ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and
analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes
included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion and analysis and other parts of this Annual Report
on Form 10-K contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future
financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives,
expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated
in these forward-looking statements as a result of several factors, including those set forth under Part I, Item 1A, “Risk Factors”
and elsewhere in this Annual Report on Form 10-K.
Overview
We are a clinical-stage biotechnology company
focused on developing therapeutics targeting mast cell driven diseases such as Chronic Spontaneous Urticaria (“CSU”), Chronic
Inducible Urticaria (“CIndU”) and Asthma. We are evaluating additional indications in mast cell driven diseases for potential
future development and we have also historically supported development programs in diseases where targeting diseased hemopoietic stem
cells can provide benefits, such as and stem cell transplant conditioning regimens.
Our lead product candidate, briquilimab, is a
monoclonal antibody designed to block stem cell factor (“SCF”) from binding to and signaling through the CD117 (“c-Kit”)
receptor on mast and stem cells. The SCF/c-Kit pathway is a survival signal for mast cells and we believe that blocking this pathway
may lead to depletion of these cells throughout the body, including in the lungs and in the skin, which could lead to significant clinical
benefit for patients with mast-cell driven diseases such as asthma and chronic urticarias. To that end, we are focusing on advancing
a portfolio of clinical programs in mast cell driven diseases. Development highlights include:
○ Briquilimab demonstrated a rapid onset of clinical efficacy:
● Clinical responses were seen as early as 1 week post-dose; and
● Complete responses were observed as early as week 2 post-dose
○ Briquilimab drove deep and meaningful clinical responses:
● Complete responses showed durability out to:
○ Briquilimab was well tolerated and demonstrated a favorable safety profile:
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● We commenced a Phase 1b/2a ETESIAN study in Asthma in late 2024.
We are also developing briquilimab as a one-time
conditioning therapy for severe combined immunodeficiency (“SCID”) patients undergoing a second stem cell transplant for which
we are currently conducting a Phase 1/2 clinical trial.
We intend to become a fully integrated discovery,
development and commercial company in the field of mast cell therapeutics. We are developing our product candidates to be used individually
or, in some cases, in combination with other therapeutics. Our goal is to advance our product candidates through regulatory approval and
bring them to the commercial market based on the data from our clinical trials and communications with regulatory agencies and payor communities.
We expect to continue to broaden our pipeline with additional mast cell indications and next-generation products by leveraging our research
organization.
We
have an exclusive license agreement with Amgen Inc. (“Amgen”) for the development and commercialization of the briquilimab
monoclonal antibody in all indications and territories worldwide. We also have an exclusive license agreement with Stanford University
for the right to use briquilimab in the clearance of diseased stem cells prior to the transplantation of hematopoietic stem cells
(“HSCs”).
Since our inception, we have devoted substantially
all of our resources to performing research and development, enabling manufacturing activities in support of our product development efforts,
hiring personnel, acquiring and developing our technology and product candidates, performing business planning, establishing our intellectual
property portfolio, raising capital and providing general and administrative support for these activities. We do not have any products
approved for sale and have not generated any revenue from product sales. We expect to continue to incur significant and increasing expenses
and substantial losses for the foreseeable future as we continue our development of and seek regulatory approvals for our product candidates
and commercialize any approved products, seek to expand our product pipeline and invest in our organization. We expect to incur increased
expenses associated with operating as a public company, including significant legal, audit, accounting, regulatory, tax-related, director
and officer insurance, investor relations and other expenses.
We have incurred significant losses and negative
cash flows from operations since our inception. During the years ended December 31, 2024 and 2023, we incurred net losses of $71.3 million
and $64.5 million, respectively. We generated negative operating cash flows of $62.6 million and $52.1 million for the years ended
December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $240.9 million.
We had cash and cash equivalents of $71.6 million
as of December 31, 2024. We expect to continue to incur substantial losses for the foreseeable future, and our transition to profitability
will depend upon successful development, approval and commercialization of our product candidates and upon achievement of sufficient revenues
to support our cost structure. We do not expect to generate any revenue from commercial product sales unless and until we successfully
complete development and obtain regulatory approval for one or more of our product candidates. We may never achieve profitability, and
unless we do and until then, we will need to continue to raise additional capital.
