December 31, 2024, we had an accumulated deficit of $415.3 million. We expect to continue to incur significant losses for the foreseeable future and we expect these losses to increase substantially if and as we:
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advance the development of Revita and Rejuva through preclinical and clinical development, and, if approved by the FDA or other comparable foreign regulatory authorities, commercialization;
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incur manufacturing costs for our product candidates;
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increase our manufacturing capacity;
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seek regulatory approvals for any of our product candidates that successfully complete clinical studies;
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increase our research and development activities to identify and develop new product candidates;
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hire additional personnel;
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expand our operational, financial and management systems;
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invest in measures to protect and expand our intellectual property;
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establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize;
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expand our manufacturing and develop our commercialization efforts; and
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operate as a public company.
We do not anticipate generating revenue from product sales in the United States unless and until we successfully complete clinical development and obtain marketing approvals for one or more of our product candidates, if ever. We are currently establishing our commercial infrastructure to support the anticipated marketing and distribution of our product candidates. Subject to receiving marketing approval, we may need to enter into arrangements with third parties for the sale, marketing and distribution of our product candidates. Accordingly, if we obtain marketing approval for any of our product candidates, we will incur significant additional commercialization expenses related to product manufacturing, marketing, sales and distribution.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations with other companies and strategic alliances. We may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we would have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Components of our Consolidated Results of Operations
Revenue
To date, we have generated revenue in Germany since the limited pilot commercial launch of Revita in the first quarter of 2023. In the United States, we have not generated any revenue, and do not expect to generate any revenue unless and until we successfully complete clinical development and obtain marketing approvals for one or more of our product candidates, if ever. If our development efforts for our product candidates are successful and result in regulatory approval or collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from collaboration or license agreements that we may enter into with third parties, or any combination thereof. We cannot predict if, when or to what extent we will generate revenue from our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates in the United States. On January 31, 2025, we approved a Strategic Reprioritization, in which we have paused investment in our Revita programs for T2D, which consists of the REVITALIZE-1 study and the Germany Real World Registry study.
Cost of Goods Sold
We currently manage the final assembly and testing of Revita in the manufacturing space at our headquarters in Burlington, Massachusetts. We contract with third-party manufacturers to produce certain key parts of our single-use devices and consoles. Cost of goods sold primarily consist of material costs, direct labor and manufacturing overhead costs.
Operating Expenses
Research and Development Expenses
Research and development expenses primarily consist of personnel-related expenses, including salaries, bonuses, fringe benefits and other compensation-related costs, including stock-based compensation expense, for employees engaged in research and development functions. Research and development expenses also include costs of conducting our ongoing
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clinical studies, such as expenses associated with our clinical research organization, or CRO, who provides project management and other services related to our REVITALIZE-1 study, outside service fees paid to third party consultants and contractors related to our product candidate engineering, quality assurance and regulatory approval, contract manufacturing of our product candidate used in clinical studies as well as research expenses related to our Rejuva gene therapy platform.
We expense research and development costs as incurred. Non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and other long-term assets, which are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered.
A significant portion of our research and development costs have been, and will continue to be, external costs. We track these external costs, such as fees paid to our CRO, preclinical study vendors and other third parties in connection with our product engineering, sub-assembly component manufacturing and manufacturing process development, clinical studies, preclinical studies and other research activities on a program-by-program basis. We also use a portion of our personnel and infrastructure resources for our research and development efforts, which are shared across multiple programs under development, and as such, are not tracked on a program-by-program basis. The following table reflects our research and development expense, including direct program-specific expense summarized by program, indirect expenses, and personnel-related expenses recognized during each period presented:
Year Ended December 31,
Direct program-specific expenses:
Total direct program-specific expenses 33,093 14,399
Personnel-related expenses (including stock-based compensation) 28,340 18,985
Total research and development expenses $ 70,471 $ 38,038
We expect our research and development expenses will increase in the future as we:
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hire and retain additional personnel, including research, clinical, development, manufacturing, quality control, quality assurance, regulatory and scientific personnel;
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continue to conduct our ongoing REMAIN-1 pivotal study, follow existing patients under our REVITALIZE-1 study, and initiate a clinical study for Rejuva;
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continue to advance the research and development of our discovery preclinical programs;
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seek regulatory approval for any product candidates that successfully complete clinical studies; and
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develop, establish and validate our commercial-scale current good manufacturing practices and manufacturing process.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consist of personnel-related costs, including salaries, bonuses, fringe benefits and other compensation-related costs, including stock-based compensation expense, for our personnel and external contractors involved in our executive, finance, legal and other administrative functions as well as our commercial function, who is involved in market access related activities. Selling, general and administrative expenses also include costs incurred for outside services associated with such functions, including costs associated with obtaining and maintaining our patent portfolio and professional fees for accounting, auditing, tax, legal services and other consulting expenses.
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We anticipate that our selling, general and administrative expenses will increase in the future as we:
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hire and retain additional selling, general and administrative personnel to support the expected growth in our research and development activities and the preclinical and clinical development of our product candidates;
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expand our commercial and administrative function to support future product launches and company growth;
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pursue payor coverage and reimbursement for our current and future product candidates;
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maintain, expand and protect our intellectual property portfolio; and
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incur increased expenses associated with operating as a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services, director and officer insurance premiums, and investor and public relations costs.
Other Income (Expenses), Net
Other income (expense), net is primarily comprised of interest income, change in fair value of notes payable and change in fair value of warrant liabilities.
Interest Income
Interest income is primarily generated from cash interest earned on our cash, cash equivalents and restricted cash balances.
Change in Fair Value of Notes Payable
In January 2022, we entered into a financing arrangement with certain lenders in which we issued convertible promissory notes, or the 2022 Convertible Notes. In July 2023, we repaid one of the promissory notes to one lender and issued amended and restated convertible promissory notes to the remaining lenders in replacement of, but not in payment of, the remainder of the 2022 Convertible Notes. In September 2023, we entered into a credit agreement with certain lenders that provides for term loans, or the 2023 Notes. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources - Loan and Security Agreements section below for more details about our debt financing agreements. We elected the fair value option to account for these notes payable, which are remeasured at the end of each reporting period with changes in fair value recognized as a component of other income (expense), net. We will continue to recognize changes in fair value of the notes payable until they are repaid in cash or converted into equity upon an equity financing event or a change of control event. Upon the closing of the IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes were converted into our common stock. The 2022 Convertible Notes were marked to market to its fair value as of the time of the conversion before being reclassified to equity.
Change in Fair Value of Warrant Liabilities
In January 2014, we issued a fully vested warrant to purchase shares of our Series B convertible preferred stock in connection with a loan and security agreement entered into in January 2014. In July 2023, we issued fully vested warrants to purchase shares of our common stock in connection with the issuance of the amended and restated 2022 Convertible Notes. In September 2023, we issued fully vested warrants to purchase shares of our common stock or convertible preferred stock in connection with the 2023 Notes. These warrants were classified as liabilities on our consolidated balance sheet and were initially recorded at fair value on the grant date. They are subsequently remeasured to fair value at the end of each reporting period with changes in fair value recognized as a component of other income (expense), net. We will continue to recognize changes in fair value of the warrant liabilities until the warrants are exercised, expire or qualify for equity classification. In connection with our IPO in February 2024, warrants to purchase our convertible preferred stock converted into warrants to purchase our common stock and related liabilities were reclassified to additional paid-in capital.
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Critical Accounting Policies and Significant 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, or GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and recorded amounts of expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our audited consolidated financial condition and results of operations.
Determination of the Fair Value of Notes Payable
We elected the fair value option to account for our 2022 Convertible Notes and 2023 Notes, and remeasure the fair value at each reporting date.
Prior to our IPO, the fair value of the 2022 Convertible Notes was estimated using a Monte Carlo simulation model, which incorporates significant assumptions and estimates. These assumptions and estimates include, but are not limited to, the timing and probability of the conversion events, expected volatility of the price of the underlying equity, risk-free interest rate, scenario weightings, and estimated equity values, which are impacted by external market conditions. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our fair value of the notes payable could be materially different. Upon the closing of the IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes were converted into our common stock. The 2022 Convertible Notes were marked to market to its fair value as of the time of the conversion before being reclassified to equity. The fair value of the 2022 Convertible Notes at the time of the conversion was determined by the actual number of common stock being converted into and the trading price of our common stock on the Nasdaq Global Market as of the conversion date.
The fair value of the 2023 Notes at the inception date of September 7, 2023 was estimated at the difference between the total proceeds from the 2023 Notes and the estimated fair value of the associated warrants issued. This assumption was based on the rationale that the fair value of the notes and warrants at issuance equated to the total proceeds of the 2023 Notes as the credit agreement of the 2023 Notes were entered into with the lenders in an arm's-length transaction. The fair value of the 2023 Notes as of December 31, 2024 and 2023 was estimated using a discounted cash flow model by discounting projected future cash flows associated with the 2023 Notes to their present value. The discount rate used in the model is based on observable market yields for similarly rated instruments, adjusted for any specific risks inherent in the 2023 Notes.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances
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known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
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vendors, including central laboratories and research organizations, in connection with preclinical development activities and our research programs;
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CRO and investigative sites in connection with preclinical and clinical studies; and
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Clinical Manufacturing Organizations, or CMOs, in connection with devices and consumables used in the clinical studies.
We base our expenses related to preclinical and clinical studies on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and our CRO that conduct and manage preclinical and clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical study milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Results of Operations
Years Ended December 31, 2024 and 2023
The following table summarizes our consolidated results of operations for the years ended December 31, 2024 and 2023.
Year EndedDecember 31, Change
Operating expenses:
Revenue and Cost of Goods Sold
Revenue and cost of goods sold during the years ended December 31, 2024 and 2023 was related to our pilot commercial launch in Germany.
Research and Development Expenses
Research and development expenses increased by $32.4 million, or 85.3%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to the advancements made in our Revita and Rejuva programs, increased facilities expenditures, as well as personnel-related expenses. Revita-related expenses increased by $13.8 million, primarily due to a $12.5 million increase in clinical expenses due to progress made in our REMAIN-1 and REVITALIZE-1 studies, a $0.8 million increase in device development effort and a $0.3 million increase in medical
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research spending. Rejuva-related expenditures increased by $4.9 million due to continued development in our Rejuva program, primarily due to a $3.9 million increase in gene therapy research expenses and a $0.9 million increase in device development effort. In addition, allocated facilities expenses increased by $4.2 million as our new office and laboratory space lease in Burlington, MA, commenced on November 1, 2023. Personnel-related expenses, including salaries, bonuses and other compensatory benefits, increased by $5.4 million as a result of the expansion of our workforce and our effort to bring certain preclinical, clinical and scientific research resources in house. In addition, stock-based compensation increased by $4.0 million primarily due to new option and RSUs issued.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $10.3 million, or 79.9%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to increased professional services, insurance and facilities expenditures, as well as personnel-related expenses, partially offset by the absence of debt issuance costs in the current period. Professional services expenses increased by $1.9 million primarily due to the increased legal, audit, accounting, investor relations and other administrative expenses incurred in relation to our IPO and to operate as a public company. Insurance expenses increased by $1.2 million mainly due to higher public company insurance premiums. Allocated facilities expenses increased by $0.7 million as our new office and laboratory space lease in Burlington, Massachusetts, commenced on November 1, 2023. Personnel-related expenses, including salaries, bonuses and other compensatory benefits, increased by $2.0 million as a result of the expansion of our workforce. In addition, stock-based compensation increased by $6.1 million primarily due to new options and RSUs issued. These increases were partially offset by $1.9 million in debt issuance costs associated with the re-issuance of the 2022 Convertible Notes and issuance of the 2023 Notes that occurred in the third quarter of 2023, while there were no debt issuance costs during the year ended December 31, 2024.
Other Income (Expense), Net
Other income, net, of $24.8 million during the year ended December 31, 2024 was primarily attributable to a $17.9 million gain from the change in fair value of warrant liabilities, $2.8 million gain from the change in fair value of notes payable and $4.1 million in net interest income. Other expense, net, of $26.3 million during the year ended December 31, 2023 was primarily attributable to a $20.7 million loss from the change in fair value of notes payable and $6.8 million loss from the change in fair value of warrant liabilities, offset by $1.2 million in net interest income.
We recognized a gain of $17.9 million from the decrease in fair value of warrant liabilities during the year ended December 31, 2024, which consisted of a $15.3 million gain related to the July 2023 Warrants, $2.5 million gain related to the September 2023 Warrants and $0.1 million gain related to the 2014 Warrant. The decrease in the fair value of these warrants was mainly due to the decrease in the fair value of the underlying shares of common stock. We recognized a loss of $6.8 million from the change in fair value of warrant liabilities during the year ended December 31, 2023 mainly related to the July 2023 Warrants, which was due to an increase in estimated underlying equity value due to reduced remaining estimated time to assumed conversion events.
We recognized a gain of $8.0 million from the decrease in fair value of 2022 Convertible Notes during the year ended December 31, 2024, which was primarily driven by the change in our common stock value after the IPO. Upon the closing of the IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes were converted into our common stock. The 2022 Convertible Notes were marked to market to its fair value as of the time of the conversion before being reclassified to equity. The gain from the decrease in fair value of the 2022 Convertible Notes was offset by a loss of $5.2 million from the increase in fair value of the 2023 Notes during the year ended December 31, 2024 due to a combination of the fluctuation of market interest rate and the accrual of the interest.
We recognized a loss of $19.4 million from the increase in fair value of the 2022 Convertible Notes during the year ended December 31, 2023, which was primarily driven by the consideration of known and knowable terms of the subsequent amendments to the convertible notes along with the concurrent issuance of warrants to purchase common stock to the lenders. In addition, we also recognized a loss of $1.3 million from the increase in fair value of the 2023 Notes during the year ended December 31, 2023 related to interest accrued on the 2023 Notes.
In addition, interest income earned from our cash deposits increased by $2.9 million mainly due to higher deposit balances upon the completion of our IPO.
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Liquidity and Capital Resources
We manage our cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. We continuously assess our working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements and future investments.
As of December 31, 2024, we had approximately $67.5 million in cash and cash equivalents. Our cash and cash equivalents at December 31, 2024 is not sufficient to fund our current operating plan for at least 12 months from the issuance date of this Annual Report on Form 10-K.
Loan and Security Agreements
2022 Convertible Notes
On January 11, 2022, we entered into a financing arrangement with certain lenders in which we issued the 2022 Convertible Notes in exchange for an aggregate principal amount of $20.1 million. On July 11, 2023, we repaid $0.1 million in cash to one of the original lenders and issued amended and restated convertible notes to certain of the lenders in replacement of, but not in payment of, the remainder of the 2022 Convertible Notes. Following these amendments, $20.9 million in aggregate principal under the 2022 Convertible Notes remained outstanding, accruing interest at the rate of 10% per year until they were paid or converted in full. Pursuant to the terms of the Convertible Notes, effective upon the closing of our IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes of $22.1 million automatically converted into 1,841,321 shares of our common stock at a conversion price equal to 80% of the public offering price per share of $15.00, or $12.00.
2023 Notes
On September 7, 2023, we entered into a credit agreement, as amended from time to time, with Symbiotic Capital Opportunities Holding, L.P. and Catalio Structured Opportunities AIV I LP, or the Lenders, that provides for term loans in an aggregate principal amount of $45.0 million, or the 2023 Notes, payable in two tranches. The first tranche, with a principal amount of $30.0 million, was extended on September 7, 2023, resulting in net proceeds of approximately $28.4 million. The second tranche, with a principal amount of $15.0 million, would have been extended upon our achievement of certain operating and funding milestones as defined in the 2023 Notes, by July 31, 2024. Due to a shift in business strategy, we decided not to pursue the milestones required to access the second tranche. As a result, the second tranche was not extended. The 2023 Notes also provide for a third tranche with an uncommitted principal amount of $20.0 million that may be extended to us, subject to the Lenders’ prior written consent in their sole discretion.
The credit agreement, as amended, contains financial covenants including a minimum liquidity covenant requiring us to maintain a minimum $10.0 million balance in cash and cash equivalents on deposit in accounts, subject to certain exceptions. As of December 31, 2024, we were in compliance with the financial covenants and other terms of the arrangement.
The outstanding balances under the 2023 Notes bear interest at a floating annual rate equal to the greater of 5.5% above the Wall Street Journal prime rate or 13.25%. On and prior to September 30, 2024, 6.0% of the interest is payable in kind and added to the outstanding principal amount of the 2023 Notes. Beginning September 30, 2026, we are required to make principal payments in the amount of 1.5% of the aggregate principal amount outstanding, including accrued PIK interest, each month. Under the terms of the credit agreement, the first principal payment date can be extended to September 30, 2027, at our election, if certain financing milestones as defined in the 2023 Notes are achieved on or prior to September 30, 2026. During 2024, we achieved the defined milestones and elected to extend the first principal payment date to September 30, 2027. In addition, upon any principal payment, we are required to make an additional payment to the Lenders of a 6.0% fee, or the Exit Fee, over the principal and accrued PIK interest paid. The aggregate Exit Fee of the 2023 Notes should equal to 6.0% of the total commitment of $45.0 million plus all accrued PIK interest. All remaining outstanding principal balance, accrued interest and Exit Fee on the 2023 Notes shall be due and payable on the maturity date of September 7, 2028.
As of December 31, 2024, the balance of the 2023 Notes was carried at its fair value of $30.2 million.
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Funding Requirements and Going Concern
We expect our expenses to increase in connection with our ongoing research and development activities, particularly as we advance our product candidates. Identifying potential product candidates and conducting preclinical testing and clinical studies is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In the United States, we do not have any products approved for sale and have not generated any revenue from any sources, including product sales. Our product candidates, if approved, may not achieve commercial success. In addition, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future, and we will need to obtain additional funds to achieve our business objectives.
Our future success is dependent on our ability to develop product candidates, generate significant revenue, and ultimately upon our ability to attain profitable operations. We are subject to a number of risks similar to other early-stage life science companies, including, but not limited to, successful discovery and development of our product candidates, raising additional capital with favorable terms, development by our competitors of new technological innovations, protection of proprietary technology and market acceptance of our products. The successful discovery and development of product candidates requires substantial capital which may not be available to us on favorable terms or not at all.
To date, we have financed our operations to date primarily through sales of convertible preferred stock, sales of common stock in the IPO and debt financings. We have a history of operating losses and negative operating cash flows. As of December 31, 2024, we had an accumulated deficit of $415.3 million.