Our management plans to monitor expenses and raise
additional capital through a combination of public and private equity, debt financings, collaborations or a combination of these approaches.
Our ability to access capital when needed is not assured and, if capital is not available to us when, and in the amounts, needed, we may
be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization
of any product candidate, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which
could materially harm our business, financial condition and results of operations.
We expect our expenses will increase substantially
in connection with our ongoing and planned activities, as we:
● advance product candidates through preclinical studies and clinical trials;
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● acquire, discover, validate, and develop additional product candidates;
● attract, hire and retain additional personnel;
● operate as a public company;
● implement operational, financial and management systems;
We do not currently own or operate any manufacturing
facility. We rely on contract manufacturing organizations (“CMOs”) to produce our drug candidates in accordance with the FDA’s
current good manufacturing practices (“cGMP”) regulations for use in our clinical studies. The manufacture of pharmaceuticals
is subject to extensive cGMP regulations, which impose various procedural and documentation requirements and govern all areas of record
keeping, production processes and controls, personnel and quality control. Under our license agreement with Amgen, we have received a
substantial amount of drug product to support initiation of our planned clinical trials of briquilimab. In November 2019, we entered
into development and manufacturing agreements with Lonza Sales AG (“Lonza”) relating to the manufacturing of briquilimab and
product quality testing. The facility of Lonza in Slough, United Kingdom is responsible for production and testing of drug substance.
The facility of Lonza in Stein, Switzerland is responsible for production and testing of drug product. Labelling, packaging and storage
of finished drug product is provided by PCI Pharma Services, in San Diego, California. Our agreement with Lonza includes certain limitations
on our ability to enter into supply arrangements with any other supplier without Lonza’s consent. In addition, Lonza has the right
to increase the prices it charges us for certain supplies depending on a number of factors, some of which are outside of our control.
We do not currently have sales and marketing infrastructure
to support commercial launch of our product candidates, if approved. We may build such capabilities in North America prior to potential
launch of briquilimab. Outside of North America, we may rely on licensing, co-sale and co-promotion agreements with strategic partners
for the commercialization of our product candidates. If we build a commercial infrastructure to support marketing in North America, such
commercial infrastructure could be expected to include a targeted sales force supported by sales management, internal sales support, an
internal marketing group and distribution support. To develop the appropriate commercial infrastructure internally, we would have to invest
financial and management resources, some of which would have to be deployed prior to any confirmation that briquilimab will be approved.
Because of the numerous risks and uncertainties
associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able
to achieve or maintain profitability. Even if we are able to generate revenue from the sale of our product candidates, we may not become
profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue
our operations at planned levels and may be forced to reduce our operations.
Business Impact of the Geopolitical and Macroeconomic Factors
We are unable to predict the effect that geopolitical
and macroeconomic factors, including inflation, supply chain issues, rising interest rates, future bank failures, increased geopolitical
tensions between the U.S. and China and the impact of the Russia-Ukraine conflict and the Israel-Hamas war, may have on our operations.
To the extent that geopolitical and macroeconomic factors adversely affect our business prospects, financial condition, and results of
operations, they may also have the effect of exacerbating many of the other risks described or referenced in the section titled “Risk
Factors” in this Annual Report on Form 10-K such as those relating to the supply of materials for our product candidates, and the timing and possible disruptions
of our ongoing and future preclinical studies and clinical trials, and our access to the financial markets.
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Amgen License Agreement
In November 2019, we entered into a worldwide
exclusive license agreement with Amgen for briquilimab (formerly AMG-191 and JSP191) that also includes translational science and materials
from Stanford University. We were assigned and accepted Amgen’s rights and obligations, effective November 21, 2019, for the Investigator
Sponsored Research Agreement (“ISRA”), entered into in June 2013, between Amgen and The Board of Trustees of the Leland
Stanford Junior University (“Stanford”) and Quality Agreement between Amgen and Stanford, effective as of October 7, 2015.
Under the ISRA, we received an option to negotiate a definitive license with Stanford for rights to certain Stanford intellectual property
related to the study of briquilimab in exchange for an option exercise fee of $1.0 million, payable over a two-year period (the “Option”).