Based on our current business plans, we believe that our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital expenditures requirements into 2026, through multiple key clinical milestones. As of December 31, 2024, we had available cash and cash equivalents of $67.5 million and net working capital of $52.0 million, which is not sufficient to fund our current operating plan for at least 12 months from the issuance date of this Annual Report on Form 10-K. In addition, we may not be able to comply with the minimum liquidity covenant related to our 2023 Notes without additional financing. We expect to seek additional funds through equity or debt financings or through collaboration or licensing transactions or other sources. We may be unable to obtain equity or debt financings or enter into collaboration or licensing transactions and, if necessary, we will be required to implement cost reduction strategies which could curtail or delay our current operating plans. As a result, substantial doubt exists about our ability to continue as a going concern. The accompanying consolidated financial statements in this Annual Report on Form 10-K have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:
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the scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned Revita clinical studies, and ongoing preclinical development for our current and future product candidates;
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the scope, prioritization and number of our research and development programs;
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the scope, costs, timing and outcome of regulatory review of our product candidates;
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the costs of securing manufacturing materials for use in preclinical and clinical studies and, for any product candidates for which we receive regulatory approval, use as commercial supply;
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our ability to seek, establish and maintain a collaboration to develop our product candidate with a collaborator, including the financial terms and any cost-sharing arrangements of any such collaboration;
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the costs and timing of future commercialization activities for any of our product candidates for which we receive regulatory approval;
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the amount and timing of revenue, if any, received from commercial sales of any product candidates for which we receive regulatory approvals;
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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims;
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the extent to which we may acquire or in-license other products, product candidates, technologies or intellectual property, as well as the terms of any such arrangements; and
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the costs of continuing to expand our operations and operating as a public company.
Identifying potential product candidates and conducting preclinical testing and clinical studies is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales in the United States or elsewhere. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Our expectation with respect to our ability to fund current planned operations is based on estimates that are subject to risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that the current operating plan will be achieved in the time frame anticipated by us, and we may need to seek additional funds sooner than planned.
Adequate additional funds may not be available to us on acceptable terms, or at all. Market volatility resulting from pandemics, monetary policy changes, or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Additional debt financing and convertible preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute your ownership interest.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may have to significantly delay, reduce or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
For additional information on risks associated with our substantial capital requirements, please see Part I. Item 1A. Risk Factors—Risks Related to Financial Condition and Capital Requirements.
We will require substantial additional capital beyond the proceeds from our IPO to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our research and development programs or future commercialization efforts.
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Cash Flows
Years Ended December 31, 2024 and 2023
The net change in cash, cash equivalents and restricted cash for the years ended December 31, 2024 and 2023 was as follows:
Year Ended December 31,
Net cash used in operating activities $ (65,521 ) $ (42,823 )
Net cash used in investing activities (1,765 ) (359 )
Net cash provided by financing activities 101,226 27,437
Operating Activities
Cash used in operating activities of $65.5 million for the year ended December 31, 2024 was primarily driven by spending on our ongoing Revita and Rejuva clinical and preclinical activities, professional services related to our corporate and general administrative activities, as well as personnel-related expenses, including salaries, bonuses, and other compensatory benefits. Cash used in operating activities resulted primarily from our net loss of $68.7 million adjusted for net non-cash income of $6.4 million, primarily consisting of a $17.9 million gain from change in fair value of warrant liabilities and $5.8 million gain from change in fair value of notes payable (non-cash portion), offset by $14.4 million in stock-based compensation, a $1.9 million non-cash operating lease expense, a $0.7 million depreciation and a $0.3 million non-cash interest expense. Cash used in operating activities was also impacted by changes in working capital and other assets and liabilities of $9.6 million.
Cash used in operating activities of $42.8 million for the year ended December 31, 2023 was primarily driven by spending on our ongoing clinical study, Rejuva-related research activities, professional services related to our corporate and general administrative activities, as well as personnel-related expenses, including salaries, bonuses, and other compensatory benefits. Our net loss of $77.1 million was partially offset by non-cash items totaling $31.3 million, primarily consisting of a $19.9 million loss from change in fair value of the 2022 Convertible Notes payable, $4.3 million in stock-based compensation, a $6.8 million loss from change in fair value of warrant liabilities and $0.3 million of depreciation. In addition, $2.0 million of the net loss was related to debt issuance costs that were presented in cash used in financing activities. Cash used in operating activities was also impacted by changes in working capital and other assets and liabilities of $1.0 million.
Investing Activities
Cash used in investing activities for the years ended December 31, 2024 and 2023 were related to the purchase of property and equipment. The increase in the year ended December 31, 2024 compared with the year ended December 31, 2023 was primarily due to our spending on leasehold improvements, office furniture and information technology equipment as we moved into our new office and laboratory space in Burlington, MA.
Financing Activities
Cash provided by financing activities of $101.2 million for the year ended December 31, 2024 was primarily driven by the $103.7 million capital raised from the IPO, net of discounts and commissions, partially offset by $2.9 million payments of public offering costs made to third-party service providers. We also received proceeds of $0.6 million from stock option exercises.
Cash provided by financing activities of $27.4 million for the year ended December 31, 2023 was primarily driven by the $28.4 million capital raised from the issuance of the 2023 Notes, net of issuance costs, partially offset by additional issuance costs of $0.4 million paid to third party service providers such as legal fees, offering costs of $0.6 million related to the IPO effort in 2023.
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Contractual Obligations and Commitments
We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods.
As of December 31, 2024, our lease commitments reflect payments due for our operating and finance leases. The operating leases include our corporate office and laboratory space in Burlington, MA that will expire in June 2034. The finance leases represent laboratory equipment used in our Rejuva preclinical activities. As of December 31, 2024, our future contractual commitments for our leases were $58.1 million, of which $56.7 were related to our operating leases. For additional information on our leases and timing of future payments, please see Note 7— "Commitments and Contingencies" to the consolidated financial statements included in this Annual Report on this Form 10-K.
We have also entered into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies, manufacturing, and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and provide for termination upon notice. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. For example, on April 3, 2024, we entered into a Master Services Agreement and two Scopes of Work with Forge Biologics, Inc. (wholly owned subsidiary of Ajinomoto Co.) (“Forge”) to produce cGMP-grade RJVA-001 for Company’s first-in-human clinical studies. Forge performs process and analytical development, manufacturing scale-up, and cGMP manufacturing in its facility in Columbus, Ohio. The scope of the services between the Company and Forge are intended to support CTA-enabling non-clinical studies, as well as the manufacture of cGMP-grade RJVA-001 for a first-in-human clinical study. The Master Services Agreement terminates at the later of completion of services under all Statements of Work or April 2, 2030. The Master Services Agreement includes customary terms relating to, among others, indemnification, intellectual property protection, confidentiality, payments, remedies, terminations and warranties.
Recent Accounting Pronouncements
See Note 2— “Significant Accounting Policies” to our audited consolidated financial statements for the years ended December 31, 2024 and 2023 included elsewhere in this Annual Report on Form 10-K for more information.
JOBS Act Accounting Election
We are an “emerging growth company” within the meaning of the Jumpstart Our Business Act of 2012, or JOBS Act. Section 107(b) of the JOBS Act provides that an emerging growth company can leverage the extended transition period, provided in Section 102(b) of the JOBS Act, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We have elected to use this extended transition period and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates. We have also elected to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
We would cease to be an emerging growth company on the date that is the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (2) the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO; (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our term loans drawn under the 2023 Notes require monthly payment of interest at a floating annual rate that equals the greater of 5.5% above the Wall Street Journal prime rate or 13.25%, 6% of which is payable in kind and added to the outstanding principal amount of the loans until September 30, 2024. We do not believe that an immediate 10% increase or decrease in the Wall Street Journal prime rate would have a material effect on our operating results.
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Credit Risk
As of December 31, 2024, the majority of our cash and cash equivalents were maintained at various financial institutions in the United States, and our current deposits are in excess of insured limits. We believe the financial institutions that maintain our cash and cash equivalents possess sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us.
Foreign Currency Risk
Substantially all of our business is currently conducted in U.S. dollars. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on our operating results.
Inflation Risk
Inflationary factors, such as increases in our operating expenses, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may significantly increase our operating expenses.
Item 8. Financial Statements and Supplementary Data.
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Part IV, Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10‐K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10‐K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‐15(e) and 15d‐15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, using the criteria described in Internal Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2024.
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This Annual Report on Form 10‐K does not include an attestation report of our independent registered accounting firm. Our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act or even after we no longer qualify as an “emerging growth company,” if we remain a “low-revenue smaller reporting company,” until we are no longer a “low-revenue smaller reporting company.”
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a‐15(f) and 15d‐15(f) under the Exchange Act) during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
(a)
Disclosure in lieu of reporting on a Current Report on Form 8-K.
None.
(b)
Insider Trading Arrangements and Policies.
During the three months ended December 31, 2024, Lisa Davidson, Chief Financial Officer and Treasurer, adopted a Rule 10b5-1 trading arrangement on November 15, 2024 that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 183,882 shares of the Company’s common stock until December 16, 2025.
Other than as described above, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table provides information regarding our executive officers and members of our board of directors (ages as of the date of this Annual Report on Form 10‐K):
Name Age Position(s)
Executive Officers
Harith Rajagopalan, M.D., Ph.D. 48 Co-Founder, Chief Executive Officer, Director
Jay D. Caplan 63 Co-Founder, President, Chief Product Officer
Lisa A. Davidson 58 Chief Financial Officer, Treasurer
Timothy Kieffer, Ph.D. 58 Chief Scientific Officer
Sarah Toomey 50 General Counsel, Corporate Secretary
Non-Employee Directors
Kelly Barnes 59 Director
William W. Bradley 81 Director
Samuel Conaway 60 Director
Marc Elia 49 Director
Clive Meanwell, M.B., Ch.B., M.D. 67 Director
Ajay Royan 45 Chairman
Amy W. Schulman 64 Director
Executive Officers
Harith Rajagopalan, M.D. Ph.D. Dr. Rajagopalan co-founded Fractyl in 2010 and has served as our Chief Executive Officer and a member of our board of directors since 2011, while serving as an Entrepreneur-in-Residence at General Catalyst Partners from 2009 to 2011. Prior to founding Fractyl, Dr. Rajagopalan trained in internal medicine and clinical cardiology at Brigham and Women’s Hospital in Boston, Massachusetts from 2005 to 2011, and completed a research fellowship at Harvard Medical School from 2009 to 2011. Dr. Rajagopalan received his B.S. in chemistry from Stanford University, and his M.D. and Ph.D. from Johns Hopkins University School of Medicine. We believe that Dr. Rajagopalan is qualified to serve on our board of directors due to his role as co-founder of Fractyl Health, his management experience as our Chief Executive Officer and his scientific and medical experience.