We exercised the Option to Stanford docket S06-265 “Antibody-based clearance of endogenous stem cell niches prior to transplantation
of bone marrow or hematopoietic stem cells (c-kit)” granted by Stanford under the ISRA on June 2, 2020. As a result, we have worldwide
exclusive rights to develop and commercialize briquilimab. The issued U.S. patents would be expected to expire in 2027, absent any applicable
patent term extensions.
Stanford License Agreements
In March 2021, we entered into an exclusive
license agreement with respect to the use of briquilimab from the Stanford Office of Technology Licensing to license U.S. Patent Application
Serial Number 60/856,435, filed November 3, 2006, and U.S. Patent Application Serial Number 12/447,634 (publication number US 2010/0226927
Al) and know-how for the purpose of depleting endogenous blood stem cells in patients for whom hematopoietic cell transplantation is indicated
(the “2021 Stanford License Agreement”). In July 2023, we entered into an amendment to this exclusive license agreement to
modify certain milestones set forth thereunder.
In December 2024, we entered into a co-exclusive
license agreement to license U.S. Patent Application Serial Number 11,642,379, issued September 5, 2023 for the use in the field of the
treatment and prevention of human diseases, including the use of anti-CD117 antibodies (other than briquilimab) for the purpose of depleting
endogenous blood stem cells in patients for whom hematopoietic cell transplantation is indicated (the “2024 Stanford License Agreement”).
Collaboration and Clinical Trial Agreements
Collaboration with Stanford University
Effective September 2020, we entered into a sponsored
research agreement with Stanford, pursuant to which Stanford will execute a Phase 1/2 clinical trial utilizing briquilimab to treat Fanconi
Anemia patients in Bone Marrow Failure requiring allogeneic transplant with non-sibling donors at Stanford Lucile Packard Children’s
Hospital. As consideration for the services performed by Stanford under this agreement, we agreed to pay Stanford a total of $0.9 million
over approximately three years upon the achievement of the first development and clinical milestone, including FDA filings and patient
enrollment. The first $0.3 million milestone was achieved in 2020 and paid by us in February 2021. The second $0.3 million milestone was
achieved in February 2022 and paid by us in March 2022. The third and final milestone in the amount of $0.3 million was achieved in July
2023.
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Components of Results of Operations
Operating Expenses
Research and Development
The largest component of our total operating expenses
since our inception has been research and development activities, including the preclinical and clinical development of our product candidates.
Research and development expenses consist primarily of compensation and benefits for research and development employees, including stock-based compensation;
expenses incurred under agreements with CROs and investigative sites that conduct preclinical and clinical studies; the costs of acquiring
and manufacturing clinical study materials and other supplies; payments under licensing and research and development agreements; other
outside services and consulting costs; and facilities, information technology and overhead expenses. Research and development costs are
expensed as incurred.
External research and development costs include:
● consulting fees associated with our research and development activities; and
Internal research and development costs include:
We expect our research and development expenses
to increase substantially for the foreseeable future as we advance our product candidates into and through preclinical studies and clinical
trials, pursue regulatory approval of our product candidates and expand our pipeline of product candidates. The process of conducting
the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of
success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates,
early clinical data, investment in our clinical programs, competition, manufacturing capability and commercial viability. We may never
succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable
to determine the duration and completion costs of our research and development projects or if, when and to what extent we will generate
revenue from the commercialization and sale of our product candidates, if approved.
Our future research and development costs may vary
significantly based on factors, such as:
● per patient clinical trial costs;
● the number of trials required for approval;
● the number of sites included in our clinical trials;
● the countries in which the trials are conducted;
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● the number of patients that participate in the trials;
● the number of doses that patients receive;
● patient drop-out or discontinuation rates;
● potential additional safety monitoring requested by regulatory agencies;
● the duration of patient participation in the trials and follow up;
● the cost and timing of manufacturing our product candidates;
● the phase of development of our product candidates;
● the efficacy and safety profile of our product candidates;
● significant and changing government regulation and regulatory guidance;
General and Administrative
General and administrative expenses consist primarily
of personnel costs and expenses, including salaries, employee benefits, stock-based compensation for our executive and other administrative
personnel; legal services, including relating to intellectual property and corporate matters; accounting, auditing, consulting and tax
services; insurance; and facility and other allocated costs not otherwise included in research and development expenses. We expect our
general and administrative expenses to increase substantially for the foreseeable future as we anticipate an increase in our personnel
headcount to support expansion of research and development activities, as well as to support our operations generally. We also expect
to continue to incur significant expenses associated with being a public company, including costs related to accounting, audit, legal,
regulatory, and tax-related services associated with maintaining compliance with applicable Nasdaq and SEC requirements; additional
director and officer insurance costs; and investor and public relations costs.
Other Income, Net
Other income, net includes foreign currency transactions gains and
losses, interest income, changes in the fair value of common stock warrant liability and earnout liability. These financial instruments
were classified as liabilities in our consolidated financial statements and re-measured at each reporting period end until they are
exercised, settled or have expired. In January 2023, all outstanding common stock warrants met equity classification and are no longer
remeasured. The estimated fair value of the earnout liability was minimal as of December 31, 2023, due to the price of our common
stock relative to the price that would trigger a release of the earnout shares. The earnout liability expired in September 2024 as the
common stock price targets were not achieved prior to the expiration of the earnout period.
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Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations
for the years ended December 31, 2024 and 2023 (in thousands):
Year Ended December 31, Change Change
Operating expenses
Change in fair value of earnout liability - 18 (18 ) (100 )
Change in fair value of common stock warrant liability - (575 ) 575 (100 )
Research and Development Expenses
The following table summarizes our research and
development expenses for the periods indicated (in thousands):
Year Ended December 31, Change Change
Research and development expenses increased by
$4.0 million, from $51.8 million for the year ended December 31, 2023 to $55.8 million for the year ended December 31, 2024.
Personnel-related costs, including employee payroll
and related expenses increased by $4.9 million, from $10.0 million for the year ended December 31, 2023 to $14.9 million for the year
ended December 31, 2024, as a result of hiring additional employees in our research and development organization. Stock-based compensation
expenses, included in personnel-related costs, increased by $0.4 million, from $1.6 million for the year ended December 31, 2023 to $2.0
million for the year ended December 31, 2024.
Facilities and overhead costs include common facilities, human resources
and information technology related expenses allocated to research and development and increased primarily due to and expansion of leased
facilities in 2024.
Program costs decreased by $2.5 million, from $36.8 million for the
year ended December 31, 2023 to $34.3 million for the year ended December 31, 2024. The decrease is primarily due to a decrease in CMO
expenses of $12.2 million from $21.7 million for the year ended December 31, 2023 to $9.5 million for the year ended December 31, 2024
due to manufacturing and validation work performed in 2023 to supply the expansion of clinical programs. Clinical program expenses increased
primarily due to an increase in costs for the CSU program from $3.4 million for the year ended December 31, 2023 to $10.7 million for
the year ended December 31, 2024 and the initiation of the Asthma program in the year ended December 31, 2024.
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Our program costs for the years ended December 31, 2024 and 2023 were
as follows (in thousands):
Year Ended December 31,
General and Administrative Expenses
General and administrative expenses increased by
$3.3 million, from $17.1 million for the year ended December 31, 2023 to $20.4 million for the year ended December 31,
2024. Employee payroll and related expenses increased by $3.9 million, from $7.5 million for the year ended December 31, 2023
to $11.4 million for the year ended December 31, 2024, as a result of continued hiring of executives and administrative employees.
Stock-based compensation expenses, included in employee payroll and related expenses, were $4.6 million and $3.6 million for the years
ended December 31, 2024 and 2023, respectively. Expenses related to professional consulting services increased by $0.4 million, from $6.8 million
for the year ended December 31, 2023 to $7.2 million for the year ended December 31, 2024. Rent expenses increased by $0.3 million
for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Other expenses decreased by $1.3 million for
the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily related to a decrease in allocation of
overhead costs of $1.6 million and a decrease in insurance costs of $0.5 million, partially offset by an increase in other general administrative
expenses of $0.8 million.
Total Other Income, Net
Total other income, net increased by $0.6 million,
from $4.4 million net income for the year ended December 31, 2023 to $5.0 million net income for the year ended December 31, 2024.
Interest income decreased by $0.1 million, from
$5.2 million for the year ended December 31, 2023 to $5.1 million for the year ended December 31, 2024, primarily due to lower cash balances
invested in money market funds.