Jay D. Caplan. Mr. Caplan co-founded Fractyl in 2010 and has served as our President and Chief Product Officer since 2011 and January 2022, respectively. He previously served as a member of our board of directors from 2011 to 2017. Prior to founding Fractyl, Mr. Caplan served as Chief Operating Officer of Candela Corporation from November 2007 to January 2010, which was then a publicly held U.S.-based global medical aesthetic device company. Prior to Candela, he served as Chief Technology Officer and Vice President of Research and Development of InfraReDx, Inc. from September 2001 to October 2007, a privately held company that designs and develops catheter-based coronary imaging devices, that was later acquired by Nipro Corporation (Japan). Mr. Caplan also previously served as Vice President of Operations of Thermo Cardiosystems Inc. (now part of Abbott Laboratories), where he assisted in developing the HeartMate II left ventricular assist device. Mr. Caplan received his B.S. in electrical engineering from the Massachusetts Institute of Technology, or MIT, and his M.B.A. from the University of Pennsylvania’s Wharton School of Business.
Lisa A. Davidson. Ms. Davidson has served as our Chief Financial Officer and Treasurer since August 2015. Prior to joining us, Ms. Davidson was Vice President of Finance and Administration of Flexion Therapeutics, Inc., or Flexion, a publicly held biopharmaceutical company focused on the development and commercialization of novel, injectable pain therapies, from March 2009 to August 2015. Prior to Flexion, Ms. Davidson served as Director of Finance of OmniSonics Medical Technologies, Inc., a privately held U.S.-based medical device company focused on the treatment of vascular occlusive diseases. Ms. Davidson also previously served as Director of Finance of PerkinElmer Inc., a publicly held company focused on globally providing products and services to customers in health sciences and other advanced technology markets, and as Director of Finance at Citizens Advisers, Inc., an investment adviser to Citizens Funds, an investment company. Ms. Davidson has led various functions outside of Finance and Accounting including Human Resources and Information Technology. Ms. Davidson received her B.A. and M.B.A. from the University of New Hampshire.
Timothy Kieffer, Ph.D. Dr. Kieffer has served as our Chief Scientific Officer since September 2023. Prior to joining us, Dr. Kieffer served as the Chief Scientific Officer of ViaCyte Inc., a privately held company at the forefront of stem cell-derived treatments for diabetes, from September 2021 to October 2022. In September 2024 Dr. Kieffer
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co-founded Lunar Therapeutics, a privately held company formed with the goal of developing novel strategies for stem cell-derived treatments for diabetes, where he also serves as a member of the board of directors. He also currently serves as a Professor of Medicine in the department of cellular and physiological sciences and surgery at the University of British Columbia, a position he has held since 2007. Dr. Kieffer’s research is focused on islet biology and the development of novel gene and cell therapy approaches to treat diabetes, and he has co-authored more than 200 publications on these topics and has been cited over 20,000 times. He received his Ph.D. in physiology from the University of British Columbia.
Sarah Toomey. Ms. Toomey has served as our General Counsel and Corporate Secretary since May 2022. Prior to joining us, Ms. Toomey was Senior Vice President of Operations and General Counsel of BERG LLC or BERG (now BPGbio, Inc.), a clinical-stage AI-powered biopharmaceutical company focused on oncology, neurology and rare diseases, from October 2017 to May 2022. Prior to BERG, Ms. Toomey was General Counsel at Metamark Genetics, a molecular diagnostics company focused on urological cancer care, from April 2015 to October 2017. Ms. Toomey also previously served as Senior Vice President and General Counsel at IntelligentMDx, a company that developed and manufactured molecular diagnostics products, from February 2009 to January 2015. Ms. Toomey is a registered patent attorney and practiced patent law before becoming in-house counsel. Prior to law school, Ms. Toomey was employed at Merck as a microbiologist. Ms. Toomey received her B.S. in bacteriology from the University of Wisconsin-Madison and her J.D. from Suffolk University Law School.
Non-Employee Directors
Kelly Barnes. Ms. Barnes has served as a member of our board of directors since January 2022. Prior to joining us, she served in various roles at PricewaterhouseCoopers from 1988 to 2020, most recently serving as a Global Health Industries Leader from 2018 to 2020 and as a U.S. Health Industries Leader from 2009 to 2020, where she oversaw services across all health-related industries. Ms. Barnes currently serves on the board of directors of Included Health, a privately held company, and is a member of the executive advisory board of the Walton College of Business at the University of Arkansas. She received her B.S.B.A. and M.S.A in accounting from the University of Arkansas and is a registered certified public accountant in the state of Texas. We believe that Ms. Barnes is qualified to serve on our board of directors due to her strong business and financial acumen, and extensive experience advising companies in the healthcare industry.
William W. Bradley. Senator Bradley has served as a member of our board of directors since March 2017. Since 2000, Sen. Bradley has been a managing director of Allen & Company LLC, an investment banking firm. From 2001 until 2004, he acted as chief outside advisor to McKinsey & Company’s non-profit practice. In 2000, Sen. Bradley was a candidate for the Democratic nomination for President of the United States. He served as a senior advisor and vice chairman of the International Council of JP Morgan & Co. from 1997 through 1999. During that time, Sen. Bradley also worked as an essayist for CBS Evening News, and as a visiting professor at Stanford University, the University of Notre Dame and the University of Maryland. Sen. Bradley served in the U.S. Senate from 1979 until 1997, representing the State of New Jersey. Prior to serving in the U.S. Senate, he was an Olympic gold medalist in 1964, and from 1967 through 1977 he played professional basketball for the New York Knicks, during which time they won two world championships. Sen. Bradley previously served on the board of directors of Starbucks Corporation from June 2003 until March 2018. Sen. Bradley also previously served on the board of directors of Seagate Technology, Willis Group Holdings Limited and QuinStreet, Inc. Sen. Bradley received his B.A. in American history from Princeton University and his M.A. in political philosophy and economics from the University of Oxford, Worcester College, where he was a Rhodes Scholar. We believe that Mr. Bradley is qualified to serve on our board of directors due to his deep understanding of public policy and U.S. governmental and regulatory affairs, and his broad leadership and corporate governance experience.
Samuel Conaway. Mr. Conaway has served as a member of our board of directors since January 2024. Mr. Conaway also currently serves as a director of JD Palatine LLC, a privately held company. Since 2013, Mr. Conaway has held roles of increasing responsibility with Boston Scientific Corporation, a publicly held company focused on global development, manufacturing and marketing of medical devices, and in October 2021, he became President of U.S cardiology sales. He also currently serves as chair of Close the Gap, Boston Scientific Corporation’s health equity program. Prior to joining Boston Scientific Corporation, Mr. Conaway served as the Vice President of U.S. endovascular and coronary sales of Abbott Vascular (formerly Guidant), the cardiovascular device division of Abbott Laboratories, a publicly held biomedical company. Mr. Conaway has over 30 years of experience in the medical device industry. He received his B.S. in business management at the University of Phoenix and his M.B.A. at the University of Maryland. We believe that Mr. Conaway is qualified to serve on our board of directors due to his expertise and experience serving in leadership positions of various medical device companies.
Marc Elia. Mr. Elia has served as a member of our board of directors since June 2021. Mr. Elia has also served as a director and audit committee member at SQZ Biotech, a clinical-stage biotechnology company developing cell therapies for patients with cancer since May 2018, chairman at Invivyd, Inc. (previously Adagio Therapeutics), a publicly-held biotechnology company developing antibodies against viruses, including potentially against COVID-19 since 2022, and previously served as a director at Adimab LLC, a provider of therapeutic antibody discovery and engineering. In September 2019, Mr. Elia founded M28 Capital Management, a healthcare sector investment fund, and serves as its Chief Investment
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Officer. Mr. Elia received his B.A. at Carleton College, graduating with magna cum laude honors. We believe that Mr. Elia is qualified to serve on our board of directors due to his business expertise and experience serving as a director at various life science companies.
Clive Meanwell, M.B., Ch.B., M.D. Dr. Meanwell has served as a member of our board of directors since June 2021. Dr. Meanwell has also been a director and member of the compensation and audit committees at BB Biotech, a publicly-held Switzerland-based biotechnology investment company, since 2004, a director at EQRx, a privately-held biotechnology company aiming to make medicine more affordable, from January 2021 to August 2023, a director at Comanche BioPharma, a privately-held preclinical biopharmaceutical company developing treatments for preeclampsia, since 2021, a director at Hugo Health, a privately-held cloud-based healthcare platform, since 2021, a director at Invivyd, Inc., a publicly-held biotechnology company developing antibodies against viruses, including potentially against COVID-19, since 2022, and a director at Saama, a privately-held company, since 2021. Dr. Meanwell also currently serves as the Executive Chairman of Metsera, Inc. a public biotechnology company focused on treating metabolic diseases and as Executive Chairman and General Partner at Population Health Partners LP, an investment company focused on innovative therapeutics with the potential to transform health outcomes for populations. Dr. Meanwell also founded The Medicines Company, a biopharmaceutical company focused on addressing cardiovascular disease, and served as Executive Chairman and Chief Executive Officer from 1996 until 2018 and Chief Innovation Officer until 2020. Dr. Meanwell received his M.B., Ch.B. and M.D. from the University of Birmingham, UK. We believe that Dr. Meanwell is qualified to serve on our board of directors due to his medical background and experience working with and serving on the boards of directors of various pharmaceutical and healthcare companies.