We recognized $0.6 million of other expense related to the change in
the fair value of the common stock warrants for the year ended December 31, 2023. These warrants are publicly traded, were classified
as liabilities and were remeasured at fair value, which was the closing market price of a warrant, at the end of each reporting period
until January 2023. In January 2023, a holder converted all its outstanding shares of non-voting common stock into shares of voting common
stock, and we no longer have any outstanding shares of non-voting common stock. As such, the outstanding warrants met equity classification
criteria, were reclassified to equity and are no longer remeasured at fair value at the end of each reporting period.
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Our earnout liability related to the earnout shares placed in escrow
upon the closing of the Business Combination in September 2021. The common stock price targets were not achieved and the earnout shares
were forfeited and cancelled and the earnout liability expired in September 2024. We recognized a gain of zero and$0.1 million for the
years ended December 31, 2024 and 2023, respectively.
Other expense, net is comprised of foreign currency
transactions gains and losses and was $0.1 million and $0.2 million for the years ended December 31, 2024 and 2023, respectively.
Liquidity and Capital Resources
As of December 31, 2024, we had $71.6 million of
cash and cash equivalents.
In order to assist in funding our future operations,
including our planned clinical trials, on April 28, 2023, we filed a universal shelf registration statement on Form S-3 with the SEC,
which was declared effective on May 5, 2023 and will expire on May 5, 2026 (the “S-3”), which allows us to, from time to time,
offer up to $250.0 million of securities, including any combination of common stock, preferred stock, debt securities, warrants, rights,
units and depositary shares. We believe that the S-3 will provide us with the flexibility to raise additional capital to finance our operations
as needed. From time to time, we may offer securities under the S-3 in response to market conditions or other circumstances if we believe
such a plan of financing is in the best interests of our stockholders. The terms of any offering under the S-3 will be established at
the time of such offering and will be described in a prospectus supplement to the S-3 filed with the SEC prior to the completion of any
such offering.
On November 10, 2022, we entered into a Controlled
Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (the “Agent”),
pursuant to which we may offer and sell through or to the Agent, as sales agent or principal, shares of our voting common stock from time
to time (the “ATM Offering”). The Agent will use commercially reasonable efforts consistent with its normal sales and trading
practices to sell shares from time to time, based upon our instructions (including any price or size limits or other customary parameters
or conditions we may impose). We will pay a commission equal to 3.0% of the aggregate gross proceeds of any shares sold through the Agent
pursuant to the Sales Agreement. We are not obligated to sell any shares under the Sales Agreement. The Sales Agreement will continue
until all shares available under the Sales Agreement have been sold unless it is terminated earlier. On May 5, 2023, we filed with the
SEC a prospectus under the S-3 in connection with the ATM Offering (the “ATM Prospectus”), pursuant to which we may offer
and sell shares of common stock having an aggregate offering price of up to $75.0 million. As of December 31, 2024, there have been no
sales pursuant to the ATM Prospectus.
In February 2024, we closed an underwritten offering
that was conducted off the S-3 and issued 3,900,000 shares of common stock for net proceeds of $47.2 million.
As of December 31, 2024, $75.0 million remains
allocated and available under the ATM Prospectus and $124.5 million remains available and unallocated under the S-3.
Future Funding Requirements
Our primary uses of cash are to fund our operations,
which consist primarily of research and development expenditures related to our programs and, to a lesser extent, general and administrative
expenditures. We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our
product candidates, expand our corporate infrastructure, operate as a public company, further our research and development initiatives
for our product candidates, scale our laboratory and manufacturing operations, and incur marketing costs associated with potential commercialization.
We are subject to all the risks typically related to the development of new drug candidates, and we may encounter unforeseen expenses,
difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate
that we will need substantial additional funding in connection with our continuing operations.
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We have incurred significant losses and negative
cash flows from operations since our inception. As of December 31, 2024, we had an accumulated deficit of $240.9 million. Given our recurring
losses from operations and negative cash flows, and based on our current operating plan, we have concluded that there is substantial doubt
about our ability to continue as a going concern within one year from the date of filing of this Annual Report on Form 10-K. We expect
to finance our future cash needs through equity or debt financings, collaborations or a combination of these approaches. The sale of equity
or convertible debt securities may result in dilution to our stockholders, and, in the case of preferred equity securities or convertible
debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financings may subject
us to covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt or making capital
expenditures. Our ability to raise additional funds may be adversely impacted by negative global economic conditions and any disruptions
to and volatility in the credit and financial markets in the United States and worldwide or other factors. There can be no assurance that
we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable
to us. If we are unable to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay,
reduce the scope of or eliminate one or more of our research and development programs.
Our future financing requirements will depend on
many factors, including:
● any product liability or other lawsuits related to our product candidates;
● expenses incurred to attract, hire and retain skilled personnel; and
● the costs of operating as a public company.
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A change in the outcome of any of these or other
variables could significantly change the costs and timing associated with the development of our product candidates. Furthermore, our
operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated
with such change.
Contractual Obligations and Commitments
We enter into contracts in the normal course of
business with CROs for clinical trials, with CMOs for clinical supplies manufacturing and with other vendors for preclinical
studies, supplies and other services and products for operating purposes. These contracts generally provide for termination on notice
or may have a potential termination fee if a purchase order is cancelled within a specified time, and therefore are cancelable contracts.
We do not expect any such contract terminations and did not have any non-cancellable obligations under these agreements as of December
31, 2024.
Leases
In August 2020, January 2022 and July 2024, we
leased approximately 25,900 square feet of space for our headquarters in Redwood City, California. The lease expires in August 2026. We
have an option to extend the term for an additional five years to August 2031. In addition to base rent, we pay our share of operating
expenses and taxes. As of December 31, 2024, our rent commitments under the lease agreement were $1.2 million within the next 12 months
from December 31, 2024, and $0.7 million for the remainder of the lease term.
Stanford License Agreements
In March 2021, we entered into the 2021 Stanford
License Agreement. In July 2023, we entered into an amendment to the 2021 Stanford License Agreement to modify certain milestones set
forth thereunder. Pursuant to the 2021 Stanford License Agreement we are required to pay annual license maintenance fees, beginning on
the first anniversary of the effective date of the agreement and ending upon the first commercial sale of a product, method, or service
in the licensed field of use, as follows: $25,000 for each first and second year, $35,000 for each third and fourth year, and $50,000
at each anniversary thereafter ending upon the first commercial sale. We are also obligated to pay late-stage clinical development milestone
payments and first commercial sales milestone payments of up to $9.0 million in total. We will also pay low single-digit royalties on
net sales of licensed products. All products are in development as of December 31, 2024, and no such royalties were due as of such date
and no milestones were achieved.
In December 2024, we entered into the 2024 Stanford License Agreement.
Pursuant to the 2024 Stanford License Agreement, we are required to pay a license issuance fee of $75,000 and annual license maintenance
fees, beginning on the first anniversary of the effective date of the agreement: $25,000 for each of the first through third years, $50,000
for each of the fourth through sixth years and $65,000 at each anniversary thereafter. We are also obligated to pay clinical development
milestone payments of up to $1.3 million and sales milestone payments of up to $7.0 million in total. We will also pay low single-digit
royalties on net sales of licensed products. All products are in development as of December 31, 2024, and no such royalties were due as
of such date and no milestones were achieved.
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Cash Flows
The following table summarizes our sources and
uses of cash for the periods presented (in thousands):
Year ended December 31,
Net cash used in operating activities $ (62,602 ) $ (52,067 )
Net cash used in investing activities (532 ) (267 )
Net cash provided by financing activities 47,884 100,971
Cash Flows from Operating Activities
Net cash used in operating activities was $62.6
million and $52.1 million for the years ended December 31, 2024 and 2023, respectively.
Cash used in operating activities in the year ended December 31, 2024
was primarily due to our net loss for the period of $71.3 million, adjusted by non-cash net loss of $8.5 million and a net change of $0.2
million in our net operating assets and liabilities. The non-cash amounts consisted of $6.6 million related to stock-based compensation
expense, $1.4 million related to depreciation and amortization expense and $0.5 million non-cash lease expense. The changes in our net
operating assets and liabilities were primarily due to an increase of $2.9 million in accrued expenses and other current liabilities and
a decrease of $0.5 million in other non-current assets, offset by an increase of $2.1 million in prepaid expenses and other current assets,
a decrease of $1.0 million in operating lease liability and a decrease of $0.1 million in accounts payable.