Ajay Royan. Mr. Royan has served as Chairman of our board of directors since August 2024 and has served as a member of our board of directors since 2014. Mr. Royan is the founder and has served as Managing General Partner at Mithril Capital Management LLC, or Mithril, a venture capital firm investing in technology companies, since June 2012. Mr. Royan serves on the board of directors of several private companies in which Mithril Capital Management LLC or its affiliates have invested, including Adimab, LLC, Oklo Inc., Helion Energy, Inc., AppDirect, Inc. and C2FO. Mr. Royan previously served on the board of directors of Adagio Therapeutics, Inc., a publicly traded biopharmaceutical company. Mr. Royan serves on the science advisory board of the Oak Ridge National Laboratory and the board of directors of Fulbright Canada. Mr. Royan received his B.A. from Yale University. We believe that Mr. Royan is qualified to serve on our board of directors due to his experience working in the venture capital industry and experience working with and serving on the boards of directors of numerous technology companies.
Amy W. Schulman. Ms. Schulman has served as a member of our board of directors since September 2018. Ms. Schulman is a healthcare investor and Managing Partner at Polaris Partners and co-founded and acts as Managing Partner of the Polaris Innovation Fund, which was formed in 2017. Ms. Schulman currently serves as Executive Chair of SQZ Biotech, as well as Lyndra Therapeutics, which she co-founded and served as the company’s initial Chief Executive Officer from July 2015 to September 2019. Prior to joining Polaris Partners, Ms. Schulman, held various executive roles at Pfizer, including General Counsel, President of Pfizer Consumer Healthcare and Pfizer Nutrition. Ms. Schulman is currently a member of the board of directors of Alnylam Pharmaceuticals and Mount Sinai Hospital, and also serves as a member of Singapore’s Health and Biomedical Sciences International Advisory Council. She previously served as a Senior Lecturer at Harvard Business School and was a partner at DLA Piper. Ms. Schulman received her B.A. in Philosophy and English at Wesleyan University, graduating with Phi Beta Kappa honors, and her J.D. from Yale Law School. We believe that Ms. Schulman is qualified to serve on our board of directors due to her experience working with and serving on the boards of directors of various pharmaceutical and healthcare companies.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of business conduct and ethics is available under the Corporate Governance section of our website at www.fractyl.com. In addition, we intend to post on our website all disclosures that are required by law or the Nasdaq rules concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report on Form 10-K.
Insider Trading Compliance Policy
We have adopted an Insider Trading Compliance Policy governing the purchase, sale and other dispositions of our securities that applies to all Company personnel, including directors, officers, employees, and other covered persons. Our
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Insider Trading Compliance Policy prohibits our directors, officers and employees and any entities they control from purchasing financial instruments such as prepaid variable forward contracts, equity swaps, collars, and exchange funds, or otherwise engaging in transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s equity securities, or that may cause an officer, director, or employee to no longer have the same objectives as the Company’s other stockholders. In addition, individuals subject to this policy are prohibited from using our securities as collateral in a margin account or pledging the Company’s securities as collateral to secure loans. We believe our Insider Trading Compliance Policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company. A copy of our Insider Trading Compliance Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Audit Committee and Audit Committee Financial Expert
We have a separately designated standing audit committee. Our audit committee consists of Kelly Barnes, Marc Elia and Ajay Royan, with Ms. Barnes serving as the chair. Our board of directors has determined that each of Ms. Barnes, Mr. Elia and Mr. Royan meet the independence requirements of Rule 10A-3 under the Exchange Act and the applicable Nasdaq rules. All members of our audit committee meet the requirements for financial literacy under the applicable Nasdaq rules. Our board of directors has determined that Ms. Barnes is an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K and has the requisite financial sophistication as defined under the applicable Nasdaq rules. Our board of directors has adopted a written charter for the audit committee, which is available under the Corporate Governance section of our website at www.fractyl.com.
Item 11. Executive Compensation.
This section discusses the material components of the executive compensation program for our executive officers who are named in the 2024 Summary Compensation Table below. In 2024, our named executive officers and their positions were as follows:
•
Harith Rajagopalan, M.D., Ph.D., Chief Executive Officer;
•
Jay D. Caplan, President and Chief Product Officer; and
•
Lisa A. Davidson, Chief Financial Officer and Treasurer.
2024 Summary Compensation Table
The following table sets forth information concerning the total compensation of our named executive officers for the year ended December 31, 2024:
Chief Financial Officer
(1)
Amounts reflect the full grant-date fair value of option awards granted during the fiscal years shown computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of option awards granted in the fiscal year ended 2024 and 2023 in Note 12 to the consolidated financial statements included in this Annual Report on Form 10-K.
(2)
Amounts reported in this column represent the performance bonuses earned for the years shown. Please refer to “Narrative to Summary Compensation Table—2024 Bonuses” below for additional information regarding our 2024 bonus program.
(3)
With respect to Dr. Rajagopalan, Mr. Caplan and Ms. Davidson, the amounts reported in this column represent annual life insurance premiums paid by the Company on behalf of the executive during the fiscal years shown.
Narrative to Summary Compensation Table
2024 Salaries
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The named executive officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. The 2024 annual base salaries for our named executive officers were:
Named Executive Officer 2024 Annual Base Salary ($)
Harith Rajagopalan, M.D., Ph.D. $ 610,000
2024 Bonuses
We offer our named executive officers the opportunity to earn annual cash bonuses to compensate them for attaining short-term goals as approved by our board of directors. For 2024, bonuses were based on attaining corporate operational goals. Corporate goals for 2024 related to Revita clinical program: REVEAL-1 progress in enrollment and data reporting (weighted 10%) and REMAIN-1 progress in enrollment (weighted 70%); and successfully obtaining regulatory feedback with respect to, and demonstrating manufacturability of Rejuva (weighted 10%); and demonstrating progress toward commercialization (weighted 10%). Our board of directors approved a 2024 annual target bonus as a percent of base salary for each named executive officer as follows:
•
Harith Rajagopalan, M.D., Ph.D.: 60%
•
Jay D. Caplan: 40%
•
Lisa A. Davidson: 40%
For 2024, the Board, upon the recommendation of the Compensation Committee, approved an annual performance bonus for each of the named executive officers at 75% of target level, based on its determination of cumulative achievement of the foregoing performance goals. The actual amount of performance bonus earned by each of the named executive officers for 2024 is set forth in the “Non-Equity Incentive Plan Compensation” column of the 2024 Summary Compensation Table above.
Equity Compensation
We have historically granted stock options to our employees, including our named executive officers, as the long-term incentive component of our compensation program. Our stock options generally allow employees to purchase shares of our common stock at a price equal to the fair market value of our common stock on the date of grant, as determined by our board of directors. Stock option grants made to new hires typically vest as to 25% of the underlying shares on the first anniversary of the employment commencement date and in equal monthly installments over the following three years. Stock option grants made to existing employees typically vest in 48 equal monthly installments following the date of grant. Historically, our stock options have been intended to qualify as “incentive stock options” to the extent permitted under the Internal Revenue Code.
In connection with our IPO, we adopted the 2024 Incentive Award Plan (the "2024 Plan"), in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of the Company and certain of its affiliates to enable the Company and certain of its affiliates to obtain and retain services of these individuals, which we consider to be essential to our long-term success. Following the effective date of the 2024 Plan, we ceased making any further grants under the 2011 Stock Incentive Plan (the "2011 Plan"). However, the 2011 Plan will continue to govern the terms and conditions of the outstanding awards granted under it.
Performance-Based Options
In connection with our IPO, the following options to purchase shares of our common stock under the 2024 Plan were granted to our named executive officers on February 1, 2024:
Named Executive Officer Options Granted
Harith Rajagopalan, M.D., Ph.D. 435,900
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These options have an exercise price per share equal to $15.00 per share and become eligible to vest as follows: 40% upon attainment of certain clinical milestones related to REVITALIZE-1; 40% upon attainment of certain regulatory and clinical milestones related to REMAIN-1; and 20% upon attainment of certain clinical milestones related to Rejuva, in each case, over the period February 1, 2024 through December 31, 2024 (the “performance period”). Any portion of the option for which the applicable milestone is achieved will vest in four substantially equal installments occurring on the final day of the performance period and each of the first three anniversaries thereof.
On February 27, 2025, the Board, upon the recommendation of the Compensation Committee, determined that the clinical milestones related to REVITALIZE-1 were not achieved, but that the performance objectives related to REMAIN-1 and Rejuva were achieved, resulting in 60% of each 2024 performance-based option becoming earned.
Other Elements of Compensation
Retirement Plan. We currently maintain a 401(k) retirement savings plan for our employees who satisfy certain eligibility requirements. Our named executive officers, are eligible to participate in the 401(k) plan on the same terms as other full-time employees. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies. For 2024, we did not make any employer contributions to the 401(k) plan.
Health and Welfare Plans. Our named executive officers are eligible to participate in our health and welfare plans, including medical, dental and vision benefits, medical and dependent care flexible spending accounts, short-term and long-term disability insurance and life insurance and accidental death & dismemberment insurance, generally on the same terms as our other full time employees, provided that, we provide higher levels of life insurance coverage to our executives, including each of our named executive officers, than is generally available to our other employees.
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Outstanding Equity Awards at 2024 Fiscal Year-End
The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2024.
Option Awards
(1)
Except for the options granted to Dr. Rajagopalan on November 10, 2023 and February 1, 2024, Dr. Rajagopalan’s options vest in 48 equal monthly installments following the vesting start date, subject to his continued service through each applicable vesting date.
(2)
The option vests as to 25% of the underlying shares on each of the first four anniversaries of the vesting start date, subject to the named executive officer’s continued service through each applicable vesting date.
(3)
The option vested as to 25% of the number of shares earned based on achievement of pre-established clinical milestones on December 31, 2024, and the remaining number of shares earned will vest in equal annual installments thereafter, subject to the named executive officer’s continued service through each applicable vesting date.
(4)
Except for the option granted to Mr. Caplan on November 10, 2023, Mr. Caplan’s options vest in 48 equal monthly installments following the vesting start date, subject to his continued service through each applicable vesting date.
(5)
Except for the option granted to Ms. Davidson on February 1, 2024, Ms. Davidson’s options vest in 48 equal monthly installments following the vesting start date, subject to her continued service through each applicable vesting date.
Executive Employment Agreements
We entered into new employment agreements with each of our named executive officers in connection with our IPO which superseded their prior employment arrangements with us.
The agreements entitle the named executive officers to the annual base salaries described above under the heading “—Annual Base Salaries” and annual target bonus opportunities equal to those in effect for 2024. If we terminate the named executive officer without “cause” or the named executive officer resigns for “good reason” (each as defined below), subject to the named executive officer’s timely executing a release of claims and continued compliance with certain restrictive covenants, the named executive officer is entitled to receive (i) base salary continuation for a period of 12
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months, (ii) direct payment of, or reimbursement for, continued health coverage pursuant to COBRA for up to 12 months and (iii) with respect to Dr. Rajagopalan only, a cash lump sum payment equal to 1.0 times his target annual bonus.
If we terminate the named executive officer without “cause” or the named executive officer resigns for “good reason”, in either case, within three months prior to or within 18 months following a change in control, then, in lieu of the severance payments and benefits described above, subject to the named executive officer’s timely executing a release of claims and continued compliance with certain restrictive covenants, the named executive officer is entitled to receive (i) a cash amount equal to one times (or 1.5 times for Dr. Rajagopalan) the named executive officer’s annual base salary for the year of termination, payable over the 12 months (or 18 months for Dr. Rajagopalan) following the named executive officer’s termination date; (ii) direct payment of, or reimbursement for, continued health coverage pursuant to COBRA for up to 12 months (or 18 months for Dr. Rajagopalan); (iii) a cash lump sum payment equal to 1.0 times (or 1.5 times for Dr. Rajagopalan) the named executive officer’s target annual bonus; and (iv) accelerated vesting of all unvested equity or equity-based awards held by the named executive officer that vest solely based on continued employment or service.
For purposes of the employment agreements, “cause” generally means, subject to certain notice and cure rights, the executive’s (i) refusal to substantially perform the duties associated with the executive’s position or those assigned to him; (ii) material breach of the employment agreement; (iii) conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation of a felony or a crime involving moral turpitude, or the commission of any act involving fraud, embezzlement, misappropriation, willful misconduct, or breach of fiduciary against the Company or any of its affiliates; or (iv) unlawful use (including being under the influence) or possession of illegal drugs on the Company’s (or any of its affiliate’s) premises or while performing executive’s duties and responsibilities under the employment agreement.
For purposes of the employment agreements, “good reason” generally means, subject to certain notice and cure rights, (i) any material reduction in annual base salary or target annual bonus, except any reduction in annual base salary that is proportionate to a reduction of base salaries affecting substantially all other executive officers of the Company; (ii) any material reduction in executive’s responsibilities, positions, duties or authority; (iii) the relocation of executive’s primary office to a location more than twenty-five (25) miles from the executive’s primary office as of the date of the employment agreement; or (iv) the Company’s breach of a material provision of the employment agreement.
Clawback Policy
We maintain a compensation recovery policy that is compliant with the listing requirements of Nasdaq.
Equity Award Timing Policies and Practices
We do not grant option awards in anticipation of the release of material nonpublic information and we do not time the release of material nonpublic information based on option award grant dates or for the purpose of affecting the value of executive compensation. In addition, we do not take material nonpublic information into account when determining the timing and terms of such awards. In fiscal year 2024, we did not grant option awards to our named executive officers during the time period outlined in Item 402(x) of Regulation S-K.
Insider Trading Compliance Policy
We maintain an insider trading compliance policy, as discussed in Part III. Item 10. Directors, Executive Officers and Corporate Governance—Insider Trading Compliance Policy.
Director Compensation
Effective upon the effectiveness of the registration statement relating to our IPO, we adopted and our stockholders approved a compensation program for our non-employee directors under which each non-employee director will receive the following amounts for their services on our board of directors:
•
Upon the director’s initial election or appointment to our board of directors that occurs after our IPO, an option to purchase 45,000 shares of our common stock;
•
If the director has served on our board of directors for at least six months as of the date of an annual meeting of stockholders and will continue to serve as a director immediately following such meeting, an option to purchase 22,500 shares of our common stock on the date of the annual meeting;
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•
An annual cash retainer fee of $43,500;
•
If the director serves as chair on a committee of our board of directors, an additional annual cash retainer fee as follows:
•
Chair of the board: $35,000
•
Chair of the audit committee: $20,000
•
Audit committee member other than the chair: $10,000
•
Chair of the compensation committee: $15,000
•
Compensation committee member other than the chair: $7,500
•
Chair of the nominating and corporate governance committee: $10,000
•
Nominating and corporate governance committee member other than the chair: $5,000
Director fees under the program will be earned on a quarterly basis based on a calendar quarter and shall be paid in cash by the Company in arrears not later than the fifteenth day following the end of each calendar quarter; provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board and no fee will be payable in respect of any period prior to the effective date of the registration statement on Form S-1 filed in connection with our IPO.
Stock options granted to our non-employee directors under the program will have an exercise price equal to the fair market value of our common stock on the date of grant, as determined under the 2024 Plan (or another applicable equity plan) and will expire not later than ten years after the date of grant. The stock options granted upon a director’s initial election or appointment will vest annually over three years. The stock options granted annually to directors will vest in a single installment on the earlier of the date of the next annual meeting of shareholders or the first anniversary of the date of grant, subject to continued service through such vesting date. In addition, all unvested stock options will vest in full upon the occurrence of a sale of the Company.
IPO Option Grants
In connection with our IPO, each of our non-executive directors received an option to purchase 45,000 shares of our common stock. Each of these options was granted with an exercise price of $15.00 per share and vests in three equal annual installments following the February 1, 2024 date of grant, subject to continued service with us on each applicable vesting date.
Consulting Agreement with Allan Will
On August 13, 2024, following his resignation from the Board of Directors, the Company entered into a consulting agreement with Allan Will, pursuant to which Mr. Will serves as an advisor to the Chairman of the Board. Mr. Will is not entitled to any cash compensation in exchange for his consulting services, but his options that were vested as of the consulting agreement effective date remain exercisable for 30 months following such effective date. The consulting agreement also provides for an award of 22,500 restricted stock units, which was granted to Mr. Will on August 13, 2024 and vests in full on the first anniversary thereof, and reimbursement of legal fees in connection with negotiation of the consulting agreement, in an amount not to exceed $36,875.
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2024 Director Compensation Table
The following table sets forth information concerning the compensation of non-employee directors for the year ended December 31, 2024. Dr. Rajagopalan, our Chief Executive Officer, is also a member of our board of directors, but he does not receive compensation for his service as a director. His compensation for service as an executive officer during 2024 is disclosed in the 2024 Summary Compensation Table and related narrative disclosure.
(1)
Amounts reflect the full grant-date fair value of option awards granted during 2024 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of option awards in Note 12 to the consolidated financial statements included in this Annual Report on Form 10-K.
(2)
The table below shows aggregate numbers of unvested stock awards and option awards (exercisable and unexercisable) held by each of our non-employee directors as of December 31, 2024.
Name StockAwards(#) OptionsAward(#)
Clive Meanwell, M.B., Ch.B, M.D. — 45,000
(3)
Represents reimbursement of legal fees pursuant to Mr. Will’s consulting agreement with the Company.
(4)
Mr. Will ceased to serve as a member of our Board of Directors upon his resignation on August 13, 2024.
(5)
Option grant was forfeited upon Mr. Will’s resignation from the Board of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information on our equity compensation plans as of December 31, 2024:
Equity compensation plans not approved by security holders — — —
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(1)
Pursuant to the terms of the 2024 Plan, the number of shares of common stock available for issuance under the 2024 Plan automatically increases on the first day of each calendar year beginning January 1, 2025 and ending on and including January 1, 2034, by an amount equal to the lesser of (a) 5% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares of common stock as is determined by the board of directors. Pursuant to the terms of the 2024 Employee Stock Purchase Plan (the “2024 ESPP Plan”), the number of shares of common stock available for issuance under the 2024 ESPP automatically increases on the first day of each calendar year beginning on January 1, 2025 and ending on and including January 1, 2034, by an amount equal to the lesser of (a) 1% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares of common stock as determined by the board of directors.