Cash used in operating activities in the year ended
December 31, 2023 was primarily due to our net loss for the period of $64.5 million, adjusted by non-cash net loss of $7.3 million and
a net change of $5.1 million in our net operating assets and liabilities. The non-cash amounts consisted of $5.2 million related to stock-based
compensation expense, $1.1 million related to depreciation and amortization expense, $0.6 million net loss related to the changes in the
fair value of the common stock warrant liability and the earnout liability, and $0.4 million non-cash lease expense. The changes in our
net operating assets and liabilities were primarily due to an increase of $2.8 million in accrued expenses and other current liabilities,
an increase of $2.4 million in accounts payable, a decrease of $0.7 million in other receivables and a decrease of $0.8 million in prepaid
expenses and other current assets, offset by a decrease of $0.9 million in operating lease liability, an increase of $0.6 million in other
non-current assets, and a decrease of $0.1 million in other non-current liabilities.
Cash Flows from Investing Activities
Cash used in investing activities was $0.5 million for the year ended
December 31, 2024, principally consisting of purchases of property and equipment.
Cash used in investing was $0.3 million for the
year ended December 31, 2023, which consisted of purchases of lab equipment.
Cash Flows from Financing Activities
Cash provided by financing activities for the year
ended December 31, 2024 was $47.9 million, which consisted primarily of net proceeds from the issuance and sale of shares of common stock
in an underwritten public offering of $47.2 million, cash received from the exercise of stock options of $0.3 million and cash received
from the issuance of common stock in connection with purchases under our employee stock purchase plan of $0.4 million.
Cash provided by financing activities for the year
ended December 31, 2023 was $101.0 million, which consisted primarily of net proceeds from the issuance and sale of shares of common stock
in an underwritten public offering and the ATM Offering of $101.5 million, cash received from the exercise of stock options of $0.4 million
and cash received from the issuance of common stock upon employee stock purchase plan purchases of $0.1 million, partially offset by taxes
withheld and paid related to net settlement of equity awards of $1.0 million.
97
Critical
Accounting Policies and Significant Judgments and Estimates
Our critical accounting policies are disclosed
in Note 2 of the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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 accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting
periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described
in more detail in Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K,
we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our
consolidated financial statements.
Accrued Research and Development Expenses
We have entered into various agreements with outsourced
vendors, including CROs and CMOs. Research and development expenses are recognized as services are performed and as costs occur. We make
significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust
our accruals. Although we do not expect our estimates to be materially different than the actual amounts incurred, such estimates for
the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in
us reporting amounts that are too high or too low in any one period. Our accrual is dependent, in part, upon the receipt of timely and
accurate reporting from CROs, CMOs, and other third-party vendors. Variations in the assumptions used to estimate accruals including,
but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed, may vary from our
estimates, resulting in adjustments to clinical trial expenses in future periods. Payments made under these arrangements in advance of
the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. To
date, there have been no material differences between estimates of such expenses and the amounts actually incurred.
Stock-Based Compensation
We measure stock-based awards made to employees
and non-employees based on the estimated fair values of the awards as of the grant dates using the Black-Scholes option-pricing model.
The model requires management to make a number of assumptions including common stock fair value, expected volatility, expected term, risk-free
interest rate and expected dividend yield.
Expected Volatility — Expected
volatility is estimated by studying the volatility of the prices of shares of common stock of comparable public companies for similar
terms.
Expected Term — Expected
term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method.
Risk-Free Interest Rate — The
risk-free interest rate is based on the U.S. Treasury zero-coupon issued in effect at the time of grant for periods corresponding
with the expected term of the option.
Expected Dividend — The
Black-Scholes valuation model calls for a single expected dividend yield as an input. To date, we have not declared or paid any dividends.
Common Stock Fair Value — We
estimate the fair value of our common stock based on the closing quoted market price of our common stock as reported on the Nasdaq Capital
Market.
98
We recorded stock-based compensation expense of
$6.6 million and $5.2 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was
$15.0 million of total unrecognized compensation expense, which we expect to recognize over a remaining weighted-average period of
2.59 years. We expect to continue to grant equity-based awards in the future, and to the extent that we do, our stock-based compensation
expense recognized in future periods will likely increase.
Recently Issued Accounting Pronouncements
See Note 2 to the consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding recently issued accounting pronouncements.