(2)
Consists of the 2011 Plan, the 2024 Plan, and the 2024 ESPP Plan.
(3)
Includes (a) 7,417,659 outstanding options to purchase shares of common stock under the 2011 Plan, (b) 2,908,152 outstanding options to purchase shares of common stock under the 2024 Plan, and (c) 22,500 outstanding restricted stock units under the 2024 Plan
(4)
As of December 31, 2024, (a) the weighted-average exercise price of outstanding options under the 2011 Plan was $5.38, and (b) the weighted-average exercise price of outstanding options under the 2024 Plan was $10.26. Restricted stock units do not have an exercise price and were not included in calculating weighted average exercise prices.
(5)
As of December 31, 2024, a total of 2,762,116 shares of common stock were available for issuance, consisting of (a) 2,275,046 shares available for future issuance under the 2024 Plan, and 487,070 shares available for future issuance under the 2024 ESPP (none of which were subject to outstanding purchase rights under the ESPP).
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of February 15, 2025 with respect to the beneficial ownership of our common stock by:
•
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock;
•
each of our named executive officers;
•
each of our directors; and
•
all of our executive officers and directors as a group.
The number of shares beneficially owned by each stockholder is determined in accordance with the rules issued by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. Except as indicated in the footnotes below, we believe, based on the information furnished to us, that the individuals and entities named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, subject to any community property laws.
Percentage ownership of our common stock is based on 48,920,221 shares of our common stock outstanding as of February 15, 2025. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options, RSUs, warrants or other rights held by such person that are currently exercisable or vested, or will become exercisable or vest within 60 days of February 15, 2025 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.
Unless noted otherwise, the address of all listed stockholders is c/o Fractyl Health, Inc., 3 Van de Graaff Drive, Suite 200, Burlington Massachusetts 01803.
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Shares Beneficially Owned
Name of Beneficial Owner Number Percentage
5% or Greater Stockholders
Entities affiliated with Maverick Capital(3) 5,119,290 10.3 %
Entities affiliated with General Catalyst(4) 4,884,186 10.0 %
Entities affiliated with Bessemer Venture Partners(5) 4,770,901 9.8 %
Entities affiliated with Domain Associates, L.L.C.(6) 4,003,135 8.2 %
Named Executive Officers and Directors
Entities affiliated with Clive Meanwell, M.B., Ch.B., M.D.(15) 292,890 *
* Represents beneficial ownership of less than 1%.
(1)
Based solely on a Schedule 13G filed on November 13, 2024. Consists of (a) 5,160,301 shares of common stock held by Mithril LP and (b) 1,251,900 shares of common stock held by Mithril II LP. Mithril GP LP is the general partner of Mithril LP and Mithril GP LP may be deemed to have shared voting, investment and dispositive power with respect to the securities held by Mithril LP. Mithril II UGP LLC is the general partner of Mithril II GP LP, which is the general partner of Mithril II LP and each of Mithril II UGP LLC and Mithril II GP LP may be deemed to have shared voting, investment and dispositive power with respect to the securities held by Mithril II LP. Ajay Royan is the authorized person of Mithril GP LP and is the sole managing member of Mithril II UGP LLC. Ajay Royan and Peter Thiel are the members of the investment committee of Mithril GP LP and the members of the investment committee established by Mithril II GP LP, respectively. Each of the investment committees makes all investment decisions with respect to the shares held by each of Mithril LP and Mithril II LP, respectively, and may be deemed to have shared voting, investment and dispositive power with respect to the securities held by each of Mithril LP and Mithril II LP. The address of the principal offices of each of these entities is c/o Mithril Capital Management LLC, 111 Congress Avenue, Suite 500, Austin, TX 78701.
(2)
Based on a Schedule 13G filed on February 14, 2024 and information known to the Company. Consists of (i) 4,673,870 shares of common stock for which CVF, LLC has shared voting power and shared dispositive power; (ii) 4,673,870 shares of common stock for which HCC Manager LLC has shared voting power and shared dispositive power; and (iii) 870,799 shares of common stock issuable upon exercise of the July 2023 Warrants at an assumed exercise price of $12.00. HCC Manager LLC, manager of CVF, LLC, exercises voting and investment power with respect to the shares held by CVF, LLC. The address of CVF, LLC is 222 N. LaSalle Street, Suite 2000, Chicago, IL 60601.
(3)
Based on a Schedule 13G filed on November 14, 2024 and information known to the Company. Consists of (i) 4,248,492 shares of common stock for which Maverick Capital, Ltd. has shared voting power and shared dispositive power; (ii) 4,248,492 shares of common stock for which Maverick Capital Management, LLC has shared voting power and shared dispositive power; (iii) 4,248,492 shares of common stock for which Lee S. Ainslie III has shared voting power and shared dispositive power; (iv) 435,399 shares of common stock issuable to Maverick Designated Investments Fund, L.P. upon exercise of the July 2023 Warrants at an assumed exercise price of $12.00; and (v) 435,399 shares of common stock issuable to Maverick Growth Fund, L.P. upon exercise of the July 2023 Warrants at an assumed exercise price of $12.00. The address of each of these entities is c/o Maverick Capital, Ltd., 1900 N. Pearl Street, 20th Floor, Dallas, TX 75201.
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(4)
Based solely on a Schedule 13G filed on February 16, 2024. Consists of (i) 4,884,186 shares of common stock for which General Catalyst GP V, LLC (“GCGPV”) has shared voting power and shared dispositive power; (ii) 4,884,186 shares of common stock for which General Catalyst Partners V, L.P. (“GCGV GPLP”) has shared voting power and shared dispositive power; (iii) 4,884,186 for which General Catalyst Group V, L.P. (“GCGV”) has shared voting power and shared dispositive power; and (iv) 4,884,186 for which GC Entrepreneurs Fund V, L.P. (“GCEV” and, together with GCGPV, GCGV FPLP, and GCGV, the “Reporting Persons”) has shared voting power and shared dispositive power. General Catalyst Group Management Holdings GP, LLC (“GCGMH LLC”), is the general partner of General Catalyst Group Management Holdings, L.P. (“GCGMH”), which is the manager of General Catalyst Group Management, LLC (“GCGM”), which is the manager of GCGPV. GCGV GPLP is the sole general partner of GCGV and GCEV. GCGPV is the sole general partner of GCGV GPLP. GCGV is the record owner of 4,784,323 shares and GCEV is the record owner of 99,863 shares (collectively, the “Record Shares”). As the general partner of GCGMH, GCGMH LLC may be deemed to beneficially own the Record Shares. As the sole general partner of GC V and GCEV, GCGV GPLP may be deemed to beneficially own the Record Shares. As the sole general partner of GCGV GPLP, GCGPV may be deemed to beneficially own the Record Shares. By virtue of their relationship as affiliated entities who have overlapping general partners and managing directors, each Reporting Person may be deemed to share the power and direct the disposition and vote of the Record Shares. Both GCGMH LLC and GCGPV are controlled by a group of three or more individuals, or the Managing Directors, having shared voting and dispositive control over the shares held by GC V and GCEV. Under the so-called “rule of three,” because voting and dispositive decisions are made by a majority of both GCGMH LLC and GCGPV Managing Directors, no one of the Managing Directors is deemed to be a beneficial owner of the Issuer’s securities held by GCGV and GCEV. The principal business address of the foregoing entities and persons is 20 University Road, 4th Floor, Cambridge, MA 02138.
(5)
Based solely on a Schedule 13G filed on February 14, 2025. Consists of (i) 2,576,288 shares of common stock held of record by BVP VII Special Opportunity Fund L.P. (“BVP SOF”) for which BVP SOF has sole voting and dispositive power; (ii) 1,526,689 shares of common stock held of record by Bessemer Venture Partners VII L.P. (“BVP VII”) for which BVP VII has sole voting and dispositive power; (iii) 667,924 shares of common stock held of record by Bessemer Venture Partners VII Institutional L.P. (“BVP VII Institutional”) for which BVP VII Institutional has sole voting and dispositive power; (iv) 4,770,901 shares of common stock held of record by Deer VII & Co. L.P. (“Deer VII L.P.”); and (v) 4,770,901 shares of common stock held of record by Deer VII & Co. Ltd. (“Deer VII Ltd.”) for which Deer VII Ltd. As sole voting and dispositive power. BVP SOF, BVP VII, and BVP VII Institutional, directly own shares of common stock. As the general partner of Deer VII LP, which in turn is the general partner of the funds, Deer VII Ltd may be deemed to beneficially own all of the shares of common stock held directly by the funds and have the power to direct the dividends from or the proceeds of the sale of such shares. The address of each of these entities is c/o Bessemer Venture Partners 1865 Palmer Avenue; Suite 104, Larchmont, NY 10583.
(6)
Based on information known to the Company. Consists of 3,973,653 shares of common stock held by Domain Partners VIII, L.P. (Domain VIII) and 29,482 shares of common stock held by DP VIII Associates, L.P. (DP VIII). The managing members of One Palmer Square Associates VIII, L.L.C. share voting and investment power with respect to shares beneficially owned by Domain VIII and DP VIII. The address of Domain VIII and DP VIII is 103 Carnegie Center, Suite 300, Princeton, NJ 08540.
(7)
Based solely on a Schedule 13G filed on February 4, 2025. Consists of 2,467,733 shares of common stock for which BlackRock, Inc. has sole voting power and 2,483,635 shares of common stock for which Blackrock, Inc. has sole dispositive power. The address of BlackRock, Inc. is 50 Hudson Yards New York, NY 10001.