Smaller Reporting Company Status
Previously, we were an emerging growth company
as defined by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act exempts emerging growth companies
from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not
had a U.S. Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised
financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply
with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. As of December
31, 2024, we ceased to be an emerging growth company.
We are now a “smaller reporting company,”
as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure
obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250
million as of the last business day of our second fiscal quarter, or (ii) our annual revenue exceeded $100 million during such completed
fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our second
fiscal quarter.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We had cash and cash equivalents of $71.6 million
as of December 31, 2024, which consisted of checking account and money market funds. Historical fluctuations in interest rates have not
been significant for us, and we believe a hypothetical 10% change in interest rates during any of the periods presented would not have
had a material effect on our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. We had
no outstanding debt as of December 31, 2024. To minimize risk in the future, we intend to maintain our portfolio of cash equivalents in
institutional market funds that are composed of U.S. Treasury and U.S. Treasury-backed repurchase agreements or short-term U.S. Treasury
securities.
Foreign Currency Exchange Risk
All of our employees are currently located in the
United States; however, we do utilize certain vendors outside of the United States for our manufacturing of drug substances
and clinical supplies. As such, our expenses are denominated in both U.S. dollars and foreign currencies. Therefore, our operations
are and will continue to be subject to fluctuations in foreign currency exchange rates. To date, foreign currency transaction gains and
losses have not been material to our consolidated financial statements, and we have not had a formal hedging program with respect to foreign
currency. We believe a hypothetical 10% change in exchange rates during any of the periods presented would not have a material effect on our consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Effects of Inflation
Inflation generally affects us by increasing our
cost of labor and in the future our clinical trial costs. We believe that inflation has not had a material effect on our consolidated
financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
99
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
JASPER THERAPEUTICS, INC.
INDEX TO THE FINANCIAL STATEMENTS
Page
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) F-2
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Stockholders’ Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
F-1
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Stockholders of Jasper Therapeutics,
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Jasper
Therapeutics, Inc. and its subsidiary (the “Company”) as of December 31, 2024 and December 31, 2023 and the related consolidated
statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the years then ended, including the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results
of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
Substantial Doubt About the Company's Ability to Continue as a Going
Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company
has incurred significant losses and negative cash flows from operations since its inception that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for
our opinion.
F-2
Critical Audit Matters
The critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee
and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accrued Research and Development Expenses Related to Contract Manufacturing
Organization Activities
As described in Note 2 to the consolidated financial statements, the
Company has entered into various agreements with contract manufacturing organizations (CMOs). As disclosed by management, the Company
relies on CMOs to produce drug candidates in accordance with the U.S. Food and Drug Administration’s current good manufacturing
practices regulations for use in clinical studies. Management makes estimates of accrued research and development expenses as of each
balance sheet date based on facts and circumstances known at that time. Management periodically confirms the accuracy of the Company’s
estimates with the service providers and makes adjustments, if necessary. Research and development accruals are estimated based on the
level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. If the actual
timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly.
The Company recorded $10.1 million of accrued expenses and other current liabilities as of December 31, 2024, a portion of which relates
to accrued research and development expenses related to CMO activities.
The principal consideration for our determination that performing procedures
relating to accrued research and development expenses related to CMO activities is a critical audit matter is a high degree of auditor
effort in performing procedures related to the Company’s accrued research and development expenses related to CMO activities.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among
others (i) evaluating the appropriateness of the method used by management to calculate the accrued research and development expenses
related to CMO activities; (ii) testing the accrued research and development expenses, on a sample basis, by obtaining and inspecting
source documents, such as the CMO contract and invoices, and recalculating the accrued research and development expenses recognized; and
(iii) confirming relevant information, such as key terms and percentage of completion, with the CMO.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 28, 2025
We have served as the Company's auditor since 2021.
F-3
JASPER THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share
data)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 4,174 2,051
Operating lease right-of-use assets 976 1,467
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of operating lease liabilities 1,089 972
Accrued expenses and other current liabilities 10,121 7,253
Non-current portion of operating lease liabilities 724 1,814
Other non-current liabilities 2,264 2,264
Commitments and contingencies (Note 8)
Stockholders’ equity
Total liabilities and stockholders’ equity $ 79,899 $ 94,892
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
JASPER THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(in thousands, except share and per share
data)
Year Ended December 31,