(8)
Consists of (i) 491,329 shares of common stock held by Harith Rajagopalan; (ii) 602,980 shares of common stock held by various family trusts for which Dr. Rajagopalan serves as the investment advisor and, as a result, exercises voting and dispositive power with respect to such shares; and (iii) 1,700,733 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
(9)
Consists of (i) 153,544 shares of common stock held by Jay D. Caplan; (ii) 477,616 shares of common stock held by various family trusts for which Mr. Caplan serves as the investment advisor and, as a result, exercises voting and dispositive power with respect to such shares; and (iii) 337,966 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
(10)
Consists of (i) 7,525 shares of common stock; and (ii) 585,727 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
(11)
Consists of 68,073 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
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(12)
Consists of (i) 186,393 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025 held of record by the Hillcrest Irrevocable Trust, of which Senator Bradley serves as sole trustee; and (ii) 243,703 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
(13)
Consists of 15,000 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
(14)
Consists of (i) 944,827 shares of common stock held by M28 Capital Master Fund LP (“M28 Capital”); (ii) 444,624 shares of common stock held by Sparviero LP; and (iii) 15,000 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025. Marc Elia is a managing member of M28 Capital Fund GP LLC, the general partner of M28 Capital and Sparviero LP, and, as a result, may be deemed to share voting and investment power with respect to the shares held by each. Mr. Elia disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of M28 Capital and Sparviero LP is 700 Canal Street, 2nd Floor, Stamford, Connecticut 06902
(15)
Consists of (i) 277,890 shares of common stock held by Population Health Capital Partners II, L.P. (“PHPII”) and (ii) 15,000 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025. Clive Meanwell, M.B., Ch.B., M.D., is the Founder of Population Health Partners GP, LLC, the general partner of PHPII, and, as a result, may be deemed to share voting and investment power with respect to the shares held by PHPII. Dr. Meanwell disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of PHPII is 50 Mountaintop Road, Bernardsville, New Jersey 07924.
(16)
Includes 15,000 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025. See also footnote (1).
(17)
Consists of 151,969 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
(18)
Consists of (i) 9,812,536 shares of common stock; and (iii) 3,750,903 shares of common stock underlying options currently exercisable or exercisable within 60 days of February 15, 2025.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The following includes a summary of transactions since January 1, 2023 to which we have been a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock, or 5% Security Holders, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described in Part III, Item 11. Executive Compensation. We also describe below certain other transactions with our directors, executive officers and stockholders.
Related Party Agreements in Effect Prior to Our IPO
July 2023 Warrants
In July 2023, we issued warrants to purchase common stock to lenders under our 2022 Convertible Notes for a variable number of shares based on the principal amount of $20.9 million. The July 2023 warrants have an exercise price, at the holders’ choice, of (a) $17.9927 per share, (b) the lowest original issue price of shares of preferred stock we issue in our next bona fide private preferred equity financing round, (c) in the event of any convertible note, or similar convertible security financing, the conversion price contemplated by such convertible security, or (d) in the event of an IPO, the per share offering price to the public in such IPO.
CVF, LLC holds 870,799 shares of common stock issuable upon the exercise of the July 2023 warrants at an assumed exercise price of $12.00.
Amended and Restated Investors’ Rights Agreement
In connection with the issuance of our Series F Preferred Stock in June and July 2021, we entered into a Fifth Amended and Restated Investors’ Rights Agreement, or the IRA, with certain holders of our preferred stock, many of which are beneficial holders of more than 5% of our capital stock or are entities with which certain of our directors are affiliated. The IRA imposes certain affirmative obligations on us and also grants certain rights to holders, including certain
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registration rights with respect to the securities held by them, certain information and observer rights, and certain additional rights. Certain provisions of the IRA have terminated in connection with our IPO.
Amended and Restated Voting Agreement
We were a party to an amended and restated voting agreement with certain of our stockholders, pursuant to which each of our directors was elected to serve as members on our board of directors and, as of the date of this Annual Report on Form 10-K, continue to so serve. Our voting agreement terminated by its terms in connection with the closing of our IPO, and members previously elected to our board of directors pursuant to this voting agreement will continue to serve as directors until they resign, are removed or their successors are duly elected by the holders of our common stock.
Amended and Restated Right of First Refusal and Co-Sale Agreement
In connection with the issuance of our Series F Preferred Stock in June and July 2021, we entered into a Fifth Amended and Restated Right of First Refusal and Co-Sale Agreement, or the ROFR and Co-Sale Agreement, with certain of our preferred stockholders, many of which are beneficial holders of more than 5% of our capital stock or are entities with which certain of our directors are affiliated. The ROFR and Co-Sale Agreement, among other things: (a) grants our investors certain rights of first refusal and co-sale with respect to proposed transfers of our securities by certain preferred stockholders; and (b) grants us certain rights of first refusal with respect to proposed transfers of our securities by certain preferred stockholders.
The ROFR and Co-Sale Agreement automatically terminated immediately prior to the completion of our IPO.
Policies and Procedures for Related Person Transactions
Our board of directors has adopted a written related person transaction policy, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person had, has or will have a direct or indirect material interest, including without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction. All of the transactions described above occurred prior to the adoption of this policy.
Employment Agreements
We have entered into arrangements, including employment or consulting agreements with certain of our former directors and executive officers. See Part III. Item 11. Executive Compensation—Executive Compensation Arrangements.
Director and Officer Indemnification and Insurance
Prior to the consummation of our IPO, we entered into separate indemnification agreements with each of our directors and executive officers. We also purchased directors’ and officers’ liability insurance. We have purchased directors’ and officers’ liability insurance for 2025.
Director Independence
Our board of directors has determined that, of our directors, Kelly Barnes, William W. Bradley, Samuel Conaway, Marc Elia, Clive Meanwell, M.B., Ch.B, M.D., Ajay Royan and Amy W. Schulman do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the Nasdaq rules. Additionally our board of directors determined that Allan R. Will did not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that he was “independent” as that term is defined under the Nasdaq rules for the period in 2024 that he served on the board of directors.
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Item 14. Principal Accountant Fees and Services
The following table summarizes the fees, including out-of-pocket costs, of Ernst & Young LLP, our independent registered public accounting firm, for the years ended December 31, 2024 and 2023 for audit services and other services.
Audit-Related Fees — —
All Other Fees — —
Audit Fees
For 2024, audit fees consist of audit of our financial statements and the review of the quarterly unaudited interim financial statements.
For 2023, audit fees consist of fees for the audit of our consolidated financial statements, the review of the unaudited interim financial statements included in our Registration Statement in connection with our IPO, and other professional services provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees
There were no audit-related fees for the periods presented.
Tax Fees
For 2024 and 2023, tax fees consist of fees for tax compliance and tax advisory services.
All Other Fees
There were no other fees for the periods presented.
Audit Committee Pre‐Approval Policy and Procedures
Our audit committee has adopted a policy (the “Pre‐Approval Policy”) that sets forth the procedures and conditions pursuant to which audit and non‐audit services proposed to be performed by the independent auditor may be pre‐approved. The Pre‐Approval Policy generally provides that we will not engage Ernst & Young LLP to render any audit, audit‐related, tax or permissible non‐audit service unless the service is either (i) explicitly approved by the audit committee, or specific pre‐approval, or (ii) entered into pursuant to the pre‐approval policies and procedures described in the Pre‐Approval Policy, or general pre‐approval. Unless a type of service to be provided by Ernst & Young LLP has received general pre‐approval under the Pre‐Approval Policy, it requires specific pre‐approval by the audit committee or by a designated member of the audit committee to whom the committee has delegated the authority to grant pre‐approvals. Any proposed services exceeding pre‐approved cost levels or budgeted amounts will also require specific pre‐approval. For both types of pre‐approval, the audit committee will consider whether such services are consistent with the SEC’s and the PCAOB’s rules on auditor independence. The audit committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. The audit committee may revise the list of general pre‐approved services from time to time, based on subsequent determinations.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements.
The following documents are included on pages F‐1 through F‐30 attached hereto and are filed as part of this Annual Report on Form 10‐K.
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42) F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3
Notes to Consolidated Financial Statements F-7 to F-30
(a)(2) Financial Statement Schedules.
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.
(a)(3) Exhibits.
The following is a list of exhibits filed as part of this Annual Report on Form 10‐K.
Incorporated by Reference
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Incorporated by Reference
19.1 Fractyl Health, Inc. Insider Trading Compliance Policy *
23.1 Consent of Independent Registered Public Accounting Firm *
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Incorporated by Reference
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer *
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer *
32.1 Section 1350 Certification of Chief Executive Officer **
32.2 Section 1350 Certification of Chief Financial Officer **
* Filed herewith
** Furnished herewith
† Indicates a management contract or compensatory plan or arrangement.
# Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
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, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Fractyl Health, Inc.
Date: March 3, 2025 By: /s/ Harith Rajagopalan
Harith Rajagopalan, M.D. Ph.D.
Co-Founder, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Kelly BarnesKelly Barnes Director March 3, 2025
/s/ William W. BradleyWilliam W. Bradley Director March 3, 2025
/s/ Samuel Conaway Director March 3, 2025
Samuel Conaway
/s/ Marc EliaMarc Elia Director March 3, 2025
/s/ Clive MeanwellClive Meanwell, M.B., Ch.B., M.D. Director March 3, 2025
/s/ Ajay RoyanAjay Royan Chairman March 3, 2025
/s/ Amy W. SchulmanAmy W. Schulman Director March 3, 2025
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Fractyl Health, Inc.
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42) F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3
Notes to Consolidated Financial Statements F-7 to F-30
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm